UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☑ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) | ||||||||||
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192020
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | ||||||||||
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-16189
NiSource Inc.
(Exact name of registrant as specified in its charter)
| DE | 35-2108964 | ||||||||||
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| 801 East 86th Avenue | |||||||||||
| Merrillville, | IN | 46410 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(877) 647-5990
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Stock, par value $0.01 per share | NI | NYSE | ||||||
| Depositary Shares, each representing a 1/1,000th ownership interest in a share of 6.50% Series B | NI PR B | NYSE | ||||||
| Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, liquidation preference $25,000 per share and a 1/1,000th ownership interest in a share of Series B-1 Preferred Stock, par value $0.01 per share, liquidation preference $0.01 per share | ||||||||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12-b-2 of the Exchange Act.
Large Accelerated Fileraccelerated filer þ Accelerated Filer ¨ Emerging Growth Company ☐ Non-accelerated Filer ¨ Smaller Reporting Company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ
The aggregate market value of the registrant's common stock, par value $0.01 per share (the "Common Stock") held by non-affiliates was approximately $10,713,311,150$8,671,854,266 based upon the June 28, 2019,30, 2020, closing price of $28.80$22.74 on the New York Stock Exchange.
There were 382,263,348391,859,711 shares of Common Stock outstanding as of February 18, 2020.9, 2021.
Documents Incorporated by Reference
Part III of this report incorporates by reference specific portions of the Registrant’s Notice of Annual Meeting and Proxy Statement relating to the Annual Meeting of Stockholders to be held on May 19, 2020.25, 2021.
CONTENTS
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| DEFINED TERMS | ||||||||
| The following is a list of abbreviations or acronyms that are used in this report: | ||||||||
| NiSource Subsidiaries, Affiliates and Former Subsidiaries | ||||||||
| Columbia of Kentucky | Columbia Gas of Kentucky, Inc. | |||||||
| Columbia of Maryland | Columbia Gas of Maryland, Inc. | |||||||
| Columbia of Massachusetts | Bay State Gas Company | |||||||
| Columbia of Ohio | Columbia Gas of Ohio, Inc. | |||||||
| Columbia of Pennsylvania | Columbia Gas of Pennsylvania, Inc. | |||||||
| Columbia of Virginia | Columbia Gas of Virginia, Inc. | |||||||
| Company | NiSource Inc. and its subsidiaries, unless otherwise indicated by the context | |||||||
| Northern Indiana Public Service Company LLC | ||||||||
| NiSource ("we," "us" or "our") | NiSource Inc. | |||||||
| NiSource Corporate Services | NiSource Corporate Services Company | |||||||
| Abbreviations | ||||||||
| ACE | Affordable clean energy | |||||||
| AFUDC | Allowance for funds used during construction | |||||||
| AMR | Automatic meter reading | |||||||
| Accumulated Other Comprehensive Income | ||||||||
| ASC | Accounting Standards Codification | |||||||
| ASU | Accounting Standards Update | |||||||
| ATM | At-the-market | |||||||
| Board | Board of Directors | |||||||
| BTA | Build-transfer agreement | |||||||
| CAP | Compliance Assurance Process | |||||||
| CCGT | Combined Cycle Gas Turbine | |||||||
| CCRs | Coal Combustion Residuals | |||||||
| CEP | Capital Expenditure Program | |||||||
| CERCLA | Comprehensive Environmental Response Compensation and Liability Act (also known as Superfund) | |||||||
| Novel Coronavirus 2019 | ||||||||
| DPA | Deferred prosecution agreement | |||||||
| DPU | Department of Public Utilities | |||||||
| DSIC | Distribution System Investment Charge | |||||||
| DSM | Demand Side Management | |||||||
| EPA | United States Environmental Protection Agency | |||||||
| EPS | Earnings per share | |||||||
| FAC | Fuel adjustment clause | |||||||
| FASB | Financial Accounting Standards Board | |||||||
| FERC | Federal Energy Regulatory Commission | |||||||
| FMCA | Federally Mandated Cost Adjustment | |||||||
| GAAP | Generally Accepted Accounting Principles | |||||||
| GCA | Gas cost adjustment | |||||||
| GHG | Greenhouse gas | |||||||
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| IRP | Infrastructure Replacement Program | |||||||||
| IRS | Internal Revenue Service | |||||||||
| IURC | Indiana Utility Regulatory Commission | |||||||||
| LDCs | Local distribution companies | |||||||||
| LIBOR | London inter-bank offered rate | |||||||||
| LIFO | Last-in, first-out | |||||||||
| MA DOR | Massachusetts Department of Revenue | |||||||||
| Massachusetts Business | All of the assets | |||||||||
| MGP | Manufactured Gas Plant | |||||||||
| MISO | Midcontinent Independent System Operator | |||||||||
| MMDth | Million dekatherms | |||||||||
| MW | Megawatts | |||||||||
| MWh | Megawatt hours | |||||||||
| NOL | Net Operating Loss | |||||||||
| NTSB | National Transportation Safety Board | |||||||||
| NYMEX | The New York Mercantile Exchange | |||||||||
| NYSE | The New York Stock Exchange | |||||||||
| OPEB | Other Postretirement and Postemployment Benefits | |||||||||
| PCB | Polychlorinated biphenyls | |||||||||
| PHMSA | U.S. Department of Transportation Pipeline and Hazardous Materials Safety Administration | |||||||||
| Power Purchase Agreement | ||||||||||
| PSC | Public Service Commission | |||||||||
| Public Utility Commission | ||||||||
| PUCO | Public Utilities Commission of Ohio | |||||||
| RCRA | Resource Conservation and Recovery Act | |||||||
| ROE | Return on Equity | |||||||
| Rosewater | Rosewater Wind Generation LLC | |||||||
| ROU | Right of use | |||||||
| SAVE | Steps to Advance Virginia's Energy Plan | |||||||
| SEC | Securities and Exchange Commission | |||||||
| SMRP | Safety Modification and Replacement Program | |||||||
| Safety Management System | ||||||||
| STRIDE | Strategic Infrastructure Development and Enhancement | |||||||
| Sugar Creek | Sugar Creek electric generating plant | |||||||
| TCJA | Tax Cuts and Jobs Act of 2017 | |||||||
| TDSIC | Transmission, Distribution and Storage System Improvement Charge | |||||||
| TSA | Transition Service Agreement | |||||||
| U.S. Attorney's Office | U.S. Attorney's Office for the District of Massachusetts | |||||||
| Variable Interest Entity | ||||||||
| VSCC | Virginia State Corporation Commission | |||||||
Note regarding forward-looking statements
This Annual Report on Form 10-K contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
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"Exchange Act"). Investors and prospective investors should understand that many factors govern whether any forward-looking statement contained herein will be or can be realized. Any one of those factors could cause actual results to differ materially from those projected. These forward-looking statements include, but are not limited to, statements concerning our plans, strategies, objectives, expected performance, expenditures, recovery of expenditures through rates, stated on either a consolidated or segment basis, and any and all underlying assumptions and other statements that are other than statements of historical fact. Expressions of future goals and expectations and similar expressions, including "may," "will," "should," "could," "would," "aims," "seeks," "expects," "plans," "anticipates," "intends," "believes," "estimates," "predicts," "potential," "targets," "forecast," and "continue," reflecting something other than historical fact are intended to identify forward-looking statements. All forward-looking statements are based on assumptions that management believes to be reasonable; however, there can be no assurance that actual results will not differ materially.
Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Annual Report on Form 10-K include, among other things, our ability to execute our business plan or growth strategy, including utility infrastructure investments; potential incidents and other operating risks associated with our business; our ability to adapt to, and manage costs related to, advances in technology; impacts related to our aging infrastructure; our ability to obtain sufficient insurance coverage and whether such coverage will protect us against significant losses; the success of our electric generation strategy; construction risks and natural gas costs and supply risks; fluctuations in demand from residential and commercial customers; fluctuations in the price of energy commodities and related transportation costs or an inability to obtain an adequate, reliable and cost-effective fuel supply to meet customer demands; the attraction and retention of a qualified workforce and ability to maintain good labor relations; our ability to manage new initiatives and organizational changes; the performance of third-party suppliers and service providers; potential cyber-attacks; any damage to our reputation; any remaining liabilities or impact related to the sale of Massachusetts Business; the impacts of natural disasters, potential terrorist attacks or other catastrophic events; the impacts of climate change and extreme weather conditions; our debt obligations; any changes to our credit rating or the credit rating of certain of our subsidiaries; our ability to execute our growth strategy; changesadverse economic and capital market conditions or increases in general economic, capital and commodity market conditions; pension funding obligations;interest rates; economic regulation and the impact of regulatory rate reviews; our ability to obtain expected financial or regulatory outcomes; continuing and potential future impacts from the COVID-19 pandemic; economic conditions in certain industries; the reliability of customers and suppliers to fulfill their payment and contractual obligations; the ability of our abilitysubsidiaries to adapt to,generate cash; pension funding obligations; potential impairments of goodwill; changes in the method for determining LIBOR and manage coststhe potential replacement of the LIBOR benchmark interest rate; the outcome of legal and regulatory proceedings, investigations, incidents, claims and litigation; potential remaining liabilities related to advances in technology; any changes in our assumptions regarding the financial implications of the Greater Lawrence Incident; compliance with the agreements entered into with the U.S. Attorney’s Office to settle the U.S. Attorney’s Office’s investigation relating to the Greater Lawrence Incident; the pending sale of the Columbia of Massachusetts business, including the terms and closing conditions under the Asset Purchase Agreement;potential incidents and other operating risks associated with our business; our ability to obtain sufficient insurance coverage and whether such coverage will protect us against significant losses; the outcome of legal and regulatory proceedings, investigations, incidents, claims and litigation; any damage to our reputation, including in connection with the Greater Lawrence Incident; compliance with applicable laws, regulations and tariffs; compliance with environmental laws and the costs of associated liabilities; fluctuations in demand from residential and commercial customers; economic conditions of certain industries; the success of NIPSCO's electric generation strategy; the price of energy commodities and related transportation costs; the reliability of customers and suppliers to fulfill their payment and contractual obligations; potential impairments of goodwill or definite-lived intangible assets; changes in taxation and accounting principles; the impact of an aging infrastructure; the impact of climate change; potential cyber-attacks; construction risks and natural gas costs and supply risks; extreme weather conditions; the attraction and retention of a qualified workforce; the ability of our subsidiaries to generate cash; our ability to manage new initiatives and organizational changes; the performance of third-party suppliers and service providers; changes in the method for determining LIBOR and the potential replacement of the LIBOR benchmark interest rate;taxation; and other matters set forth in Item 1, “Business,” Item 1A, “Risk Factors” and Part II. Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this report, manysome of which risks are beyond our control. In addition, the relative contributions to profitability by each business segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to the future results over time or otherwise, except as required by law.
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NiSource Inc. is an energy holding company under the Public Utility Holding Company Act of 2005 whose primary subsidiaries are fully regulated natural gas and electric utility companies, serving approximately 4.03.7 million customers in sevensix states. NiSource is the successor to an Indiana corporation organized in 1987 under the name of NIPSCO Industries, Inc., which changed its name to NiSource on April 14, 1999.
On September 13, 2018, a series of fires and explosions occurred in Lawrence, Andover and North Andover, Massachusetts related to the delivery of natural gas by Columbia of Massachusetts (referred to herein as the “Greater Lawrence Incident”). The Greater Lawrence Incident resulted in one fatality and a number of injuries, damaged multiple homes and businesses, and caused the temporary evacuation of significant portions of each municipality. The Massachusetts Governor’s Office declared a state of emergency, authorizing the Massachusetts DPU to order another utility company to coordinate the restoration of utility services in Lawrence, Andover and North Andover. The incident resulted in the interruption of gas for approximately 7,500 gas meters, the majority of which served residences and approximately 700 of which served businesses, and the interruption of other utility service more broadly in the area. Columbia of Massachusetts has replaced the cast iron and bare steel gas pipeline system in the affected area and restored service to nearly all of the gas meters. Refer to Note 6, "Goodwill and Other Intangible Assets," Note 19-C. "Legal Proceedings," and E. "Other Matters," in the Notes to Consolidated Financial Statements for more information.
The COVID-19 pandemic has had widespread effects, including impacts on the communities in which we serve as well as our business operations. NiSource has been pro-active in adjusting its operating procedures in response to the pandemic, including customer facing and field activities as well as our back-office support. Through 2020, we have not experienced material impacts to our ongoing or planned construction, replacement and maintenance activities as a result of 1976the pandemic. Please refer to specific and regulatory approvals, resolutionpotential impacts of certain proceedings before governmental bodiesthe pandemic in Item 1A, "Risk Factors", Item 7, "Management's Discussion and other conditions. For additional information, see Note 26, “Subsequent Event,” inAnalysis of Financial Condition and Results of Operations” and the Notes to Consolidated Financial Statements.
NiSource’s reportable segments are: Gas Distribution Operations and Electric Operations. The following is a summary of the business for each reporting segment. Refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 23,24, "Segments of Business," in the Notes to Consolidated Financial Statements for additional information for each segment.
Gas Distribution Operations
Our natural gas distribution operations serve approximately 3.53.2 million customers in seven states andsix states. We operate approximately 60,00053,700 miles of distribution main pipeline plus the associated individual customer service lines and 1,700 miles of transmission main pipeline located in our service areas described below. Throughout our service areas we also have gate stations and other operations support facilities. Through our wholly-owned subsidiary NiSource Gas Distribution Group, Inc., we own sixfive distribution subsidiaries that provide natural gas to approximately 2.72.4 million residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland and Massachusetts.Maryland. Additionally, we distribute natural gas to approximately 839,000848,000 customers in northern Indiana through our wholly-owned subsidiary NIPSCO.
Rates include provisions to adjust billings for fluctuations in the cost of natural gas. Revenues are adjusted for differences between actual costs, subject to reconciliation, and the amounts billed in current rates.
Electric Operations
We generate, transmit and distribute electricity through our subsidiary NIPSCO to approximately 476,000479,000 customers in 20 counties in the northern part of Indiana and also engage in wholesale electric and transmission transactions. NIPSCO owns and operates two coal-fired electric generating stations: four units at R.M. Schahfer located in Wheatfield, IN and one unit at Michigan City located in Michigan City, IN. The two operating facilities have a generating capacity of 2,080 MW. NIPSCO also owns and operates (i) Sugar Creek, a CCGT plant located in West Terre Haute, IN with generating capacity of 571 MW, threeMW; (ii) two gas-fired generating units located at NIPSCO’s coal-fired electric generating stationsR.M. Schahfer with a generating capacity of 186 MW155 MW; and (iii) two hydroelectric generating plants with a generating capacity of 10 MW: OakdaleMW (Oakdale located at Lake Freeman in Carroll County, IN and Norway located at Lake Schahfer in White County, IN.IN). These facilities provide for a total system operating generating capacity of 2,8472,816 MW. NIPSCO is the managing partner in Rosewater Wind Generation LLC, a joint venture that owns and operates 102 MW of nameplate generating capacity in White County, IN. Refer to Note 4 "Variable Interest Entities" in the Notes to Consolidated Financial Statements for more information.
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NIPSCO’s transmission system, with voltages from 69,000 to 765,000 volts, consists of 3,0053,009 circuit miles. NIPSCO is interconnected with fiveeight neighboring electric utilities. During the year ended December 31, 2019,2020, NIPSCO generated 62.4%68.8% and purchased 37.6%31.2% of its electric requirements.
NIPSCO participates in the MISO transmission service and wholesale energy market. MISO is a nonprofit organization created in compliance with FERC regulations to improve the flow of electricity in the regional marketplace and to enhance electric reliability. Additionally, MISO is responsible for managing energy markets, transmission constraints and the day-ahead, real-time, FTRFinancial Transmission Rights and ancillary markets. NIPSCO transferred functional control of its electric transmission assets to MISO, and transmission service for NIPSCO occurs under the MISO Open Access Transmission Tariff.
Business Strategy
We focus our business strategy on providing safe and reliable service through our core, rate-regulated asset-based businesses with mostutilities, which generate substantially all of our operating income generated from the rate-regulated businesses.income. Our utilities continue to move forward on core safety, infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all sevensix states in which we operate. Our goal is to develop strategies that benefit all stakeholders as we (i) address changing customer conservation patterns, develop more contemporary pricing(ii) align our price structures with our cost structure, and (iii) embark on long-term investment programs. These strategies are intended to improvefocus on improving safety and reliability, and safety, enhanceenhancing customer service, lowering customer bills and reducereducing emissions while generating sustainable returns.
The safety of our customers, communities and employees remains our top priority. The SMS transitioned in 2020 from an accelerated project launch to an established operating model within NiSource. With the continued support and advice from the Quality Review Board, a panel of third parties with safety operations expertise engaged by management to advise on safety matters, we are continuing to mature our SMS processes, capabilities and talent as we collaborate within and across industries to enhance safety and reduce operational risk.
In its 2018 Integrated Resource Plan submission to the IURC, NIPSCO laid out a plan to retire the R.M. Schahfer Generating Station (Units 14, 15, 17, and 18) by 2023 and Michigan City Generating Station (Unit 12) by 2028. These units represent 2,080 MW of generating capacity, equal to 72% of NIPSCO’s remaining capacity after the retirement of Bailly Units 7 and 8 in May of 2018.generation capacity. The current replacement plan includes renewable sources of energy, including wind, solar, and battery storage, to be obtained through a combination of NIPSCO ownershipinvestment and PPAs. Refer to Note 19-E,20-E, "Other Matters," in the Notes to Consolidated Financial Statements for further discussion of these plans.
Rate Case Actions
The following table describes current rate case actions as applicable in each of our jurisdictions net of tracker impacts. See "Cost Recovery and Trackers" below for further detail on trackers.
| (in millions) | |||||||||||||||||||||||
| Company | Proposed ROE | Approved ROE | Requested Incremental Revenue | Approved Incremental Revenue | Filed | Status | Rates Effective | ||||||||||||||||
NIPSCO - Electric(1) | 10.80 | % | 9.75 | % | $ | 21.4 | $ | (53.5) | October 31, 2018 | Approved December 4, 2019 | January 2020 | ||||||||||||
Columbia of Pennsylvania(2) | 9.86 | % | N/A | $ | 76.8 | In process | April 24, 2020 | Order Expected Q1 2021 | January 2021 | ||||||||||||||
| Columbia of Maryland | 10.95 | % | None specified(3) | $ | 5.0 | $ | 2.0 | May 15, 2020 | Approved November 7, 2020 | December 2020 | |||||||||||||
(1)Rates were implemented in two steps, with implementation of step 1 rates effective on January 2, 2020 and step 2 rates effective on March 2, 2020.
(2)On December 4, 2020, a Recommended Decision was issued by the Administrative Law Judge (ALJ) for the PUC to "deny the Company's request in its entirety because it has not met its burden of providing, by substantial evidence, that the proposed base rate revenue increase will result in just and reasonable rates, as required by 66 Pa.C.S.A. § 1301 during the current Coronavirus-2019 pandemic." Columbia of Pennsylvania filed Exceptions to the ALJ’s Recommended Decision on December 22, 2020 in which the Company proposed an increase of $76.8 million to be implemented in two steps: (1) an increase of $38.4 million to be effective January 23, 2021 through June 30, 2021, and defer revenue related to the remaining increase to regulatory assets during this phase, and (2) the remaining increase of $38.4 million to be implemented on July 1, 2021. Columbia of Pennsylvania proposed to recover the revenue deferred to a Regulatory Asset during the initial phase over a one-year period beginning January 1, 2022 and ending December 31, 2022. A Final Order from the PUC is expected during the first quarter of 2021 for rates effective retroactively on January 23, 2021.
(3)Columbia of Maryland's rate case resulted in a black box settlement, representing a settlement to a specific revenue increase but not a specified ROE. The settlement provides use of a 9.60% ROE for future Make Whole and Infrastructure Tracker filings.
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Competition and Changes in the Regulatory Environment
The regulatory frameworks applicable to our operations, including environmental regulations, at both the state and federal levels, continue to evolve. These changes have had and will continue to have an impact on our operations, structure and profitability. Management continually seeks new ways to be more competitive and profitable in this environment. We believe we are, in all material respects, in compliance with such laws and regulations and do not expect continued compliance to have a material impact on our capital expenditures, earnings, or competitive position. We continue to monitor existing and pending laws and regulations, and the impact of regulatory changes cannot be predicted with certainty. Refer to Note 20-D, "Environmental Matters" in the Notes to Consolidated Financial Statements for more information regarding environmental regulations that are applicable to our operations.
The Gas Distribution Operations companiesutilities have pursued non-traditional revenue sources within the evolving natural gas marketplace. These efforts include (i) the sale of products and services upstream of the companies’ service territory, (ii) the sale of products and services in the companies’ service territories, and (iii) gas supply cost incentive mechanisms for service to their core markets. The upstream products are made up of transactions that occur between an individual Gas Distribution Operations companyutility and a buyer for the sales of unbundled or rebundled gas supply and capacity. The on-system services are offered by us to customers and include products such as the transportation and balancing of gas on the Gas Distribution Operations companyutility's system. The incentive mechanisms give the Gas Distribution Operations companiesutilities an opportunity to share in the savings created from such situations as gas purchase prices paid below an agreed upon benchmark and their ability to reduce pipeline capacity charges with their customers.
Increased efficiency of natural gas appliances and improvements in home building codes and standards has contributed to a long-term trend of declining average use per customer. Residential usage for the year ended December 31, 2019 decreased primarily due to warmer weather in our operating area compared to the prior year. While historicallyhistorical rate design at the distribution level has been structured such that a large portion of cost recovery is based upon throughput rather than in a fixed charge, operating costs are largely incurred on a fixed basis and do not fluctuate due to changes in customer usage. As a result, Gas Distribution Operations have pursued changes in rate design to more effectively match recoveries with costs incurred. Each of the states in which Gas Distribution Operations operate has different requirements regarding the procedure for establishing changes to rate design. Columbia of Ohio restructured its rate design through a base rate proceeding and has adopted a decoupled rate design which morethat closely links the recovery of fixed costs with fixed charges. Columbia of Massachusetts received regulatory approval of a decoupling mechanism which adjusts revenues to an approved benchmark level through a volumetric adjustment factor. Columbia of Maryland and Columbia of Virginia have regulatory approval for aweather and revenue normalization adjustmentadjustments for certain customer classes, a decoupling mechanism wherebywhich adjust monthly revenues that exceed or fall short of approved levels are reconciled in subsequent months. In a prior base rate proceeding,levels. Columbia of Pennsylvania implemented acontinues to operate its pilot residential weather normalization adjustment. Columbia of Maryland, Columbia of Virginia and Columbia of Kentucky have had approval forincorporates a weather normalization adjustment
Cost Recovery and Trackers. Comparability of our line item operating results are impacted by regulatory trackers that allow for the future recovery in rates of certain costs as described below. Increases in expenses that are the subject to approved regulatory tracker mechanisms generally lead to increased regulatory assets, which ultimately result in a corresponding increase in operating revenues and, therefore, have essentially no impact on total operating income results. Certain approved regulatory tracker mechanisms allow for abbreviated regulatory proceedings in order for the operating companies to quickly implement revised rates and recover associated costs.
A portion of the Gas Distribution revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in our operating area require periodic review of actual gas procurement activity to determine prudence and confirm the recovery of prudently incurred energy commodity costs supplied to customers.
A portion of the Electric Operations revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, which is updated quarterly to reflect actual costs incurred to supply electricity to customers.
Natural Gas Competition. Open access to natural gas supplies over interstate pipelines and the deregulation of the commodity price of gas supply has led to tremendous change in the energy markets. LDC customers and marketers can purchase gas directly from producers and marketers asin an open, competitive market for gas supplies has emerged.market. This separation or “unbundling” of the transportation and other services offered by pipelines and LDCs allows customers to purchase the commodity independent of services provided by the pipelines and LDCs. The LDCs continue to purchase gas and recover the associated costs from their customers. Our Gas Distribution Operations’ subsidiaries are involved in programs that provide customers the opportunity to purchase their natural gas requirements from third parties and use our Gas Distribution Operations’ subsidiaries for transportation services.
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Gas Distribution Operations competes with (i) investor-owned, municipal, and cooperative electric utilities throughout its service areas, as well as(ii) other regulated and unregulated natural gas intra and interstate pipelines and (iii) other alternate fuels, such as propane and fuel oil. Gas Distribution Operations continues to be a strong competitor in the energy market as a result of strong customer preference for natural gas. Competition with providers of electricity has traditionally been the strongest in the residential and commercial markets of Kentucky, southern Ohio, central Pennsylvania and western Virginia due to comparatively low electric rates. Natural gas competes with fuel oil and propane in the Massachusetts market mainly due to the installed base of fuel oil and propane-based heating which has comprised a declining percentage of the overall market over the last few years. However, fuel oil and propane are more viable in today’s oil market.
Electric Competition. Indiana electric utilities generally have exclusive service areas under Indiana regulations, and retail electric customers in Indiana do not have the ability to choose their electric supplier. NIPSCO faces non-utility competition from other energy sources, such as self-generation by large industrial customers and other distributed energy sources.
Seasonality
A significant portion of our operations are subject to seasonal fluctuations in sales. During the heating and cooling seasons, revenues from gas and electric sales, respectively, are more significant than in other months. The heating season which is primarily from November through March, revenues from gas sales are more significant, and during the cooling season which is primarily from June through September, revenuesSeptember.
Human Capital
Human Capital Goals and Objectives.We have aligned our human capital goals to achieve the overall company objectives by driving an enhanced talent strategy, elevating support for front-line leaders, fostering a culture of rigor and accountability and strengthening our Human Resources function as a whole.
Workforce Composition.As of December 31, 2020, we had 7,301 full-time and 88 part-time employees. 2,728 employees were subject to collective bargaining agreements with various labor unions. Six of these agreements covering 527 employees are set to expire within one year.
Diversity.Our talent acquisition teams hired 612 external candidates in 2020 across all business segments. 35% of external hires were female and 18% were racially or ethnically diverse. In 2020, we engaged with community-based organizations, conducted career interest workshops in local schools, and focused our employee mentorship program on females. We also led a separate targeted development program for select employees to support the growth and development of female and ethnically diverse talent. We offered several employee resource groups (“ERGs”) and hosted mostly virtual activities throughout 2020. We have ERGs set up to support African-American, LatinX, veterans, LGBTQ+, female and Asian employees, among others, and held several sponsored conversations between senior executives and the ERGs.
The following provides the diversity breakdown of NiSource as of December 31, 2020:
Talent Development.We offer leadership development programs to enhance the behaviors and skills of our existing and future leaders. In 2020, we had participation from electric sales areemployees of all levels. We also offer extensive technical and non-technical
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employee training programs. Additionally, we strive to provide promotion and advancement opportunities for employees. In 2020, 84% of all leadership positions at the supervisor and above level were filled internally. Succession planning is regularly conducted to ensure bench strength for leadership positions. We utilize retention bonuses and conduct stay conversations in order to retain talent. Retention at NiSource in 2020 was over 93%. Retention is calculated using the total number of terminations divided by the average headcount for the annual period, not including the impacts from the sale of the Massachusetts Business and voluntary separation programs.
Employee Safety and Wellness. We have a number of programs to support employees and their families’ physical, mental, and financial well-being. These programs include a paid wellness day, telemedicine services, an Employee Assistance Program, Integrated Health Management navigation services, employee paid sick/disability leave and paid illness in family days, competitive medical, dental, vision, life and long term disability programs including employee health savings account company contributions and no cost registered financial planner counseling.
In response to COVID-19, we have implemented procedures designed to protect our employees who work in the field and who continue to work in operational and corporate facilities, including social distancing, wearing face coverings, temperature checks and more significant, than in other months.frequent cleaning of equipment and facilities. We have also implemented work-from-home policies and practices. We have minimized non-essential work that requires an employee to enter a customer premise and limited company vehicle occupancy to one person, where possible. We continue to employ physical and cybersecurity measures to ensure that our operational and support systems remain functional. Our actions to date have mitigated the spread of COVID-19 amongst our employees. We will continue to follow the Centers for Disease Control and Prevention ("CDC") guidance and implement safety measures intended to ensure employee and customer safety during the pandemic.
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Business Strategy
We focus our business financial condition, results of operations, cash flows,strategy on providing safe and the trading pricereliable service through our core, rate-regulated asset-based utilities, which generate substantially all of our common stock.
operating income. Our business is capital intensiveutilities continue to move forward on core safety, infrastructure and we rely significantly on long-term debt to fund a portion of our capital expendituresenvironmental investment programs supported by complementary regulatory and repay outstanding debt, and on short-term borrowings to fund a portion of day-to-day business operations. We had total consolidated indebtedness of $9,642.8 million outstanding as of December 31, 2019. Our substantial indebtedness could have important consequences. For example, it could:
The availability and cost of credit for our businesses may be greatly affected by credit ratings. The credit rating agencies periodically review our ratings, taking into account factors such as our capital structure, earnings profile, and, in 2018 and 2019, the impacts of the TCJA and the Greater Lawrence Incident. We are committed to maintaining investment grade credit ratings; however, there is no assurance we will be able to do so in the future. Our credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant. Any negative rating action could adversely affect our ability to access capital at rates and on terms that are attractive. A negative rating action could also adversely impact our business relationships with suppliers and operating partners, who may be less willing to extend credit or offer us similarly favorable terms as secured in the past under such circumstances.
The following table describes current rate case actions as applicable in each of this plan, NIPSCO has IURC approvalour jurisdictions net of tracker impacts. See "Cost Recovery and Trackers" below for further detail on trackers.
| (in millions) | |||||||||||||||||||||||
| Company | Proposed ROE | Approved ROE | Requested Incremental Revenue | Approved Incremental Revenue | Filed | Status | Rates Effective | ||||||||||||||||
NIPSCO - Electric(1) | 10.80 | % | 9.75 | % | $ | 21.4 | $ | (53.5) | October 31, 2018 | Approved December 4, 2019 | January 2020 | ||||||||||||
Columbia of Pennsylvania(2) | 9.86 | % | N/A | $ | 76.8 | In process | April 24, 2020 | Order Expected Q1 2021 | January 2021 | ||||||||||||||
| Columbia of Maryland | 10.95 | % | None specified(3) | $ | 5.0 | $ | 2.0 | May 15, 2020 | Approved November 7, 2020 | December 2020 | |||||||||||||
(1)Rates were implemented in two steps, with implementation of step 1 rates effective on January 2, 2020 and step 2 rates effective on March 2, 2020.
(2)On December 4, 2020, a Recommended Decision was issued by the Administrative Law Judge (ALJ) for the Jordan Creek PPA for 400 MW,PUC to "deny the Indiana Crossroads BTA for 300 MWCompany's request in its entirety because it has not met its burden of providing, by substantial evidence, that the proposed base rate revenue increase will result in just and reasonable rates, as required by 66 Pa.C.S.A. § 1301 during the Rosewater BTA for 100 MW. Each is a separate facility and all MW are nameplate capacity. NIPSCO hascurrent Coronavirus-2019 pandemic." Columbia of Pennsylvania filed a notice with the IURC of its intention not to move forward with one of its approved PPAs dueExceptions to the failureALJ’s Recommended Decision on December 22, 2020 in which the Company proposed an increase of $76.8 million to meetbe implemented in two steps: (1) an increase of $38.4 million to be effective January 23, 2021 through June 30, 2021, and defer revenue related to the remaining increase to regulatory assets during this phase, and (2) the remaining increase of $38.4 million to be implemented on July 1, 2021. Columbia of Pennsylvania proposed to recover the revenue deferred to a condition precedentRegulatory Asset during the initial phase over a one-year period beginning January 1, 2022 and ending December 31, 2022. A Final Order from the PUC is expected during the first quarter of 2021 for rates effective retroactively on January 23, 2021.
(3)Columbia of Maryland's rate case resulted in the agreement as a resultblack box settlement, representing a settlement to a specific revenue increase but not a specified ROE. The settlement provides use of local zoning restrictions.
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The Gas Distribution Operations utilities have pursued non-traditional revenue sources within the evolving natural gas marketplace. These efforts include (i) the sale of products and services upstream of the companies’ service territory, (ii) the sale of products and services in the companies’ service territories, and (iii) gas supply cost incentive mechanisms for service to their core markets. The upstream products are made up of transactions that occur between an individual Gas Distribution Operations utility and a buyer for the sales of unbundled or rebundled gas supply and capacity. The on-system services are offered by us to customers and include products such as the transportation and balancing of gas on the Gas Distribution Operations utility's system. The incentive mechanisms give the Gas Distribution Operations utilities an opportunity to share in the savings created from such situations as gas purchase prices paid below an agreed upon benchmark and their ability to reduce pipeline capacity charges with their customers.
Increased efficiency of natural gas appliances and improvements in home building codes and standards has contributed to a long-term trend of declining average use per customer. While historical rate design at the distribution level has been structured such that a large portion of cost recovery is based upon throughput rather than in a fixed charge, operating costs are largely incurred on a fixed basis and do not fluctuate due to changes in customer usage. As a result, Gas Distribution Operations have pursued changes in rate design to more effectively match recoveries with costs incurred. Each of the states in which Gas Distribution Operations operate has different requirements regarding the procedure for establishing changes to rate design. Columbia of Ohio has adopted a decoupled rate design that closely links the recovery of fixed costs with fixed charges. Columbia of Maryland and Columbia of Virginia have regulatory approval for weather and revenue normalization adjustments for certain customer classes, which adjust monthly revenues that exceed or fall short of approved levels. Columbia of Pennsylvania continues to operate its pilot residential weather normalization adjustment. Columbia of Kentucky incorporates a weather normalization adjustment. In a prior gas base rate proceeding, NIPSCO implemented a higher fixed customer charge for residential and small customer classes moving toward recovering more of its fixed costs through a fixed recovery charge, but has no weather or usage protection mechanism.
Cost Recovery and Trackers. Comparability of our line item operating results are impacted by regulatory trackers that allow for the future recovery in rates of certain costs as described below. Increases in expenses that are the subject to approved regulatory tracker mechanisms generally lead to increased regulatory assets, which ultimately result in a corresponding increase in operating revenues and, therefore, have essentially no impact on total operating income results. Certain approved regulatory tracker mechanisms allow for abbreviated regulatory proceedings in order for the operating companies to quickly implement revised rates and recover associated costs.
A significant chargeportion of the Gas Distribution revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in our operating area require periodic review of actual gas procurement activity to determine prudence and confirm the recovery of prudently incurred energy commodity costs supplied to customers.
A portion of the Electric Operations revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, which is updated quarterly to reflect actual costs incurred to supply electricity to customers.
Natural Gas Competition. Open access to natural gas supplies over interstate pipelines and the deregulation of the gas supply has led to tremendous change in the future could impactenergy markets. LDC customers can purchase gas directly from producers and marketers in an open, competitive market. This separation or “unbundling” of the capitalization ratio covenant under certain financing agreements. Wetransportation and other services offered by LDCs allows customers to purchase the commodity independent of services provided by LDCs. LDCs continue to purchase gas and recover the associated costs from their customers. Our Gas Distribution Operations’ subsidiaries are subjectinvolved in programs that provide customers the opportunity to a financial covenant underpurchase their natural gas requirements from third parties and use our revolving credit facility and term loan agreement, which require us to maintain a debt to capitalization ratio that does not exceed 70%. A similar covenant in a 2005 private placement note purchase agreement requires us to maintain a debt to capitalization ratio that does not exceed 75%. As of December 31, 2019, the ratio was 61.7%.
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Seasonality
A significant portion of our financial results.
Human Capital
Human Capital Goals and Objectives.We have aligned our human capital goals to achieve the overall company objectives by thedriving an enhanced talent strategy, elevating support for front-line leaders, fostering a culture of rigor and accountability and strengthening our Human Resources function as a whole.
Workforce Composition.As of December 31, 2020, we had 7,301 full-time and 88 part-time employees. 2,728 employees were subject to collective bargaining agreements with various taxing authorities at the federal, state and local levels where we do business. Legislation or regulation which could affect our tax burden could be enacted by anylabor unions. Six of these governmental authorities. For example,agreements covering 527 employees are set to expire within one year.
Diversity.Our talent acquisition teams hired 612 external candidates in 2020 across all business segments. 35% of external hires were female and 18% were racially or ethnically diverse. In 2020, we engaged with community-based organizations, conducted career interest workshops in local schools, and focused our employee mentorship program on females. We also led a separate targeted development program for select employees to support the TCJA includes numerous provisions that affect businesses, including changesgrowth and development of female and ethnically diverse talent. We offered several employee resource groups (“ERGs”) and hosted mostly virtual activities throughout 2020. We have ERGs set up to U.S. corporate tax rates, business-related exclusions,support African-American, LatinX, veterans, LGBTQ+, female and deductionsAsian employees, among others, and credits. The outcome of regulatory proceedings regarding the extent to which the effect of a change in corporate tax rate will impact customersheld several sponsored conversations between senior executives and the time period over which the impact will occur could significantly impact future earnings and cash flows. Separately, a challenge by a taxing authority, changes in taxing authorities’ administrative interpretations, decisions, policies and positions, our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions may cause actual financial results to deviate from previous estimates.
The impactsfollowing provides the diversity breakdown of climate change, natural disasters, actsNiSource as of terrorism, accidents or other catastrophic events may disrupt operationsDecember 31, 2020:
Talent Development.We offer leadership development programs to enhance the behaviors and reduce the ability to service customers.
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Employee Safety and utility companies. Any failure of our computer systems, or those of our customers, suppliers or others with whom we do business, could materially disrupt our ability to operate our business and could result in a financial loss and possibly do harm to our reputation.
employees who work in the field and who continue to work in operational and corporate facilities, including social distancing, wearing face coverings, temperature checks and more frequent cleaning of equipment and facilities. We conduct our operations across a wide geographic area subject to variedhave also implemented work-from-home policies and potentially extreme weather conditions, which may from time to time persist for sustained periods of time. Despite preventative maintenance efforts, persistent weather related stress
practices. We operate in an industryhave minimized non-essential work that requires manyan employee to enter a customer premise and limited company vehicle occupancy to one person, where possible. We continue to employ physical and cybersecurity measures to ensure that our operational and support systems remain functional. Our actions to date have mitigated the spread of COVID-19 amongst our employeesemployees. We will continue to possess unique technical skill sets. Events such as an aging workforce without appropriate replacements,follow the mismatch of skill sets to future needs, or the unavailability of contract resources may lead to operating challenges or increased costs. These operating challenges include lack of resources, loss of knowledge,Centers for Disease Control and a lengthy time period associated with skill development. In addition, current and prospective employees may determine that they do not wish to work for us due to market, economic, employment and other conditions. Failure to hire and retain qualified employees, including the ability to transfer significant internal historical knowledge and expertise to the new employees, may adversely affect our ability to manage and operate our business. If we are unable to successfully attract and retain an appropriately qualified workforce, safety, service reliability, customer satisfaction and our results of operations could be adversely affected.
Electric Operations
We generate, transmit and distribute electricity through our subsidiary NIPSCO to approximately 479,000 customers in 20 counties in the northern part of Indiana and also engage in wholesale electric and transmission transactions. NIPSCO owns and operates two coal-fired electric generating stations: four units at R.M. Schahfer located in Wheatfield, IN and one unit at Michigan City located in Michigan City, IN. The two operating facilities have a generating capacity of 2,080 MW. NIPSCO also owns and operates (i) Sugar Creek, a CCGT plant located in West Terre Haute, IN with generating capacity of 571 MW; (ii) two gas-fired generating units located at R.M. Schahfer with a generating capacity of 155 MW; and (iii) two hydroelectric generating plants with a generating capacity of 10 MW (Oakdale located at Lake Freeman in Carroll County, IN and Norway located at Lake Schahfer in White County, IN). These facilities provide for a total system operating generating capacity of 2,816 MW. NIPSCO is the managing partner in Rosewater Wind Generation LLC, a joint venture that owns and operates 102 MW of nameplate generating capacity in White County, IN. Refer to Note 4 "Variable Interest Entities" in the Notes to Consolidated Financial Statements for more information.
In May 2018, NIPSCO completed the retirement of two coal-burning units at Bailly Generating Station, located in Chesterton, IN. These units had a generating capacity of approximately 460 MW, which was replaced through various electric purchase agreements.
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NIPSCO’s transmission system, with voltages from 69,000 to 765,000 volts, consists of 3,009 circuit miles. NIPSCO is interconnected with eight neighboring electric utilities. During the year ended December 31, 2020, NIPSCO generated 68.8% and purchased 31.2% of its electric requirements.
NIPSCO participates in the MISO transmission service and wholesale energy market. MISO is a nonprofit organization created in compliance with FERC regulations to improve the flow of electricity in the regional marketplace and to enhance electric reliability. Additionally, MISO is responsible for managing energy markets, transmission constraints and the day-ahead, real-time, Financial Transmission Rights and ancillary markets. NIPSCO transferred functional control of its electric transmission assets to MISO, and transmission service for NIPSCO occurs under the MISO Open Access Transmission Tariff.
Business Strategy
We focus our business strategy on providing safe and reliable service through our core, rate-regulated asset-based utilities, which generate substantially all of our operating income. Our utilities continue to move forward on core safety, infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all six states in which we operate. Our goal is to develop strategies that benefit all stakeholders as we (i) address changing customer conservation patterns, (ii) align our price structures with our cost structure, and (iii) embark on long-term investment programs. These strategies focus on improving safety and reliability, enhancing customer service, lowering customer bills and reducing emissions while generating sustainable returns.
The safety of our customers, communities and employees remains our top priority. The SMS transitioned in 2020 from an accelerated project launch to an established operating model within NiSource. With the continued support and advice from the Quality Review Board, a panel of third parties with safety operations expertise engaged by management to advise on safety matters, we are continuing to mature our SMS processes, capabilities and talent as we collaborate within and across industries to enhance safety and reduce operational risk.
In its 2018 Integrated Resource Plan submission to the IURC, NIPSCO laid out a plan to retire the R.M. Schahfer Generating Station by 2023 and Michigan City Generating Station by 2028. These units represent 72% of NIPSCO’s remaining generation capacity. The current replacement plan includes renewable sources of energy, including wind, solar, and battery storage, to be obtained through a combination of NIPSCO investment and PPAs. Refer to Note 20-E, "Other Matters," in the Notes to Consolidated Financial Statements for further discussion of these plans.
Rate Case Actions
The following table describes current rate case actions as applicable in each of our jurisdictions net of tracker impacts. See "Cost Recovery and Trackers" below for further detail on trackers.
| (in millions) | |||||||||||||||||||||||
| Company | Proposed ROE | Approved ROE | Requested Incremental Revenue | Approved Incremental Revenue | Filed | Status | Rates Effective | ||||||||||||||||
NIPSCO - Electric(1) | 10.80 | % | 9.75 | % | $ | 21.4 | $ | (53.5) | October 31, 2018 | Approved December 4, 2019 | January 2020 | ||||||||||||
Columbia of Pennsylvania(2) | 9.86 | % | N/A | $ | 76.8 | In process | April 24, 2020 | Order Expected Q1 2021 | January 2021 | ||||||||||||||
| Columbia of Maryland | 10.95 | % | None specified(3) | $ | 5.0 | $ | 2.0 | May 15, 2020 | Approved November 7, 2020 | December 2020 | |||||||||||||
(1)Rates were implemented in two steps, with implementation of step 1 rates effective on January 2, 2020 and step 2 rates effective on March 2, 2020.
(2)On December 4, 2020, a Recommended Decision was issued by the Administrative Law Judge (ALJ) for the PUC to "deny the Company's request in its entirety because it has not met its burden of providing, by substantial evidence, that the proposed base rate revenue increase will result in just and reasonable rates, as required by 66 Pa.C.S.A. § 1301 during the current Coronavirus-2019 pandemic." Columbia of Pennsylvania filed Exceptions to the ALJ’s Recommended Decision on December 22, 2020 in which the Company proposed an increase of $76.8 million to be implemented in two steps: (1) an increase of $38.4 million to be effective January 23, 2021 through June 30, 2021, and defer revenue related to the remaining increase to regulatory assets during this phase, and (2) the remaining increase of $38.4 million to be implemented on July 1, 2021. Columbia of Pennsylvania proposed to recover the revenue deferred to a Regulatory Asset during the initial phase over a one-year period beginning January 1, 2022 and ending December 31, 2022. A Final Order from the PUC is expected during the first quarter of 2021 for rates effective retroactively on January 23, 2021.
(3)Columbia of Maryland's rate case resulted in a black box settlement, representing a settlement to a specific revenue increase but not a specified ROE. The settlement provides use of a 9.60% ROE for future Make Whole and Infrastructure Tracker filings.
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Competition and Changes in the Regulatory Environment
The regulatory frameworks applicable to our operations, including environmental regulations, at both the state and federal levels, continue to evolve. These changes have had and will continue to have an impact on our operations, structure and profitability. Management continually seeks new ways to be more competitive and profitable in this environment. We believe we are, in all material respects, in compliance with such laws and regulations and do not expect continued compliance to have a material impact on our capital expenditures, earnings, or competitive position. We continue to monitor existing and pending laws and regulations, and the impact of regulatory changes cannot be predicted with certainty. Refer to Note 20-D, "Environmental Matters" in the Notes to Consolidated Financial Statements for more information regarding environmental regulations that are applicable to our operations.
The Gas Distribution Operations utilities have pursued non-traditional revenue sources within the evolving natural gas marketplace. These efforts include (i) the sale of products and services upstream of the companies’ service territory, (ii) the sale of products and services in the companies’ service territories, and (iii) gas supply cost incentive mechanisms for service to their core markets. The upstream products are made up of transactions that occur between an individual Gas Distribution Operations utility and a buyer for the sales of unbundled or rebundled gas supply and capacity. The on-system services are offered by us to customers and include products such as the transportation and balancing of gas on the Gas Distribution Operations utility's system. The incentive mechanisms give the Gas Distribution Operations utilities an opportunity to share in the savings created from such situations as gas purchase prices paid below an agreed upon benchmark and their ability to reduce pipeline capacity charges with their customers.
Increased efficiency of natural gas appliances and improvements in home building codes and standards has contributed to a long-term trend of declining average use per customer. While historical rate design at the distribution level has been structured such that a large portion of cost recovery is based upon throughput rather than in a fixed charge, operating costs are largely incurred on a fixed basis and do not fluctuate due to changes in customer usage. As a result, Gas Distribution Operations have pursued changes in rate design to more effectively match recoveries with costs incurred. Each of the states in which Gas Distribution Operations operate has different requirements regarding the procedure for establishing changes to rate design. Columbia of Ohio has adopted a decoupled rate design that closely links the recovery of fixed costs with fixed charges. Columbia of Maryland and Columbia of Virginia have regulatory approval for weather and revenue normalization adjustments for certain customer classes, which adjust monthly revenues that exceed or fall short of approved levels. Columbia of Pennsylvania continues to operate its pilot residential weather normalization adjustment. Columbia of Kentucky incorporates a weather normalization adjustment. In a prior gas base rate proceeding, NIPSCO implemented a higher fixed customer charge for residential and small customer classes moving toward recovering more of its fixed costs through a fixed recovery charge, but has no weather or usage protection mechanism.
Cost Recovery and Trackers. Comparability of our line item operating results are impacted by regulatory trackers that allow for the future recovery in rates of certain costs as described below. Increases in expenses that are the subject to approved regulatory tracker mechanisms generally lead to increased regulatory assets, which ultimately result in a corresponding increase in operating revenues and, therefore, have essentially no impact on total operating income results. Certain approved regulatory tracker mechanisms allow for abbreviated regulatory proceedings in order for the operating companies to quickly implement revised rates and recover associated costs.
A portion of the Gas Distribution revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in our operating area require periodic review of actual gas procurement activity to determine prudence and confirm the recovery of prudently incurred energy commodity costs supplied to customers.
A portion of the Electric Operations revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, which is updated quarterly to reflect actual costs incurred to supply electricity to customers.
Natural Gas Competition. Open access to natural gas supplies over interstate pipelines and the deregulation of the gas supply has led to tremendous change in the energy markets. LDC customers can purchase gas directly from producers and marketers in an open, competitive market. This separation or “unbundling” of the transportation and other services offered by LDCs allows customers to purchase the commodity independent of services provided by LDCs. LDCs continue to purchase gas and recover the associated costs from their customers. Our Gas Distribution Operations’ subsidiaries are involved in programs that provide customers the opportunity to purchase their natural gas requirements from third parties and use our Gas Distribution Operations’ subsidiaries for transportation services.
