MERRILLVILLE Jun 23, 2015 (Thomson StreetEvents) -- Edited Transcript of NiSource Inc conference call or presentation Thursday, May 14, 2015 at 2:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Bruce Connery Columbia Pipeline Group - VP of IR * Bob Skaggs Columbia Pipeline Group - CEO * Glen Kettering Columbia Pipeline Group - President * Steve Smith Columbia Pipeline Group - CFO ================================================================================ Conference Call Participants ================================================================================ * Shneur Gershuni UBS - Analyst * Chris Sighinolfi Jefferies & Company - Analyst * James Carreker US Capital Advisors - Analyst * John Edwards Credit Suisse - Analyst * Steve Fleischman Wolfe Research - Analyst * Charles Fishman Morningstar, Inc - Analyst * Jeff Healy AIG - Analyst * Chris Brown Columbus Hill Capital Management - Analyst * Greg Shere Tuohy Brothers - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good day, ladies and gentlemen, and welcome to NiSource-CPG Separation Update webcast. (Operator Instructions) As a reminder, this conference call may be recorded. At this time, I would like to hand the conference over to Mr. Bruce Connery, Vice President of Investor Relations. Sir, you may begin. -------------------------------------------------------------------------------- Bruce Connery, Columbia Pipeline Group - VP of IR [2] -------------------------------------------------------------------------------- Good morning, everyone, and welcome to this morning's investor update for Columbia Pipeline Group. Before turning the call over to Bob Skaggs and the CPG leadership team, I want to remind everyone that some of the statements made on this webcast will be forward-looking. These statements are subject to risk and uncertainties that could cause actual results to differ materially from those expressed in the statements. Information concerning such risk and uncertainties are included in the MD&A and Risk Factor sections of our periodic SEC filings. With that, let me hand the call over to Bob Skaggs to review our agenda and kick things off. Bob? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [3] -------------------------------------------------------------------------------- Thanks, Bruce, and thank you, everyone, for joining this morning's call. It's good to be with you, and, as always, we appreciate your interest and participation. To say the least, we're excited to provide a deep dive into CPG's growth and financial outlook. As you'll see, CPG is positioned for transformational growth as a premier pure-play pipeline, midstream, and storage company. When we announced the CPG separation strategy last year, we set compelling transaction for all stakeholders, providing a springboard to enhance growth and enhanced value creation. And, indeed, CPG's growth outlook is compelling. Spoiler alert -- the team will share details of a straightforward strategy expected to triple CPG's net investment and drive 20% average EBITDA growth and 15% average dividend growth through 2020. True to our form, this strategy is well defined, crystal clear, and will be delivered on time and on budget. As for our agenda, I'll kick things off this morning with a quick update on the separation process. Then Glen Kettering will profile CPG's business and growth strategies. And then Steve Smith will round things out with a review of our financial profile. And, as always, we'll provide plenty of time for your questions. So, with that, let's go to slide 4, which provides a quick reminder of the key benefits of the NiSource-CPG separation. Many of you saw a version of this slide when we first announced the separation plan. To summarize, with this transaction, we're creating two dynamic pure-play Companies that will have greater strategic clarity, and benefit from the size and scale of their distinct assets and customer bases. Each Company will have a sharper, more disciplined focus to execute on robust long-term investment plans. And each Company can truly deliver the goods, with experienced, deep- and execution-focused leadership teams. Finally, separating the Companies provides greater alignment and transparency for investors seeking a traditional utility profile, or those wanting a high-growth pipeline, midstream, and storage company investment. All of which adds up to the creation of two premier energy infrastructure Companies. As slide 5 shows, we're fully on track with separation plans. In February, we successfully launched Columbia Pipeline Partners, with a record-setting $1.2 billion IPO. As you know, the MLP serves as a primary funding source for CPG's transformational growth investments. We're also on track to affirm our investment-grade credit ratings for both CPG and NiSource. In fact, CPG received confirmation of its investment-grade ratings earlier this month, and we expect NiSource to be rated investment grade at or about the time of separation. With CPG's credit rating in hand, our team is successfully executing on the recapitalization process. We have launched the NiSource tender offer, and we're issuing $2.75 billion in CPG long-term debt. Our Form 10 Registration Statement is also solidly on track with the SEC. So, in summary, with final Board approval in early June, we're fully poised to execute on the separation. We expect the separation to be effective July 1, with stockholders receiving one share of CPG stock for each NiSource share they own as of a June 19 record date. Today, we'll touch on several key elements of CPG's investment proposition, starting with our core commitment to continue growing our dividends. As highlighted on slide 6, earlier this week the NiSource Board affirmed our commitment to strong and continued dividend growth for both NiSource and CPG. NiSource and CPG intend to pay shareholders an initial combined quarterly common stock dividend of $0.28 per share following the separation -- nearly an 8% increase over the current NiSource dividend. It would be comprised of $0.155 for NiSource and $0.125 per share for CPG. Annualized, NiSource would be at $0.62 per share, and CPG at $0.50 per share. Following separation, we expect NiSource to target a dividend growth rate of 4% to 6% annually. CPG expects to a target a dividend growth rate that would average 15% through 2020. Shifting fully to Columbia Pipeline Group, on slide 7, you'll see core elements of CPG's familiar and tested business strategy. Foundational to that strategy, of course, is our overriding commitment to deliver safe and reliable service to our customers and the communities we serve each and every day. Aligned closely with that commitment is our focus on meeting the needs of our customers through well-executed organic and accretive infrastructure investments. In that regard, CPG's growth inventory is highly visible and well established. It includes our industry-leading system modernization program, our truly transformational array of regulated growth projects, and our rapidly developing midstream franchise. By executing on that investment inventory, CPG has charted a growth trajectory that is impressive by virtually any measure, resulting in superior returns and robust long-term EBITDA and dividend growth. And that growth is underpinned by a foundation of core financial strength and flexibility. The new CPG will be investment grade, with efficient equity funding via our MLP, and outstanding cash optionality. And, finally, a note that we're able to deliver on this straightforward and tested strategy, because we have a proven and talented team that's ready, willing, and able to deliver the goods. And, speaking of the team, you'll see a snapshot of CPG's senior leadership team on slide 8. As I mentioned, you will hear from Glen and Steve today. And, I assure you, behind each of our executive leaders are many more members of our team, all fully focused on flawlessly executing the CPG strategy and delivering on the CPG investment proposition. Speaking of the CPG investment proposition, let me wrap up by hitting on the fundamentals underlying a truly outstanding investment thesis. For starters, CPG features an unparalleled foundation of stable, predictable cash flows derived from 95% fee-based revenues. As I noted earlier, CPG also is poised to deliver transformational growth, with a net investment level expected to triple in size by 2020. The Company will be well capitalized in investment grade, providing financial strength and optionality that will grow dramatically as we approach 2020. All of which translates into a premier investment proposition, featuring about 20% average EBITDA growth and 15% average dividend growth through 2020 -- a growing payout that will be in line with high-growth peers over time. And about 20% average MLP distribution growth through 2020. By virtually any measure, that's a compelling, convincing and crystal-clear investment proposition. With that framework in mind, let me pass the ball to Glen and Steve for a closer look at CPG's strategy to build and grow a premier pipeline, midstream, and storage company. Glen? -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [4] -------------------------------------------------------------------------------- Thanks, Bob, and good morning, everyone. It's great to be with you today and to have the opportunity to provide an update on CPG's business and how we plan to grow it, and grow it significantly over the next several years. Focusing on slide 10, before launching into the