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High Prices Lead to Continuing Conservation on NiSource System

There is clear evidence of growing conservation efforts on the NiSource distribution system because of high natural gas prices. The utility holding company, which serves 3.8 million gas and electric customers from the Gulf Coast to New England and the Midwest, said that weather-normalized residential usage in its service territory during the first quarter declined by 7 million dekatherms, or 5%, from the same period last year due in part to historically high prices.

"Like every company in the North American gas utility industry, we've had to deal with unprecedented weather and high gas prices that, among other dislocations, have continued to weaken residential customers' usage of natural gas and make for a more challenging regulatory-political environment," said CEO Robert C. Skaggs Jr.

Despite the situation, the company reported flat net operating earnings of $203.6 million, or 75 cents per share, compared with $202.4 million, or 75 cents per share, for the first quarter of 2005. On a Generally Accepted Accounting Principles basis, taking into account the effect of record-setting warm winter weather conditions that were 15% warmer than a year ago, income from continuing operations for the first quarter of 2006 was $171.8 million, or 63 cents per share, compared with $208.7 million, or 77 cents per share, for the year-ago period.

NiSource said its net operating earnings were positively affected by successful sales of shorter-term transportation and storage services in its gas transmission and storage business, growth in electric distribution and an $8.2 million decrease in interest expense due to refinancing. These positive impacts were offset by the continuing decline in usage by natural gas utility customers.

"Despite significant external challenges, NiSource delivered solid first quarter results that are on the mark with our 2006 net operating earnings outlook," said Skaggs.

However, operating earnings for NiSource's core gas distribution operations were down by $15 million to $251.3 million. The reduction was due primarily to continued declines in residential customer usage.

"These residential volume declines decreased operating earnings for the segment by approximately $11 million. Partly offsetting that reduction were increased revenues from residential customer additions of approximately $2 million," Skaggs said. "Although we continue to see residential customer growth in our gas distribution markets, we remain focused on customer usage, and we continue to work on all fronts to fashion appropriate mechanisms to better address usage and conservation."

During the first quarter, the gas distribution segment was able to capitalize on short-term market opportunities and used its extensive supply and storage portfolio to increase revenues. In addition, the segment reported the first full quarter of benefit from the new rates at Bay State Gas Co. Skaggs also said that operation and maintenance expenses for the gas distribution segment were down slightly for the quarter compared with the year-ago period.

Skaggs said NiSource plans to continue focusing on opportunities for marketing short-term services in the gas transmission and storage business, opportunities for optimizing capacity and supply at the utilities, expansion opportunities in the storage and transmission network and growing the electric business.

"These fundamentals, plus our ongoing focus on all aspects of our four-point business plan, have NiSource on track to deliver net operating earnings for the full year consistent with the range of $1.45 to $1.55 per share that we provided in late January, assuming no further material usage deterioration," Skaggs said.

The company's gas transmission and storage segment, which includes the Columbia pipeline system, reported operating earnings of $111.7 million for the first quarter, an increase of $2.2 million over the year-ago period. "Our commercial team has signed new agreements that we expect to result in more than $25 million in revenue for 2006, with about $3.4 million recorded during the first quarter, as compared to full-year 2005 revenues of $4.1 million," said Skaggs.

He also noted that construction of the Hardy Storage project in West Virginia began in the first quarter, and the first phase of the project is on target to be in service in the second quarter of 2007. "We have executed binding customer agreements for Columbia Gas Transmission's Eastern Market Expansion, which, like Hardy Storage, is a combined storage and transportation project designed to meet core market growth in the Mid-Atlantic region," he said.

The transportation and storage business segment is currently evaluating a strong market response to a number of recently completed open seasons on Columbia Gas and Columbia Gulf. Meanwhile, the Millennium Pipeline, as well as companion upstream and downstream projects, are proceeding with the regulatory approval process.

NiSource's electric business reported operating earnings of $71.2 million for the quarter, compared with $66.6 million during the first quarter a year ago.

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