UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2014
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)
 
Delaware                35-2108964        
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
   
801 East 86th Avenue
Merrillville, Indiana    
 46410
(Address of principal executive offices) (Zip Code)
(877) 647-5990
(Registrant’s telephone number, including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)
Yesþ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer þ                    Accelerated filer ¨
Non-accelerated filer ¨                      Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 Par Value: 315,318,140315,699,826 shares outstanding at July 24,October 23, 2014.



NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED JUNESEPTEMBER 30, 2014
Table of Contents
 
   Page
   
 
   
PART IFINANCIAL INFORMATION 
    
 Item 1.Financial Statements - unaudited 
    
  
    
  
    
  
    
  
    
  
    
  
    
 Item 2.
    
 Item 3.
    
 Item 4.
   
PART IIOTHER INFORMATION 
    
 Item 1.
    
 Item 1A.
    
 Item 2.
    
 Item 3.
    
 Item 4.
    
 Item 5.
    
 Item 6.
   
 

2


DEFINED TERMS

The following is a list of frequently used abbreviations or acronyms that are found in this report:

NiSource Subsidiaries and Affiliates 
Capital MarketsNiSource Capital Markets, Inc.
CERColumbia Energy Resources, Inc.
CGORCColumbia Gas of Ohio Receivables Corporation
ColumbiaColumbia Energy Group
Columbia GulfColumbia Gulf Transmission LLCCompany
Columbia of KentuckyColumbia Gas of Kentucky, Inc.
Columbia of MarylandColumbia Gas of Maryland, Inc.
Columbia of MassachusettsBay State Gas Company
Columbia of OhioColumbia Gas of Ohio, Inc.
Columbia of PennsylvaniaColumbia Gas of Pennsylvania, Inc.
Columbia of VirginiaColumbia Gas of Virginia, Inc.
Columbia TransmissionColumbia Gas Transmission, LLC
CPRCColumbia Gas of Pennsylvania Receivables Corporation
Crossroads PipelineCrossroads Pipeline Company
Hardy StorageHardy Storage Company, LLC
Kokomo GasKokomo Gas and Fuel Company
MillenniumMillennium Pipeline Company, L.L.C.
NARCNIPSCO Accounts Receivable Corporation
NDC Douglas PropertiesNDC Douglas Properties, Inc.
NEVCONiSource Energy Ventures, LLC
NIPSCONorthern Indiana Public Service Company
NiSourceNiSource Inc.
NiSource Corporate ServicesNiSource Corporate Services Company
NiSource Development CompanyNiSource Development Company, Inc.
NiSource FinanceNiSource Finance Corp.
Northern Indiana Fuel and LightNorthern Indiana Fuel and Light Company
NiSource MidstreamNiSource Midstream Services, LLC
PennantPennant Midstream, LLC
  
Abbreviations 
AFUDCAllowance for funds used during construction
AOCAdministrative Order by Consent
AOCIAccumulated Other Comprehensive Income (Loss)
ASUAccounting Standards Update
BBABritish Banker Association
BcfBillion cubic feet
BNSBank of Nova Scotia
BTMUThe Bank of Tokyo-Mitsubishi UFJ, LTD.
BTUBritish Thermal Unit
CAAClean Air Act
CAIRClean Air Interstate Rule
CAMRClean Air Mercury Rule

3


DEFINED TERMS (continued)

CCRsCoal Combustion Residuals
CO2
Carbon Dioxide
CSAPRCross-State Air Pollution Rule
DEPDepartment of Environmental Protection
DIMP
Distribution Integrity Management Program

DPUDepartment of Public Utilities
DSMDemand Side Management
DthDekatherm
ECREnvironmental Cost Recovery
ECRMEnvironmental Cost Recovery Mechanism
ECTEnvironmental Cost Tracker
EERMEnvironmental Expense Recovery Mechanism
EPAUnited States Environmental Protection Agency
EPSEarnings per share
FACFuel adjustment clause
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
FGDFlue Gas Desulfurization
FTRsFinancial Transmission Rights
GAAPGenerally Accepted Accounting Principles
GAFGas Adjustment Factor
GCIMGas Cost Incentive Mechanism
GCRGas cost recovery
GHGGreenhouse gases
gwhGigawatt hours
HilcorpHilcorp Energy Company
hpHorsepower
IDEMIndiana Department of Environmental Management
INDIECIndiana Industrial Energy Consumers, Inc.
IRPInfrastructure Replacement Program
IURCIndiana Utility Regulatory Commission
kVKilovolt
LDAFLocal Distribution Adjustment Factor
LDCsLocal distribution companies
LIBORLondon InterBank Offered Rate
LIFOLast-in, first-out
LNGLiquefied Natural Gas
MATSMercury and Air Toxics Standards
McfThousand cubic feet
MMcfMillion cubic feet
MGPManufactured Gas Plant
MISOMidcontinent Independent System Operator
MizuhoMizuho Corporate Bank Ltd.
MMDthMillion dekatherms
mwMegawatts
mwhMegawatt hours

4


DEFINED TERMS (continued)

mwhMegawatt hours
NAAQSNational Ambient Air Quality Standards
NGLNatural Gas Liquids
NOVNotice of Violation
NO2
Nitrogen dioxide
NOxNitrogen oxide
NYMEXNew York Mercantile Exchange
OCIOther Comprehensive Income (Loss)
OPEBOther Postretirement Benefits
OUCCIndiana Office of Utility Consumer Counselor
PEFPension Expense Factor
PiedmontPiedmont Natural Gas Company, Inc.
PMParticulate matter
PNCPNC Bank, N.A.
PUCPublic Utility Commission
PUCOPublic Utilities Commission of Ohio
RAResource Adequacy
RAAFResidential Assistance Adjustment Factor
RACTReasonably Available Control Technology
RBSRoyal Bank of Scotland, PLC
RTORegional Transmission Organization
SAVESteps to Achieve Virginia’s Energy
SECSecurities and Exchange Commission
SIPState Implementation Plan
SO2
Sulfur dioxide
TDSICTransmission, Distribution and Storage System Improvement Charge
TUAsTransmission Upgrade Agreements
VIEVariable Interest Entities
VSCCVirginia State Corporation Commission



5

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS
NiSource Inc.
Condensed Statements of Consolidated Income (unaudited)
 
Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in millions, except per share amounts)2014 2013 2014 20132014 2013 2014 2013
Net RevenuesNet Revenues      Net Revenues      
Gas Distribution$423.5
 $393.3
 $1,638.5
 $1,285.5
$240.3
 $255.1
 $1,878.8
 $1,540.6
Gas Transportation and Storage390.1
 366.5
 968.6
 835.0
381.7
 346.9
 1,350.3
 1,181.9
Electric404.8
 384.5
 854.8
 761.8
424.6
 413.4
 1,279.4
 1,175.2
Other116.7
 57.2
 193.7
 101.4
77.3
 61.4
 271.0
 162.8
Gross Revenues1,335.1
 1,201.5
 3,655.6
 2,983.7
1,123.9
 1,076.8
 4,779.5
 4,060.5
Cost of Sales (excluding depreciation and amortization)371.7
 349.3
 1,433.0
 1,025.3
230.5
 243.0
 1,663.5
 1,268.3
Total Net Revenues963.4
 852.2
 2,222.6
 1,958.4
893.4
 833.8
 3,116.0
 2,792.2
Operating Expenses              
Operation and maintenance533.1
 452.4
 1,034.3
 906.7
529.5
 468.9
 1,563.8
 1,375.6
Depreciation and amortization149.1
 143.3
 297.8
 286.9
153.0
 144.5
 450.8
 431.4
Gain on sale of assets, net(0.7) (0.2) (16.4) (0.4)(2.9) (9.8) (19.3) (10.2)
Other taxes73.4
 70.7
 174.5
 157.4
68.0
 64.3
 242.5
 221.7
Total Operating Expenses754.9
 666.2
 1,490.2
 1,350.6
747.6
 667.9
 2,237.8
 2,018.5
Equity Earnings in Unconsolidated Affiliates11.1
 8.0
 20.9
 15.1
12.0
 10.5
 32.9
 25.6
Operating Income219.6
 194.0
 753.3
 622.9
157.8
 176.4
 911.1
 799.3
Other Income (Deductions)              
Interest expense, net(109.1) (102.0) (218.2) (200.6)(109.6) (103.7) (327.8) (304.3)
Other, net7.5
 13.3
 12.0
 17.4
9.2
 4.7
 21.2
 22.1
Total Other Deductions(101.6) (88.7) (206.2) (183.2)(100.4) (99.0) (306.6) (282.2)
Income from Continuing Operations before Income Taxes118.0
 105.3
 547.1
 439.7
57.4
 77.4
 604.5
 517.1
Income Taxes39.5
 32.9
 202.2
 151.3
25.9
 27.9
 228.1
 179.2
Income from Continuing Operations78.5
 72.4
 344.9
 288.4
31.5
 49.5
 376.4
 337.9
(Loss) Income from Discontinued Operations - net of taxes(0.3) (0.7) (0.5) 7.4
(0.1) 0.1
 (0.6) 7.5
Gain on Disposition of Discontinued Operations - net of taxes
 