slide, a few introductory notes. First, we strongly believe that the CPG story is a compelling one. The combination of a very stable base business, a strategic asset footprint with significant scale and reach, a substantial and visible growth investment inventory and -- as Steve will outline in a few moments -- a strong financial profile makes CPG a very compelling proposition for our customers, our employees, and investors. Second, I would emphasize the CPG's team's singular focus on execution. Over the last several years, as we've deepened our investment inventory and deployed increasing amounts of capital, we've placed a very high priority on flawless execution -- both in terms of delivering on our core mission of providing safe, reliable service to our customers every day, and in terms of placing our growth and modernization projects in service on time, and on budget. I'm confident the team will continue to hit those execution marks as we move forward, and capture the once-in-a-generation opportunities that we're seeing in the market. With that, let's turn to slide 11. This slide highlights CPG's core interstate system, which comprises about 90% of our $4.5 billion net investment base. You can see that CPG has an impressive, really unparalleled, asset footprint, the core of which -- Columbia Transmission, shown in blue -- fits directly on top of the Marcellus and Utica Shale plates. Our proximity to this prolific and growing supply source sets the stage for much of the growth that the team is capitalizing on. Columbia Gulf, shown in orange, is likewise a key strategic asset for CPG, providing producers with competitive access to liquid trading points and growing to Gulf Coast markets. You'll also note the significant scale and reach, with access to quality Midwest, mid-Atlantic, and Gulf Coast markets. Additionally, I would note that CPG operates substantial market area storage, with about 300 Bcf of working gas. And that's contracted by our core LDC customers to meet their seasonal and peak-day operational needs. In addition to having a system that is in the right place, at the right time, CPG has a rock-solid core business that produces highly predictable and stable cash flows, that are based on long-term fee-based contracts with a high-quality, diverse customer base. More on that in a few minutes. Turning to slide 12, CPG's midstream business -- that is, our non-regulated gathering and processing business -- is an attractive complement to our core interstate systems, representing about 10% of CPG's net investment base. Over the last several years, we've established ourselves as a key midstream player in the Marcellus and Utica regions, with the establishment of a number of core franchises. First is the Majorsville Gathering System, located in northern West Virginia and southwest Pennsylvania. It's a wet-gas gathering system that feeds into the MarkWest Majorsville processing plant, one of the largest processing hubs in the Marcellus region. It also provides take-away transport into Columbia Transmission and Texas Eastern. This system is fully committed by long-term contracts with a number of producers, including Chevron, Statoil, Southwestern, Range, Noble, and CONSOL -- a solid base from which to build our midstream business. Our second franchise is the Big Pine Gathering System, which is situated in a very active part of the western Pennsylvania Marcellus, with three delivery points to major interstate pipelines -- Columbia Transmission, Dominion, and Texas Eastern. The Big Pine system was placed in service in early 2013. Anchor customers on Big Pine are XTO, Range Resources, and Penn Energy -- again, with long-term demand-type contracts. In light of the increased customer demand for capacity in this area, we're currently expanding the Big Pine system, and we expect to have additional expansions in the future. Our third franchise is Pennant Midstream Services, a 50/50 joint venture with Hilcorp, located in northeast Ohio and western Pennsylvania. Pennant's core asset is the Hickory Bend system, a 40-mile-plus wet-gas gathering system that feeds into a new state-of-the-art processing plant on the Ohio-Pennsylvania border. We also have an NGL line that transports liquids from the plant to the Kensington facility and, ultimately, for further downstream fractionation. Our fourth franchise, the East Washington Gathering System, is a roughly $120-million investment, designed to serve Range Resources' large-acreage position in Washington County, Pennsylvania. The system is designed to move about 400,000 dekatherms per day into the Columbia Transmission System, among others. And, on our first-quarter earnings call, you may remember that we introduced plans for our fifth midstream franchise, a roughly 1-Bcf header in southwest Pennsylvania, designed to move growing dry Utica and Marcellus volumes into the interstate pipeline grid, including an interconnect with Columbia Transmission at Majorsville. This project, which is expected to involve an investment of $275 million to $300 million, with future expansions likely, will be anchored by a key established producer in the region. We expect this project to be placed into service in 2016. Slide 13 highlights the highly predictable nature of CPG's cash flows, and the quality and diversity of the customer base supporting them. Specifically, virtually all of our transportation and storage revenues come from firm take-or-pay-type contracts with a weighted-average remaining life of roughly five years. I would note that the long-term fixed-fee deal structures of our growth projects in development and execution, typically involving terms of 15 years or more, will add to that average contract term profile. Turning to slide 14, before I profile our individual projects, let me touch on the key elements that drive CPG's growth story. If you rewind seven years, back to 2008, Marcellus production was barely 1 Bcf per day. Today Marcellus and Utica production combined is about 18 Bcf per day -- almost a quarter of total US supplies -- and the growth is expected to continue. If you fast forward five years to the end of the decade, the consensus is that the production from these regions will be in the excess of 25 Bcf per day. Not surprisingly, this prolific supply growth has fundamentally changed the physical flow and commercial dynamics of the pipeline grid. And it's the catalyst for the very significant investment cycle we're currently participating in. As producers seek access to high-value trading points and market centers, the Columbia Transmission system, complemented by our midstream assets, provide excellent connectivity and market access. And in terms of pathways out of the Appalachian Basin, the Columbia Gulf system has proven to be one of, if not the, pipeline of choice. By the fourth quarter of 2017, all three of Columbia Gulf's high-pressure, large-diameter trunk lines will have become bi-directional, providing almost 2 Bcf per day of outlet capacity to the south. By the same time in 2018, with the addition of midpoint compression along the Columbia Gulf system, we expect to create nearly another 1 Bcf of north-to-south capacity. Again, a key asset that's highly valued in the marketplace. And, finally, while many of our projects are supply-push investments, it's important to note that we're also taking advantage of a number of demand-pull opportunities to serve LDCs, power generation, and LNG export markets, in excess of 1.5 Bcf per day, in total. A number of these are shown on the next slide. And, as you can see on slide 15, CPG is capturing its fair share, and then some, of the opportunities to grow its interstate and midstream businesses, involving substantial investments that will drive strong, long-term EBITDA and dividend growth. In addition to the $4 billion to $5 billion in revenue-generating investments to modernize the Columbia Transmission system -- all under the framework of a first-of-its-kind agreement with our customers -- our current inventory of interstate and midstream growth projects exceeds $7 billion. And we fully expect that inventory to continue to grow as the team originates additional prospects going forward. With respect to the modernization program, I'd note that we've recently engaged a core group of customers to discuss the possible extension of the program for an additional five-year period, and an expansion of the eligible facilities and overall size of the program. Additional customer discussions will be taking place over the next several months, and we'll provide further updates as the process unfolds. Next, let me address the interstate growth projects, which I'd point out, are not just projects that we aspire to build. But, rather, these are projects -- with one exception -- are well into the execution phase. And by execution phase, what we mean is that the commercial agreements are in place, Board approvals have been secured by all parties, and we've handed those projects off to our regulatory and project management teams to start working on the FERC filings, the public outreach, permitting, and, ultimately, actual construction. Illustrating the point I made earlier, you note on this slide that the interstate investment opportunities shown here, project numbers 1 through 10, represent a really diverse portfolio, comprised of a nice mix of supply-push and demand-pull projects. You can also see that the project footprint is extensive. Our supply projects touch both the northeast and the southwest Marcellus, as well as the