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Gas Distribution Operations competes with (i) investor-owned, municipal, and cooperative electric utilities throughout its service areas, (ii) other regulated and unregulated natural gas intra and interstate pipelines and (iii) other alternate fuels, such as propane and fuel oil. Gas Distribution Operations continues to be a strong competitor in the energy market as a result of strong customer preference for natural gas. Competition with providers of electricity has traditionally been the strongest in the residential and commercial markets of Kentucky, southern Ohio, central Pennsylvania and western Virginia due to comparatively low electric rates.
Electric Competition. Indiana electric utilities generally have exclusive service areas under Indiana regulations, and retail electric customers in Indiana do not have the ability to choose their electric supplier. NIPSCO faces non-utility competition from other energy sources, such as self-generation by large industrial customers and other distributed energy sources.
Seasonality
A significant portion of our operations are subject to seasonal fluctuations in sales. During the heating and cooling seasons, revenues from gas and electric sales, respectively, are more significant than in other months. The heating season is primarily from November through March, and the cooling season is primarily from June through September.
Human Capital
Human Capital Goals and Objectives.We have aligned our human capital goals to achieve the overall company objectives by driving an enhanced talent strategy, elevating support for front-line leaders, fostering a culture of rigor and accountability and strengthening our Human Resources function as a whole.
Workforce Composition.As of December 31, 2020, we had 7,301 full-time and 88 part-time employees. 2,728 employees were subject to collective bargaining agreements with various labor unions. Six of these agreements covering 527 employees are set to expire within one year.
Diversity.Our talent acquisition teams hired 612 external candidates in 2020 across all business segments. 35% of external hires were female and 18% were racially or ethnically diverse. In 2020, we engaged with community-based organizations, conducted career interest workshops in local schools, and focused our employee mentorship program on females. We also led a separate targeted development program for select employees to support the growth and development of female and ethnically diverse talent. We offered several employee resource groups (“ERGs”) and hosted mostly virtual activities throughout 2020. We have ERGs set up to support African-American, LatinX, veterans, LGBTQ+, female and Asian employees, among others, and held several sponsored conversations between senior executives and the ERGs.
The following provides the diversity breakdown of NiSource as of December 31, 2020:
Talent Development.We offer leadership development programs to enhance the behaviors and skills of our existing and future leaders. In 2020, we had participation from employees of all levels. We also offer extensive technical and non-technical
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employee training programs. Additionally, we strive to provide promotion and advancement opportunities for employees. In 2020, 84% of all leadership positions at the supervisor and above level were filled internally. Succession planning is regularly conducted to ensure bench strength for leadership positions. We utilize retention bonuses and conduct stay conversations in order to retain talent. Retention at NiSource in 2020 was over 93%. Retention is calculated using the total number of terminations divided by the average headcount for the annual period, not including the impacts from the sale of the Massachusetts Business and voluntary separation programs.
Employee Safety and Wellness. We have a number of programs to support employees and their families’ physical, mental, and financial well-being. These programs include a paid wellness day, telemedicine services, an Employee Assistance Program, Integrated Health Management navigation services, employee paid sick/disability leave and paid illness in family days, competitive medical, dental, vision, life and long term disability programs including employee health savings account company contributions and no cost registered financial planner counseling.
In response to COVID-19, we have implemented procedures designed to protect our employees who work in the field and who continue to work in operational and corporate facilities, including social distancing, wearing face coverings, temperature checks and more frequent cleaning of equipment and facilities. We have also implemented work-from-home policies and practices. We have minimized non-essential work that requires an employee to enter a customer premise and limited company vehicle occupancy to one person, where possible. We continue to employ physical and cybersecurity measures to ensure that our operational and support systems remain functional. Our actions to date have mitigated the spread of COVID-19 amongst our employees. We will continue to follow the Centers for Disease Control and Prevention ("CDC") guidance and implement safety measures intended to ensure employee and customer safety during the pandemic.
Other Relevant Business Information
Our customer base is broadly diversified, with no single customer accounting for a significant portion of revenues.
For a listing of certain subsidiaries of NiSource refer to Exhibit 21.
We electronically file various reports with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, as well as our proxy statements for the Company's annual meetings of stockholders at http://www.sec.gov. Additionally, we make all SEC filings available without charge to the public on our web site at http://www.nisource.com. The information contained on our website is not included in, nor incorporated by reference into, this Annual Report on Form 10-K.
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Our operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock.
OPERATIONAL RISKS
We may not be able to execute our business plan or growth strategy, including utility infrastructure investments.
Business or regulatory conditions may result in us not being able to execute our business plan or growth strategy, including identified, planned and other utility infrastructure investments, which includes investments related to natural gas pipeline modernization and investments related to our renewable energy projects and the build-transfer execution goals within our business plan. Our “NiSource Next” initiative, a comprehensive program designed to identify long-term sustainable capability enhancements and cost optimization improvements, may not be effective. Our customer and regulatory initiatives may not achieve planned results. Utility infrastructure investments may not materialize, may cease to be achievable or economically viable and may not be successfully completed. Natural gas may cease to be viewed as an economically and environmentally attractive fuel. Environmental activist groups, investors and governmental entities may continue to oppose natural gas delivery and infrastructure investments in the jurisdictions where we operate because of perceived environmental impacts associated with the natural gas supply chain and end use. Energy conservation, energy efficiency, distributed generation, energy storage, policies favoring electric heat over gas heat and other factors may reduce demand for natural gas and energy. In addition, we consider acquisitions or dispositions of assets or businesses, joint ventures and mergers from time to time as we execute on our business plan and growth strategy. Any of these circumstances could adversely affect our results of operations and growth prospects. Even if our business plan and growth strategy are executed, there is still risk of, among other things, human error in maintenance, installation or operations, shortages or delays in obtaining equipment, and performance below expected levels (in addition to the other risks discussed in this section).
Our gas distribution and transmission activities, as well as generation, transmission and distribution of electricity, involve a variety of inherent hazards and operating risks, including potential public safety risks.
Our gas distribution and transmission activities, as well as generation, transmission, and distribution of electricity, involve a variety of inherent hazards and operating risks, including, but not limited to, gas leaks and over-pressurization, downed power lines, excavation or vehicular damage to our infrastructure, outages, environmental spills, mechanical problems and other incidents, which could cause substantial financial losses, as demonstrated in part by the Greater Lawrence Incident. In addition, these hazards and risks have resulted and may in the future result in serious injury or loss of life to employees and/or the general public, significant damage to property, environmental pollution, impairment of our operations, adverse regulatory rulings and reputational harm, which in turn could lead to substantial losses for us. The location of pipeline facilities, including regulator stations, liquefied natural gas and underground storage, or generation, transmission, substation and distribution facilities near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from such incidents. As with the Greater Lawrence Incident, certain incidents have subjected and may in the future subject us to litigation or administrative or other legal proceedings from time to time, both civil and criminal, which could result in substantial monetary judgments, fines, or penalties against us, be resolved on unfavorable terms, and require us to incur significant operational expenses. The occurrence of incidents has in certain instances adversely affected and could in the future adversely affect our reputation, cash flows, financial position and/or results of operations. We maintain insurance against some, but not all, of these risks and losses.
Failure to adapt to advances in technology and manage the related costs could make us less competitive and negatively impact our results of operations and financial condition.
A key element of our business model includes generating power at central station power plants to achieve economies of scale and produce power at a competitive cost. We continue to research, plan for, and implement new technologies that produce reliable, cost-efficient power or reduce power consumption. These technologies include renewable energy, distributed generation, energy storage, and energy efficiency. Advances in technology, changes in laws or regulations (including subsidization) and other alternative methods of producing power are reducing the cost of electric generation from these sources to a level that is competitive with most central station power electric production. This could cause power sales to decline and the value of our generating facilities to decline. New technologies may require us to make significant expenditures to remain competitive and may result in the obsolescence of certain operating assets.
Our natural gas business model leverages widespread utilization of natural gas for space heating as a core driver of revenues. Alternative energy sources, new technologies or alternatives to natural gas space heating, including cold climate heat pumps and/or efficiency of other products, could reduce demand and increase customer attrition, which would impact our ability to recover on our investments in our gas distribution assets.
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In addition, customers are increasingly expecting additional communications, increased access to information, and expanded electronic capabilities regarding their electric and natural gas services, which, in some cases, involves additional investments in technology. We also rely on technology to adequately maintain key business records.
Our future success will depend, in part, on our ability to anticipate and successfully adapt to technological changes, to offer services that meet customer demands and evolving industry standards, and to recover all, or a significant portion of, any unrecovered investment in obsolete assets. A failure by us to effectively adapt to changes in technology and manage the related costs could harm our ability to remain competitive in the marketplace for our products, services and processes and could have a material adverse impact on our results of operations and financial condition.
Aging infrastructure may lead to disruptions in operations and increased capital expenditures and maintenance costs, all of which could negatively impact our financial results.
We have risks associated with aging infrastructure, including our electric and gas infrastructure assets. These risks can be driven by threats such as, but not limited to, electrical faults, mechanical failure, internal corrosion, external corrosion, ground movement and stress corrosion and/or cracking. The age of these assets may result in a need for replacement, a higher level of maintenance costs, or unscheduled outages, despite efforts by us to properly maintain or upgrade these assets through inspection, scheduled maintenance and capital investment. In addition, the nature of the information available on aging infrastructure assets, which in some cases is incomplete, may make inspections, maintenance, upgrading and replacement of the assets particularly challenging. Missing or incorrect infrastructure data may lead to (1) difficulty properly locating facilities, which can result in excavator damage and operational or emergency response issues, and (2) configuration and control risks associated with the modification of system operating pressures in connection with turning off or turning on service to customers, which can result in unintended outages or operating pressures. Also, additional maintenance and inspections are required in some instances in order to improve infrastructure information and records and address emerging regulatory or risk management requirements, which increases our costs. The failure to operate these assets as desired could result in interruption of electric service, major component failure at generating facilities and electric substations, gas leaks and other incidents and in our inability to meet firm service obligations, which could adversely impact revenues, and could also result in increased capital expenditures and maintenance costs, which, if not fully recovered from customers, could negatively impact our financial results.
We may be unable to obtain insurance on acceptable terms or at all, and the insurance coverage we do obtain may not provide protection against all significant losses.
Our ability to obtain insurance, as well as the cost and coverage of such insurance, are affected by developments affecting our business; international, national, state, or local events; and the financial condition and underwriting considerations of insurers. For example, some insurers are moving away from underwriting certain energy related businesses such as those in the coal industry or those exposed to certain perils such as wildfires as well as gas explosion events or other infrastructure-related risks. The utility insurance market is experiencing a hardening environment due to reductions in commercial suppliers and the capacity they are willing to issue, increases in overall demand for capacity, and a prevalence of severe losses. We have not been able to obtain liability insurance coverage at previously procured limits at rates that are acceptable to us. Insurance coverage may not continue to be available at limits, rates or terms acceptable to us. The premiums we pay for our insurance coverage have significantly increased as a result of market conditions and the accumulated loss ratio over the history of our operations, and we expect that they will continue to increase as a result of hardening in market conditions. In addition, our insurance is not sufficient or effective under all circumstances and against all hazards or liabilities to which we are subject. For example, total expenses related to the Greater Lawrence Incident exceeded the total amount of liability coverage available under our policies. Certain types of damages, expenses or claimed costs, such as fines and penalties, have been and in the future may be excluded under the policies. In addition, insurers providing insurance to us may raise defenses to coverage under the terms and conditions of the respective insurance policies that could result in a denial of coverage or limit the amount of insurance proceeds available to us. Any losses for which we are not fully insured or that are not covered by insurance at all could materially adversely affect our results of operations, cash flows, and financial position.
The implementation of NIPSCO’s electric generation strategy, including the retirement of its coal generation units, may not achieve intended results.
Our plan to replace 80% of our coal generation capacity by mid-2023 and all of our coal generation by the end of 2028 with primarily renewable resources may not progress as anticipated. On October 31, 2018, NIPSCO submitted its 2018 Integrated Resource Plan with the IURC setting forth its short- and long-term electric generation plans in an effort to maintain affordability while providing reliable, flexible and cleaner sources of power. The Integrated Resource Plan evaluated demand-side and supply-side resource alternatives to meet NIPSCO customers' future energy requirements over the ensuing 20 years.
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The preferred option within the Integrated Resource Plan retires the R.M. Schahfer Generating Station by mid-2023 and the Michigan City Generating Station by the end of 2028. These stations represent 2,080 MW of generating capacity, equal to 72% of NIPSCO’s remaining generating capacity and 100% of NIPSCO's remaining coal-fired generating capacity. The current replacement plan includes renewable sources of energy, including wind, solar, and battery storage. In the second quarter of 2020, the MISO approved NIPSCO's plan to retire the R.M. Schahfer Generating Station in 2023. In February 2021, NIPSCO decided to submit modified Attachment Y Notices to MISO requesting accelerated retirement of two of the four units at R.M. Schahfer Generating Station. The two units are now expected to be retired by the end of 2021, with the remaining two units still scheduled to be retired in 2023. Refer to Note 20- E. "Other Matters - NIPSCO 2018 Integrated Resource Plan," in the Notes to Consolidated Financial Statements for additional information.
There are inherent risks and uncertainties in executing the Integrated Resource Plan, including changes in market conditions, regulatory approvals, environmental regulations, commodity costs and customer expectations, which may impede NIPSCO’s ability to achieve the intended results. NIPSCO’s future success will depend, in part, on its ability to successfully implement its long-term electric generation plans, to offer services that meet customer demands and evolving industry standards, and to recover all, or a significant portion of, any unrecovered investment in obsolete assets. NIPSCO’s electric generation strategy could require significant future capital expenditures, operating costs and charges to earnings that may negatively impact our financial position, financial results and cash flows. As required by statute, NIPSCO plans to submit a new Integrated Resource Plan to the IURC by November 1, 2021. This submission will again outline NIPSCO's short and long term plans for meeting the energy supply needs of its customers, taking into account current perspectives on a range of factors including, but not limited to, new state and federal policy, wholesale market rules, forecasted customer demand, and available resource alternatives.The analysis, conclusions and Preferred Plan in the 2021 Integrated Resource Plan may be different from the analysis, conclusions and Preferred Plan in the 2018 Integrated Resource Plan.
Our capital projects and programs subject us to construction risks and natural gas costs and supply risks, and are subject to regulatory oversight, including requirements for permits, approvals and certificates from various governmental agencies.
Our business requires substantial capital expenditures for investments in, among other things, capital improvements to our electric generating facilities, electric and natural gas distribution infrastructure, natural gas storage, and other projects, including projects for environmental compliance. We are engaged in intrastate natural gas pipeline modernization programs to maintain system integrity and enhance service reliability and flexibility. NIPSCO also is currently engaged in a number of capital projects, including environmental improvements to its electric generating stations, the construction of new transmission facilities, and new projects related to renewable energy. As we undertake these projects and programs, we may be unable to complete them on schedule or at the anticipated costs. Additionally, we may construct or purchase some of these projects and programs to capture anticipated future growth in natural gas production, which may not materialize, and may cause the construction to occur over an extended period of time.
Our existing and planned capital projects require numerous permits, approvals and certificates from federal, state, and local governmental agencies. If there is a delay in obtaining any required regulatory approvals or if we fail to obtain or maintain any required approvals or to comply with any applicable laws or regulations, we may not be able to construct or operate our facilities, we may be forced to incur additional costs, or we may be unable to recover any or all amounts invested in a project. We also may not receive the anticipated increases in revenue and cash flows resulting from such projects and programs until after their completion. Other construction risks include changes in costs of materials, equipment, commodities or labor (including changes to tariffs on materials), delays caused by construction incidents or injuries, work stoppages, shortages in qualified labor, poor initial cost estimates, unforeseen engineering issues, the ability to obtain necessary rights-of-way, easements and transmissions connections and general contractors and subcontractors not performing as required under their contracts.
On May 1, 2020, former President Donald Trump issued an executive order (the “EO”) prohibiting any transaction initiated after that day that (i) involves bulk-power system (“BPS”) equipment designed, developed, manufactured or supplied by persons owned by, controlled by or subject to the jurisdiction or direction of a foreign adversary and (ii) poses an unacceptable risk to national security. Implementing regulations from the U.S. Secretary of Energy are still pending. The EO also requires the U.S. Secretary of Energy to review the risk of existing bulk-power system equipment sourced from foreign adversaries and to establish a task force to review and recommend federal procurement policies and procedures consistent with the considerations identified in the EO. On July 8, 2020, the U.S. Department of Energy issued a Request for Information (“RFI”), seeking input from industry stakeholders to “understand the energy industry’s current practices to identify and mitigate vulnerabilities in the supply chain” for components of bulk-power system equipment. The RFI identifies the following governments as “foreign adversaries”: China, Cuba, Iran, North Korea, Russia and Venezuela. The RFI notes that the U.S. Secretary of Energy retains
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authority to amend this list at any time and such countries have been identified only for the purposes of the EO. Pursuant to the EO, on December 17, 2020, the U.S. Department of Energy issued a Prohibition Order (the “Prohibition Order”) prohibiting the acquisition, importation, transfer, or installment of specified BPS equipment from China that directly serves critical defense facilities. While the implications of the Prohibition Order are still being assessed, it could impact our procurement processes for BPS equipment. In the future, certain bulk-power system equipment owned or operated by NiSource could possibly be considered to be sourced from a foreign adversary within the meaning of the EO. These regulations, if implemented, may impact our procurement processes for bulk-power system equipment.
To the extent that delays occur, costs become unrecoverable, or we otherwise become unable to effectively manage and complete our capital projects, our results of operations, cash flows, and financial condition may be adversely affected.
A significant portion of the gas and electricity we sell is used by residential and commercial customers for heating and air conditioning. Accordingly, fluctuations in weather, gas and electricity commodity costs and economic conditions impact demand of our customers and our operating results.
Energy sales are sensitive to variations in weather. Forecasts of energy sales are based on “normal” weather, which represents a long-term historical average. Significant variations from normal weather, could have, and have had, a material impact on energy sales. Additionally, residential usage, and to some degree commercial usage, is sensitive to fluctuations in commodity costs for gas and electricity, whereby usage declines with increased costs, thus affecting our financial results. Lastly, residential and commercial customers’ usage is sensitive to economic conditions and factors such as unemployment, consumption and consumer confidence. Therefore, prevailing economic conditions affecting the demand of our customers may in turn affect our financial results.
Fluctuations in the price of energy commodities or their related transportation costs or an inability to obtain an adequate, reliable and cost-effective fuel supply to meet customer demands may have a negative impact on our financial results.
Our current electric generating fleet is dependent on coal and natural gas for fuel, and our gas distribution operations purchase and resell a portion of the natural gas we deliver to our customers. These energy commodities are subject to price fluctuations and fluctuations in associated transportation costs. When appropriate, we use hedging in order to offset fluctuations in commodity supply prices. We rely on regulatory recovery mechanisms in the various jurisdictions in order to fully recover the commodity costs incurred in selling energy to our customers. However, while we have historically been successful in the recovery of costs related to such commodity prices, there can be no assurance that such costs will be fully recovered through rates in a timely manner.
In addition, we depend on electric transmission lines, natural gas pipelines, and other transportation facilities owned and operated by third parties to deliver the electricity and natural gas we sell to wholesale markets, supply natural gas to our gas storage and electric generation facilities, and provide retail energy services to customers. If transportation is disrupted, or if capacity is inadequate, we may be unable to sell and deliver our gas and electricservices to some or all of our customers. As a result, we may be required to procure additional or alternative electricity and/or natural gas supplies at then-current market rates, which, if recovery of related costs is disallowed, could have a material adverse effect on our businesses, financial condition, cash flows, results of operations and/or prospects.
Failure to attract and retain an appropriately qualified workforce, and maintain good labor relations, could harm our results of operations.
We operate in an industry that requires many of our employees to possess unique technical skill sets. Events such as an aging workforce without appropriate replacements, the mismatch of skill sets to future needs, or the unavailability of contract resources may lead to operating challenges or increased costs. These operating challenges include lack of resources, loss of knowledge, and a lengthy time period associated with skill development. In addition, current and prospective employees may determine that they do not wish to work for us due to market, economic, employment and other conditions. Failure to hire and retain qualified employees, including the ability to transfer significant internal historical knowledge and expertise to the new employees, may adversely affect our ability to manage and operate our business. If we are unable to successfully attract and retain an appropriately qualified workforce, safety, service reliability, customer satisfaction and our results of operations could be adversely affected.
Some of our employees are subject to collective bargaining agreements. Our collective bargaining agreements are generally negotiated on an operating company basis. Any failure to reach an agreement on new labor contracts or to negotiate these labor contracts might result in strikes, boycotts or other labor disruptions. Labor disruptions, strikes or significant negotiated wage
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and benefit increases, whether due to union activities, employee turnover or otherwise, could have a material adverse effect on our businesses, results of operations and/or cash flows.
If we cannot effectively manage new initiatives and organizational changes, we will be unable to address the opportunities and challenges presented by our strategy and the business and regulatory environment.
In order to execute on our sustainable growth strategy and enhance our culture of ongoing continuous improvement, we must effectively manage the complexity and frequency of new initiatives and organizational changes. If we are unable to make decisions quickly, assess our opportunities and risks, and implement new governance, managerial and organizational processes as needed to execute our strategy in this increasingly dynamic and competitive business and regulatory environment, our financial condition, results of operations and relationships with our business partners, regulators, customers and stockholders may be negatively impacted.
We outsource certain business functions to third-party suppliers and service providers, and substandard performance by those third parties could harm our business, reputation and results of operations.
Utilities rely on extensive networks of business partners and suppliers to support critical enterprise capabilities across their organizations. Global metrics indicate that deliveries from suppliers are slowing and that labor shortages are occurring in the energy sector. We outsource certain services to third parties in areas including construction services, information technology, materials, fleet, environmental, operational services and other areas. Outsourcing of services to third parties could expose us to inferior service quality or substandard deliverables, which may result in non-compliance (including with applicable legal requirements and industry standards), interruption of service or accidents, or reputational harm, which could negatively impact our results of operations. If any difficulties in the operations of these third-party suppliers and service providers, including their systems, were to occur, they could adversely affect our results of operations, or adversely affect our ability to work with regulators, unions, customers or employees.
A cyber-attack on any of our or certain third-party computer systems upon which we rely may adversely affect our ability to operate and could lead to a loss or misuse of confidential and proprietary information or potential liability.
We are reliant on technology to run our business, which is dependent upon financial and operational computer systems to process critical information necessary to conduct various elements of our business, including the generation, transmission and distribution of electricity; operation of our gas pipeline facilities; and the recording and reporting of commercial and financial transactions to regulators, investors and other stakeholders. In addition to general information and cyber risks that all large corporations face (e.g., malware, unauthorized access attempts, phishing attacks, malicious intent by insiders, third-party software vulnerabilities and inadvertent disclosure of sensitive information), the utility industry faces evolving and increasingly complex cybersecurity risks associated with protecting sensitive and confidential customer and employee information, electric grid infrastructure, and natural gas infrastructure. Deployment of new business technologies, along with maintaining legacy technology, represents a large-scale opportunity for attacks on our information systems and confidential customer and employee information, as well as on the integrity of the energy grid and the natural gas infrastructure. Increasing large-scale corporate attacks in conjunction with more sophisticated threats continue to challenge power and utility companies. Any failure of our computer systems, or those of our customers, suppliers or others with whom we do business, could materially disrupt our ability to operate our business and could result in a financial loss and possibly do harm to our reputation.
Additionally, our information systems experience ongoing, often sophisticated, cyber-attacks by a variety of sources, including foreign sources, with the apparent aim to breach our cyber-defenses. Although we attempt to maintain adequate defenses to these attacks and work through industry groups and trade associations to identify common threats and assess our countermeasures, a security breach of our information systems, or a security breach of the information systems of our customers, suppliers or others with whom we do business, could (i) impact the reliability of our generation, transmission and distribution systems and potentially negatively impact our compliance with certain mandatory reliability standards, (ii) subject us to reputational and other harm or liabilities associated with theft or inappropriate release of certain types of information such as system operating information or information, personal or otherwise, relating to our customers or employees, (iii) impact our ability to manage our businesses, and/or (iv) subject us to legal and regulatory proceedings and claims from third parties, in addition to remediation costs, any of which, in turn, could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects. Although we do maintain cyber insurance, it is possible that such insurance will not adequately cover any losses or liabilities we may incur as a result of a cybersecurity incident.
We are exposed to significant reputational risks, which make us vulnerable to a loss of cost recovery, increased litigation and negative public perception.
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As a utility company, we are subject to adverse publicity focused on the reliability of our services, the speed with which we are able to respond effectively to electric outages, natural gas leaks or events and related accidents and similar interruptions caused by storm damage or other unanticipated events, as well as our own or third parties' actions or failure to act. We are also subject to adverse publicity related to actual or perceived environmental impacts. If customers, legislators, or regulators have or develop a negative opinion of us, this could result in less favorable legislative and regulatory outcomes or increased regulatory oversight, increased litigation and negative public perception. The adverse publicity and investigations we experienced as a result of the Greater Lawrence Incident may have an ongoing negative impact on the public’s perception of us. It is difficult to predict the ultimate impact of this adverse publicity. The foregoing may have continuing adverse effects on our business, results of operations, cash flow and financial condition.
The sale of the Massachusetts Business poses risks and challenges that could negatively impact our business, and we may not realize the expected benefits of the sale of the Massachusetts Business.
On October 9, 2020, we completed the sale of the Massachusetts Business to Eversource. The sale of the Massachusetts Business involves separation or carve-out activities and costs and possible disputes with Eversource. We have continued financial liabilities with respect to the business conducted by Columbia of Massachusetts, as we retain responsibility for, and have agreed to indemnify Eversource against, certain liabilities. This responsibility includes liabilities for any fines arising out of the Greater Lawrence Incident and liabilities of Columbia of Massachusetts or its affiliates pursuant to civil claims for injury of persons or damage to property to the extent such injury or damage occurred prior to the closing in connection with the Massachusetts Business. It may also be difficult to determine whether a claim from a third party is our responsibility, and we may expend substantial resources trying to determine whether we or Eversource has responsibility for the claim.
Further, the sale of the Massachusetts Business may result in a dilutive impact to our future earnings if we are unable to offset the loss of revenue associated with the sale, which could have a material adverse effect on our results of operations and financial condition.
The impacts of natural disasters, acts of terrorism, acts of war, civil unrest, cyber-attacks, accidents, public health emergencies or other catastrophic events may disrupt operations and reduce the ability to service customers.
A disruption or failure of natural gas distribution systems, or within electric generation, transmission or distribution systems, in the event of a major hurricane, tornado, terrorist attack, acts of war, civil unrest, cyber-attack (as further detailed above), accident, public health emergency, pandemic, or other catastrophic event could cause delays in completing sales, providing services, or performing other critical functions. We have experienced disruptions in the past from hurricanes and tornadoes and other events of this nature. Also, companies in our industry face a heightened risk of exposure to acts of terrorism and vandalism. The occurrence of such events could adversely affect our financial position and results of operations. In accordance with customary industry practice, we maintain insurance against some, but not all, of these risks and losses.
Climate change has the potential to affect our business.
Our strategy may be impacted by policy and legal, technology, market, and reputational risks and opportunities that are associated with the transition to a lower-carbon economy, as disclosed in other risk factors in this section. In addition, climate change may exacerbate the risks to our physical infrastructure, including heat stresses to power lines, storms that damage infrastructure, lake and sea level changes that affect the manner in which services are currently provided, droughts or other stresses on water used to supply services, and other extreme weather conditions. Climate change and the transition to a lower carbon economy have the potential to affect our business by reducing our ability to serve customers, increasing the costs we incur in providing our products and services, impacting the demand for and consumption of our products and services (due to changes in costs, technology, reputation and weather patterns), and affecting the economic health of the regions in which we operate. Changes in policy to combat climate change, and technology advancement, each of which can also accelerate the implications of a transition to a lower carbon economy, may materially adversely impact our business, financial position, results of operations, and cash flows.
Extreme weather conditions may negatively impact our operations.
We conduct our operations across a wide geographic area subject to varied and potentially extreme weather conditions, which may from time to time persist for sustained periods of time. Despite preventative maintenance efforts, persistent weather related stress on our infrastructure may reveal weaknesses in our systems not previously known to us or otherwise present various operational challenges across all business segments. Further, adverse weather may affect our ability to conduct operations in a manner that satisfies customer expectations or contractual obligations, including by causing service disruptions.
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FINANCIAL, ECONOMIC AND MARKET RISKS
We have substantial indebtedness which could adversely affect our financial condition.
Our business is capital intensive and we rely significantly on long-term debt to fund a portion of our capital expenditures and repay outstanding debt, and on short-term borrowings to fund a portion of day-to-day business operations. We had total consolidated indebtedness of $9,746.1 million outstanding as of December 31, 2020. Our substantial indebtedness could have important consequences. For example, it could:
•limit our ability to borrow additional funds or increase the cost of borrowing additional funds;
•reduce the availability of cash flow from operations to fund working capital, capital expenditures and other general corporate purposes;
•limit our flexibility in planning for, or reacting to, changes in the business and the industries in which we operate;
•lead parties with whom we do business to require additional credit support, such as letters of credit, in order for us to transact such business;
•place us at a competitive disadvantage compared to competitors that are less leveraged;
•increase vulnerability to general adverse economic and industry conditions; and
•limit our ability to execute on our growth strategy, which is dependent upon access to capital to fund our substantial infrastructure investment program.
Some of our debt obligations contain financial covenants related to debt-to-capital ratios and cross-default provisions. Our failure to comply with any of these covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of outstanding debt obligations.
A drop in our credit ratings could adversely impact our cash flows, results of operation, financial condition and liquidity.
The availability and cost of credit for our businesses may be greatly affected by credit ratings. The credit rating agencies periodically review our ratings, taking into account factors such as our capital structure, earnings profile, and, in 2020 and 2021, the impacts of the COVID-19 pandemic. We are committed to maintaining investment grade credit ratings; however, there is no assurance we will be able to do so in the future. Our credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant. Any negative rating action could adversely affect our ability to access capital at rates and on terms that are attractive. A negative rating action could also adversely impact our business relationships with suppliers and operating partners, who may be less willing to extend credit or offer us similarly favorable terms as secured in the past under such circumstances.
Certain of our subsidiaries have agreements that contain “ratings triggers” that require increased collateral in the form of cash, a letter of credit or other forms of security for new and existing transactions if our credit ratings (including the standalone credit ratings of certain of our subsidiaries) are dropped below investment grade. These agreements are primarily for insurance purposes and for the physical purchase or sale of gas or power. As of December 31, 2020, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $53.9 million. In addition to agreements with ratings triggers, there are other agreements that contain “adequate assurance” or “material adverse change” provisions that could necessitate additional credit support such as letters of credit and cash collateral to transact business.
If our or certain of our subsidiaries' credit ratings were downgraded, especially below investment grade, financing costs and the principal amount of borrowings would likely increase due to the additional risk of our debt and because certain counterparties may require additional credit support as described above. Such amounts may be material and could adversely affect our cash flows, results of operations and financial condition. Losing investment grade credit ratings may also result in more restrictive covenants and reduced flexibility on repayment terms in debt issuances, lower share price and greater stockholder dilution from common equity issuances, in addition to reputational damage within the investment community.
The novel coronavirus (COVID-19) pandemic adversely impacts our business, results of operations, financial condition, liquidity and cash flows.
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The continued spread of COVID-19 has resulted in widespread impacts on the global economy and financial markets and could lead to a prolonged reduction in economic activity, extended disruptions to supply chains and capital markets, and reduced labor availability and productivity. We have experienced lower revenues, higher expenses for personal protective equipment and supplies, and higher bad debt expense as a consequence of the pandemic, which has negatively impacted our results of operations as of December 31, 2020. Our future operating results and liquidity may continue to be impacted by the pandemic, but the extent of the impact remains uncertain. Such ongoing impact of the pandemic includes, but is not limited to:
•Lower revenue and cash flow, resulting from the decrease in commercial and industrial gas and electric demand as businesses comply with operating restrictions and re-opening plans in each state and as businesses experience negative economic impact from the pandemic, potentially offset by higher residential demand;
•Lower revenue and cash flow due to the continuing suspension of late payment and reconnection fees in some jurisdictions;
•A decline in revenue due to an increase in customer attrition rates, as well as lower revenue growth if customer additions slow due to a prolonged economic downturn;
•A continued increase in bad debt and a decrease in cash flows resulting from the suspension of shut-offs and the inability of our customers to pay for their gas and electric service due to job loss or other factors, partially offset by regulatory deferral;
•Lower revenues on a prolonged basis resulting from higher customer bankruptcies, predominately focused on commercial and industrial customers not able to sustain operations through the broader economic downturn;
•A continued delay in cash flows as customers utilize the more flexible payment plans we offer; and
•An increase in internal labor costs from higher overtime.
We also face the risk of not achieving operational compliance and/or customer requirements because of work restrictions or unavailable employees due to the pandemic. For more information regarding the items above and additional items related to the pandemic that we are evaluating and monitoring, please see our discussion of these topics in Part II., Item 7. "Management Discussion and Analysis of Financial Condition and Results of Operations - Executive Summary - Introduction - COVID-19" in this report and in our future filings with the Securities and Exchange Commission. To the extent the pandemic adversely affects our business, results of operations, financial condition, liquidity or cash flows, it may also have the effect of heightening many of the other Risk Factors described herein. The degree to which the pandemic will impact us will depend in part on future developments, including the continued severity and duration of the outbreak, actions that may be taken by governmental authorities, and to what extent and when normal economic and operating conditions can resume.
Adverse economic and market conditions, including as a result of the COVID-19 pandemic, or increases in interest rates could materially and adversely affect our business, results of operations, cash flows, financial condition and liquidity.
Deteriorating, sluggish or volatile economic conditions in our operating jurisdictions could adversely impact our ability to maintain or grow our customer base and collect revenues from customers, which could reduce our revenue or growth rate and increase operating costs. The continued spread of COVID-19 has resulted in widespread impacts on the global economy and financial markets and could lead to a prolonged reduction in economic activity, disruptions to supply chains and capital markets, and reduced labor availability and productivity.
In connection with the pandemic, certain state regulatory commissions instituted disconnection moratoriums and the suspension of collection of late payment fees, deposits and reconnection fees, which impacted our ability to pursue our standard credit risk mitigation practices. Following the issuance of these moratoriums, certain of our regulated operations have been authorized to record a regulatory asset for bad debt expense above levels currently in rates. While several of these moratoriums remain in place, we have reinstated our common credit mitigation practices where moratoriums have expired. It is possible that such moratoriums will be extended or reinstated as the pandemic continues.
In addition, the pandemic has impacted our physical business operations, resulting in delays in conducting certain residential work and additional costs required to comply with pandemic-related health and safety protocols.
Further, we rely on access to the capital markets to finance our liquidity and long-term capital requirements, including expenditures for our utility infrastructure and to comply with future regulatory requirements, to the extent not satisfied by the cash flow generated by our operations. We have historically relied on long-term debt and on the issuance of equity securities to
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fund a portion of our capital expenditures and repay outstanding debt, and on short-term borrowings to fund a portion of day-to-day business operations. Successful implementation of our long-term business strategies, including capital investment, is dependent upon our ability to access the capital and credit markets, including the banking and commercial paper markets, on competitive terms and rates. An economic downturn or uncertainty, market turmoil, changes in tax policy, challenges faced by financial institutions, changes in our credit ratings, or a change in investor sentiment toward us or the utilities industry generally could adversely affect our ability to raise additional capital or refinance debt. Reduced access to capital markets, increased borrowing costs, and/or lower equity valuation levels could reduce future earnings per share and cash flows. Refer to Note 15, “Long-Term Debt,” in the Notes to Consolidated Financial Statements for information related to outstanding long-term debt and maturities of that debt. In addition, any rise in interest rates may lead to higher borrowing costs, which may adversely impact reported earnings, cost of capital and capital holdings.
If, in the future, we face limits to the credit and capital markets or experience significant increases in the cost of capital or are unable to access the capital markets, it could limit our ability to implement, or increase the costs of implementing, our business plan, which, in turn, could materially and adversely affect our results of operations, cash flows, financial condition and liquidity.
Most of our revenues are subject to economic regulation and are exposed to the impact of regulatory rate reviews and proceedings.
Most of our revenues are subject to economic regulation at either the federal or state level. As such, the revenues generated by us are subject to regulatory review by the applicable federal or state authority. These rate reviews determine the rates charged to customers and directly impact revenues. Our financial results are dependent on frequent regulatory proceedings in order to ensure timely recovery of costs and investments.
The outcomes of these proceedings are uncertain, potentially lengthy and could be influenced by many factors, some of which may be outside of our control, including the cost of providing service, the necessity of expenditures, the quality of service, regulatory interpretations, customer intervention, economic conditions and the political environment. Further, the rate orders are subject to appeal, which creates additional uncertainty as to the rates that will ultimately be allowed to be charged for services. The COVID-19 pandemic is another factor that will continue to influence the regulatory process, such as the implementation of disconnection moratoriums as discussed above and the risk of not being able to recover costs and/or returns on invested capital through raising rates during a pandemic, which has disproportionately impacted vulnerable customers and communities.
Additionally, the costs of complying with current and future changes in environmental and federal pipeline safety laws and regulations are expected to be significant, and their recovery through rates will also be contingent on regulatory approval.
Our business operations are subject to economic conditions in certain industries.
Business operations throughout our service territories have been and may continue to be adversely affected by economic events at the national and local level where our businesses operate. In particular, sales to large industrial customers, such as those in the steel, oil refining, industrial gas and related industries, are impacted by economic downturns, including the downturn resulting from the COVID-19 pandemic; geographic or technological shifts in production or production methods; and consumer demand for environmentally friendly products and practices. The U.S. manufacturing industry continues to adjust to changing market conditions including international competition, increasing costs, and fluctuating demand for its products. In addition, our results of operations are negatively impacted by lower revenues resulting from higher bankruptcies, predominately focused on commercial and industrial customers not able to sustain operations through the economic disruptions related to the pandemic.
We are exposed to risk that customers will not remit payment for delivered energy or services, and that suppliers or counterparties will not perform under various financial or operating agreements.
Our extension of credit is governed by a Corporate Credit Risk Policy, involves considerable judgment by our employees and is based on an evaluation of a customer or counterparty’s financial condition, credit history and other factors. We monitor our credit risk exposureby obtaining credit reports and updated financial information for customers and suppliers, and by evaluating the financial status of our banking partners and other counterparties by reference to market-based metrics such as credit default swap pricing levels, and to traditional credit ratings provided by the major credit rating agencies. Adverse economic conditions result in an increase in defaults by customers, suppliers and counterparties. As stated above, in connection with the COVID-19 pandemic, certain state regulatory commissions instituted regulatory moratoriums that have impacted our ability to pursue our standard credit risk mitigation practices.
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We are a holding company and are dependent on cash generated by our subsidiaries to meet our debt obligations and pay dividends on our stock.
We are a holding company and conduct our operations primarily through our subsidiaries, which are separate and distinct legal entities. Substantially all of our consolidated assets are held by our subsidiaries. Accordingly, our ability to meet our debt obligations or pay dividends on our common stock and preferred stock is largely dependent upon cash generated by these subsidiaries. In the event a major subsidiary is not able to pay dividends or transfer cash flows to us, our ability to service our debt obligations or pay dividends could be negatively affected.
Capital market performance and other factors may decrease the value of benefit plan assets, which then could require significant additional funding and impact earnings.
The performance of the capital markets affects the value of the assets that are held in trust to satisfy future obligations under defined benefit pension and other postretirement benefit plans. We have significant obligations in these areas and hold significant assets in these trusts as noted in Note 12, "Pension and Other Postretirement Benefits," in the Notes to Consolidated Financial Statements. These assets are subject to market fluctuations and may yield uncertain returns, which fall below our projected rates of return. A decline in the market value of assets may increase the funding requirements of the obligations under the defined benefit pension plan. Additionally, changes in interest rates affect the liabilities under these benefit plans; as interest rates decrease, the liabilities increase, which could potentially increase funding requirements. Further, the funding requirements of the obligations related to these benefits plans may increase due to changes in governmental regulations and participant demographics, including increased numbers of retirements or longer life expectancy assumptions, as well as voluntary early retirements. In addition, lower asset returns result in increased expenses. Ultimately, significant funding requirements and increased pension or other postretirement benefit plan expense could negatively impact our results of operations and financial position.
We have significant goodwill. Any future impairments of goodwill could result in a significant charge to earnings in a future period and negatively impact our compliance with certain covenants under financing agreements.
In accordance with GAAP, we test goodwill for impairment at least annually and review our definite-lived intangible assets for impairment when events or changes in circumstances indicate its fair value might be below its carrying value. Goodwill is also tested for impairment when factors, examples of which include reduced cash flow estimates, a sustained decline in stock price or market capitalization below book value, indicate that the carrying value may not be recoverable.
A significant charge in the future could impact the capitalization ratio covenant under certain financing agreements. We are subject to a financial covenant under our revolving credit facility, which requires us to maintain a debt to capitalization ratio that does not exceed 70%. As of December 31, 2020, the ratio was 62.5%.
Changes in the method for determining LIBOR and the potential replacement of the LIBOR benchmark interest rate could adversely affect our business, financial condition, results of operations and cash flows.
Some of our indebtedness, including borrowings under our revolving credit agreement, bears interest at a variable rate based on LIBOR. From time to time, we also enter into hedging instruments to manage our exposure to fluctuations in the LIBOR benchmark interest rate. In addition, these hedging instruments, as well as hedging instruments that our subsidiaries use for hedging natural gas price and basis risk, rely on LIBOR-based rates to calculate interest accrued on certain payments that may be required to be made under these agreements, such as late payments or interest accrued if any cash collateral should be held by a counterparty. Any changes announced by regulators in the method pursuant to which the LIBOR rates are determined may result in a sudden or prolonged increase or decrease in the reported LIBOR rates. If that were to occur, the level of interest payments we incur may change.
In July 2017, the United Kingdom Financial Conduct Authority (“FCA”), which regulates LIBOR, announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. In November 2020, the Board of Governors of the U.S. Federal Reserve System, the Federal Deposit Insurance Corporation and the Office of the U.S. Comptroller of the Currency collectively issued a statement encouraging banks to stop entering into financial contracts that use LIBOR as a reference rate as soon as possible, and no later than December 31, 2021. It is not possible to predict the effect of these changes, other reforms or the establishment of alternative reference rates in the United Kingdom or elsewhere. In the United States, efforts to identify a set of alternative U.S. dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York. The Alternative Reference Rates Committee has proposed the Secured Overnight Financing Rate ("SOFR") as its recommended alternative to LIBOR, and the Federal Reserve Bank of New York began publishing SOFR rates in April 2018. SOFR is intended to be a
20
broad measure of the cost of borrowing cash overnight that is collateralized by U.S. Treasury securities. However, because SOFR is a broad U.S. Treasury repurchase agreement financing rate that represents overnight secured funding transactions, it differs fundamentally from LIBOR. For example, SOFR is a secured overnight rate, while LIBOR is an unsecured rate that represents interbank funding over different maturities. In addition, because SOFR is a transaction-based rate, it is backward-looking, whereas LIBOR is forward-looking. Because of these and other differences, there is no assurance that SOFR will perform in the same way as LIBOR would have performed at any time, and there is no guarantee that it is a comparable substitute for LIBOR.
In addition, although certain of our LIBOR based obligations provide for alternative methods of calculating the interest rate payable on certain of our obligations if LIBOR is not reported, which include, without limitation, requesting certain rates from major reference banks in London or New York, uncertainty as to the extent and manner of future changes may result in interest rates and/or payments that are higher than, lower than or that do not otherwise correlate over time with, the interest rates or payments that would have been made on our obligations if a LIBOR-based rate was available in its current form.
LITIGATION, REGULATORY AND LEGISLATIVE RISKS
The outcome of legal and regulatory proceedings, investigations, inquiries, claims and litigation related to our business operations may have a material adverse effect on our results of operations, financial position or liquidity.
We areinvolved in legal and regulatory proceedings, investigations, inquiries, claims and litigation in connection with our business operations, including those related to the Greater Lawrence Incident, the most significant of which are summarized in Note 20, “Other Commitments and Contingencies” in the Notes to Consolidated Financial Statements. Our insurance does not cover all costs and expenses that we have incurred or that we may incur in the future relating to the Greater Lawrence Incident, and may not fully cover incidents that could occur in the future. Due to the inherent uncertainty of the outcomes of such matters, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on our results of operations, financial position or liquidity.
The Greater Lawrence Incident has materially adversely affected and may continue to materially adversely affect our financial condition, results of operations and cash flows.
In connection with the Greater Lawrence Incident, we have incurred and will incur various costs and expenses. We have been subject to inquiries and investigations by government authorities and regulatory agencies regarding the Greater Lawrence Incident, including the Massachusetts DPU and the Massachusetts Attorney General's Office, as further described in Note 7, "Goodwill and Other Intangible Assets," Note 20-C. "Legal Proceedings," and Note 20-E. "Other Matters" in the Notes to Consolidated Financial Statements.
While we have recovered the full amount of our liability insurance coverage available under our policies, total expenses related to the incident have exceeded such amount. Expenses in excess of our liability insurance coverage have materially adversely affected and may continue to materially adversely affect our results of operations, cash flows and financial position.
We may also incur additional costs associated with the Greater Lawrence Incident, beyond the amount currently anticipated, including in connection with the U.S. Attorney’s Office investigation as well as civil litigation. Further, state or federal legislation may be enacted that would require us to incur additional costs by mandating various changes, including changes to our operating practice standards for natural gas distribution operations and safety. If we are unable to recover the capital cost of the gas pipeline replacement through the pending property insurance litigation related to this matter, or we incur a material amount of other costs, our financial condition, results of operations, and cash flows could be materially and adversely affected.
Further, if it is determined in other matters that we did not comply with applicable statutes, regulations or rules in connection with the operations or maintenance of our natural gas system, and we are ordered to pay additional amounts in penalties, or other amounts, our financial condition, results of operations, and cash flows could be materially and adversely affected.
Our settlement with the U.S. Attorney’s Office in respect of federal charges in connection with the Greater Lawrence Incident may expose us to further penalties, liabilities and private litigation, and may impact our operations.
On February 26, 2020, the Company entered into a DPA and Columbia of Massachusetts entered into a plea agreement with the U.S. Attorney’s Office to resolve the U.S. Attorney’s Office’s investigation relating to the Greater Lawrence Incident, which was subsequently approved by the United States District Court for the District of Massachusetts (the "Court"). See Note 20-C. "Legal Proceedings” in the Notes to Consolidated Financial Statements. The agreements impose various compliance and remedial obligations on the Company and Columbia of Massachusetts. Failure to comply with the terms of these agreements could result in further enforcement action by the U.S. Attorney’s Office, expose the Company and Columbia of Massachusetts
21
to penalties, financial or otherwise, and subjects the Company to further private litigation, each of which could impact our operations and have a material adverse effect on our business.
Our businesses are subject to various laws, regulations and tariffs. We could be materially adversely affected if we fail to comply with such laws, regulations and tariffs or with any changes in or new interpretations of such laws, regulations and tariffs.
Our businesses are subject to various laws, regulations and tariffs, including, but not limited to, those relating to natural gas pipeline safety, employee safety, the environment and our energy infrastructure. Existing laws, regulations and tariffs may be revised or become subject to new interpretations, and new laws, regulations and tariffs may be adopted or become applicable to us and our operations. In some cases, compliance with new laws, regulations and tariffs increases our costs. If we fail to comply with laws, regulations and tariffs applicable to us or with any changes in or new interpretations of such laws, regulations or tariffs, our financial condition, results of operations, regulatory outcomes and cash flows may be materially adversely affected.
Our businesses are regulated under numerous environmental laws. The cost of compliance with these laws, and changes to or additions to, or reinterpretations of the laws, could be significant. Liability from the failure to comply with existing or changed laws could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Our businesses are subject to extensive federal, state and local environmental laws and rules that regulate, among other things, air emissions, water usage and discharges, GHG and waste products such as coal combustion residuals. Compliance with these legal obligations require us to make expenditures for installation of pollution control equipment, remediation, environmental monitoring, emissions fees, and permits at many of our facilities. These expenditures are significant, and we expect that they will continue to be significant in the future. Furthermore, if we fail to comply with environmental laws and regulations or are found to have caused damage to the environment or persons, that failure or harm may result in the assessment of civil or criminal penalties and damages against us, injunctions to remedy the failure or harm, and the inability to operate facilities as designed.
Existing environmental laws and regulations may be revised and new laws and regulations seeking to change environmental regulation of the energy industry may be adopted or become applicable to us, with an increasing focus on both coal and natural gas. Revised or additional laws and regulations may result in significant additional expense and operating restrictions on our facilities or increased compliance costs, which may not be fully recoverable from customers through regulated rates and could, therefore, impact our financial position, financial results and cash flow. Moreover, such costs could materially affect the continued economic viability of one or more of our facilities.