 
 36.4
(Loss) Gain on Disposition of Discontinued Operations - net of taxes
 (1.5) 
 34.9
Net Income$78.2
 $71.7
 $344.4
 $332.2
$31.4
 $48.1
 $375.8
 $380.3
Basic Earnings Per Share              
Continuing operations$0.25
 $0.23
 $1.10
 $0.92
$0.10
 $0.16
 $1.19
 $1.08
Discontinued operations
 
 
 0.14

 
 
 0.14
Basic Earnings Per Share$0.25
 $0.23
 $1.10
 $1.06
$0.10
 $0.16
 $1.19
 $1.22
Diluted Earnings Per Share              
Continuing operations$0.25
 $0.23
 $1.09
 $0.92
$0.10
 $0.16
 $1.19
 $1.08
Discontinued operations
 
 
 0.14

 
 
 0.14
Diluted Earnings Per Share$0.25
 $0.23
 $1.09
 $1.06
$0.10
 $0.16
 $1.19
 $1.22
Dividends Declared Per Common Share$0.26
 $0.25
 $0.76
 $0.73
$0.26
 $0.25
 $1.02
 $0.98
Basic Average Common Shares Outstanding315.0
 312.2
 314.6
 311.7
315.4
 312.8
 314.9
 312.1
Diluted Average Common Shares316.1
 313.2
 315.7
 312.6
316.6
 313.8
 316.0
 313.0
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

6

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)


NiSource Inc.
Condensed Statements of Consolidated Comprehensive Income (unaudited)

Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in millions, net of taxes)2014 2013 2014 20132014 2013 2014 2013
Net Income$78.2
 $71.7
 $344.4
 $332.2
$31.4
 $48.1
 $375.8
 $380.3
Other comprehensive income (loss)              
Net unrealized gain (loss) on available-for-sale securities(1)
0.5
 (2.9) 0.8
 (3.3)
Net unrealized (loss) gain on available-for-sale securities(1)
(0.6) 0.9
 0.2
 (2.4)
Net unrealized gain on cash flow hedges(2)
0.7
 0.5
 1.3
 1.4
0.6
 0.6
 1.9
 2.0
Unrecognized pension and OPEB (cost) benefit(3)
(0.1) 2.7
 0.1
 5.4
(0.2) 0.1
 (0.1) 5.5
Total other comprehensive income1.1
 0.3
 2.2
 3.5
Total other comprehensive (loss) income(0.2) 1.6
 2.0
 5.1
Total Comprehensive Income$79.3
 $72.0
 $346.6
 $335.7
$31.2
 $49.7
 $377.8
 $385.4
(1) Net unrealized (loss) gain (loss) on available-for-sale securities, net of $0.20.3 million tax benefit and $0.5 million tax expense and $1.7 million tax benefit in the secondthird quarter of 2014 and 2013, respectively, and $0.4$0.1 million tax expense and $1.8$1.3 million tax benefit for the first sixnine months ofended 2014 and 2013, respectively.

(2) Net unrealized gains on derivatives qualifying as cash flow hedges, net of $0.4 million and $0.3 milliontax expense in the secondthird quarter of 2014 and 2013, respectively, and $0.8$1.2 million and $0.9$1.3 million tax expense for the first sixnine months ofended 2014 and 2013, respectively.

(3) Unrecognized pension and OPEB (cost) benefit, net of $0.7 millionzero tax benefit and$1.8 million tax expense in the secondthird quarter of 2014 and 2013, respectively, and $0.7 million tax benefit and $3.5 million tax expense for the first sixnine months ofended 2014 and 2013, respectively.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.


7

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)


NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in millions)June 30,
2014
 December 31,
2013
September 30,
2014
 December 31,
2013
ASSETS      
Property, Plant and Equipment      
Utility plant$24,202.6
 $23,303.7
$24,775.7
 $23,303.7
Accumulated depreciation and amortization(9,444.2) (9,256.5)(9,533.2) (9,256.5)
Net utility plant14,758.4
 14,047.2
15,242.5
 14,047.2
Other property, at cost, less accumulated depreciation330.4
 317.9
344.0
 317.9
Net Property, Plant and Equipment15,088.8
 14,365.1
15,586.5
 14,365.1
Investments and Other Assets      
Unconsolidated affiliates437.1
 373.7
443.5
 373.7
Other investments201.9
 204.0
211.7
 204.0
Total Investments and Other Assets639.0
 577.7
655.2
 577.7
Current Assets      
Cash and cash equivalents18.0
 26.8
17.7
 26.8
Restricted cash9.8
 8.0
16.0
 8.0
Accounts receivable (less reserve of $29.7 and $23.5, respectively)824.0
 1,005.8
Accounts receivable (less reserve of $18.4 and $23.5, respectively)639.3
 1,005.8
Gas inventory321.6
 354.6
513.0
 354.6
Underrecovered gas and fuel costs75.7
 46.4
54.7
 46.4
Materials and supplies, at average cost106.0
 101.2
106.4
 101.2
Electric production fuel, at average cost41.5
 44.6
48.2
 44.6
Price risk management assets13.2
 22.7
Exchange gas receivable135.7
 70.6
80.9
 70.6
Regulatory assets188.1
 142.8
200.1
 142.8
Deferred income taxes231.7
 175.3
Prepayments and other320.9
 335.7
103.6
 183.1
Total Current Assets2,054.5
 2,159.2
2,011.6
 2,159.2
Other Assets      
Regulatory assets1,454.1
 1,522.2
1,440.9
 1,522.2
Goodwill3,666.2
 3,666.2
3,666.2
 3,666.2
Intangible assets270.2
 275.7
267.4
 275.7
Deferred charges and other85.0
 87.8
82.3
 87.8
Total Other Assets5,475.5
 5,551.9
5,456.8
 5,551.9
Total Assets$23,257.8
 $22,653.9
$23,710.1
 $22,653.9
 
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
 

8

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)


NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)
(in millions, except share amounts)June 30,
2014
 December 31,
2013
September 30,
2014
 December 31,
2013
CAPITALIZATION AND LIABILITIES      
Capitalization      
Common Stockholders’ Equity      
Common stock - $0.01 par value, 400,000,000 shares authorized; 315,215,694 and 313,675,911 shares outstanding, respectively$3.2
 $3.2
Common stock - $0.01 par value, 400,000,000 shares authorized; 315,597,089 and 313,675,911 shares outstanding, respectively$3.2
 $3.2
Additional paid-in capital4,734.7
 4,690.1
4,764.7
 4,690.1
Retained earnings1,390.6
 1,285.5
1,339.9
 1,285.5
Accumulated other comprehensive loss(41.4) (43.6)(41.6) (43.6)
Treasury stock(58.8) (48.6)(58.9) (48.6)
Total Common Stockholders’ Equity6,028.3
 5,886.6
6,007.3
 5,886.6
Long-term debt, excluding amounts due within one year7,640.6
 7,593.2
8,397.4
 7,593.2
Total Capitalization13,668.9
 13,479.8
14,404.7
 13,479.8
Current Liabilities      
Current portion of long-term debt530.0
 542.1
18.7
 542.1
Short-term borrowings1,101.1
 698.7
1,311.1
 698.7
Accounts payable459.6
 619.0
427.7
 619.0
Dividends payable82.0
 
