NiSource Inc (NI) — Q2 2025 Earnings Call Transcript

Thank you, Bella. Good morning, and welcome to NiSource's Second Quarter 2025 Investor Call. Joining me today are President and Chief Executive Officer, Lloyd Yates; Executive Vice President and Chief Financial Officer, Shawn Anderson; Executive Vice President of Technology, Customers and Chief Commercial Officer, Michael Luhrs; and Executive Vice President and Group President of NiSource Utilities, Melody Birmingham. Today, we'll review NiSource's financial performance for the second quarter and share updates on operations, strategy, and growth drivers. We'll open the call for your questions after our prepared remarks. Slides for today's call are available in the Investor Relations section of our website. Some 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 Risk Factors and MDA sections of our periodic SEC filings. Additionally, some statements made on this call relate to non-GAAP earnings measures. Please refer to supplemental slides, segment information, and full financial schedules for information on the most directly comparable GAAP measure and a reconciliation of these measures. With that, I'll turn the call over to Lloyd.

Good morning, everyone. Let's begin on Slide 3. At NiSource, our mission remains clear and consistent: deliver safe, reliable energy that drives value to our customers. We do this through disciplined capital deployment, operational excellence, and fostering constructive regulatory relationships. We believe these fundamentals will continue to drive strong results, balance sheet strength, and a dependable dividend. These principles form the cornerstone of NiSource's business strategy, consistently providing excellent value to shareholders. By focusing on regulated utility operations in high-quality regions, maintaining diversity across areas and energy types, and disciplined capital investment, NiSource continues to excel. Turning to our key priorities on Slide 4. Our constructive regulatory foundation is further evidenced by having received final orders in Virginia and Indiana this quarter. Our ongoing focus to refine our operations through AI efficiency and continuous improvement initiatives is transforming the way we work. We're pleased to report second quarter adjusted EPS of $0.22, bringing our year-to-date total to $1.19. This performance keeps us firmly on track to deliver on our full year commitment. As a result, we are narrowing our 2025 adjusted EPS guidance to the upper half of the previously stated range of $1.85 to $1.89. Let's move to Slide 5. Our operational excellence differentiates us. We are rapidly advancing our internal AI capabilities to transform how we operate and create a sustainable competitive edge at NiSource. Our work management intelligence solution is now fully deployed across all NIPSCO and Columbia operating companies, delivering up to 24% improvement in steel productivity, equivalent to more than 83,000 incremental work hours through smarter analytics-driven scheduling and greater efficiency in dispatch time. Building on this success, we are expanding AI into other critical areas of the business. In supply chain, we have launched a generative AI-powered analyst initiative to transform procurement processes, unlocking greater efficiency and deeper insights by leveraging the full scale of the NiSource platform. We are also exploring how AI can support system reliability and improved storm response during severe weather events. AI and analytics are becoming foundational to how we deliver value. We remain committed to scaling these capabilities to optimize performance, elevate service, and support our long-term strategic goals. Using our advanced mobile leak detection capabilities to address large volume leaks across our territory, we completed 9,966 miles of leak survey in the second quarter, bringing our total miles driven to 18,665 year-to-date, exceeding our goal. We also launched the final phase of our Work & Asset Management, or WAM. This marks a major milestone in our digital transformation. The WAM program delivers enterprise impact