An area of significant uncertainty and risk are the laws concerning emission of GHG. While we continue to reduce GHG emissions through the retirement of coal-fired electric generation, increased sourcing of renewable energy, and priority pipeline replacement, energy efficiency programs, leak detection and repair, GHG emissions are currently an expected aspect of the electric and natural gas business. Revised or additional future GHG legislation and/or regulation related to the generation of electricity or the extraction, production, distribution, transmission, storage and end use of natural gas could materially impact our gas supply, financial position, financial results and cash flows.
Even in instances where legal and regulatory requirements are already known or anticipated, the original cost estimates for environmental improvements, remediation of past environmental impact, or pollution reduction strategies and equipment can differ materially from the amount ultimately expended. The actual future expenditures depend on many factors, including the nature and extent of impact, the method of improvement, the cost of raw materials, contractor costs, and requirements established by environmental authorities. Changes in costs and the ability to recover under regulatory mechanisms could affect our financial position, financial results and cash flows.
Changes in taxation and the ability to quantify such changes as well as challenges to tax positions could adversely affect our financial results.
We are subject to taxation by the various taxing authorities at the federal, state and local levels where we do business. Legislation or regulation which could affect our tax burden could be enacted by any of these governmental authorities. For example, the TCJA includes numerous provisions that affect businesses, including changes to U.S. corporate tax rates, business-related exclusions, deductions and credits. The outcome of regulatory proceedings regarding the extent to which the effect of a change in corporate tax rate will impact customers and the time period over which the impact will occur could significantly impact future earnings and cash flows. Separately, a challenge by a taxing authority, changes in taxing authorities’
22
administrative interpretations, decisions, policies and positions, our ability to utilize tax benefits such as carryforwards or tax credits, or a deviation from other tax-related assumptions may cause actual financial results to deviate from previous estimates.
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None.
ITEM 2. PROPERTIES
Discussed below are the principal properties held by us and our subsidiaries as of December 31, 2020.
Gas Distribution Operations
Refer to Item 1, "Business - Gas Distribution Operations" of this report for further information on Gas Distribution Operations properties.
Electric Operations
Refer to Item 1, "Business - Electric Operations" of this report for further information on Electric Operations properties.
Corporate and Other Operations
We own the Southlake Complex, our 325,000 square foot headquarters building located in Merrillville, Indiana.
Character of Ownership
Our principal properties and our subsidiariessubsidiaries' principal properties are owned free from encumbrances, subject to minor exceptions, none of which are of such a nature as to impair substantially the usefulness of such properties. Many of our subsidiary offices in various communities served are occupied under leases. All properties are subject to routine liens for taxes, assessments and undetermined charges (if any) incidental to construction. It is our practice to regularly pay such amounts, as and when due, unless contested in good faith. In general, the electric lines, gas pipelines and related facilities are located on land not owned by us or our subsidiaries, but are covered by necessary consents of various governmental authorities or by appropriate rights obtained from owners of private property. We do not, however, generally have specific easements from the owners of the property adjacent to public highways over, upon or under which our electric lines and gas distribution pipelines are located. At the time each of the principal properties were purchased, a title search was made. In general, no examination of titles as to rights-of-way for electric lines, gas pipelines or related facilities was made, other than examination, in certain cases, to verify the grantors’ ownership and the lien status thereof.
ITEM 3. LEGAL PROCEEDINGS
For a description of our legal proceedings, see Note 19-C20-C "Legal Proceedings" in the Notes to Consolidated Financial Statements.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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The following is a list of our executive officers, including their names, ages, offices held and other recent business experience.
| Name | Age | Office(s) Held in Past 5 Years | |||||||||||||
| Joseph Hamrock | President and Chief Executive Officer of NiSource since July 2015. | ||||||||||||||
| Donald E. Brown | 49 | Executive Vice President, Chief Financial Officer and | |||||||||||||
Executive Vice President of NiSource since May 2015. | |||||||||||||||
Chief Financial Officer of NiSource since July 2015. | |||||||||||||||
President, NiSource Corporate Services since June 2020. | |||||||||||||||
| Treasurer of NiSource from July 2015 to June 2016. | |||||||||||||||
| Anne-Marie W. D'Angelo | 44 | Executive Vice President, General Counsel and Corporate Secretary. | |||||||||||||
| Executive Vice President of NiSource since January 2021. | |||||||||||||||
| Corporate Secretary and General Counsel of NiSource since September 2019. | |||||||||||||||
| Senior Vice President of NiSource from September 2019 to January 2021. | |||||||||||||||
| General Counsel of Global Brass & Copper Inc. from May 2017 to August 2019. | |||||||||||||||
| Assistant General Counsel of McDonald’s USA from January 2015 to May 2017. | |||||||||||||||
| Shawn Anderson | 39 | Senior Vice President and Chief | |||||||||||||
| Vice President of NiSource from May 2018 to December 2018. | |||||||||||||||
Vice President, | |||||||||||||||
| Charles E. Shafer, II | Senior Vice President and Chief Safety Officer of NiSource since October 2019. | ||||||||||||||
Senior Vice President, Gas Engineering and Gas Support Services of NiSource Corporate Services Company from January 2019 to September 2019. | |||||||||||||||
Senior Vice President, Customer Services and New Business of NiSource Corporate Services Company from May 2016 through December 2018. | |||||||||||||||
Vice President, Engineering and Construction of NiSource Corporate Services Company from June 2012 to May 2016. | |||||||||||||||
| Violet G. Sistovaris | Executive Vice President and Chief Experience Officer. | ||||||||||||||
| Executive Vice President | |||||||||||||||
| Pablo A. Vegas | Executive Vice President, Chief Operating Officer and President, NiSource Utilities. | ||||||||||||||
| Executive Vice President of NiSource since May 2016. | |||||||||||||||
| Chief Operating Officer and President, NiSource Utilities of NiSource since June 2020. | |||||||||||||||
| President, Gas Utilities of NiSource | |||||||||||||||
Executive Vice President, Gas Business Segment and Chief Customer Officer of NiSource from May 2017 to September 2018. | |||||||||||||||
President and Chief Operating Officer of American Electric Power Company of Ohio from May 2012 to May 2016. | |||||||||||||||
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
NISOURCE INC.
NiSource’s common stock is listed and traded on the New York Stock Exchange under the symbol “NI.”
Holders of shares of NiSource’s common stock are entitled to receive dividends if and when declared by NiSource’s Board out of funds legally available, subject to the prior dividend rights of holders of our preferred stock or the depositary shares representing such preferred stock outstanding, and if full dividends have not been declared and paid on all outstanding shares of preferred stock in any dividend period, no dividend may be declared or paid or set aside for payment on our common stock. The policy of the Board has been to declare cash dividends on a quarterly basis payable on or about the 20th day of February, May, August, and November. At its January 31, 202027, 2021 meeting, the Board declared a quarterly common dividend of $0.21$0.22 per share, payable on February 20, 202019, 2021 to holders of record on February 11, 2020.9, 2021.
Although the Board currently intends to continue the payment of regular quarterly cash dividends on common shares, the timing and amount of future dividends will depend on the earnings of NiSource’s subsidiaries, their financial condition, cash requirements, regulatory restrictions, any restrictions in financing agreements and other factors deemed relevant by the Board. There can be no assurance that NiSource will continue to pay such dividends or the amount of such dividends.
As of February 18, 2020,9, 2021, NiSource had 18,86818,211 common stockholders of record and 382,263,348391,859,711 shares outstanding.
The graph below compares the cumulative total shareholder return of NiSource’s common stock for the last five years with the cumulative total return for the same period of the S&P 500 and the Dow Jones Utility indices. On July 1, 2015, NiSource completed the Separation. Following the Separation, NiSource retained no ownership interest in CPG. The Separation is treated as a special dividend for purposes of calculating the total shareholder return, with the then-current market value of the distributed shares being deemed to have been reinvested on the Separation date in shares of NiSource common stock. A vertical line is included on the graph below to identify the periods before and after the Separation.
The foregoing performance graph is being furnished as part of this annual report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by NiSource under the Securities Act or the Exchange Act.
The total shareholder return for NiSource common stock and the two indices is calculated from an assumed initial investment of $100 and assumes dividend reinvestment, includingreinvestment.
Purchases of Equity Securities by Issuer and Affiliated Purchasers. For the impactthree months ended December 31, 2020, no equity securities that are registered by NiSource Inc. pursuant to Section 12 of the distributionSecurities Exchange Act of CPG common stock in the Separation.
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Year Ended December 31, (in millions except per share data) | 2019 | 2018 | 2017 | 2016 | 2015 | ||||||||||||||
| Statement of Income Data: | |||||||||||||||||||
| Total Operating Revenues | $ | 5,208.9 | $ | 5,114.5 | $ | 4,874.6 | $ | 4,492.5 | $ | 4,651.8 | |||||||||
| Net Income (Loss) Available to Common Shareholders | 328.0 | (65.6 | ) | 128.5 | 331.5 | 198.6 | |||||||||||||
| Balance Sheet Data: | |||||||||||||||||||
| Total Assets | 22,659.8 | 21,804.0 | 19,961.7 | 18,691.9 | 17,492.5 | ||||||||||||||
| Capitalization | |||||||||||||||||||
| Stockholders’ equity | 5,986.7 | 5,750.9 | 4,320.1 | 4,071.2 | 3,843.5 | ||||||||||||||
| Long-term debt, excluding amounts due within one year | 7,856.2 | 7,105.4 | 7,512.2 | 6,058.2 | 5,948.5 | ||||||||||||||
| Total Capitalization | $ | 13,842.9 | $ | 12,856.3 | $ | 11,832.3 | $ | 10,129.4 | $ | 9,792.0 | |||||||||
| Per Share Data: | |||||||||||||||||||
| Basic Earnings (Loss) Per Share ($) | $ | 0.88 | $ | (0.18 | ) | $ | 0.39 | $ | 1.02 | $ | 0.63 | ||||||||
| Diluted Earnings (Loss) Per Share ($) | $ | 0.87 | $ | (0.18 | ) | $ | 0.39 | $ | 1.01 | $ | 0.63 | ||||||||
| Other Data: | |||||||||||||||||||
| Dividends declared per common share ($) | $ | 0.80 | $ | 0.78 | $ | 0.70 | $ | 0.64 | $ | 0.83 | |||||||||
| Common shares outstanding at the end of the year (in thousands) | 382,136 | 372,363 | 337,016 | 323,160 | 319,110 | ||||||||||||||
| Number of common stockholders | 18,725 | 19,889 | 21,009 | 22,272 | 30,190 | ||||||||||||||
| Dividends declared per Series A preferred share ($) | $ | 56.50 | $ | 28.88 | $ | — | $ | — | $ | — | |||||||||
| Dividends declared per Series B preferred share ($) | $ | 1,674.65 | $ | — | $ | — | $ | — | $ | — | |||||||||
| Capital expenditures | $ | 1,867.8 | $ | 1,814.6 | $ | 1,753.8 | $ | 1,490.4 | $ | 1,367.5 | |||||||||
| Number of employees | 8,363 | 8,087 | 8,175 | 8,007 | 7,596 | ||||||||||||||
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NISOURCE INC.
| Index | Page | ||||
Off Balance Sheet Arrangements | |||||
EXECUTIVE SUMMARY
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) analyzes our financial condition, results of operations and cash flows and those of our subsidiaries. It also includes management’s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. See "Note regarding forward-looking statements" at the beginning of this report for a list of factors that may cause results to differ materially.
Management’s Discussion is designed to provide an understanding of our operations and financial performance and should be read in conjunction with our Consolidated Financial Statements and related Notes to Consolidated Financial Statements in this annual report.
We are an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are fully regulated natural gas and electric utility companies serving customers in sevensix states. We generate substantially all of our operating income through these rate-regulated businesses, which are summarized for financial reporting purposes into two primary reportable segments: Gas Distribution Operations and Electric Operations.
Refer to the “Business” section under Item 1 of this annual report and Note 23,24, "Segments of Business," in the Notes to Consolidated Financial Statements for further discussion of our regulated utility business segments.
Our goal is to develop strategies that benefit all stakeholders as we (i) address changing customer conservation patterns, develops(ii) develop more contemporary pricing structures, and embarks(iii) embark on long-term infrastructure investment and safety programs. These strategies are intended to improvefocus on improving reliability and safety, enhanceenhancing customer servicesservice, lowering customer bills and reducereducing emissions while generating sustainable returns. Additionally, we continue to pursue regulatory and legislative initiatives that will allow residential customers not currently on our system to obtain gas service in a cost effective manner. Refer also to the discussion of Electric Supply withinsection of our Electric Operations Segment discussion for additional information on our long term electric generation strategy.
Your Energy, Your Future: Our plan to replace 80% of our coal generation capacity by the end of 2023 and all of our coal generation by the end of 2028 with primarily renewable resources is well underway. In October 2020, we executed three BTAs for 900 MW solar nameplate capacity and 135 MW of storage capacity. In December 2020, the formation of the Rosewater Wind Generation joint venture, one of our previously executed BTAs, was completed, and has begun operation. We executed in December 2020 a PPA for an additional 280 MW of solar nameplate capacity. These projects were selected following a comprehensive review of bids submitted through the RFP process that NIPSCO underwent in late 2019. The projects complement previously executed BTAs and PPAs with a combined nameplate capacity of 400 MW and 1,300 MW, respectively. For additional information, see Note 4 "Variable Interest Entities" and "Results and Discussion of Segment Operation - Electric Operations," in this Management's Discussion.
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| Year Ended | Year Ended | |||||||||
| (in millions) | December 31, 2018 | December 31, 2019 | Incident to Date | |||||||
| Third-party claims and government fines, penalties and settlements | $ | 757 | $ | 284 | $ | 1,041 | ||||
| Other incident-related costs | 266 | 154 | 420 | |||||||
| Total | 1,023 | 438 | 1,461 | |||||||
| Insurance recoveries recorded | (135 | ) | (665 | ) | (800 | ) | ||||
| Loss (benefit) to income before income taxes | $ | 888 | $ | (227 | ) | $ | 661 | |||
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
COVID-19: The safety of our employees and customers, while providing essential services during the COVID-19 pandemic, continues to be a key area of focus. Since March 2020, we have taken a proactive, coordinated approach intended to prevent, mitigate and respond to the pandemic, by utilizing our Incident Command System (ICS). The ICS includes members of our executive leadership team, a medical review professional, and members of functional teams from across our company. The ICS monitors state-by-state conditions and determines steps to conduct our operations safely for employees and customers.
We have implemented procedures designed to protect our employees who work in the field and who continue to work in operational and corporate facilities, including social distancing, wearing face coverings, temperature checks and more frequent cleaning of equipment and facilities. We have also implemented work-from-home policies and practices. We have minimized non-essential work that requires an employee to enter a customer premise and limited company vehicle occupancy to one person, where possible. We continue to employ physical and cybersecurity measures to ensure that our operational and support systems remain functional. Our actions to date have mitigated the spread of COVID-19 amongst our employees and principal field contractors. We will continue to follow CDC guidance and implement safety measures intended to ensure employee and customer safety during this pandemic. We are following all federal, state and local guidelines related to the COVID-19 vaccinations and will encourage employees to receive the vaccine when it is available to them.
Since the beginning of the pandemic, we have been helping our customers navigate this challenging time. We suspended disconnections soon after this outbreak began. As of December 2020, suspension of disconnections has been lifted in some, but not all, of our jurisdictions. We plan to continue our payment assistance programs across all of our operating territory to help customers deal with government investigations as set forth in Note 19, "Other Commitments and Contingencies - C. Legal Proceedings," will range from $1,041 millionthe impact of the pandemic. Additionally, we continue to $1,065 million, dependinghave dialogue with the state regulatory commissions for each of our operating companies regarding the pandemic. Regulatory deferrals for certain costs have been allowed by all of our state regulatory commissions. Costs approved for deferral vary by state. For information on the number, nature, final outcomestate specific suspension of disconnections and valueCOVID-19 regulatory filings, see Note 9, "Regulatory Matters," in the Notes to Consolidated Financial Statements. The CARES Act was enacted on March 27, 2020 and provides monetary-relief and financial aid to individuals, business, nonprofits, states and municipalities. The Coronavirus Relief Act was enacted on December 27, 2020 and extended or supplemented many of the programs from the CARES act. We are continuing to promote multiple resources available to customers including benefits from the CARES Act, such as additional funding for both the Low-Income Home Energy Assistance Program and the Community Services Block Grant to help support income-qualified customers. We are sharing energy efficiency tips to help customers save energy at home and promoting our budget plan program, which allows customers to pay about the same amount each month.
We have experienced lower revenue, higher expenses for personal protective equipment and supplies, and higher bad debt expense as a consequence of the pandemic, which has negatively impacted our results of operations through December 31, 2020. Refer to "Results and Discussion of Segment Operation" in this Management's Discussion for additional segment specific information. We did experience lower cash flows from operations for the year ended December 31, 2020 in comparison to the same period in 2019 due, in part, to slower collections of customer accounts receivable; however, we believe we have sufficient liquidity as a result of the issuance of $1.0 billion notes in April 2020, the remaining cash proceeds received from the sale of the Massachusetts Business in October 2020, the available capacity under our short-term revolving credit facility and accounts receivable securitization facilities, and our anticipated ability to access capital markets. Additionally, in the second quarter of 2020 we reduced our planned 2020 capital investments by $145 million. We did not make any other material changes to our capital construction programs or our renewable generation projects. While we have not experienced any significant issues in our supply chain, we are actively managing the materials, supplies, and contract services for our generation, transmission, distribution, and customer services functions.
Refer to Part I. Item 1A. "Risk Factors" for additional information related to the ongoing impact of the pandemic.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Greater Lawrence Incident: For the year ended December 31, 2020, we have incurred $17 million of third-party claims and the final outcome of government investigations. These costs do not include costs of certain third-party claims and fines, penalties or settlements with government investigations that we are not able to estimate. We expect to incur a total of $450 million to $460 million in other incident-related costs inclusive of the $420 million recorded incident to date, as set forth in Note 19, "Other Commitments and Contingencies - E. Other Matters - Greater Lawrence Incident Restoration."
| (in millions) | Insurance receivable(1) | ||
| Balance, December 31, 2018 | $ | 130 | |
| Insurance recoveries recorded in first quarter of 2019 | 100 | ||
| Cash collected from insurance recoveries in the first quarter of 2019 | (108 | ) | |
| Balance, March 31, 2019 | 122 | ||
| Insurance recoveries recorded in the second quarter of 2019 | 435 | ||
| Cash collected from insurance recoveries in the second quarter of 2019 | (297 | ) | |
| Balance, June 30, 2019 | $ | 260 | |
| Insurance recoveries recorded in third quarter of 2019 | — | ||
| Cash collected from insurance recoveries in the third quarter of 2019 | (260 | ) | |
| Balance, September 30, 2019 | $ | — | |
| Insurance recoveries recorded in the fourth quarter of 2019 | 130 | ||
| Cash collected from insurance recoveries in the fourth quarter of 2019 | (130 | ) | |
| Balance, December 31, 2019 | $ | — | |
Refer to Note 19, "Other Commitments and Contingencies - C. Legal20-C. "Legal Proceedings" and " - E. OtherNote 20-E "Other Matters," in the Notes to Consolidated Financial Statements, "Summary of Consolidated Financial Results," "Results and Discussion of Segment Operation - Gas Distribution Operations," and "Liquidity and Capital Resources" in this Management's Discussion for additional information related to the Greater Lawrence Incident.
Summary of Consolidated Financial Results
Year Ended December 31, (in millions, except per share amounts) | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | ||||||||||||||||||||||||
| Operating Revenues | $ | 4,681.7 | $ | 5,208.9 | $ | 5,114.5 | $ | (527.2) | $ | 94.4 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||
| Cost of energy | 1,109.3 | 1,534.8 | 1,761.3 | (425.5) | (226.5) | ||||||||||||||||||||||||
| Other Operating Expenses | 3,021.6 | 2,783.4 | 3,228.5 | 238.2 | (445.1) | ||||||||||||||||||||||||
| Total Operating Expenses | 4,130.9 | 4,318.2 | 4,989.8 | (187.3) | (671.6) | ||||||||||||||||||||||||
| Operating Income | 550.8 | 890.7 | 124.7 | (339.9) | 766.0 | ||||||||||||||||||||||||
| Total Other Deductions, Net | (582.1) | (384.1) | (355.3) | (198.0) | (28.8) | ||||||||||||||||||||||||
| Income Taxes | (17.1) | 123.5 | (180.0) | (140.6) | 303.5 | ||||||||||||||||||||||||
| Net Income (Loss) | (14.2) | 383.1 | (50.6) | (397.3) | 433.7 | ||||||||||||||||||||||||
| Net income attributable to noncontrolling interest | 3.4 | — | — | 3.4 | — | ||||||||||||||||||||||||
| Net Income (Loss) attributable to NiSource | (17.6) | 383.1 | (50.6) | (400.7) | 433.7 | ||||||||||||||||||||||||
| Preferred dividends | (55.1) | (55.1) | (15.0) | — | (40.1) | ||||||||||||||||||||||||
| Net Income (Loss) Available to Common Shareholders | (72.7) | 328.0 | (65.6) | (400.7) | 393.6 | ||||||||||||||||||||||||
| Basic Earnings (Loss) Per Share | $ | (0.19) | $ | 0.88 | $ | (0.18) | $ | (1.07) | $ | 1.06 | |||||||||||||||||||
| Basic Average Common Shares Outstanding | 384.3 | 374.6 | 356.5 | 9.7 | 18.1 | ||||||||||||||||||||||||
The majority of the costcosts of salesenergy in both segments are tracked costs that are passed through directly to the customer, resulting in an equal and offsetting amount reflected in operating revenues. As
On a result,consolidated basis, we believereported a net revenues, a non-GAAP financial measure defined as operating revenues less costloss available to common shareholders of sales (excluding depreciation and amortization), provides management and investors a useful measure$72.7 million or $0.19 per basic share for the twelve months ended December 31, 2020 compared to analyze profitability. The presentationincome to common shareholders of net revenues herein is intended to provide supplemental information$328.0 million or $0.88 per basic share for investors regarding operating performance. Net revenues do not intend to representthe same period in 2019. Additionally, we reported operating income of $550.8 million for the most comparable GAAP measure,twelve months ended December 31, 2020 compared to $890.7 million for the same period in 2019. The decrease in both net income available to common shareholders and operating income during 2020 was primarily due to lower operating revenue related to the sale of the Massachusetts Business, as well as higher operating expenses due to insurance recoveries recorded in 2019, net of third-party claims and other costs, related to the Greater Lawrence Incident. Additionally, the decrease to net income available to common shareholders was also impacted by the loss on early extinguishment of debt in 2020 as well as partially offset by a change from income tax expense in 2019 to an indicatorincome tax benefit in 2020.
Other Deductions, Net
Other deductions, net reduced income by $582.1 million in 2020 compared to a reduction in income of operating performance and$384.1 million in 2019. This change is not necessarily comparableprimarily due to similarly titled measures reported by other companies.
30
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Operating Income | $ | 890.7 | $ | 124.7 | $ | 921.2 | $ | 766.0 | $ | (796.5 | ) | ||||||||
Year Ended December 31, (in millions, except per share amounts) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Operating Revenues | $ | 5,208.9 | $ | 5,114.5 | $ | 4,874.6 | $ | 94.4 | $ | 239.9 | |||||||||
| Cost of sales (excluding depreciation and amortization) | 1,534.8 | 1,761.3 | 1,518.7 | (226.5 | ) | 242.6 | |||||||||||||
| Total Net Revenues | 3,674.1 | 3,353.2 | 3,355.9 | 320.9 | (2.7 | ) | |||||||||||||
| Other Operating Expenses | 2,783.4 | 3,228.5 | 2,434.7 | (445.1 | ) | 793.8 | |||||||||||||
| Operating Income | 890.7 | 124.7 | 921.2 | 766.0 | (796.5 | ) | |||||||||||||
| Total Other Deductions, Net | (384.1 | ) | (355.3 | ) | (478.2 | ) | (28.8 | ) | 122.9 | ||||||||||
| Income Taxes | 123.5 | (180.0 | ) | 314.5 | 303.5 | (494.5 | ) | ||||||||||||
| Net Income (Loss) | 383.1 | (50.6 | ) | 128.5 | 433.7 | (179.1 | ) | ||||||||||||
| Preferred dividends | (55.1 | ) | (15.0 | ) | — | (40.1 | ) | (15.0 | ) | ||||||||||
| Net Income (Loss) Available to Common Shareholders | 328.0 | (65.6 | ) | 128.5 | 393.6 | (194.1 | ) | ||||||||||||
| Basic Earnings (Loss) Per Share | $ | 0.88 | $ | (0.18 | ) | $ | 0.39 | $ | 1.06 | $ | (0.57 | ) | |||||||
| Basic Average Common Shares Outstanding | 374.6 | 356.5 | 329.4 | 18.1 | 27.1 | ||||||||||||||
Income Taxes
The increasedecrease in income tax expense from 20182019 to 20192020 is primarily attributable to higherlower pre-tax income, resulting from the items discussed above in "Operating Income" and "Other Deductions, Net," true-upsstate jurisdictional mix of pre-tax loss in 2020 tax effected at statutory tax rates and increased amortization of excess deferred federal income taxes in 2020 compared to 2019. These items are offset by increased deferred tax expense recognized on the sale of the Columbia of Massachusetts' regulatory liability, established due to TCJA in 2018 to reflect regulatory outcomes associated with excess deferred income taxes, and higher income tax expense in 2019 related to2017, that would have otherwise been recognized over the non-deductible,amortization period, non-cash impairment of goodwill finesrelated to Columbia of Massachusetts in 2019 (see Note 7, "Goodwill and penalties.Other Intangible Assets" for additional information) and one-time adjustments to deferred tax balances.
RESULTS AND DISCUSSION OF OPERATIONS
Presentation of Segment Information
Our operations are divided into two primary reportable segments: Gas Distribution Operations and Electric Operations. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other" within the Notes to the Consolidated Financial Statements and primarily are comprised of interest expense on holding company debt, and unallocated corporate costs and activities.
31
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Distribution Operations
Year Ended December 31, (in millions) | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | ||||||||||||||||||||||||
| Operating Revenues | $ | 3,140.1 | $ | 3,522.8 | $ | 3,419.5 | $ | (382.7) | $ | 103.3 | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||
| Cost of energy | 794.2 | 1,067.6 | 1,259.3 | (273.4) | (191.7) | ||||||||||||||||||||||||
| Operation and maintenance | 1,138.0 | 935.7 | 1,908.1 | 202.3 | (972.4) | ||||||||||||||||||||||||
| Depreciation and amortization | 363.1 | 403.2 | 301.0 | (40.1) | 102.2 | ||||||||||||||||||||||||
| Impairment of intangible assets | — | 209.7 | — | (209.7) | 209.7 | ||||||||||||||||||||||||
| Loss on sale of fixed assets and impairments, net | 412.4 | 0.1 | 0.2 | 412.3 | (0.1) | ||||||||||||||||||||||||
| Other taxes | 233.3 | 231.1 | 205.0 | 2.2 | 26.1 | ||||||||||||||||||||||||
| Total Operating Expenses | 2,941.0 | 2,847.4 | 3,673.6 | 93.6 | (826.2) | ||||||||||||||||||||||||
| Operating Income (Loss) | $ | 199.1 | $ | 675.4 | $ | (254.1) | $ | (476.3) | $ | 929.5 | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||
| Residential | $ | 2,110.6 | $ | 2,317.2 | $ | 2,248.3 | $ | (206.6) | $ | 68.9 | |||||||||||||||||||
| Commercial | 679.7 | 775.1 | 753.7 | (95.4) | 21.4 | ||||||||||||||||||||||||
| Industrial | 213.8 | 245.8 | 228.6 | (32.0) | 17.2 | ||||||||||||||||||||||||
| Off-System | 41.0 | 77.7 | 92.4 | (36.7) | (14.7) | ||||||||||||||||||||||||
| Other | 95.0 | 107.0 | 96.5 | (12.0) | 10.5 | ||||||||||||||||||||||||
| Total | $ | 3,140.1 | $ | 3,522.8 | $ | 3,419.5 | $ | (382.7) | $ | 103.3 | |||||||||||||||||||
| Sales and Transportation (MMDth) | |||||||||||||||||||||||||||||
| Residential | 249.5 | 274.9 | 280.3 | (25.4) | (5.4) | ||||||||||||||||||||||||
| Commercial | 170.5 | 189.6 | 187.6 | (19.1) | 2.0 | ||||||||||||||||||||||||
| Industrial | 538.1 | 542.5 | 555.7 | (4.4) | (13.2) | ||||||||||||||||||||||||
| Off-System | 23.3 | 32.9 | 30.0 | (9.6) | 2.9 | ||||||||||||||||||||||||
| Other | 0.3 | 0.3 | — | — | 0.3 | ||||||||||||||||||||||||
| Total | 981.7 | 1,040.2 | 1,053.6 | (58.5) | (13.4) | ||||||||||||||||||||||||
| Heating Degree Days | 5,097 | 5,375 | 5,562 | (278) | (187) | ||||||||||||||||||||||||
| Normal Heating Degree Days | 5,485 | 5,452 | 5,610 | 33 | (158) | ||||||||||||||||||||||||
| % Warmer than Normal | (7) | % | (1) | % | (2) | % | |||||||||||||||||||||||
| Gas Distribution Customers | |||||||||||||||||||||||||||||
| Residential | 2,954,478 | 3,221,178 | 3,194,662 | (266,700) | 26,516 | ||||||||||||||||||||||||
| Commercial | 253,184 | 282,778 | 281,517 | (29,594) | 1,261 | ||||||||||||||||||||||||
| Industrial | 4,968 | 5,982 | 5,833 | (1,014) | 149 | ||||||||||||||||||||||||
| Other | 3 | 3 | 3 | — | — | ||||||||||||||||||||||||
| Total | 3,212,633 | 3,509,941 | 3,482,015 | (297,308) | 27,926 | ||||||||||||||||||||||||
32
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Operating Income (Loss) | $ | 675.4 | $ | (254.1 | ) | $ | 550.1 | $ | 929.5 | $ | (804.2 | ) | |||||||
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Net Revenues | |||||||||||||||||||
| Operating revenues | $ | 3,522.8 | $ | 3,419.5 | $ | 3,102.1 | $ | 103.3 | $ | 317.4 | |||||||||
| Less: Cost of sales (excluding depreciation and amortization) | 1,067.6 | 1,259.3 | 1,005.0 | (191.7 | ) | 254.3 | |||||||||||||
| Net Revenues | 2,455.2 | 2,160.2 | 2,097.1 | 295.0 | 63.1 | ||||||||||||||
| Operating Expenses | |||||||||||||||||||
| Operation and maintenance | 935.7 | 1,908.1 | 1,090.8 | (972.4 | ) | 817.3 | |||||||||||||
| Depreciation and amortization | 403.2 | 301.0 | 269.3 | 102.2 | 31.7 | ||||||||||||||
| Impairment of other intangible assets | 209.7 | — | — | 209.7 | — | ||||||||||||||
| Loss on sale of fixed assets and impairments, net | 0.1 | 0.2 | 2.8 | (0.1 | ) | (2.6 | ) | ||||||||||||
| Other taxes | 231.1 | 205.0 | 184.1 | 26.1 | 20.9 | ||||||||||||||
| Total Operating Expenses | 1,779.8 | 2,414.3 | 1,547.0 | (634.5 | ) | 867.3 | |||||||||||||
| Operating Income (Loss) | $ | 675.4 | $ | (254.1 | ) | $ | 550.1 | $ | 929.5 | $ | (804.2 | ) | |||||||
| Revenues | |||||||||||||||||||
| Residential | $ | 2,317.2 | $ | 2,248.3 | $ | 2,029.4 | $ | 68.9 | $ | 218.9 | |||||||||
| Commercial | 775.1 | 753.7 | 669.4 | 21.4 | 84.3 | ||||||||||||||
| Industrial | 245.8 | 228.6 | 217.5 | 17.2 | 11.1 | ||||||||||||||
| Off-System | 77.7 | 92.4 | 111.8 | (14.7 | ) | (19.4 | ) | ||||||||||||
| Other | 107.0 | 96.5 | 74.0 | 10.5 | 22.5 | ||||||||||||||
| Total | $ | 3,522.8 | $ | 3,419.5 | $ | 3,102.1 | $ | 103.3 | $ | 317.4 | |||||||||
| Sales and Transportation (MMDth) | |||||||||||||||||||
| Residential | 274.9 | 280.3 | 247.1 | (5.4 | ) | 33.2 | |||||||||||||
| Commercial | 189.6 | 187.6 | 169.3 | 2.0 | 18.3 | ||||||||||||||
| Industrial | 542.5 | 555.7 | 517.5 | (13.2 | ) | 38.2 | |||||||||||||
| Off-System | 32.9 | 30.0 | 39.0 | 2.9 | (9.0 | ) | |||||||||||||
| Other | 0.3 | — | 0.3 | 0.3 | (0.3 | ) | |||||||||||||
| Total | 1,040.2 | 1,053.6 | 973.2 | (13.4 | ) | 80.4 | |||||||||||||
| Heating Degree Days | 5,375 | 5,562 | 4,927 | (187 | ) | 635 | |||||||||||||
| Normal Heating Degree Days | 5,452 | 5,610 | 5,610 | (158 | ) | — | |||||||||||||
| % Warmer than Normal | (1 | )% | (1 | )% | (12 | )% | |||||||||||||
| Gas Distribution Customers | |||||||||||||||||||
| Residential | 3,221,178 | 3,194,662 | 3,168,516 | 26,516 | 26,146 | ||||||||||||||
| Commercial | 282,778 | 281,517 | 280,362 | 1,261 | 1,155 | ||||||||||||||
| Industrial | 5,982 | 5,833 | 6,228 | 149 | (395 | ) | |||||||||||||
| Other | 3 | 3 | 4 | — | (1 | ) | |||||||||||||
| Total | 3,509,941 | 3,482,015 | 3,455,110 | 27,926 | 26,905 | ||||||||||||||
NISOURCE INC.
Gas Distribution Operations (continued)
2020 vs. 2019 Operating Income
For 2020, Gas Distribution Operations reported operating income of $199.1 million, a decrease of $476.3 million from the comparable 2019 period.
Operating revenues for 2020 were $3,140.1 million, a decrease of $382.7 million from the same period in 2019. The change in operating revenues was primarily driven by:
•Lower cost of energy billed to customers, which is offset in operating expense, of $273.4 million.
•Lower revenues due to the sale of the Massachusetts Business of $102.2 million.
•Lower revenues from the effects of warmer weather in 2020 of $47.9 million.
•Lower regulatory, depreciation, and tax trackers, which are offset in operating expense, of $20.7 million.
•The effects of decreased commercial and industrial usage and decreased late and disconnection fees, both primarily related to the COVID-19 pandemic, of $11.3 million.
Partially offset by:
•New rates from base rate proceedings, infrastructure replacement programs and Columbia of Ohio's CEP of $57.1 million.
•The effects of increased residential usage primarily related to the pandemic of $5.0 million.
Operating expenses were $93.6 million higher in 2020 compared to 2019. This change was primarily driven by:
•Loss on sale of the Massachusetts Business of $412.4 million.
•Insurance recoveries recorded in 2019, net of third party claims and other costs, related to the Greater Lawrence Incident of $243.2 million.
•Severance and outside services expense related to NiSource Next initiative of $32.4 million.
•Increased expenses primarily due to the impact of the pandemic related to materials and supplies, outside services, and uncollectible expenses of $23.8 million, offset by $12.0 million of deferral of uncollectible and other expenses, net of benefits, related to the pandemic.
•Higher depreciation and amortization and property tax expense primarily due to higher capital expenditures placed in service of $24.3 million
Partially offset by:
•Lower cost of energy billed to customers, which is offset in operating revenue, of $273.4.
•Non-cash impairment of the Columbia of Massachusetts franchise rights of $209.7 million in 2019.
•Lower operation and maintenance and depreciation and amortization expenses due to the Massachusetts Business sale of $98.7 million.
•Lower employee and administrative expense of $28.9 million.
•Lower regulatory, depreciation, and tax trackers, which are offset in operating revenues, of $20.7 million.
2019 vs. 2018 Operating Income
For 2019, Gas Distribution Operations reported operating income of $675.4 million, an increase in income of $929.5 million from the comparable 2018 period.
•New rates from base rate proceedings and infrastructure replacement programs of $243.2 million.
•Higher regulatory, depreciation and tax trackers, which are offset in operating expense, of $36.2 million.
33
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Distribution Operations (continued)
•Higher revenues of $14.5 million resulting from an update in the weather-related normal heating degree day methodology, (see further detail below), partially offset by a $7.1 million revenue decrease from the effects of warmer weather in 2019.
•The effects of commercial and residential customer growth of $12.8 million.
Partially offset by:
•Lower cost of energy billed to customers, which is offset in operating expenses of $191.7 million.
Operating expenses were $634.5$826.2 million lower in 2019 compared to 2018. This change was primarily driven by:
•Decreased expenses related to third-party claims and other costs for the Greater Lawrence Incident of $1,090.7 million, net of insurance recoveries recorded.
•Lower cost of energy billed to customers, which is offset in operating revenues of $191.7 million.
Partially offset by:
•Non-cash impairment of the Columbia of Massachusetts franchise rights of $209.7 million.
•Increased depreciation of $103.8 million due to the regulatory outcome of NIPSCO's gas rate case, an increase in amortization of depreciation previously deferred as a regulatoryregulator asset resulting from Columbia of Ohio's CEP, and higher capital expenditures placed in service.
•Higher employee and administrative expenses of $50.2 million driven by resources shifting from the temporary assistance on the Greater Lawrence Incident restoration to normal operations (offset in the decreased Greater Lawrence Incident costs discussed above) and an increase in headcount.
•Increased regulatory, depreciation and tax trackers, which are offset in netoperating revenues, of $36.2 million.
•Higher property taxes of $22.2 million primarily due to increased amortization of property taxes previously deferred as a regulatory asset resulting from Columbia of Ohio's CEP, as well as higher capital expenditures placed in service.
•Higher outside services of $17.4 million primarily due to increased line location and safety-related work.
Weather
In general, we calculate the weather-related revenue variance based on changing customer demand driven by weather variance from normal heating degree days.days, net of weather normalization mechanisms. Our composite heating degree days reported do not directly correlate to the weather-related dollar impact on the results of Gas Distribution Operations. Heating degree days experienced during different times of the year or in different operating locations may have more or less impact on volume and dollars depending on when and where they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in our aggregated composite heating degree day comparison.
The definition of “normal” weather was updated during the first quarter of 2019 to reflect more current weather pattern data and to more closely align with the regulators' jurisdictional definitions of “normal” weather. Impacts of the change in methodology will be reflected prospectively and disclosed to the extent it results in notable year-over-year variances in netoperating revenues.
Weather in the Gas Distribution Operations service territories for 2020 was about 7% warmer than normal and about 5% warmer than 2019, leading to decreased operating revenues of $47.9 million for the year ended December 31, 2020 compared to 2019. The majority of these amounts were driven by NIPSCO and Columbia of Pennsylvania.
Weather in the Gas Distribution Operations service territories for 2019 was about 1% warmer than normal and about 3% warmer than 2018; however, due to the aforementioned change in methodology, the change in netoperating revenues attributed to weather resulted in an increase of $7.4 million for the year ended December 31, 2019 compared to 2018. The variance is detailed further below:
•An update in the weather-related normal heating degree day methodology resulting in a favorable variance attributed to weather of $14.5 million, as discussed above.
Offset by:
•The effects of warmer weather in 2019 of $7.1 million.
34
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Distribution Operations service territories for 2018 was about 1% warmer than normal(continued)
Throughput
Total volumes sold and about 13% colder than 2017, increasing net revenues $37.5 milliontransported for the year ended December 31, 20182020 were 981.7 MMDth, compared to 2017.
Total volumes sold and transported for the year ended December 31, 2019 were 1,040.2 MMDth, compared to 1,053.6 MMDth for 2018. This decrease is primarily attributable to warmer weather experienced in 2019 compared to 2018.
All of our Gas Distribution Operations companies have state-approved recovery mechanisms that provide a means for full recovery of prudently incurred gas costs. Gas costs are treated as pass-through costs and have no impact on the net revenuesoperating income recorded in the period. The gas costs included in revenues are matched with the gas cost expense recorded in the period and the difference is recorded on the Consolidated Balance Sheets as under-recovered or over-recovered gas cost to be included in future customer billings.
Certain Gas Distribution Operations companies continue to offer choice opportunities, where customers can choose to purchase gas from a third-party supplier, through regulatory initiatives in their respective jurisdictions. These programs serve to further reduce our exposure to gas prices.
Greater Lawrence Incident
Refer to Note 19-C.20-C. "Legal Proceedings," and E.Note 20-E. "Other Matters," in the Notes to Consolidated Financial Statements, "Summary of Consolidated Financial Results" and "Liquidity and Capital Resources" in this Management's Discussion, and Part I. Item 1A. "Risk Factors" for additional information related to the Greater Lawrence Incident.
Columbia of Massachusetts Asset Sale
On February 26, 2020, we entered into the Asset Purchase Agreement with Eversource providing for the sale of the Massachusetts Business to Eversource, subject to the terms and conditions set forth in the agreement. This sale was completed on October 9, 2020. For additional information, see Note 26, “Subsequent Event,1, “Nature of Operations and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements.
35
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Electric Operations
Year Ended December 31, (in millions) | 2020 | 2019 | 2018 | 2020 vs. 2019 | 2019 vs. 2018 | ||||||||||||||||||||||||
| Operating Revenues | $ | 1,536.6 | $ | 1,699.2 | $ | 1,708.2 | $ | (162.6) | $ | (9.0) | |||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||
| Cost of energy | 315.2 | 467.3 | 502.1 | (152.1) | (34.8) | ||||||||||||||||||||||||
| Operation and maintenance | 497.6 | 495.0 | 500.0 | 2.6 | (5.0) | ||||||||||||||||||||||||
| Depreciation and amortization | 321.3 | 277.3 | 262.9 | 44.0 | 14.4 | ||||||||||||||||||||||||
| Gain on sale of fixed assets and impairments, net | — | (0.1) | — | 0.1 | (0.1) | ||||||||||||||||||||||||
| Other taxes | 53.7 | 52.9 | 57.1 | 0.8 | (4.2) | ||||||||||||||||||||||||
| Total Operating Expenses | 1,187.8 | 1,292.4 | 1,322.1 | (104.6) | (29.7) | ||||||||||||||||||||||||
| Operating Income | $ | 348.8 | $ | 406.8 | $ | 386.1 | $ | (58.0) | $ | 20.7 | |||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||
| Residential | $ | 527.8 | $ | 481.6 | $ | 494.7 | $ | 46.2 | $ | (13.1) | |||||||||||||||||||
| Commercial | 480.3 | 486.7 | 492.6 | (6.4) | (5.9) | ||||||||||||||||||||||||
| Industrial | 412.9 | 608.4 | 614.4 | (195.5) | (6.0) | ||||||||||||||||||||||||
| Wholesale | 12.3 | 11.7 | 15.7 | 0.6 | (4.0) | ||||||||||||||||||||||||
| Other | 103.3 | 110.8 | 90.8 | (7.5) | 20.0 | ||||||||||||||||||||||||
| Total | $ | 1,536.6 | $ | 1,699.2 | $ | 1,708.2 | $ | (162.6) | $ | (9.0) | |||||||||||||||||||
| Sales (Gigawatt Hours) | |||||||||||||||||||||||||||||
| Residential | 3,484.0 | 3,369.5 | 3,535.2 | 114.5 | (165.7) | ||||||||||||||||||||||||
| Commercial | 3,550.0 | 3,760.3 | 3,844.6 | (210.3) | (84.3) | ||||||||||||||||||||||||
| Industrial | 7,480.3 | 8,466.1 | 8,829.5 | (985.8) | (363.4) | ||||||||||||||||||||||||
| Wholesale | 83.6 | 8.2 | 114.3 | 75.4 | (106.1) | ||||||||||||||||||||||||
| Other | 106.0 | 117.2 | 124.4 | (11.2) | (7.2) | ||||||||||||||||||||||||
| Total | 14,703.9 | 15,721.3 | 16,448.0 | (1,017.4) | (726.7) | ||||||||||||||||||||||||
| Cooling Degree Days | 900 | 962 | 1,180 | (62) | (218) | ||||||||||||||||||||||||
| Normal Cooling Degree Days | 803 | 803 | 806 | — | (3) | ||||||||||||||||||||||||
| % Warmer than Normal | 12 | % | 20 | % | 46 | % | |||||||||||||||||||||||
| Electric Customers | |||||||||||||||||||||||||||||
| Residential | 418,871 | 415,534 | 412,267 | 3,337 | 3,267 | ||||||||||||||||||||||||
| Commercial | 57,435 | 57,058 | 56,605 | 377 | 453 | ||||||||||||||||||||||||
| Industrial | 2,154 | 2,256 | 2,284 | (102) | (28) | ||||||||||||||||||||||||
| Wholesale | 722 | 726 | 735 | (4) | (9) | ||||||||||||||||||||||||
| Other | 2 | 2 | 2 | — | — | ||||||||||||||||||||||||
| Total | 479,184 | 475,576 | 471,893 | 3,608 | 3,683 | ||||||||||||||||||||||||
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Operating Income | $ | 406.8 | $ | 386.1 | $ | 367.4 | $ | 20.7 | $ | 18.7 | |||||||||
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | 2019 vs. 2018 | 2018 vs. 2017 | ||||||||||||||
| Net Revenues | |||||||||||||||||||
| Operating revenues | $ | 1,699.2 | $ | 1,708.2 | $ | 1,786.5 | $ | (9.0 | ) | $ | (78.3 | ) | |||||||
| Less: Cost of sales (excluding depreciation and amortization) | 467.3 | 502.1 | 513.9 | (34.8 | ) | (11.8 | ) | ||||||||||||
| Net Revenues | 1,231.9 | 1,206.1 | 1,272.6 | 25.8 | (66.5 | ) | |||||||||||||
| Operating Expenses | |||||||||||||||||||
| Operation and maintenance | 495.0 | 500.0 | 565.6 | (5.0 | ) | (65.6 | ) | ||||||||||||
| Depreciation and amortization | 277.3 | 262.9 | 277.8 | 14.4 | (14.9 | ) | |||||||||||||
| Loss (gain) on sale of fixed assets and impairments, net | (0.1 | ) | — | 1.9 | (0.1 | ) | (1.9 | ) | |||||||||||
| Other taxes | 52.9 | 57.1 | 59.9 | (4.2 | ) | (2.8 | ) | ||||||||||||
| Total Operating Expenses | 825.1 | 820.0 | 905.2 | 5.1 | (85.2 | ) | |||||||||||||
| Operating Income | $ | 406.8 | $ | 386.1 | $ | 367.4 | $ | 20.7 | $ | 18.7 | |||||||||
| Revenues | |||||||||||||||||||
| Residential | $ | 481.6 | $ | 494.7 | $ | 476.9 | $ | (13.1 | ) | $ | 17.8 | ||||||||
| Commercial | 486.7 | 492.6 | 501.2 | (5.9 | ) | (8.6 | ) | ||||||||||||
| Industrial | 608.4 | 614.4 | 698.1 | (6.0 | ) | (83.7 | ) | ||||||||||||
| Wholesale | 11.7 | 15.7 | 11.6 | (4.0 | ) | 4.1 | |||||||||||||
| Other | 110.8 | 90.8 | 98.7 | 20.0 | (7.9 | ) | |||||||||||||
| Total | $ | 1,699.2 | $ | 1,708.2 | $ | 1,786.5 | $ | (9.0 | ) | $ | (78.3 | ) | |||||||
| Sales (Gigawatt Hours) | |||||||||||||||||||
| Residential | 3,369.5 | 3,535.2 | 3,301.7 | (165.7 | ) | 233.5 | |||||||||||||
| Commercial | 3,760.3 | 3,844.6 | 3,793.5 | (84.3 | ) | 51.1 | |||||||||||||
| Industrial | 8,466.1 | 8,829.5 | 9,469.7 | (363.4 | ) | (640.2 | ) | ||||||||||||
| Wholesale | 8.2 | 114.3 | 32.5 | (106.1 | ) | 81.8 | |||||||||||||
| Other | 117.2 | 124.4 | 128.2 | (7.2 | ) | (3.8 | ) | ||||||||||||
| Total | 15,721.3 | 16,448.0 | 16,725.6 | (726.7 | ) | (277.6 | ) | ||||||||||||
| Cooling Degree Days | 962 | 1,180 | 837 | (218 | ) | 343 | |||||||||||||
| Normal Cooling Degree Days | 803 | 806 | 806 | (3 | ) | — | |||||||||||||
| % Warmer than Normal | 20 | % | 46 | % | 4 | % | |||||||||||||
| Electric Customers | |||||||||||||||||||
| Residential | 415,534 | 412,267 | 409,401 | 3,267 | 2,866 | ||||||||||||||
| Commercial | 57,058 | 56,605 | 56,134 | 453 | 471 | ||||||||||||||
| Industrial | 2,256 | 2,284 | 2,305 | (28 | ) | (21 | ) | ||||||||||||
| Wholesale | 726 | 735 | 739 | (9 | ) | (4 | ) | ||||||||||||
| Other | 2 | 2 | 2 | — | — | ||||||||||||||
| Total | 475,576 | 471,893 | 468,581 | 3,683 | 3,312 | ||||||||||||||
36
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Electric Operations (continued)
2020 vs. 2019 Operating Income
For 2020, Electric Operations reported operating income of $348.8 million, a decrease of $58.0 million from the comparable 2019 period.