82.1
 
Customer deposits and credits241.7
 262.6
257.1
 262.6
Taxes accrued216.1
 254.8
189.3
 254.8
Interest accrued142.0
 136.4
81.7
 136.4
Overrecovered gas and fuel costs49.8
 32.2
21.2
 32.2
Exchange gas payable139.2
 186.4
143.1
 186.4
Deferred revenue8.7
 18.5
6.5
 18.5
Regulatory liabilities88.7
 60.2
79.9
 60.2
Accrued liability for postretirement and postemployment benefits6.2
 6.2
6.2
 6.2
Legal and environmental18.9
 32.3
15.3
 32.3
Other accruals347.4
 329.0
408.6
 329.0
Total Current Liabilities3,431.4
 3,178.4
3,048.5
 3,178.4
Other Liabilities and Deferred Credits      
Deferred income taxes3,471.9
 3,277.8
3,540.8
 3,277.8
Deferred investment tax credits19.1
 20.9
18.2
 20.9
Deferred credits103.9
 91.9
102.7
 91.9
Deferred revenue20.3
 17.1
20.9
 17.1
Accrued liability for postretirement and postemployment benefits466.1
 527.5
425.6
 527.5
Regulatory liabilities1,673.9
 1,669.8
1,675.8
 1,669.8
Asset retirement obligations178.0
 174.4
175.2
 174.4
Other noncurrent liabilities224.3
 216.3
297.7
 216.3
Total Other Liabilities and Deferred Credits6,157.5
 5,995.7
6,256.9
 5,995.7
Commitments and Contingencies (Refer to Note 17)
 
Commitments and Contingencies (Refer to Note 16)
 
Total Capitalization and Liabilities$23,257.8
 $22,653.9
$23,710.1
 $22,653.9
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

9

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Condensed Statements of Consolidated Cash Flows (unaudited)

NiSource Inc.
Condensed Statements of Consolidated Cash Flows (unaudited)

NiSource Inc.
Condensed Statements of Consolidated Cash Flows (unaudited)

Six Months Ended June 30, (in millions)
2014 2013
Nine Months Ended September 30, (in millions)
2014 2013
Operating Activities      
Net Income$344.4
 $332.2
$375.8
 $380.3
Adjustments to Reconcile Net Income to Net Cash from Continuing Operations:      
Depreciation and amortization297.8
 286.9
450.8
 431.4
Net changes in price risk management assets and liabilities1.4
 1.3
1.9
 1.9
Deferred income taxes and investment tax credits186.8
 168.6
220.8
 199.1
Deferred revenue1.6
 (0.4)1.9
 1.6
Stock compensation expense and 401(k) profit sharing contribution27.9
 23.0
54.6
 39.7
Gain on sale of assets(16.4) (0.4)(19.3) (10.2)
Income from unconsolidated affiliates(20.6) (15.2)(32.3) (25.5)
Gain on disposition of discontinued operations - net of taxes
 (36.4)
 (34.9)
Loss (Income) from discontinued operations - net of taxes0.5
 (7.4)0.6
 (7.5)
Amortization of debt related costs5.1
 4.6
7.5
 7.0
AFUDC equity(9.2) (8.0)(15.6) (12.7)
Distributions of earnings received from equity investees12.9
 12.3
27.6
 19.0
Changes in Assets and Liabilities      
Accounts receivable176.4
 194.5
362.6
 318.4
Income tax receivable1.0
 124.5
2.1
 124.6
Inventories28.2
 73.2
(170.8) (103.7)
Accounts payable(170.3) (119.2)(218.1) (177.7)
Customer deposits and credits(20.9) (104.8)70.2
 (20.4)
Taxes accrued(43.2) (47.0)(67.7) (68.0)
Interest accrued5.5
 (8.5)(54.6) (62.1)
(Under) Overrecovered gas and fuel costs(11.6) 86.9
(19.2) 38.1
Exchange gas receivable/payable(112.3) (49.6)(53.6) 28.1
Other accruals(47.6) (33.3)(29.7) (36.5)
Prepayments and other current assets43.0
 36.2
56.1
 45.5
Regulatory assets/liabilities14.8
 40.9
17.1
 71.5
Postretirement and postemployment benefits(61.8) (79.3)(102.5) (95.9)
Deferred credits11.1
 9.5
13.8
 11.1
Deferred charges and other noncurrent assets(0.3) 5.2
1.5
 11.8
Other noncurrent liabilities7.8
 (9.4)6.3
 (6.3)
Net Operating Activities from Continuing Operations652.0
 880.9
887.8
 1,067.7
Net Operating Activities (used for) from Discontinued Operations(1.0) 13.6
(1.3) 10.9
Net Cash Flows from Operating Activities651.0
 894.5
886.5
 1,078.6
Investing Activities      
Capital expenditures(852.9) (801.7)(1,441.7) (1,297.3)
Insurance recoveries6.8
 
6.8
 6.4
Proceeds from disposition of assets6.2
 0.7
7.6
 17.9
Restricted cash (deposits) withdrawals(1.8) 17.4
(8.1) 28.5
Contributions to equity investees(54.8) (32.7)(63.8) (77.1)
Other investing activities(1.1) (23.6)(13.0) (48.4)
Net Investing Activities used for Continuing Operations(897.6) (839.9)(1,512.2) (1,370.0)
Net Investing Activities from Discontinued Operations
 121.8

 118.7
Net Cash Flows used for Investing Activities(897.6) (718.1)(1,512.2) (1,251.3)
Financing Activities      
Issuance of long-term debt
 815.3
748.4
 815.3
Repayments of long-term debt and capital lease obligations(13.3) (451.0)(517.1) (505.2)
Premiums and other debt related costs
 (3.2)
Change in short-term borrowings, net402.4
 (399.2)612.4
 43.9
Issuance of common stock16.1
 24.1
22.4
 36.1
Acquisition of treasury stock(10.2) (7.9)(10.3) (8.0)
Dividends paid - common stock(157.2) (149.5)(239.2) (227.6)
Net Cash Flows from (used for) Financing Activities237.8
 (168.2)
Net Cash Flows from Financing Activities616.6
 151.3
Change in cash and cash equivalents used for continuing operations(7.8) (127.2)(7.8) (151.0)
Cash contributions (to) from discontinued operations(1.0) 135.4
(1.3) 129.6
Cash and cash equivalents at beginning of period26.8
 36.3
26.8
 36.3
Cash and Cash Equivalents at End of Period$18.0
 $44.5
$17.7
 $14.9

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

10

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ITEM 1. FINANCIAL STATEMENTS (continued)


NiSource Inc.
Condensed Statement of Consolidated Common Stockholders' Equity (unaudited)
(in millions)
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income/(Loss)
 Total
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income/(Loss)
 Total
Balance as of January 1, 2014$3.2
 $(48.6) $4,690.1
 $1,285.5
 $(43.6) $5,886.6
$3.2
 $(48.6) $4,690.1
 $1,285.5
 $(43.6) $5,886.6
Comprehensive Income:                      
Net Income
 
 
 344.4
 
 344.4

 
 
 375.8
 
 375.8
Other comprehensive income, net of tax
 
 
 
 2.2
 2.2

 
 
 
 2.0
 2.0
Common stock dividends
 
 
 (239.3) 
 (239.3)
 
 
 (321.4) 
 (321.4)
Treasury stock acquired
 (10.2) 
 
 
 (10.2)
 (10.3) 
 
 
 (10.3)
Issued:                      
Employee stock purchase plan
 
 1.9
 
 
 1.9

 
 3.0
 
 
 3.0
Long-term incentive plan
 
 15.0
 
 
 15.0

 
 31.9
 
 
 31.9
401(k) and profit sharing issuance
 
 23.8
 
 
 23.8

 
 33.8
 
 
 33.8
Dividend reinvestment plan
 
 3.9
 
 
 3.9

 
 5.9
 
 
 5.9
Balance as of June 30, 2014$3.2
 $(58.8) $4,734.7
 $1,390.6
 $(41.4) $6,028.3
Balance as of September 30, 2014$3.2
 $(58.9) $4,764.7
 $1,339.9
 $(41.6) $6,007.3

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.


11

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

 
1.    Basis of Accounting Presentation

The accompanying Condensed Consolidated Financial Statements (unaudited) for NiSource (the “Company”) reflect all normal recurring adjustments that are necessary, in the opinion of management, to present fairly the results of operations in accordance with GAAP in the United States of America.
The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in NiSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Income for interim periods may not be indicative of results for the calendar year due to weather variations and other factors.

The Condensed Consolidated Financial Statements (unaudited) have been prepared pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although NiSource believes that the disclosures made are adequate to make the information not misleading. 

