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TerraForm Power’s (TERP) CEO Carlos Domenech on Q4 2014 Results – Earnings Call Transcript

TerraForm Power, Inc. (NASDAQ: TERP ) Q4 2014 Earnings Conference Call February 18, 2015 5:00 PM ET Executives Brett Prior – Director, Investor Relations Carlos Domenech – Chief Executive Officer Alex Hernandez – Chief Financial Officer Analysts Paul Coster – JP Morgan Angie Storozynski – Macquarie Capital Aditya Satghare – FBR Capital Markets Gregg Orrill – Barclays Julien Dumoulin Smith – UBS Brian Chin – Bank of America Merrill Lynch Brian Lee – Goldman Sachs Operator Good day, ladies and gentlemen. And welcome to TerraForm Power Fourth Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Mr. Brett Prior, Director of Investor Relations for TerraForm Power. Sir, you may begin. Brett Prior Good afternoon and thank you for joining TerraForm Power’s investor conference call and webcast covering the company’s fourth quarter financial results. I’m joined today by Carlos Domenech, Chief Executive Officer and Alex Hernandez, our Chief Financial Officer. As a customary practice, I will now review our disclosure statement. Our discussions today will refer to certain non-GAAP financial measures, including adjusted EBITDA and cash available for distribution or CAFD. Reconciliation of these non-GAAP measures has been provided in our fourth quarter earnings press release and financials, published on February 18th. Please note that this call contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management’s current expectations. We encourage you to review the Safe Harbor statement contained in today’s press release for a more complete description. In addition, this call includes only information available to us at this time. To the extent you’re listening to this call at a later date via replay, please note this information may be outdated or incomplete. With that, I will now turn the call over to Carlos Domenech, Chief Executive Officer of TerraForm Power. Carlos Domenech Thank you, Brett and good afternoon and welcome to our call. Please turn to slide number four. On today’s call, we will cover in four sections. I’ll start with an overall summary. I’ll then provide an overview of our performance since the IPO and how the company’s position to execute on our growth strategy. I’ll then hand it over to Alex Hernandez, our CFO who will walk you through our Q4 financial results on our 2015 guidance and outlook. Please turn to slide number six. Our Q4 results were ahead of plan, delivering $17 million of cash available for distribution or CAFD. We also increase our fourth quarter dividend by 20% to $1.08 per share annually. Second, as we look forward to 2015, we are reaffirming our given guidance to a $1.30 per share and $214 million of CAFD. Our fleet is currently 1.5 gigawatts that inclusive First Wind assets that were included on our closing and are now on boarding. Our current fleet is operating well. It has a current run rate of CAFD approximately $180 million. This gives us significant visibility to meet our guidance for 2015. Third, we have further enhanced our visibility to grow. And as a result, we have a much larger inventory of this sponsor Drop Downs, which stands at 3.3 gigawatts. This is our three-fold from the 1.1 gigawatt we had just eight months ago at our IPO. Fourth, we have a strong balance sheet and the ability to access multiple sources of liquidity to fund our future growth. Between our cash our revolver and the $1.5 billion warehouse facility, we have the ability to secure a $190 million of incremental CAFD. Finally, we continue to see attractive and accretive M&A opportunities. The acquisition of First Wind has more than doubled our addressable market and also has increased our acquisition pipeline. Turning to slide number eight. I would like to walk you through four key drivers of dividend growth to support the significant opportunity ahead of us. On the top left chart, you see that our sponsors expected growth conversions have doubled for 6 gigawatts to 12 gigawatts in the last eight months. The chart on the top right corners shows that our inventory for Drop Down projects has tripled and is going to 3.3 gigawatts, this is approximately 80% contracted. While our prospects for organic growth remained strong, we also have been busy on the M&A front. On the bottom left chart, you see that nearly one gigawatt of third-party acquisitions have closed since going public. And finally on the bottom right chart, CAFD guidance for 2015 has doubled to $214 million as a result of several acquisition and higher Drop Downs from our sponsor. Turning to slide number nine, the resulting type of this execution has had favorable impact across several key metrics in our IPO. For example, our fleet of installed megawatts as increased by 86%. Our EBITDA and CAFD had increased by 87% and a 100% respectively. Finally, we raised our dividend guidance by 44% and our five-year dividend growth target from 15% to 24%, which is one of the highest growth rates among our peer group. Turning to slide 10. In prior calls, we’ve indicated that we saw significant opportunities on the acquisitions front in various sizes. We also indicated that we will be very disciplined and selective going from small to medium to large transactions. When we look back at the results from last year, we have been able to close acquisitions in each of the categories. The aggregate value of the equity deployed on an accretive basis is slightly over $1.1 billion. In every instance, we have been able to generate returns in excess of 9% on a cash and cash yield basis. These transactions were part of a pretty material proprietary deal flow. Turning to slide number 11. We have built a high quality portfolio, 80% of our fleet is in the U.S. with a balance either in U.S. dollars or hedged. With the acquisition of First Wind operating assets, we now have one-third of our portfolio in wind. This provides a counterbalance to the seasonality of the solar portfolio. Alex is going to give you more perspective on that in a second. As shown on the bottom chart, the vast majority of our power plants are under two years old. They have contracts with high quality counterparties with an average credit rating of A minus and they have an average remaining PPA life of 16 years. Turning to slide 12. We wanted to give you visibility to the projects that makeup at 3.3 gigawatts of Drop Down inventory, nearly 80% of these projects are expected to come online this year and 90% of them are in the U.S. The one gigawatt of wind projects on this list is PTC eligible. Our forecast is not rely on an extension of the PTC or ITC. Turning to slide 13. Our portfolio has grown from 619 new megawatts at IPO to 1.5 gigawatts currently as a result of the completion of recent transactions. We expect to take our operating fleet to 4.9 gigawatts and as we execute on the 2.3 gigawatts of Drop Down inventory. Turning to slide 14, We thought it would be worthwhile to highlight some of the key transactions of TerraForm in 2014 and to show you the performance on a relative basis to comps and the prior market since IPO TerraForm is up 30% and SMP on our yield peer group. I’ll now turn over to Alex Hernandez, our CFO, who covered the fourth quarter results. Alex? Alex Hernandez Thank you, Carlos. Turning to slide 16, we summarize our operating and financial results for the fourth quarter. We are pleased to report that continued growth of our operating fleet. As of yearend we are 930 megawatts in operation in addition to installing another 153 megawatts of organic projects during the quarter. We also added 157 megawatts the acquisitions and Drop Downs to fleet. Taking into account the closing our First Wind which occurred in January, our full operating fleet capacity is now 1.5 gigawatts. Our assets generated 266,000 megawatt hours during the fourth quarter, reflecting a capacity factor of approximately 14%. These results are consistent with the expected seasonality in the production solar energy during the fall and winter months in North America. Revenue during the quarter was $43 million and adjusted EBITDA was $34 million. Cash available for distribution or CAFD for Q4 was $17 million. Results were slightly ahead of our plan driven by the positive impact from Q4 acquisitions and Drop Downs. Turning to slide 17, I’d like to provide you with additional visibility regarding the seasonal characteristics of our fleet. Until our recent acquisition of First Wind our portfolio was comprised of 100% solar generating assets, largely located in North America. Although solar generation is highly predictable year-on-year, solar assets are also seasonal in nature as demonstrate on the