Operating revenues for 2020 were $1,536.6 million, an decrease of $162.6 million from the same period in 2019. The change in operating revenues was primarily driven by:
•Lower cost of energy billed to customers, which is offset in operating expense, of $152.1 million.
•Lower regulatory and depreciation trackers, which are offset in operating expense, of $25.2 million.
•The effects of decreased commercial and industrial usage and decreased late and disconnection fees, both primarily related to the COVID-19 pandemic, of $24.9 million.
Partially offset by:
•Higher revenue from recent base rate proceedings of $22.5 million.
•The effects of increased residential usage primarily related to the pandemic of $13.5 million.
•The effects of customer growth of $4.0 million.
Operating expenses were $104.6 million lower in 2020 than 2019. This change was primarily driven by:
•Lower cost of energy billed to customers, which is offset in operating revenue, of $152.1 million.
•Lower regulatory and depreciation trackers, which are offset in operating revenues, of $25.2 million.
•Lower outside services costs of $16.0 million primarily related to lower generation-related maintenance.
•Lower employee and administrative costs of $8.1 million.
Partially offset by:
•Increased depreciation of $61.6 million primarily due to additional plant placed in service.
•Severance and outside services expenses related to the NiSource Next initiative of $13.0 million.
•Increased expenses primarily due to the impact of pandemic-related materials and supplies, outside services, uncollectible and sequestration expenses of $10.7 million, offset by a $5.3 million deferral of uncollectible and other expenses, related to the pandemic.
•Increased materials and supplies costs of $4.7 million
•Higher insurance expense of $2.7 million primarily driven by increased premiums.
•Increased environmental costs of $1.3 million.
2019 vs. 2018 Operating Income
For 2019, Electric Operations reported operating income of $406.8 million, an increase of $20.7 million from the comparable 2018 period.
•Lower cost of energy billed to customers, which is offset in operating expense, of $34.8 million.
•Lower revenues from the effects of cooler weather of $15.1 million.
37
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Electric Operations (continued)
•Decreased residential, commercial and industrial usage of $10.8 million.
Partially offset by:
•New rates from the recent rate case proceeding, incremental capital spend on infrastructure replacement programs, and electric transmission projects of $24.8 million.
•Decreased fuel handling costs of $11.0 million.
•Higher regulatory and depreciation trackers, which are offset in operating expense, of $8.4 million.
•Increased commercial and residential customer growth of $3.9 million.
Operating expenses were $5.1$29.7 million higherlower in 2019 than 2018. This change was primarily driven by:
•Decreased materials and supplies costs of $7.8 million, primarily related to the retirement of Bailly Generating Station Units 7 and 8 on May 31, 2018.
•Decreased employee and administrative costs of $5.0 million.
Increased depreciation of $10.0$8.7 million due to higher capital expenditures placed in service.
Weather
In general, we calculate the weather-related revenue variance based on changing customer demand driven by weather variance from normal heating or cooling degree days. Our composite heating or cooling degree days reported do not directly correlate to the weather-related dollar impact on the results of Electric Operations. Heating or cooling degree days experienced during different times of the year may have more or less impact on volume and dollars depending on when they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in our aggregated composite heating or cooling degree day comparison.
The definition of “normal” weather was updated during the first quarter of 2019 to reflect more current weather pattern data and to more closely align with the regulators' jurisdictional definitions of “normal” weather. Impacts of the change in methodology will be reflected prospectively and disclosed to the extent it results in notable year-over-year variances in netoperating revenues.
Weather in the Electric Operations’ territories for 2020 was 12% warmer than normal and 6% cooler than the same period in 2019, which had an immaterial impact on operating revenues for the year ended December 31, 2020 compared to 2019.
Weather in the Electric Operations’ territories for 2019 was 20% warmer than normal and 18% cooler than the same period in 2018, decreasing netoperating revenues $15.1 million for the year ended December 31, 2019 compared to 2018.
Electric Operations’ territoriesOperations sales were 14,703.9 GWh for 2018 was 46% warmer than normal and 41% warmer than the same period in 2017, increasing net revenues $25.2 million for the year ended December 31, 20182020, a decrease of 1,017.4 GWh, or 6.5% compared to 2017.
Electric Operations sales were 15,721.3 GWh for 2019, a decrease of 726.7 GWh, or 4.4% compared to 2018. This decrease was primarily attributable to higher internal generation from large industrial customers in 2019 and the effects of cooler weather on residential and commercial customers.
NIPSCO has a state-approved recovery mechanism that provides a means for full recovery of prudently incurred fuel costs. Fuel costs are treated as pass-through costs and have no impact on the netoperating revenues recorded in the period. The fuel costs included in revenues are matched with the fuel cost expense recorded in the period and the difference is recorded on the Consolidated Balance Sheets as under-recovered or over-recovered fuel cost to be included in future customer billings.
38
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Electric Operations (continued)
NIPSCO's performance remains closely linked to the performance of the steel industry. NIPSCO’s MWh sales to steel-related industries accounted for approximately 51.5%45.9% and 49.7%51.5% of the total industrial MWh sales for the years ended December 31, 2020 and 2019, and 2018, respectively.
Electric Supply
NIPSCO 2018 Integrated Resource Plan. Multiple factors, but primarily economic ones, including low natural gas prices, advancing cost effective renewable technology and increasing capital and operating costs associated with existing coal plants, have led NIPSCO to concludeconcluded in its October 2018 Integrated Resource Plan submission that NIPSCO’s current fleet of coal generation facilities will be retired earlier than previous Integrated Resource Plan’s had indicated.
The Integrated Resource Plan evaluated demand-side and supply-side resource alternatives to reliably and cost effectively meet NIPSCO customers' future energy requirements over the ensuing 20 years. The preferred option within the Integrated Resource Plan retires the R.M. Schahfer Generating Station (Units 14, 15, 17,by mid-2023 and 18) by 2023 andthe Michigan City Generating Station (Unit 12) by the end of 2028. These unitsstations represent 2,080 MW of generating capacity, equal to 72% of NIPSCO’s remaining capacity afterand 100% of NIPSCO's remaining coal-fired generating capacity. In the second quarter of 2020, the MISO approved NIPSCO's plan to retire the R.M. Schahfer Generating Station in 2023. The planned replacement by the end of 2023 of approximately 1,400 MW of retiring coal-fired generation station could provide incremental capital investment opportunities of approximately $1.8 to $2.0 billion, primarily in 2022 and 2023. Refer to Note 6, "Property, Plant and Equipment" and Note 20-E, "Other Matters," in the Notes to Consolidated Financial Statements for further information. In February 2021, NIPSCO decided to submit modified Attachment Y Notices to MISO requesting accelerated retirement of Bailly Units 7two of the four coal fired units at R.M. Schahfer Generating Station. The two units are now expected to be retired by the end of 2021, with the remaining two units still scheduled to be retired in 2023. At retirement, the net book value of the retired units will be reclassified from "Non-Utility and 8 in May of 2018.Other property", to current and long-term “Regulatory Assets.”
The current replacement plan includes renewable sources of energy, including wind, solar, and battery storage to be obtained through a combination of NIPSCO ownership and PPAs. ReferNIPSCO has executed several PPAs to Note 19-E, "Other Matters," inpurchase 100% of the Notesoutput from renewable generation facilities at a fixed price per MWh. Each facility supplying the energy will have an associated nameplate capacity, and payments under the PPAs will not begin until the associated generation facility is constructed by the owner/seller. NIPSCO has also executed several BTAs with developers to Consolidated Financial Statements for further discussion.construct renewable generation facilities. The following table summarizes the executed PPAs and BTAs that have not yet been placed into service:
| Project Name | Transaction Type | Technology | Nameplate Capacity (MW) | Storage Capacity (MW) | Submitted to IURC | IURC Approval | Estimated Construction Completion | ||||||||||||||||
| Jordan Creek | 20 year PPA | Wind | 400 | — | 02/01/2019 | 6/05/2019 | In Service (12/10/2020) | ||||||||||||||||
Rosewater(1) | BTA | Wind | 100 | — | 02/01/2019 | 8/07/2019 | In Service (12/29/2020) | ||||||||||||||||
Indiana Crossroads(2) | BTA | Wind | 300 | — | 10/22/2019 | 2/19/2020 | 12/31/2021 | ||||||||||||||||
| Greensboro | 20 year PPA | Solar & Storage | 100 | 30 | 7/17/2020 | 1/27/2021 | 6/30/2023 | ||||||||||||||||
| Brickyard | 20 year PPA | Solar | 200 | — | 7/17/2020 | 1/27/2021 | 6/30/2023 | ||||||||||||||||
| Green River | 20 year PPA | Solar | 200 | — | 12/23/2020 | Pending | 6/30/2023 | ||||||||||||||||
Cavalry(2) | BTA | Solar & Storage | 200 | 60 | 11/30/2020 | Pending | 12/31/2023 | ||||||||||||||||
Dunn's Bridge I(2) | BTA | Solar | 265 | — | 11/30/2020 | Pending | 12/31/2022 | ||||||||||||||||
Dunn's Bridge II(2) | BTA | Solar & Storage | 435 | 75 | 11/30/2020 | Pending | 12/31/2023 | ||||||||||||||||
| Gibson | 22 year PPA | Solar | 280 | — | 01/29/2021 | Pending | 12/31/2023 | ||||||||||||||||
(1) Ownership of the facility was transferred to a joint venture whose members include NIPSCO and an unrelated tax equity partner.
(2) Ownership of the facilities will be transferred to joint ventures whose members include NIPSCO and an unrelated tax equity partner.
We expect to secure additional agreements with counterparties and initiate regulatory compliance filings into 2021.
39
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Liquidity and Capital Resources
We continually evaluate the availability of adequate financing to fund our ongoing business operations, working capital and core safety and infrastructure investment programs. Our financing is sourced through cash flow from operations and the issuance of debt and/or equity. External debt financing is provided primarily through the issuance of long-term debt, accounts receivable securitization programs and our $1.5 billion commercial paper program, which is backstopped by our committed revolving credit facility with a total availability from third-party lenders of $1.85 billion. The commercial paper program and credit facility provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves our desired capital structure. We have also utilized an at-the-market (ATM) equity sales program that allowed us to issue and sell shares of our common stock up to an aggregate offering price of $434.4 million. The program expired on December 31, 2020, but we expect to issue additional equity under ATM offerings from time to time.
We believe these sources provide adequate capital to fund our operating activities and capital expenditures in 2021 and beyond.
Greater Lawrence Incident:Incident. As discussed in the "Executive Summary", Part I, Item 1A “Risk Factors,” and in Note 19,20, “Other Commitments and Contingencies” in the Notes to Consolidated Financial Statements, we have recorded and paid costs associated withdue to the inherent uncertainty of litigation, there can be no assurance that the outcome or resolution of any particular claim related to the Greater Lawrence Incident will not continue to have an adverse impact on our cash flows. Through income generated from operating activities, amounts available under the short-term revolving credit facility, and our ability to access capital markets, we believe we have investedadequate capital available to replace the entire affected 45-mile cast iron and bare steel pipeline system that delivers gas to the impacted area. As discussed in the "Executive Summary," Note 19 referenced earlier in this paragraph, and Part I, Item 1A “Risk Factors,” we may incur additional expenses and liabilities in excess of our recorded liabilities and estimated additional costssettle remaining anticipated claims associated with the Greater Lawrence Incident. Since the Greater Lawrence Incident and through December 31, 2019, we have collected $800 million from insurance providers; however, totalPrevious costs related to the incident have exceeded the total amountin excess of insurance coverage available under our policies. To date, this excess hasrecoveries were primarily been funded through short-term borrowings. During 2020, we plan to pursue alternatives to these short-term borrowings, which include long-term financing and potential proceeds from theThe sale of the Massachusetts Business. For additional information, see Note 26, “Subsequent Event,” inBusiness was completed on October 9, 2020. On October 14, 2020, we used a portion of the Notesproceeds from the Massachusetts Business sale to Consolidated Financial Statements.pay down these short-term borrowings.
Operating Activities
Net cash from operating activities for the year ended December 31, 20192020 was $1,583.3$1,104.0 million, an increasea decrease of $1,043.2$479.3 million from 2018.2019. This decrease was primarily driven by a year over year increase was driven primarily by the receipt of $795 million of insurance recoveries in 2019net payments related to the Greater Lawrence Incident andIncident. During 2020, we paid approximately $220$227 million lower cash spend for the Greater Lawrence Incident incompared to net receipts of $289 million, representing insurance recoveries offset by payments, during 2019. Refer to Note 19,20, "Other Commitments and Contingencies" in the Notes to Consolidated Financial Statements for further information related to the Greater Lawrence Incident.
Our cash used for the foreseeable future.
40
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
| (in millions) | 2019 | 2018(3) | 2017 | (in millions) | 2020 | 2019 | 2018(3) | |||||||||||||||||||||
| Gas Distribution Operations | Gas Distribution Operations | |||||||||||||||||||||||||||
| System Growth and Tracker | $ | 1,006.1 | $ | 897.5 | $ | 909.2 | System Growth and Tracker | $ | 975.7 | $ | 1,006.1 | $ | 897.5 | |||||||||||||||
| Maintenance | 374.3 | 417.8 | 216.4 | Maintenance | 291.2 | 374.3 | 417.8 | |||||||||||||||||||||
| Total Gas Distribution Operations | 1,380.3 | 1,315.3 | 1,125.6 | Total Gas Distribution Operations | 1,266.9 | 1,380.3 | 1,315.3 | |||||||||||||||||||||
| Electric Operations | Electric Operations | |||||||||||||||||||||||||||
| System Growth and Tracker | 279.5 | 346.0 | 435.3 | System Growth and Tracker | 222.1 | 279.5 | 346.0 | |||||||||||||||||||||
| Maintenance | 189.4 | 153.3 | 157.1 | Maintenance | 200.7 | 189.4 | 153.3 | |||||||||||||||||||||
| Total Electric Operations | 468.9 | 499.3 | 592.4 | Total Electric Operations | 422.8 | 468.9 | 499.3 | |||||||||||||||||||||
Corporate and Other Operations - Maintenance(1) | 18.6 | — | 35.8 | Corporate and Other Operations - Maintenance(1) | 31.1 | 18.6 | — | |||||||||||||||||||||
Total(2) | $ | 1,867.8 | $ | 1,814.6 | $ | 1,753.8 | Total(2) | $ | 1,720.8 | $ | 1,867.8 | $ | 1,814.6 | |||||||||||||||
(1) Corporate and Other capital expenditures were zero in 2018 as specific IT assets were leased in 2018. Certain IT and other maintenance related assets were purchased in 20172019 and 2019.2020.
(2)Amounts differ from those presented on the Statements of Consolidated Cash Flows primarily due to the capitalized portion of the Corporate Incentive Plan payout, inclusion of capital expenditures included in current liabilities and AFUDC Equity.
(3) The 2018 capital expenditures for Gas Distribution Operations reflects reclassifying the Greater Lawrence Incident pipeline replacement from system growth and tracker to maintenance.
For 2020, capital expenditures and certain other investing activities were $1,720.8 million, which was $147.0 million lower than the 2019 capital program. This decrease in spending is primarily due to the sale of the Massachusetts Business and impact of COVID 19.
For 2019, capital expenditures and certain other investing activities were $1,867.8 million, which was $53.2 million higher than the 2018 capital program. This increased spending is primarily due to growth, safety and system modernization projects.
For 2018, capital expenditures and certain other investing activities were $1,814.6 million, which was $60.8 million higher than the 2017 capital program. This increased spending is due in part to costs associated with the Greater Lawrence Incident pipeline replacement, gas transmission projects, environmental investments and system modernization projects across all seven states in our operating area.
41
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Regulatory Capital Improvement Programs. In 2020, we continued to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all seven states of our operating area. The following table describes the most recent vintage of our regulatory programs to recover infrastructure replacement and other federally-mandated compliance investments currently in rates and those pending commission approval:
| (in millions) | ||||||||||||||||||||||||||
| Company | Program | Incremental Revenue | Incremental Capital Investment | Investment Period | Costs Covered(1) | Rates Effective | ||||||||||||||||||||
| Columbia of Ohio | IRP - 2020 | $ | 32.9 | $ | 234.4 | 1/19-12/19 | Replacement of (1) hazardous service lines, (2) cast iron, wrought iron, uncoated steel, and bare steel pipe, (3) natural gas risers prone to failure and installation of AMR devices. | May 2020 | ||||||||||||||||||
| Columbia of Ohio | CEP - 2020 | $ | 18.0 | $ | 185.1 | 1/19-12/19 | Assets not included in the IRP. | September 2020 | ||||||||||||||||||
| NIPSCO - Gas | TDSIC 1 | $ | 0.6 | $ | 26.0 | 1/20-6/20 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | January 2021 | ||||||||||||||||||
| NIPSCO - Gas | FMCA 5 | $ | 4.8 | $ | 42.3 | 4/20-9/20 | Project costs to comply with federal mandates. | April 2021 | ||||||||||||||||||
| Columbia of Pennsylvania | DSIC-Q4 2020(2) | $ | 0.8 | $ | 25.0 | 9/20-11/20 | Eligible project costs including piping, couplings, gas service lines, excess flow valves, risers, meter bars, meters, and other related capitalized cost, to improve the distribution system. | January 2021 | ||||||||||||||||||
| Columbia of Virginia | SAVE - 2021 | $ | 5.2 | $ | 46.4 | 1/21-12/21 | Replacement projects that (1) enhance system safety or reliability, or (2) reduce, or potentially reduce, greenhouse gas emissions. | January 2021 | ||||||||||||||||||
| Columbia of Kentucky | SMRP - 2021(3) | $ | 5.8 | $ | 50.0 | 1/21-12/21 | Replacement of mains and inclusion of system safety investments. | Q2 2021 | ||||||||||||||||||
| Columbia of Maryland | STRIDE - 2021 | $ | 1.3 | $ | 16.9 | 1/21-12/21 | Pipeline upgrades designed to improve public safety or infrastructure reliability. | January 2021 | ||||||||||||||||||
| NIPSCO - Electric | TDSIC - 7(4) | $ | 11.3 | $ | 122.3 | 7/19-7/20 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | February 2021 | ||||||||||||||||||
| NIPSCO - Electric | FMCA - 13(5)(6) | $ | (1.2) | $ | — | 9/19-2/20 | Project costs to comply with federal mandates. | August 2020 | ||||||||||||||||||
(1)Programs do not include any costs already included in base rates.
(2)Due to a cap on the revenues permitted to flow through the DSIC, Columbia Gas of Pennsylvania is only able to request recovery of a portion of the capital investment for this period.
(3)On December 17, 2020, the Kentucky PSC issued an Order suspending the rates through May 30, 2021. An Order for approval can be received from the Commission prior to this date.
(4)Incremental capital and revenue are net of amounts included in the step 2 rates. See Part 1, Item 1. "Business" for additional information.
(5)Incremental revenue is inclusive of tracker eligible operations and maintenance expense.
(6)No eligible capital investments were made during the investment period.
Refer to Note 9, “Regulatory Matters” and Note 20-E, "Other Matters," in the Notes to Consolidated Financial Statements for a further discussion of regulatory developments during 2020.
Financing Activities
Short-term Debt. Refer to Note 15,16, “Short-Term Borrowings,” in the Notes to Consolidated Financial Statements for information on short-term debt.
Long-term Debt. Refer to Note 14,15, “Long-Term Debt,” in the Notes to Consolidated Financial Statements for information on long-term debt.
Net Available Liquidity. As of December 31, 2019,2020, an aggregate of $1,409.1$1,721.6 million of net liquidity was available, including cash and credit available under the revolving credit facility and accounts receivable securitization programs.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
The following table displays NiSource'sour liquidity position as of December 31, 20192020 and 2018:2019:
Year Ended December 31, (in millions) | 2019 | 2018 | Year Ended December 31, (in millions) | 2020 | 2019 | |||||||||
| Current Liquidity | Current Liquidity | |||||||||||||
| Revolving Credit Facility | $ | 1,850.0 | $ | 1,850.0 | Revolving Credit Facility | $ | 1,850.0 | $ | 1,850.0 | |||||
Accounts Receivable Program(1) | 353.2 | 399.2 | Accounts Receivable Program(1) | 273.3 | 353.2 | |||||||||
| Less: | Less: | |||||||||||||
| Commercial Paper | 570.0 | 978.0 | Commercial Paper | 503.0 | 570.0 | |||||||||
| Accounts Receivable Program Utilized | 353.2 | 399.2 | ||||||||||||
| Accounts Receivable Programs Utilized | Accounts Receivable Programs Utilized | — | 353.2 | |||||||||||
| Letters of Credit Outstanding Under Credit Facility | 10.2 | 10.2 | Letters of Credit Outstanding Under Credit Facility | 15.2 | 10.2 | |||||||||
| Add: | Add: | |||||||||||||
| Cash and Cash Equivalents | 139.3 | 112.8 | Cash and Cash Equivalents | 116.5 | 139.3 | |||||||||
| Net Available Liquidity | $ | 1,409.1 | $ | 974.6 | Net Available Liquidity | $ | 1,721.6 | $ | 1,409.1 | |||||
(1)Represents the lesser of the seasonal limit or maximum borrowings supportable by the underlying receivables.
Debt Covenants. We are subject to a financial covenant under our revolving credit facility, and term loan agreement, which requires us to maintain a debt to capitalization ratio that does not exceed 70%. A similar covenant in a 2005 private placement note purchase agreement requires us to maintain a debt to capitalization ratio that does not exceed 75%. As of December 31, 2019,2020, the ratio was 61.7%62.5%.
Sale of Trade Accounts Receivables. Refer to Note 18,19, “Transfers of Financial Assets,” in the Notes to Consolidated Financial Statements for information on the sale of trade accounts receivable.
Credit Ratings. The credit rating agencies periodically review our ratings, taking into account factors such as our capital structure and earnings profile. The following table includes our and certain of our subsidiaries' credit ratings and ratings outlook as of December 31, 2020. In February 2020, S&P changed our and certain of our subsidiaries' outlook from Negative to Stable. There were no other changes to the below credit ratings or outlooks since December 31, 2019.
A credit rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating organization.
| S&P | Moody's | Fitch | ||||||||||||||||||
| Rating | Outlook | Rating | Outlook | Rating | Outlook | |||||||||||||||
| NiSource | BBB+ | Baa2 | Stable | BBB | Stable | |||||||||||||||
| NIPSCO | BBB+ | Baa1 | Stable | BBB | Stable | |||||||||||||||
| Columbia of Massachusetts | BBB+ | Baa2 | Stable | Not rated | Not rated | |||||||||||||||
| Commercial Paper | A-2 | P-2 | Stable | F2 | Stable | |||||||||||||||
Certain of our subsidiaries have agreements that contain “ratings triggers” that require increased collateral if our credit ratings or the credit ratings of certain of our subsidiaries are below investment grade. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. As of December 31, 2019,2020, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $72.1$53.9 million. In addition to agreements with ratings triggers, there are other agreements that contain “adequate assurance” or “material adverse change” provisions that could necessitate additional credit support such as letters of credit and cash collateral to transact business.
Equity. Our authorized capital stock consists of 620,000,000 shares, $0.01 par value, of which 600,000,000 are common stock and 20,000,000 are preferred stock. As of December 31, 2019, 382,135,6802020, 391,760,051 shares of common stock and 440,000 shares of preferred stock were outstanding. For more information regarding our common and preferred stock, see Note 12,13, "Equity," in the Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Contractual Obligations.
We have certain contractual obligations requiring payments at specified periods. The obligations include long-term debt, lease obligations, energy commodity contracts and obligations for various services including pipeline capacity and outsourcing of IT services. The total contractual obligations in existence at December 31, 20192020 and their maturities were:
| (in millions) | Total | 2020 | 2021 | 2022 | 2023 | 2024 | After | (in millions) | Total | 2021 | 2022 | 2023 | 2024 | 2025 | After | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term debt (1) | $ | 7,738.6 | $ | — | $ | 63.6 | $ | 530.0 | $ | 600.0 | $ | — | $ | 6,545.0 | Long-term debt (1) | $ | 9,135.0 | $ | — | $ | 30.0 | $ | — | $ | — | $ | 1,260.0 | $ | 7,845.0 | |||||||||||||||||||||||||||||||||||||||
| Interest payments on long-term debt | 6,214.2 | 342.0 | 340.7 | 337.1 | 311.1 | 299.9 | 4,583.4 | Interest payments on long-term debt | 6,046.3 | 336.3 | 335.7 | 334.1 | 334.1 | 334.1 | 4,372.0 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Finance leases(2) | 325.9 | 27.2 | 27.3 | 26.8 | 23.1 | 19.9 | 201.6 | Finance leases(2) | 264.7 | 32.7 | 32.2 | 28.8 | 20.8 | 16.1 | 134.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating leases(3) | 79.1 | 15.6 | 9.4 | 8.2 | 7.6 | 6.6 | 31.7 | Operating leases(3) | 48.0 | 11.7 | 5.2 | 4.7 | 4.5 | 3.7 | 18.2 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Energy commodity contracts(4) | 95.9 | 65.5 | 30.4 | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Energy commodity contracts | Energy commodity contracts | 42.1 | 42.1 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Service obligations: | Service obligations: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pipeline service obligations | 3,450.7 | 605.0 | 590.1 | 546.8 | 357.2 | 237.5 | 1,114.1 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pipeline service obligations(4) | Pipeline service obligations(4) | 1,495.6 | 468.7 | 422.5 | 256.0 | 150.5 | 56.2 | 141.7 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IT service obligations | 153.2 | 63.6 | 49.4 | 38.0 | 1.1 | 1.1 | — | IT service obligations | 240.3 | 74.9 | 74.0 | 38.1 | 30.5 | 22.8 | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Other service obligations(5) | 59.8 | 45.8 | 14.0 | — | — | — | — | Other service obligations(5) | 12.6 | 12.6 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other liabilities | 27.3 | 27.3 | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other liabilities(6) | Other liabilities(6) | 116.9 | 26.0 | 0.8 | 90.1 | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total contractual obligations | $ | 18,144.7 | $ | 1,192.0 | $ | 1,124.9 | $ | 1,486.9 | $ | 1,300.1 | $ | 565.0 | $ | 12,475.8 | Total contractual obligations | $ | 17,401.5 | $ | 1,005.0 | $ | 900.4 | $ | 751.8 | $ | 540.4 | $ | 1,692.9 | $ | 12,511.0 | |||||||||||||||||||||||||||||||||||||||
(1) Long-term debt balance excludes unamortized issuance costs and discounts of $70.5$86.9 million.
(2) Finance lease payments shown above are inclusive of interest totaling $108.3$69.7 million.
(3) Operating lease payments shown above are inclusive of interest totaling $14.3$7.8 million. Operating lease balances do not include obligations for possible fleet vehicle lease renewals beyond the initial lease term. While we have the ability to renew these leases beyond the initial term, we are not reasonably certain (as that term is defined in ASC 842) to do so.so as they are renewed month-to-month after the first year. If we were to continue the fleet vehicle leases outstanding at December 31, 2019,2020, payments would be $34.5 million in 2020, $28.3$30.0 million in 2021, $23.4$27.7 million in 2022, $19.9$24.9 million in 2023, $15.2$22.0 million in 2024, $19.0 million in 2025 and $15.2$21.5 million thereafter.
(4)In January 2020, NIPSCO signed new coal contract commitments of $14.4 million for 2020. These contracts are not included above.
(5)On February 9, 2021, a rail transportation contract for the transportation of coal was fully executed between NIPSCO and a counterparty, replacing the prior agreement. The minimum coal tonnage shipment commitment for 2021 was eliminated under the new agreement, reducing our contractual obligation for 2021 by $12.1 million.
(6)Other liabilities shown above are inclusive of $12.0 million for 2020. This contract is not included above.the Rosewater Developer payment due in 2023.
Our calculated estimated interest payments for long-term debt is based on the stated coupon and payment dates. For 2020,2021, we project that we will be required to make interest payments of approximately $368.2$339.4 million, which includes $342.0$336.3 million of interest payments related to our long-term debt outstanding as of December 31, 2019.2020. At December 31, 2019,2020, we had $1,773.2$503.0 million in short-term borrowings outstanding.
Our expected payments included within “Other liabilities” in the table of contractual commitments above contains employer contributions to pension and other postretirement benefits plans expected to be made in 2020.2021. Plan contributions beyond 20202021 are dependent upon a number of factors, including actual returns on plan assets, which cannot be reliably estimated at this time. In 2020,2021, we expect to make contributions of approximately $3.0$2.9 million to our pension plans and approximately $24.0$21.8 million to our postretirement medical and life plans. Refer to Note 11,12, “Pension and Other Postretirement Benefits,” in the Notes to Consolidated Financial Statements for more information.
We cannot reasonably estimate the settlement amounts or timing of cash flows related to long-term obligations classified as “Total Other Liabilities” on the Consolidated Balance Sheets, other than those described above.
We also have obligations associated with income, property, gross receipts, franchise, payroll, sales and use, and various other taxes and expect to make tax payments of approximately $247.1$253.4 million in 2020,2021, which are not included in the table above. In addition, we have uncertain income tax positions that are not included in the table above as we are unable to predict when the matters will be resolved. Refer to Note 10,14, "Income Taxes," in the Notes to Consolidated Financial Statements for more information.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
NIPSCO has executed several PPAs to purchase 100% of the output from renewable generation facilities at a BTAfixed price per MWh. Each facility supplying the energy will have an associated nameplate capacity, and payments under the PPAs will not begin until the associated generation facility is constructed by the owner/seller. NIPSCO has also executed several BTAs with a developerdevelopers to construct an additional renewable generation facility with a nameplate capacity of approximately 300 MW; construction of this facility is expected to be completed by the end of 2021. Payments under these agreements are not included in the table of contractual commitments asfacilities. NIPSCO's purchase requirement under thesethe BTAs is dependent on satisfactory approval of the BTAsBTA by the IURC, successful execution of agreementsan agreement with a tax equity partner and timely completion of construction. NIPSCO and the tax equity partner are obligated to make cash contributions to the partnership at the date construction is substantially complete. Once the tax equity partner has earned their negotiated rate of return and we have reached the agreed upon contractual date, NIPSCO has the option to purchase at fair market value from the tax equity partner the remaining interest in the aforementioned joint venture. See Note 19-E,20-A, “Contractual Obligations,” and Note 20-E. “Other Matters - NIPSCO 2018 Integrated Resource Plan,” in the Notes to Consolidated Financial Statements for additional information.
Off-Balance Sheet Arrangements
We, along with certain of our subsidiaries, enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit.
Refer to Note 19,20, “Other Commitments and Contingencies,” in the Notes to Consolidated Financial Statements for additional information about such arrangements.
Market Risk Disclosures
Risk is an inherent part of our businesses. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our businesses is critical to our profitability. We seek to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following principal market risks that are involved in our businesses: commodity price risk, interest rate risk and credit risk. Risk management for us isWe manage risk through a multi-faceted process with oversight by the Risk Management Committee that requires constant communication, judgment and knowledge of specialized products and markets. Our senior management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. These may include, but are not limited to market, operational, financial, compliance and strategic risk types. In recognition of the increasingly varied and complex nature of the energy business, our risk management process, policies and procedures continue to evolve and are subject to ongoing review and modification.
Commodity Price Risk
We are exposed to commodity price risk as a result of our subsidiaries’ operations involving natural gas and power. To manage this market risk, our subsidiaries use derivatives, including commodity futures contracts, swaps, forwards and options. We do not participate in speculative energy trading activity.
Commodity price risk resulting from derivative activities at our rate-regulated subsidiaries is limited, since regulations allow recovery of prudently incurred purchased power, fuel and gas costs through the rate-making process, including gains or losses on these derivative instruments. If states should explore additional regulatory reform, these subsidiaries may begin providing services without the benefit of the traditional rate-making process and may be more exposed to commodity price risk.
Our subsidiaries are required to make cash margin deposits with their brokers to cover actual and potential losses in the value of outstanding exchange traded derivative contracts. The amount of these deposits, some of which is reflected in our restricted cash balance, may fluctuate significantly during periods of high volatility in the energy commodity markets.
Refer to Note 9,10, "Risk Management Activities," in the Notes to the Consolidated Financial Statements for further information on our commodity price risk assets and liabilities as of December 31, 20192020 and 2018.2019.
Interest Rate Risk
We are exposed to interest rate risk as a result of changes in interest rates on borrowings under our revolving credit agreement, commercial paper program, term loan agreement and accounts receivable programs and now-settled term loan, which have interest rates that are indexed to short-term market interest rates. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $12.3 million and $19.0 million for 2020 and $13.3 million for 2019, and 2018, respectively. We are also exposed to interest rate risk as a result of changes in benchmark rates that can influence the interest rates of future debt issuances.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Credit Risk
Due to the nature of the industry, credit risk is embedded in many of our business activities. Our extension of credit is governed by a Corporate Credit Risk Policy. In addition, Risk Management Committee guidelines are in place which document management approval levels for credit limits, evaluation of creditworthiness, and credit risk mitigation efforts. Exposures to credit risks are monitored by the risk management function, which is independent of commercial operations. Credit risk arises due to the possibility that a customer, supplier or counterparty will not be able or willing to fulfill its obligations on a transaction on or before the settlement date. For derivative-related contracts, credit risk arises when counterparties are obligated to deliver or purchase defined commodity units of gas or power to us at a future date per execution of contractual terms and conditions. Exposure to credit risk is measured in terms of both current obligations and the market value of forward positions net of any posted collateral such as cash and letters of credit.
We closely monitor the financial status of our banking credit providers. We evaluate the financial status of our banking partners through the use of market-based metrics such as credit default swap pricing levels, and also through traditional credit ratings provided by major credit rating agencies.
Certain individual state regulatory commissions instituted regulatory moratoriums in connection with the COVID-19 pandemic that impacted our ability to pursue our credit risk mitigation practices for customer accounts receivable. Following the issuances of these moratoriums, certain of our regulated operations have been authorized to recognize a regulatory asset for bad debt costs above levels currently in rates. We have reinstated our common credit mitigation practices where moratoriums have expired. See the COVID-19 pandemic discussion in Part I. Item 1A, "Risk Factors" for risks that have been identified related to the pandemic and refer to Note 9, "Regulatory Matters" in the Notes to Consolidated Financial Statements for state specific regulatory moratoriums.
Other Information
Critical Accounting Policies
We apply certain accounting policies based on the accounting requirements discussed below that have had, and may continue to have, significant impacts on our operations and Consolidated Financial Statements.
Basis of Accounting for Rate-Regulated Subsidiaries. ASC Topic 980, Regulated Operations, provides that rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and if the competitive environment makes it probable that such rates can be charged and collected. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the Consolidated Balance Sheets and are recognized in income as the related amounts are included in service rates and recovered from or refunded to customers. The total amounts of regulatory assets and liabilities reflected on the Consolidated Balance Sheets were $1,930.5 million and $2,065.5 million at December 31, 2020, and $2,239.6 million and $2,512.2 million at December 31, 2019, and $2,237.5 million and $2,660.0 million at December 31, 2018, respectively. For additional information, refer to Note 8,9, “Regulatory Matters,” in the Notes to Consolidated Financial Statements.
In the event that regulation significantly changes the opportunity for us to recover our costs in the future, all or a portion of our regulated operations may no longer meet the criteria for the application of ASC Topic 980, Regulated Operations. In such event, a write-down of all or a portion of our existing regulatory assets and liabilities could result. If transition cost recovery is approved by the appropriate regulatory bodies that would meet the requirements under GAAP for continued accounting as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts. If we were unable to continue to apply the provisions of ASC Topic 980, Regulated Operations, we would be required to apply the provisions of ASC Topic 980-20, Discontinuation of Rate-Regulated Accounting. In management’s opinion, our regulated subsidiaries will be subject to ASC Topic 980, Regulated Operations for the foreseeable future.
Certain of the regulatory assets reflected on our Consolidated Balance Sheets require specific regulatory action in order to be included in future service rates. Although recovery of these amounts is not guaranteed, we believe that these costs meet the requirements for deferral as regulatory assets. Regulatory assets requiring specific regulatory action amounted to $307.2 million at December 31, 2019. If we determine that the amounts included as regulatory assets were notare no longer recoverable, a charge to income would immediately be required to the extent of the unrecoverable amounts.
46
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
The passage of the TCJA into law in December 2017 necessitated the remeasurement of our deferred income tax balances to reflect the change in the statutory federal tax rate from 35% to 21%. For our regulated entities, substantially all of the impact of this remeasurement was recorded to a regulatory liability and is being passed backed to customers, as established during the rate making process. For additional information, refer to Note 8,9, "Regulatory Matters," and Note 10,11, "Income Taxes," in the Notes to Consolidated Financial Statements.
Pension and Postretirement Benefits. We have defined benefit plans for both pension and other postretirement benefits. The calculation of the net obligations and annual expense related to the plans requires a significant degree of judgment regarding the discount rates to be used in bringing the liabilities to present value, expected long-term rates of return on plan assets, health care trend rates, and mortality rates, among other assumptions. Due to the size of the plans and the long-term nature of the associated liabilities, changes in the assumptions used in the actuarial estimates could have material impacts on the measurement of the net obligations and annual expense recognition. Differences between actuarial assumptions and actual plan results are deferred into AOCI or a regulatory balance sheet account, depending on the jurisdiction of our entity. These deferred gains or losses are then amortized into the income statement when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the fair value of plan assets (known in GAAP as the “corridor” method) or when settlement accounting is triggered.
The discount rates, expected long-term rates of return on plan assets, health care cost trend rates and mortality rates are critical assumptions. Methods used to develop these assumptions are described below. While a third party actuarial firm assists with the development of many of these assumptions, we are ultimately responsible for selecting the final assumptions.
The discount rate is utilized principally in calculating the actuarial present value of pension and other postretirement benefit obligations and net periodic pension and other postretirement benefit plan costs. Our discount rates for both pension and other postretirement benefits are determined using spot rates along an AA-rated above median yield curve with cash flows matching the expected duration of benefit payments to be made to plan participants.
The expected long-term rate of return on plan assets is a component utilized in calculating annual pension and other postretirement benefit plan costs. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, target asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider the guidance from our investment advisors in making a final determination of our expected rate of return on assets.
For measurement of 20202021 net periodic benefit cost, we selected an expected pre-tax long-term rate of return of 5.70%5.20% and 5.67%5.50% for our pension and other postretirement benefit plan assets, respectively.
We estimate the assumed health care cost trend rate, which is used in determining our other postretirement benefit net expense, based upon our actual health care cost experience, the effects of recently enacted legislation, third-party actuarial surveys and general economic conditions.
We use the Society of Actuaries’ most recently published mortality data in developingutilize a best estimate of mortality as part of the calculation of the pension and other postretirement benefit obligations.
| Impact on December 31, 2019 Projected Benefit Obligation Increase/(Decrease) | |||||||
Change in Assumptions (in millions) | Pension Benefits | Other Postretirement Benefits | |||||
| +50 basis points change in discount rate | $ | (89.9 | ) | $ | (29.0 | ) | |
| -50 basis points change in discount rate | 97.7 | 31.8 | |||||
| +50 basis points change in health care trend rates | 15.0 | ||||||
| -50 basis points change in health care trend rates | (13.1 | ) | |||||
Impact on 2019 Expense Increase/(Decrease)(1) | |||||||
Change in Assumptions (in millions) | Pension Benefits | Other Postretirement Benefits | |||||
| +50 basis points change in discount rate | $ | (1.8 | ) | $ | 0.3 | ||
| -50 basis points change in discount rate | 1.9 | 0.7 | |||||
| +50 basis points change in expected long-term rate of return on plan assets | (8.9 | ) | (1.2 | ) | |||
| -50 basis points change in expected long-term rate of return on plan assets | 8.9 | 1.2 | |||||
| +50 basis points change in health care trend rates | 0.6 | ||||||
| -50 basis points change in health care trend rates | (0.5 | ) | |||||
Typically, we use the Society of Actuaries’ most recently published mortality data in developing a best estimate of mortality as part of the calculation of the pension and other postretirement benefit obligations. Due to the ongoing COVID-19 pandemic, we adjusted our mortality assumption through 2023 to reflect anticipated slow recovery.
47
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
The following tables illustrate the effects of changes in these actuarial assumptions while holding all other assumptions constant:
| Impact on December 31, 2020 Projected Benefit Obligation Increase/(Decrease) | |||||||||||
Change in Assumptions (in millions) | Pension Benefits | Other Postretirement Benefits | |||||||||
| +50 basis points change in discount rate | $ | (88.7) | $ | (29.8) | |||||||
| -50 basis points change in discount rate | 96.5 | 32.7 | |||||||||
Impact on 2020 Expense Increase/(Decrease)(1) | |||||||||||
Change in Assumptions (in millions) | Pension Benefits | Other Postretirement Benefits | |||||||||
| +50 basis points change in discount rate | $ | (2.0) | $ | (0.8) | |||||||
| -50 basis points change in discount rate | 1.6 | 0.9 | |||||||||
| +50 basis points change in expected long-term rate of return on plan assets | (9.8) | (1.3) | |||||||||
| -50 basis points change in expected long-term rate of return on plan assets | 9.8 | 1.3 | |||||||||
(1)Before labor capitalization and regulatory deferrals.
Goodwill and Other Intangible Assets. We have sevensix goodwill reporting units, comprised of the sevensix state operating companies within the Gas Distribution Operations reportable segment. Our goodwill assets at December 31, 20192020 were $1,486 million, most of which resulted from the acquisition of Columbia on November 1, 2000.
As required by GAAP, we test for impairment of goodwill on an annual basis and on an interim basis when events or circumstances indicate that a potential impairment may exist. Our annual goodwill test takes place in the second quarter of each year and was performed on May 1, 2019. 2020.
A qualitativequantitative ("step 0"1") test was completed on May 1, 20192020 for all reporting units other than ourunits. Columbia of Massachusetts reporting unit. In the Step 0 analysis, we assessed various assumptions, events and circumstances that would have affected the estimated fair value of the applicable reporting units as comparedwas not considered to their baseline May 1, 2016 “step 1” fair value measurement. The results of this assessment indicated that it is not more likely than not that these reporting units fair values are less than theirbe a reporting unit carrying values; therefore, no “step 1” analysis was required.
the U.S. economy and the individual business environments in which each reporting unit operates. The Step 1 analysis performed indicated that the fair value of each of the Columbia of Massachusetts reporting unitunits exceeds itstheir carrying value. As a result, no impairment charge wascharges were recorded.
We recorded as of the May 1, 2019 test date.
Revenue Recognition. Revenue is recorded as products and services are delivered. Utility revenues are billed to customers monthly on a cycle basis. Revenues are recorded on the accrual basis and include estimates for electricity and gas delivered but not billed.
We adopted the provisions of ASC 606 beginning on January 1, 2018 using a modified retrospective method, which was applied to all contracts. No material adjustments were made to January 1, 2018 opening balances and no material changes in the amount or timing of future revenue recognition occurred as a result of the adoption of ASC 606. Refer to Note 3 "Revenue Recognition," in the Notes to Consolidated Financial Statements for additional information regarding our significant judgments and estimates related to revenue recognition.
48
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Variable Interest Entities. A VIE is an entity in which the controlling interest is determined through means other than a majority voting interest. The primary beneficiary of a VIE is the business enterprise which has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Also, the primary beneficiary either absorbs a significant amount of the VIE’s losses or has the right to receive benefits that could be significant to the VIE. We consider these qualitative elements in determining whether we are the primary beneficiary of a VIE, and we consolidate those VIEs for which we are determined to be the primary beneficiary. As the managing member of a partnership, we would control decisions that are significant to the ongoing operations and economic results. Therefore, we have concluded that we are the primary beneficiary of Rosewater and have consolidated Rosewater even though we own less than 100% of the total equity membership interest.
We have determined that the use of HLBV accounting is reasonable and appropriate to attribute income and loss to the noncontrolling interest held by the tax equity partner. HLBV accounting was selected as the allocation of Rosewater's economic results to members differ from the members' relative ownership percentages. Using the HLBV method, our earnings are calculated based on how the partnership would distribute its cash if it were to hypothetically sell all of its assets for their carrying amounts and liquidate at each reporting period. Under HLBV, we calculate the liquidation value allocable to each partner at the beginning and end of each period based on the contractual liquidation waterfall and adjust our income for the period to reflect the change our associated book value. Refer to Note 4, "Variable Interest Entities" in the Notes to Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
Refer to Note 2, "Recent Accounting Pronouncements," in the Notes to Consolidated Financial Statements.
Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures.”
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholdersshareholders and the Board of Directors of NiSource Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NiSource Inc. and subsidiaries (the "Company") as of December 31, 20192020 and 2018,2019, the related statements of consolidated income (loss), comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019,2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20192020 and 2018,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with2020 accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019,2020, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2020,17, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Impact of Rate Regulation on the Financial Statements - Refer to Notes 1, 8, 19, and 26Note 9 to the consolidated financial statements
Critical Audit Matter Description
The Company assessedCompany’s subsidiaries are fully regulated natural gas and electric utility companies serving customers in six states. These rate-regulated subsidiaries account for and report assets and liabilities consistent with the changes in circumstances that occurred during the fourth quarter to determine whether it was more likely than not that the fair valueseconomic effect of the long-lived assets (includingmanner in which regulators establish rates, if the franchise rights intangible asset)rates established are designed to recover the costs of providing the regulated service and goodwill of Columbia of Massachusetts (CMA), a wholly-owned subsidiaryit is probable that such rates can be charged to and collected from customers. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the consolidated balance sheets and are later recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers.
The Company’s subsidiaries’ rates are subject to regulatory rate-setting processes. Rates are determined and approved in regulatory proceedings based on an analysis of the Company, were below their carrying amount. The totality of several factors ledsubsidiaries’ costs to the Company concluding that it was more likely than not that the fair valueprovide utility service and a return on, and recovery of, the CMA reporting unitsubsidiaries’ investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the valuetiming and amount of CMA’s long-lived assets were below their carrying values. These factors included: (1) increased Massachusetts Departmentto be recovered by rates. The respective commissions' regulation of Public Utilities (DPU) regulatory enforcement activity relatedrates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. Decisions to CMA,be made by the commission in the future will impact the accounting for regulated operations, including (i) an order imposing work restrictions on CMA, (ii) two orders opening public investigations into CMA related to the Greater Lawrence Incident and restoration efforts following the incident, and (iii) an order defining the scope of the DPU’s investigation into the preparation and response of CMA related to the incident; (2) increased uncertainty as to the ability of CMA to execute its growth strategy, including utility infrastructure
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We identified the impairment of the franchise rights intangible asset and the CMA reporting unit goodwillaccounting for rate-regulated subsidiaries as a critical audit matter as there was adue to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of auditor judgmentsubjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing (1) the likelihood of recovery in future rates of incurred costs and subjectivity in applying procedures relating to(2) the allocationlikelihood of impairment to CMA’s long-lived assetsrefund of amounts previously collected from customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by regulatory commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the fair value measurement of the reporting unit. This was driven by significant management judgment when determining fair value, including (1) the weightings of the fair value approaches, (2) the future cash flows used in the impairment tests, and (3) other inputs used in the valuation including comparable company multiples, discount rates, and return on equity. In addition, the audit effort involved the use of fair value specialists to assist in performing audit procedures over these assumptions and evaluating the audit evidence obtained.rate making process due its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the impairmentuncertainty of CMA’s franchise rights intangible asset and CMA reporting unit goodwillfuture decisions by the commissions included the following, among others:
• We tested the effectiveness of management’s controls over the impairments, including (1) validation of the assumptions included in the impairment analysis for both the franchise rights intangible asset and goodwill, (2) the evaluation of the methodology usedlikelihood of (1) the recovery in determiningfuture rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the magnitudeeffectiveness of impairment chargesmanagement’s controls over the initial recognition of amounts as of December 31, 2019,property, plant, and (3) the verification of the completeness and accuracy of the journal entry made to record the impairmentsequipment; regulatory assets or liabilities; and the related disclosures.monitoring and evaluation of regulatory developments, that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
• We evaluated the Company’s disclosures related to the impairment charges.impacts of rate regulation, including the balances recorded and regulatory developments.