Planned Separation of Columbia Pipeline Group and Initial Public Offering of Columbia Pipeline Partners LP
On September 28, 2014, NiSource announced that its Board of Directors had approved in principle plans to separate its natural gas pipeline and related businesses into a stand-alone publicly traded company (the “Proposed Separation”). If completed, the Proposed Separation will result in two energy infrastructure companies: NiSource Inc., a fully regulated natural gas and electric utilities company, and Columbia Pipeline Group Inc., a natural gas pipeline, midstream and storage company (“CPG”). The Proposed Separation is expected to occur in mid-2015.
Under the plan for the Proposed Separation, NiSource shareholders would retain their current shares of NiSource stock and receive a pro rata distribution of shares of CPG stock in a transaction that is expected to be tax-free to NiSource and its shareholders.
On September 29, 2014, Columbia Pipeline Partners LP, a wholly owned subsidiary (“CPPL”), filed with the Securities and Exchange Commission a Registration Statement on Form S-1 related to CPPL’s proposed initial public offering of common units representing limited partner interests in CPPL. We expect that CPPL will sell a minority share of its total limited partner interests in the offering, which is expected to occur in the first quarter of 2015. If the proposed offering closes, CPPL’s initial asset would consist of an approximate 14.6% ownership interest in CPG OpCo LP (“Columbia OpCo”), which is the entity that will own substantially all of NiSource’s natural gas transmission, midstream and storage assets. In addition, NiSource, through its ownership of CPG, would indirectly own (a) the remaining ownership interest in Columbia OpCo, (b) the general partner of CPPL, (c) the remaining CPPL limited partner interests that are not sold in the offering and (d) all the incentive distribution rights in CPPL.


12

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

2.    Recent Accounting Pronouncements

In June 2014, the FASB issued ASU 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. ASU 2014-12 clarifies that entities should treat performance targets that can be met after the requisite service period of a share-based payment award as performance conditions that affect vesting. NiSource is required to adopt ASU 2014-12 for periods beginning after December 15, 2015, including interim periods, and the guidance is to be applied prospectively, with early adoption permitted. Retroactive application would apply to awards with performance targets outstanding after the beginning of the first annual period presented. The adoption of this guidance will not have a material impact on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. NiSource is required to adopt ASU 2014-09 for periods beginning after December 15, 2016, including interim periods, and the new standard is to be applied retrospectively with early adoption not permitted. NiSource is currently evaluating the impact the adoption of ASU 2014-09 will have on its Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. NiSource is required to adopt ASU 2014-08 prospectively for all disposals or components of its business classified as held for sale during fiscal periods beginning after December 15, 2014. NiSource is currently evaluating what impact, if any, adoption of ASU 2014-08 will have on its Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).


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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

3.    Earnings Per Share

Basic EPS is computed by dividing income available to common stockholders 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. The numerator in calculating both basic and diluted EPS for each period is reported net income. The computation of diluted average common shares follows:
 
Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in thousands)2014 2013 2014 20132014 2013 2014 2013
Denominator              
Basic average common shares outstanding315,013
 312,177
 314,620
 311,652
315,418
 312,842
 314,889
 312,053
Dilutive potential common shares:              
Stock options41
 171
 39
 156
32
 112
 30
 102
Shares contingently issuable under employee stock plans616
 350
 580
 327
725
 369
 649
 327
Shares restricted under stock plans431
 471
 427
 466
451
 490
 438
 477
Diluted Average Common Shares316,101
 313,169
 315,666
 312,601
316,626
 313,813
 316,006
 312,959
 

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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

4.    Discontinued Operations and Assets and Liabilities Held for Sale

There were no assets and liabilities of discontinued operations and held for sale on the Condensed Consolidated Balance Sheets (unaudited) at JuneSeptember 30, 2014 and December 31, 2013.
     
Results from discontinued operations are provided in the following table. These results are primarily from a settlement at NiSource's former exploration and production subsidiary, CER, NiSource's Retail Services business, and NiSource's unregulated natural gas marketing business.
Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in millions)2014 2013 2014 20132014 2013 2014 2013
Net Revenues from Discontinued Operations$
 $0.2
 $
 $0.6
$
 $0.4
 $
 $1.3
(Loss) Income from discontinued operations(0.5) (1.1) (0.8) 12.0
(0.2) 0.1
 (1.0) 12.2
Income tax (benefit) expense(0.2) (0.4) (0.3) 4.6
(0.1) 
 (0.4) 4.7
(Loss) Income from Discontinued Operations - net of taxes$(0.3) $(0.7) $(0.5) $7.4
$(0.1) $0.1
 $(0.6) $7.5
Gain on Disposition of Discontinued Operations - net of taxes$
 $
 $
 $36.4
(Loss) Gain on Disposition of Discontinued Operations - net of taxes$
 $(1.5) $
 $34.9

5.    Asset Retirement Obligations
Certain costs of removal that have been, and continue to be, included in depreciation rates and collected in the service rates of the rate-regulated subsidiaries are classified as “Regulatory liabilities” on the Condensed Consolidated Balance Sheets (unaudited).

Changes in NiSource’s liability for asset retirement obligations for the nine months ended September 30, 2014 and 2013 are presented in the table below:
(in millions)2014 2013
Balance as of January 1,$174.4
 $160.4
Accretion expense1.2
 0.9
Accretion recorded as a regulatory asset/liability6.3
 6.5
Additions2.3
 9.7
Settlements(1.4) (1.3)
Change in estimated cash flows(1)
(7.6) (0.7)
Balance as of September 30,$175.2
 $175.5
(1)The change in estimated cash flows for 2014 is primarily attributed to changes in estimated costs to retire pipeline.

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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


Changes in NiSource’s liability for asset retirement obligations for the six months ended June 30, 2014 and 2013 are presented in the table below:
(in millions)2014 2013
Balance as of January 1,$174.4
 $160.4
Accretion expense0.8
 0.6
Accretion recorded as a regulatory asset/liability4.2
 4.4
Additions3.0
 3.0
Settlements(1.0) (0.6)
Change in estimated cash flows(3.4) (0.7)
Balance as of June 30,$178.0
 $167.1

6.    Regulatory Matters
Gas Distribution Operations Regulatory Matters

Significant Rate Developments. On April 30, 2013, Indiana Governor Pence signed Senate Enrolled Act 560 into law. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a seven-year plan of eligible investments. Once the plan is approved by the IURC, 80 percent of eligible costs can be recovered using a periodic rate adjustment mechanism.  The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on, and of, the investment, including AFUDC, post in service carrying charges, operation and maintenance expenses, depreciation, and property taxes.  The remaining 20 percent of recoverable costs are to be deferred for future recovery in the public utility’s next general rate case.  The periodic rate adjustment mechanism is capped at an annual increase of no more than two percent of total retail revenues. On October 3, 2013, NIPSCO filed its gas TDSIC seven-year plan of eligible investments for a total of approximately $710 million with the IURC. On April 30, 2014, the IURC issued an order approving NIPSCO’sNIPSCO's gas TDSIC seven-year plan. NIPSCO anticipates filing its request with the IURC for ratemaking and accounting relief associated with the eligible investments in the third quarter of 2014. On May 29, 2014, the NIPSCO Industrial Group filed a Notice of Appeal with the Indiana Court of Appeals in response to the IURC's April 30, 2014 ruling. Subsequently, the NIPSCO Industrial Group filed a Voluntary Notice of Dismissal, which was granted with prejudice.

On September 12, 2014, Columbia of Ohio filed an application that seeks authority to establish a regulatory asset and defer, for accounting and financial reporting purposes, the expenditures to be incurred in implementing Columbia of Ohio’s Pipeline Safety Program. Columbia of Ohio is requesting authority to defer Pipeline Safety Program costs of up to $15 million annually. Comments are due November 17, 2014, and Reply Comments are due December 2, 2014.

On November 25, 2013, Columbia of Ohio filed a Notice of Intent to file an application to adjust rates associated with its IRP and DSM Riders. Columbia of Ohio filed its Application on February 28, 2014, requesting authority to increase revenues by approximately $25.5 million. The parties have settled all issues, and on April 7, 2014 filed a stipulation providing for a revenue increase of approximately $25.5 million. On April 23, 2014, Columbia of Ohio received approval of its annual infrastructure replacement and demand-side management rider request from the PUCO. New rates became effective April 30, 2014.

On April 16, 2013, Columbia of Massachusetts submitted a filing with the Massachusetts DPU requesting an annual revenue requirement increase of $30.1 million. Pursuant to the procedural schedule for this case, on September 3, 2013, Columbia of Massachusetts filed its updated revenue requirement of $29.5 million and on October 16, 2013, filed an updated cost of service for $30.0 million. A final revenue requirement update of $29.9 million was filed on December 16, 2013. On February 28, 2014, the Massachusetts DPU issued an order granting an annual revenue requirement increase of $19.3 million effective March 1, 2014, and the compliance filing associated with the order has been approved. Columbia of Massachusetts currently has two Motions for Reconsideration and Clarification pending before the Massachusetts DPU with regard to specific findings in the order.

