NiSource Inc (NI) — Q4 2018 Earnings Call Transcript

Thanks, Muriel, and good morning, everyone. Welcome to the NiSource fourth quarter 2018 investor call. Joining me today are Joe Hamrock, Chief Executive Officer, and Donald Brown, Chief Financial Officer. The purpose of this presentation, which has slides available on nisource.com, is to review NiSource's financial performance for the fourth quarter and full year of 2018, as well as provide an update on our operations, growth drivers, and financing plans. Following our presentation, we'll open the call to your questions. Before turning the floor over to Joe and Donald, just a quick reminder: some of the statements made during this presentation will be forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risks and uncertainties is included in the MD&A and Risk Factors sections of our periodic SEC filings. In addition, some of the statements made on this recording relate to non-GAAP measures. For additional information on the most directly comparable GAAP measure and a reconciliation of these measures, please refer to the supplemental slides and additional segment information, including our full financial schedules available at nisource.com. With all that out of the way, I'd like to turn the call over to Joe.

Thanks, Randy. Good morning, everyone, and thank you for joining us. 2018 was one of the most challenging years in NiSource's history. Recovery from the tragic event in the Greater Lawrence, Massachusetts area has been our major focus since September 13th. Additionally, 2018 was a year of continued execution on our core business plan across our entire service footprint, which I'll touch on later. First, I'd like to provide a progress report on our continued recovery efforts in the Merrimack Valley. I am deeply grateful for the dedication of the thousands of people who came together to carry out our restoration efforts. And for the resilience and spirit of the people of the Merrimack Valley, who have been tremendously gracious to all those who came to aid in the restoration. We reached a major milestone in mid-December with gas service restored to nearly all customers. Our focus on supporting our customers in those communities continues. Once gas service was restored, we immediately moved into phase two of the effort with long-term commitments to restoring property in streets and continued engagement with the Greater Lawrence community. We continue to have resources in the area to provide support and services to customers in the three municipalities. We put in place a new leadership team dedicated to support our ongoing restoration efforts. We remain humbled by the events and we're engaged in extensive efforts to further enhance the safety and reliability of our gas distribution systems, not only in Massachusetts but across our seven-state footprint. As I mentioned on our third-quarter call, we have committed to install over-pressurization protection, automatic shut-off devices on every low-pressure system across our seven-state operating area. These devices operate like circuit breakers. They are designed so that when the sensor operating pressure is too high or too low, they immediately shut down gas to the system regardless of the cause. We've started installing these systems and this work, initially estimated at $150 million, is a top priority. We've also committed to adding additional remote monitoring capabilities on all low-pressure systems. These will allow us to see more comprehensive details on how our systems perform and will alert us immediately in the event of abnormal system performance. By integrating these advanced tools, our team will have a more precise view into the current status of our system, allowing employees in our gas control center to better coordinate with employees in the field and enabling us to respond more quickly in the event of any irregular system activity. As part of our continuing damage prevention efforts, we further enhanced our damage prevention practices around low-pressure regulator stations, including field inspection and monitoring of third-party excavators. These enhanced work practices were implemented across all of our states by the end of 2018 to help reduce the risk of facility damage. We took other steps immediately following the September 13th event, including a field survey of all low-pressure regulator systems to identify all options to enhance safe and reliable operation, an engineering design review of all regulator stations, and the addition of new details to our electronic mapping systems, which is easily accessible to all our field and engineering employees. Our efforts to guard against future incidents extend beyond the work we're