• We read relevant regulatory orders issued by the commissions for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
• For regulatory matters in process, we inspected the Company’s filings with the commissions and the filings with the commissions by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions related to recoverability of recorded assets.
• We inquired of management about property, plant, and equipment that may be abandoned. For assets that were abandoned, we inquired of management about their considerations regarding the abandonment. We inspected minutes of the board of directors and regulatory orders and other filings with the commissions to identify evidence that may contradict management’s assertion regarding probability of an abandonment.
• We obtained an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
February 27, 202017, 2021
We have served as the Company's auditor since 2002.
52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
Year Ended December 31, (in millions, except per share amounts) | 2019 | 2018 | 2017 | Year Ended December 31, (in millions, except per share amounts) | 2020 | 2019 | 2018 | |||||||||||||||||||||
| Operating Revenues | Operating Revenues | |||||||||||||||||||||||||||
| Customer revenues | $ | 5,053.4 | $ | 4,991.1 | $ | 4,730.2 | Customer revenues | $ | 4,473.2 | $ | 5,053.4 | $ | 4,991.1 | |||||||||||||||
| Other revenues | 155.5 | 123.4 | 144.4 | Other revenues | 208.5 | 155.5 | 123.4 | |||||||||||||||||||||
| Total Operating Revenues | 5,208.9 | 5,114.5 | 4,874.6 | Total Operating Revenues | 4,681.7 | 5,208.9 | 5,114.5 | |||||||||||||||||||||
| Operating Expenses | Operating Expenses | |||||||||||||||||||||||||||
| Cost of sales (excluding depreciation and amortization) | 1,534.8 | 1,761.3 | 1,518.7 | |||||||||||||||||||||||||
| Cost of energy | Cost of energy | 1,109.3 | 1,534.8 | 1,761.3 | ||||||||||||||||||||||||
| Operation and maintenance | 1,354.7 | 2,352.9 | 1,601.7 | Operation and maintenance | 1,585.9 | 1,354.7 | 2,352.9 | |||||||||||||||||||||
| Depreciation and amortization | 717.4 | 599.6 | 570.3 | Depreciation and amortization | 725.9 | 717.4 | 599.6 | |||||||||||||||||||||
| Impairment of goodwill and other intangible assets | 414.5 | — | — | |||||||||||||||||||||||||
| Loss on sale of fixed assets and impairments, net | — | 1.2 | 5.5 | |||||||||||||||||||||||||
| Impairment of goodwill and intangible assets | Impairment of goodwill and intangible assets | 0 | 414.5 | 0 | ||||||||||||||||||||||||
| Loss on sale of assets, net | Loss on sale of assets, net | 410.6 | 0 | 1.2 | ||||||||||||||||||||||||
| Other taxes | 296.8 | 274.8 | 257.2 | Other taxes | 299.2 | 296.8 | 274.8 | |||||||||||||||||||||
| Total Operating Expenses | 4,318.2 | 4,989.8 | 3,953.4 | Total Operating Expenses | 4,130.9 | 4,318.2 | 4,989.8 | |||||||||||||||||||||
| Operating Income | 890.7 | 124.7 | 921.2 | Operating Income | 550.8 | 890.7 | 124.7 | |||||||||||||||||||||
| Other Income (Deductions) | Other Income (Deductions) | |||||||||||||||||||||||||||
| Interest expense, net | (378.9 | ) | (353.3 | ) | (353.2 | ) | Interest expense, net | (370.7) | (378.9) | (353.3) | ||||||||||||||||||
| Other, net | (5.2 | ) | 43.5 | (13.5 | ) | Other, net | 32.1 | (5.2) | 43.5 | |||||||||||||||||||
| Loss on early extinguishment of long-term debt | — | (45.5 | ) | (111.5 | ) | Loss on early extinguishment of long-term debt | (243.5) | 0 | (45.5) | |||||||||||||||||||
| Total Other Deductions, Net | (384.1 | ) | (355.3 | ) | (478.2 | ) | Total Other Deductions, Net | (582.1) | (384.1) | (355.3) | ||||||||||||||||||
| Income (Loss) before Income Taxes | 506.6 | (230.6 | ) | 443.0 | Income (Loss) before Income Taxes | (31.3) | 506.6 | (230.6) | ||||||||||||||||||||
| Income Taxes | 123.5 | (180.0 | ) | 314.5 | Income Taxes | (17.1) | 123.5 | (180.0) | ||||||||||||||||||||
| Net Income (Loss) | 383.1 | (50.6 | ) | 128.5 | Net Income (Loss) | (14.2) | 383.1 | (50.6) | ||||||||||||||||||||
| Net income attributable to noncontrolling interest | Net income attributable to noncontrolling interest | 3.4 | 0 | 0 | ||||||||||||||||||||||||
| Net Income (Loss) attributable to NiSource | Net Income (Loss) attributable to NiSource | (17.6) | 383.1 | (50.6) | ||||||||||||||||||||||||
| Preferred dividends | (55.1 | ) | (15.0 | ) | — | Preferred dividends | (55.1) | (55.1) | (15.0) | |||||||||||||||||||
| Net Income (Loss) Available to Common Shareholders | 328.0 | (65.6 | ) | 128.5 | Net Income (Loss) Available to Common Shareholders | (72.7) | 328.0 | (65.6) | ||||||||||||||||||||
| Earnings (Loss) Per Share | Earnings (Loss) Per Share | |||||||||||||||||||||||||||
| Basic Earnings (Loss) Per Share | $ | 0.88 | $ | (0.18 | ) | $ | 0.39 | Basic Earnings (Loss) Per Share | $ | (0.19) | $ | 0.88 | $ | (0.18) | ||||||||||||||
| Diluted Earnings (Loss) Per Share | $ | 0.87 | $ | (0.18 | ) | $ | 0.39 | Diluted Earnings (Loss) Per Share | $ | (0.19) | $ | 0.87 | $ | (0.18) | ||||||||||||||
| Basic Average Common Shares Outstanding | 374.6 | 356.5 | 329.4 | Basic Average Common Shares Outstanding | 384.3 | 374.6 | 356.5 | |||||||||||||||||||||
| Diluted Average Common Shares | 376.0 | 356.5 | 330.8 | Diluted Average Common Shares | 384.3 | 376.0 | 356.5 | |||||||||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, (in millions, net of taxes) | 2019 | 2018 | 2017 | Year Ended December 31, (in millions, net of taxes) | 2020 | 2019 | 2018 | |||||||||||||||||||||
| Net Income (Loss) | $ | 383.1 | $ | (50.6 | ) | $ | 128.5 | Net Income (Loss) | $ | (14.2) | $ | 383.1 | $ | (50.6) | ||||||||||||||
| Other comprehensive income (loss): | Other comprehensive income (loss): | |||||||||||||||||||||||||||
Net unrealized gain (loss) on available-for-sale securities(1) | 5.7 | (2.6 | ) | 0.8 | Net unrealized gain (loss) on available-for-sale securities(1) | 2.7 | 5.7 | (2.6) | ||||||||||||||||||||
Net unrealized gain (loss) on cash flow hedges(2) | (64.2 | ) | 22.7 | (22.5 | ) | Net unrealized gain (loss) on cash flow hedges(2) | (70.7) | (64.2) | 22.7 | |||||||||||||||||||
Unrecognized pension and OPEB benefit (costs)(3) | 3.1 | (4.4 | ) | 3.4 | Unrecognized pension and OPEB benefit (costs)(3) | 3.9 | 3.1 | (4.4) | ||||||||||||||||||||
| Total other comprehensive income (loss) | (55.4 | ) | 15.7 | (18.3 | ) | Total other comprehensive income (loss) | (64.1) | (55.4) | 15.7 | |||||||||||||||||||
| Total Comprehensive Income (Loss) | $ | 327.7 | $ | (34.9 | ) | $ | 110.2 | Total Comprehensive Income (Loss) | $ | (78.3) | $ | 327.7 | $ | (34.9) | ||||||||||||||
(1) Net unrealized gain (loss) on available-for-sale securities, net of $1.5$0.7 million tax expense, $0.6$1.5 million tax expense and $0.6 million tax benefit in 2020, 2019 and $0.4 million tax expense in 2019, 2018, and 2017, respectively.
(2) Net unrealized gain (loss) on derivatives qualifying as cash flow hedges, net of $21.2$23.4 million tax benefit, $7.5$21.2 million tax benefit and $7.5 million tax expense in 2020, 2019 and $13.9 million tax benefit in 2019, 2018, and 2017, respectively.
(3) Unrecognized pension and OPEB benefit (costs), net of $1.6$0.1 million tax benefit, $1.6 million tax expense $1.5and $1.5 million tax benefit in 2020, 2019 and $2.1 million tax expense in 2019, 2018, and 2017, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions) | December 31, 2020 | December 31, 2019 | |||||||||
| ASSETS | |||||||||||
| Property, Plant and Equipment | |||||||||||
| Plant | $ | 24,179.9 | $ | 24,541.9 | |||||||
| Accumulated depreciation and amortization | (7,560.4) | (7,629.7) | |||||||||
Net Property, Plant and Equipment(1) | 16,619.5 | 16,912.2 | |||||||||
| Investments and Other Assets | |||||||||||
| Unconsolidated affiliates | 0 | 1.3 | |||||||||
| Available-for-sale debt securities (amortized cost of $163.9 and $150.1, allowance for credit losses of $0.5 and $0, respectively) | 170.9 | 154.2 | |||||||||
| Other investments | 81.1 | 74.7 | |||||||||
| Total Investments and Other Assets | 252.0 | 230.2 | |||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | 116.5 | 139.3 | |||||||||
| Restricted cash | 9.1 | 9.1 | |||||||||
| Accounts receivable | 843.6 | 876.1 | |||||||||
| Allowance for credit losses | (52.3) | (19.2) | |||||||||
| Accounts receivable, net | 791.3 | 856.9 | |||||||||
| Gas inventory | 191.2 | 250.9 | |||||||||
| Materials and supplies, at average cost | 141.5 | 120.2 | |||||||||
| Electric production fuel, at average cost | 68.4 | 53.6 | |||||||||
| Exchange gas receivable | 34.1 | 48.5 | |||||||||
| Regulatory assets | 135.7 | 225.7 | |||||||||
| Deferred property taxes | 85.6 | 79.5 | |||||||||
| Prepayments and other | 86.0 | 70.2 | |||||||||
Total Current Assets(1) | 1,659.4 | 1,853.9 | |||||||||
| Other Assets | |||||||||||
| Regulatory assets | 1,794.8 | 2,013.9 | |||||||||
| Goodwill | 1,485.9 | 1,485.9 | |||||||||
| Deferred charges and other | 228.9 | 163.7 | |||||||||
| Total Other Assets | 3,509.6 | 3,663.5 | |||||||||
| Total Assets | $ | 22,040.5 | $ | 22,659.8 | |||||||
| (in millions) | December 31, 2019 | December 31, 2018 | |||||
| ASSETS | |||||||
| Property, Plant and Equipment | |||||||
| Utility plant | $ | 24,502.6 | $ | 22,780.8 | |||
| Accumulated depreciation and amortization | (7,609.3 | ) | (7,257.9 | ) | |||
| Net utility plant | 16,893.3 | 15,522.9 | |||||
| Other property, at cost, less accumulated depreciation | 18.9 | 19.6 | |||||
| Net Property, Plant and Equipment | 16,912.2 | 15,542.5 | |||||
| Investments and Other Assets | |||||||
| Unconsolidated affiliates | 1.3 | 2.1 | |||||
| Other investments | 228.9 | 204.0 | |||||
| Total Investments and Other Assets | 230.2 | 206.1 | |||||
| Current Assets | |||||||
| Cash and cash equivalents | 139.3 | 112.8 | |||||
| Restricted cash | 9.1 | 8.3 | |||||
| Accounts receivable (less reserve of $19.2 and $21.1, respectively) | 856.9 | 1,058.5 | |||||
| Gas inventory | 250.9 | 286.8 | |||||
| Materials and supplies, at average cost | 120.2 | 101.0 | |||||
| Electric production fuel, at average cost | 53.6 | 34.7 | |||||
| Exchange gas receivable | 48.5 | 88.4 | |||||
| Regulatory assets | 225.7 | 235.4 | |||||
| Prepayments and other | 149.7 | 129.5 | |||||
| Total Current Assets | 1,853.9 | 2,055.4 | |||||
| Other Assets | |||||||
| Regulatory assets | 2,013.9 | 2,002.1 | |||||
| Goodwill | 1,485.9 | 1,690.7 | |||||
| Intangible assets, net | — | 220.7 | |||||
| Deferred charges and other | 163.7 | 86.5 | |||||
| Total Other Assets | 3,663.5 | 4,000.0 | |||||
| Total Assets | $ | 22,659.8 | $ | 21,804.0 | |||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions, except share amounts) | December 31, 2019 | December 31, 2018 | (in millions, except share amounts) | December 31, 2020 | December 31, 2019 | |||||||||||||
| CAPITALIZATION AND LIABILITIES | CAPITALIZATION AND LIABILITIES | |||||||||||||||||
| Capitalization | Capitalization | |||||||||||||||||
| Stockholders’ Equity | Stockholders’ Equity | |||||||||||||||||
| Common stock - $0.01 par value, 600,000,000 shares authorized; 382,135,680 and 372,363,656 shares outstanding, respectively | $ | 3.8 | $ | 3.8 | ||||||||||||||
| Preferred stock - $0.01 par value, 20,000,000 shares authorized; 440,000 and 420,000 shares outstanding, respectively | 880.0 | 880.0 | ||||||||||||||||
| Common stock - $0.01 par value, 600,000,000 shares authorized; 391,760,051 and 382,135,680 shares outstanding, respectively | Common stock - $0.01 par value, 600,000,000 shares authorized; 391,760,051 and 382,135,680 shares outstanding, respectively | $ | 3.9 | $ | 3.8 | |||||||||||||
| Preferred stock - $0.01 par value, 20,000,000 shares authorized; 440,000 shares outstanding | Preferred stock - $0.01 par value, 20,000,000 shares authorized; 440,000 shares outstanding | 880.0 | 880.0 | |||||||||||||||
| Treasury stock | (99.9 | ) | (99.9 | ) | Treasury stock | (99.9) | (99.9) | |||||||||||
| Additional paid-in capital | 6,666.2 | 6,403.5 | Additional paid-in capital | 6,890.1 | 6,666.2 | |||||||||||||
| Retained deficit | (1,370.8 | ) | (1,399.3 | ) | Retained deficit | (1,765.2) | (1,370.8) | |||||||||||
| Accumulated other comprehensive loss | (92.6 | ) | (37.2 | ) | Accumulated other comprehensive loss | (156.7) | (92.6) | |||||||||||
| Total NiSource Stockholders' Equity | Total NiSource Stockholders' Equity | 5,752.2 | 5,986.7 | |||||||||||||||
| Noncontrolling interest in consolidated subsidiaries | Noncontrolling interest in consolidated subsidiaries | 85.6 | 0 | |||||||||||||||
| Total Stockholders’ Equity | 5,986.7 | 5,750.9 | Total Stockholders’ Equity | 5,837.8 | 5,986.7 | |||||||||||||
| Long-term debt, excluding amounts due within one year | 7,856.2 | 7,105.4 | Long-term debt, excluding amounts due within one year | 9,219.8 | 7,856.2 | |||||||||||||
| Total Capitalization | 13,842.9 | 12,856.3 | Total Capitalization | 15,057.6 | 13,842.9 | |||||||||||||
| Current Liabilities | Current Liabilities | |||||||||||||||||
| Current portion of long-term debt | 13.4 | 50.0 | Current portion of long-term debt | 23.3 | 13.4 | |||||||||||||
| Short-term borrowings | 1,773.2 | 1,977.2 | Short-term borrowings | 503.0 | 1,773.2 | |||||||||||||
| Accounts payable | 666.0 | 883.8 | Accounts payable | 589.0 | 666.0 | |||||||||||||
| Customer deposits and credits | 256.4 | 238.9 | Customer deposits and credits | 243.3 | 256.4 | |||||||||||||
| Taxes accrued | 231.6 | 222.7 | Taxes accrued | 244.1 | 231.6 | |||||||||||||
| Interest accrued | 99.4 | 90.7 | Interest accrued | 104.7 | 99.4 | |||||||||||||
| Risk management liabilities | Risk management liabilities | 78.2 | 12.6 | |||||||||||||||
| Exchange gas payable | 59.7 | 85.5 | Exchange gas payable | 48.5 | 59.7 | |||||||||||||
| Regulatory liabilities | 160.2 | 140.9 | Regulatory liabilities | 161.3 | 160.2 | |||||||||||||
| Legal and environmental | 20.1 | 18.9 | ||||||||||||||||
| Accrued compensation and employee benefits | 156.3 | 149.7 | Accrued compensation and employee benefits | 141.8 | 156.3 | |||||||||||||
| Claims accrued | 165.4 | 114.7 | Claims accrued | 28.6 | 165.4 | |||||||||||||
| Other accruals | 144.1 | 63.8 | Other accruals | 113.6 | 151.6 | |||||||||||||
| Total Current Liabilities | 3,745.8 | 4,036.8 | Total Current Liabilities | 2,279.4 | 3,745.8 | |||||||||||||
| Other Liabilities | Other Liabilities | |||||||||||||||||
| Risk management liabilities | 134.0 | 46.7 | Risk management liabilities | 144.6 | 134.0 | |||||||||||||
| Deferred income taxes | 1,485.3 | 1,330.5 | Deferred income taxes | 1,470.6 | 1,485.3 | |||||||||||||
| Deferred investment tax credits | 9.7 | 11.2 | ||||||||||||||||
| Accrued insurance liabilities | 81.5 | 84.4 | Accrued insurance liabilities | 84.8 | 81.5 | |||||||||||||
| Accrued liability for postretirement and postemployment benefits | 373.2 | 389.1 | Accrued liability for postretirement and postemployment benefits | 336.1 | 373.2 | |||||||||||||
| Regulatory liabilities | 2,352.0 | 2,519.1 | Regulatory liabilities | 1,904.2 | 2,352.0 | |||||||||||||
| Asset retirement obligations | 416.9 | 352.0 | Asset retirement obligations | 477.1 | 416.9 | |||||||||||||
| Other noncurrent liabilities | 218.5 | 177.9 | Other noncurrent liabilities | 286.1 | 228.2 | |||||||||||||
| Total Other Liabilities | 5,071.1 | 4,910.9 | Total Other Liabilities | 4,703.5 | 5,071.1 | |||||||||||||
| Commitments and Contingencies (Refer to Note 19, "Other Commitments and Contingencies") | — | — | ||||||||||||||||
| Commitments and Contingencies (Refer to Note 20, "Other Commitments and Contingencies") | Commitments and Contingencies (Refer to Note 20, "Other Commitments and Contingencies") | |||||||||||||||||
| Total Capitalization and Liabilities | $ | 22,659.8 | $ | 21,804.0 | Total Capitalization and Liabilities | $ | 22,040.5 | $ | 22,659.8 | |||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | ||||||||
| Operating Activities | |||||||||||
| Net Income (Loss) | $ | 383.1 | $ | (50.6 | ) | $ | 128.5 | ||||
| Adjustments to Reconcile Net Income (Loss) to Net Cash from Operating Activities: | |||||||||||
| Loss on early extinguishment of debt | — | 45.5 | 111.5 | ||||||||
| Depreciation and amortization | 717.4 | 599.6 | 570.3 | ||||||||
| Deferred income taxes and investment tax credits | 118.2 | (188.2 | ) | 306.7 | |||||||
| Stock compensation expense and 401(k) profit sharing contribution | 25.9 | 28.6 | 40.1 | ||||||||
| Impairment of goodwill and other intangible assets | 414.5 | — | — | ||||||||
| Amortization of discount/premium on debt | 8.2 | 7.5 | 7.4 | ||||||||
| AFUDC equity | (8.0 | ) | (14.2 | ) | (12.6 | ) | |||||
| Other adjustments | (0.9 | ) | 1.7 | 6.6 | |||||||
| Changes in Assets and Liabilities: | |||||||||||
| Accounts receivable | 187.8 | (186.2 | ) | (52.3 | ) | ||||||
| Inventories | (2.0 | ) | 41.4 | 19.0 | |||||||
| Accounts payable | (299.9 | ) | 268.4 | 49.0 | |||||||
| Customer deposits and credits | 16.9 | (25.4 | ) | (2.5 | ) | ||||||
| Taxes accrued | 7.3 | 20.2 | 10.2 | ||||||||
| Interest accrued | 8.8 | (21.7 | ) | (33.9 | ) | ||||||
| Exchange gas receivable/payable | 55.5 | (21.5 | ) | (64.5 | ) | ||||||
| Other accruals | 105.3 | 43.5 | 31.8 | ||||||||
| Prepayments and other current assets | (33.6 | ) | (14.5 | ) | (13.3 | ) | |||||
| Regulatory assets/liabilities | (85.6 | ) | (53.2 | ) | 57.5 | ||||||
| Postretirement and postemployment benefits | (21.1 | ) | 58.2 | (380.9 | ) | ||||||
| Deferred charges and other noncurrent assets | (76.1 | ) | 3.8 | (2.0 | ) | ||||||
| Other noncurrent liabilities | 61.6 | (2.8 | ) | (34.4 | ) | ||||||
| Net Cash Flows from Operating Activities | 1,583.3 | 540.1 | 742.2 | ||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (1,802.4 | ) | (1,818.2 | ) | (1,695.8 | ) | |||||
| Cost of removal | (113.2 | ) | (104.3 | ) | (109.0 | ) | |||||
| Purchases of available-for-sale securities | (140.4 | ) | (90.0 | ) | (168.4 | ) | |||||
| Sales of available-for-sale securities | 132.1 | 82.3 | 163.1 | ||||||||
| Other investing activities | 1.5 | 4.1 | 1.6 | ||||||||
| Net Cash Flows used for Investing Activities | (1,922.4 | ) | (1,926.1 | ) | (1,808.5 | ) | |||||
| Financing Activities | |||||||||||
| Issuance of long-term debt | 750.0 | 350.0 | 3,250.0 | ||||||||
| Repayments of long-term debt and finance lease obligations | (51.6 | ) | (1,046.1 | ) | (1,855.0 | ) | |||||
| Issuance of short-term debt (maturity > 90 days) | 600.0 | 950.0 | — | ||||||||
Repayment of short-term debt (maturity > 90 days) | (700.0 | ) | — | — | |||||||
| Change in short-term borrowings, net (maturity ≤ 90 days) | (104.0 | ) | (178.5 | ) | (282.4 | ) | |||||
| Issuance of common stock, net of issuance costs | 244.4 | 848.2 | 336.7 | ||||||||
| Issuance of preferred stock, net of issuance costs | — | 880.0 | — | ||||||||
| Equity costs, premiums and other debt related costs | (17.8 | ) | (46.0 | ) | (144.3 | ) | |||||
| Acquisition of treasury stock | — | (4.0 | ) | (7.2 | ) | ||||||
| Dividends paid - common stock | (298.5 | ) | (273.3 | ) | (229.1 | ) | |||||
| Dividends paid - preferred stock | (56.1 | ) | (11.6 | ) | — | ||||||
| Net Cash Flows from Financing Activities | 366.4 | 1,468.7 | 1,068.7 | ||||||||
| Change in cash, cash equivalents and restricted cash | 27.3 | 82.7 | 2.4 | ||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 121.1 | 38.4 | 36.0 | ||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 148.4 | $ | 121.1 | $ | 38.4 | |||||
Quantitative and Qualitative Disclosures about Market Risk are an integral partreported in Item 7. “Management’s Discussion and Analysis of these statements.
49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
| (in millions) | Common Stock | Preferred Stock(1) | Treasury Stock | Additional Paid-In Capital | Retained Deficit | Accumulated Other Comprehensive Loss | Total | ||||||||||||||||||||
| Balance as of January 1, 2017 | $ | 3.3 | $ | — | $ | (88.7 | ) | $ | 5,153.9 | $ | (972.2 | ) | $ | (25.1 | ) | $ | 4,071.2 | ||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||
| Net Income | — | — | — | — | 128.5 | — | 128.5 | ||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (18.3 | ) | (18.3 | ) | ||||||||||||||||||
| Common stock dividends ($0.70 per share) | — | — | — | — | (229.4 | ) | — | (229.4 | ) | ||||||||||||||||||
| Treasury stock acquired | — | — | (7.2 | ) | — | — | — | (7.2 | ) | ||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | 5.0 | — | — | 5.0 | ||||||||||||||||||||
| Long-term incentive plan | — | — | — | 14.9 | — | — | 14.9 | ||||||||||||||||||||
| 401(k) and profit sharing | — | — | — | 34.3 | — | — | 34.3 | ||||||||||||||||||||
| Dividend reinvestment plan | — | — | — | 6.4 | — | — | 6.4 | ||||||||||||||||||||
| ATM Program | 0.1 | — | — | 314.6 | — | — | 314.7 | ||||||||||||||||||||
| Balance as of December 31, 2017 | $ | 3.4 | $ | — | $ | (95.9 | ) | $ | 5,529.1 | $ | (1,073.1 | ) | $ | (43.4 | ) | $ | 4,320.1 | ||||||||||
| Comprehensive Loss: | |||||||||||||||||||||||||||
| Net Loss | — | — | — | — | (50.6 | ) | — | (50.6 | ) | ||||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | — | 15.7 | 15.7 | ||||||||||||||||||||
| Dividends | |||||||||||||||||||||||||||
| Common stock ($0.78 per share) | — | — | — | — | (273.5 | ) | — | (273.5 | ) | ||||||||||||||||||
| Preferred stock ($28.88 per share) | — | — | — | — | (11.6 | ) | — | (11.6 | ) | ||||||||||||||||||
| Treasury stock acquired | — | — | (4.0 | ) | — | — | — | (4.0 | ) | ||||||||||||||||||
| Cumulative effect of change in accounting principle | — | — | — | — | 9.5 | (9.5 | ) | — | |||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||
| Common stock - private placement | 0.3 | — | — | 599.3 | — | — | 599.6 | ||||||||||||||||||||
| Preferred stock | — | 880.0 | — | — | — | — | 880.0 | ||||||||||||||||||||
| Employee stock purchase plan | — | — | — | 5.5 | — | — | 5.5 | ||||||||||||||||||||
| Long-term incentive plan | — | — | — | 15.4 | — | — | 15.4 | ||||||||||||||||||||
| 401(k) and profit sharing | — | — | — | 21.8 | — | — | 21.8 | ||||||||||||||||||||
| ATM Program | 0.1 | — | — | 232.4 | — | — | 232.5 | ||||||||||||||||||||
| Balance as of December 31, 2018 | $ | 3.8 | $ | 880.0 | $ | (99.9 | ) | $ | 6,403.5 | $ | (1,399.3 | ) | $ | (37.2 | ) | $ | 5,750.9 | ||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||
| Net Income | — | — | — | — | 383.1 | — | 383.1 | ||||||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | — | (55.4 | ) | (55.4 | ) | ||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||
| Common stock ($0.80 per share) | — | — | — | — | (298.5 | ) | — | (298.5 | ) | ||||||||||||||||||
| Preferred stock (See Note 12) | — | — | — | — | (56.1 | ) | — | (56.1 | ) | ||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||
| Employee stock purchase plan | — | — | — | 5.6 | — | — | 5.6 | ||||||||||||||||||||
| Long-term incentive plan | — | — | — | 10.4 | — | — | 10.4 | ||||||||||||||||||||
| 401(k) and profit sharing | — | — | — | 17.6 | — | — | 17.6 | ||||||||||||||||||||
| ATM program | — | — | — | 229.1 | — | — | 229.1 | ||||||||||||||||||||
| Balance as of December 31, 2019 | $ | 3.8 | $ | 880.0 | $ | (99.9 | ) | $ | 6,666.2 | $ | (1,370.8 | ) | $ | (92.6 | ) | $ | 5,986.7 | ||||||||||
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
Opinion on the Financial Statements
| Preferred | Common | ||||||||||
| (in thousands) | Shares | Shares | Treasury | Outstanding | |||||||
| Balance as of January 1, 2017 | — | 326,664 | (3,504 | ) | 323,160 | ||||||
| Treasury stock acquired | — | — | (293 | ) | (293 | ) | |||||
| Issued: | |||||||||||
| Employee stock purchase plan | — | 207 | — | 207 | |||||||
| Long-term incentive plan | — | 351 | — | 351 | |||||||
| 401(k) and profit sharing plan | — | 1,396 | — | 1,396 | |||||||
| Dividend reinvestment plan | — | 264 | — | 264 | |||||||
| ATM program | — | 11,931 | — | 11,931 | |||||||
| Balance as of December 31, 2017 | — | 340,813 | (3,797 | ) | 337,016 | ||||||
| Treasury stock acquired | — | — | (166 | ) | (166 | ) | |||||
| Issued: | |||||||||||
| Common stock - private placement | — | 24,964 | — | 24,964 | |||||||
| Preferred stock | 420 | — | — | — | |||||||
| Employee stock purchase plan | — | 223 | — | 223 | |||||||
| Long-term incentive plan | — | 561 | — | 561 | |||||||
| 401(k) and profit sharing plan | — | 882 | — | 882 | |||||||
| ATM Program | — | 8,883 | — | 8,883 | |||||||
| Balance as of December 31, 2018 | 420 | 376,326 | (3,963 | ) | 372,363 | ||||||
| Issued: | |||||||||||
Preferred stock(1) | 20 | — | — | — | |||||||
| Employee stock purchase plan | — | 201 | — | 201 | |||||||
| Long-term incentive plan | — | 518 | — | 518 | |||||||
| 401(k) and profit sharing plan | — | 631 | — | 631 | |||||||
| ATM program | — | 8,423 | — | 8,423 | |||||||
| Balance as of December 31, 2019 | 440 | 386,099 | (3,963 | ) | 382,136 | ||||||
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impact of Rate Regulation on the Financial Statements are an integral part of these statements.- Refer to Note 9 to the consolidated financial statements
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While the Company has indicated it expects to Consolidated Financial Statementsrecover costs from customers through regulated rates, there is a risk that the commission will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment.
We identified the accounting for rate-regulated subsidiaries as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing (1) the likelihood of recovery in future rates of incurred costs and (2) the likelihood of refund of amounts previously collected from customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by regulatory commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate making process due its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the commissions included the following, among others:
• We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments, that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
• We read relevant regulatory orders issued by the commissions for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
• For regulatory matters in process, we inspected the Company’s filings with the commissions and the filings with the commissions by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions related to recoverability of recorded assets.
• We inquired of management about property, plant, and equipment that may be abandoned. For assets that were abandoned, we inquired of management about their considerations regarding the abandonment. We inspected minutes of the board of directors and regulatory orders and other filings with the commissions to identify evidence that may contradict management’s assertion regarding probability of an abandonment.
• We obtained an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
February 17, 2021
We have served as the Company's auditor since 2002.
52
Year Ended December 31, (in millions, except per share amounts) | 2020 | 2019 | 2018 | ||||||||||||||
| Operating Revenues | |||||||||||||||||
| Customer revenues | $ | 4,473.2 | $ | 5,053.4 | $ | 4,991.1 | |||||||||||
| Other revenues | 208.5 | 155.5 | 123.4 | ||||||||||||||
| Total Operating Revenues | 4,681.7 | 5,208.9 | 5,114.5 | ||||||||||||||
| Operating Expenses | |||||||||||||||||
| Cost of energy | 1,109.3 | 1,534.8 | 1,761.3 | ||||||||||||||
| Operation and maintenance | 1,585.9 | 1,354.7 | 2,352.9 | ||||||||||||||
| Depreciation and amortization | 725.9 | 717.4 | 599.6 | ||||||||||||||
| Impairment of goodwill and intangible assets | 0 | 414.5 | 0 | ||||||||||||||
| Loss on sale of assets, net | 410.6 | 0 | 1.2 | ||||||||||||||
| Other taxes | 299.2 | 296.8 | 274.8 | ||||||||||||||
| Total Operating Expenses | 4,130.9 | 4,318.2 | 4,989.8 | ||||||||||||||
| Operating Income | 550.8 | 890.7 | 124.7 | ||||||||||||||
| Other Income (Deductions) | |||||||||||||||||
| Interest expense, net | (370.7) | (378.9) | (353.3) | ||||||||||||||
| Other, net | 32.1 | (5.2) | 43.5 | ||||||||||||||
| Loss on early extinguishment of long-term debt | (243.5) | 0 | (45.5) | ||||||||||||||
| Total Other Deductions, Net | (582.1) | (384.1) | (355.3) | ||||||||||||||
| Income (Loss) before Income Taxes | (31.3) | 506.6 | (230.6) | ||||||||||||||
| Income Taxes | (17.1) | 123.5 | (180.0) | ||||||||||||||
| Net Income (Loss) | (14.2) | 383.1 | (50.6) | ||||||||||||||
| Net income attributable to noncontrolling interest | 3.4 | 0 | 0 | ||||||||||||||
| Net Income (Loss) attributable to NiSource | (17.6) | 383.1 | (50.6) | ||||||||||||||
| Preferred dividends | (55.1) | (55.1) | (15.0) | ||||||||||||||
| Net Income (Loss) Available to Common Shareholders | (72.7) | 328.0 | (65.6) | ||||||||||||||
| Earnings (Loss) Per Share | |||||||||||||||||
| Basic Earnings (Loss) Per Share | $ | (0.19) | $ | 0.88 | $ | (0.18) | |||||||||||
| Diluted Earnings (Loss) Per Share | $ | (0.19) | $ | 0.87 | $ | (0.18) | |||||||||||
| Basic Average Common Shares Outstanding | 384.3 | 374.6 | 356.5 | ||||||||||||||
| Diluted Average Common Shares | 384.3 | 376.0 | 356.5 | ||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
53
Year Ended December 31, (in millions, net of taxes) | 2020 | 2019 | 2018 | ||||||||||||||
| Net Income (Loss) | $ | (14.2) | $ | 383.1 | $ | (50.6) | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
Net unrealized gain (loss) on available-for-sale securities(1) | 2.7 | 5.7 | (2.6) | ||||||||||||||
Net unrealized gain (loss) on cash flow hedges(2) | (70.7) | (64.2) | 22.7 | ||||||||||||||
Unrecognized pension and OPEB benefit (costs)(3) | 3.9 | 3.1 | (4.4) | ||||||||||||||
| Total other comprehensive income (loss) | (64.1) | (55.4) | 15.7 | ||||||||||||||
| Total Comprehensive Income (Loss) | $ | (78.3) | $ | 327.7 | $ | (34.9) | |||||||||||
(1) Net unrealized gain (loss) on available-for-sale securities, net of $0.7 million tax expense, $1.5 million tax expense and $0.6 million tax benefit in 2020, 2019 and 2018, respectively.
(2) Net unrealized gain (loss) on derivatives qualifying as cash flow hedges, net of $23.4 million tax benefit, $21.2 million tax benefit and $7.5 million tax expense in 2020, 2019 and 2018, respectively.
(3) Unrecognized pension and OPEB benefit (costs), net of $0.1 million tax benefit, $1.6 million tax expense and $1.5 million tax benefit in 2020, 2019 and 2018, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| (in millions) | December 31, 2020 | December 31, 2019 | |||||||||
| ASSETS | |||||||||||
| Property, Plant and Equipment | |||||||||||
| Plant | $ | 24,179.9 | $ | 24,541.9 | |||||||
| Accumulated depreciation and amortization | (7,560.4) | (7,629.7) | |||||||||
Net Property, Plant and Equipment(1) | 16,619.5 | 16,912.2 | |||||||||
| Investments and Other Assets | |||||||||||
| Unconsolidated affiliates | 0 | 1.3 | |||||||||
| Available-for-sale debt securities (amortized cost of $163.9 and $150.1, allowance for credit losses of $0.5 and $0, respectively) | 170.9 | 154.2 | |||||||||
| Other investments | 81.1 | 74.7 | |||||||||
| Total Investments and Other Assets | 252.0 | 230.2 | |||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | 116.5 | 139.3 | |||||||||
| Restricted cash | 9.1 | 9.1 | |||||||||
| Accounts receivable | 843.6 | 876.1 | |||||||||
| Allowance for credit losses | (52.3) | (19.2) | |||||||||
| Accounts receivable, net | 791.3 | 856.9 | |||||||||
| Gas inventory | 191.2 | 250.9 | |||||||||
| Materials and supplies, at average cost | 141.5 | 120.2 | |||||||||
| Electric production fuel, at average cost | 68.4 | 53.6 | |||||||||
| Exchange gas receivable | 34.1 | 48.5 | |||||||||
| Regulatory assets | 135.7 | 225.7 | |||||||||
| Deferred property taxes | 85.6 | 79.5 | |||||||||
| Prepayments and other | 86.0 | 70.2 | |||||||||
Total Current Assets(1) | 1,659.4 | 1,853.9 | |||||||||
| Other Assets | |||||||||||
| Regulatory assets | 1,794.8 | 2,013.9 | |||||||||
| Goodwill | 1,485.9 | 1,485.9 | |||||||||
| Deferred charges and other | 228.9 | 163.7 | |||||||||
| Total Other Assets | 3,509.6 | 3,663.5 | |||||||||
| Total Assets | $ | 22,040.5 | $ | 22,659.8 | |||||||
(1)Includes $175.6 million of alternative cleanup methodsnet property, plant and other variables. The liability is adjusted as further information is discovered or circumstances change. The accruals for estimated environmental expenditures are recorded onequipment assets and $1.7 million of current assets of a consolidated VIE that may be used only to settle obligations of the Consolidated Balance Sheets in “Legal and environmental” for short-term portions of these liabilities and “Other noncurrent liabilities” for the respective long-term portions of these liabilities. Rate-regulated subsidiaries applying regulatory accounting establish regulatory assets on the Consolidated Balance Sheets to the extent that future recovery of environmental remediation costs is probable through the regulatory process.consolidated VIE. Refer to Note 19, "Other Commitments and Contingencies,"4 "Variable Interest Entity" for furtheradditional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE As an agent for some state and local governments, we invoice and collect certain excise taxes levied by state and local governments on customers and record these amounts as liabilities payable to the applicable taxing jurisdiction. Such balances are presented within "Other accruals" on the Consolidated Balance Sheets. These types of taxes collected from customers, comprised largely of sales taxes, are presented on a net basis affecting neither revenues nor cost of sales. We account for excise taxes for which we are liable by recording a liability for the expected tax with a corresponding charge to “Other taxes” expense on the Statements of Consolidated Income (Loss)INC.
CONSOLIDATED BALANCE SHEETS
| (in millions, except share amounts) | December 31, 2020 | December 31, 2019 | |||||||||
| CAPITALIZATION AND LIABILITIES | |||||||||||
| Capitalization | |||||||||||
| Stockholders’ Equity | |||||||||||
| Common stock - $0.01 par value, 600,000,000 shares authorized; 391,760,051 and 382,135,680 shares outstanding, respectively | $ | 3.9 | $ | 3.8 | |||||||
| Preferred stock - $0.01 par value, 20,000,000 shares authorized; 440,000 shares outstanding | 880.0 | 880.0 | |||||||||
| Treasury stock | (99.9) | (99.9) | |||||||||
| Additional paid-in capital | 6,890.1 | 6,666.2 | |||||||||
| Retained deficit | (1,765.2) | (1,370.8) | |||||||||
| Accumulated other comprehensive loss | (156.7) | (92.6) | |||||||||
| Total NiSource Stockholders' Equity | 5,752.2 | 5,986.7 | |||||||||
| Noncontrolling interest in consolidated subsidiaries | 85.6 | 0 | |||||||||
| Total Stockholders’ Equity | 5,837.8 | 5,986.7 | |||||||||
| Long-term debt, excluding amounts due within one year | 9,219.8 | 7,856.2 | |||||||||
| Total Capitalization | 15,057.6 | 13,842.9 | |||||||||
| Current Liabilities | |||||||||||
| Current portion of long-term debt | 23.3 | 13.4 | |||||||||
| Short-term borrowings | 503.0 | 1,773.2 | |||||||||
| Accounts payable | 589.0 | 666.0 | |||||||||
| Customer deposits and credits | 243.3 | 256.4 | |||||||||
| Taxes accrued | 244.1 | 231.6 | |||||||||
| Interest accrued | 104.7 | 99.4 | |||||||||
| Risk management liabilities | 78.2 | 12.6 | |||||||||
| Exchange gas payable | 48.5 | 59.7 | |||||||||
| Regulatory liabilities | 161.3 | 160.2 | |||||||||
| Accrued compensation and employee benefits | 141.8 | 156.3 | |||||||||
| Claims accrued | 28.6 | 165.4 | |||||||||
| Other accruals | 113.6 | 151.6 | |||||||||
| Total Current Liabilities | 2,279.4 | 3,745.8 | |||||||||
| Other Liabilities | |||||||||||
| Risk management liabilities | 144.6 | 134.0 | |||||||||
| Deferred income taxes | 1,470.6 | 1,485.3 | |||||||||
| Accrued insurance liabilities | 84.8 | 81.5 | |||||||||
| Accrued liability for postretirement and postemployment benefits | 336.1 | 373.2 | |||||||||
| Regulatory liabilities | 1,904.2 | 2,352.0 | |||||||||
| Asset retirement obligations | 477.1 | 416.9 | |||||||||
| Other noncurrent liabilities | 286.1 | 228.2 | |||||||||
| Total Other Liabilities | 4,703.5 | 5,071.1 | |||||||||
| Commitments and Contingencies (Refer to Note 20, "Other Commitments and Contingencies") | |||||||||||
| Total Capitalization and Liabilities | $ | 22,040.5 | $ | 22,659.8 | |||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE We accrue for insurance costs related to workers compensation, automobile, property, general and employment practices liabilities based on the most probable value of each claim. In general, claim values are determined by professional, licensed loss adjusters who consider the facts of the claim, anticipated indemnification and legal expenses, and respective state rules. Claims are reviewed by us at least quarterly and an adjustment is made to the accrual based on the most current information. Refer to Note 19-E "Other Matters" for further information on accrued insurance liabilities related to the Greater Lawrence Incident.INC.
Recently Issued Accounting Pronouncements
Refer to Note 2, "Recent Accounting Pronouncements," in the Notes to Consolidated Financial Statements.
Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures.”
49
50
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of NiSource Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NiSource Inc. and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related statements of consolidated income (loss), comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020 accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 17, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impact of Rate Regulation on the Financial Statements - Refer to Note 9 to the consolidated financial statements
Critical Audit Matter Description
The Company’s subsidiaries are fully regulated natural gas and electric utility companies serving customers in six states. These rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the manner in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged to and collected from customers. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the consolidated balance sheets and are later recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers.
The Company’s subsidiaries’ rates are subject to regulatory rate-setting processes. Rates are determined and approved in regulatory proceedings based on an analysis of the subsidiaries’ costs to provide utility service and a return on, and recovery of, the subsidiaries’ investment in the utility business. Regulatory decisions can have an impact on the recovery of costs, the rate of return earned on investment, and the timing and amount of assets to be recovered by rates. The respective commissions' regulation of rates is premised on the full recovery of prudently incurred costs and a reasonable rate of return on invested capital. Decisions to be made by the commission in the future will impact the accounting for regulated operations, including
51
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
decisions about the amount of allowable costs and return on invested capital included in rates and any refunds that may be required. While the Company has indicated it expects to recover costs from customers through regulated rates, there is a risk that the commission will not approve: (1) full recovery of the costs of providing utility service, or (2) full recovery of all amounts invested in the utility business and a reasonable return on that investment.
We identified the accounting for rate-regulated subsidiaries as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing (1) the likelihood of recovery in future rates of incurred costs and (2) the likelihood of refund of amounts previously collected from customers. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by regulatory commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate making process due its inherent complexities.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the uncertainty of future decisions by the commissions included the following, among others:
• We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments, that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.
• We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.
• We read relevant regulatory orders issued by the commissions for the Company, regulatory statutes, interpretations, procedural memorandums, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedents of the commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared to management’s recorded regulatory asset and liability balances for completeness.
• For regulatory matters in process, we inspected the Company’s filings with the commissions and the filings with the commissions by intervenors that may impact the Company’s future rates, for any evidence that might contradict management’s assertions related to recoverability of recorded assets.
• We inquired of management about property, plant, and equipment that may be abandoned. For assets that were abandoned, we inquired of management about their considerations regarding the abandonment. We inspected minutes of the board of directors and regulatory orders and other filings with the commissions to identify evidence that may contradict management’s assertion regarding probability of an abandonment.
• We obtained an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
February 17, 2021
We have served as the Company's auditor since 2002.
52
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED INCOME (LOSS)
Year Ended December 31, (in millions, except per share amounts) | 2020 | 2019 | 2018 | ||||||||||||||
| Operating Revenues | |||||||||||||||||
| Customer revenues | $ | 4,473.2 | $ | 5,053.4 | $ | 4,991.1 | |||||||||||
| Other revenues | 208.5 | 155.5 | 123.4 | ||||||||||||||
| Total Operating Revenues | 4,681.7 | 5,208.9 | 5,114.5 | ||||||||||||||
| Operating Expenses | |||||||||||||||||
| Cost of energy | 1,109.3 | 1,534.8 | 1,761.3 | ||||||||||||||
| Operation and maintenance | 1,585.9 | 1,354.7 | 2,352.9 | ||||||||||||||
| Depreciation and amortization | 725.9 | 717.4 | 599.6 | ||||||||||||||
| Impairment of goodwill and intangible assets | 0 | 414.5 | 0 | ||||||||||||||
| Loss on sale of assets, net | 410.6 | 0 | 1.2 | ||||||||||||||
| Other taxes | 299.2 | 296.8 | 274.8 | ||||||||||||||
| Total Operating Expenses | 4,130.9 | 4,318.2 | 4,989.8 | ||||||||||||||
| Operating Income | 550.8 | 890.7 | 124.7 | ||||||||||||||
| Other Income (Deductions) | |||||||||||||||||
| Interest expense, net | (370.7) | (378.9) | (353.3) | ||||||||||||||
| Other, net | 32.1 | (5.2) | 43.5 | ||||||||||||||
| Loss on early extinguishment of long-term debt | (243.5) | 0 | (45.5) | ||||||||||||||
| Total Other Deductions, Net | (582.1) | (384.1) | (355.3) | ||||||||||||||
| Income (Loss) before Income Taxes | (31.3) | 506.6 | (230.6) | ||||||||||||||
| Income Taxes | (17.1) | 123.5 | (180.0) | ||||||||||||||
| Net Income (Loss) | (14.2) | 383.1 | (50.6) | ||||||||||||||
| Net income attributable to noncontrolling interest | 3.4 | 0 | 0 | ||||||||||||||
| Net Income (Loss) attributable to NiSource | (17.6) | 383.1 | (50.6) | ||||||||||||||
| Preferred dividends | (55.1) | (55.1) | (15.0) | ||||||||||||||
| Net Income (Loss) Available to Common Shareholders | (72.7) | 328.0 | (65.6) | ||||||||||||||
| Earnings (Loss) Per Share | |||||||||||||||||
| Basic Earnings (Loss) Per Share | $ | (0.19) | $ | 0.88 | $ | (0.18) | |||||||||||
| Diluted Earnings (Loss) Per Share | $ | (0.19) | $ | 0.87 | $ | (0.18) | |||||||||||
| Basic Average Common Shares Outstanding | 384.3 | 374.6 | 356.5 | ||||||||||||||
| Diluted Average Common Shares | 384.3 | 376.0 | 356.5 | ||||||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
53
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)
Year Ended December 31, (in millions, net of taxes) | 2020 | 2019 | 2018 | ||||||||||||||
| Net Income (Loss) | $ | (14.2) | $ | 383.1 | $ | (50.6) | |||||||||||
| Other comprehensive income (loss): | |||||||||||||||||
Net unrealized gain (loss) on available-for-sale securities(1) | 2.7 | 5.7 | (2.6) | ||||||||||||||
Net unrealized gain (loss) on cash flow hedges(2) | (70.7) | (64.2) | 22.7 | ||||||||||||||
Unrecognized pension and OPEB benefit (costs)(3) | 3.9 | 3.1 | (4.4) | ||||||||||||||
| Total other comprehensive income (loss) | (64.1) | (55.4) | 15.7 | ||||||||||||||
| Total Comprehensive Income (Loss) | $ | (78.3) | $ | 327.7 | $ | (34.9) | |||||||||||
(1) Net unrealized gain (loss) on available-for-sale securities, net of $0.7 million tax expense, $1.5 million tax expense and $0.6 million tax benefit in 2020, 2019 and 2018, respectively.