Utica. And, our demand-driven projects span from Louisiana to New Jersey, and touch all segments of the industry, from LDCs to power gen, marketers, industrials, and, notably, East Coast and Gulf Coast LNG export markets. On the next few sides, I'll provide a brief overview of several of the major projects. On slide 16, we feature the East Side Expansion, which provides a strategic link between growing northeast Marcellus supplies and growing mid-Atlantic markets. It's sized to transport about 300,000 dekatherms per day, and it will be placed in service in the fourth quarter of this year. The project is fully subscribed, with long-term fixed-fee contracts with LDCs, marketers, and producers. Our targeted capital investment for the project is in the $275 million range. On slide 17, our Cameron Access project is one of the two projects directly tied to growing LNG exports. This project's facilities include a new lateral on the Columbia Gulf system that will be built directly into the Cameron terminal, providing shippers with greater supply diversity and greater reliability. Sized at 800,000 dekatherms per day, this represents a major new market on the Columbia Gulf system. And one that's likely to be an attractive complement to many of the growing Marcellus and Utica supplies that are being connected to the CPG system. The project is over 90% subscribed, again, with long-term fixed-fee contracts. I'd also note that we can economically expand our Cameron capacity to capture additional growth. In that connection, Sempra has announced intentions to add trains 4 and 5 at Cameron. And if that occurs, we believe CPG is well positioned to capture a share of that growth. Capital investment for Cameron is about $310 million, and our estimated in-service date is the first quarter of 2018. Moving to slide 18, many of you may be familiar with our Leach XPress and Rayne XPress projects. Leach XPress is a project on the Columbia Transmission system, while the Rayne XPress is a related project on Columbia Gulf. Major facilities for the Leach XPress project include both upgraded and new compression, as well as about 160 miles of new pipe, roughly 125 miles of which will be a large-diameter supply header in Ohio, capable of transporting approximately 1.5 Bcf per day, linking Marcellus and Utica receipts to our existing facilities in the western portion of the state. Those existing facilities will then be reinforced with compression and pipeline looping. Roughly a third of the project's total capacity will be destined for the highly liquid TCO Pool and Ohio markets on the Columbia Transmission system. The balance, or about 1 Bcf per day, will be transported further south to markets off of the Columbia Gulf system, via Rayne XPress. These projects are essentially fully subscribed with long-term, fixed-fee contracts. And with respect to the Leach XPress in particular, it's important to note that our capacity can be economically expanded by adding additional compression to capture further growth. At a combined capital investment of $1.8 billion, these projects represent the first tranche of CPG's truly transformational investments. Transformational both in the sense that they will drive significant EBITDA growth, and in that they will increase the overall capability of our system and provide for further operating efficiencies. On slide 19, we highlight WB Xpress, a project sized to transport about 1.3 Bcf per day, with roughly 800,000 dekatherms going on a western path, and 500,000 dekatherms per day heading east. The eastern path includes capacity that will ultimately serve the Cove Point LNG export line. The project is supported by long-term, fixed-fee contracts, and is fully subscribed. WB is targeted to be in service in the fourth quarter of 2018, and the capital investment is about $850 million. Turning to slide 20 -- last, but by no means least -- our Mountaineer XPress and Gulf XPress projects, which we refer to as MXP and GXP, are poised to be the largest in CPG's history, transporting about 2.7 Bcf per day on the Columbia Transmission system, and nearly 1 Bcf per day on Columbia Gulf, at a combined investment of about $2.6 billion. In-service is targeted for the fourth quarter of 2018. As you may know, we recently concluded binding open seasons for the projects, and we've executed precedent agreements in-hand for the vast majority of the projects' capacity. We'll be seeking Board approval for MXP and GXP next month, and we expect to be in full-execution mode immediately after that. Turning to slide 21, with the size and scope of our project inventory, it's obviously essential that we have the resources and the capabilities in place to deliver projects on time and on budget. We're confident that the CPG team is up to that challenge, and our confidence is grounded on a number of key considerations. First, as CPG has ramped up its capital spend over the last several years, the team has developed a very strong track record, in terms of overall project execution. In just the last five years, our annual CapEx program has grown from about $300 million to over $1.1 billion this year. And along the way, we've added significant project management and project delivery muscle tone, both in terms of our core internal resources and processes, and in terms of a host of strategic alliances built with key contractors and pipeline and compressor suppliers. In addition, it's important to note that, while the headline CapEx numbers on some of these projects are quite substantial, in reality, projects such as Leach, Rayne or MXP and GXP, are typically comprised of a dozen or more smaller pipeline and compressor projects, predominately being built within our existing footprint. These are precisely the type kinds of projects that we've been successfully executing over the past several years, both as part of our system modernization program, and in connection with a series of growth projects we have placed in service. In other words, it's essentially the type of work that our project delivery team has an extensive amount of successful experience with. And, in those instances where we do have stretches of greenfield pipeline, they tend to be in more rural areas where pipeline construction activity is relatively common and generally serve to link our existing systems together. To that point, the Cameron, Leach XPress, and MXP projects involve builds in Louisiana, Ohio, and West Virginia, respectively, which we regard as quite manageable construction environments. So, in a nutshell, we're confident in the team's ability to continue hitting its marks, in terms of delivering projects on time and on budget. And speaking of budgets, I'd point out that we're able to do so at an average CapEx to EBITDA multiple of 5 to 7 times, which creates significant value for CPG. I'll conclude with slide 22, which illustrates the growth wave that we expect to unfold between now and 2020, effectively tripling the size of CPG's net investment level. The first seven bars represent the net investment growth that will result from our established modernization program, as well as the projects I've discussed that are in execution and advanced development phases, including MXP and GXP. The next-to-last bar is what we regard as a very conservative estimate of the additional interstate and midstream investments we expect to be making over the balance of the decade. Without question, our bias on that score is definitely to the upside, as our team continues to originate a deep inventory of prospects. Just as an example, our dry Utica header project, by itself, represents about a third of the investments shown on that bar. Before turning the call over to Steve, let me reiterate why we believe so firmly in the strength of this CPG story. First, we've got a great core franchise, with stable and predictable cash flows, driven by long-term, fee-based contracts, with a high-quality, diverse customer base. We have a strategically located interstate and midstream footprint, sitting literally on top of the Utica and Marcellus Shale regions. We've got a robust and highly visible portfolio of growth opportunities that we expect to drive strong EBITDA and dividend growth, going forward. And, as Steve will discuss, CPG has a strong financial profile to support these exciting growth plans -- a great combination by any measure. With that, I'll turn the call over to Steve. -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [5] -------------------------------------------------------------------------------- Thank you Glen, and good morning, everyone. Bob and Glen provided a great overview of our strategic objectives and very deep investment portfolio. It is certainly an exciting time for CPG. I'm going to spend a few minutes laying out our financial strategy and provide a better understanding of CPG's capital and financing plans, and how CPG and CPPL owners will benefit from this period of transformational growth. Turning to slide 24, let me summarize our financial objectives. They are straightforward, compelling, and aimed to provide best-in-class returns. We have been and we will continue to be good stewards of shareholders' capital, investing in solid projects that provide attractive returns. On average, we would expect that our organic growth projects would be built for roughly 5 to 7 times EBITDA. As Glen pointed out, we look for investment opportunities that capitalize on our strategic footprint, while sticking to growth projects that are in our wheelhouse. We are committed