chart on the left our solar fully generates greater megawatts hours during the summer months, and fewer megawatts hours during the winter months, particularly during Q4. As you can see on the right hand side of the slide, one of the main reasons we like the First Wind operating assets that they are counter seasonal to our solar fleet. Our wind assets generate most of varying production in the fall and winter months, this was driven by high capacity factors resulting from weather fronts in the Northeast during the fall and winter months. As illustrated by the Greenline line our combined portfolio, which is now two-third solar and one-third wind will reduced seasonality and drive linearity of our business. Turning to slide 18, is worth highlighting that our results were due in part to the accelerated Drop Down from SunEdison of 76 megawatts in the fourth quarter of 2014. These Drop Downs included 50 megawatts in the UK and 26 distributed generation megawatt in the U.S. providing a combine $10 million of annual levered CAFD. Turning to slide 19, here we provided summary of the financing activities occurring Q4 as well as Q1, to some of the acquisitions of Hudson, Capital Dynamics and First Wind. I am pleased to report that we successfully completed 1.5 billion of debt and equity financings fully refinancing our capital structure preserving a quality of our balance sheet and maintaining our liquidity. Of particularly note was the execution of our inaugural $800 million unsecured green bond offerings which refinanced the product term loan. The green bonds provide us an attractive fixed-rate debt instrument for eight years at a coupon of 5, 7, 8 and current yield of 5.2%. Importantly, the down also give us significant financial flexibility to fund future growth and M&A. Pro forma for these financing’s our balance sheet as well position for the yearend. Turning to slide 20, I’d like to provide further clarity to our financial policy to fund our growth. In addition to the 3 and 3.5 times Holdco leverage policy, which we have discussed with you before, we have also target in long-term consolidated leverage of 5 to 5.5 times consolidated debt for EBITDA. Our strategies to put in place long-term amortizing that’s against our largest projects, supporting by long-term contracts to provide national deleveraging of the portfolio, while preserving Holdco debt to fund opportunistic growth and M&A. This financial policy allows us to fund our growth in a discipline manner, while preserving and enhancing the quality of our balance sheet over the long-term. We also had a philosophy of maintaining ample corporate liquidity to support our growth. As you can see in the lower chart, we more than doubled the capacity of our revolving credit facility to $550 million and have $640 million of liquidity as of January 31, 2015. We are grateful to our bank group for their support and continued confidence in TerraForm. Turning to slide 21. We wanted to provide an update on the progress that we and SunEdison have made on the Drop Down warehouse facility, which give you a significant strategic innovation to finance the growth of our business. The Drop Down warehouse facility is a $1.5 billion in aggregate size comprised of $1 billion of debt commitments and $500 million anticipated investment from First Reserve infrastructure. The Drop Down warehouse is designed to provide non-recourse capital for SunEdison to finance the construction of approximately 1.6 gigawatts of First Wind call right assets. For TerraForm, the warehouse provides increased certainty from Drop Downs and the ability to stage assets for several quarters once operational before dropping them into TerraForm. This provides TerraForm Power greater certainty on our growth trajectory for years to come. As a further update from November, we are pleased to report that we have received $1 billion of new debt commitments during this indication process of the warehouse facility which have expanded our debt syndicate. This indication has been led by BofA Merrill Lynch and Citi and has attracted 14 banks and institutional investors. This warehouse is only the first of several other innovations we are working on to create additional sources of liquidity and capital beyond the traditional capital markets, while continuing to drive cost of our capital of our business down. Turning to slide 22. Liquidity offered by corporate revolver and the warehouse facility provide TerraForm total potential liquidity of $2.1 billion to support growth. It’s fully utilized this combined liquidity allows us to capture an additional $190 million of CAFD for a portfolio. I’ll now move to session four and review our 2015 guidance and longer term outlook. Turning to slide 24. We have experienced and anticipate significant growth in EBITDA and CAFD in our business. As mentioned earlier we are reaffirming our 2015 guidance of $214 million, which represents a 100% increase since the IPO in July 2014. Importantly, the current CAFD run rate from our existing fleet as of January 31st is $180 million. This CAFD growth supports the dividend illustrated on the next slide. Turning to slide 25, I’d like to give you greater visibility to our dividend growth trajectory for 2015. As a remainder, we declared a $0.90 annualized Q3 dividend at the time of the IPO. As announced earlier, we have increased the Q4 dividend by 20% to an annualized rate of $1.08 per share. Our current CAFD run rate supports a dividend of $1.03 per share which gives us confidence in our ability to deliver our $1.30 commitment for our shareholders. We anticipate the incremental $0.07 versus our current run rate will be derived from approximately 400 megawatts of SunEdison Drop Downs during the course of 2015. Please also note that the $1.30 dividend guidance is not include incremental M&A during the year and we continue to see a healthy pipeline of third-party opportunities to further supplement our organic growth. Now I’ll turn to slide 26. In closing, we continue to focus on building a great company and delivering best-in-class dividend growth and total returns for our shareholders. This slide which we discussed at the time of the First Wind announcement in November reaffirms our view of TerraForm’s long-term dividend growth trajectory of 24%. This growth is supported by 3.3 gigawatts of call right projects at a 10 gigawatt pipeline from our sponsors’ organic development engine. We will continue our philosophy of driving strong execution, delivering on CAFD growth and translating that CAFD growth to increase dividends for our shareholders. With that, we appreciate your interest in our company and we’ll be pleased to answer your questions. Operator? Question-and-Answer Session Operator [Operator Instructions] Our first question comes from Paul Coster of JP Morgan. Your line is open. Please go ahead. Paul Coster Yes. Thanks very much for taking the questions. Put some first up perhaps you can talk a little bit about the longer term dividend growth especially with 2017 in mind. Do you anticipate a lot of pull forward activity ahead of the ITC reduction and PTC expiry and how do you think bridge from 2017 through to 2019 with the long-term guidance that you’ve given? Carlos Domenech Hi, Paul, good afternoon, thanks for join the call question. As I mentioned earlier our 3.3 gigawatts does not separate from PTC or ITC timing. So we’re to get there and as Alex mentioned we approximately need 400 megawatts to a deliver one or 2015 growth rate. So I think we are pretty well said for 2015. When you look at 16, 17 and 3.3 gigawatts minus the 400 megawatts for 2016, for 2015 I apologize. We didn’t plenty of visibility to grow also as I mentioned earlier we look at our presentation and see a trajectory quarter-over-quarter, page number eight. Let me turn that we talked you, we consistently that increase for our number and also with our sponsor SunEdison at the IPO were 6 gigawatts and now we sit at approximately 12 gigawatts of conversion. So when you think about how we are able to move consequently our call rights from 1.1 to 3.3 the three times increase. That value generate during eight months, so I just a tremendous confidence also when you think about M&A, Paul, we got it just shy of a gigawatt and in eight months and first of all market now with First Wind as more than double. So we really like where we are we continue to see significant M&A opportunity and as soon as continues to pick a momentum so we feel pretty comfortable. Paul Coster I appreciate it. Just one other question so you talk to this warehouse facility and how it allows SunEdison to hope that projects with several quarters improving a visible set up we understand that why their abilities to hold it back for