(2) Net unrealized gain (loss) on derivatives qualifying as cash flow hedges, net of $23.4 million tax benefit, $21.2 million tax benefit and $7.5 million tax expense in 2020, 2019 and 2018, respectively.
(3) Unrecognized pension and OPEB benefit (costs), net of $0.1 million tax benefit, $1.6 million tax expense and $1.5 million tax benefit in 2020, 2019 and 2018, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
54
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions) | December 31, 2020 | December 31, 2019 | |||||||||
| ASSETS | |||||||||||
| Property, Plant and Equipment | |||||||||||
| Plant | $ | 24,179.9 | $ | 24,541.9 | |||||||
| Accumulated depreciation and amortization | (7,560.4) | (7,629.7) | |||||||||
Net Property, Plant and Equipment(1) | 16,619.5 | 16,912.2 | |||||||||
| Investments and Other Assets | |||||||||||
| Unconsolidated affiliates | 0 | 1.3 | |||||||||
| Available-for-sale debt securities (amortized cost of $163.9 and $150.1, allowance for credit losses of $0.5 and $0, respectively) | 170.9 | 154.2 | |||||||||
| Other investments | 81.1 | 74.7 | |||||||||
| Total Investments and Other Assets | 252.0 | 230.2 | |||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | 116.5 | 139.3 | |||||||||
| Restricted cash | 9.1 | 9.1 | |||||||||
| Accounts receivable | 843.6 | 876.1 | |||||||||
| Allowance for credit losses | (52.3) | (19.2) | |||||||||
| Accounts receivable, net | 791.3 | 856.9 | |||||||||
| Gas inventory | 191.2 | 250.9 | |||||||||
| Materials and supplies, at average cost | 141.5 | 120.2 | |||||||||
| Electric production fuel, at average cost | 68.4 | 53.6 | |||||||||
| Exchange gas receivable | 34.1 | 48.5 | |||||||||
| Regulatory assets | 135.7 | 225.7 | |||||||||
| Deferred property taxes | 85.6 | 79.5 | |||||||||
| Prepayments and other | 86.0 | 70.2 | |||||||||
Total Current Assets(1) | 1,659.4 | 1,853.9 | |||||||||
| Other Assets | |||||||||||
| Regulatory assets | 1,794.8 | 2,013.9 | |||||||||
| Goodwill | 1,485.9 | 1,485.9 | |||||||||
| Deferred charges and other | 228.9 | 163.7 | |||||||||
| Total Other Assets | 3,509.6 | 3,663.5 | |||||||||
| Total Assets | $ | 22,040.5 | $ | 22,659.8 | |||||||
(1)Includes $175.6 million of net property, plant and equipment assets and $1.7 million of current assets of a consolidated VIE that may be used only to settle obligations of the consolidated VIE. Refer to Note 4 "Variable Interest Entity" for additional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
55
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions, except share amounts) | December 31, 2020 | December 31, 2019 | |||||||||
| CAPITALIZATION AND LIABILITIES | |||||||||||
| Capitalization | |||||||||||
| Stockholders’ Equity | |||||||||||
| Common stock - $0.01 par value, 600,000,000 shares authorized; 391,760,051 and 382,135,680 shares outstanding, respectively | $ | 3.9 | $ | 3.8 | |||||||
| Preferred stock - $0.01 par value, 20,000,000 shares authorized; 440,000 shares outstanding | 880.0 | 880.0 | |||||||||
| Treasury stock | (99.9) | (99.9) | |||||||||
| Additional paid-in capital | 6,890.1 | 6,666.2 | |||||||||
| Retained deficit | (1,765.2) | (1,370.8) | |||||||||
| Accumulated other comprehensive loss | (156.7) | (92.6) | |||||||||
| Total NiSource Stockholders' Equity | 5,752.2 | 5,986.7 | |||||||||
| Noncontrolling interest in consolidated subsidiaries | 85.6 | 0 | |||||||||
| Total Stockholders’ Equity | 5,837.8 | 5,986.7 | |||||||||
| Long-term debt, excluding amounts due within one year | 9,219.8 | 7,856.2 | |||||||||
| Total Capitalization | 15,057.6 | 13,842.9 | |||||||||
| Current Liabilities | |||||||||||
| Current portion of long-term debt | 23.3 | 13.4 | |||||||||
| Short-term borrowings | 503.0 | 1,773.2 | |||||||||
| Accounts payable | 589.0 | 666.0 | |||||||||
| Customer deposits and credits | 243.3 | 256.4 | |||||||||
| Taxes accrued | 244.1 | 231.6 | |||||||||
| Interest accrued | 104.7 | 99.4 | |||||||||
| Risk management liabilities | 78.2 | 12.6 | |||||||||
| Exchange gas payable | 48.5 | 59.7 | |||||||||
| Regulatory liabilities | 161.3 | 160.2 | |||||||||
| Accrued compensation and employee benefits | 141.8 | 156.3 | |||||||||
| Claims accrued | 28.6 | 165.4 | |||||||||
| Other accruals | 113.6 | 151.6 | |||||||||
| Total Current Liabilities | 2,279.4 | 3,745.8 | |||||||||
| Other Liabilities | |||||||||||
| Risk management liabilities | 144.6 | 134.0 | |||||||||
| Deferred income taxes | 1,470.6 | 1,485.3 | |||||||||
| Accrued insurance liabilities | 84.8 | 81.5 | |||||||||
| Accrued liability for postretirement and postemployment benefits | 336.1 | 373.2 | |||||||||
| Regulatory liabilities | 1,904.2 | 2,352.0 | |||||||||
| Asset retirement obligations | 477.1 | 416.9 | |||||||||
| Other noncurrent liabilities | 286.1 | 228.2 | |||||||||
| Total Other Liabilities | 4,703.5 | 5,071.1 | |||||||||
| Commitments and Contingencies (Refer to Note 20, "Other Commitments and Contingencies") | |||||||||||
| Total Capitalization and Liabilities | $ | 22,040.5 | $ | 22,659.8 | |||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
56
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31, (in millions) | 2020 | 2019 | 2018 | ||||||||||||||
| Operating Activities | |||||||||||||||||
| Net Income (Loss) | $ | (14.2) | $ | 383.1 | $ | (50.6) | |||||||||||
| Adjustments to Reconcile Net Income (Loss) to Net Cash from Operating Activities: | |||||||||||||||||
| Loss on early extinguishment of debt | 243.5 | 0 | 45.5 | ||||||||||||||
| Depreciation and amortization | 725.9 | 717.4 | 599.6 | ||||||||||||||
| Deferred income taxes and investment tax credits | (29.0) | 118.2 | (188.2) | ||||||||||||||
| Stock compensation expense and 401(k) profit sharing contribution | 17.4 | 25.9 | 28.6 | ||||||||||||||
| Impairment of goodwill and intangible assets | 0 | 414.5 | 0 | ||||||||||||||
| Loss (gain) on sale of assets | 409.8 | (0.6) | 1.3 | ||||||||||||||
| Amortization of discount/premium on debt | 9.4 | 8.2 | 7.5 | ||||||||||||||
| AFUDC equity | (9.9) | (8.0) | (14.2) | ||||||||||||||
| Other adjustments | 0.2 | (0.3) | 0.4 | ||||||||||||||
| Changes in Assets and Liabilities: | |||||||||||||||||
| Accounts receivable | (3.9) | 187.8 | (186.2) | ||||||||||||||
| Inventories | (1.5) | (2.0) | 41.4 | ||||||||||||||
| Accounts payable | (29.7) | (299.9) | 268.4 | ||||||||||||||
| Customer deposits and credits | 10.0 | 16.9 | (25.4) | ||||||||||||||
| Taxes accrued | 28.4 | 7.3 | 20.2 | ||||||||||||||
| Interest accrued | 5.3 | 8.8 | (21.7) | ||||||||||||||
| Exchange gas receivable/payable | (6.9) | 55.5 | (21.5) | ||||||||||||||
| Other accruals | (218.8) | 105.3 | 43.5 | ||||||||||||||
| Prepayments and other current assets | (5.9) | (33.6) | (14.5) | ||||||||||||||
| Regulatory assets/liabilities | 70.8 | (85.6) | (53.2) | ||||||||||||||
| Postretirement and postemployment benefits | (103.6) | (21.1) | 58.2 | ||||||||||||||
| Deferred charges and other noncurrent assets | (15.0) | (76.1) | 3.8 | ||||||||||||||
| Other noncurrent liabilities | 21.7 | 61.6 | (2.8) | ||||||||||||||
| Net Cash Flows from Operating Activities | 1,104.0 | 1,583.3 | 540.1 | ||||||||||||||
| Investing Activities | |||||||||||||||||
| Capital expenditures | (1,758.1) | (1,802.4) | (1,818.2) | ||||||||||||||
| Cost of removal | (138.2) | (113.2) | (104.3) | ||||||||||||||
| Proceeds from disposition of assets | 1,115.9 | 0.4 | 1.8 | ||||||||||||||
| Purchases of available-for-sale securities | (144.7) | (140.4) | (90.0) | ||||||||||||||
| Sales of available-for-sale securities | 131.4 | 132.1 | 82.3 | ||||||||||||||
| Payment to renewable generation asset developer | (85.3) | 0 | 0 | ||||||||||||||
| Other investing activities | (0.1) | 1.1 | 2.3 | ||||||||||||||
| Net Cash Flows used for Investing Activities | (879.1) | (1,922.4) | (1,926.1) | ||||||||||||||
| Financing Activities | |||||||||||||||||
| Proceeds from issuance of long-term debt | 2,974.0 | 750.0 | 350.0 | ||||||||||||||
| Repayments of long-term debt and finance lease obligations | (1,622.0) | (51.6) | (1,046.1) | ||||||||||||||
| Issuance of short-term debt (maturity > 90 days) | 1,350.0 | 600.0 | 950.0 | ||||||||||||||
| Repayment of short-term debt (maturity > 90 days) | (2,200.0) | (700.0) | 0 | ||||||||||||||
| Change in short-term borrowings, net (maturity ≤ 90 days) | (420.1) | (104.0) | (178.5) | ||||||||||||||
| Issuance of common stock, net of issuance costs | 211.4 | 244.4 | 848.2 | ||||||||||||||
| Issuance of preferred stock, net of issuance costs | 0 | 0 | 880.0 | ||||||||||||||
| Equity costs, premiums and other debt related costs | (246.5) | (17.8) | (46.0) | ||||||||||||||
| Acquisition of treasury stock | 0 | 0 | (4.0) | ||||||||||||||
| Contributions from non-controlling interest, net of issuance costs | 82.2 | 0 | 0 | ||||||||||||||
| Dividends paid - common stock | (321.6) | (298.5) | (273.3) | ||||||||||||||
| Dividends paid - preferred stock | (55.1) | (56.1) | (11.6) | ||||||||||||||
| Net Cash Flows from Financing Activities | (247.7) | 366.4 | 1,468.7 | ||||||||||||||
| Change in cash, cash equivalents and restricted cash | (22.8) | 27.3 | 82.7 | ||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 148.4 | 121.1 | 38.4 | ||||||||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 125.6 | $ | 148.4 | $ | 121.1 | |||||||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
57
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY
| (in millions) | Common Stock | Preferred Stock(1) | Treasury Stock | Additional Paid-In Capital | Retained Deficit | Accumulated Other Comprehensive Loss | Noncontrolling Interest in Consolidated Subsidiaries | Total | |||||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2018 | $ | 3.4 | $ | 0 | $ | (95.9) | $ | 5,529.1 | $ | (1,073.1) | $ | (43.4) | $ | 0 | $ | 4,320.1 | |||||||||||||||||||||||||||||||
| Comprehensive Loss: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | 0 | 0 | 0 | 0 | (50.6) | 0 | 0 | (50.6) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | 0 | 0 | 0 | 0 | 0 | 15.7 | 0 | 15.7 | |||||||||||||||||||||||||||||||||||||||
| Dividends | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock ($0.78 per share) | 0 | 0 | 0 | 0 | (273.5) | 0 | 0 | (273.5) | |||||||||||||||||||||||||||||||||||||||
| Preferred stock ($28.88 per share) | 0 | 0 | 0 | 0 | (11.6) | 0 | 0 | (11.6) | |||||||||||||||||||||||||||||||||||||||
| Treasury stock acquired | 0 | 0 | (4.0) | 0 | 0 | 0 | 0 | (4.0) | |||||||||||||||||||||||||||||||||||||||
| Cumulative effect of change in accounting principle | — | — | — | — | 9.5 | (9.5) | — | — | |||||||||||||||||||||||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock - private placement | 0.3 | 0 | 0 | 599.3 | 0 | 0 | 0 | 599.6 | |||||||||||||||||||||||||||||||||||||||
| Preferred stock | 0 | 880.0 | 0 | 0 | 0 | 0 | 0 | 880.0 | |||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | 0 | 0 | 0 | 5.5 | 0 | 0 | 0 | 5.5 | |||||||||||||||||||||||||||||||||||||||
| Long-term incentive plan | 0 | 0 | 0 | 15.4 | 0 | 0 | 0 | 15.4 | |||||||||||||||||||||||||||||||||||||||
| 401(k) and profit sharing | 0 | 0 | 0 | 21.8 | 0 | 0 | 0 | 21.8 | |||||||||||||||||||||||||||||||||||||||
| ATM Program | 0.1 | 0 | 0 | 232.4 | 0 | 0 | 0 | 232.5 | |||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2018 | $ | 3.8 | $ | 880.0 | $ | (99.9) | $ | 6,403.5 | $ | (1,399.3) | $ | (37.2) | $ | 0 | $ | 5,750.9 | |||||||||||||||||||||||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Income | 0 | 0 | 0 | 0 | 383.1 | 0 | 0 | 383.1 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | 0 | 0 | 0 | 0 | 0 | (55.4) | 0 | (55.4) | |||||||||||||||||||||||||||||||||||||||
| Dividends | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock ($0.80 per share) | 0 | 0 | 0 | 0 | (298.5) | 0 | 0 | (298.5) | |||||||||||||||||||||||||||||||||||||||
| Preferred stock (See Note 13) | 0 | 0 | 0 | 0 | (56.1) | 0 | 0 | (56.1) | |||||||||||||||||||||||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | 0 | 0 | 0 | 5.6 | 0 | 0 | 0 | 5.6 | |||||||||||||||||||||||||||||||||||||||
| Long-term incentive plan | 0 | 0 | 0 | 10.4 | 0 | 0 | 0 | 10.4 | |||||||||||||||||||||||||||||||||||||||
| 401(k) and profit sharing | 0 | 0 | 0 | 17.6 | 0 | 0 | 0 | 17.6 | |||||||||||||||||||||||||||||||||||||||
| ATM Program | 0 | 0 | 0 | 229.1 | 0 | 0 | 0 | 229.1 | |||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | 3.8 | $ | 880.0 | $ | (99.9) | $ | 6,666.2 | $ | (1,370.8) | $ | (92.6) | $ | 0 | $ | 5,986.7 | |||||||||||||||||||||||||||||||
| Comprehensive Loss: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net Income (Loss) | 0 | 0 | 0 | 0 | (17.6) | 0 | 3.4 | (14.2) | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss, net of tax | 0 | 0 | 0 | 0 | 0 | (64.1) | 0 | (64.1) | |||||||||||||||||||||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||||||||||||||||||
| Common stock ($0.84 per share) | 0 | 0 | 0 | 0 | (321.7) | 0 | 0 | (321.7) | |||||||||||||||||||||||||||||||||||||||
| Preferred stock (See Note 13) | 0 | 0 | 0 | 0 | (55.1) | 0 | 0 | (55.1) | |||||||||||||||||||||||||||||||||||||||
| Contribution from noncontrolling interest | 0 | 0 | 0 | 0 | 0 | 0 | 82.2 | 82.2 | |||||||||||||||||||||||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | 0 | 0 | 0 | 5.7 | 0 | 0 | 0 | 5.7 | |||||||||||||||||||||||||||||||||||||||
| Long-term incentive plan | 0 | 0 | 0 | 8.4 | 0 | 0 | 0 | 8.4 | |||||||||||||||||||||||||||||||||||||||
| 401(k) and profit sharing | 0 | 0 | 0 | 13.4 | 0 | 0 | 0 | 13.4 | |||||||||||||||||||||||||||||||||||||||
| ATM program | 0.1 | 0 | 0 | 196.4 | 0 | 0 | 0 | 196.5 | |||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | 3.9 | $ | 880.0 | $ | (99.9) | $ | 6,890.1 | $ | (1,765.2) | $ | (156.7) | $ | 85.6 | $ | 5,837.8 | |||||||||||||||||||||||||||||||
(1)Series A and Series B shares have an aggregate liquidation preference of $400M and $500M, respectively. See Note 13, "Equity" for additional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY (continued)
| Preferred | Common | ||||||||||||||||||||||
| (in thousands) | Shares | Shares | Treasury | Outstanding | |||||||||||||||||||
| Balance as of January 1, 2018 | 0 | 340,813 | (3,797) | 337,016 | |||||||||||||||||||
| Treasury stock acquired | 0 | 0 | (166) | (166) | |||||||||||||||||||
| Issued: | |||||||||||||||||||||||
| Common stock - private placement | 0 | 24,964 | 0 | 24,964 | |||||||||||||||||||
| Preferred stock | 420 | 0 | 0 | 0 | |||||||||||||||||||
| Employee stock purchase plan | 0 | 223 | 0 | 223 | |||||||||||||||||||
| Long-term incentive plan | 0 | 561 | 0 | 561 | |||||||||||||||||||
| 401(k) and profit sharing plan | 0 | 882 | 0 | 882 | |||||||||||||||||||
| ATM program | 0 | 8,883 | 0 | 8,883 | |||||||||||||||||||
| Balance as of December 31, 2018 | 420 | 376,326 | (3,963) | 372,363 | |||||||||||||||||||
| Issued: | |||||||||||||||||||||||
Preferred stock(1) | 20 | 0 | 0 | 0 | |||||||||||||||||||
| Employee stock purchase plan | 0 | 201 | 0 | 201 | |||||||||||||||||||
| Long-term incentive plan | 0 | 518 | 0 | 518 | |||||||||||||||||||
| 401(k) and profit sharing plan | 0 | 631 | 0 | 631 | |||||||||||||||||||
| ATM Program | 0 | 8,423 | 0 | 8,423 | |||||||||||||||||||
| Balance as of December 31, 2019 | 440 | 386,099 | (3,963) | 382,136 | |||||||||||||||||||
| Issued: | |||||||||||||||||||||||
| Employee stock purchase plan | 0 | 236 | 0 | 236 | |||||||||||||||||||
| Long-term incentive plan | 0 | 385 | 0 | 385 | |||||||||||||||||||
| 401(k) and profit sharing plan | 0 | 544 | 0 | 544 | |||||||||||||||||||
| ATM program | 0 | 8,459 | 0 | 8,459 | |||||||||||||||||||
| Balance as of December 31, 2020 | 440 | 395,723 | (3,963) | 391,760 | |||||||||||||||||||
(1)See Note 13, "Equity," for additional information.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
59
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
1. Nature of Operations and Summary of Significant Accounting Policies
A. Company Structure and Principles of Consolidation. We are an energy holding company incorporated in Delaware and headquartered in Merrillville, Indiana. Our subsidiaries are fully regulated natural gas and electric utility companies serving approximately 3.7 million customers in six states. We generate substantially all of our operating income through these rate-regulated businesses. The consolidated financial statements include the accounts of us, our majority-owned subsidiaries, and VIEs of which we are the primary beneficiary after the elimination of all intercompany accounts and transactions.
On February 26, 2020, NiSource and Columbia of Massachusetts entered into an Asset Purchase Agreement with Eversource (the "Asset Purchase Agreement"). On October 9, 2020, NiSource and Columbia of Massachusetts received net proceeds from the sale of approximately $1,113 million, which included, a $1,100 million purchase price, an estimate of Columbia of Massachusetts' net working capital, net of closing costs and a $56.0 million payment in lieu of penalties that NiSource agreed to make in full settlement of all of the pending and potential claims, lawsuits, investigations or proceedings settled by and released by a settlement agreement approved by the Massachusetts DPU. As of December 31, 2020, we have recorded a loss on the sale of $412.4 million based on asset and liability balances as of the close of the transaction on October 9, 2020, estimated net working capital and estimated transaction costs. This estimated pre-tax loss is presented as "Loss on sale of assets, net" on the Statements of Consolidated Income (Loss) and is subject to change based on the final net working capital determination.
The Massachusetts Business had the following pretax income (loss) for the twelve months ended December 31, 2020, 2019 and 2018:
| Twelve Months Ended December 31, | |||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2018 | ||||||||||||||||||||
| Pretax Income (Loss) | ($422.3) | $36.8 | ($835.6) | ||||||||||||||||||||
We continue to monitor how the COVID-19 pandemic is affecting our workforce, customers, suppliers, operations, financial results and cash flow. See Note 3, "Revenue Recognition," Note 9, "Regulatory Matters," and Note 11, "Income Taxes," for information on the pandemic.
B. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
C. Cash, Cash Equivalents and Restricted Cash. We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. We report amounts deposited in brokerage accounts for margin requirements as restricted cash. In addition, we have amounts deposited in trust to satisfy requirements for the provision of various property, liability, workers compensation, and long-term disability insurance, which is classified as restricted cash on the Consolidated Balance Sheets and disclosed with cash and cash equivalents on the Statements of Consolidated Cash Flows.
D. Accounts Receivable and Unbilled Revenue. Accounts receivable on the Consolidated Balance Sheets includes both billed and unbilled amounts. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the last cycle billing date through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates, weather and reasonable and supportable forecasts. Accounts receivable fluctuates from year to year depending in large part on weather impacts and price volatility. Our accounts receivable on the Consolidated Balance Sheets include unbilled revenue, less reserves, in the amounts of $338.3 million and $350.5 million as of December 31, 2020 and 2019, respectively. The reserve for uncollectible receivables is our best estimate of the amount of probable credit losses in the existing accounts receivable. We determined the reserve based on historical experience and in consideration of current market conditions. Account balances are charged against the allowance when it is anticipated the receivable will not be recovered. Refer to Note 3, "Revenue Recognition," for additional information on customer-related accounts receivable.
E. Investments in Debt Securities. Our investments in debt securities are carried at fair value and are designated as available-for-sale. These investments are included within “Other investments” on the Consolidated Balance Sheets. Unrealized gains and losses, net of deferred income taxes, are recorded to accumulated other comprehensive income or loss. These
60
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
investments are monitored for other than temporary declines in market value. Realized gains and losses and permanent impairments are reflected in the Statements of Consolidated Income (Loss). NaN material impairment charges were recorded for the years ended December 31, 2020, 2019 or 2018. Refer to Note 18, "Fair Value," for additional information.
F. Basis of Accounting for Rate-Regulated Subsidiaries. Rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged and collected. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the Consolidated Balance Sheets and are later recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers.
We continually evaluate whether or not our operations are within the scope of ASC 980 and rate regulations. As part of that analysis, we evaluate probability of recovery for our regulatory assets. In management’s opinion, our regulated subsidiaries will be subject to regulatory accounting for the foreseeable future. Refer to Note 9, "Regulatory Matters," for additional information.
G. Plant and Other Property and Related Depreciation and Maintenance. Property, plant and equipment (principally utility plant) is stated at cost. Our rate-regulated subsidiaries record depreciation using composite rates on a straight-line basis over the remaining service lives of the electric, gas and common properties, as approved by the appropriate regulators.
Non-utility property includes renewable generation assets owned by a joint venture of which we are the primary beneficiary and is generally depreciated on a straight-line basis over the life of the associated asset. Refer to Note 6, "Property, Plant and Equipment," for additional information related to depreciation expense.
For rate-regulated companies, AFUDC is capitalized on all classes of property except organization costs, land, autos, office equipment, tools and other general property purchases. The allowance is applied to construction costs for that period of time between the date of the expenditure and the date on which such project is placed in service. Our pre-tax rate for AFUDC was 2.6% in 2020, 3.0% in 2019 and 3.5% in 2018.
Generally, our subsidiaries follow the practice of charging maintenance and repairs, including the cost of removal of minor items of property, to expense as incurred. When our subsidiaries retire regulated property, plant and equipment, original cost plus the cost of retirement, less salvage value, is charged to accumulated depreciation. However, when it becomes probable a regulated asset will be retired substantially in advance of its original expected useful life or is abandoned, the cost of the asset and the corresponding accumulated depreciation is recognized as a separate asset. If the asset is still in operation, the gross amounts are classified as "Non-Utility and Other " as described in Note 6, "Property, Plant and Equipment." If the asset is no longer operating but still subject to recovery, the net amount is classified in "Regulatory assets" on the Consolidated Balance Sheets. If we are able to recover a full return of and on investment, the carrying value of the asset is based on historical cost. If we are not able to recover a full return on investment, a loss on impairment is recognized to the extent the net book value of the asset exceeds the present value of future revenues discounted at the incremental borrowing rate.
When our subsidiaries sell entire regulated operating units, or retire or sell nonregulated properties, the original cost and accumulated depreciation and amortization balances are removed from "Net Property, Plant and Equipment" on the Consolidated Balance Sheets. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body. Refer to Note 6, "Property, Plant and Equipment," for further information.
External and internal costs associated with computer software developed for internal use are capitalized. Capitalization of such costs commences upon the completion of the preliminary stage of each project. Once the installed software is ready for its intended use, such capitalized costs are amortized on a straight-line basis generally over a period of five years
External and internal up-front implementation costs associated with cloud computing arrangements that are service contracts are deferred on the Consolidated Balance Sheets. Once the installed software is ready for its intended use, such deferred costs are amortized on a straight-line basis to "Operation and maintenance," over the minimum term of the contract plus contractually-provided renewal periods that are reasonable expected to be exercised.
H. Goodwill and Other Intangible Assets. Substantially all of our goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. We test our goodwill for impairment annually as of May 1, or more frequently if events and circumstances indicate that goodwill might be impaired. Fair value of our reporting
61
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
units is determined using a combination of income and market approaches. See Note 7, "Goodwill and Other Intangible Assets," for additional information.
I. Accounts Receivable Transfer Program. Certain of our subsidiaries have agreements with third parties to transfer certain accounts receivable without recourse. These transfers of accounts receivable are accounted for as secured borrowings. The entire gross receivables balance remains on the December 31, 2020 and 2019 Consolidated Balance Sheets and short-term debt is recorded in the amount of proceeds received from the transferees involved in the transactions. Refer to Note 19, "Transfers of Financial Assets," for further information.
J. Gas Cost and Fuel Adjustment Clause. Our regulated subsidiaries defer most differences between gas and fuel purchase costs and the recovery of such costs in revenues and adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. These deferred balances are recorded as "Regulatory assets" or "Regulatory liabilities," as appropriate, on the Consolidated Balance Sheets. Refer to Note 9, "Regulatory Matters," for additional information.
K. Inventory. Both the LIFO inventory methodology and the weighted average cost methodology are used to value natural gas in storage, as approved by regulators for all of our regulated subsidiaries. Inventory valued using LIFO was $42.3 million and $47.2 million at December 31, 2020 and 2019, respectively. Based on the average cost of gas using the LIFO method, the estimated replacement cost of gas in storage was less than the stated LIFO cost by $19.6 million and $25.5 million at December 31, 2020 and 2019, respectively. Gas inventory valued using the weighted average cost methodology was $148.8 million at December 31, 2020 and $203.7 million at December 31, 2019.
Electric production fuel is valued using the weighted average cost inventory methodology, as approved by NIPSCO's regulator.
Materials and supplies are valued using the weighted average cost inventory methodology.
L. Accounting for Exchange and Balancing Arrangements of Natural Gas. Our Gas Distribution Operations segment enters into balancing and exchange arrangements of natural gas as part of its operations and off-system sales programs. We record a receivable or payable for any of our respective cumulative gas imbalances, as well as for any gas inventory borrowed or lent under a Gas Distribution Operations exchange agreement. Exchange gas is valued based on individual regulatory jurisdiction requirements (for example, historical spot rate, spot at the beginning of the month). These receivables and payables are recorded as “Exchange gas receivable” or “Exchange gas payable” on our Consolidated Balance Sheets, as appropriate.
M. Accounting for Risk Management Activities. We account for our derivatives and hedging activities in accordance with ASC 815. We recognize all derivatives as either assets or liabilities on the Consolidated Balance Sheets at fair value, unless such contracts are exempted as a normal purchase normal sale under the provisions of the standard. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation.
We have elected not to net fair value amounts for any of our derivative instruments or the fair value amounts recognized for the right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. See Note 10, "Risk Management Activities," for additional information.
N. Income Taxes and Investment Tax Credits. We record income taxes to recognize full interperiod tax allocations.Under the asset and liability method, deferred income taxes are provided for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amount and the tax basis of existing assets and liabilities. Investment tax credits associated with regulated operations are deferred and amortized as a reduction to income tax expense over the estimated useful lives of the related properties.
To the extent certain deferred income taxes of the regulated companies are recoverable or payable through future rates, regulatory assets and liabilities have been established. Regulatory assets for income taxes are primarily attributable to property-related tax timing differences for which deferred taxes had not been provided in the past, when regulators did not recognize such taxes as costs in the rate-making process. Regulatory liabilities for income taxes are primarily attributable to the regulated companies’ obligation to refund to ratepayers deferred income taxes provided at rates higher than the current Federal income tax rate. Such property-related amounts are credited to ratepayers using either the average rate assumption method or the reverse South Georgia method. Non property-related amounts are credited to ratepayers consistent with state utility commission direction.
62
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Pursuant to the Internal Revenue Code and relevant state taxing authorities, we and our subsidiaries file consolidated income tax returns for federal and certain state jurisdictions. We and our subsidiaries are parties to a tax sharing agreement. Income taxes recorded by each party represent amounts that would be owed had the party been separately subject to tax.
O. Environmental Expenditures. We accrue for costs associated with environmental remediation obligations, including expenditures related to asset retirement obligations and cost of removal, when the incurrence of such costs is probable and the amounts can be reasonably estimated, regardless of when the expenditures are actually made. The undiscounted estimated future expenditures are based on currently enacted laws and regulations, existing technology and estimated site-specific costs where assumptions may be made about the nature and extent of site contamination, the extent of cleanup efforts, costs of alternative cleanup methods and other variables. The liability is adjusted as further information is discovered or circumstances change. The accruals for estimated environmental expenditures are recorded on the Consolidated Balance Sheets in “Other accruals” for short-term portions of these liabilities and “Other noncurrent liabilities” for the respective long-term portions of these liabilities. Rate-regulated subsidiaries applying regulatory accounting establish regulatory assets on the Consolidated Balance Sheets to the extent that future recovery of environmental remediation costs is probable through the regulatory process. Refer to Note 8, "Asset Retirement Obligations," and Note 20, "Other Commitments and Contingencies," for further information.
P. Excise Taxes. As an agent for some state and local governments, we invoice and collect certain excise taxes levied by state and local governments on customers and record these amounts as liabilities payable to the applicable taxing jurisdiction. Such balances are presented within "Other accruals" on the Consolidated Balance Sheets. These types of taxes collected from customers, comprised largely of sales taxes, are presented on a net basis affecting neither revenues nor cost of sales. We account for excise taxes for which we are liable by recording a liability for the expected tax with a corresponding charge to “Other taxes” expense on the Statements of Consolidated Income (Loss).
Q. Accrued Insurance Liabilities. We accrue for insurance costs related to workers compensation, automobile, property, general and employment practices liabilities based on the most probable value of each claim. In general, claim values are determined by professional, licensed loss adjusters who consider the facts of the claim, anticipated indemnification and legal expenses, and respective state rules. Claims are reviewed by us at least quarterly and an adjustment is made to the accrual based on the most current information. Refer to Note 20-E "Other Matters" for further information on accrued insurance liabilities related to the Greater Lawrence Incident.
2. Recent Accounting Pronouncements
Recently Issued Accounting Pronouncements
We are currently evaluating the impact of certain ASUs on our Consolidated Financial Statements or Notes to Consolidated Financial Statements, which are described below:
| Standard | Description | Effective Date | Effect on the financial statements or other significant matters | ||||||||
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Statement | This pronouncement provides temporary optional expedients and exceptions for applying GAAP principles to contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. | Upon issuance on March 12, 2020, and will apply though December 31, 2022. | We continue to evaluate the temporary expedients and options available under this guidance, and the effects of these pronouncements on our Consolidated Financial Statements and Notes to Consolidated Financial Statements. We are currently identifying and evaluating contracts that may be impacted. As of December 31, 2020, we have not applied any expedients and options available under this ASU. | ||||||||
ASU 2021-01, Reference Rate Reform (Topic 848): Scope | |||||||||||
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NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| Standard | Description | Effective Date | Effect on the financial statements or other significant matters | ||||||||
ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivative and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity | This pronouncement simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. Specifically, the ASU "simplifies accounting for convertible instruments by removing major separation models required under current GAAP." In addition, the ASU "removes certain settlement conditions that are required for equity contracts to qualify for it" and "simplifies the diluted earnings per share (EPS) calculations in certain areas." | Annual period beginning after December 15, 2021. Early adoption is permitted for annual period beginning after December 15, 2020. | This pronouncement does not impact any securities we currently have on our balance sheet. We will continue to evaluate the effects of this pronouncement on our Consolidated Financial Statements and Notes to Consolidated Financial Statements as it pertains to any relevant future activity. We expect to adopt this ASU on its effective date. | ||||||||
Recently Adopted Accounting Pronouncements
| Standard | Adoption | ||||||
ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments | In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (ASC 326). ASC 326 revised the GAAP guidance on the impairment of most financial assets and certain other instruments that are not measured at fair value through net income. ASC 326 introduces the current expected credit loss (CECL) model that is based on expected losses for instruments measured at amortized cost rather than incurred losses. It also requires entities to record an allowance for available-for-sale debt securities rather than impair the carrying amount of the securities. Subsequent improvements to the estimated credit losses of available-for-sale debt securities will be recognized immediately in earnings, instead of over-time as they would under historic guidance. In 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivative and Hedging, and Topic 825, Financial Instruments. This pronouncement clarified and improved certain areas of guidance related to the recently issued standards on credit losses, hedging, and recognition and measurement. We adopted ASC 326 effective January 1, 2020, using a modified retrospective method. Adoption of this standard did not have material impact on our Consolidated Financial Statements. No adjustments were made to the January 1, 2020 opening balances as a result of this adoption. As required under the modified retrospective method of adoption, results for the reporting periods beginning after January 1, 2020 are presented under ASC 326, while prior period amounts are not adjusted. See Note 3, "Revenue Recognition," and Note 18, "Fair Value," for our discussion of the implementing these standards. | ||||||
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) | |||||||
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans | |||||||
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes | This pronouncement simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in ASC 740, income taxes. It also improves consistency of application for other areas of the guidance by clarifying and amending existing guidance. | We | |||||
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NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
3. Revenue Recognition
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | |||||||||
| Operating Revenues | ||||||||||||
| Gas Distribution | $ | 2,336.1 | $ | 2,348.4 | $ | 2,063.2 | ||||||
| Gas Transportation | 1,171.3 | 1,055.2 | 1,021.5 | |||||||||
| Electric | 1,698.5 | 1,707.4 | 1,785.5 | |||||||||
| Other | 3.0 | 3.5 | 4.4 | |||||||||
| Total Operating Revenues | $ | 5,208.9 | $ | 5,114.5 | $ | 4,874.6 | ||||||
Customer Revenues. Substantially all of our revenues are tariff-based, which we have concluded is within the scope of ASC 606.tariff-based. Under ASC 606, the recipients of our utility service meet the definition of a customer, while the operating company tariffs represent an agreement that meets the definition of a contract. ASC 606 defines a contract, as an agreement between two or more parties, in this case us and the customer, which creates enforceable rights and obligations. In order to be considered a contract, we have determined that it is probable that substantially all of the consideration to which we are entitled from customers will be collected upon satisfaction of performance obligations. We maintain common utility credit risk mitigation practices, including requiring deposits and actively pursuing collection of past due amounts. In addition, our regulated operations utilize certain regulatory mechanisms that facilitate recovery of bad debt costs within tariff-based rates, which provides further evidence of collectibility.
Customers in certain of our jurisdictions participate in programs that allow for a fixed payment each month regardless of usage. Payments received that exceed the value of gas or electricity actually delivered are recorded as a liability and presented in "Customer Deposits and Credits" on the Consolidated Balance Sheets. Amounts in this account are reduced and revenue is recorded when customer usage begins to exceedexceeds payments received.
We have identified our performance obligations created under tariff-based sales as 1) the commodity (natural gas or electricity, which includes generation and capacity) and 2) delivery. These commodities are sold and / or delivered to and generally consumed by customers simultaneously, leading to satisfaction of our performance obligations over time as gas or electricity is delivered to customers. Due to the at-will nature of utility customers, performance obligations are limited to the services requested and received to date. Once complete, we generally maintain no additional performance obligations.
Transaction prices for each performance obligation are generally prescribed by each operating company’s respective tariff. Rates include provisions to adjust billings for fluctuations in fuel and purchased power costs and cost of natural gas. Revenues are adjusted for differences between actual costs, subject to reconciliation, and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in "Regulatory Assets" or "Regulatory Liabilities" on the Consolidated Balance Sheets and are recovered from or returned to customers through adjustments to tariff rates. As we provide and deliver service to customers, revenue is recognized based on the transaction price allocated to each performance obligation. In general,Distribution revenues are generally considered daily or "at-will" contracts as customers may cancel their service at any time (subject to notification requirements), and revenue recognized from tariff-based sales is equivalentgenerally represents the amount we are entitled to the value of natural gas or electricity supplied and billed each period, in addition to an estimate for deliveries completed during the period but not yet billed to the customer.bill customers.
In addition to tariff-based sales, our Gas Distribution Operations segment enters into balancing and exchange arrangements of natural gas as part of our operations and off-system sales programs. We have concluded that these sales are within the scope of ASC 606. Performance obligations for these types of sales include transportation and storage of natural gas and can be satisfied at a point in time or over a period of time, depending on the specific transaction. For those transactions that span a period of time, we record a receivable or payable for any cumulative gas imbalances, as well as for any gas inventory borrowed or lent under a Gas Distributions Operations exchange agreement.
Revenue Disaggregation and Reconciliation. We disaggregate revenue from contracts with customers based upon reportable segment as well as by customer class. As our revenues are primarily earned over a period of time, and we do not earn a material amount of revenues at a point in time, revenues are not disaggregated as such below. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia,
Kentucky, Maryland, Indiana and Massachusetts. We completed the sale of the Massachusetts Business on October 9, 2020. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.
The table below reconciles revenue disaggregation by customer class to segment revenue as well as to revenues reflected on the Statements of Consolidated Income (Loss):
| Year Ended December 31, 2019 (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | ||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2020 (in millions) | Year Ended December 31, 2020 (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other(2) | Total | |||||||||||||||||||||||||||||||||
Customer Revenues(1) | Customer Revenues(1) | |||||||||||||||||||||||||||||||||||||
| Residential | $ | 2,309.0 | $ | 481.6 | $ | — | $ | 2,790.6 | Residential | $ | 2,075.0 | $ | 527.8 | $ | 0 | $ | 2,602.8 | |||||||||||||||||||||
| Commercial | 771.3 | 486.6 | — | 1,257.9 | Commercial | 670.5 | 480.3 | 0 | 1,150.8 | |||||||||||||||||||||||||||||
| Industrial | 245.2 | 607.7 | — | 852.9 | Industrial | 212.8 | 412.1 | 0 | 624.9 | |||||||||||||||||||||||||||||
| Off-system | 77.7 | — | — | 77.7 | Off-system | 41.0 | 0 | 0 | 41.0 | |||||||||||||||||||||||||||||
| Miscellaneous | 52.0 | 21.5 | 0.8 | 74.3 | Miscellaneous | 32.7 | 20.2 | 0.8 | 53.7 | |||||||||||||||||||||||||||||
| Total Customer Revenues | $ | 3,455.2 | $ | 1,597.4 | $ | 0.8 | $ | 5,053.4 | Total Customer Revenues | $ | 3,032.0 | $ | 1,440.4 | $ | 0.8 | $ | 4,473.2 | |||||||||||||||||||||
| Other Revenues | 54.5 | 101.0 | — | 155.5 | Other Revenues | 96.1 | 95.5 | 16.9 | 208.5 | |||||||||||||||||||||||||||||
| Total Operating Revenues | $ | 3,509.7 | $ | 1,698.4 | $ | 0.8 | $ | 5,208.9 | Total Operating Revenues | $ | 3,128.1 | $ | 1,535.9 | $ | 17.7 | $ | 4,681.7 | |||||||||||||||||||||
(1)Customer revenue amounts exclude intersegment revenues. See Note 23,24, "Segments of Business," for discussion of intersegment revenues.
Year Ended December 31, 2018 (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | |||||||||||
Customer Revenues(1) | |||||||||||||||
| Residential | $ | 2,250.0 | $ | 494.7 | $ | — | $ | 2,744.7 | |||||||
| Commercial | 751.9 | 492.7 | — | 1,244.6 | |||||||||||
| Industrial | 228.0 | 613.6 | — | 841.6 | |||||||||||
| Off-system | 92.4 | — | — | 92.4 | |||||||||||
| Miscellaneous | 49.7 | 17.4 | 0.7 | 67.8 | |||||||||||
| Total Customer Revenues | $ | 3,372.0 | $ | 1,618.4 | $ | 0.7 | $ | 4,991.1 | |||||||
| Other Revenues | 34.4 | 89.0 | — | 123.4 | |||||||||||
| Total Operating Revenues | $ | 3,406.4 | $ | 1,707.4 | $ | 0.7 | $ | 5,114.5 | |||||||
65
| (in millions) | Customer Accounts Receivable, Billed (less reserve)(1) | Customer Accounts Receivable, Unbilled (less reserve) | |||||
| Balance as of December 31, 2018 | $ | 540.5 | $ | 349.1 | |||
| Balance as of December 31, 2019 | 466.6 | 346.6 | |||||
| Decrease | $ | (73.9 | ) | $ | (2.5 | ) | |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Year Ended December 31, 2019 (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | |||||||||||||||||||
Customer Revenues(1) | |||||||||||||||||||||||
| Residential | $ | 2,309.0 | $ | 481.6 | $ | 0 | $ | 2,790.6 | |||||||||||||||
| Commercial | 771.3 | 486.6 | 0 | 1,257.9 | |||||||||||||||||||
| Industrial | 245.2 | 607.7 | 0 | 852.9 | |||||||||||||||||||
| Off-system | 77.7 | 0 | 0 | 77.7 | |||||||||||||||||||
| Miscellaneous | 52.0 | 21.5 | 0.8 | 74.3 | |||||||||||||||||||
| Total Customer Revenues | $ | 3,455.2 | $ | 1,597.4 | $ | 0.8 | $ | 5,053.4 | |||||||||||||||
| Other Revenues | 54.5 | 101.0 | 0 | 155.5 | |||||||||||||||||||
| Total Operating Revenues | $ | 3,509.7 | $ | 1,698.4 | $ | 0.8 | $ | 5,208.9 | |||||||||||||||
(1)Customer revenue amounts exclude intersegment revenues. See Note 24, "Segments of Business," for discussion of intersegment revenues.
Year Ended December 31, 2018 (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | |||||||||||||||||||
Customer Revenues(1) | |||||||||||||||||||||||
| Residential | $ | 2,250.0 | $ | 494.7 | $ | 0 | $ | 2,744.7 | |||||||||||||||
| Commercial | 751.9 | 492.7 | 0 | 1,244.6 | |||||||||||||||||||
| Industrial | 228.0 | 613.6 | 0 | 841.6 | |||||||||||||||||||
| Off-system | 92.4 | 0 | 0 | 92.4 | |||||||||||||||||||
| Miscellaneous | 49.7 | 17.4 | 0.7 | 67.8 | |||||||||||||||||||
| Total Customer Revenues | $ | 3,372.0 | $ | 1,618.4 | $ | 0.7 | $ | 4,991.1 | |||||||||||||||
| Other Revenues | 34.4 | 89.0 | 0 | 123.4 | |||||||||||||||||||
| Total Operating Revenues | $ | 3,406.4 | $ | 1,707.4 | $ | 0.7 | $ | 5,114.5 | |||||||||||||||
(1)Customer revenue amounts exclude intersegment revenues. See Note 24, "Segments of Business," for discussion of intersegment revenues.
Other Revenues. As permitted by accounting principles generally accepted in the United States, regulated utilities have the ability to earn certain types of revenue that are outside the scope of ASC 606. These revenues primarily represent revenue earned under alternative revenue programs. Alternative revenue programs represent regulator-approved programsmechanisms that allow for the adjustment of billings and revenue for certain broad, external factors, or for additional billings if the entity achieves certain objectives, such as a specified reduction of costs.approved programs. We maintain a variety of these programs, including demand side management initiatives that recover costs associated with the implementation of energy efficiency programs, as well as normalization programs that adjust revenues for the effects of weather or other external factors. Additionally, we maintain certain programs with future test periods that operate similarly to FERC formula rate programs and allow for recovery of costs incurred to replace aging infrastructure. When the criteria to recognize alternative revenue have been met, we establish a regulatory asset and present revenue from alternative revenue programs on the Statements of Consolidated Income (Loss) as “Other revenues.” When amounts previously recognized under alternative revenue accounting guidance are billed, we reduce the regulatory asset and record a customer account receivable.
Customer Accounts Receivable. Accounts receivable on our Consolidated Balance Sheets includes both billed and unbilled amounts, as well as certain amounts that are not related to customer revenues. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the date of the last cycle billing through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates and weather. The opening and closing balances of customer receivables for the years ended December 31, 2020 and 2019 are presented in the table below. We had no significant contract assets or liabilities during the period. Additionally, we have not incurred any significant costs to obtain or fulfill contracts.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| (in millions) | Customer Accounts Receivable, Billed (less reserve)(1) | Customer Accounts Receivable, Unbilled (less reserve) | ||||||||||||
| Balance as of December 31, 2019 | $ | 466.6 | $ | 346.6 | ||||||||||
| Balance as of December 31, 2020 | 400.0 | 327.2 | ||||||||||||
| Decrease | $ | (66.6) | $ | (19.4) | ||||||||||
(1)Customer billed receivables decreased due to decreased natural gas costs and warmer weather in 2020 compared to 2019.
Utility revenues are billed to customers monthly on a cycle basis. We generally expect that substantially all customer accounts receivable will be collected within the month following customer billing, as this revenue consists primarily of monthly, tariff-based billings for service and usage. We maintain common utility credit risk mitigation practices, including requiring deposits and actively pursuing collection of past due amounts. Our regulated operations also utilize certain regulatory mechanisms that facilitate recovery of bad debt costs within tariff-based rates, which provides further evidence of collectibility. In connection with the COVID-19 pandemic, certain state regulatory commissions instituted regulatory moratoriums that impacted our ability to pursue our standard credit risk mitigation practices. Following the issuance of these moratoriums, certain of our regulated operations have been authorized to recognize a regulatory asset for bad debt costs above levels currently in rates. We have reinstated our common credit mitigation practices where moratoriums have expired (see Note 9, "Regulatory Matters," for additional information on regulatory moratoriums and regulatory assets). It is probable that substantially all of the consideration to which we are entitled from customers will be collected upon satisfaction of performance obligations.
Allowance for Credit Losses. We adopted ASC 326 effective January 1, 2020. See "Recently Adopted Accounting Pronouncements" in Note 2, "Recent Accounting Pronouncements," for more information about ASC 326.
Each of our business segments pool their customer accounts receivables based on similar risk characteristics, such as customer type, geography, payment terms, and related macro-economic risks. Expected credit loss exposure is evaluated separately for each of our accounts receivable pools. Expected credit losses are established using a model that considers historical collections experience, current information, and reasonable and supportable forecasts. Relevant and reliable internal and external inputs used in the model include, but are not limited to, energy consumption trends, revenue projections, actual charge-offs data, recoveries data, shut-off orders executed data, and final bill data. We continuously evaluate available reasonable and supportable information relevant to assessing collectibility of current and future receivables. We evaluate creditworthiness of specific customers periodically or when required by changes in facts and circumstances. When we become aware of a specific commercial or industrial customer's inability to pay, an allowance for expected credit losses is recorded for the relevant amount. We also monitor other circumstances that could affect our overall expected credit losses; these include, but are not limited to, creditworthiness of overall population in service territories, adverse conditions impacting an industry sector, and current economic conditions.