On September 16, 2013, Columbia of Massachusetts filed its Peak Period GAF for the period November 1, 2013 through April 30, 2014, and its Peak Period 2012-2013 GAF Reconciliation. On January 17, 2014, Columbia of Massachusetts filed a revision to the GAF effective February 1, 2014, and on February 18, 2014, Columbia of Massachusetts filed its second revision to the GAF effective March 1, 2014, to eliminate Columbia of Massachusetts’s projected Peak Period under-collection of $50.0 million. On February 28, 2014, the Massachusetts DPU approved a revised GAF subject to further review and reconciliation to recover approximately $25 million of the anticipated under-collection and defer recovery of the remaining $25 million to November 2014

14

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

through April 2015, and thus, this deferred amount will behas been incorporated into the proposed GAF to be submitted inas filed on September 16, 2014, in Columbia of Massachusetts’s 2014-2015 Peak Period GAF filing.

On August 4, 2014, Columbia of Massachusetts filed its 2014-2015 Peak Period LDAF and on September 16, 2014, Columbia of Massachusetts filed its 2014 PEF and its 2014 RAAF, each with a proposed effective date of November 1, 2014. Columbia of Massachusetts expects approval of the 2014-2015 LDAF by October 31, 2014. Columbia of Massachusetts also expects approval of the 2014 PEF and 2014 RAAF by October 31, 2014, subject to further investigation and reconciliation.

On April 16, 2013, Columbia of Massachusetts submitted a filing with the Massachusetts DPU requesting an annual revenue requirement increase of $30.1 million. Pursuant to the procedural schedule for this case, on September 3, 2013, Columbia of Massachusetts filed its updated revenue requirement of $29.5 million and on October 16, 2013, filed an updated cost of service for $30 million. A final revenue requirement update of $29.9 million was filed on December 16, 2013. On February 28, 2014, the Massachusetts DPU issued an order granting an annual revenue requirement increase of $19.3 million effective March 1, 2014, and the compliance filing associated with the order has been approved.

On March 21, 2014, Columbia of Pennsylvania filed a base rate case with the Pennsylvania PUC, seeking a revenue increase of approximately $54.1 million annually. The case is driven by Columbia of Pennsylvania’s capital investment program which exceeds $180 million in both 2014 and 2015 as well as new pipeline safety-related operation and maintenance expenditures. Columbia of Pennsylvania seeks Pennsylvania PUC approval to implement additional rates to recover costs that are projected to be incurred after the implementation of those new rates, as authorized by the Pennsylvania General Assembly with the passage of Act 11 of

15

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

2012. Columbia of Pennsylvania's filing seeks to implement rates in December 2014 under which Columbia of Pennsylvania would immediately begin to recover costs that are projected for the twelve-month period ending December 31, 2015. On September 5, 2014, the parties to the rate case filed a joint petition which seeks approval of a full settlement. If the settlement is approved, Columbia of Pennsylvania will be authorized to increase its annual base revenues by $32.5 million. The administrative law judge assigned to the case is currentlyissued a Recommended Decision on October 17, 2014, in discovery, and awhich he recommended that the settlement be approved, without modification. A final order from the Pennsylvania PUC is expected in the fourth quarter of 2014.

On April 30, 2014, Columbia of Virginia filed a base rate case with the VSCC seeking an annual revenue increase of $31.8 million, which includes $6.9 million in annual revenues currently collected as a separate infrastructure replacement rider on customers’ bills under the Virginia SAVE Plan Act. The SAVE rider will be reset to zero and these revenues will be moved into non-gas base rates, resulting in a proposed net revenue increase of $24.9 million per year. Columbia of Virginia also seeks to recover costs related to its implementation of pipeline safety programs and forward looking adjustments to its capital investments and changes in operating costs projected to occur during the rate year ending September 30, 2015. In addition, Columbia of Virginia is proposing a change from volumetric based (Mcf) billing to thermal based (Btu) billing. The VSCC issued a procedural order in the case on May 28, 2014 which scheduled the case for hearing on December 9, 2014. New rates are subject to refund and are scheduled to becomebecame effective October 1, 2014.

Cost Recovery and Trackers. A significant portion of the distribution companies' revenue is related to the recovery of gas costs, the review and recovery of which occurs via standard regulatory proceedings. All states require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. NiSource distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.

Certain operating costs of the NiSource distribution companies are significant, recurring in nature, and generally outside the control of the distribution companies. Some states allow the recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the distribution companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include GCR adjustment mechanisms, tax riders, gas energy efficiency programs, and bad debt recovery mechanisms.

Comparability of Gas Distribution Operations line item operating results is impacted by regulatory trackers that allow for the recovery in rates of certain costs such as bad debt expenses. Increases in the expenses that are subject to trackers result in a corresponding increase in net revenues and therefore have essentially no impact on total operating income results.

Certain of the NiSource distribution companies have completed rate proceedings involving infrastructure replacement or are embarking upon regulatory initiatives to replace significant portions of their operating systems that are nearing the end of their useful lives. Each LDC's approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.

As further discussed above, NIPSCO has approval from the IURC to recover certain costs for transmission, distribution and storage system improvements. On August 28, 2014, NIPSCO filed its gas TDSIC-1 with the IURC for ratemaking and accounting relief associated with the eligible investments, which included $4.4 million of net capital expenditures for the period ended June 30, 2014. This filing includes changes to the revenue requirement mechanism to be consistent with the IURC order in the electric TDSIC case and revised seven-year plan eligible investment projections. An order is expected in the first quarter of 2015.

Columbia Pipeline Group Operations Regulatory Matters

Significant Rate Developments. On January 30, 2014, Columbia Transmission received FERC approval of its December 2013 filing to recover costs associated with the first year of its comprehensive system modernization program. During 2013, Columbia Transmission completed more than 30 individual projects representing a total investment of about $300 million. The program includes replacement of aging pipeline and compressor facilities, enhancements to system inspection capabilities, and improvements in real-time analytics and control systems. Recovery of the 2013 investments began on February 1, 2014.
The second year of the program includes planned modernization investments of approximately $300330 million. Columbia Transmission and its customers have agreed to the initial five years of the comprehensive modernization program, with an opportunity to mutually extend the agreement.


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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


Cost Recovery Trackers. A significant portion of the regulated transmission and storage companies' revenue is related to the recovery of their operating costs, the review and recovery of which occurs via standard regulatory proceedings with the FERC under section 4 of the Natural Gas Act. However, certain operating costs of the NiSource regulated transmission and storage companies are significant and recurring in nature, such as fuel for compression and lost and unaccounted for gas.gas, which is settled in-kind and reflected net of recoveries in operating expenses. The FERC allows for the recovery of such costs via cost tracking mechanisms. These tracking mechanisms allow the transmission and storage companies' rates to fluctuate in response to changes in certain operating costs or conditions as they occur to facilitate the timely recovery of its costs incurred. The tracking mechanisms involve a rate adjustment that is filed at a predetermined frequency, typically annually, with the FERC and is subject to regulatory review before new rates go into effect. Other such costs under regulatory tracking mechanisms include third-party pipeline transportation, electric compression, certain environmental related expenses, and certain operational purchases and sales of natural gas.

Electric Operations Regulatory Matters

Significant Rate Developments. On July 19, 2013, NIPSCO filed its electric TDSIC, further discussed above, with the IURC. The filing included the seven-year plan of eligible investments for a total of approximately $1.1 billion with the majority of the spend occurring in years 2016 through 2020. On February 17, 2014, the IURC issued an order approving NIPSCO’s seven-year plan of eligible investments. The Order also granted NIPSCO ratemaking relief associated with the eligible investments through a rate adjustment mechanism. NIPSCO anticipates filing its first semi-annual tracker petition in the third quarter of 2014. On March 10, 2014, the OUCC filed a Petition for Reconsideration with the IURC, and the IURC denied that Petition for Reconsideration on May 7, 2014. In addition, the NIPSCO Industrial Group and the OUCC have filed Notices of Appeal with the Indiana Court of Appeals in response to the IURC's ruling, which are still pending.