doing with our low-pressure systems. We're accelerating the implementation of the safety management system, or SMS, across our seven states. Safety management systems have been used successfully by the airline industry to achieve a continued decrease in accidents despite a significant increase in flight hours since the 1990s. Our SMS is aligned with the framework developed for pipeline operators by the American Petroleum Institute. This framework helps identify and manage risks, communicate with stakeholders, ensure effective operation of key processes, promote a learning environment, and continuously improve pipeline safety and integrity. We launched SMS in Virginia and Indiana well before the Lawrence incident, and we since accelerated its implementation across the NiSource footprint. The scope of our SMS deployment is substantial. We have assembled a cross-functional team of employees across NiSource with consultants and advisors who provide expertise in safety management systems in the gas industry and other industries. Hundreds of people are involved, and we have appointed a Senior Executive to a new position dedicated to SMS implementation. We're also standing up a quality review board to provide independent review of our SMS implementation. The board will include highly experienced professionals from diverse backgrounds in gas operations and other industries, including aviation and nuclear generation. We expect to announce the members of the quality review board, as well as additional details about our SMS implementation, in the coming weeks. Let's now turn to Slide three, which outlines some of the ways NiSource delivered on key objectives in 2018. Our non-GAAP net operating earnings were $1.30 per share for the year versus $1.21 in 2017, which was in the top half of our 2018 guidance range. We began repositioning our Indiana electric business with the submission of a long-term plan to transition our generating fleet away from coal to lower-cost renewable energy resources beginning in 2023 and becoming coal-free by 2028, saving customers an estimated $4 billion over the long-term. We invested $1.8 billion in our regulated utility infrastructure in 2018, including accelerated mainline replacement in the Greater Lawrence area. NiSource replaced more than 430 miles of natural gas pipelines, including 302 miles of priority pipe, as well as 64 miles of underground electric cables and more than 1,300 electric poles to enhance system safety and reliability. We added approximately 27,000 net new gas customers, driven by increased convergence to natural gas from other fuels and healthy housing markets. We successfully implemented Federal Tax reform with all customers now enjoying savings made possible by lower corporate income tax rates. Our state-of-the-art training centers opened in Massachusetts and Virginia, completing the four centers we announced in 2016 and enhancing training for our gas operations employees and local first responders. A new capital expenditures program rider was approved in Ohio, allowing for cost recovery to begin on significant capital investments not being recovered through the existing infrastructure modernization tracker. Our team continued its solid execution of regulatory initiatives, including gas base rate case settlements in Indiana, Maryland, and Pennsylvania, and filing a gas base rate case in Virginia and an electric base rate case in Indiana. As you can see, NiSource continued to execute on planned investments and initiatives in 2018, and we're taking prudent steps to ensure the sustainability of our business for years to come. Turning our focus to 2019, we're initiating non-GAAP net operating earnings guidance at $1.27 to $1.33 per share for the year, and we expect to make $1.6 to $1.7 billion in capital investments. Our 2019 earnings guidance, which falls short of our long-term earnings growth forecast, reflects the near-term impact of financing the Greater Lawrence restoration, expenses associated with accelerating the enterprise-wide SMS implementation, and increased pension costs related to market volatility in late 2018. From 2019 forward, we expect to grow our non-GAAP earnings and dividend by 5% to 7% annually through 2022, a two-year extension of our prior long-term growth forecast. We expect to make capital investments of $1.6 billion to $2 billion annually from 2020 through 2022. We're confident our resilient infrastructure investment programs will continue to deliver value for all our stakeholders with safety enhancements to our customers and communities and long-term financial growth for investors. Now, I'd like to turn the call over to Donald who will discuss our financial performance in more detail.