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NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
At each reporting period, we record expected credit losses using an allowance for credit losses account. When deemed to be uncollectible, customer accounts are written-off. A rollforward of our allowance for credit losses for the year ended December 31, 2020 are presented in the table below:
| Year Ended December 31, 2020 (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | |||||||||||||||||||
Beginning balance(1) | 9.1 | 3.1 | 0.8 | 13.0 | |||||||||||||||||||
| Current period provisions | 45.3 | 9.3 | 0 | 54.6 | |||||||||||||||||||
| Write-offs charged against allowance | (26.7) | (3.0) | 0 | (29.7) | |||||||||||||||||||
| Recoveries of amounts previously written off | 14.1 | 0.3 | 0 | 14.4 | |||||||||||||||||||
| Ending balance of the allowance for credit losses | 41.8 | 9.7 | 0.8 | 52.3 | |||||||||||||||||||
(1)Total beginning balance differs from that presented in the Consolidated Balance Sheets as it excludes Columbia of Massachusetts. Columbia of Massachusetts' customer receivables and related allowance for credit losses were included in the sale of the Massachusetts Business that occurred on October 9, 2020. | |||||||||||||||||||||||
As of December 31, 2020, we have also evaluated the adequacy of our allowance for credit losses in light of the suspension of shut-offs for nonpayment due to the COVID-19 pandemic that remain in effect for certain jurisdictions, as well as the economic downturn. Our evaluation included an analysis of customer payment trends in 2020, economic conditions, receivables aging, considerations of past economic downturns and the associated allowance for credit losses and customer account write-offs. In addition, we considered benefits available under governmental COVID-19 relief programs, the impact of unemployment benefits initiatives, and flexible payment plans being offered to customers affected by or experiencing hardship as a result of the pandemic, which could help to mitigate the potential for increasing customer account delinquencies. Based upon this evaluation, we have concluded that the allowance for credit losses as of December 31, 2020 adequately reflected the collection risk and net realizable value for our receivables. We will continue to monitor changing circumstances and will adjust our allowance for credit losses as additional information becomes available.
4. Variable Interest Entities
A VIE is an entity in which the controlling interest is determined through means other than a majority voting interest. The primary beneficiary of a VIE is the business enterprise which has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance. Also, the primary beneficiary either absorbs a significant amount of the VIE’s losses or has the right to receive benefits that could be significant to the VIE. We consider these qualitative elements in determining whether we are the primary beneficiary of a VIE, and we consolidate those VIEs for which we are determined to be the primary beneficiary.
Rosewater (a joint venture) owns and operates 102 MW of nameplate capacity wind generation assets. Members of the joint venture are NIPSCO (who is the managing member) and a tax equity partner. Earnings, tax attributes and cash flows are allocated to both NIPSCO and the tax equity partner in varying percentages by category and over the life of the partnership. Once the tax equity partner has earned their negotiated rate of return and we have reached the agreed upon contractual date, NIPSCO has the option to purchase at fair market value from the tax equity partner the remaining interest in the aforementioned joint venture. NIPSCO has an obligation to purchase, through a PPA at established market rates, 100% of the electricity generated by Rosewater.
As the managing member of Rosewater, we control decisions that are significant to its ongoing operations and economic results. Therefore, we have concluded that we are the primary beneficiary of Rosewater and have consolidated Rosewater even though we own less than 100% of the total equity membership interest.
We have determined that the use of HLBV accounting is reasonable and appropriate in order to attribute income and loss to the noncontrolling interest held by the tax equity partner. HLBV accounting was selected as the allocation of Rosewater's economic results to members differ from the members' relative ownership percentages. Using the HLBV method, our earnings are calculated based on how the partnership would distribute its cash if it were to hypothetically sell all of its assets for their carrying amounts and liquidate at each reporting period. Under HLBV, we calculate the liquidation value allocable to each partner at the beginning and end of each period based on the contractual terms of the related entity's operating agreement and adjust our income for the period to reflect the change our associated book value.
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NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
In December 2020, in exchange for their respective membership interests in Rosewater, NIPSCO contributed $0.7 million in cash, and the tax equity partner contributed $86.1 million in cash, the first of two contractual cash contributions for each partner, per the equity capital contribution agreement. NIPSCO's remaining economic interest was acquired by assuming an obligation of $69.7 million to the developer, which comes due in 2023 and is included in "Other noncurrent liabilities" in the Consolidated Balance Sheets. From the contributed funds, Rosewater paid $85.3 million to the developer of the wind generation assets. The developer of the facility is not a partner in the joint venture for federal income tax purposes and does not receive any share of earnings, tax attributes, or cash flows of Rosewater. Once asset construction is complete, NIPSCO and the tax equity partner will each make a second cash contribution of $0.1 million and $7.5 million, respectively, and NIPSCO will assume an additional obligation to the developer of $6.0 million, totaling contributions of $170.1 million for both partners. We did not provide any financial or other support during the year that was not previously contractually required, nor do we expect to provide such support in the future.
At December 31, 2020, $156.4 million in net assets (as detailed in the table below) related to Rosewater and the non-controlling interest attributable to the unrelated tax equity partner of $85.6 million were included in the Consolidated Balance Sheets. For the year ended December 31, 2020 $3.4 million was allocated to the tax equity partner and is included in "Net income attributable to non-controlling interest" on the Statements of Consolidated Income (Loss).
At December 31, 2020, our consolidated balance sheet included the following assets and liabilities associated with Rosewater:
| (in millions) | |||||
| Net Property, Plant and Equipment | $ | 175.6 | |||
| Current assets | 1.7 | ||||
Total assets(1) | $ | 177.3 | |||
| Current liabilities | $ | 15.3 | |||
| Asset retirement obligations | 5.5 | ||||
| Other noncurrent liabilities | 0.1 | ||||
| Total liabilities | $ | 20.9 | |||
(1)The assets of Rosewater represent assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE.
5. Earnings Per Share
Basic EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. The weighted-average shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans and forward agreements when the impact of such plans and agreements would be dilutive. The calculation of diluted earnings per share for the yearyears ended December 31, 2020 and December 31, 2018 does not include any dilutive potential common shares as we had a net loss on the Statements of Consolidated Income (Loss) for that period,these periods, and any incremental shares would have had an anti-dilutive impact on EPS. The calculation of diluted earnings per share for the year ended December 31, 2017 excludes the impact of forward agreements, which had an anti-dilutive effect for that period. The computation of diluted average common shares is as follows:
Year Ended December 31, (in thousands) | 2020 | 2019 | 2018 | ||||||||||||||
| Denominator | |||||||||||||||||
| Basic average common shares outstanding | 384,347 | 374,650 | 356,491 | ||||||||||||||
| Dilutive potential common shares: | |||||||||||||||||
| Shares contingently issuable under employee stock plans | 0 | 929 | 0 | ||||||||||||||
| Shares restricted under employee stock plans | 0 | 154 | 0 | ||||||||||||||
| Forward agreements | 0 | 253 | 0 | ||||||||||||||
| Diluted Average Common Shares | 384,347 | 375,986 | 356,491 | ||||||||||||||
Year Ended December 31, (in thousands) | 2019 | 2018 | 2017 | |||||
| Denominator | ||||||||
| Basic average common shares outstanding | 374,650 | 356,491 | 329,388 | |||||
| Dilutive potential common shares: | ||||||||
| Shares contingently issuable under employee stock plans | 929 | — | 547 | |||||
| Shares restricted under stock plans | 154 | — | 821 | |||||
| Forward agreements | 253 | — | — | |||||
| Diluted Average Common Shares | 375,986 | 356,491 | 330,756 | |||||
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NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Our property, plant and equipment on the Consolidated Balance Sheets are classified as follows:
At December 31, (in millions) | 2019 | 2018 | |||||
| Property, Plant and Equipment | |||||||
Gas Distribution Utility(1) | $ | 14,989.7 | $ | 13,776.0 | |||
Electric Utility(1) | 8,902.3 | 8,374.2 | |||||
| Corporate | 153.3 | 155.8 | |||||
| Construction Work in Process | 457.3 | 474.8 | |||||
| Non-Utility and Other | 39.3 | 38.7 | |||||
| Total Property, Plant and Equipment | $ | 24,541.9 | $ | 22,819.5 | |||
| Accumulated Depreciation and Amortization | |||||||
Gas Distribution Utility(1) | $ | (3,556.0 | ) | $ | (3,373.8 | ) | |
Electric Utility(1) | (3,973.8 | ) | (3,809.5 | ) | |||
| Corporate | (79.5 | ) | (74.6 | ) | |||
| Non-Utility and Other | (20.4 | ) | (19.1 | ) | |||
| Total Accumulated Depreciation and Amortization | $ | (7,629.7 | ) | $ | (7,277.0 | ) | |
| Net Property, Plant and Equipment | $ | 16,912.2 | $ | 15,542.5 | |||
At December 31, (in millions) | 2020 | 2019 | |||||||||
| Property, Plant and Equipment | |||||||||||
Gas Distribution Utility(1) | $ | 14,010.2 | $ | 14,989.7 | |||||||
Electric Utility(1) | 6,478.0 | 8,902.3 | |||||||||
| Corporate | 197.3 | 153.3 | |||||||||
| Construction Work in Process | 572.6 | 457.3 | |||||||||
Renewable Generation Assets(2) | 175.7 | 0 | |||||||||
Non-Utility and Other(3) | 2,746.1 | 39.3 | |||||||||
| Total Property, Plant and Equipment | $ | 24,179.9 | $ | 24,541.9 | |||||||
| Accumulated Depreciation and Amortization | |||||||||||
Gas Distribution Utility(1) | $ | (3,292.9) | $ | (3,556.0) | |||||||
Electric Utility(1) | (2,305.0) | (3,973.8) | |||||||||
| Corporate | (109.3) | (79.5) | |||||||||
Renewable Generation Assets(2) | (0.1) | 0 | |||||||||
Non-Utility and Other(3) | (1,853.1) | (20.4) | |||||||||
| Total Accumulated Depreciation and Amortization | $ | (7,560.4) | $ | (7,629.7) | |||||||
| Net Property, Plant and Equipment | $ | 16,619.5 | $ | 16,912.2 | |||||||
(1)NIPSCO’s common utility plant and associated accumulated depreciation and amortization are allocated between Gas Distribution Utility and Electric Utility Property, Plant and Equipment.
(2)Our renewable generation assets are part of our electric segment and represent Non-Utility Property, owned and operated by Rosewater Wind Generation LLC, a joint venture between NIPSCO and unrelated tax equity partner, and depreciated straight-line over 30 years. Refer to Note 4, "Variable Interest Entities" for additional information.
(3)Non-Utility and Other as of December 31, 2020 includes net book value of $903.8 million related to R.M. Schahfer Generating Station, which was reclassified from Electric Utility in the second quarter of 2020. Depreciation expense for the remaining net book value continues to be recorded at the composite depreciation rate approved by the IURC. See Note 20-E, "Other Matters," for additional information.
The weighted average depreciation provisions for utility plant, as a percentage of the original cost, for the periods ended December 31, 2020, 2019 2018 and 20172018 were as follows:
| 2019 | 2018 | 2017 | ||||||
Electric Operations(1) | 2.8 | % | 2.9 | % | 3.4 | % | ||
| Gas Distribution Operations | 2.5 | % | 2.2 | % | 2.1 | % | ||
| 2020 | 2019 | 2018 | |||||||||||||||
Electric Operations(1) | 3.4 | % | 2.8 | % | 2.9 | % | |||||||||||
| Gas Distribution Operations | 2.3 | % | 2.5 | % | 2.2 | % | |||||||||||
(1)Lower depreciationIncreased rate beginning in 2018 due2020 primarily attributable to reduced EERM-relatedhigher depreciation expense and higher depreciable baserates from transmission assets being placed into service in 2018.the recent rate case proceeding.
We recognized depreciation expense of $655.6 million, $612.2 million $503.4 million and $501.5$503.4 million for the years ended 2020, 2019 2018 and 2017,2018, respectively.
Amortization of Software Costs. We amortized $56.7 million, $55.5 million and $54.1 million in 2020, 2019 and $44.0 million in 2019, 2018, and 2017, respectively, related to software costs. Our unamortized software balance was $169.6$136.4 million and $159.5$169.6 million at December 31, 20192020 and 2018,2019, respectively.
Amortization of Cloud Computing Costs. We amortized $3.4 million, $1.6 million and $0.1 million in 2020, 2019 and 2018, respectively, related to cloud computing costs. Our unamortized cloud computing balance was $14.2$12.7 million and $4.9$14.2 million at December 31, 20192020 and 2018,2019, respectively.
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NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
7. Goodwill and Other Intangible Assets
Goodwill. Substantially all of our goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. The following presents our goodwill balance allocated by segment as of December 31, 2020 and 2019:
| (in millions) | 2020 | 2019 | |||||||||
| Gas Distribution Operations | $ | 1,485.9 | $ | 1,485.9 | |||||||
| Electric Operations | 0 | 0 | |||||||||
| Corporate and Other | 0 | 0 | |||||||||
| Total | $ | 1,485.9 | $ | 1,485.9 | |||||||
For our annual goodwill impairment analysis performed as of May 1, 2020, we completed a quantitative ("step 1") fair value measurement of our reporting units. Fair value of this reporting unit was determined based on a weighting of income and market approaches. The income approach calculated discounted cash flows using updated cash flow projections, discount rates and return on equity assumptions. The market approach applied a combination of comparable company multiples and comparable transactions and used the most recent cash flow projections. The test indicated that the fair value of each of the reporting units that are allocated goodwill exceeded their carrying values, indicating that no impairment was necessary.
Columbia of Massachusetts was not considered to be a reporting unit for May 1, 2020 fair value measurement as the goodwill balance had been reduced to 0 as of December 31, 2019. During the fourth quarter of 2019, in connection with the preparation of the year-end financial statements, we assessed the matters related to the then proposed sale of the Massachusetts Business and determined a new impairment analysis was required for our Columbia of Massachusetts reporting unit. The fair value of the Columbia of Massachusetts reporting unit was determined in the same manner as described above for our remaining reporting units. The 2019 year-end impairment analysis indicated that the fair value of the Columbia of Massachusetts reporting unit was below its carrying value. As a result, we reduced the Columbia of Massachusetts reporting unit goodwill balance to 0 and recognized a goodwill impairment charge totaling$204.8 million, which is non-deductible for tax purposes.
Intangible and Other Long-Lived Assets Impairment. Our intangible assets, apart from goodwill, consist of franchise rights. Franchise rights were identified as part of the purchase price allocations associated with the acquisition in February 1999 of Columbia of Massachusetts. We review our definite-lived intangible assets, along with other long-lived assets (utility plant), for impairment when events or changes in circumstances indicate the assets' fair value might be below their carrying amount. Prior to December 31, 2019, our intangible assets, apart from goodwill, consisted of franchise rights. Franchise rights were identified as part of the purchase price allocations associated with the acquisition in February 1999 of Columbia of Massachusetts.
During the fourth quarter of 2019, in connection with the preparation of the year-end financial statements, we assessed the changes in circumstances that occurred during the quarter to determine if it was more likely than not that the fair value of our long-lived assets (including franchise rights) were below their carrying amount. While there was no single determinative event or factor, the consideration in totality of several factors that developed during the fourth quarter of 2019 led us to conclude that it was more likely than not that the fair value of the Columbia of Massachusetts reporting unit and the value of its long-lived assets was below
As a result, we performed a year-end impairment test of theour held and used long-lived assets in which we compared the book value of the Columbia of Massachusetts asset group to its undiscounted future cash flow and determined the carrying value of the asset group was not recoverable. We estimated the fair value of the Columbia of Massachusetts asset group using a weighting of income and market approaches and determined that the fair value was less than the carrying value. ThisThe resulting impairment was allocated to reduce the entire franchise rights book value to its fair value of zero,0, which resulted in an impairment charge totaling $209.7 million recorded in the Gas Distribution Operations segment.
As of December 31, 20192020 and 2018,2019, the carrying amount of the franchise rights was $0.0 million and $220.7 million (net of accumulated amortization of $221.5 million), respectively.0. We recorded 0 amortization expense ofin 2020 and $11.0 million in 2019 2018 and 20172018 related to our franchise rights intangible asset.
| (in millions) | 2019 | 2018 | |||||
| Gas Distribution Operations | $ | 1,485.9 | $ | 1,690.7 | |||
| Electric Operations | — | — | |||||
| Corporate and Other | — | — | |||||
| Total | $ | 1,485.9 | $ | 1,690.7 | |||
We have recognized asset retirement obligations associated with various legal obligations including costs to remove and dispose of certain construction materials located within many of our facilities, certain costs to retire pipeline, removal costs for certain underground storage tanks, removal of certain pipelines known to contain PCB contamination, closure costs for certain sites including ash ponds, solid waste management units and a landfill, as well as some other nominal asset retirement obligations. We also have a significantan obligation associated with the decommissioning of our two hydro facilities located in Indiana. These hydro facilities have an indeterminate life, and as such, no asset retirement obligation has been recorded.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Changes in our liability for asset retirement obligations for the years 20192020 and 20182019 are presented in the table below:
| (in millions) | 2020 | 2019 | ||||||||||||
| Beginning Balance | $ | 416.9 | $ | 352.0 | ||||||||||
| Accretion recorded as a regulatory asset/liability | 17.3 | 15.7 | ||||||||||||
| Additions | 5.5 | 0 | ||||||||||||
| Settlements | (13.9) | (5.4) | ||||||||||||
Change in estimated cash flows | 86.0 | (1) | 54.6 | (2) | ||||||||||
| Other | (16.2) | (3) | 0 | |||||||||||
| Ending Balance | $ | 495.6 | $ | 416.9 | ||||||||||
| (in millions) | 2019 | 2018 | ||||||
| Beginning Balance | $ | 352.0 | $ | 268.7 | ||||
| Accretion recorded as a regulatory asset/liability | 15.7 | 11.1 | ||||||
| Additions | — | 63.3 | (2) | |||||
| Settlements | (5.4 | ) | (5.9 | ) | ||||
Change in estimated cash flows | 54.6 | (1) | 14.8 | (2) | ||||
| Ending Balance | $ | 416.9 | $ | 352.0 | ||||
Certain non-legal costs of removal that have been, and continue to be, included in depreciation rates and collected in the customer rates of the rate-regulated subsidiaries are classified as "Regulatory liabilities" on the Consolidated Balance Sheets.
Regulatory Assets and Liabilities
We follow the accounting and reporting requirements of ASC Topic 980, which provides that regulated entities account for and report assets and liabilities consistent with the economic effect of regulatory rate-making procedures ifwhen the rates established are
designed to recover the costs of providing the regulated service and it is probable that such rates canwill be charged and collected from customers. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income or expense are deferred on the balance sheet and are recognized in the income statement as the related amounts are included in customer rates and recovered from or refunded to customers. We assess the probability of collection for all of our regulatory assets each period.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Regulatory assets were comprised of the following items:
At December 31, (in millions) | 2019 | 2018 | |||||
| Regulatory Assets | |||||||
| Unrecognized pension and other postretirement benefit costs (see Note 11) | $ | 739.1 | $ | 798.3 | |||
| Deferred pension and other postretirement benefit costs (see Note 11) | 91.3 | 74.1 | |||||
| Environmental costs (see Note 19-D) | 73.4 | 61.5 | |||||
| Regulatory effects of accounting for income taxes (see Note 1-N and Note 10) | 234.0 | 233.1 | |||||
| Under-recovered gas and fuel costs (see Note 1-J) | 3.9 | 34.7 | |||||
| Depreciation | 210.7 | 209.6 | |||||
| Post-in-service carrying charges | 219.8 | 206.6 | |||||
| Safety activity costs | 118.6 | 91.7 | |||||
| DSM programs | 50.1 | 45.5 | |||||
| Bailly Generating Station | 221.8 | 244.3 | |||||
| Other | 276.9 | 238.1 | |||||
| Total Regulatory Assets | $ | 2,239.6 | $ | 2,237.5 | |||
At December 31, (in millions) | 2020 | 2019 | |||||||||
| Regulatory Assets | |||||||||||
| Unrecognized pension and other postretirement benefit costs (see Note 12) | $ | 583.3 | $ | 739.1 | |||||||
| Deferred pension and other postretirement benefit costs (see Note 12) | 72.4 | 91.3 | |||||||||
| Environmental costs (see Note 20-D) | 56.6 | 73.4 | |||||||||
| Regulatory effects of accounting for income taxes (see Note 1-N and Note 11) | 194.5 | 234.0 | |||||||||
| Under-recovered gas and fuel costs (see Note 1-J) | 8.0 | 3.9 | |||||||||
| Depreciation | 192.6 | 210.7 | |||||||||
| Post-in-service carrying charges | 228.6 | 219.8 | |||||||||
| Safety activity costs | 146.0 | 118.6 | |||||||||
| DSM programs | 37.8 | 50.1 | |||||||||
| Bailly Generating Station | 204.7 | 221.8 | |||||||||
| Losses on Commodity Price Risk Programs (See Note 10) | 54.7 | 76.4 | |||||||||
| Deferred Property Taxes | 62.9 | 60.3 | |||||||||
| Other | 88.4 | 140.2 | |||||||||
| Total Regulatory Assets | $ | 1,930.5 | $ | 2,239.6 | |||||||
| Less: Current Portion | 135.7 | 225.7 | |||||||||
| Total Noncurrent Regulatory Assets | $ | 1,794.8 | $ | 2,013.9 | |||||||
Regulatory liabilities were comprised of the following items:
At December 31, (in millions) | 2019 | 2018 | |||||
| Regulatory Liabilities | |||||||
| Over-recovered gas and fuel costs (see Note 1-J) | $ | 42.6 | $ | 32.0 | |||
| Cost of removal (see Note 7) | 1,047.5 | 1,076.0 | |||||
| Regulatory effects of accounting for income taxes (see Note 1-N and Note 10) | 1,307.0 | 1,428.3 | |||||
| Deferred pension and other postretirement benefit costs (see Note 11) | 64.7 | 62.7 | |||||
| Other | 50.4 | 61.0 | |||||
| Total Regulatory Liabilities | $ | 2,512.2 | $ | 2,660.0 | |||
At December 31, (in millions) | 2020 | 2019 | |||||||||
| Regulatory Liabilities | |||||||||||
| Over-recovered gas and fuel costs (see Note 1-J) | $ | 47.8 | $ | 42.6 | |||||||
| Cost of removal (see Note 8) | 775.2 | 1,047.5 | |||||||||
| Regulatory effects of accounting for income taxes (see Note 1-N and Note 11) | 1,105.1 | 1,307.0 | |||||||||
| Deferred pension and other postretirement benefit costs (see Note 12) | 69.5 | 64.7 | |||||||||
| Other | 67.9 | 50.4 | |||||||||
| Total Regulatory Liabilities | $ | 2,065.5 | $ | 2,512.2 | |||||||
| Less: Current Portion | 161.3 | 160.2 | |||||||||
| Total Noncurrent Regulatory Liabilities | $ | 1,904.2 | $ | 2,352.0 | |||||||
Regulatory assets, including under-recovered gas and fuel cost,costs and depreciation, of approximately $1,260.6 million and $1,524.3 million as of December 31, 2020 and 2019, respectively, are not earning a return on investment. These costs are recovered over a remaining life, the longest of up towhich is 41 years. Regulatory assets of approximately $1,932.4 million include expenses that are recovered as components of the cost of service and are covered by regulatory orders. Regulatory assets of approximately $307.2 million at December 31, 2019, require specific rate action.
Assets:
Unrecognized pension and other postretirement benefit costs. In 2007, we adopted certain updates of ASC 715 which required, among other things,Represents the recognition indeferred other comprehensive income or loss of the actuarial gains or losses and the prior service costs or credits that arise during the period but that are not immediately recognized as components of net periodic benefit costs. Certaincosts by certain subsidiaries defer these gains or losses as a regulatory asset in accordance with regulatory orders or as a result of regulatory precedent, tothat will ultimately be recovered through base rates.
Deferred pension and other postretirement benefit costs. Primarily relates to the difference between postretirementdefined benefit plan expense recorded by certain subsidiaries due to regulatory orders and the postretirementcorresponding expense that would otherwise be recorded in accordance with GAAP. TheseThe majority of these amounts are driven by Columbia of Ohio. The timeframe for the recovery of these costs will be addressed in the next base rate case, and the costs are expected to be collected through future base rates, revenue riders or tracking mechanisms.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Environmental costs. Includes certain recoverable costs of investigating, testing, remediating and other costs related to gas plant sites, disposal sites or other sites onto which material may have migrated. Certainmigrated, the recovery of our companies defer the costs as a regulatory asset in accordance with regulatory orders,which is to be recoveredaddressed in future base rates, billing riders or tracking mechanisms.mechanisms of certain of our subsidiaries.
Regulatory effects of accounting for income taxes. Represents the deferral and under collection of deferred taxes in the rate making process. In prior years, we have lowered customer rates in certain jurisdictions for the benefits of accelerated tax deductions. Amounts are expensed for financial reporting purposes as we recover deferred taxes in the rate making process.
Under-recovered gas and fuel costs. Represents the difference between the costs of gas and fuel and the recovery of such costs in revenue and is used to adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. Recovery of these costs is achieved through tracking mechanisms.
Depreciation. Represents differences between depreciation expense incurred on a GAAP basis and that prescribed through regulatory order. Significant componentsThe majority of this balance include:is driven by Columbia of Ohio's IRP and CEP deferrals. Recovery of these amounts is approved annually through the related riders.
Post-in-service carrying charges. Represents deferred debt-based carrying charges incurred on certain assets placed into service but not yet included in customer rates. ThisThe majority of this balance includes:
is driven by Columbia |
Safety activity costs. Represents the difference between costs incurred by certain of our subsidiaries in eligible safety programs in compliance with PHMSA regulations in excess of those being recovered in rates. The eligible cost deferrals represent necessary business expenses incurred in compliance with PHMSA regulations and are targeted to enhance the safety of the pipeline systems. Certain subsidiaries defer the excess costs as a regulatory asset in accordance with regulatory orders and recovery of these costs will be addressed in future base rate proceedings.
DSM programs. Represents costs associated with Gas Distribution Operations and Electric Operations segments' energy efficiency and conservation programs. Costs are recovered through tracking mechanisms.
Bailly Generating Station. Represents the net book value of Units 7 and 8 of Bailly Generating Station that was retired during 2018. These amounts are currently being amortized at a rate consistent with their inclusion in customer rates.
Losses on Commodity Price Risk Programs. Represents the unrealized losses related to certain of our subsidiary's commodity price risk programs. These programs help to protect against the volatility of commodity prices and these amounts are collected from customers through their inclusion in customer rates.
Property Taxes. Represents the deferral and under collection of property taxes in the rate making process for Columbia of Ohio and is driven by the IRP and CEP deferrals.
Liabilities:
Over-recovered gas and fuel costs. Represents the difference between the cost of gas and fuel and the recovery of such costs in revenues and is the basis to adjust future billings for such refunds on a basis consistent with applicable state-approved tariff provisions. Refunding of these revenues is achieved through tracking mechanisms.
Cost of removal. Represents anticipated costs of removal for utility assets that have been and continue to be, included incollected through depreciation rates and collected in customer rates of the rate-regulated subsidiaries for future costs to be incurred.
Regulatory effects of accounting for income taxes. Represents amounts owed to customers for deferred taxes collected at a higher rate than the current statutory rates and liabilities associated with accelerated tax deductions owed to customers that are established during the rate making process.customers. Balance includes excess deferred taxes recorded upon implementation of the TCJA in December 2017, net of amounts amortized through 2019.2020.
Deferred pension and other postretirement benefit costs. Primarily represents cash contributions in excess of postretirement benefit expense that is deferred as a regulatory liability by certain subsidiaries in accordance withsubsidiaries.
COVID-19 Regulatory Filings
In response to the COVID-19 pandemic, we have engaged, or have received directives from, the regulatory orders.
Columbia of Ohio IRP - On December 3, 2008,filed a Deferral Application and a Transition Plan with the PUCO issued anon May 29, 2020. The Deferral Application requested approval to record a regulatory asset for pandemic incremental costs, foregone revenue from late payment fees, and bad debt expense from certain classes of customers. An order which established Columbiaapproving the Deferral Application was received on July 15, 2020. The Transition Plan requested the resumption of Ohio’s IRP. Pursuant toactivities that order, the IRP provides for recovery of costs resulting from: (1) the maintenance, repair and replacement of customer-owned service lines that have been determined by Columbia of Ohio to present an existing or probable hazard to persons and property;were suspended in March 2020,
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Columbia of Pennsylvania received a secretarial letter issued by the Pennsylvania PUC on May 13, 2020 authorizing Pennsylvania utilities to create a regulatory asset for incremental bad debt expense incurred since March 13, 2020, above levels currently in rates. While Columbia of Pennsylvania is not authorized to defer any other incremental costs, it is required to track extraordinary non-recurring costs, and any offsetting benefits received, in connection with the COVID-19 pandemic. On October 13, 2020, the Pennsylvania PUC entered an order modifying its March 13, 2020 emergency order that dohad established a moratorium on utility service terminations. As modified, the moratorium still applies to residential customers with incomes at or below 300% of the federal poverty income guidelines (“protected customers”). For all other customers, the moratorium was lifted on November 9, 2020, but utilities must comply with several notice requirements beyond those already in place in Pennsylvania in order to proceed with service terminations. For residential customers who are subject to termination under the revised moratorium, as of December 1, 2020, the standard winter service moratorium will be in effect until April 1, 2021, which will render service termination for delinquent accounts impractical during that period. Additionally, the October 13, 2020 order authorizes utilities to create a regulatory asset for any incremental expenses incurred above those embedded in rates resulting from the directives contained in the Order. As of December 31, 2020, $5.4 million of incremental bad debt expense was deferred to a regulatory asset.
On March 16, 2020, the VSCC ordered a moratorium on service disconnections for unpaid bills due to the effects of the COVID-19 pandemic. The order also suspended late payment fees, required utilities to offer payment plans of up to 12 months, and required utilities to provide certain information about customer accounts receivables to the VSCC. Columbia of Virginia received an order from the VSCC on April 29, 2020 authorizing Columbia of Virginia to create a regulatory asset for incremental bad debt expense, suspended late payment fees, reconnection costs, carrying costs and other incremental prudently incurred costs related to the pandemic. The VSCC moratorium expired on October 6, 2020; however, the directives requiring utilities to offer payment plans of up to 12 months and suspending service disconnections or charging of late payment fees to customers that are current on such payment plans remain in effect. On November 18, 2020, legislation was enacted that extended the moratorium on residential service disconnections and late payment fees until the Governor determines that the economic and public health conditions have improved such that the prohibition does not include specific locationsneed to be in place, or until at least 60 days after such declared state of emergency ends, whichever is sooner. Recovery of any regulatory asset will be addressed in future base rate proceedings and is subject to an exact number of inspections, repairs, or replacements and projects involving advanced technology investmentsearnings test review.
On August 31, 2020, the Maryland PSC issued an emergency order that extended the Governor's order prohibiting residential service terminations through October 1, 2020. The emergency order also requires Maryland utilities that proceed with residential service terminations after that date to support the modernization of transmission, distribution, or storage systems. The amendments also authorize termination of TDSIC Plansprovide at least 45 days notice prior to their expirationterminating service; to offer structured payment plans to applicable residential customers with a minimum of 12 months to repay, or 24 months for certified low income customers; the requirement or collection of down payments or deposits as a condition of beginning a payment plan by any residential customer; and provide thatcannot refuse to negotiate or deny a payment plan to a residential customer due to such customer's failure to meet the projects associated with the terminatedterms and conditions of an alternate payment plan will continue to receive TDSIC treatment until an Order is issued in the utility’s next general rate case, and provide for the ability to seek approval of a new TDSIC Plan. The amended statute also provides that the two percent revenue cap applies to the aggregate of approved TDSIC Plans and requires that the utility file a base rate case at some point during the termpast 18 months. Columbia of each TDSIC plan. On December 31, 2019, NIPSCO Gas filed a new 6-year TDSIC for the periods 2020 through 2025.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
December 31, 2020, Columbia of Massachusetts, GSEP - On July 7, 2014, the GovernorMaryland has deferred $0.7 million of Massachusetts signed into law Chapter 149 of the Acts of 2014, an Act Relative to Natural Gas Leaks (“the Act”). Adopted into the Massachusetts Utility Provisions, G.L. c. 164, § 145, the Act authorizes natural gas distribution companies to file a GSEP for capital investments made on or after January 1, 2015, that are not included in the company’s current rate base as determined in the most recent base rate case, with the Massachusetts DPU to (1) address the replacement or improvement of existing aging natural gas pipeline infrastructure to improve public safety or infrastructure reliability,incremental bad debt expense and (2) reduce the lost and unaccounted for natural gas through a reduction in natural gas system leaks. In addition, the Act provides that the Massachusetts DPU may, after review of the plan, allow the proposed estimatedpandemic-related costs of the plan into rates as of May 1 of the subsequent year. Recoverable costs include a return on investment, depreciation and property taxes, offset by identified operations and maintenance cost savings. Beginning with the 2019 GSEP, rates are subject to a capped annual revenue increase of three percent of total annual firm delivery revenues, plus imputed gas revenues for sales and transportation customers, calculated as the product of (1) the historical average cost of gas per therm, and (2) the average weather normalized sales, for the period beginning with 2013 and ending with the most recent year that actual data is available at the time of the October GSEP Plan filing, per the Massachusetts DPU order in Columbia of Massachusetts' 2019 GSEP. Prior to the 2019 GSEP, the annual revenue increase was capped at one and a half percent. At the end of each 12-month period, in May of the subsequent year, Columbia of Massachusetts must file a reconciliation of the amount collected and actual costs. Any over-collection or under-collection balance is passed back to, or recovered from, customers through the surcharge over a 12-month period beginning in November. On October 31, 2019, the Massachusetts DPU issued an order on Columbia of Massachusetts' GSEP reconciliation proceeding finding that, due to pending investigations of the Greater Lawrence Incident and other operational matters, the Massachusetts DPU could not, at this time, make a finding of prudence with respect to the Columbia of Massachusetts' 2018 GSEP investments and deferred the decision on the prudency of the 2018 GSEP investments in the annual GSEP and GSEP reconciliation filings until the investigations by the DPU are complete. The DPU added that its inability to make a finding of prudence did not constitute a finding of imprudence. Once new base rates are established under a base rate proceeding, the GSEP factor is re-set to remove the capital investment and associated revenue reflected in the base rates. Columbia of Massachusetts' current five year GSEP plan for the periods 2019-2023 was approved April 30, 2019.regulatory asset.
Columbia of Kentucky SMRP (formerly AMRP) - On October 26, 2009, the Kentucky PSC approved a mechanism for recovering the costs of Columbia of Kentucky’s AMRP not previously reflected in rate base through an annual fixed monthly rate rider filed in October. In its 2013 rate case, Columbia of Kentucky was allowed to base the AMRP rider on the expected annual cost of service. Recoverable costs include a return on investment, depreciation and property taxes, offset by specific cost savings. At the end of each 12-month period, Columbia of Kentucky must file a reconciliation of the amount collected and actual costs. Any over-collection or under-collection balance is passed back to, or recovered from, customers through the surcharge over a 12-month period beginning in June of the subsequent year. Once new base rates are established under a base rate proceeding, the AMRP rider is set to zero. On July 29, 2019, CKY filed its SMRP to clarify approval of low pressure project spend and expand its AMRP to include for recovery of system safety investments, including low pressure project spend. On November 7, 2019, the Commission approved Columbia of Kentucky's request to amend and expand its annual AMRP to become the SMRP.
| (in millions) | |||||||||||
| Company | Program | Incremental Revenue | Incremental Capital Investment | Investment Period | Filed | Status | Rates Effective | ||||
| Columbia of Ohio | IRP - 2019(1) | $ | 18.2 | $ | 199.6 | 1/18-12/18 | February 28, 2019 | Approved April 24, 2019 | May 2019 | ||
| Columbia of Ohio | CEP - 2018 | $ | 74.5 | $ | 659.9 | 1/11-12/17 | December 1, 2017 | Approved November 28, 2018 | December 2018 | ||
| Columbia of Ohio | CEP - 2019 | $ | 15.0 | $ | 121.7 | 1/18-12/18 | February 28, 2019 | Approved August 28, 2019 | September 2019 | ||
| NIPSCO - Gas | TDSIC 9(1)(2) | $ | (10.6 | ) | $ | 54.4 | 1/18-6/18 | August 28, 2018 | Approved December 27, 2018 | January 2019 | |
| NIPSCO - Gas | TDSIC 10(3) | $ | 1.6 | $ | 12.4 | 7/18-4/19 | June 25, 2019 | Approved October 16, 2019 | November 2019 | ||
| NIPSCO - Gas | TDSIC 11(4) | $ | (1.7 | ) | $ | 38.7 | 5/19-12/19 | February 25, 2020 | Order Expected June 2020 | July 2020 | |
| NIPSCO - Gas | FMCA 1(5) | $ | 9.9 | $ | 1.5 | 11/17-9/18 | November 30, 2018 | Approved March 27, 2019 | April 2019 | ||
| NIPSCO - Gas | FMCA 2(5) | $ | (3.5 | ) | $ | 1.8 | 10/18-3/19 | May 29, 2019 | Approved September 25, 2019 | October 2019 | |
| NIPSCO - Gas | FMCA 3(5) | $ | 0.3 | $ | 43.0 | 4/19-9/19 | November 26, 2019 | Order Expected March 2020 | April 2020 | ||
| Columbia of Massachusetts | GSEP - 2019(6) | $ | 9.6 | $ | 36.0 | 1/19-12/19 | October 31, 2018 | Approved April 30, 2019 | May 2019 | ||
| Columbia of Massachusetts | GSEP - 2020(6)(7) | $ | 2.4 | $ | 75.0 | 1/20-12/20 | October 31, 2019 | Order Expected April 2020 | May 2020 | ||
| Columbia of Virginia | SAVE - 2019 | $ | 2.4 | $ | 36.0 | 1/19-12/19 | August 17, 2018 | Approved October 26, 2018 | January 2019 | ||
| Columbia of Virginia | SAVE - 2020 | $ | 3.8 | $ | 50.0 | 1/20-12/20 | August 15, 2019 | Approved December 6, 2019 | January 2020 | ||
| Columbia of Kentucky | AMRP - 2019 | $ | 3.6 | $ | 30.1 | 1/19-12/19 | October 15, 2018 | Approved December 5, 2018 | January 2019 | ||
| Columbia of Kentucky | SMRP - 2020 | $ | 4.2 | $ | 40.4 | 1/20-12/20 | October 15, 2019 | Approved December 20, 2019 | January 2020 | ||
| Columbia of Maryland | STRIDE - 2019 | $ | 1.2 | $ | 19.7 | 1/19-12/19 | November 1, 2018 | Approved December 12, 2018 | January 2019 | ||
| Columbia of Maryland | STRIDE - 2020 | $ | 1.3 | $ | 15.0 | 1/20-12/20 | January 29, 2020 | Approved February 19, 2020 | February 2020 | ||
| NIPSCO - Electric | TDSIC - 5(1) | $ | 15.9 | $ | 58.8 | 6/18-11/18 | January 29, 2019 | Approved June 12, 2019 | June 2019 | ||
| NIPSCO - Electric | TDSIC - 6 | $ | 28.1 | $ | 131.1 | 12/18-6/19 | August 21, 2019 | Approved December 18, 2019 | January 2020 | ||
| NIPSCO - Electric | FMCA - 11(5) | $ | 0.9 | $ | 22.4 | 9/18-2/19 | April 17, 2019 | Approved July 29, 2019 | August 2019 | ||
| NIPSCO - Electric | FMCA - 12(5) | $ | 1.6 | $ | 4.7 | 3/19-8/19 | October 18, 2019 | Approved January 29, 2020 | February 2020 | ||
| (in millions) | |||||||||
| Company | Requested Incremental Revenue | Approved Incremental Revenue | Filed | Status | Rates Effective | ||||
NIPSCO - Gas(1) | $ | 138.1 | $ | 105.6 | September 27, 2017 | Approved September 19, 2018 | October 2018 | ||
Columbia of Virginia(2) | $ | 14.2 | $ | 1.3 | August 28, 2018 | Approved June 12, 2019 | February 2019 | ||
NIPSCO - Electric(3) | $ | 21.4 | $ | (53.5 | ) | October 31, 2018 | Approved December 4, 2019 | January 2020 | |
| Columbia of Maryland | $ | 2.5 | $ | (0.1 | ) | May 22, 2019 | Approved December 18, 2019 | December 2019 | |
We are exposed to certain risks relatingrelated to our ongoing business operations; namely commodity price risk and interest rate risk. We recognize that the prudent and selective use of derivatives may help to lower our cost of debt capital, manage interest rate exposure and limit volatility in the price of natural gas.
December 31, (in millions) | 2020 | 2019 | |||||||||
Risk Management Assets - Current(1) | |||||||||||
| Interest rate risk programs | $ | 0 | $ | 0 | |||||||
| Commodity price risk programs | 10.4 | 0.6 | |||||||||
| Total | $ | 10.4 | $ | 0.6 | |||||||
Risk Management Assets - Noncurrent(2) | |||||||||||
| Interest rate risk programs | $ | 0 | $ | 0 | |||||||
| Commodity price risk programs | 2.8 | 3.8 | |||||||||
| Total | $ | 2.8 | $ | 3.8 | |||||||
| Risk Management Liabilities - Current | |||||||||||
| Interest rate risk programs | $ | 70.9 | $ | 0 | |||||||
| Commodity price risk programs | 7.3 | 12.6 | |||||||||
| Total | $ | 78.2 | $ | 12.6 | |||||||
| Risk Management Liabilities - Noncurrent | |||||||||||
| Interest rate risk programs | $ | 99.5 | $ | 76.2 | |||||||
| Commodity price risk programs | 45.1 | 57.8 | |||||||||
| Total | $ | 144.6 | $ | 134.0 | |||||||
(1)Presented in "Prepayments and other" on the Consolidated Balance Sheets.
(2)Presented in "Deferred charges and other" on the Consolidated Balance Sheets.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
December 31, (in millions) | 2019 | 2018 | |||||
Risk Management Assets - Current(1) | |||||||
| Interest rate risk programs | $ | — | $ | — | |||
| Commodity price risk programs | 0.6 | 1.1 | |||||
| Total | $ | 0.6 | $ | 1.1 | |||
Risk Management Assets - Noncurrent(2) | |||||||
| Interest rate risk programs | $ | — | $ | 18.5 | |||
| Commodity price risk programs | 3.8 | 4.4 | |||||
| Total | $ | 3.8 | $ | 22.9 | |||
Risk Management Liabilities - Current(3) | |||||||
| Interest rate risk programs | $ | — | $ | — | |||
| Commodity price risk programs | 12.6 | 5.0 | |||||
| Total | $ | 12.6 | $ | 5.0 | |||
| Risk Management Liabilities - Noncurrent | |||||||
| Interest rate risk programs | $ | 76.2 | $ | 9.5 | |||
| Commodity price risk programs | 57.8 | 37.2 | |||||
| Total | $ | 134.0 | $ | 46.7 | |||
Commodity Price Risk Management
We, along with our utility customers, are exposed to variability in cash flows associated with natural gas purchases and volatility in natural gas prices. We purchase natural gas for sale and delivery to our retail, commercial and industrial customers, and for most customers the variability in the market price of gas is passed through in their rates. Some of our utility subsidiaries offer programs whereby variability in the market price of gas is assumed by the respective utility. The objective of our commodity price risk programs is to mitigate the gas cost variability, for us or on behalf of our customers, associated with natural gas purchases or sales by economically hedging the various gas cost components using a combination of futures, options, forwards or other derivative contracts.
NIPSCO received IURC approval to lock in a fixed price for its natural gas customers using long-term forward purchase instruments. The term of these instruments range from five to ten10 years and is limited to 20 percent20% of NIPSCO’s average annual GCA purchase volume. Gains and losses on these derivative contracts are deferred as regulatory liabilities or assets and are remitted to or collected from customers through NIPSCO’s quarterly GCA mechanism. These instruments are not designated as accounting hedges.
Interest Rate Risk Management
As of December 31, 2019,2020, we have two forward-starting interest rate swaps with an aggregate notional value totaling $500.0 million to hedge the variability in cash flows attributable to changes in the benchmark interest rate during the periods from the effective dates of the swaps to the anticipated dates of forecasted debt issuances, which are expected to take place by the end of 2024. These interest rate swaps are designated as cash flow hedges. The effective portions of the gains and losses related to these swaps are recorded to AOCI and arewill be recognized in "Interest expense, net" concurrently with the recognition of interest expense on the associated debt, once issued. If it becomes probable that a hedged forecasted transaction will no longer occur, the accumulated gains or losses on the derivative will be recognized currently in "Other, net" in the Statements of Consolidated Income (Loss).
The passage of the TCJA and Greater Lawrence Incident led to significant changes to our long-term financing plan. As a result, during 2018, we settled forward-starting interest rate swaps with a notional value of $750.0 million. These derivative contracts were accounted for as cash flow hedges. As part of the transactions, the associated net unrealized gain of $46.2 million was recognized immediately in "Other, net" onin the Statements of Consolidated Income (Loss) due to the probability associated withas it became probable the forecasted borrowing transactions would no longer occurring.occur.
There were 0 amounts excluded from effectiveness testing for derivatives in cash flow hedging relationships at December 31, 2020, 2019 and 2018.
Our derivative instruments measured at fair value as of December 31, 2020 and 2019 do not contain any credit-risk-related contingent features.