On November 12, 2013, several industrial customers, including INDIEC, filed a complaint at the FERC regarding the 12.38% base ROE used to set the MISO Transmission Owners' transmission rates and requestingrequested a reduction in the base ROE to 9.15%. The complaint further requestsrequested that FERC limit the capital structure of MISO Transmission Owners to no more than 50% common equity for ratemaking purposes and that FERC eliminate incentive adders for membership in a RTO. NIPSCO joined inOn October 16, 2014, FERC issued an answer defendingOrder that dismissed the 12.38%portions of the complaint that challenged Transmission Owner capital structures and incentive adders; set the base ROE for hearing and motionsuspended to dismissallow for settlement; set a refund effective date of November 12, 2013; and directed the complaint filed on behalf of a group of MISO Transmission Owners on January 6, 2014.parties to the new two-step discounted cash flow methodology established by FERC in Opinion No. 531 in Docket No. EL11-77-001. NIPSCO is unable to estimate the impact of this complaint or the timing of any potential impact at this time.

Cost Recovery and Trackers. A significant portion of NIPSCO's revenue is related to the recovery of fuel costs to generate power and purchased power. These costs are recovered through a FAC, a standard, quarterly, “summary” regulatory proceeding in Indiana.

Certain operating costs of the Electric Operations are significant, recurring in nature, and generally outside the control of NIPSCO. The IURC allows for recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for NIPSCO to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include electric energy efficiency programs, MISO non-fuel costs and revenues, federally mandated costs, resource capacity charges, and environmental related costs.

NIPSCO has approval from the IURC to recover certain environmental related costs through an ECT. Under the ECT, NIPSCO is permitted to recover (1) AFUDC and a return on the capital investment expended by NIPSCO to implement environmental compliance plan projects through an ECRM and (2) related operation and maintenance and depreciation expenses once the environmental facilities become operational through an EERM. On April 30,August 1, 2014, the IURC issued an order on ECR-23 approving NIPSCO’s request to begin earning a return on $583.5NIPSCO filed ECR-24 which included $658.4 million of net capital expenditures.
7.    Risk Management Activities

NiSourceexpenditures for the period ended June 30, 2014. An order is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. Derivative natural gas contracts are entered into to manage the price risk associated with natural gas price volatility and to secure forward natural gas prices. Interest rate swaps are entered into to manage interest rate risk or fair value risk associated with NiSource’s borrowings. NiSource designates some of its commodity forward contracts as cash flow hedges of forecasted purchases of commodities and designates its interest rate swaps as fair value hedges of fixed-rate borrowings.
Accounting Policy for Derivative Instruments. Unrealized and realized gains and losses are recognized each period as components of AOCI, regulatory assets and liabilities or earnings depending on the designation of the derivative instrument and regulatory

16

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

accounting treatment. For subsidiaries that utilize derivatives for cash flow hedges, the effective portions of the gains and losses are recorded to AOCI and are recognized in earnings concurrent with the disposition of the hedged risks. If a forecasted transaction corresponding to a cash flow hedge is no longer probable to occur, the accumulated gains or losses on the derivative are recognized currently in earnings. For fair value hedges, the gains and losses are recorded in earnings each period together with the changeexpected in the fair valuefourth quarter of the hedged item. As a result of the ratemaking process, the rate-regulated subsidiaries generally record gains and losses as regulatory liabilities or assets and recognize such gains or losses in earnings when both the contracts settle and the physical commodity flows. These gains and losses recognized in earnings are then subsequently recovered or passed back to customers in revenues through rates. When gains and losses are recognized in earnings, they are recognized in revenues or cost of sales for derivatives that correspond to commodity risk activities and are recognized in interest expense for derivatives that correspond to interest rate risk activities.
For its commodity price risk programs, NiSource has elected not to net the fair value amounts of its derivative instruments or the fair value amounts recognized for its right to receive 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. NiSource discloses amounts recognized for the right to reclaim cash collateral within “Restricted cash” and amounts recognized for the obligation to return cash collateral within “Other accruals” on the Condensed Consolidated Balance Sheets (unaudited).
Commodity Price Risk Programs. Commodity price risk program derivatives consist of NYMEX gas options, NYMEX gas futures and FTRs. Contracted gross volumes are as follows:
 June 30, 2014 December 31, 2013
Commodity Price Risk Program:   
Gas price volatility program derivatives (MMDth)16.7
 17.0
Price Protection Service program derivatives (MMDth)0.2
 0.7
DependaBill program derivatives (MMDth)0.2
 0.2
Electric hedging program (mwh)0.1
 
Electric energy program FTR derivatives (mw)4,700.0
 1,248.0
Interest Rate Risk Activities. NiSource recognizes that the prudent and selective use of derivatives may help it to lower its cost of debt capital and manage its interest rate exposure. NiSource Finance has entered into various “receive fixed” and “pay floating” interest rate swap agreements which modify the interest rate characteristics of a portion of its outstanding long-term debt from fixed to variable rate. These interest rate swaps also serve to hedge the fair market value of NiSource Finance’s outstanding debt portfolio. As of June 30, 2014, NiSource had $7.7 billion of outstanding fixed rate debt, of which $500 million is subject to fluctuations in interest rates as a result of the fixed-to-variable interest rate swap transactions. These interest rate swaps are designated as fair value hedges. NiSource had no net gain or loss recognized in earnings due to hedging ineffectiveness for the six months ended June 30, 2014 and 2013.
On July 22, 2003, NiSource Finance entered into fixed-to-variable interest rate swap agreements in a notional amount of $500 million with four counterparties which expired on July 15, 2014. NiSource Finance received payments based upon a fixed 5.40% interest rate and paid a floating interest amount based on U.S. 6-month BBA LIBOR plus an average of 0.78% per annum. There was no exchange of premium at the initial date of the swaps.
Contemporaneously with the issuance on September 16, 2005 of $1.0 billion of its 5.25% and 5.45% notes, maturing September 15, 2017 and 2020, respectively, NiSource Finance settled $900 million of forward starting interest rate swap agreements with six counterparties. NiSource paid an aggregate settlement payment of $35.5 million which is being amortized from AOCI to interest expense over the term of the underlying debt, resulting in an effective interest rate of 5.67% and 5.88%, respectively. As of June 30, 2014, AOCI includes $7.4 million related to forward starting interest rate swap settlement, net of tax. These derivative contracts are accounted for as a cash flow hedge.
As of June 30, 2014, NiSource holds a 47.5% interest in Millennium. As NiSource reports Millennium as an equity method investment, NiSource is required to recognize a proportional share of Millennium’s OCI. NiSource’s proportionate share of the remaining unrecognized loss associated with settled interest rate swaps was $17.1 million and $17.7 million, net of tax, as of June 30, 2014 and December 31, 2013, respectively. Millennium is amortizing the losses related to these terminated interest rate swaps into earnings using the effective interest method through interest expense as interest payments are made. NiSource records its proportionate share of the amortization as Equity Earnings in Unconsolidated Affiliates in the Condensed Statements of Consolidated Income (unaudited).

17

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

NiSource’s location and fair value of derivative instruments on the Condensed Consolidated Balance Sheets (unaudited) were:
Asset Derivatives (in millions)
June 30,
2014
 December 31,
2013
Balance Sheet LocationFair Value Fair Value
Derivatives designated as hedging instruments   
Interest rate risk activities   
Price risk management assets (current)$10.7
 $21.2
Total derivatives designated as hedging instruments$10.7
 $21.2
Derivatives not designated as hedging instruments   
Commodity price risk programs   
Price risk management assets (current)$2.5
 $1.5
Price risk management assets (noncurrent)(1)
0.1
 0.5
Total derivatives not designated as hedging instruments$2.6
 $2.0
Total Asset Derivatives$13.3
 $23.2
(1) This is included in "Deferred charges and other" on the Condensed Consolidated Balance Sheets (unaudited).
There were no significant liability derivatives as of June 30, 2014 and December 31, 2013.