few quarters improving your visibility? Alex Hernandez Paul, it’s Alex, thank you for the question. What is say it give us somewhat of tremendous flexibility so they can focus their capital on developing the pipeline on developing additional projects. Once the project is dropped into the warehouse and gets constructed and considering the warehouse while it becomes operational for several quarters and so we have at our sole option the ability to pull down a project into TerraForm, when we choose and I could be at COD it could be a quarter or two after COD, but it gives us again a lot of flexibility to having warehouse that can store the assets until ready to pull them down on our collections. Carlos Domenech And I’ll just stop there, Paul, when you think about our growth, we are affecting class and frankly we believe that we have ample opportunity to accelerated. So let me see some point you may have make much essentially just continue to drop assets into the vehicle. We like to ensure that we are timing this Drop Downs that makes or so simple one to build financial flexibility both for SunEdison and of course for the shareholders of TerraForm and do it on our [indiscernible]. Paul Coster Excellent, thanks very much. Operator Okay. Our next question comes from Angie Storozynski from Macquarie Capital. Your line is open, please go ahead. Angie Storozynski Thank you. So your points put out a number of announcement do you have any apparent with additional renewable projects and yet you’ve kept your 24% CAFD trigger I am change, this something that we should expect due to update on only for the much higher gross pipeline that First Wind seems to have right now. Carlos Domenech Yeah, Angie, thanks for the question. We are simply speaking to our execute CAFD growth I think I was – you look at page 25 and its important there to highlight. We’ve on-boarded already the first new projects. So on that’s a $1.23, so the deliver on the $1.30, seven additional cents with 3.3 gigawatts, we like where we are. As we continue to execute on our quarterly basis we will revise the 24% growth. Angie Storozynski Okay, because when you guys acquired First Wind you showed us that 24% based on the original 1,600 megawatts of growth. Right now, it seems like the First Wind has doubled that number right, I mean, I’m just trying to make sure I understand it. Okay and so – and you are still keeping it at 24%. Carlos Domenech Yeah. You got it, right now again we are frankly far ahead of most at all on that total return and total growth and we are going to continue to execute and yes we think that we can execute on that long-term guidelines that we’re giving you and whether we do M&A or acceleration of those projects. We’re going to take one quarter at a time. Angie Storozynski Awesome, thank you, and just one follow-up, could you talk about your foreign exchange exposure and your address and what kind of sensitivity for the next year or two we should expect. Carlos Domenech Yes, Alex? Alex Hernandez Angie, thanks for the question, it’s Alex. So to start, I think approximately 80% of our assets are in U.S, a little bit over 90% or U.S. dollar denominated and so less than 10% have currency exposure to them and less largely in U.K. with some diminimus amount in Canada. Of the 10%, we’ve hedged nearly all of it for a period of three years and so we have the diminimus currency exposure for the next three years, there is a CAFD has been hedged. Angie Storozynski Okay, thank you. Carlos Domenech Thank you. Alex Hernandez Thank you. Operator Our next question comes from Aditya Satghare from FBR Capital Markets. Your line is open. Please go ahead. Aditya Satghare Thank you. Good evening guys. Carlos Domenech Aditya, how are you. Aditya Satghare So two questions from my side, one sort of a market question here, so we got a small window of opportunity with the PTC extension, what impact do you think that could have on potential acquisition activity in 2015 within the lease sector. Carlos Domenech Yeah, Aditya, great question, the 1.6 gigawatt that we have is already there from a PTC, ITC and so is that a one gigawatt in wind too, we’re good and that’s great. Now beyond that when we talk to the First Wind team and SunEdison, we saw an opportunity to take down an incremental at 1.5 gigawatts of capacity, PTC capacity. So that’s incremental to what we already have that capacity, we expect to be put to work over the next three, six months is already qualified. So we like that and it’s a simple of that incremental 1.6 gigawatts of capacity that we will have visibility access too. On top of that, what we’re seeing in the industry is some of the small medium players are want to de-risk the execution and are looking for folks that can work with them. And frankly many of the financial institutions do not want to take any exposure, so there is – I’ll call it as a slight quality that is also benefiting us, so those are the three factors that we have for growth for us. Aditya Satghare Thanks. That’s very helpful and then just one follow-up, Alex, you mentioned that there is a $1 billion of syndicated debt capacity. Is that on top of the $1.5 billion liquidity for the warehouse facility or is that inclusive of that? Alex Hernandez It’s inclusive of it. You may remember the time of the deal announcement in November we had the full amount of debt committed from six investment banks in our bank group. Since November, we’ve undertaken a syndication process and so now that facility have garnered a lot of interest in its fully distributed among about 14 institutions, both banks and other financial investors. So we’re seeing some good interest and are very pleased that all of the debt was successfully spoken for. Carlos Domenech I would add to that, Alex mentioned it on our prepared remarks that we have several avenues to our capacity for capital. The structure works because it’s a blind pool of capital. There are specific projects that go against it and given the economics embedded into the structure and the sponsor with SunEdison and then the uptake from TERP. We believe that facility could be scale, but we wanted to show you here what’s committed. We have the ability to flex that up. Aditya Satghare All right, thank you. Thanks for the updates. Operator Our next question comes from Gregg Orrill from Barclays. Your line is open, please go ahead. Gregg Orrill Yes, thank you. I just wanted to double check with the 2015 adjusted EBITDA guidance of $374 million, is that guide up or is there something in comparability that right now, comparable and if you applying guidance. Carlos Domenech Hi, Gregg, thanks for your question. It some just an update that is consistent with our 2014, so again I would say no change I would simple is consistent with 2014. Gregg Orrill Okay, thanks. Carlos Domenech Thank you. Operator Thank you. [Operator Instructions] Our next question comes from Julien Dumoulin-Smith from UBS. Your line is open, please go ahead. Julien Dumoulin Smith Hi, good afternoon. Carlos Domenech Hi, good afternoon, Julien, how are you? Julien Dumoulin Smith Congrats. Carlos Domenech Thank you. Julien Dumoulin Smith I wanted to ask about potential ROFO deals, firstly I’m curious just energy from a left interesting open the door there with the latest press release have been, where do that stand have been when opportunity is that – thoughts and then perhaps more broadly we’ve heard an industry from dominion perhaps potentially others, all potentially a ranging deals with top tier close like yourselves. To monetize their own portfolio of asset, so what your thoughts more broadly by ROFO deals and then more specifically just energy ROFO you have. Carlos Domenech Great, Julien, very big question look at. I wanted comment specifically just on, just energy, while we’ve seeing while we said before actually one of work with folks we could moment one transaction and when we talk about proprietary deal flow embedded into that is literally 100 of relationships with those have different opportunities that bring to us. And that’s part of the [indiscernible] that we have built those over years and we continue to value those – that’s been continue to be very freighting part of our growth and we create value our statement inconsistent my view with aggregate to just energy simple world. So yes, simple answer to – we have expectations for about in others. I said potentially to the medium and it’s first I would [indiscernible] the meaningful their approach to the renewables and how they’re in the last earnings call. I know take other unfortunate well. We want to work with the ITC several well in partner with them. I think that creates on opportunity, first, we are in discussions with the some big close