reaching nearly 5,000 end users. It has converted over $500 million records and integrated data from 23 host systems, thus underscoring the scale and complexity of this initiative. We have now successfully standardized how we manage field work and assets across the enterprise, improving asset visibility, streamlining scheduling, and enabling real-time decision-making. On Slide 6, we continue to make strong progress on our regulatory agenda. Since our last call, our Virginia rate case was approved. The final order authorized a $40.7 million revenue increase and a 9.75% ROE with rates already in effect. This outcome supports $442 million in investments from 2023 through 2025, including critical safety, compliance, and reliability capital additions. It also reflects our continued ability to work constructively with stakeholders to deliver timely and balanced outcomes. In Indiana, our NIPSCO Electric rate case was approved in June, providing $257 million in revenue uplift. This marks our seventh settlement in the last 10 years across both electric and gas businesses in the state. These outcomes reinforce the strength of our stakeholder relationships and the predictability of our regulatory environment. Our work in Pennsylvania continues to demonstrate the value of our risk-reduction strategy and alignment with stakeholders. We continue our track record of constructive regulation working through our rate case, expecting a final order in the fourth quarter. Building on our regulatory momentum, we are also advancing initiatives that support broader economic development. These efforts strengthen our existing communities by expanding the customer base and helping to distribute fixed costs more efficiently. For example, our team strategically revitalized a dormant point of delivery station in Skippers, Virginia, unlocking the capacity to support two new industrial customers. Both companies are leaders in sustainable innovation: one transforming municipal waste into renewable energy and the other repurposing coal ash through advanced recycling processes. This initiative not only reactivates critical infrastructure but also drives forward environmentally responsible industrial growth. NIPSCO continues to drive strategic growth across the service territory, supporting a diverse range of new developments in advanced manufacturing, logistics, and technology. Notable projects include GI Tech's first U.S. manufacturing facility in Merrillville, Slate Automotive's 1.4 million-square-foot electric truck plant in Warsaw, and FedEx's $60 million investment in a new distribution center in Gary, collectively projected to generate over 2,600 jobs. These investments underscore the state's emergence as a hub for innovation, sustainability, and workforce development. Now, before I hand it off to Shawn, I want to give you an update on our strategy to support data center development in Northern Indiana. Our application to the IURC to support the GenCo operating model remains under review, and the settlement modification on July 18 was further evidence of our ongoing efforts to address stakeholder concerns. We continue to believe GenCo offers a compelling option to meet data center needs while also driving differentiated value to the region, including our existing customers. We still expect no order in the third quarter. Regarding our data center engagement, we continue to have constructive dialogue with a range of counterparties interested in the compelling fundamentals, which our service territory can provide for data center investment. We know well that the state of Indiana is great for energy development. We are excited about the prospects our strategy can provide to new customers and the growth it could bring to the state and our local communities. Our team is very focused on maximizing this opportunity for the many stakeholders involved: our existing customers, our communities, our policymakers, and of course, our shareholders. We remain hard at work to convert this opportunity into a reality and continue to believe we are on track. Shawn, I'll now turn it over to you.