As noted in NiSource's accounting policyfurther discussed above, NIPSCO has approval from the IURC to recover certain costs for derivative instruments, above, fortransmission and distribution system improvements. On August 28, 2014, NIPSCO filed its commodity price risk programs, NiSource has elected not to net fair value amounts for its derivative instruments or the fair value amounts recognized for its right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executedelectric TDSIC-1 with the same counterparty under a master netting arrangement. No material amounts were subject to an enforceable master netting agreement not otherwise disclosed asIURC for ratemaking and accounting relief associated with the eligible investments, which included $19.4 million of net capital expenditures for the period ended June 30, 2014 and December 31, 2013.
The effect of derivative instruments on the Condensed Statements of Consolidated Income (unaudited) was:
Derivatives in Cash Flow Hedging Relationships
Three Months Ended (in millions)
        
 
Amount of Loss
Recognized in OCI on
Derivative (Effective
Portion)
 
Location of Loss
Reclassified from  AOCI
into Income (Effective
Portion)
 
Amount of Loss Reclassified from AOCI
into Income (Effective
Portion)
Derivatives in Cash Flow
Hedging Relationships
June 30,
2014
 June 30,
2013
  June 30,
2014
 June 30,
2013
Commodity price risk programs$
 $(0.1) Cost of Sales $
 $
Interest rate risk activities
 
 Interest expense, net (0.4) (0.4)
Total$
 $(0.1)   $(0.4) $(0.4)
          
Six Months Ended (in millions)
        
 
Amount of Gain
Recognized in OCI on
Derivative (Effective
Portion)
 
Location of (Loss) Gain
Reclassified from  AOCI
into Income (Effective
Portion)
 
Amount of (Loss) Gain
Reclassified from AOCI
into Income (Effective
Portion)
Derivatives in Cash Flow
Hedging Relationships
June 30,
2014
 June 30,
2013
 June 30,
2014
 June 30,
2013
Commodity price risk programs$0.1
 $
 Cost of Sales $(0.2) $0.1
Interest rate risk activities
 
 Interest expense, net (0.8) (0.8)
Total$0.1
 $
   $(1.0) $(0.7)

18

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

There was no income statement recognition of gains or losses for the ineffective portion and amounts excluded from effectiveness testing for derivatives in cash flow hedging relationships for the three and six months endedJune 30, 2014 and 2013.
It2014. An order is anticipated that during the next twelve months the expiration and settlement of cash flow hedge contracts will result in income statement recognition of amounts currently classified in AOCI of approximately zero.

Derivatives in Fair Value Hedging Relationships
Three Months Ended (in millions)
     
Derivatives in Fair Value Hedging
Relationships
Location of Gain Recognized in
Income on Derivatives
 
Amount of Gain Recognized
in Income on Derivatives
June 30, 2014 June 30, 2013
Interest rate risk activitiesInterest expense, net $
 $0.2
Total  $
 $0.2
      
Six Months Ended (in millions)
    
Derivatives in Fair Value Hedging
Relationships
Location of Loss Recognized in
Income on Derivatives
 
Amount of Loss Recognized
in Income on Derivatives
June 30, 2014 June 30, 2013
Interest rate risk activitiesInterest expense, net $(10.4) $(9.5)
Total  $(10.4) $(9.5)
Three Months Ended (in millions)
     
Hedged Item in Fair Value Hedge
Relationships
Location of Loss Recognized in
Income on Related Hedged Item
 
Amount of Loss Recognized
in Income on Related Hedged Items
June 30, 2014 June 30, 2013
Fixed-rate debtInterest expense, net $
 $(0.2)
Total  $
 $(0.2)
      
Six Months Ended (in millions)
    
Hedged Item in Fair Value Hedge
Relationships
Location of Gain Recognized in
Income on Related Hedged Item
 
Amount of Gain Recognized
in Income on Related Hedged Items
June 30, 2014 June 30, 2013
Fixed-rate debtInterest expense, net $10.4
 $9.5
Total  $10.4
 $9.5

19

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Derivatives not designated as hedging instruments
Three Months Ended (in millions)
    
Derivatives Not Designated as Hedging
Instruments
Location of Gain (Loss)
Recognized in
Income on Derivatives
 
Amount of Realized/Unrealized Gain
(Loss) Recognized in Income on
Derivatives(1)
June 30, 2014 June 30, 2013
Commodity price risk programsGas Distribution revenues $
 $(0.1)
Commodity price risk programsCost of Sales 4.2
 7.7
Commodity price risk programsIncome from Discontinued Operations - net of taxes 
 0.1
Total  $4.2
 $7.7
(1) For the amounts of realized/unrealized gain (loss) recognized in income on derivatives disclosedexpected in the table above, gainsfourth quarter of $4.2 million and $7.6 million for the three months ended June 30, 2014 and 2013, respectively, were deferred as allowed per regulatory orders. These amounts will be amortized to income over future periods of up to twelve months as specified in a regulatory order.
Six Months Ended (in millions)
    
Derivatives Not Designated as Hedging
Instruments
Location of Gain
Recognized in
Income on Derivatives
 
Amount of Realized/Unrealized Gain  Recognized in Income on
Derivatives(2)
June 30, 2014 June 30, 2013
Commodity price risk programsCost of Sales $11.1
 $1.0
Commodity price risk programsIncome from Discontinued Operations - net of taxes 
 0.3
Total  $11.1
 $1.3
(2) For the amounts of realized/unrealized gain (loss) recognized in income on derivatives disclosed in the table above, gains of $11.1 million and $1.0 million for the six months ended June 30, 2014 and 2013, respectively, were deferred as allowed per regulatory orders. These amounts will be amortized to income over future periods of up to twelve months as specified in a regulatory order.2014.

NiSource’s derivative instruments measured at fair value as of June 30, 2014 and December 31, 2013 do not contain any credit-risk-related contingent features.
Certain NiSource affiliates have physical commodity purchase agreements that contain “ratings triggers” that require increases in collateral if the credit rating of NiSource or certain of its affiliates are rated below BBB- by Standard & Poor’s or below Baa3 by Moody’s. These agreements are primarily for the physical purchase or sale of natural gas and electricity. The collateral requirement from a downgrade below the ratings trigger levels would amount to approximately $0.7 million. In addition to agreements with ratings triggers, there are some agreements that contain “adequate assurance” or “material adverse change” provisions that could result in additional credit support such as letters of credit and cash collateral to transact business.
NiSource had $7.8 million and $5.9 million of cash on deposit with brokers and MISO for collateral requirements associated with open derivative positions reflected within “Restricted cash” on the Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2014 and December 31, 2013, respectively.
 

2017

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

8.7.    Fair Value
 
A.    Fair Value Measurements
Recurring Fair Value Measurements. The following tables present financial assets and liabilities measured and recorded at fair value on NiSource’s Condensed Consolidated Balance Sheets (unaudited) on a recurring basis and their level within the fair value hierarchy as of JuneSeptember 30, 2014 and December 31, 2013:
 
Recurring Fair Value Measurements
June 30, 2014 (in millions)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Balance as of June 30, 2014
Recurring Fair Value Measurements
September 30, 2014 (in millions)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 Balance as of September 30, 2014
Assets              
Price risk management assets:              
Commodity financial price risk programs$2.6
 $
 $
 $2.6
$0.7
 $
 $
 $0.7
Interest rate risk activities
 10.7
 
 10.7
Available-for-sale securities24.3
 94.3
 
 118.6
31.6
 103.6
 
 135.2
Total$26.9
 $105.0
 $
 $131.9
$32.3
 $103.6
 $
 $135.9
Liabilities              
Price risk management liabilities:              
Commodity financial price risk programs$0.9
 $
 $0.2
 $1.1
$3.5
 $
 $0.9
 $4.4
Total$0.9
 $
 $0.2
 $1.1
$3.5
 $
 $0.9
 $4.4

Recurring Fair Value Measurements
December 31, 2013
(in millions)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance as of
December 31, 2013
Assets       
Price risk management assets:       
Commodity financial price risk programs$2.1
 $
 $
 $2.1
Interest rate risk activities
 21.1
 
 21.1
Available-for-sale securities25.3
 96.1
 
 121.4
Total$27.4
 $117.2
 $
 $144.6
Liabilities       
Price risk management liabilities:       
Commodity Financial price risk programs$1.6
 $
 $0.1
 $1.7
Total$1.6
 $
 $0.1
 $1.7
Price risk management assets and liabilities include commodity exchange-traded and non-exchange-based derivative contracts. Exchange-traded derivative contracts are based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, and options. In certain instances, these instruments may utilize models to measure fair value. NiSource uses a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable market data by correlation or other means. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement

21

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

of fair value, the instrument is categorized in Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures. As of

18

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

JuneSeptember 30, 2014 and December 31, 2013, there were no material transfers between fair value hierarchies. Additionally, there were no changes in the method or significant assumptions used to estimate the fair value of NiSource’s financial instruments.
PriceAt December 31, 2013, price risk management assets also include fixed-to-floating interest rate swaps, which are designated as fair value hedges, as a means to achieve NiSource’s targeted level of variable-rate debt as a percent of total debt. NiSource usesused a calculation of future cash inflows and estimated future outflows related to the swap agreements, which arewe discounted and netted to determine the current fair value. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as current and projected interest rates and volatility. As they are based on observable data and valuations of similar instruments, the interest rate swaps are categorized in Level 2 in the fair value hierarchy. Credit risk is considered in the fair value calculation of the interest rate swap. On July 15, 2014, $500.0 million of fixed-to-variable interest rate swaps expired, whereby NiSource Finance received payments based upon a fixed 5.40% interest rate and paid a floating interest rate amount based on U.S. 6-month BBA LIBOR plus an average of 0.78% per annum.
Available-for-sale securities are investments pledged as collateral for trust accounts related to NiSource’s wholly-owned insurance company. Available-for-sale securities are included within “Other investments” in the Condensed Consolidated Balance Sheets (unaudited). Securities classified within Level 1 include U.S. Treasury debt securities which are highly liquid and are actively traded in over-the-counter markets. NiSource values corporate and mortgage-backed debt securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently and are classified within Level 2. Total gains and losses from available-for-sale securities are included in other comprehensive income (loss). The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale debt securities at JuneSeptember 30, 2014 and December 31, 2013 were:
 