up there that may not have necessarily the deal flow that we do. We frankly see really large set of opportunity, so we cut the deal flow and we caught the ability to structure deals work with our sponsor another large with utilities or we are happy to partner with those. Welcome back I think that you’re going to see some of the utility their more progressive – perhaps trying to our partner with the yield goes. I think that’s really a structural necessity that is respond to happen and we are happy to participating will be participating in the process. Julien Dumoulin Smith Got you. And then fast moving on in terms of your backlog of rather than somewhat assume TerraForm backlog, if you can comment what extended that backlog is emerging markets and kind have probably dedicated chose another yield vehicle versus what can we kind of say is dedicated back towards to yourself or cannot moving that on this eligible through this out being call OCD structure. Carlos Domenech Yeah, Gregg, great question. We look at first when we talk clarify, the 3.3 gigawatts so we have what we call Drop Down inventory that’s already literally from structurally secure to – I said while make sure that’s clear. From the SunEdison when you see that the conversion final we – as a matter of process pick the assets that we believed our in the next 24 months and we’re going to [indiscernible] constructions which medicine and we ultimately ups and down. So in the process well commit my brands are number of that roughly about two-third or some I think will said in the past or markets are projects that take our underwriting criteria and remaining is for emerging markets. You will year Ahmad and Brian talk more about that but you can see today just with the growth that the install base of operating project, we’ve got more than we can chew up for now. Julien Dumoulin Smith Great. And then a last one following up on your First Wind transaction and you think about the wind market and tapping into that, is it necessary to build out or – build out organically to tax build the national opportunity here or do you need to do another development like acquisition to build out the sufficient capacity to kind of grasp the national opportunity. Carlos Domenech Yeah, great question. I’m glad you asked that. On the beginning we said we started with solar and we said that for wind in particular if we do something we’ll do it with a SunEdison like machine and that was really First Wind. First Wind has the development engine and has the culture on the D&A, people that we like to work with just like the folks at SunEdison and very importantly they have a tremendous asset management, services capability that could scale easily to five gigawatts with spending another marginal dollar. So we believe that with First Wind, SunEdison has what it needs to scale not just in the U.S., but also globally, so that creates tremendous synergies in competitive advantages for SunEdison and there for us. So now we have the opportunity and we are aggressively pursuing transactions that are operating our portfolios, but also you’re going to see overtime, our First Wind updating that organic growth engine as they’re organically developed projects. Is that answered your question? Julien Dumoulin Smith Congrats again on the First Wind deal couldn’t agree with you more. Carlos Domenech Yeah, thank you. We were really pleased that the assets were I’ve been awarded and they are cranking and we’re extremely pleased with the performance and everything which is working away we anticipated it would. Julien Dumoulin Smith Thank you. Operator Thank you. [Operator Instructions] And our next question comes from Brian Chin from Bank of America Merrill Lynch. Your line is open. Please go ahead. Brian Chin Hi, good afternoon. Carlos Domenech Hi, Brian, how are you. Brian Chin Very good, thanks. You guys brought up a really interesting point about how when you added the wind portfolio to your solar assets. You’ve reduced the seasonality profile of the fleet. Is that mean at some point in the future if you continue to reduce that seasonality or maintain at a much less seasonal up and down pattern, that there is room for potentially tightening the spread between your dividend and your CAFD or does that relation would be referring that potential tightening of that question going forward. Alex Hernandez Brian, thank you for the question. I think what I say is we continue to manage the business to predictability both on a year-over-year basis as well as a quarterly basis and that was one of many factors that we really like when we were looking at the First Wind transaction. As you know, they have got assets in the Northeast. Those assets run fast when the wind blows in the fall and winter. They have other projects in Hawaii which are driven by entirely different regimes and so there is really nice balance diversification in all of which was translate to our CAFD profile being more linear to the year. Now having said that, we’ll look at that those characteristics for every transaction in Drop Down that we do and look at on the portfolio basis, but I think for the moment, we’re quite comfortable with our 85% payout, but we’ll continue to drive the business towards predictability both quarter-on-quarter and year-on-year. Carlos Domenech Yeah, Brian, I would just add to what Alex said is what do you see on that from page 17 is not an accident on the top right and those numbers are not, they are not illustrative of the real numbers. So we spent a lot of time in and I’ll just say we’re in the business, some of you might have probably tired of hearing me say this, but we’re in the business of reducing variability that’s what we do because we want to be consistent on our portfolio, diversification and therefore predictability on outcomes, that’s why when you asked the question, how much more you’re going to bring – at some point growth for us and excess growth is not an issue. But we’re working very hard just to build the portfolio that has tremendous predictability and consistency and that’s what you see on the right hand side. We expect as we continue to increase our fleet that the variability quarter-by-quarter will continue to smooth out as we bring different asset types and different locals with different fuel types. So I like the green curves. We’re not done with it yet and it’s a key core as to when we underwrite deals were not simply just bringing CAFD. The quality of that CAFD now just from an all-state point of view, but also how we shapes up is important to us. Brian Chin Very helpful. Thank you very much. Carlos Domenech Thank you for the question. Operator Thank you. Our next question comes from Brian Lee from Goldman Sachs. Your line is open. Please go ahead. Brian Lee Hey guys, sorry, I was on mute and apologies if some of these questions have been asked, first I had to jump on late, first thing on your guidance, I just wanted to better understand and clarify the CAFD versus dividend per share outlook, so the CAFD guidance for $248 million that includes Drop Down, is that translate to the $1.30 per share dividend for 2015 or there another target associated with that CAFD for the year? Alex Hernandez Brian, it’s Alex. Thanks for the question. Yes, the $240 million of CAFD guidance for the year translates directly to the $1.30 dividend guidance as well. Today, we’re – we’re at $180 million run rate from our existing portfolio and so the balance little over $40 million of run rate CAFD is coming from incremental Drop Downs from SunEdison during the balance of the year. Brian Lee Okay, that’s helpful. Carlos Domenech I was very temped if we go to page 25 to actually just put the CAFD numbers there for you is make it even simpler, but I got too busy. If you look at the $1.23 is a $1.80 what was tricky in our business and I know you guys wrestle with this is a run rate right, so with First Wind which effectively on boarded on January. We now have a 1.5 operating fleet, so it’s fully I’ll call it integrated is working as cranking like the performance, this is exactly how we wanted to be, so we got $1.80 already, sorry, $180 million already on that January run rate. So the $1.30 simply us ramping up to $214, now if we were to ask me well if you exit throughout the year, that $214 million is a lot larger on a full 12-month basis because we’re simply adding CAFD throughout the year. That’s one when we look at the $0.07 on 2015, it’s only 400 megawatts associated with that because it’s just we added over the quarters, but yes of course Angie is saying, what I mean you got 3.3 gigawatt it seems like you got lot more, but the answer is yes. Brian Lee Okay, I appreciate the color that’s very helpful. Couple of more from me and