Thanks, Joe, and good morning, everyone. Before talking about our non-GAAP earnings, I just like to note that our 2018 GAAP results include our emergency response, system restoration, and other expenses associated with the Greater Lawrence incident. Additionally, our current total estimates are significantly higher than estimates we provided with our third-quarter results. We now estimate the total expense related to the Greater Lawrence incident is approximately $1.1 billion. We also estimate $220 to $230 million in capital costs related to the distribution system replacement and associated restoration in the impacted communities. I would note that the prior estimates we provided were compiled in the early weeks after the incident before the complexity of the in-home restoration process was fully known. With service restored to substantially all customers in mid-December, we believe a bulk of the restoration costs are behind us. We have $800 million of casualty insurance coverage and $300 million of property insurance that we expect will recover a substantial portion of these costs. We started submitting claims in December and have recorded insurance recoveries of $135 million, which includes $5 million already collected during 2018. As the insurance recovery process moves forward, we plan to provide quarterly updates on our progress. More details of our current estimates are available on Slide 12, as well as schedule two of our earnings press release. Looking at our 2018 results on Slide 4, we delivered non-GAAP net operating earnings of about $463 million or $1.30 per share compared with about $398 million or $1.21 per share in 2017. The biggest driver of our financial performance continues to be the impact of our long-term infrastructure modernization investments, supported by constructive regulatory outcome and established infrastructure trackers. Let's turn now to non-GAAP financial results for our business segments. Looking at Slide 6, our gas distribution and operations segment had operating earnings of about $565 million for 2018 compared with about $591 million in 2017. Operating earnings excluding the regulated revenue impact of tax reform were about $84 million more than a year, driven primarily by regulatory outcomes. Our electric operations segment, covered on Slide 7, reported operating earnings of about $369 million for 2018 compared with operating earnings of about $379 million in 2017. However, excluding the regulated revenue impact of tax reform, electric segment operating earnings were about $39 million more than a year ago, driven primarily by lower O&M expenses offset somewhat by lower industrial usage. Now turning to Slide 8, I'd like to briefly touch on our debt and credit profile. Our total debt level as of December 31st was about $9.1 billion, of which about $7 billion was long-term debt. The weighted average maturity on our long-term debt was approximately 19 years, and the weighted average interest rate was approximately 4.6%. At the end of the fourth quarter, we maintained net available liquidity of about $1 billion, consisting of cash and available capacity under our credit facility in our accounts receivable securitizations. Our credit ratings from all three major rating agencies are investment grade, and we're committed to maintaining our current investment grade rating. I'd now like to turn to Slide 9, which covers our financing plan for our long-term growth investments. I would note that our current financing plan can change based upon the timing of cash proceeds of insurance recoveries expected in 2019 and 2020. Our current plan continues to include annual equity in the range of $200 million to $300 million from the market or ATM equity issuance program and $35 million to $60 million from our employee stock purchase and other programs, plus incremental long-term debt. As you know, we filed an ATM program with the SEC on November 1st. This is consistent with our approach to provide balanced predictable financing for our infrastructure investments. The current ATM program allows us to issue up to $500 million in equity through the end of 2020. Execution of our financing plan is expected to enhance our credit profile by strengthening our funds from operations to debt metric to the 14% to 15% range in 2019 and beyond. I would note that adjusting for the Greater Lawrence event we would have exceeded our 13% FFO to debt metric target in 2018. Now, I'll turn the call back to Joe, who will discuss a few infrastructure investment and regulatory highlights.