Thanks, Lloyd. I'd like to start on Slide 7. Our generation transition began in 2019 with the launch of a multiyear strategy to enhance energy capacity and improve our energy footprint in Indiana. As part of this initiative, we executed a series of strategic projects that have significantly expanded our renewable energy portfolio. This includes short-term contracted capacity resources, expanded demand-side management programs, solar facilities, battery storage, and new natural gas peaking resources. Today, the portfolio is nearly complete, with Gibson approaching finalization and Templeton Wind progressing according to schedule, on track for commercial operation in 2027. We are proud to report we've been able to deliver these investments on time and within budget, a testament to our disciplined planning and execution. Our ability to successfully execute this large-scale multiphase initiative not only demonstrates our operational excellence, but also reinforces our confidence in tackling complex endeavors, particularly when called upon to enhance the safe and reliable energy delivery to our communities. With the same strategic rigor and commitment to execution, we are well positioned to deliver resilient infrastructure, which supports increasing energy demands while managing stakeholder needs. With this in mind, I'd like to briefly address two policy-related items, which relate to our financial strategy and our infrastructure development plans. First, the recently enacted One Big Beautiful Bill does not impact our renewable development project plans. The remaining project scheduled to come online after 2025 is Templeton with a commercial operation date in 2027, and importantly, it still qualifies for tax credits under IRC Section 45. Second, as we discussed in our Q1 earnings call, we remain on track to retire Schahfer by the end of 2025 and Michigan City by the end of 2028. We are continuing to work with policymakers to evaluate alternatives to this plan, including the potential to utilize these facilities on an extended timeline. We'll work closely with federal and state regulators to ensure we make decisions that are in the best interest of our customers and all stakeholders. Our capital investment outlook shown on Slide 8 emphasizes the flexibility across our portfolio as we assess the best fit plans for our stakeholders. Our $19.4 billion 5-year capital plan remains diversified and executable. We are not reliant on any single project or technology. Our growth across six states demonstrates the strength and diversification of investment driving our best-in-class development plans. In addition to the substantial electric generation investments I highlighted a moment ago, 48% of our base plan is attributed to gas system hardening, supporting the modernization of our gas infrastructure. Our ability to allocate capital across states and between gas and electric enables NiSource to optimize recovery and respond dynamically to evolving needs. Additionally, we continue active engagement to advance the commercial development of over $2 billion of identified upside projects and look forward to sharing a more comprehensive update during our third quarter plan refresh. Beyond these plans, Slide 9 highlights our incremental investment opportunities: data center generation and T&D facilities, MISO transmission, FIMSA compliance, and more. These are not included in our base or upside plans but represent meaningful long-term value creation opportunities. We are working to commercialize these initiatives while building the investment thesis with stakeholders to optimize the value these opportunities can create. Turning to Slides 10 and 11. Our second quarter adjusted earnings per share was $0.22, and $0.01 above the same period last year. Year-to-date, adjusted EPS was $1.19, up $0.13 from the same period last year. This growth is driven by strong performance in both our NIPSCO and Columbia segments, which continued to outperform expectations. Our commitment to operational excellence through initiatives like Project Apollo and WAM has enabled our businesses to deliver consistent and high-quality results. We are reaffirming all long-term financial commitments on Slide 12: 6% to 8% annual adjusted EPS growth, 8% to 10% rate base growth, and 14% to 16% FFO to debt through 2029. Additionally, we are narrowing our 2025 adjusted EPS guidance to the upper half of the range. We've seen growth in our economies driving tailwinds into year-to-date results from increased customer count and usage, as well as constructive financing success and regulatory execution. Our plan is built on a realistic foundation and modest demographic growth assumptions. We are seeing strong tailwinds across our jurisdictions. For example, metro growth in Columbus, Ohio, was 38% higher than the national average last year, and we're observing similar trends in other parts of our service territory. Over the trailing 12-month period ending in June, we observed customer growth at nearly 1% in our electric business and 0.6% in our gas business, both surpassing our forecast. Let's turn to Slide 13. In the second quarter, we advanced our financing plans with the issuance of $1.65 billion of senior notes. This builds on our first quarter activity and positions us well to meet our 2025 funding needs while maintaining our 14% to 16% FFO to debt target. Over the summer, S&P, Moody's, and Fitch each completed their annual credit reviews and reported no changes to ratings and maintained stable outlooks, which reflect the strong credit profile of NiSource. We believe the successful refinancing of our $1.25 billion August maturity effectively eliminates any near-term refinancing risk. This proactive step not only secures our capital structure but also reinforces our financial flexibility and stability. With this transaction behind us, our forward-looking debt profile is significantly derisked, and we now face minimal refinancing exposure in the foreseeable future. This positions us to focus on strategic growth initiatives with confidence backed by a strong and resilient balance sheet. We use practical interest rate assumptions in our plan despite a persistent high-rate environment. And the economic growth across our service territories continues to advance. These fundamentals give us confidence in our 2025 earnings outlook and leaves NiSource well positioned to deliver strong financial results as we narrow to the upper half of our 2025 adjusted EPS guidance range. We continue building a track record of execution and growth on Slide 14. Our commitment to investors, employees, customers, and all our stakeholders is central to everything we do. Our regulatory execution, year-to-date financing activity, and thoughtful investment plans position us well for 2025 and we expect will continue across the planned horizon. Even with this upward trajectory and guidance for 2025, we continue to project an annual 6% to 8% growth rate, the value of which compounds through our planned horizon with continued outperformance. NiSource offers investors a diversified and fully regulated utility, with the opportunity to invest in programmatic gas infrastructure and long-term energy transition for a fully integrated electric business. The emerging opportunity to support unprecedented energy development and power demand, resulting from robust economic development, onshoring, as well as new data center developments, truly differentiates the value proposition relative to many alternatives in the marketplace today.