I’ll pass it on I guess again on the guidance, this time looking longer term out. I was curious can you quantify how much of your 2017 $1.90 per share dividend target is already covered by the First Wind for SunEdison call rights portfolio I just stand is now and then how much would need to come from proposal if we were looking at it kind of these out year targets. Alex Hernandez Thanks, Brian, its Alex. As you look at 2017, most of that $1.90 is covered by the 3.3 gigawatt backlog that we referred to so that backlog is also largely contracted, so we feel very good about having that backlog work its way through the machine to deliver that $1.90. Brian Lee Okay. Carlos Domenech I made the comment earlier on another question that was similar that the numbers that you see here do not assume any M&A. So yeah we gone about gigawatts last eight months where we feel another gigawatt in the next eight months mainly maybe not, SunEdison continue to grow it’s organic engine maybe, maybe not but we like what we are, we like the trends and frankly was doubling our addressable market with First Wind where we got now yet another element for growth that gives us a lot of comfort. Brian Lee Yeah, okay, that’s helpful and then last one from me on that First Wind acquisition I think you mentioned at the time of the acquisition CAFD had $221 million from their pipeline and is that include just the backlog additions or does that also assume full conversion or maybe some partial conversion of the 500 plus megawatts of pipeline. Carlos Domenech Yeah, so the backlog number is approximately 1.4, the pipeline number inclusive of the backlog if 1.6 and so the $220 million number Brian equates to the 1.6 gigawatts of backlog in pipeline. Brian Lee Okay, so you are assuming just to clarify that the full conversion of anything that is in yet considered backlog to eventually become backlog? Carlos Domenech No, the First Wind had a much broader pipeline of opportunities and so we are assuming that only $200 million to $300 million of that pipeline converts into backlog to get you to that number. Carlos Domenech So as your answer is we expect a conversion overtime that’s the simple answer. Brian Lee Okay. Thanks guys. Carlos Domenech Thank you. The other thing I’ll mention as you guys think about portfolio is we haven’t talk much about this one yet, but we did mentioned this on another call is we like to continue to optimize the operational elements so our fleet we often focus on Drop Downs and acquisitions as we’re looking to the 2019 period. We do think about how do we drive higher performance out of the fleet and that’s under the element Brian that’s supporting in our ticket. Operator Thank you. I’m showing no further questions at this time. Brett Prior Great. We appreciate your join us on afternoon and we welcome your questions and look forward to just speaking to you in the next few days and our next call. Thank you. Carlos Domenech Thank you. Operator Ladies and gentlemen, thanks for participating in today’s conference. This concludes our program. You may disconnect. Have a great day.

NiSource’s (NI) CEO Bob Skaggs on Q4 2014 Results — Earnings Call Transcript

NiSource, Inc (NYSE: NI ) Q4 2014 Earnings Conference Call February 18, 2015 09:00 ET Executives Randy Hulen – VP, IR Bob Skaggs – CEO Steve Smith – CFO Analysts John Barta – KeyBanc Carl Kirst – BMO Capital Chris Sighinolfi – Jefferies Becca Followill – U.S. Capital Advisors Charles Fishman – Morningstar Operator Welcome to the NiSource Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Randy Hulen, Vice President of Investor Relations. Please go ahead. Randy Hulen Thank you and good morning everyone. On behalf of NiSource and Columbia Pipeline Partners, I would like to welcome you to our quarterly analyst call. Joining me this morning are Bob Skaggs, Chief Executive Officer and Steve Smith, Chief Financial Officer. As you know, the primary focus of today’s call is to review NiSource’s financial performance for the full year and fourth quarter of 2014 as well as provide an overall business update. Following our NiSource prepared remarks, we will also share a brief overview of the predecessor results for Columbia Pipeline Partners which were released this morning. We will then open the call to your questions. At times during the call, we will refer to the supplemental slides available on our website. I would like to remind all of you that some of the statements made on this conference call 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 section of our periodic SEC filings. With all those items out of the way, the call is now yours, Bob. Bob Skaggs Thanks, Randy. Good morning and thank you for joining us. 2014 was a watershed year for NiSource. It was anchored by focused execution of a record infrastructure investment program and the initiation of strategic and transformational growth plans. Those notably included the creation of Columbia Pipeline Partners and the announcement of the Columbia Pipeline Group spinoff. If you will turn to slide 3 in the supplemental deck that was posted online this morning, you will see a few of the year’s highlights. The NiSource team delivered yet another year of solid operational performance and industry-leading financial results. In 2014, we generated net operating earnings from continuing operations, non-GAAP of $1.72 per share, exceeding our guidance range of $1.61 to $1.71 per share and up nearly 9% from 2013 and we delivered total returns to our shareholders of 32%, which outperformed the major utility indices for the sixth consecutive year. Our team executed on a record $2.2 billion capital investment program, made significant progress on various regulatory and legislative programs and originated several transformational growth projects at CPG. These initiatives synched closely with our company-wide modernization initiatives, delivered significant value to our customers by facilitating the development of significant shale resources and providing more modern, safe, efficient and environmentally friendly infrastructure. They also benefit our communities through job creation and economic development and our shareholders through sustainable long-term returns. During the year, we also expanded our projected long-term inventory of infrastructure investments which is now targeted at $12 billion to $15 billion at CPG over the next 10 years and $30 billion at NiSource’s utilities over 20 plus years. As I noted at the top of the call, 2014 marked the launch of two important strategic initiatives; the separation of CPG and the creation of Columbia Pipeline Partners. On that note, our team was pleased with Columbia Pipeline Partners’ $1.2 billion initial public offering in early February. The Partnership’s offering was enthusiastically received by investors. Steve will provide a brief update on the partnership as part of this morning’s call. We remain on track with the NiSource CPG separation process. A couple of weeks ago, we filed our initial form 10 registration statement with the SEC, have announced key expected board members and the majority of executive team members for both companies. Following the separation, both companies are expected to move forward as independent, investment grade pure play entities with experienced teams focusing on executing and elevating well-established platforms for growth. As we look ahead to NiSource and CPG operating, independent companies, I wanted to briefly highlight their growth expectations. As we first announced in our 2014 investor day, NiSource as a pure play utility expects its average annual long-term earnings and dividend to grow at 4% to 6% over the long term. As a pure play pipeline company with an MLP, CPG is targeting its annual adjusted EBITDA growth in the mid- to upper teens over the next several years. Its annual dividend growth is expected to be commensurate with this robust EBITDA growth. With these very strong growth rates and deep investment inventories, both companies will be positioned in the top tier of their peer groups. As the separation date gets closer, both NiSource and CPG will conduct roadshows to provide additional details on their projected performance profiles. And just to expand on the growth for one moment, we wanted to be absolutely clear on the fundamental baseline commitments of each company. Therefore, we provided earnings and dividend outlooks as well as capital expenditure outlooks. We wanted to be clear on what long-term drivers are for each of the businesses. We wanted to be helpful versus academic. And as you know, 2015 will be a split year for NiSource and CPG with significant developments unfolding during the first half of the year, including the IPO of CPPL, the