Thank you, Donald. Now, let's turn to some specific highlights for the fourth quarter of 2018 and the early 2019 from our gas operations on Slide 10. In Ohio, we received regulatory approval of our new annual capital expenditure program rider, which took effect with the December billing cycle. The approved $75 million rider allows us to begin recovering capital investments and other deferred expenses made between 2011 and 2017 that are not recovered under our infrastructure modernization tracker. Rates will be adjusted annually. The approved settlement benefits customers through reduced rates and bill credits related to federal tax reform. In Pennsylvania, we received regulatory approval of our base rate case settlement, and new rates took effect in December. The settlement supports continued system upgrades and replacement of the natural gas distribution pipeline, provides customers with the benefits of tax reform, and is expected to increase annual revenues by $26 million. In Indiana, on March 1st, we'll implement the second of three steps in new gas distribution rates authorized by the IURC in our gas base rate case. The first step took effect on October 1st, following IURC approval of the settlement, which supports continued investments in system upgrades, technology improvements, and other measures to increase pipeline safety and system reliability. When new rates are fully implemented in January 2020, annual revenues are expected to increase by approximately $107 million, reflecting the benefits of federal tax reform. Also in Indiana, we continue to execute on our long-term gas modernization program with investments planned through 2020. We received regulatory approval of our latest tracker update request in December. And consistent with our long-term capital plan, on December 31st, we filed with the IURC, a FIMSA compliance plan covering approximately $230 million of capital expected to be invested between 2019 and 2023. We expect an order in the second half of 2019. In Maryland, we received regulatory approval of the settlement in our base rate case. The new rates took effect in November. The settlement is expected to increase annual revenues by $3.8 million, including $1.6 million of current infrastructure tracker revenue and supports continued replacement of gas pipelines and pipeline safety upgrades. In Virginia, new rates went into effect subject to refund with the February billing cycle in our base rate case, which remains pending before the Virginia State Corporation Commission. Filed in August 2018, our request seeks to recover costs associated with ongoing infrastructure investment programs and to incorporate changes from federal tax reform. If approved as filed, the request is expected to increase annual revenues by $22.2 million, including $8 million in revenues currently collected through our infrastructure tracker. We expect the commission order in the second half of 2019. Now, let's turn to our electric operations on Slide 11. On February 1st, we made filings with the IURC seeking approval to develop three wind farms in Indiana in partnership with experienced renewable energy developers. The three projects, Jordan Creek, Roaming Bison, and Rosewater, have nameplate capacity totaling 800 megawatts and are expected to be in operation by late 2020. These filings are consistent with our 2018 Integrated Resource Plan, submitted to the IURC in October. The IRP calls for the retirement of nearly 80% of our remaining coal-fired generation capacity in the next five years, and all coal generation to be retired by 2028. The replacement capacity portfolio is still being fully defined, and options point toward lower-cost renewable energy resources, such as wind, solar, and battery storage technology. We expect to announce additional renewable projects and issue a second request for proposals later this year. Our goal is to transition to the most economical cleanest electric supply mix available, while maintaining reliability, diversity, and flexibility for technology and market changes. Our electric base rate case remains pending before the IURC. Filed in October 2018, the request seeks changes to our depreciation schedules related to the early retirements of coal-fired generation plants called for in the IRP, as well as changes in tariffs to provide service flexibility for industrial customers. It also reflects the impact of federal tax reform. If approved as filed, the request would increase annual revenues by approximately $21 million. An IURC order is anticipated in the third quarter of 2019 with rates effective in September 2019. Our approximately $193 million coal combustion residuals capital projects are progressing. Two of the units with the largest CCR projects are in service, with the last unit scheduled to be in service in the first quarter of 2019. These projects include environmental upgrades at our generating facilities to meet current EPA standards. The IURC, in December 2017, approved this settlement authorizing these projects and recovery of associated costs. We continue to execute on our seven-year electric infrastructure modernization program, which includes enhancements to our electric transmission and distribution systems designed to further improve system safety and reliability. The IURC approved program represents approximately $1.2 billion of electric infrastructure investments expected to be made through 2022. We received regulatory approval in November of a settlement in our July 2018 tracker update request, which included a base rate refund to customers related to federal tax reform. We filed our latest tracker update request in January, covering approximately $59 million in incremental capital investments made from June 2018 through November 2018. Before we turn to your questions, I'd like to leave you with some key takeaways about NiSource. We remain steadfast in our commitments to our customers in the impacted communities in the Merrimack Valley. We have a dedicated team and resources in place to complete the next phase of restoration, and we have a more complete picture of the total restoration costs. Safety remains the foundation for all that we do for our customers and the communities we serve. We're engaged in extensive efforts to enhance the safety and reliability of our gas distribution systems across our entire seven-state footprint. We expect to deliver non-GAAP net operating earnings in the range of $1.27 to $1.33 per share and to make $1.6 billion to $1.7 billion in capital investments in 2019. Our long-term growth plan is intact and resilient. While we face some near-term headwinds in 2019, we expect to grow both net operating earnings per share and our dividend by 5% to 7% annually from 2019 through 2022, a two-year extension of our previous long-term forecast, and we expect to maintain our investment-grade credit ratings. We remain focused on executing our core investment-driven business plan across all seven states. Thank you all for participating today and for your ongoing interest in and support of NiSource. We're now ready to take your questions. Muriel?

My first question just has to do with the capital expenditures, Slide number 14, showing that you have additional spending out in the 2020 to 2022 range of $1.6 billion to $2 billion. So the capital spending, is that reflective of where you think the IRPs are going to land and how the spending will turn out as a result of that process?