to a strong financial profile that maintains investment-grade credit ratings and ample liquidity. We have been very purposeful in putting ourselves in a strong financial position as we deliver our transformational expansion projects. As many of you know, a key part of our plan was the successful initial public offering of CPPL in February. CPPL will be the cornerstone of our financing plans. With each equity issuance, CPPL will acquire additional interest in CPG OpCo. And we expect the effective public CPPL ownership of CPG OpCo to reach somewhere between 35% and 45% by 2020. The strong organic growth at CPG OpCo, along with the accretive nature of CPPL's acquisitions of CPG OpCo interests, will fuel what we forecast to be 20% average annual distribution growth through 2020. We believe the outlook for CPG is exceptional. On average, 20% annual EBITDA growth through 2020, 15% annual dividend growth -- on average -- through 2020, plus a valuable GP interest that will grow rapidly, reaching the high splits in 2018. Note that our initial dividend coverage will be high -- in the vicinity of 2 times. However, it will moderate over time and approach that of our peers. With the scale of our investment inventory, which is comprised of very attractive projects, we intend to strike an appropriate balance between prudent management of our balance sheet and returning capital to shareholders. Over time, we expect our dividend coverage will be more in line with high-growth GP peers. Let me now give you a look at the capital investment that we will be making to deliver this growth. You can see on slide 25, with the addition of Mountaineer XPress and Gulf XPress, our CapEx program has grown to $8.4 billion over the 2016-to-2020 timeframe, with peak spending occurring in 2017 and 2018. Looking forward to 2019 and 2020, we are currently assuming modest growth capital, less than $800 million per year. But, as Glen indicated, we expect to compete for and win additional expansion projects, just as the team has been doing over the last several years. Filling the bucket for 2018 and 2019 could be a mix of opportunities, additional supply-push regulated pipeline projects, market-driven expansions -- including LNG exports or gas-fired generation -- or unregulated midstream gathering or processing opportunities. We expect to have the capacity to both fund future growth opportunities and continued robust dividend growth. Turning to slide 26, this is very similar to the one Glen showed you. However, this slide only includes projects with firm customer commitments. Our net investment has a steep growth trajectory, as the modernization spend and expansion projects go into service, and begin in generating cash flow. And, as I mentioned on the previous chart, we are assuming very modest assumptions for additional growth investment in 2019 and 2020. On slide 27, the EBITDA profile of CPG reflects the transformational growth that is taking place. In the S1 for CPPL, we provided detailed financials for 2015. Applying those financials to CPG, we would expect 2015 EBITDA of approximately $680 million. From 2015 to 2020, we are targeting 20% average annual EBITDA growth, reflecting the truly phenomenal growth our shareholders will participate in. As you would expect, there is a significant step-up in cash flow between 2018 and 2019, as Cameron Access, Mountaineer and Gulf XPress all go into service. By definition, this surge in cash flow delivers a sharp improvement in credit metrics, greater overall balance sheet flexibility, and capacity for a substantial increase in our dividend. Turning to slide 28, let me summarize our recapitalization process and strong liquidity position. We will be announcing a CPG debt offering very soon that is a key part of the recapitalization program. Due to the success of the CPPL IPO, we reduced our targeted CPG debt offering from $3 billion to $2.75 billion. The notes are solidly investment grade with all three rating agencies. We will have maturities ranging from 3 to 30 years, with an expected weighted-average maturity greater than 10 years. We will use the proceeds to eliminate approximately $1.2 billion of NiSource inter-Company debt, and pay a $1.45-billion special dividend to NiSource. The remaining funds will be applied to this year's capital program. Our starting liquidity position at separation will be quite strong, with a total of $2 billion of revolving credit facilities in place at CPG and CPPL, with only a small amount drawn on the CPPL revolver. Near term, we will use the CPG revolver for borrowing needs -- between $600 million to $700 million for the remainder of 2015. And, lastly, we do not expect to issue any additional CPPL equity until early 2016. On slide 29, you will see that we plan to issue approximately $4 billion of CPPL equity over the 2016-to-2018 timeframe. Again, CPPL is the cornerstone of our financing plan. Any additional funding needs will come primarily from the CPG revolver. In terms of managing the CPG balance sheet over the next few years, our debt to EBITDA will be around 4.5 times. We expect periods when we will be slightly above 4.5 times, but the issuance of CPPL equity will reduce this ratio. When our major projects come online in 2018, CPG will have significantly more optionality for further investment in new growth projects, dividend growth, and other shareholder initiatives. Something I should also point out is that the majority of our investment is in fee-based projects and, as a result, our revenue profile will not change. Roughly 95% of our revenues will remain fee-based. This is a great strength of CPG, and one that will endure well into the future. Slide 30 pulls together the sources and uses of cash across CPG and CPPL. In the 2016-to-2020 timeframe, we are forecasting roughly $10.5 billion of cash needs for CapEx, dividend, and distribution payments. Approximately 45% of our cash will come from operations, with almost 40% from MLP equity, and the balance from shorter long-term debt. Given our robust slate of expansion projects, we believe this is a prudent financing plan. Please turn to slide 31, and let me close my remarks as I began. This is truly an exciting time for CPG. We find ourselves in the enviable position of transformational growth for a well-positioned pipeline, midstream, and storage Company. We have a solid, deep, and, I might add, growing investment portfolio that is underpinned by a financing plan that is prudent, and takes into account the best interests of all stakeholders. As Glen mentioned earlier, our team is squarely focused on executing on our growth strategy, building off of a solid track record of delivering investment projects on time and on budget. Equally important, we have the platform to successfully finance this growth. Our liquidity is solid, as is our balance sheet, and we have a best-in-class MLP to deliver an appropriate amount of equity. I hope you agree that we offer two compelling investment opportunities with CPGX and CPPL. The assets that they jointly own have an excellent growth trajectory. And the owners of these securities can look forward to outstanding dividend and distribution growth. I'll now turn the call back to Bob for closing comments. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [6] -------------------------------------------------------------------------------- Thanks, Steve. Let me wrap up by quickly repeating the CPG highlights. An unparalleled foundation of stable predictable cash flows from about 95% fee-based revenues. Transformational growth, with a net investment level expected to triple by 2020. And financial strength and optionality from a well-capitalized investment-grade foundation, all of which translates into a premier investment proposition -- about 20% average EBITDA growth and 15% average dividend growth through 2020. A growing payout in line with high-growth peers over time. And about 20% average MLP distribution growth through 2020. By any measure, that's a compelling, convincing, and crystal-clear investment proposition, delivered by a proven team that knows how to execute. With that, we're happy to open the lines to your questions and comments. Fayed, we're available. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Shneur Gershuni, UBS. -------------------------------------------------------------------------------- Shneur Gershuni, UBS - Analyst [2] -------------------------------------------------------------------------------- Good morning, guys. Long time, no speak -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [3] -------------------------------------------------------------------------------- Good morning, Shneur. -------------------------------------------------------------------------------- Shneur Gershuni, UBS - Analyst [4] -------------------------------------------------------------------------------- My first question relates to the OpCo investment program. It's a fairly massive investment program for the next several years. Can you give us some color as to your expectations, in terms of timing lag between the time you invest the capital in the assets versus when you would expect the cash flow would be available -- for CPPL, in this case? -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [5] -------------------------------------------------------------------------------- Shneur, this is Glen, good morning. I would say, typically for the growth projects on the interstate side, we're probably talking about 12 to 24 months in the case of the very large projects -- probably closer to maybe 12 to 18. On the midstream projects, that lifecycle is much tighter. In some cases, that's more like six to nine months, in the case of the growth projects that we're placing into service there in the midstream. So that gives you a general sense. I would point out, the modernization program has a very tight model that underlies it. Such that capital that we place in service by the end of October of a given year, gets recovered in rates as the first of February the following calendar year. So very minimal lag there -------------------------------------------------------------------------------- Shneur Gershuni, UBS - Analyst [6] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [7] -------------------------------------------------------------------------------- Just for everybody that's on the phone, to be clear, once these projects go into service, its full revenue stream is coming to us. -------------------------------------------------------------------------------- Shneur Gershuni, UBS - Analyst [8] -------------------------------------------------------------------------------- Okay, cool. As a follow-up question, the CPPL 20% growth rate. Was wondering if you can give us some color on what the coverage would be there? What would be the factors that could potentially result in faster growth? Just wondering how you're thinking about the whole process. -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [9] -------------------------------------------------------------------------------- Hi, this is Steve. Early on, the coverage will hover around one. And as the growth projects come on-line, the coverage ratio will improve substantially. That's how we're going to be able to continually grow distributions 20% year over year, is largely, if not almost exclusively, driven by the organic growth projects. So we'll have very healthy coverages as we move out into the forecast horizon. -------------------------------------------------------------------------------- Shneur Gershuni, UBS - Analyst [10] -------------------------------------------------------------------------------- Okay. And one last final question. In terms of the CPGX dividend, you put out a framework for 15% over the next five years. I was wondering if there's going to be a different cadence to it over time? Obviously, once the IDRs kick in, at the 50% level, we've seen some of your peers post 50% style dividend growth rates, and so forth. I was wondering if we can expect some mountain climb in terms of how the CPGX dividend will play out over the next five to seven years? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [11] -------------------------------------------------------------------------------- I think it's clear that we're tracking the growth rate, so dividend growth will begin going up the mountain, to use your term, as we're building the projects. And then once we get to 2018, 2019 and 2020 -- we've made the point repeatedly this morning in our formal remarks, we have abundant, abundant cash optionality for the dividend, for investments, for shareholder initiatives. So again, I think if you track the build, and then what results from the build, that's going to give you a good indication of what we can do when we reach 2018, 2019 and 2020. -------------------------------------------------------------------------------- Shneur Gershuni, UBS - Analyst [12] -------------------------------------------------------------------------------- Great. Thank you very much, guys. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies. -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies & Company - Analyst [14] -------------------------------------------------------------------------------- Good morning, guys. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [15] -------------------------------------------------------------------------------- Hi, Chris -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies & Company - Analyst [16] -------------------------------------------------------------------------------- Steve, I was just curious, as a place to start, the $4 billion of equity that you anticipate placing in the CPPL over the period is pretty consistent with what we had thought. You talked about the 35% to 45% OpCo ownership interest at that point in time. Is the flex in that report, 35 % to 45%, does that difference -- high-end-to-low-end -- does that speak to changes in the amount of equity that you could see being placed? Or are you speaking alternatively about perhaps the drop-down multiple range? Or is it both of those things? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [17] -------------------------------------------------------------------------------- Chris, it's Bob. It's more the latter. It's more of -- would you assume around valuing the drops with the equity that CPPL would be buying? And so we just try to, again, provide a reasonable assumption, given what we know today. -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies & Company - Analyst [18] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [19] -------------------------------------------------------------------------------- We feel we will be within that band -- that 35% to 45% band -- by the time we get to 2020. -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies & Company - Analyst [20] -------------------------------------------------------------------------------- Yes, understood. And just some color on that, Bob, as you've thought about it. One of the things that I think we've struggled with, and perhaps others have as well, is that, just given the nature of the OpCo structure and inflection of the cash flow profile in the outer year. But juxtaposing that against the condition that the MLP markets have taken to value drop-downs on a full one-year EBITDA multiple number. How do you think that would play out if we have inflection of cash flow in 2018 to 2019, but we might be selling interest down in 2016? Should we think about an elevated forward-year multiple early on that normalizes over time? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [21] -------------------------------------------------------------------------------- This is Steve. The way I look at it is that the OpCo structure is unique in that, what you're actually selling down is a net equity interest in a Company that has a publicly traded value. So it's not like your traditional asset modernization vehicle, like a lot of MLPs are. The MLP CPPL is acquiring additional equity interest in CPG OpCo. In terms of the process of going through the drop-down exercise, obviously, we have to be mindful of the governance requirements of that. But it's our expectation that the additional equity interest that gets dropped will be done in a fair and balanced manner that works for both the C Corp shareholders and the CPPL unit holders. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [22] -------------------------------------------------------------------------------- To Steve's point, we certainly have value indicators, if you will. Because CPG is public, clearly CPPL is public, and we know what those evaluations reflect, and what those docks and units reflect. -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies & Company - Analyst [23] -------------------------------------------------------------------------------- Okay, thanks for the color on that. Second question for me, Steve, is -- just to get a numeric around it -- and I hate to be annoying. I had asked Joe this on a utility call. But the $2.75 billion of long-term debt at CPGX, seeing that there was, I think, about $600 million, or about that range, on the OpCo at the end of the first quarter, is that being eliminated? Should we think about the total debt load being $2.75 billion? Or is it $2.75 billion, plus what we saw in 1Q's end at the OpCo? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [24] -------------------------------------------------------------------------------- Yes, that's fine. It's exactly $2.75 billion. That's the only debt that's going on the balance sheet of CPGX. And that will be in place for at least a weighted average maturity of greater than 10 years. And then short-term working capital needs are going to be balanced and funded through the revolvers. -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies & Company - Analyst [25] -------------------------------------------------------------------------------- Okay, great. And final question for me, Bob. As we've talked about -- you guys have mentioned clearly -- I think it's showcased in the model, and for anybody that's done it. The ability as the assets are placed into service and you get the inflection in the cash flows, just a pretty radical de-leveraging. But also an opportunity to dedicate, in aggressive fashion, more cash towards the dividend. How do you guys, at this juncture, think about what the decision tree looks like when you get to that stage? Is it about re-populating the backlog, or what are the conditions that change that? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [26] -------------------------------------------------------------------------------- I think that's clearly one of the threshold questions -- what do the investment opportunities look like when we reach 2018, 2019 and 2020? And I think we've given you a modest, conservative but prudent outlook. We're signaling, we don't expect to see multi-billion projects year after year. We've suggested that it's likely, we think, today, to normalize around $1 billion, plus or minus. But that, to me, seems to be the critical variable when we get to that point. And if we don't have investment opportunities, then I think the alternatives for the use of cash are awfully straightforward. -------------------------------------------------------------------------------- Chris Sighinolfi, Jefferies & Company - Analyst [27] -------------------------------------------------------------------------------- Okay, wonderful. Thanks a lot, guys. Appreciate it. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- James Carreker, US Capital Advisors. -------------------------------------------------------------------------------- James Carreker, US Capital Advisors - Analyst [29] -------------------------------------------------------------------------------- Thanks, guys. Just to follow up again on this dividend thought of 15% versus 20% of growth in EBITDA, and a coverage ratio that tends towards GP peers. Is it fair to say that, that may be more appropriate for the 2015 to 2018 timeframe? And that 2019 and 2020 is going to -- maybe that doesn't apply so much, given the comments you've made so far? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [30] -------------------------------------------------------------------------------- I think that's a fair read, fair interpretation. You know, it's clear, upfront, priority one, two and three for us is to capture this historic, highly accretive growth. And we're going to be dedicating a ton of cash to capture that growth. And we're committed to maintaining investment-grade credit rating. But after we moved to the build cycle, yes, you're right. The cash is there to deploy in a different manner. -------------------------------------------------------------------------------- James Carreker, US Capital Advisors - Analyst [31] -------------------------------------------------------------------------------- Okay, thank you for that color. And then just to re-clarify on the debt, the $2.75 billion at CPGX, is that -- and then I believe at the Q1, it was still $630 million at OpCo? Does that remain there? I know you answered, but I just wanted to clarify. -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [32] -------------------------------------------------------------------------------- No, the only debt that's going to be outstanding on CPGX's balance sheet come separation, is the $2.75 billion. -------------------------------------------------------------------------------- James Carreker, US Capital Advisors - Analyst [33] -------------------------------------------------------------------------------- But on a consolidated basis, once you include OpCo in your financials, what will that debt number be? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [34] -------------------------------------------------------------------------------- It will be $2.75 billion. And then there's some inter-Company debt of $600 million or so. -------------------------------------------------------------------------------- James Carreker, US Capital Advisors - Analyst [35] -------------------------------------------------------------------------------- Okay, thank you. That's all for me -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- John Edwards, Credit Suisse. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [37] -------------------------------------------------------------------------------- Hi, John. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- Sir, your line is open. If you have your phone on mute (multiple speakers) -------------------------------------------------------------------------------- John Edwards, Credit Suisse - Analyst [39] -------------------------------------------------------------------------------- Sorry, I was muted. Can you hear me now? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [40] -------------------------------------------------------------------------------- Yes, John, you're coming through loud and clear. Good morning. -------------------------------------------------------------------------------- John Edwards, Credit Suisse - Analyst [41] -------------------------------------------------------------------------------- Good morning. Can you just clarify -- in the dividend policy, it sounds like you're going to have alternative options here for deploying cash post-2018 timeframe. But in terms of your dividend cover, you were saying you're going to start out at 2.0, approximately, and then it will compress over time. So where do you want to be in terms of dividend coverage over time? Because obviously, other GPs are typically 1.0. But it sounds like you're going to have more flexibility than that. So maybe you can just clarify where you think that's going? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [42] -------------------------------------------------------------------------------- Yes, we're going to have flexibility, and hard to speculate where we'll go, ultimately. We do see it tracking towards the peer GPs' payout levels. But as I mentioned in an earlier question, one of the keys for threshold variables when we reach 2018, 2019 and 2020 is, what do the investments look like? What do the investment opportunities look like? Are they large? Are they highly accretive? So I think you have to go to that question, that issue, prior to making a final decision. But all things being equal, what we've said today, I think, very clearly, is, we see over time tracking to the GP peers. One thing, just for folks on the call, I would suggest, when you have a moment, take look at Steve's five-year sources and uses slide. It might be instructive, in terms of thinking about the optionality, the capability that we have -------------------------------------------------------------------------------- John Edwards, Credit Suisse - Analyst [43] -------------------------------------------------------------------------------- Okay, all right. I may follow up off-line, but the other question I had, in terms of the different growth projects -- and maybe this is an off-line question. But I was just wondering if we could get clarity on the miles -- you gave some miles on some of them, but not all. And then I'm wondering about the size of pipe, just so we can get a rough idea of the cost-per-inch mile that you're encountering? -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [44] -------------------------------------------------------------------------------- Yes, John. This is Glen. We can provide that off-line to you. And there's going to be a lot of variability, in terms of the diameter of the pipe, depending on the individual projects. But I think that is a good suggestion; let's do that off-line. -------------------------------------------------------------------------------- John Edwards, Credit Suisse - Analyst [45] -------------------------------------------------------------------------------- Okay, I can take that off-line. Okay, the last question I had, in terms -- you were are talking about some of these additional modernization opportunities. I'm just wondering if you can give us a range in terms of quantifying what that opportunity might be? -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [46] -------------------------------------------------------------------------------- Sure. This is Glen again. As you know, the initial program is $1.5 billion over five years. And we've made it clear that we think ultimately, the investment is in the $4 billion to $5 billion range over a 10- to 15-year period. So a lot of work to do to fine-tune what the next five years would look like. But we could see the annual spend level perhaps go up to as much as $400 million per year, for example. Our anticipation is that the natural next term would be five years. And we're also looking at the potential, at least, of expanding the types of facilities that could be included in the program, beyond simply compression and pipeline, to perhaps storage or other facilities. It's relatively early in those discussions, so that will develop over the course of the next several months. But that's the framework that we're thinking of for the extension. -------------------------------------------------------------------------------- John Edwards, Credit Suisse - Analyst [47] -------------------------------------------------------------------------------- Okay. And then just one last question on clarifying, or coming back to the dividend question. If there is not a large inventory of investment opportunities out in the future, would it be fair to say that we could see a fairly significant step up in the dividend growth rate? Is that the right way to think about that? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [48] -------------------------------------------------------------------------------- I think that is a very reasonable scenario. We're going to do the right thing with the cash, and that's a reasonable scenario. -------------------------------------------------------------------------------- John Edwards, Credit Suisse - Analyst [49] -------------------------------------------------------------------------------- Okay, that's really helpful -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [50] -------------------------------------------------------------------------------- John, one other thing on the point around construction, I just want to reiterate a point Glen made throughout his comments, that one thing that's unique about CPG [culmi] Gas Transmission and Gulf, that the projects that we've been talking about entail very small amounts of greenfield construction. The vast, vast majority of this is within the right-of-way, within existing compressor stations. S o the mileage Glen cited tended to be around the greenfield builds that we have. And notably, they're in Louisiana, Ohio, West Virginia, for the most part. -------------------------------------------------------------------------------- John Edwards, Credit Suisse - Analyst [51] -------------------------------------------------------------------------------- Okay, that's helpful. That's all I had. Thank you very much. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [52] -------------------------------------------------------------------------------- Are right. Thanks, John. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- Steve Fleischman, Wolfe Research. -------------------------------------------------------------------------------- Steve Fleischman, Wolfe Research - Analyst [54] -------------------------------------------------------------------------------- Hi, good morning. Hi, Bob. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [55] -------------------------------------------------------------------------------- Good morning, Steve. -------------------------------------------------------------------------------- Steve Fleischman, Wolfe Research - Analyst [56] -------------------------------------------------------------------------------- Just a question on the 20% EBITDA growth. Does that include the $1 billion of growth projects in development, in terms of -- are those assumed in that growth rate? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [57] -------------------------------------------------------------------------------- No, that would be on top of that. -------------------------------------------------------------------------------- Steve Fleischman, Wolfe Research - Analyst [58] -------------------------------------------------------------------------------- Okay. So that just assumes all the projects that are locked up? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [59] -------------------------------------------------------------------------------- Right. So my slide where I showed each of the projects' CapEx amounts, adding up through 2020, that includes all of the projects that Glen talked about, but the $1 billion of future development projects. So it could serve to enhance the EBITDA growth rate. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [60] -------------------------------------------------------------------------------- The point around upward bias. And I'd also, just for clarity, that includes an assumption about modernization continuing through the period. Again, we think that's a very prudent, good assumption. And Steve, just to take the opportunity, that's been our pitch today, that the clarity, certainty of what we're talking about, we think is unparalleled. Because what we're showing folks is locked and loaded. -------------------------------------------------------------------------------- Steve Fleischman, Wolfe Research - Analyst [61] -------------------------------------------------------------------------------- And then maybe a high-level thought. Obviously, this backlog of growth investment is pretty dramatic. Just from an industry standpoint, when you think of the Company over the next five years, and at this period, three or four years out, do you think we're going to have another round of pretty big growth projects? Do you think you're more in a reaping mode? What do you think the landscape looks like three or four years out, off your system? -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [62] -------------------------------------------------------------------------------- Steve, this is Glen. Difficult to tell. We think that the major driver is going to be what that pace of continued Marcellus and Utica supply growth looks like. Every time there's a new estimate, it seems that the expectation grows, and with that, there is the need for associated pipeline takeaway capacity. So that's going to be the key indicator. Having said that, it's our sense that, as we get to the end of the decade, the beginning of the next decade, some of these mega projects may normalize back. And that's why we've got this notional assumption that the CapEx, give or take, in the $1 billion kind of range, feels right. But we're the first to say that our crystal ball isn't clearer than anyone else's. And if we get more LNG exports, or we get additional supply coming on, we think that there could be some pretty meaningful ongoing investment opportunities. And again, we think that we will be just as well-positioned for those as we've been for the ones that have been developed here over the course of the last couple of years. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [63] -------------------------------------------------------------------------------- And I would add, albeit early in the game, we've all been surprised -- pleasantly surprised by the productivity of the Utica drilling. So again, to Glenn's point, every time we think we've got a handle on it, it seems to be revised upward, and appears to be more promising. -------------------------------------------------------------------------------- Steve Fleischman, Wolfe Research - Analyst [64] -------------------------------------------------------------------------------- Great, thank you -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [65] -------------------------------------------------------------------------------- Thanks, Steve. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- Charles Fishman, Morningstar. -------------------------------------------------------------------------------- Charles Fishman, Morningstar, Inc - Analyst [67] -------------------------------------------------------------------------------- Good morning. I just want to make sure I've got something right. On the last NiSource conference call, I thought the CPG five-year EBITDA growth rate was mid- to high-teens. Did I get that wrong, or am I comparing apples to oranges? Or did you go to the upper-end of that range today? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [68] -------------------------------------------------------------------------------- In earlier earnings calls and presentations, we suggested that mid-teens number. Today, we are being more specific and more precise, and yes, it is upward. -------------------------------------------------------------------------------- Charles Fishman, Morningstar, Inc - Analyst [69] -------------------------------------------------------------------------------- What drove that between now and, let's say, just a few weeks ago? Was it any particular thing, or just waiting for the opportunity? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [70] -------------------------------------------------------------------------------- It really wasn't a few weeks ago. We said that a while back. We said -- stay tuned until we get into this call. And one of the things that has driven it upward is the development of the Mountaineer XPress, Gulf XPress project. When we first spoke -- in fact, when we announced the separation last year, Mountaineer XPress and Gulf XPress were just in the beginning stages of development. That project has matured as the commitments have now burned up. We felt more comfortable putting the growth into the plan. It's really that simple. -------------------------------------------------------------------------------- Charles Fishman, Morningstar, Inc - Analyst [71] -------------------------------------------------------------------------------- Okay, thank you for the clarification. Both calls were very helpful. Thank you. -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [72] -------------------------------------------------------------------------------- Okay, great. -------------------------------------------------------------------------------- Operator [73] -------------------------------------------------------------------------------- Jeff Healy, AIG. -------------------------------------------------------------------------------- Jeff Healy, AIG - Analyst [74] -------------------------------------------------------------------------------- Hi, guys, thanks for the call. A couple of questions regarding the OpCo. Is the -- on your CapEx, $8.4 billion you guys were looking at, is that all going to be down in subsidiaries of OpCo? Or is some of that going to be over in the CPPL blocks? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [75] -------------------------------------------------------------------------------- This is Steve. That's all within OpCo. -------------------------------------------------------------------------------- Jeff Healy, AIG - Analyst [76] -------------------------------------------------------------------------------- All within OpCo? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [77] -------------------------------------------------------------------------------- All the CapEx is spent within OpCo, and that's where all the assets reside. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [78] -------------------------------------------------------------------------------- That's what I was going to say -- everything is in OpCo. -------------------------------------------------------------------------------- Jeff Healy, AIG - Analyst [79] -------------------------------------------------------------------------------- Okay. Sort of a detailed question here, but the subsidiaries underneath OpCo, national operating companies and stuff, are they going to be guarantors of OpCo? I know OpCo is going to guarantee our bonds up at CPG, but are the subsidiaries -- is there an upstream from the underlying Company itself, or is it just OpCo? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [80] -------------------------------------------------------------------------------- Well, we can handle all the guarantee specifics off-line, if you like. But the way I would think about it is, virtually 100% of the assets are at OpCo, and that's where all the cash flow is. And we'll handle your call off-line. -------------------------------------------------------------------------------- Jeff Healy, AIG - Analyst [81] -------------------------------------------------------------------------------- Yes, that's fine. And finally, just talking through for the system itself, how much of your system is connected directly into the city gate -- specifically, look at it like Columbia Gas and stuff. There's no intermediaries between the [rights or], your system, you say, ties right into [secade] for the LDCs? -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [82] -------------------------------------------------------------------------------- This is Glen. Yes, that's correct. -------------------------------------------------------------------------------- Jeff Healy, AIG - Analyst [83] -------------------------------------------------------------------------------- Okay. And finally, what percent do you think of revenue gross margins, EBITDA, take your pick -- how much do you envision being LDC customers versus supply-push, post 2020, after your whole build-out? -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [84] -------------------------------------------------------------------------------- Well, today it's upwards of 90%-plus. When we get out towards the end of the decade, it still going to be a very material portion of the underlying capacity commitments. I don't have a precise number, but it's going to still be well in excess of 50%. -------------------------------------------------------------------------------- Jeff Healy, AIG - Analyst [85] -------------------------------------------------------------------------------- Got it. Great, thank a lot for your call. -------------------------------------------------------------------------------- Glen Kettering, Columbia Pipeline Group - President [86] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [87] -------------------------------------------------------------------------------- Chris Brown, Columbus Hill. -------------------------------------------------------------------------------- Chris Brown, Columbus Hill Capital Management - Analyst [88] -------------------------------------------------------------------------------- Hi, guys. On page 36, where you provide the guidance on cash taxes, it looks like there's a pretty big step up from 2017, in the 10% to 15% range, up to 25% in 2019. Can you talk about what the assumptions are that drive that step-up? Because I think right now, you guys are assuming that CapEx comes down pretty significantly in 2019. I assume if you keep growing pretty quickly, that taxes will be lower in the out-years, because of depreciation expense. -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [89] -------------------------------------------------------------------------------- I would say that the high-level answer is that NOL -- the net operating loss -- goes away. -------------------------------------------------------------------------------- Chris Brown, Columbus Hill Capital Management - Analyst [90] -------------------------------------------------------------------------------- Is the NOL being utilize all the way through 2018? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [91] -------------------------------------------------------------------------------- No. It ends circa early 2017 -- 2016, sorry. Early 2016. -------------------------------------------------------------------------------- Chris Brown, Columbus Hill Capital Management - Analyst [92] -------------------------------------------------------------------------------- Got it. Why the early step up from 2017 to 2019? Is it IDR-driven? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [93] -------------------------------------------------------------------------------- Well, we'll get you that detail off-line. I can't answer that specifically right now, but we'll get you that detail. I'm sure it's a function of some of the tax dynamics moving around over time, some of the timing differences playing into it. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [94] -------------------------------------------------------------------------------- Yes, Bruce will follow up with you. -------------------------------------------------------------------------------- Chris Brown, Columbus Hill Capital Management - Analyst [95] -------------------------------------------------------------------------------- Just one on top of that. You had mentioned the $1 billion was not in your forecast. Is the $1 billion of potential additional CapEx in your depreciation forecast? That affect the tax number? -------------------------------------------------------------------------------- Steve Smith, Columbia Pipeline Group - CFO [96] -------------------------------------------------------------------------------- It is not -------------------------------------------------------------------------------- Chris Brown, Columbus Hill Capital Management - Analyst [97] -------------------------------------------------------------------------------- Okay, thank you. -------------------------------------------------------------------------------- Operator [98] -------------------------------------------------------------------------------- Greg Shere, Tuohy Brothers. -------------------------------------------------------------------------------- Greg Shere, Tuohy Brothers - Analyst [99] -------------------------------------------------------------------------------- Hi. You know, as you look out at with the massive growth CapEx opportunity over the next three years or so, and then the significant cash flow opportunity thereafter. How does M&A that could be creative fit into that, in terms of -- what's the metric you would use to even consider any external M&A with equity in the earlier years, or with cash in the later years? -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [100] -------------------------------------------------------------------------------- As you would expect, I'm going to say -- start out with the existing growth plan. That's really going to be our focus, is executing on the incredible organic growth plan that we have. But as a fundamental baseline, we're pretty disciplined around ensuring that anything we do has solid returns and is highly accretive. So if we consider any acquisition opportunity to be an asset or whatever, it has a high bar to get across. So again, it would have to be accretive, it would have to be attractive returns. It would have to be consistent with, complementary to our strategic focus. I'd say, it would have to be in or adjacent to our footprint. Those of the sorts of things that we would consider if we were in that mode. But priority one, two, and three is really executing the organic growth plan that we've got in front of us. -------------------------------------------------------------------------------- Greg Shere, Tuohy Brothers - Analyst [101] -------------------------------------------------------------------------------- What I think I hear you saying, in addition to the footprint, is, you really don't want to move outside of the primarily fee-based business lines, largely regulated. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [102] -------------------------------------------------------------------------------- Yes, that's absolutely correct. You've seen our projects, you've seen our approach. That's what we believe is our wheelhouse, and that's what we're going to say focused on, correct. -------------------------------------------------------------------------------- Greg Shere, Tuohy Brothers - Analyst [103] -------------------------------------------------------------------------------- Great, thank you. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [104] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [105] -------------------------------------------------------------------------------- I'm showing no further questions in the queue at this time. I'd like to hand the conference over to Mr. Bob Skaggs for closing remarks. -------------------------------------------------------------------------------- Bob Skaggs, Columbia Pipeline Group - CEO [106] -------------------------------------------------------------------------------- Once again, thank you for your participation and your interest in CPGX and CPPL. We appreciate your participation, and we'll look forward to seeing you and talking to you in the not-too-distant future. Have a good day. -------------------------------------------------------------------------------- Operator [107] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for participating in today's conference. This concludes our program. You may all disconnect.
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