I'm trying to connect some of the points from your call. Considering the rapid evolution of the data center market and your comments about the Columbus metro area, how are you approaching that opportunity, particularly in the NIPSCO territory? Could your load forecast and '24 IRP be seen as outdated at this time? What are your thoughts on the scale and scope of the opportunity, especially since it hasn't fully materialized yet? Is there an upward bias in the 2.6% numbers, for example?

Let me start by saying that I wouldn't describe the numbers as having an upward bias. There's significant demand for data centers in Northern Indiana, and that demand remains strong. We're committed to executing this opportunity thoughtfully and with discipline. We are guided by four principles: protecting our existing customers, quickly serving new customers, ensuring a suitable adjusted return for our shareholders, and maintaining NiSource's financial integrity. I previously mentioned that this is a 2025 event. We're focused on that goal, and I believe we are on the right track with this opportunity. When we have updates to share, they will be comprehensive and communicated to the market promptly and transparently. That’s our current status.

Yes. And Julien, maybe I'll just add one bit, which is we have seen demand across the gas footprint in Ohio and Virginia, specifically for pipeline expansions to serve on-site generation for data centers. Those inquiries continue to come in, and we continue to work collaboratively with our states and with our communities as there's a lot of excitement to expand the infrastructure development across all of our states.

I'll just ask one more follow-up, if I could. Just two separate processes. You have the counterparty contract process. You also have a third quarter update where I think you're going to be refreshing the long-term plan, it sounds like. How do those two juxtapose against each other?

Let me point back to Shawn on the third quarter plan. Shawn?

Yes, I appreciate the question. We've ensured that we update our plans whenever we have credible information available, whether that’s quarterly or through a full refresh. Regarding our regulated utility business, it requires ongoing infrastructure investments, and we're currently updating the $19.4 billion base plan to better understand the timing of cash flows and how they will unfold. This need arises from the increased demand for generation, transmission, distribution, and system maintenance in both the gas and electric sectors, driven by similar factors. Additionally, we are experiencing more economic development and strategic growth initiatives. We plan to provide an update during the third quarter call. We have identified $2.2 billion in potential additional capital expenditures, which will materialize as projects become commercially viable and are approved by stakeholders. While we don't have any immediate changes, we anticipate that these projects will progress before the end of the year. The $2.2 billion in potential CapEx will be integrated into the base plan over the next five years. Furthermore, there are incremental investment opportunities, particularly related to the data center initiative. Once we have concrete details, we will include that information in our plans and ensure we maintain credibility with our stakeholders regarding cash inflows and outflows. All three components could progress at any time; we won’t wait solely for the third quarter call for updates, but we view that time as an opportunity to refresh on all three elements. We aim to do that in Q3.

Thinking about the supply picture overall, could you speak to turbine queue positions and just your confidence in the ability to deliver new supply to meet any large load growth? And then I'm curious kind of related to that, you made some comments around the planned coal retirements and potential longer life for those assets. How does that fit into the supply picture as you add load?

I'm going to throw this over to Michael Luhrs.

I appreciate the question. Lloyd and Shawn have emphasized our disciplined approach to this matter. What I can share is that we have positioned ourselves effectively with our equipment to capitalize on available opportunities. As a result, we believe we are well-positioned to deliver on our core operations and provide new customers with the necessary speed and flexibility.

He talked about the extension of the coal plants. Melody, why don't you talk about where we are with respect to coal plant extensions?

Sure. So as you all know, the President passed an executive order earlier this year in April, and that order was shortly followed up by an executive order that was issued by Governor Braun in Indiana. And the order did call for the continued operation of all plants, all generation to meet the capacity needs. We've been working very closely with the state of Indiana. Our President, Vince Parisi, and our team in Indiana has worked closely with the governor and his office to understand what that will look like in Indiana. Our plan is still the same to retire our Schahfer plant by the end of this year. However, we will make sure that we work closely with the state so that we're aligned. And so no changes have been made as of this point, but we will ensure that we understand what the governor's direction is and that we support that direction. But nonetheless, our plan is and remains the same for Schahfer.