So if you look at the capital and the growth up to $2 billion annually is really around two things. Part of it is in the electric business where we need to invest in transmission as we transition from the coal plants to the renewable plants in 2023 when those projects go online. I think the other large part is around some infrastructure investments to increase our gas line capacity in Ohio, so it's really transmission lines on Columbia Gas of Ohio over a couple of years, because we've had customer growth and we need to increase the capacity there. And then the third item is around some infrastructure or IT systems that we plan to modernize, really our core operating systems, our billing, our work management, and asset management systems. So that's really the three big drivers of the growth in annual CapEx over that time period.

So what I would add though is if you think about the actual generation investments in wind and in solar that we're expecting, that really is 2023 timing. What we're doing now that we've executed on three agreements on renewables, two of those are PPAs, the third is a joint venture that we would make an investment in. Because of our NOL, current status of our NOLs, we can't take advantage of the wind tax credit, and so we have entered into tax equity type structures. That would allow us, our customers, to enjoy the tax benefits from an equity investor. And then our investment would come later in 2023, which is after our guidance. So as we get more projects signed up for the ultimate investments in 2023, we'll be able to provide guidance on what the total investments would be then.

Maybe you can just comment about how the higher spending levels after 2020 will affect both equity issuances and expected equity. Can you maintain this through the ATM? Can you continue to fund through the ATM and internal programs? And then also how it might affect where you will land in the 5% to 7% growth range after 2020?

So the financing plan we've got here through 2022 to $200 million and $300 million annually includes all those assumptions around this financing, as well as the higher CapEx included in our plan. The ATM program, as you know, is a $500 million program. If you think about it $200 million to $300 million a year, that really would afford us for a couple of years of our equity needs to establish another…

But regarding the earnings growth rate of 5% to 7%, could it be reasonable to conclude that you might be at the upper end of that due to the higher spending rates?

I think it's too early to provide specific guidance. We have discussed our earnings guidance as being based on annual current earnings, and the 5% to 7% range is based on 2019 figures. Once we have the data for 2020, we will be able to offer updated guidance. However, there is certainly potential within that range. Our earnings are influenced by regulatory outcomes and infrastructure programs, so I cannot provide guidance beyond our current position.

And just one last question and I'll let you go to other people. In Massachusetts, what's the timing you think on how you're making a decision on when to file a new rate case there, or any other strategic considerations being considered at this time at the board?

Our ultimate regulatory plan for CMA will be developed after we ensure full restoration and recovery in Merrimack Valley. So I'd expect to hear more on that later this year, possibly even in the next year. It is important to note that the interplay between resolution of claims and restoration activity is going to be important to resolve before we fully contemplate regulatory activity related to our work in CMA.

This is actually Ritchie here for Julien. I just had a quick question, more of a housekeeping question. But are you going to still be hosting the Analyst Day sometime this year?

We're likely not going to do the mid-year Analyst Day that we had previously talked about. We'll work our way through the 2019 activities and look for an update on that later this year.

And that was one of the reasons that we wanted to provide longer-term guidance here on this call.

I know you guys always tend to do pretty conservative, and it seems like some of the things that caused this dip below your prior trajectory are temporary. Is there a chance you could get back up to that EPS trajectory before March?

You're right that some of what we're working through is temporary in nature, a lot of it related to financing the claims, and the investments in our safety initiatives this year. We'll stick to the 5% to 7% guidance off of 2019 that we've talked about here today and not try to get into longer-range projections of how that might play out.

Subbing in for Insoo here. One or two questions I want to make sure I understand a few things. First of all, the 5% to 7% and this may be a little piggybacking, but you mentioned in as earnings growth rate. Historically, you would always say earnings per share or EPS growth rate. I assume you're referring to EPS growth when you use that data. Or is there going to be a difference between the net income growth rate and the earnings per share growth rate?

Thank you for clarifying that. That is 5% to 7% earnings and dividends, so it's EPS and dividends growth rate.