recapitalization of CPG and NiSource, as well as the separation itself and the ongoing development of Mountaineer XPress and Gulf XPress. Again, we wanted to provide what was helpful, what was most constructive, therefore our key commitments are key fundamental drivers. As we mentioned, roadshows will occur prior to separation to provide additional detail on 2015, 2016 and the long term. Now with that, let me turn the call over to Steve Smith to review our 2014 financial results highlighted on page 4 of our supplemental slides. Steve Smith Good morning, everyone. As Bob mentioned, we’ve exceeded our guidance range for the year by generating non-GAAP net operating earnings of about $545 million or $1.72 per share, which compares to about $495 million or $1.58 per share in 2013. On an operating earnings basis, NiSource was up about $125 million. By GAAP comparison, our income to continuing operations was about $530 million for 2014 versus about $490 million for 2013. At the segment level, you will see in today’s release that each of our three core business units delivered solid financial results. CPG delivered operating earnings of about $491 million compared to about $441 million in 2013. CPG’s net revenues excluding the impact of trackers were up about $80 million. NIPSCO’s electric operations delivered about $288 million in operating earnings compared to about $265 million for the prior year. Net revenues excluding trackers were up about $47 million. And finally, our Gas Distribution business unit came in at about $517 million, compared to about $449 million in 2013. Net revenues, again excluding the impact of trackers, were up about $126 million. As our numbers attest, it was another strong year for the NiSource team. Full details of our results are available on our earnings release issued and posted online this morning. Now turning to slide 5, I would like to briefly touch on our financing and liquidity positions. We retained a strong liquidity position with approximately $720 million of net available liquidity at the end of the year. Of our record $2.2 billion capital investment program, approximately 76% of these investments were focused on revenue-generating opportunities. Our debt to capitalization came in at about 62% of the end of the year. And as Bob mentioned, we remain on track with the NiSource CPG separation. In that regard, we have taken several key steps to establish a strong financial foundation for both companies. The first step was to secure two separate credit facilities that will become effective at the separation. We entered into two $1.5 billion five-year credit facilities, one for NiSource and the other for CPG. These facilities will replace NiSource’s existing $2 billion agreement. At the same time we entered these agreements, we also entered into a $500 million five-year facility at Columbia Pipeline Partners which went into effect at the time of the IPO. The next major step in this process is the recapitalization, which is on schedule to commence in the second quarter. We will provide additional updates on this process in our first quarter earnings update and through other public announcements. With that, I will turn the call back to Bob to discuss a few execution highlights from each of our business units. Bob Skaggs Thanks, Steve. Let’s start with CPG highlights on slide 6. The CPG team continues to advance a steady stream of transformational growth and modernization projects. As I noted earlier, CPG expects to invest up to $15 billion in growth capital over the next 10 years, with most major projects currently in execution or in advanced stages of development. During 2014, CPG placed more than $300 million in system expansion projects and service, adding approximately $1.1 billion cubic feet of system capacity. An additional $200 million in midstream projects were put in service during the year and CPG’s modernization work approached $320 million. So in total for 2014, we added more than $800 million in new revenue-generating assets in service all on time and on budget. Meanwhile, the CPG team is in full execution mode on several ongoing and transformational growth projects. In December, the FERC approved the construction of the East Side expansion project which will provide approximately 315 million cubic feet per day of additional capacity for Marcellus supplies to reach growing mid-Atlantic markets. This $275 million project is expected to be placed in service later this year. In addition to the East Side expansion, CPG has more than $3 billion of growth projects in progress that will add approximately 4 billion cubic feet of transportation capacity. These projects include the Leach and Rayne XPress projects, the WB XPress project and the Cameron Access project. The Rayne and Leach projects collectively involve about $1.8 billion in system expansion, creating a major new pathway for transporting shale production to attractive markets and liquid trading points. Both projects are expected to be in service by the end of 2017. WB XPress is almost a $900 million project to transport about 1.3 billion cubic feet of shale gas to East Coast markets and various pipeline interconnects including access to the go point LNG terminal and Cameron Access is a roughly $300 million investment that involves new pipeline facilities to connect with the Cameron LNG terminal in southern Louisiana. The project will offer initial capacity of up to 800 million cubic feet per day. Our Columbia midstream team also is continuing to capitalize on CPG’s strong asset position in the Marcellus and Utica regions. Midstream projects currently in progress include $120 million Washington County gathering project and the $65 million Big Pine expansion project. Big Pine in the first phase of Washington County will be placed in service before the end of the year. As you may recall during our prior discussions, we’ve outlined plans for the potential Mountaineer XPress project. We’re now in advance commercial discussions with customers on this major project, as well as a complementary project called Gulf XPress. If implemented, these projects would provide substantial transportation capacity out of the Marcellus and Utica shale regions. These two projects could involve an investment as large as $2 billion to $2.5 billion. We hope to complete commercial terms and clear all contractual outs by July. As you can see, on all fronts, the CPG team is executing against an impressive and indeed transformational growth agenda. In 2015, we’re targeting a capital investment level of approximately $1.1 billion of CPG. As you’ve heard us say before, our intent is to triple our net asset base over the next five years. With that, let’s now shift to our utility businesses starting with NIPSCO, our Indiana electric and natural gas business summarized on slide 7. NIPSCO is continuing to deliver on its commercial and customer strategy with an inventory of investment opportunities approaching $10 billion for electric infrastructure and $5 billion for gas infrastructure over the next 20 plus years. 2014 was a strong year for NIPSCO as well. In the first half of 2014, NIPSCO commenced its seven-year natural gas and electric infrastructure modernization programs now expected to reach an investment level of nearly $2 billion and completed approximately $120 million of projects in 2014. These investments will help improve reliability, maintain system safety for the next generation. On the environmental front, in December NIPSCO placed the final FGD new unit in service at Schahfer Generating Facility. This unit, like the one placed in service during the fourth quarter of 2013 was delivered on time and on budget. A third FGD unit at NIPSCO’s Michigan City Generation Facility is on schedule to be placed in service by the end of 2015. Following the completion of the Michigan City units, all of NIPSCO’s coal burning facilities will be fully scrubbed. On the growth side, progress also continued on two major NIPSCO electric transmission projects. Right of away, acquisition and permitting are underway for both projects and preliminary construction will begin on the 345 kV Reynolds to Topeka line in the first half of this year. If you recall, these projects involve an investment of about $0.5 billion for NIPSCO and are anticipated to be in service by the end of 2018. Finally, in addition to the continuation of NIPSCO’s electric energy efficiency programs, the IURC approved the extension of the green power rate program. NIPSCO also reached a settlement on the continuation of its feed-in tariff program. NIPSCO’s agenda in 2015 remains focused on enhancing the reliability and environmental performance of the systems through modernization and replacement investments. In addition