Understood. And then turning to the financing strategy. How do you see the GenCo playing into this in terms of potential impact to near-term or medium-term earnings with the GenCo structure before assets are in service or, I guess, abilities to structure around that and avoid any financing impacts until assets are in service? Do you see a path forward there without any earnings impacts? How do you think about that overall?

Thanks, Rich. I'll take that. I think we see a lot of flexibility in the structure as well as in the negotiations with customers. And then on top of that, the flexibility that we've built by strengthening the balance sheet over time, being thoughtful around raising equity as needed and delivering on the commitments that we've committed in front of us. That includes the outperformance of the base business, which continues to strengthen funds from operation and cash flow quality derived just from the work that we do each and every day. That's a critical element that continues to strengthen our financial flexibility. And we believe that this can help support the operations that we need to as we move forward into the future flexibility needed. We've not disclosed exactly how we'll finance GenCo. We'll retain the flexibility to evaluate that once we have the use of cash and the customer contracts that we will be delivering upon in front of us. That will be something that we'll evaluate to optimize the overall value and minimize the financing cost and friction involved with bringing on the infrastructure that we've talked about. So we retain a lot of the flexibility, and the outperformance, both in terms of strengthening the balance sheet and the base business producing incremental cash flows has put us in a great position to capitalize on this opportunity fairly efficiently.

I have a couple of questions. In terms of the practical dynamics, so if the GenCo application is approved in September and at that point, is there a lot of the contract terms that have already been prenegotiated? Or would that cascade a series of negotiations and legal discussions to be able to hit your targeted goal of achieving deals by the end of the year?

Thank you for the question. As I mentioned earlier, those are two distinct processes. We are continuing our discussions with the counterparties, and there will be specific terms related to that. We anticipate receiving an order for the GenCo declination process in the third quarter of this year. These are separate processes, so we will not go back to renegotiate.

Yes. But I mean if you don't get the declination filing, I mean that presumably stops that process, and you're saying that you're just working ahead regardless of the outcome.

The declination filing is a tool that provides us the opportunity to enhance speed and flexibility for our new customers. It facilitates that speed and flexibility. If there is a negative order, we have other tools available, including House Bill 1007 from Indiana, which allows us to serve large low customers. This is not the only tool we have. Michael, would you like to add anything?

The only thing I would add to it is saying as we're working this, we're working multiple and parallel streams on many items. As was mentioned earlier, there's items of equipment. We're working those streams. We're working the regulatory streams as well, contractual streams as well as many other parts of the processes. In doing that, and as mentioned before, we'd like to ensure that we consider all the alternatives that occur within those different processes so that in the end, we can deliver on the opportunities both for our customers and for our stakeholders. So it's not one or the other or one in spite of; we are working multiple components to be able to ensure that those paths can come to fruition.

Okay. And then an unrelated question on Schahfer, given HB1007 and some of the recent state policies, can you speak to some of the cost recovery attributes of the recent initiatives in the state that are in place now to ensure timely recovery of any ongoing costs associated with keeping Schahfer on longer and how that could impact the review that's underway regarding potential life extension?

I think there's some things that got matched in there. House Bill 1007 has nothing to do with keeping Schahfer operating. I think Melody mentioned earlier, we're in conversations with the state and at the federal level to understand that if we keep Schahfer operating what those cost recovery mechanisms look like. So those conversations are still ongoing.

So just one on the GenCo declination case. Could you just remind us what process is left from here? I think there's filings from the parties. The non-signing parties do Friday. And is that the last event until we get an order pretty much?

Yes, Friday is the final step of the process. All the final filings are due, and we still expect an order from the commission by the end of the third quarter.

I'm going to ask you to repeat this. In your prepared remarks, you mentioned that you're focused on making this happen and on track, but I didn't hear anything about 2025. Earlier, I heard that you're committed to completing this in 2025. Could you clarify whether you believe you can achieve this in 2025?

Absolutely. I said this is a 2025 event, and we are on track to execute that. And I said we're 2.5 quarters into the year, and we are on track to execute this opportunity. We're right where we need to be.

Yes. Again, we continue to thank you for the questions and your interest in NiSource and hope you have a great rest of the day.