The other thing is just curious related to Greater Lawrence. Third-party claims obviously make up the largest percentage of the $1.1 billion or so of costs. Just how are you guys thinking about when you will have certainty around that? If I remember correctly, customers have an extended period of time before they hit a deadline when they have to file claims. Can you remind us of what is that timeline and when will that timeline allow you to have greater certainty about the total claim level?

So customers have a couple of years, and I don’t know exactly what their time period is to file claims from the event. We've certainly restored nearly all of our customers to have gas service. The bulk of our expenses are behind us. We've got some restoration to do this summer once the winter ends around streets and savings. There are also some appliances that we need to replace that we only fixed for some of the customers' appliances in the fall and winter time period, and promised them we would come back and replace those appliances in the summer. As I look at what's left, it really is a much smaller part of our total expected $1.1 billion in expenses.

Meaning you don’t think that $1.1 billion expense number changes a lot relative to what's already been filed by customers?

No, I don’t expect that number to change significantly.

And then just last item, of all those expenses that you outlined on Page 12, how much of those have you actually paid out in cash versus future cash payments you might make down the road?

We have paid out most of it and I estimate that we are probably close to $1 billion, with 75% of the expenses already disbursed.

So that $1.2 billion, $1.3 billion outlined on Page 12, you've paid out 75% of that number since the August and September event?

That's correct.

I want to clarify Michael's question regarding insurance. When examining the amounts you might under-recover in relation to your policies, it can affect your potential additional equity needs and what is incorporated in your growth plan. You have about $800 million in liability insurance and $300 million for property insurance, with total expenses around $1.1 billion. Some of those expenses may not relate to property insurance, which means there is a chance you could under-recover slightly compared to what you have access to. Also, there are defenses that insurance companies might present. What factors should we consider regarding additional equity if there is any under-recovery? As you assess your growth rate, what are you factoring in for recoveries and amounts that might not be recoverable?

So based upon our conversations with our insurance providers, and we're working through it. As you can expect, we've got a tower of insurance providers in the $800 million and one insurance provider in the $300 million property. We've got to work through each one of them to submit and substantiate claims, and that's going to be a lengthy process. So it’s hard for me at this point to give an exact estimate of what we will recover through that process. However, we did hire an outside firm who specializes in claims. They were actually on-site in early September to help make sure we have the right information in the right format to expedite this process. As I think about that from a financing standpoint and our expectations, that's embedded in our financing plan, which includes the $200 million to $300 million of equity a year. The only caveat to that is part of that timing of recovery of the insurance proceeds could impact the timing of when we need equity to ensure that we hit our target ratings or target metrics. But on average, the $200 million to $300 million is what our expectations are for equity needs.

And then under any scenario, at least through 2020, you don't see the need to issue any block deals?

No, there are no block deals planned at all.

Could you please repeat the updated estimates? You've clearly outlined the estimated costs related to Greater Lawrence on Page 12, and you've also mentioned your efforts across the entire gas system to ensure safe and reliable operations. There have been increases in operating costs and capital costs throughout the system. Can you go over those incremental costs again, please?

Yes, that’s correct, Greg. In the 2019 guidance, not only do we reflect the financing costs related to the cash flows from the Greater Lawrence incident but incremental spending to accelerate our safety management systems implementation, that's an effort that have started. Over a year ago, we have accelerated that substantially, brought in outside experts. So you see a few cents inside that guidance that are related to the one-time startup costs to accelerate that. Those won't stick for the long term, but they really do have an impact in 2019 as it relates to the acceleration. We do expect, as we've noted before, flat O&M across the board. But if you look below at the segment level, you will likely see some incremental O&M on the gas segment related to the safety initiatives. Of course, our electric business is repositioning, so that O&M and profile will change as well. And then at corporate, we continue to look for opportunities to consolidate platforms. Donald mentioned some incremental IT spending in the out years of the plan here related to modernization of those systems as well. So a number of different moving pieces inside all that but that's the biggest one in 2019.

So really it's around pension expense being higher because of the lower returns in 2019.