11. Income Taxes
Income Tax Expense. The components of income tax expense (benefit) were as follows:
Year Ended December 31, (in millions) | 2020 | 2019 | 2018 | ||||||||||||||
| Income Taxes | |||||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 0.2 | $ | 0 | $ | 0 | |||||||||||
| State | 11.7 | 5.2 | 8.2 | ||||||||||||||
| Total Current | 11.9 | 5.2 | 8.2 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | (0.4) | 110.7 | (209.4) | ||||||||||||||
| State | (27.4) | 9.0 | 22.2 | ||||||||||||||
| Total Deferred | (27.8) | 119.7 | (187.2) | ||||||||||||||
| Deferred Investment Credits | (1.2) | (1.4) | (1.0) | ||||||||||||||
| Income Taxes | $ | (17.1) | $ | 123.5 | $ | (180.0) | |||||||||||
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | ||||||||
| Income Taxes | |||||||||||
| Current | |||||||||||
| Federal | $ | — | $ | — | $ | — | |||||
| State | 5.2 | 8.2 | 7.8 | ||||||||
| Total Current | 5.2 | 8.2 | 7.8 | ||||||||
| Deferred | |||||||||||
| Federal | 110.7 | (209.4 | ) | 302.7 | |||||||
| State | 9.0 | 22.2 | 5.0 | ||||||||
| Total Deferred | 119.7 | (187.2 | ) | 307.7 | |||||||
| Deferred Investment Credits | (1.4 | ) | (1.0 | ) | (1.0 | ) | |||||
| Income Taxes | $ | 123.5 | $ | (180.0 | ) | $ | 314.5 | ||||
Statutory Rate Reconciliation
Reconciliation.The following table represents a reconciliation of income tax expense at the statutory federal income tax rate to the actual income tax expense from continuing operations:
Year Ended December 31, (in millions) | 2019 | 2018 | 2017 | |||||||||||||||||
| Book income (loss) before income taxes | $ | 506.6 | $ | (230.6 | ) | $ | 443.0 | |||||||||||||
| Tax expense (benefit) at statutory federal income tax rate | 106.5 | 21.0 | % | (48.4 | ) | 21.0 | % | 155.0 | 35.0 | % | ||||||||||
| Increases (reductions) in taxes resulting from: | ||||||||||||||||||||
| State income taxes, net of federal income tax benefit | 10.1 | 2.0 | 24.7 | (10.7 | ) | 6.9 | 1.5 | |||||||||||||
| Amortization of regulatory liabilities | (29.4 | ) | (5.8 | ) | (29.3 | ) | 12.7 | (2.4 | ) | (0.5 | ) | |||||||||
| Goodwill impairment | 43.0 | 8.5 | — | — | — | — | ||||||||||||||
| Fines and penalties | 11.5 | 2.3 | 0.2 | (0.1 | ) | 2.8 | 0.6 | |||||||||||||
| Charitable contribution carryover | (2.5 | ) | (0.5 | ) | — | — | (1.2 | ) | (0.3 | ) | ||||||||||
| State regulatory proceedings | (9.5 | ) | (1.9 | ) | (127.8 | ) | 55.4 | — | — | |||||||||||
| Remeasurement due to TCJA | — | — | — | — | 161.1 | 36.4 | ||||||||||||||
| Employee stock ownership plan dividends and other compensation | (2.0 | ) | (0.4 | ) | (2.2 | ) | 1.0 | (6.5 | ) | (1.5 | ) | |||||||||
| Other adjustments | (4.2 | ) | (0.8 | ) | 2.8 | (1.2 | ) | (1.2 | ) | (0.2 | ) | |||||||||
| Income Taxes | $ | 123.5 | 24.4 | % | $ | (180.0 | ) | 78.1 | % | $ | 314.5 | 71.0 | % | |||||||
Year Ended December 31, (in millions) | 2020 | 2019 | 2018 | ||||||||||||||||||||||||||||||||
| Book income (loss) before income taxes | $ | (31.3) | $ | 506.6 | $ | (230.6) | |||||||||||||||||||||||||||||
| Tax expense (benefit) at statutory federal income tax rate | (6.6) | 21.0 | % | 106.5 | 21.0 | % | (48.4) | 21.0 | % | ||||||||||||||||||||||||||
| Increases (reductions) in taxes resulting from: | |||||||||||||||||||||||||||||||||||
| State income taxes, net of federal income tax benefit | (11.7) | 37.4 | 10.1 | 2.0 | 24.7 | (10.7) | |||||||||||||||||||||||||||||
| Amortization of regulatory liabilities | (38.4) | 122.7 | (29.4) | (5.8) | (29.3) | 12.7 | |||||||||||||||||||||||||||||
| Goodwill impairment | 0 | 0 | 43.0 | 8.5 | 0 | 0 | |||||||||||||||||||||||||||||
| Fines and penalties | 11.8 | (37.7) | 11.5 | 2.3 | 0.2 | (0.1) | |||||||||||||||||||||||||||||
| Charitable contribution carryover | 0 | 0 | (2.5) | (0.5) | 0 | 0 | |||||||||||||||||||||||||||||
| State regulatory proceedings | 0 | 0 | (9.5) | (1.9) | (127.8) | 55.4 | |||||||||||||||||||||||||||||
| Employee stock ownership plan dividends and other compensation | (1.3) | 4.2 | (2.0) | (0.4) | (2.2) | 1.0 | |||||||||||||||||||||||||||||
| Deferred taxes on TCJA regulatory liability divested | 23.3 | (74.5) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| Tax accrual adjustments | 8.9 | (28.4) | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| Federal tax credits | (2.5) | 8.0 | 0 | 0 | 0 | 0 | |||||||||||||||||||||||||||||
| Other adjustments | (0.6) | 1.9 | (4.2) | (0.8) | 2.8 | (1.2) | |||||||||||||||||||||||||||||
| Income Taxes | $ | (17.1) | 54.6 | % | $ | 123.5 | 24.4 | % | $ | (180.0) | 78.1 | % | |||||||||||||||||||||||
The effective income tax rates were 24.4%54.6%, 24.4% and 78.1% in 2020, 2019 and 71.0%2018, respectively. The difference in tax expense year-over-year has a relative impact on the effective tax rate proportional to pretax income or loss. The 30.2% increase in effective tax rate in 2020 versus 2019 was primarily the result of lower pre-tax income, state jurisdictional mix of pre-tax loss in 2020 tax effected at statutory tax rates and increased amortization of excess deferred federal income taxes in 2020 compared to 2019. These items were offset by increased deferred tax expense recognized on the sale of Columbia of Massachusetts' regulatory liability, established due to TCJA in 2017, that would have otherwise been recognized over the amortization period, non-deductible penalties as described in Note 1, "Company Structure and Principles of Consolidation" and non-cash impairment of goodwill related to Columbia of Massachusetts in 2019 2018(see Note 7, "Goodwill and 2017, respectively. Other Intangible Assets" for additional information), and one-time tax accrual adjustments.
The 53.7% decrease in effective tax rate in 2019 versus 2018 was primarily the result of not having significant income tax decreases resulting from state regulatory proceedings as in 2018. Additionally, there was an increase in the effective tax rate related to the non-cash impairment of goodwill in 2019 related to Columbia of Massachusetts (see Note 6,7, "Goodwill and Other Intangible Assets" for additional information)
and non-deductible fines and penalties related to the Greater Lawrence Incident (see Note 19,20, "Legal Proceedings" for additional information). The rate is also impacted by the relative impact of permanent differences on higher pre-tax income.
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NISOURCE INC.
Notes to amortization of the regulatory liability primarily associated with excess deferred taxes.Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Net Deferred Income Tax Liability Components
Components.Deferred income taxes result from temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The principal components of our net deferred tax liability were as follows:
At December 31, (in millions) | 2019 | 2018 | |||||
| Deferred tax liabilities | |||||||
| Accelerated depreciation and other property differences | $ | 2,516.9 | $ | 2,458.0 | |||
| Other regulatory assets | 381.5 | 375.4 | |||||
| Total Deferred Tax Liabilities | 2,898.4 | 2,833.4 | |||||
| Deferred tax assets | |||||||
| Other regulatory liabilities and deferred investment tax credits (including TCJA) | 336.1 | 365.5 | |||||
| Pension and other postretirement/postemployment benefits | 152.1 | 157.5 | |||||
| Net operating loss carryforward and AMT credit carryforward | 765.9 | 849.8 | |||||
| Environmental liabilities | 25.4 | 24.4 | |||||
| Other accrued liabilities | 35.3 | 37.5 | |||||
| Other, net | 98.3 | 68.2 | |||||
| Total Deferred Tax Assets | 1,413.1 | 1,502.9 | |||||
| Net Deferred Tax Liabilities | $ | 1,485.3 | $ | 1,330.5 | |||
At December 31, (in millions) | 2020 | 2019 | |||||||||
| Deferred tax liabilities | |||||||||||
| Accelerated depreciation and other property differences | $ | 2,339.3 | $ | 2,516.9 | |||||||
| Other regulatory assets | 331.8 | 381.5 | |||||||||
| Total Deferred Tax Liabilities | 2,671.1 | 2,898.4 | |||||||||
| Deferred tax assets | |||||||||||
| Other regulatory liabilities and deferred investment tax credits (including TCJA) | 287.8 | 336.1 | |||||||||
| Pension and other postretirement/postemployment benefits | 118.1 | 152.1 | |||||||||
| Net operating loss carryforward and AMT credit carryforward | 602.1 | 765.9 | |||||||||
| Environmental liabilities | 22.6 | 25.4 | |||||||||
| Other accrued liabilities | 41.5 | 35.3 | |||||||||
| Other, net | 128.4 | 98.3 | |||||||||
| Total Deferred Tax Assets | 1,200.5 | 1,413.1 | |||||||||
| Net Deferred Tax Liabilities | $ | 1,470.6 | $ | 1,485.3 | |||||||
At December 31, 2019,2020, we had $657.1 million ofhave federal net operating loss carryforwards.carryforwards of $520.8 million. The federal net operating loss carryforwards are available to offset taxable income and will begin to expire in 2028. We also have $1.6 million of federal alternative minimum tax credit carryforwards which do not expire.2037. In addition, we have $1.4$7.8 million in charitable contribution carryforwards to offset future taxable income, which begin to expire in 2023. We believe it is more likely than not that we will realize the benefit from the federal net operating loss carryforwards.
We also have $107.2$81.4 million (net) of state net operating loss carryforwards. Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards will begin to expire in 2028.
We believe it is more likely than not that we will realizea portion of the benefit from certain state NOL carryforwards will not be realized. In recognition of this risk, we have provided a valuation allowance of $6.4 million (net) on the deferred tax assets related to sale of Massachusetts Business assets (see Note 1, "Company Structure and Principles of Consolidation" for additional information) reflected in the state net operating loss carryforwards.carryforward presented above.
Unrecognized Tax Benefits
Benefits.A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:
Reconciliation of Unrecognized Tax Benefits (in millions) | 2019 | 2018 | 2017 | ||||||||
| Unrecognized Tax Benefits - Opening Balance | $ | 1.2 | $ | 1.4 | $ | 2.6 | |||||
| Gross decreases - tax positions in prior period | (0.6 | ) | (0.4 | ) | (1.4 | ) | |||||
| Gross increases - current period tax positions | 22.6 | 0.2 | 0.2 | ||||||||
| Unrecognized Tax Benefits - Ending Balance | $ | 23.2 | $ | 1.2 | $ | 1.4 | |||||
| Offset for net operating loss carryforwards | (22.6 | ) | — | — | |||||||
| Balance - Less Net Operating Loss Carryforwards | $ | 0.6 | $ | 1.2 | $ | 1.4 | |||||
Reconciliation of Unrecognized Tax Benefits (in millions) | 2020 | 2019 | 2018 | ||||||||||||||
| Unrecognized Tax Benefits - Opening Balance | $ | 23.2 | $ | 1.2 | $ | 1.4 | |||||||||||
| Gross decreases - tax positions in prior period | (1.5) | (0.6) | (0.4) | ||||||||||||||
| Gross increases - current period tax positions | 0 | 22.6 | 0.2 | ||||||||||||||
| Unrecognized Tax Benefits - Ending Balance | $ | 21.7 | $ | 23.2 | $ | 1.2 | |||||||||||
| Offset for net operating loss carryforwards | (21.7) | (22.6) | 0 | ||||||||||||||
| Balance - Less Net Operating Loss Carryforwards | $ | 0 | $ | 0.6 | $ | 1.2 | |||||||||||
In 2019,2020, we resolved prior unrecognized tax benefits of $0.6 million and established new unrecognized tax benefits related to state matters of $22.6$1.5 million.
We present accrued interest on unrecognized tax benefits, accrued interest on other income tax liabilities and tax penalties in "Income Taxes" on our Statements of Consolidated Income (Loss). Interest expense recorded on unrecognized tax benefits and other income tax liabilities was immaterial for all periods presented. There were 0 accruals for penalties recorded in the Statements of Consolidated Income (Loss) for the years ended December 31, 2020, 2019 2018 and 2017,2018, and there were 0 balances for accrued penalties recorded on the Consolidated Balance Sheets as of December 31, 20192020 and 2018.
We are subject to income taxation in the United States and various state jurisdictions, primarily Indiana, Pennsylvania, Kentucky, Massachusetts, Maryland and Virginia.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
We participate in the IRS CAP, which provides the opportunity to resolve tax matters with the IRS before filing each year's consolidated federal income tax return. As of December 31, 2019,2020, tax years through 20182019 have been audited and are effectively closed to further assessment. The audit of tax year 20192020 under the CAP program is expected to be completed in 2020.2021.
The statute of limitations in each of the state jurisdictions in which we operate remains open until the years are settled for federal income tax purposes, at which time amended state income tax returns reflecting all federal income tax adjustments are filed. As of December 31, 2019,2020, there were no state income tax audits in progress that would have a material impact on the consolidated financial statements.
We provide defined contribution plans and noncontributory defined benefit retirement plans that cover certain of our employees. Benefits under the defined benefit retirement plans reflect the employees’ compensation, years of service and age at retirement. Additionally, we provide health care and life insurance benefits for certain retired employees. The majority of employees may become eligible for these benefits if they reach retirement age while working for us. The expected cost of such benefits is accrued during the employees’ years of service. Current rates of rate-regulated companies include postretirement benefit costs, including amortization of the regulatory assets that arose prior to inclusion of these costs in rates. For most plans, cash contributions are remitted to grantor trusts.
Our Pension and Other Postretirement Benefit Plans’ Asset Management. WeThe Board has delegated oversight of the pension and other postretirement benefit plans’ assets to an Administrative & Investment Management Committee (“the Committee”). The Committee has adopted investment policy statements for the pension and other postretirement benefit plans’ assets. For the pension plans, we employ a liability-driven investing strategystrategy. A total return approach is utilized for the pension plan, as noted below.other postretirement benefit plans’ assets. A mix of equities and fixed incomediversified investments are used to maximize the long-term return of plan assets and hedge the liabilities at a prudent level of risk. We utilize a total returnThe investment approach for the other postretirement benefit plans.portfolio includes U.S. and non-U.S. equities, real estate, long-term and intermediate-term fixed income and alternative investments. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and asset class volatility. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, small and large capitalizations. Other assets such as private equity funds are used judiciously to enhance long-term returns while improving portfolio diversification. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying assets. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies.
each asset class. The most important component of anpension plans’ investment strategy is the portfolio asset mix, or the allocation between the various classes of securities available to the pension and other postretirement benefit plans for investment purposes. The asset mix and acceptable minimum and maximum ranges established for our plan assets represents a long-term view and are listed in the table below.
As of December 31, 2019,2020, the asset mix and acceptable minimum and maximum ranges established by the policy for the pension and other postretirement benefit plans are as follows:
Asset Mix Policy of Funds:
| Defined Benefit Pension Plan | Postretirement Benefit Plan | ||||||||||||||||||||||
| Asset Category | Minimum | Maximum | Minimum | Maximum | |||||||||||||||||||
| Domestic Equities | 12% | 32% | 0% | 55% | |||||||||||||||||||
| International Equities | 6% | 16% | 0% | 25% | |||||||||||||||||||
| Fixed Income | 59% | 71% | 20% | 100% | |||||||||||||||||||
| Real Estate | 0% | 7% | 0% | 0% | |||||||||||||||||||
| Private Equity | 0% | 5% | 0% | 0% | |||||||||||||||||||
| Short-Term Investments | 0% | 10% | 0% | 10% | |||||||||||||||||||
| Defined Benefit Pension Plan | Postretirement Benefit Plan | ||||||
| Asset Category | Minimum | Maximum | Minimum | Maximum | |||
| Domestic Equities | 12% | 32% | 0% | 55% | |||
| International Equities | 6% | 16% | 0% | 25% | |||
| Fixed Income | 59% | 71% | 20% | 100% | |||
| Real Estate | 0% | 7% | 0% | 0% | |||
| Short-Term Investments/Other | 0% | 15% | 0% | 10% | |||
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
As of December 31, 2018,2019, the asset mix and acceptable minimum and maximum ranges established by the policy for the pension and other postretirement benefit plans were as follows:
Asset Mix Policy of Funds:
| Defined Benefit Pension Plan | Postretirement Benefit Plan | ||||||||||||||||||||||
| Asset Category | Minimum | Maximum | Minimum | Maximum | |||||||||||||||||||
| Domestic Equities | 12% | 32% | 0% | 55% | |||||||||||||||||||
| International Equities | 6% | 16% | 0% | 25% | |||||||||||||||||||
| Fixed Income | 59% | 71% | 20% | 100% | |||||||||||||||||||
| Real Estate | 0% | 7% | 0% | 0% | |||||||||||||||||||
| Private Equity | 0% | 5% | 0% | 0% | |||||||||||||||||||
| Short-Term Investments | 0% | 10% | 0% | 10% | |||||||||||||||||||
| Defined Benefit Pension Plan | Postretirement Benefit Plan | ||||||
| Asset Category | Minimum | Maximum | Minimum | Maximum | |||
| Domestic Equities | 12% | 32% | 0% | 55% | |||
| International Equities | 6% | 16% | 0% | 25% | |||
| Fixed Income | 59% | 71% | 20% | 100% | |||
| Real Estate | 0% | 7% | 0% | 0% | |||
| Short-Term Investments/Other | 0% | 15% | 0% | 10% | |||
Pension Plan and Postretirement Plan Asset Mix at December 31, 20192020 and December 31, 2018:2019:
Defined Benefit Pension Assets | December 31, 2019 | Postretirement Benefit Plan Assets | December 31, 2019 | ||||||||||
Asset Class (in millions) | Asset Value | % of Total Assets | Asset Value | % of Total Assets | |||||||||
| Domestic Equities | $ | 446.4 | 21.5 | % | $ | 93.8 | 35.9 | % | |||||
| International Equities | 205.0 | 9.9 | % | 40.7 | 15.6 | % | |||||||
| Fixed Income | 1,337.2 | 64.2 | % | 119.5 | 45.7 | % | |||||||
| Real Estate | 53.9 | 2.6 | % | — | — | ||||||||
| Cash/Other | 38.4 | 1.8 | % | 7.4 | 2.8 | % | |||||||
| Total | $ | 2,080.9 | 100.0 | % | $ | 261.4 | 100.0 | % | |||||
| Defined Benefit Pension Assets | December 31, 2018 | Postretirement Benefit Plan Assets | December 31, 2018 | ||||||||||
Asset Class (in millions) | Asset Value | % of Total Assets | Asset Value | % of Total Assets | |||||||||
| Domestic Equities | $ | 355.5 | 19.0 | % | $ | 78.8 | 36.4 | % | |||||
| International Equities | 165.5 | 8.9 | % | 17.5 | 8.1 | % | |||||||
| Fixed Income | 1,241.9 | 66.5 | % | 115.1 | 53.2 | % | |||||||
| Real Estate | 52.7 | 2.8 | % | — | — | ||||||||
| Cash/Other | 52.1 | 2.8 | % | 4.9 | 2.3 | % | |||||||
| Total | $ | 1,867.7 | 100.0 | % | $ | 216.3 | 100.0 | % | |||||
| Defined Benefit Pension Assets | December 31, 2020 | Postretirement Benefit Plan Assets | December 31, 2020 | ||||||||||||||||||||
Asset Class (in millions) | Asset Value | % of Total Assets | Asset Value | % of Total Assets | |||||||||||||||||||
| Domestic Equities | $ | 446.3 | 21.0 | % | $ | 108.8 | 38.0 | % | |||||||||||||||
| International Equities | 230.1 | 10.9 | % | 48.2 | 16.8 | % | |||||||||||||||||
| Fixed Income | 1,291.2 | 61.0 | % | 122.0 | 42.6 | % | |||||||||||||||||
| Real Estate | 52.9 | 2.5 | % | 0 | 0 | ||||||||||||||||||
| Cash/Other | 97.2 | 4.6 | % | 7.4 | 2.6 | % | |||||||||||||||||
| Total | $ | 2,117.7 | 100.0 | % | $ | 286.4 | 100.0 | % | |||||||||||||||
| Defined Benefit Pension Assets | December 31, 2019 | Postretirement Benefit Plan Assets | December 31, 2019 | ||||||||||||||||||||
Asset Class (in millions) | Asset Value | % of Total Assets | Asset Value | % of Total Assets | |||||||||||||||||||
| Domestic Equities | $ | 446.4 | 21.5 | % | $ | 93.8 | 35.9 | % | |||||||||||||||
| International Equities | 205.0 | 9.9 | % | 40.7 | 15.6 | % | |||||||||||||||||
| Fixed Income | 1,337.2 | 64.2 | % | 119.5 | 45.7 | % | |||||||||||||||||
| Real Estate | 53.9 | 2.6 | % | 0 | 0 | ||||||||||||||||||
| Cash/Other | 38.4 | 1.8 | % | 7.4 | 2.8 | % | |||||||||||||||||
| Total | $ | 2,080.9 | 100.0 | % | $ | 261.4 | 100.0 | % | |||||||||||||||
The categorization of investments into the asset classes in the tabletables above are based on definitions established by our Benefits Committee.
Fair Value Measurements. The following table sets forth, by level within the fair value hierarchy, the Master Trustpension and other postretirement benefits investment assets at fair value as of December 31, 20192020 and 2018.2019. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Total Master TrustThere were no investment assets in the pension and other postretirement benefits investment assets at fair valuetrusts classified within Level 3 were $0 million and $86.1 million as offor the years ended December 31, 20192020 and December 31, 2018, respectively. Such amounts were approximately 0% and 4%2019.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Valuation Techniques Used to Determine Fair Value:
Level 1 Measurements
Most common and preferred stocks are traded in active markets on national and international securities exchanges and are valued at closing prices on the last business day of each period presented. Cash is stated at cost which approximates fair value, with the exception of cash held in foreign currencies which fluctuates with changes in the exchange rates. Short-term bills and notes are priced based on quoted market values.
Level 2 Measurements
Most U.S. Government Agency obligations, mortgage/asset-backed securities, and corporate fixed income securities are generally valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. To the extent that quoted prices are not available, fair value is determined based on a valuation model that includes inputs such as interest rate yield curves and credit spreads. Securities traded in markets that are not considered active are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Other fixed income includes futures and options which are priced on bid valuation or settlement pricing.
Level 3 Measurements
Investments with unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities are classified as level 3 investments.
Not Classified
Commingled funds, private equity limited partnerships and real estate partnerships hold underlying investments that have prices derived from quoted prices in active markets and are not classified within the fair value hierarchy. Instead, these assets are measured at estimated fair value using the net asset value per share of the investments. Commingled funds' underlying assets are principally marketable equity and fixed income securities. Units held in commingled funds are valued at the unit value as reported by the investment managers. Private equity and real estate funds invest in natural resources, commercial real estate and distressed real estate. The fair value of these investments is determined by reference to the funds’ underlying assets.
For the year ended December 31, 2019,2020, there were no significant changes to valuation techniques to determine the fair value of our pension and other postretirement benefits' assets.
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Fair Value Measurements at December 31, 2019:2020:
| (in millions) | December 31, 2019 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Pension plan assets: | |||||||||||||||
| Cash | $ | 6.7 | $ | 6.7 | $ | — | $ | — | |||||||
| Fixed income securities | |||||||||||||||
| Government | 319.6 | — | 319.6 | — | |||||||||||
| Corporate | 651.8 | — | 651.8 | — | |||||||||||
| Mutual Funds | |||||||||||||||
| U.S. multi-strategy | 140.5 | 140.5 | — | — | |||||||||||
| International equities | 56.9 | 56.9 | — | — | |||||||||||
Private equity limited partnerships(3) | |||||||||||||||
U.S. multi-strategy(1) | 14.0 | — | — | — | |||||||||||
International multi-strategy(2) | 8.5 | — | — | — | |||||||||||
| Distressed opportunities | 0.5 | — | — | — | |||||||||||
| Real estate | 53.9 | — | — | — | |||||||||||
Commingled funds(3) | |||||||||||||||
| Short-term money markets | 14.8 | — | — | — | |||||||||||
| U.S. equities | 305.9 | — | — | — | |||||||||||
| International equities | 148.1 | — | — | — | |||||||||||
| Fixed income | 351.8 | — | — | — | |||||||||||
| Pension plan assets subtotal | 2,073.0 | 204.1 | 971.4 | — | |||||||||||
| Other postretirement benefit plan assets: | |||||||||||||||
| Mutual funds | |||||||||||||||
| U.S. multi-strategy | 81.7 | 81.7 | — | — | |||||||||||
| International equities | 20.6 | 20.6 | — | — | |||||||||||
| Fixed income | 119.2 | 119.2 | — | — | |||||||||||
Commingled funds(3) | |||||||||||||||
| Short-term money markets | 7.7 | — | — | — | |||||||||||
| U.S. equities | 12.1 | — | — | — | |||||||||||
| International equities | 20.1 | — | — | — | |||||||||||
| Other postretirement benefit plan assets subtotal | 261.4 | 221.5 | — | — | |||||||||||
Due to brokers, net(4) | (2.8 | ) | — | (2.8 | ) | — | |||||||||
| Accrued income/dividends | 10.7 | 10.7 | — | — | |||||||||||
| Total pension and other postretirement benefit plan assets | $ | 2,342.3 | $ | 436.3 | $ | 968.6 | $ | — | |||||||
| (in millions) | December 31, 2020 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Pension plan assets: | |||||||||||||||||||||||
| Cash | $ | 11.9 | $ | 11.9 | $ | 0 | $ | 0 | |||||||||||||||
| Equity securities | |||||||||||||||||||||||
| U.S. equities | 2.4 | 2.4 | 0 | 0 | |||||||||||||||||||
| Fixed income securities | |||||||||||||||||||||||
| Government | 243.4 | 0 | 243.4 | 0 | |||||||||||||||||||
| Corporate | 692.6 | 0 | 692.6 | 0 | |||||||||||||||||||
| Mutual Funds | |||||||||||||||||||||||
| U.S. multi-strategy | 161.3 | 161.3 | 0 | 0 | |||||||||||||||||||
| International equities | 55.4 | 55.4 | 0 | 0 | |||||||||||||||||||
| Fixed income | 0.1 | 0.1 | 0 | 0 | |||||||||||||||||||
Private equity limited partnerships(3) | |||||||||||||||||||||||
U.S. multi-strategy(1) | 10.9 | 0 | 0 | 0 | |||||||||||||||||||
International multi-strategy(2) | 6.6 | 0 | 0 | 0 | |||||||||||||||||||
| Distressed opportunities | 0.3 | 0 | 0 | 0 | |||||||||||||||||||
| Real estate | 52.9 | 0 | 0 | 0 | |||||||||||||||||||
Commingled funds(3) | |||||||||||||||||||||||
| Short-term money markets | 78.8 | 0 | 0 | 0 | |||||||||||||||||||
| U.S. equities | 279.7 | 0 | 0 | 0 | |||||||||||||||||||
| International equities | 176.8 | 0 | 0 | 0 | |||||||||||||||||||
| Fixed income | 337.6 | 0 | 0 | 0 | |||||||||||||||||||
| Pension plan assets subtotal | 2,110.7 | 231.1 | 936.0 | 0 | |||||||||||||||||||
| Other postretirement benefit plan assets: | |||||||||||||||||||||||
| Mutual funds | |||||||||||||||||||||||
| U.S. multi-strategy | 94.8 | 94.8 | 0 | 0 | |||||||||||||||||||
| International equities | 24.1 | 24.1 | 0 | 0 | |||||||||||||||||||
| Fixed income | 121.8 | 121.8 | 0 | 0 | |||||||||||||||||||
Commingled funds(3) | |||||||||||||||||||||||
| Short-term money markets | 7.6 | 0 | 0 | 0 | |||||||||||||||||||
| U.S. equities | 14.0 | 0 | 0 | 0 | |||||||||||||||||||
| International equities | 24.1 | 0 | 0 | 0 | |||||||||||||||||||
| Other postretirement benefit plan assets subtotal | 286.4 | 240.7 | 0 | 0 | |||||||||||||||||||
Due to brokers, net(4) | (1.6) | 0 | (1.6) | 0 | |||||||||||||||||||
| Accrued income/dividends | 8.6 | 8.6 | 0 | 0 | |||||||||||||||||||
| Total pension and other postretirement benefit plan assets | $ | 2,404.1 | $ | 480.4 | $ | 934.4 | $ | 0 | |||||||||||||||
(1)This class includes limited partnerships/fund of funds that invest in a diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily inside the United States.
(2)This class includes limited partnerships/fund of funds that invest in diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily outside the United States.
(3)This class of investments is measured at fair value using the net asset value per share and has not been classified in the fair value hierarchy.
(4)This class represents pending trades with brokers.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The table below sets forth a summary of unfunded commitments, redemption frequency and redemption notice periods for certain investments that are measured at fair value using the net asset value per share for the year ended December 31, 2020:
| (in millions) | Fair Value | Redemption Frequency | Redemption Notice Period | ||||||||||||||||||||
| Commingled Funds | |||||||||||||||||||||||
| Short-term money markets | $ | 86.4 | Daily | 1 day | |||||||||||||||||||
| U.S. equities | 293.7 | Daily | 1-5 days | ||||||||||||||||||||
| International equities | 200.9 | Monthly | 10-30 days | ||||||||||||||||||||
| Fixed income | 337.6 | Daily | 3 days | ||||||||||||||||||||
| Total | $ | 918.6 | |||||||||||||||||||||
84
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Fair Value Measurements at December 31, 2019:
| (in millions) | December 31, 2019 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||||||||
| Pension plan assets: | |||||||||||||||||||||||
| Cash | $ | 6.7 | $ | 6.7 | $ | 0 | $ | 0 | |||||||||||||||
| Fixed income securities | |||||||||||||||||||||||
| Government | 319.6 | 0 | 319.6 | 0 | |||||||||||||||||||
| Corporate | 651.8 | 0 | 651.8 | 0 | |||||||||||||||||||
| Mutual Funds | |||||||||||||||||||||||
| U.S. multi-strategy | 140.5 | 140.5 | 0 | 0 | |||||||||||||||||||
| International equities | 56.9 | 56.9 | 0 | 0 | |||||||||||||||||||
Private equity limited partnerships(3) | |||||||||||||||||||||||
U.S. multi-strategy(1) | 14.0 | 0 | 0 | 0 | |||||||||||||||||||
International multi-strategy(2) | 8.5 | 0 | 0 | 0 | |||||||||||||||||||
| Distressed opportunities | 0.5 | 0 | 0 | 0 | |||||||||||||||||||
| Real Estate | 53.9 | 0 | 0 | 0 | |||||||||||||||||||
Commingled funds(3) | |||||||||||||||||||||||
| Short-term money markets | 14.8 | 0 | 0 | 0 | |||||||||||||||||||
| U.S. equities | 305.9 | 0 | 0 | 0 | |||||||||||||||||||
| International equities | 148.1 | 0 | 0 | 0 | |||||||||||||||||||
| Fixed income | 351.8 | 0 | 0 | 0 | |||||||||||||||||||
| Pension plan assets subtotal | 2,073.0 | 204.1 | 971.4 | 0 | |||||||||||||||||||
| Other postretirement benefit plan assets: | |||||||||||||||||||||||
| Mutual funds | |||||||||||||||||||||||
| U.S. multi-strategy | 81.7 | 81.7 | 0 | 0 | |||||||||||||||||||
| International equities | 20.6 | 20.6 | 0 | 0 | |||||||||||||||||||
| Fixed income | 119.2 | 119.2 | 0 | 0 | |||||||||||||||||||
Commingled funds(3) | |||||||||||||||||||||||
| Short-term money markets | 7.7 | 0 | 0 | 0 | |||||||||||||||||||
| U.S. equities | 12.1 | 0 | 0 | 0 | |||||||||||||||||||
| International equities | 20.1 | 0 | 0 | 0 | |||||||||||||||||||
| Other postretirement benefit plan assets subtotal | 261.4 | 221.5 | 0 | 0 | |||||||||||||||||||
Due to brokers, net(4) | (2.8) | 0 | (2.8) | 0 | |||||||||||||||||||
| Accrued income/dividends | 10.7 | 10.7 | 0 | 0 | |||||||||||||||||||
| Total pension and other postretirement benefit plan assets | $ | 2,342.3 | $ | 436.3 | $ | 968.6 | $ | 0 | |||||||||||||||
(1)This class includes limited partnerships/fund of funds that invest in a diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily inside the United States.
(2)This class includes limited partnerships/fund of funds that invest in diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily outside the United States.
(3)This class of investments is measured at fair value using the net asset value per share and has not been classified in the fair value hierarchy.
(4)This class represents pending trades with brokers.
85
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The table below sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the year ended December 31, 2019:
Balance at January 1, 2019 | Transfers out (Level 3)(1) | Balance at December 31, 2019 | |||||||||
| Private equity limited partnerships | |||||||||||
| U.S. multi-strategy | 18.5 | (18.5 | ) | — | |||||||
| International multi-strategy | 12.5 | (12.5 | ) | — | |||||||
| Distressed opportunities | 2.4 | (2.4 | ) | — | |||||||
| Real estate | 52.7 | (52.7 | ) | — | |||||||
| Total | $ | 86.1 | $ | (86.1 | ) | $ | — | ||||
Balance at January 1, 2019 | Transfers out (Level 3)(1) | Balance at December 31, 2019 | |||||||||||||||||||||||||||||||||
| Private equity limited partnerships | |||||||||||||||||||||||||||||||||||
| U.S. multi-strategy | 18.5 | (18.5) | 0 | ||||||||||||||||||||||||||||||||
| International multi-strategy | 12.5 | (12.5) | 0 | ||||||||||||||||||||||||||||||||
| Distress opportunities | 2.4 | (2.4) | 0 | ||||||||||||||||||||||||||||||||
| Real estate | 52.7 | (52.7) | 0 | ||||||||||||||||||||||||||||||||
| Total | $ | 86.1 | $ | (86.1) | $ | 0 | |||||||||||||||||||||||||||||
(1)Level 3 assets from the prior year2018 were reclassified in the current year2019 presentation and included within the fair value hierarchy table as of December 31, 2019 as “Not"Not Classified" investments for which fair value is measured using net asset value per share, consistent with the definitions described above.
The table below sets forth a summary of unfunded commitments, redemption frequency and redemption notice periods for certain investments that are measured at fair value using the net asset value per share for the year ended December 31, 2019:
| (in millions) | Fair Value | Redemption Frequency | Redemption Notice Period | ||||
| Commingled Funds | |||||||
| Short-term money markets | $ | 22.5 | Daily | 1 day | |||
| U.S. equities | 318.0 | Monthly | 1 day | ||||
| International equities | 168.2 | Monthly | 10-30 days | ||||
| Fixed income | 351.8 | Daily | 3 days | ||||
| Total | $ | 860.5 | |||||
| (in millions) | Fair Value | Redemption Frequency | Redemption Notice Period | ||||||||||||||||||||
| Commingled Funds | |||||||||||||||||||||||
| Short-term money markets | $ | 22.5 | Daily | 1 day | |||||||||||||||||||
| U.S. equities | 318.0 | Monthly | 3 days | ||||||||||||||||||||
| International equities | 168.2 | Monthly | 10-30 days | ||||||||||||||||||||
| Fixed income | 351.8 | Daily | 3 days | ||||||||||||||||||||
| Total | $ | 860.5 | |||||||||||||||||||||
86
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| (in millions) | December 31, 2018 | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||
| Pension plan assets: | |||||||||||||||
| Cash | $ | 9.2 | $ | 8.8 | $ | 0.4 | $ | — | |||||||
| Equity securities | |||||||||||||||
| U.S. equities | 0.2 | 0.2 | — | — | |||||||||||
| Fixed income securities | |||||||||||||||
| Government | 250.2 | — | 250.2 | — | |||||||||||
| Corporate | 442.8 | — | 442.8 | — | |||||||||||
| Mutual Funds | |||||||||||||||
| U.S. multi-strategy | 110.3 | 110.3 | — | — | |||||||||||
| International equities | 43.2 | 43.2 | — | — | |||||||||||
| Fixed income | 166.8 | 166.8 | — | — | |||||||||||
| Private equity limited partnerships | |||||||||||||||
U.S. multi-strategy(1) | 18.5 | — | — | 18.5 | |||||||||||
International multi-strategy(2) | 12.5 | — | — | 12.5 | |||||||||||
| Distressed opportunities | 2.4 | — | — | 2.4 | |||||||||||
| Real Estate | 52.7 | — | — | 52.7 | |||||||||||
Commingled funds(3) | |||||||||||||||
| Short-term money markets | 18.3 | — | — | — | |||||||||||
| U.S. equities | 245.2 | — | — | — | |||||||||||
| International equities | 122.3 | — | — | — | |||||||||||
| Fixed income | 365.7 | — | — | — | |||||||||||
| Pension plan assets subtotal | 1,860.3 | 329.3 | 693.4 | 86.1 | |||||||||||
| Other postretirement benefit plan assets: | |||||||||||||||
| Mutual funds | |||||||||||||||
| U.S. equities | 68.4 | 68.4 | — | — | |||||||||||
| International equities | 17.5 | 17.5 | — | — | |||||||||||
| Fixed income | 114.8 | 114.8 | — | — | |||||||||||
Commingled funds(3) | |||||||||||||||
| Short-term money markets | 5.2 | — | — | — | |||||||||||
| U.S. equities | 10.4 | — | — | — | |||||||||||
| Other postretirement benefit plan assets subtotal | 216.3 | 200.7 | — | — | |||||||||||
Due to brokers, net(4) | (1.1 | ) | — | (1.1 | ) | — | |||||||||
| Accrued investment income/dividends | 8.6 | 8.6 | — | — | |||||||||||
| Total pension and other postretirement benefit plan assets | $ | 2,084.1 | $ | 538.6 | $ | 692.3 | $ | 86.1 | |||||||
Balance at January 1, 2018 | Total gains or losses (unrealized / realized) | Purchases | (Sales) | Balance at December 31, 2018 | |||||||||||||||
| Private equity limited partnerships | |||||||||||||||||||
| U.S. multi-strategy | 26.7 | 2.4 | 0.7 | (11.3 | ) | 18.5 | |||||||||||||
| International multi-strategy | 19.1 | (0.6 | ) | — | (6.0 | ) | 12.5 | ||||||||||||
| Distress opportunities | 3.2 | (0.8 | ) | — | — | 2.4 | |||||||||||||
| Real estate | 49.9 | 1.7 | 1.8 | (0.7 | ) | 52.7 | |||||||||||||
| Total | $ | 98.9 | $ | 2.7 | $ | 2.5 | $ | (18.0 | ) | $ | 86.1 | ||||||||
| (in millions) | Fair Value | Redemption Frequency | Redemption Notice Period | ||||
| Commingled Funds | |||||||
| Short-term money markets | $ | 23.5 | Daily | 1 day | |||
| U.S. equities | 255.6 | Monthly | 3 days | ||||
| International equities | 122.3 | Monthly | 10-30 days | ||||
| Fixed income | 365.7 | Monthly | 3 days | ||||
| Total | $ | 767.1 | |||||
Our Pension and Other Postretirement Benefit Plans’ Funded Status and Related Disclosure. The following table provides a reconciliation of the plans’ funded status and amounts reflected in our Consolidated Balance Sheets at December 31 based on a December 31 measurement date:
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||
| (in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Change in projected benefit obligation(1) | |||||||||||||||
| Benefit obligation at beginning of year | $ | 1,981.3 | $ | 2,192.6 | $ | 492.5 | $ | 556.3 | |||||||
| Service cost | 29.2 | 31.3 | 5.1 | 5.0 | |||||||||||
| Interest cost | 72.3 | 67.1 | 19.2 | 17.6 | |||||||||||
| Plan participants’ contributions | — | — | 4.8 | 5.7 | |||||||||||
| Plan amendments | — | 0.2 | 5.1 | 0.1 | |||||||||||
| Actuarial (gain) loss | 204.3 | (103.9 | ) | 88.8 | (51.7 | ) | |||||||||
| Settlement loss | — | 0.8 | — | — | |||||||||||
| Benefits paid | (156.6 | ) | (206.8 | ) | (39.5 | ) | (41.1 | ) | |||||||
| Estimated benefits paid by incurred subsidy | — | — | 0.5 | 0.6 | |||||||||||
| Projected benefit obligation at end of year | $ | 2,130.5 | $ | 1,981.3 | $ | 576.5 | $ | 492.5 | |||||||
| Change in plan assets | |||||||||||||||
| Fair value of plan assets at beginning of year | $ | 1,867.7 | $ | 2,160.0 | $ | 216.3 | $ | 262.5 | |||||||
| Actual (loss) return on plan assets | 366.8 | (88.4 | ) | 56.9 | (31.8 | ) | |||||||||
| Employer contributions | 2.9 | 2.9 | 23.0 | 21.0 | |||||||||||
| Plan participants’ contributions | — | — | 4.7 | 5.7 | |||||||||||
| Benefits paid | (156.5 | ) | (206.8 | ) | (39.5 | ) | (41.1 | ) | |||||||
| Fair value of plan assets at end of year | $ | 2,080.9 | $ | 1,867.7 | $ | 261.4 | $ | 216.3 | |||||||
| Funded Status at end of year | $ | (49.6 | ) | $ | (113.6 | ) | $ | (315.1 | ) | $ | (276.2 | ) | |||
| Amounts recognized in the statement of financial position consist of: | |||||||||||||||
| Noncurrent assets | 8.2 | — | — | — | |||||||||||
| Current liabilities | (3.0 | ) | (3.0 | ) | (0.8 | ) | (0.8 | ) | |||||||
| Noncurrent liabilities | (54.8 | ) | (110.6 | ) | (314.3 | ) | (275.4 | ) | |||||||
Net amount recognized at end of year(2) | $ | (49.6 | ) | $ | (113.6 | ) | $ | (315.1 | ) | $ | (276.2 | ) | |||
Amounts recognized in accumulated other comprehensive income or regulatory asset/liability(3) | |||||||||||||||
| Unrecognized prior service credit | $ | 3.0 | $ | 3.2 | $ | (10.7 | ) | $ | (19.0 | ) | |||||
| Unrecognized actuarial loss | 652.8 | 761.2 | 118.4 | 75.3 | |||||||||||
| Net amount recognized at end of year | $ | 655.8 | $ | 764.4 | $ | 107.7 | $ | 56.3 | |||||||
| Pension Benefits | Other Postretirement Benefits | ||||||||||||||||||||||
| (in millions) | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||
Change in projected benefit obligation(1) | |||||||||||||||||||||||
| Benefit obligation at beginning of year | $ | 2,130.5 | $ | 1,981.3 | $ | 576.5 | $ | 492.5 | |||||||||||||||
| Service cost | 32.0 | 29.2 | 6.6 | 5.1 | |||||||||||||||||||
| Interest cost | 51.6 | 72.3 | 15.4 | 19.2 | |||||||||||||||||||
| Plan participants’ contributions | 0 | 0 | 4.1 | 4.8 | |||||||||||||||||||
| Plan amendments | 0 | 0 | 0 | 5.1 | |||||||||||||||||||
Actuarial loss(2) | 140.1 | 204.3 | 24.8 | 88.8 | |||||||||||||||||||
| Benefits paid | (174.5) | (156.6) | (37.0) | (39.5) | |||||||||||||||||||
| Estimated benefits paid by incurred subsidy | 0 | 0 | 0.4 | 0.5 | |||||||||||||||||||
| Spinoff to Eversource | (121.3) | 0 | 0 | 0 | |||||||||||||||||||
| Projected benefit obligation at end of year | $ | 2,058.4 | $ | 2,130.5 | $ | 590.8 | $ | 576.5 | |||||||||||||||
| Change in plan assets | |||||||||||||||||||||||
| Fair value of plan assets at beginning of year | $ | 2,080.9 | $ | 1,867.7 | $ | 261.4 | $ | 216.3 | |||||||||||||||
| Actual return on plan assets | 329.9 | 366.8 | 36.3 | 56.9 | |||||||||||||||||||
| Employer contributions | 2.9 | 2.9 | 21.6 | 23.0 | |||||||||||||||||||
| Plan participants’ contributions | 0 | 0 | 4.1 | 4.7 | |||||||||||||||||||
| Benefits paid | (174.6) | (156.5) | (37.0) | (39.5) | |||||||||||||||||||
| Spinoff to Eversource | (121.4) | 0 | 0 | 0 | |||||||||||||||||||
| Fair value of plan assets at end of year | $ | 2,117.7 | $ | 2,080.9 | $ | 286.4 | $ | 261.4 | |||||||||||||||
| Funded Status at end of year | $ | 59.3 | $ | (49.6) | $ | (304.4) | $ | (315.1) | |||||||||||||||
| Amounts recognized in the statement of financial position consist of: | |||||||||||||||||||||||
| Noncurrent assets | 91.4 | 8.2 | 0 | 0 | |||||||||||||||||||
| Current liabilities | (2.9) | (3.0) | (0.9) | (0.8) | |||||||||||||||||||
| Noncurrent liabilities | (29.2) | (54.8) | (303.5) | (314.3) | |||||||||||||||||||
Net amount recognized at end of year(3) | $ | 59.3 | $ | (49.6) | $ | (304.4) | $ | (315.1) | |||||||||||||||
Amounts recognized in accumulated other comprehensive income or regulatory asset/liability(4) | |||||||||||||||||||||||
| Unrecognized prior service credit | $ | 0.3 | $ | 3.0 | $ | (10.1) | $ | (10.7) | |||||||||||||||
| Unrecognized actuarial loss | 497.2 | 652.8 | 116.4 | 118.4 | |||||||||||||||||||
| Net amount recognized at end of year | $ | 497.5 | $ | 655.8 | $ | 106.3 | $ | 107.7 | |||||||||||||||
(1)The change in benefit obligation for Pension Benefits represents the change in Projected Benefit Obligation while the change in benefit obligation for Other Postretirement Benefits represents the change in accumulated postretirement benefit obligation.
(2)The pension actuarial loss was primarily driven by the decrease in the discount rate, offset by the change in mortality assumptions. The other postretirement benefits loss was also primarily driven by a decrease in discount rates, offset by favorable claims experienced and a change in the mortality assumptions.
(3)We recognize our Consolidated Balance Sheets underfunded and overfunded status of our various defined benefit postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation.
(3)We determined that for certain rate-regulated subsidiaries the future recovery of pension and other postretirement benefits costs is probable. These rate-regulated subsidiaries recorded regulatory assets and liabilities of $583.3 million and 0, respectively, as of December 31, 2020, and $739.1 million and $0.1 million, respectively, as of December 31, 2019 and $798.3 million and $0.1 million, respectively, as of December 31, 2018 that would otherwise have been recorded to accumulated other comprehensive loss.
Our accumulated benefit obligation for our pension plans was $2,111.5$2,036.8 million and $1,965.6$2,111.5 million as of December 31, 20192020 and 2018,2019, respectively. The accumulated benefit obligation as of aat each date is the actuarial present value of benefits attributed by the pension benefit formula to employee service rendered prior to that date and based on current and past compensation levels. The accumulated benefit obligation differs from the projected benefit obligation disclosed in the table above in that it includes no assumptions about future compensation levels.
We are required to reflect the funded status of theour pension and postretirement benefit plans on the Consolidated Balance Sheet. The funded status of the plans is measured as the difference between the plan assets' fair value and the projected benefit
87
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
obligation. We present the noncurrent aggregate of all underfunded plans within "Accrued liability for postretirement and postemployment benefits." The portion of the amount by which the actuarial present value of benefits included in the projected benefit obligation
exceeds the fair value of plan assets, payable in the next 12 months, is reflected in "Accrued compensation and other benefits." We present the aggregate of all overfunded plans within "Deferred charges and other."
Information for pension plans with a projected benefit obligation in excess of plan assets:
| December 31, | |||||||||||
2020(1) | 2019 | ||||||||||
| Accumulated Benefit Obligation | $ | 32.1 | $ | 1,473.9 | |||||||
| Funded Status | |||||||||||
| Projected Benefit Obligation | 32.1 | 1,492.9 | |||||||||
| Fair Value of Plan Assets | 0 | 1,435.1 | |||||||||
| Funded Status of Underfunded Pension Plans at End of Year | $ | (32.1) | $ | (57.8) | |||||||
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Accumulated Benefit Obligation | $ | 1,473.9 | $ | 1,965.6 | |||
| Funded Status | |||||||
| Projected Benefit Obligation | 1,492.9 | 1,981.3 | |||||
| Fair Value of Plan Assets | 1,435.1 | 1,867.7 | |||||
| Funded Status of Underfunded Pension Plans at End of Year | $ | (57.8 | ) | $ | (113.6 | ) | |
Information for pension plans with plan assets in excess of the projected benefit obligation:
| December 31, | |||||||
| 2019 | 2018 | ||||||
| Accumulated Benefit Obligation | $ | 637.6 | $ | — | |||
| Funded Status | |||||||
| Projected Benefit Obligation | 637.6 | — | |||||
| Fair Value of Plan Assets | 645.8 | — | |||||
| Funded Status of Overfunded Pension Plans at End of Year | $ | 8.2 | $ | — | |||
| December 31, | |||||||||||
| 2020 | 2019 | ||||||||||
| Accumulated Benefit Obligation | $ | 2,004.7 | $ | 637.6 | |||||||
| Funded Status | |||||||||||
| Projected Benefit Obligation | 2,026.3 | 637.6 | |||||||||
| Fair Value of Plan Assets | 2,117.7 | 645.8 | |||||||||
| Funded Status of Overfunded Pension Plans at End of Year | $ | 91.4 | $ | 8.2 | |||||||
Our pension plans were underfunded,overfunded, in aggregate, by $49.6$59.3 million at December 31, 20192020 compared to being underfunded by $113.6$49.6 million at December 31, 2018.2019. The improvement in the funded status was due primarily to favorable asset returns offset by a decrease in discount rates. We contributed $2.9 million to our pension plans in both 20192020 and 2018.2019.
Our other postretirement benefit plans were underfunded by $304.4 million at December 31, 2020 compared to being underfunded by $315.1 million at December 31, 2019 compared to being underfunded by $276.2 million at December 31, 2018.2019. The declinechange in funded status was primarily due to favorable asset returns offset by a decrease in discount rates offset by favorable asset returns.rates. We contributed $23.0$21.6 million and $21.0$23.0 million to our other postretirement benefit plans in 20192020 and 2018,2019, respectively.
In 20192020 and 2018,2019, some of our qualified pension plans paid lump sum payouts in excess of the respective plan's service cost plus interest cost, thereby meeting the requirement for settlement accounting. We recorded settlement charges of $10.5 million and $9.5 million in 2020 and $18.5 million in 2019, and 2018, respectively. Net periodic pension benefit cost for 20192020 was decreased by $0.7$1.4 million as a result of the interim remeasurement.