to delivering customer programs that help reduce energy usage and manage bills, these investments expected to reach nearly $400 million in 2015 deliver significant economic development and job creation activity in northern Indiana, while at the same time delivering value to our investors. Turning to our Gas Distribution Operations on slide 8, you can see a similar story of large-scale infrastructure investment paired with complementary regulatory and customer initiatives. Touching on a few highlights from the year, in November, the Pennsylvania Commission approved the settlement in Columbia Gas of Pennsylvania’s base rate case. The case provides for recovery of CPA’s investments in its well-established infrastructure modernization program and will increase annual revenues by approximately $33 million. New rates went into effect in December. Also in December, Columbia Gas of Virginia reached a settlement with customers for its rate case, which if approved would increase base rates by about $25 million. Notably in January, the hearing examiner in the case recommended approval of the settlement. Final commission decision is expected by the end of the first quarter. These rate cases, along with one completed in Massachusetts, provide for continued recovery of investments related to our well-established infrastructure programs which are designed to maintain and improve the safety and reliability of our systems. Also in the fourth quarter, Columbia Gas of Massachusetts filed its 2015 system, gas system enhancement plan under new legislation authorizing accelerated recovery of gas infrastructure modernization investments. If approved as filed, cost recovery would increase annual revenues by approximately $2.6 million. Across the gas utilities, we expect to invest almost $900 million in 2015. Together, NiSource’s industry-leading platform for utility growth provides significant reliability, safety and environmental benefits to our existing and new customers while also delivering shareholder returns through transparent recovery mechanisms. Shifting to slide 9, our key takeaways for 2015, we plan to execute our current business and customer plans while at the same time delivering the CPG spinoff on schedule in mid-2015. We’re moving ahead with another year of record capital investments, targeted at $2.4 billion across our utilities and pipelines and a complementary regulatory and customer service agenda. As for the separation, we’re well on our way to standing up two premier companies, with an experienced slate of management and directors at both companies. CPG and NiSource will be well-financed and strongly positioned to execute on their distinct strategies and deliver enhanced long-term earnings and dividend growth. As I mentioned, both NiSource and CPG will conduct roadshows prior to separation to provide detailed business profiles. With those highlights for NiSource, we will now shift to slide 11 in the NiSource deck and Steve will discuss Columbia Pipeline Partners IPO and its predecessor results. Steve? Steve Smith Thanks, Bob. With the launch of CPPL, we’ve introduced a best in class MLP to the market. One with a strong supportive sponsor, stable and predictable cash flows that are virtually insensitive to fluctuations in commodity prices and volumes, a robust growth profile with a deep inventory of long-term infrastructure investments. The strategic footprint overlaying the Marcellus and Utica shale production areas. The financial strength and flexibility and a premier execution focused and experienced leadership team. Our offering was very well received and we’re very pleased with the continued positive response. Let’s quickly touch on our IPO and predecessor results on page 12. The offering of approximately 54 million units at $23 per share raised nearly $1.2 billion. The pricing offering on February 5 and subsequently began trading on the New York Stock Exchange under the symbol CPPL the following day. These units include the full [inaudible] allotment executed by the underwriters. And as I mentioned previously, our $500 million five-year revolving credit facility we entered into in December came effective upon the IPO. Now let’s turn to our predecessor results issued this morning for periods prior to the IPO. As we outlined during our earlier NiSource remarks, Columbia Pipeline Group executed on and placed into service a wide variety of high-value projects during the year. These projects recorded CPPL’s predecessor growth and will serve as the model for the partnerships growth in 2015 and beyond. The predecessor reported net income of about $269 million for 2014 compared to about $267 million for 2013. The increase is primarily a result of new growth projects placed in service, new firm contracts and higher mineral rights royalties. On an adjusted EBITDA basis, the predecessor reported about $599 million in 2014 versus about $543 million in 2013. These results provide us with a solid footing as we move forward with CPPL’s strategy. Bob? Bob Skaggs Thanks Steve and thank you for participating today and for your ongoing interest and support of NiSource and Columbia Pipeline Partners. With that Nicholas, we’re ready to open the call to questions. Question-and-Answer Session Operator [Operator Instructions]. Our first question comes from the line of John Barta with KeyBanc. Your line is now open. Please proceed with your question. John Barta Bob, thanks for the color on the Columbia kind of growth rates there. First off, are there any certain milestones we should be looking for regarding Mountaineer and Golf pipeline or did you say everything was going to be finalized in July? Bob Skaggs Yes, we mentioned we hope to clear all of our contractual outs by July. At the moment, we’re still working on agreements with the foundation shippers. One event that we would point you to is open seasons, both Mountaineer XPress and Gulf XPress. If you see those in the coming weeks, or so, that would be a positive sign that the projects continue to be moving forward. I would add those open seasons will be binding open seasons. That would be one guidepost. Operator Our next question comes from the line of Carl Kirst with BMO Capital. Your line is now open. Please proceed with your question. Carl Kirst If I could just maybe stay with Mountaineer and Gulf XPress for a second but perhaps ask it in a way to see if there has been any shift in tone in producer conversations and in particular, if you’ve seen any reticence or pulling back midstream versus pipeline? Certainly your enthusiasm for the pipelines to hopefully have contracts by July would indicate that they are staying pretty positive and constructive. But I just wanted to make sure I’m getting the right read here. Bob Skaggs Yes. You’ve hit the nail on the head. It remains positive, constructive. We have been in very, very close contact with our producer shipper customers both on the big work projects as well as the midstream projects. Carl Kirst Do you find a difference in the tenor of conversations between the midstream and the pipelines, or just given the exposure to the region, both are continuing to move forward? Bob Skaggs It’s the latter. There is not a material difference in tone. As you know, folks are being prudent with their CapEx for 2015. Having said that, they still remain fully committed to the Marcellus and Utica and they still focus on take away capacity particularly when you get into the 2017, 2018, 2019 timeframe. Carl Kirst And then maybe one last question on the larger pipes and recognizing hopefully we have a binding open season not too far away. I guess should we think about the risk to the project? Is this more of a — do you guys feel like you are in a competitive shootout with anybody, or is this just a matter of getting the producers comfortable with the economics and trying to get to the right region, but once they make that decision, you guys or these projects are the obvious choice? I just want to make sure I got a good sense of that. Bob Skaggs I wouldn’t go so far as to say obvious choice, but I would say that the focus tends to be on your latter point. That being the economics, the in service date and the like. Carl Kirst And then last question if I could and then maybe one for Steve. I know of very tiny thing, but I’m just curious given the difference of commodity prices, is there any way we should think about the delta or the change in mineral or royalties that you guys are getting from the upstream exposure between 2015 and 2014? Steve Smith This is Steve. I would say it’s immaterial to the overall results going forward. Operator Thank you. Our next question comes from the line of Chris Sighinolfi with Jefferies. Your line is now open. Please proceed