I'm a bit unclear about the O&M situation. It's definitely wise to prioritize safety and reliability to the necessary level. If increased spending is required in the short term, that's justifiable. However, this implies that O&M will rise in the short term but should remain stable in the long term. Or are adjustments being made to keep it steady, considering you mentioned a slight change in the new guidance, which suggests that O&M is actually increasing rather than remaining flat?

We were expecting and guiding flat O&M across our planning horizons. There are some offsets within our corporate and electric business that will have lower O&M that will offset some of the investments we're making on the gas side.

I understand that you provided a growth guidance of 5% to 7% for earnings and the dividend, which is based on the 2019 guidance range. However, the 2019 guidance is essentially unchanged from the 2018 guidance given last year, where you projected a 5% earnings growth based on that. This means we have effectively lost a year of earnings growth due to the impact of the Greater Lawrence event. Unless you are suggesting that the factors negatively affecting 2019 are only temporary, I want to clarify if this is a performance issue or something else.

So earnings growth, the 5% to 7%, is off of the new 2019 guidance of $1.27 to $1.33. There are costs around financing. The insurance receivable recovery process that are impacting 2019 and will flow into 2020, similarly as Joe said on our safety investments and SMS, those are costs that we are incurring in 2019. We'll be to some extent going forward costs and safety and reliability in the gas business going forward. Hopefully, we helped clear it up. I agree that we have lost the year, because of the incremental costs and investments that we are making, but long-term we get back to our 5% to 7% annual growth.

And also just last question on that front. The updated guidance reflects some estimates for convertible subordinated debt or preferred equity, because you have TBD there on Page 9, as it relates to financing these costs. So Shahriar asked you about common equity, which you said is absolutely not in the plan, and I appreciate that. But some of the incremental convertible subordinated debt or preferred equity is in the plan, and that will be sized based on your cash flow needs as you work through these payments and the recovery of insurance claims. Is that a fair way to summarize it?

So yes, certainly we'll continue to evaluate the use of preferred equity or junior subordinated debt. We have not in the past done convertibles, and that's not something that we are currently looking at to include in our capital plan or our financing plan.

I misread the slide, this is non-convertible. I apologize. Thank you guys, have a great morning.

If I could ask a question on your reconciliation of adjusted operating income to GAAP. In the fourth quarter, you had $3.9 million due to the Greater Lawrence incident. Looks like it's just non-billed sales for customers. I assume that that's not covered by any business interruption insurance or anything like that. And then related to that is the $10.4 million in the fourth quarter for charitable contributions. Will that continue in the 2019 expenses like that that are going to be considered special incident or special expenses related to the Greater Lawrence incident?

So, let's start with the charitable contributions. We'll continue to evaluate our charitable investments that we make in communities right now. We don't have anything significantly planned to discuss and break out. So that will continue as we progress with our efforts in the Merrimack Valley. Your other question was around insurance on business interruption insurance. So no, there is no business interruption insurance for lost revenues for the customers that we weren't charging during the event.

So even if those numbers continue, the numbers we saw in the fourth quarter are likely to be a peak and they'll head lower?

No, we wouldn’t expect to see that going forward.

And then another second question, capital expenditures I'm looking at Slide 14, those bars or the segments in those bars moved upward. In other words, you're getting faster recovery. I'm assuming that's the impact of the Ohio legislation. Is that correct?

Yes, we were always about 75% in that 70% to 80% range being recovered within 12 months. The 2018 chart includes the investments in the Merrimack Valley, and so that one is a little bit higher going through a rate case at 31% there. Going forward we're back in that range around 75%, and that is helped by the Ohio CEP program.

Well, in 2022 on Slide 14, you're now about 19% of your investment is collected within three months, your long-term used to be about 16%. That's driven by Ohio correct?

Not that, it's really growth. If you think about that green bar, it is customer growth. We continue to see progress on our customer growth efforts and seeing that those investments grow over time to get us to our 1% net annual customer growth.

Thanks, Muriel, and thank you all for participating today and for your ongoing interest in and support of NiSource. Have a great day.