with your question. Chris Sighinolfi I just wanted to follow-up on of couple things. I appreciate your color and comments on the CPG ex EBITDA and dividend growth profiles. I was just curious assuming that you’re not going to answer a question as to where the starting point is for 2015, if you could just help us frame as you think about it and the board thinks about it the policy considerations around the initial level. I get the growth rate, but as we think about where — the variables that might shape where you guys ultimately set the starting point upon which we’re going to grow at that mid to upper teens level. Can you just give us some additional color on that front? Bob Skaggs Yes. Two key considerations. Number one, as you know we’re very sensitive to credit. We’re fully committed to investment grade credit. We need to go through the credit rating process in the March timeframe as we prepare for recap. So that starting point quite frankly is somewhat sensitive, somewhat dependent on credit considerations. The other is that the huge CapEx needs we have and so it’s balancing credit, CapEx and financing coming out of the gate. Those are the key considerations for starting point. Chris Sighinolfi Okay. And so to dovetail on prior questions, if some of the projects that are currently in discussion, sounds like they are moving forward into execution, like Mountaineer and Gulf that could be significant capital deployment. I would imagine then that would be part of this conversation. Bob Skaggs Correct. As I pointed out in my prepared remarks that we do have the significant events as we come up to separation and that’s certainly a huge, huge variable as we look at the financials and the outlook for the business. Chris Sighinolfi Perfect. And I guess switching and perhaps this is a question for Steve. Given the IPO, I know priced 15% or so above the range and I’m imagining the full overallotment exercise. Does that change at all the amount you had talked previously about a $3 billion debt recap. Does that shape at all the expectations around that modestly or at all? Steve Smith Not to a large extent. I mean, it does help obviously from a credit perspective, so we’re very pleased with the outcome of the IPO. With respect to the recapitalization, it is not going to move the needle too dramatically either way. Bob Skaggs We suggest still thinking in terms of $3 billion. Chris Sighinolfi Okay. And that I imagine will be profiled out in various tranches the various duration. Am I incorrect in thinking that? Steve Smith That is correct. Our current debt portfolio has a weighted average life of approximately 13.5 years. We would shoot for something north of 10 years, weighted average life. So probably issue a basket of 5, 10 and 30s to achieve that. Chris Sighinolfi One final question for me, there was a slight uptick even if I exclude the transaction costs for the fourth quarter that you reported in your corporate segment. There was an uptick in the corporate line item. Is there anything specific that’s driving that or is that just a variance from year-to-year? Bob Skaggs That’s just a variance from year-to-year. We have a bit more outside services costs in there as well as a result of all the activities we have going on here currently with respect to the separations. Operator Our next question comes from the line of Becca Followill with U.S. Capital Advisors. Your line is now open. Please proceed with your question. Becca Followill The growth rate that you’ve outlined for CPG of mid- to upper-teens, over what time frame is that? Bob Skaggs Next three to five years. Becca Followill And are you willing to talk at this point about what type of payout ratio that assumes? Bob Skaggs Not at this point, Becca. Becca Followill Okay. I understand. And then the large CapEx program that you have at CPG, how do you finance that going forward? Bob Skaggs Well, the MLP is the sole source of equity through the period and we will be using it frequently to support that. Operator [Operator Instructions].Our next question comes from the line of Charles Fishman with Morningstar. Your line is open. Please proceed with your question. Charles Fishman I assume you will take a couple questions on NIPSCO. Slide 7, Bob, the $67 million of the electric modernization plan to be expected to be spent in 2015. 100% of that is covered by trackers? Bob Skaggs That’s correct. Charles Fishman And then I would assume if my math’s correct $1.1 billion over seven years, that’s probably likely going to accelerate that number in 2016 or is this thing backend loaded? Bob Skaggs It gradually steps up and you may have heard us say in prior calls, prior discussions, as we complete the scrubber program, the modernization program begins to tick up or step up. Charles Fishman Okay. And then last question on NIPSCO, the clean power plan, if you look at what the EPA is proposing for Indiana, a lot of coal plant heat rate improvement, a lot of renewables, a lot of efficiencies at the customer level. Not a lot of gas CCDTs, but have you had any initial discussions with Indiana about what, what would be expected of NIPSCO if this thing comes in even close to what they are proposing? Bob Skaggs Yes. We’re in constant communications with our stakeholders, with the state. At this point nothing definitive has really been exchanged or decided. But clearly we’re working day to day with all those folks. Charles Fishman Now in the CPP plan for Indiana, a lot of renewables, is that something that’s even on the radar screen as far as the electric utility or the NIPSCO that’s after the separation that that’s an investment opportunity that they might consider? Bob Skaggs Yes, it could be down the road, but I would say over the next few years, still continues to play a modest role in the portfolio. Operator Thank you. And with no further questions in the queue, I will now like to turn the call over to the speakers for any closing remarks. Bob Skaggs Thank you and thank you once again for your ongoing interest in NiSource and your ongoing support. We greatly appreciate it. Have a good, safe day. Thanks, everyone. Operator Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a good day, everyone.

Income-Oriented ETF Provides Exposure To Infrastructure Boom

By DailyAlts Staff Investors seeking exposure to global infrastructure assets have a new and attractive option, thanks to the February 11 launch of the Guggenheim High Income Infrastructure ETF (NYSEARCA: GHII ). The new ETF is the first infrastructure ETF to weight its holdings according to 12-month trailing dividend yield, rather than market capitalization or some other measure. The result is an investment vehicle that provides exposure to public services, toll roads, airports, water, pipelines, utilities, and other essential services around the world, with a focus on generating current income for its investors. Global Exposure The Guggenheim High Income Infrastructure ETF tracks the S&P High Income Infrastructure Index, which is composed of the S&P Global BMI’s 50 highest-dividend-paying companies in the energy, transportation, and utilities sectors. The fund and its underlying index have a global footprint, with only about one-fifth of components domiciled in the United States. The fund’s top holdings include investments in Australia (14%), China (9%), Spain (8%), and Italy (8%); and it also has significant exposure to infrastructure assets in Britain, Canada, Singapore, and France. “The infrastructure asset class offers investors the opportunity to realize enhanced return and capital appreciation,” said a Guggenheim spokesperson. “Offering strong cash flow potential, assets with typically long life spans, as well as relatively low volatility and significant barriers to entry, infrastructure provides investors with access to an emerging segment of the market aligned with the global recovery.” Continued Infrastructure Spending The launch of the Guggenheim High Income Infrastructure ETF appears to be well-timed, as governments around the world – despite fiscal and monetary woes – are planning ambitious new rounds of infrastructure spending. Oxford Economics and PwC project global infrastructure spending will total nearly $78 trillion between 2014 and 2025; with about 60% of that attributable to the Asia Pacific. In the U.S., the White House says that infrastructure investment will continue to be needed even after the economy reaches full employment, but that “time is running out to make these needed investments under ideal economic conditions.” Shares of the Guggenheim High Income Infrastructure ETF face an expense ratio of 0.45% – two basis points less than the 0.47% charged by the rival iShares Global Infrastructure ETF (NYSEARCA: IGF ).