June 30, 2014 (in millions)
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
September 30, 2014 (in millions)
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
Available-for-sale debt securities              
U.S. Treasury$26.9
 $0.3
 $(0.2) $27.0
$34.3
 $0.2
 $(0.3) $34.2
Corporate/Other90.8
 1.3
 (0.5) 91.6
101.0
 0.9
 (0.9) 101.0
Total Available-for-sale debt securities$117.7
 $1.6
 $(0.7) $118.6
$135.3
 $1.1
 $(1.2) $135.2
December 31, 2013 (in millions)
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
Available-for-sale debt securities              
U.S. Treasury$30.3
 $0.3
 $(0.5) $30.1
$30.3
 $0.3
 $(0.5) $30.1
Corporate/Other91.5
 1.1
 (1.3) 91.3
91.5
 1.1
 (1.3) 91.3
Total Available-for-sale debt securities$121.8
 $1.4
 $(1.8) $121.4
$121.8
 $1.4
 $(1.8) $121.4
For the three months ended JuneSeptember 30, 2014 and 2013, the net realized gain on the sale of available-for-sale U.S. Treasury debt securities was zero and $0.2$0.1 million, respectively. For the three months ended JuneSeptember 30, 2014 and 2013, the net realized gain on the sale of available-for-sale Corporate/Other bond debt securities was $0.1 million for each period.and zero, respectively.
For the sixnine months ended JuneSeptember 30, 2014 and 2013, the net realized gain on the sale of available-for-sale U.S. Treasury debt securities was $0.1 million and $0.4$0.5 million, respectively. For the sixnine months ended JuneSeptember 30, 2014 and 2013, the net realized gain on the sale of available-for-sale Corporate/Other bond debt securities was $0.2 million and $0.3 million, respectively.million.
The cost of maturities sold is based upon specific identification. At JuneSeptember 30, 2014, approximately $4.9 million of U.S. Treasury debt securities have maturities of less than a year while the remaining securities have maturities of greater than one year. At JuneSeptember 30, 2014, approximately $6.36.2 million of Corporate/Other bonds have maturities of less than a year while the remaining securities have maturities of greater than one year.
There are no material items in the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the three and sixnine months ended JuneSeptember 30, 2014 and 2013.
  
Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the sixnine months ended JuneSeptember 30, 2014.


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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

B.    Other Fair Value Disclosures for Financial Instruments. The carrying amount of cash and cash equivalents, restricted cash, notes receivable, customer deposits and short-term borrowings is a reasonable estimate of fair value due to their liquid or short-term nature. NiSource’s long-term borrowings are recorded at historical amounts unless designated as a hedged item in a fair value hedge.amounts.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value.
Long-term Debt. The fair values of these securities are estimated based on the quoted market prices for the same or similar issues or on the rates offered for securities of the same remaining maturities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. These fair value measurements are classified as Level 2 within the fair value hierarchy. For the sixnine months ended JuneSeptember 30, 2014 and 2013, there were no changes in the method or significant assumptions used to estimate the fair value of the financial instruments.

The carrying amount and estimated fair values of financial instruments were as follows:
 
(in millions)
Carrying
Amount as of
June 30, 2014
 
Estimated Fair
Value as of
June 30, 2014
 
Carrying
Amount as of
Dec. 31, 2013
 
Estimated Fair
Value as of
Dec. 31, 2013
Carrying
Amount as of
September 30, 2014
 
Estimated Fair
Value as of
September 30, 2014
 
Carrying
Amount as of
Dec. 31, 2013
 
Estimated Fair
Value as of
Dec. 31, 2013
Long-term debt (including current portion)$8,170.6
 $9,123.1
 $8,135.3
 $8,697.3
$8,416.1
 $9,338.2
 $8,135.3
 $8,697.3

9.8.    Transfers of Financial Assets
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term borrowings on the Condensed Consolidated Balance Sheets (unaudited). The maximum amount of debt that can be recognized related to NiSource’s accounts receivable programs is $515 million.
All accounts receivables sold to the commercial paper conduits are valued at face value, which approximates fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables sold is determined in part by required loss reserves under the agreements. Below is information about the accounts receivable securitization agreements entered into by NiSource’s subsidiaries.
Columbia of Ohio is under an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to CGORC, a wholly-owned subsidiary of Columbia of Ohio. CGORC, in turn, is party to an agreement with BTMU and BNS under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to commercial paper conduits sponsored by BTMU and BNS. This agreement was last renewed on October 18, 2013.17, 2014. The maximum seasonal program limit under the terms of the current agreement is $240 million. The current agreement expires on October 17, 2014,16, 2015, and can be further renewed if mutually agreed to by all parties. As of JuneSeptember 30, 2014, $150.070.8 million of accounts receivable had been transferred by CGORC. CGORC is a separate corporate entity from NiSource and Columbia of Ohio, with its own separate obligations, and upon a liquidation of CGORC, CGORC’s obligations must be satisfied out of CGORC’s assets prior to any value becoming available to CGORC’s stockholder.
NIPSCO is under an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to NARC, a wholly-owned subsidiary of NIPSCO. NARC, in turn, is party to an agreement with PNC and Mizuho under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to commercial paper conduits sponsored by PNC and Mizuho. This agreement was last renewed on August 28, 2013.27, 2014. The maximum seasonal program limit under the terms of the current agreement is $200 million. The current agreement expires on August 27, 2014,26, 2015, and can be further renewed if mutually agreed to by all parties. As of JuneSeptember 30, 2014, $125.0 million of accounts receivable had been transferred by NARC. NARC is a separate corporate entity from NiSource and NIPSCO, with its own separate obligations, and upon a liquidation of NARC, NARC’s obligations must be satisfied out of NARC’s assets prior to any value becoming available to NARC’s stockholder.
Columbia of Pennsylvania is under an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to CPRC, a wholly-owned subsidiary of Columbia of Pennsylvania. CPRC, in turn, is party to an agreement with BTMU under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to a commercial paper conduit sponsored by BTMU. The maximum seasonal program limit under the terms of the agreement is $75 million. The agreement with BTMU was renewed on March 11, 2014, having a current scheduled termination date of March 10, 2015, and can be further renewed if mutually agreed to by both parties. As of September 30, 2014, $10.0 million of accounts receivable had been transferred

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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

renewed if mutually agreed to by both parties. As of June 30, 2014, $25.0 million of accounts receivable had been transferred by CPRC. CPRC is a separate corporate entity from NiSource and Columbia of Pennsylvania, with its own separate obligations, and upon a liquidation of CPRC, CPRC’s obligations must be satisfied out of CPRC’s assets prior to any value becoming available to CPRC’s stockholder.
The following table reflects the gross and net receivables transferred as well as short-term borrowings related to the securitization transactions as of JuneSeptember 30, 2014 and December 31, 2013 for Columbia of Ohio, NIPSCO and Columbia of Pennsylvania:
 
(in millions)June 30, 2014 December 31, 2013September 30, 2014 December 31, 2013
Gross Receivables$503.3
 $610.9
$374.0
 $610.9
Less: Receivables not transferred203.3
 345.8
168.2
 345.8
Net receivables transferred$300.0
 $265.1
$205.8
 $265.1
Short-term debt due to asset securitization$300.0
 $265.1
$205.8
 $265.1
Columbia of Ohio, NIPSCO and Columbia of Pennsylvania remain responsible for collecting on the receivables securitized and the receivables cannot be sold to another party.
 
10.9.    Goodwill
 
NiSource tests its goodwill for impairment annually as of May 1 unless indicators, events, or circumstances would require an immediate review. Goodwill is tested for impairment using financial information at the reporting unit level, which is consistent with the level of discrete financial information reviewed by operating segment management. NiSource's three reporting units are Columbia Distribution Operations, Columbia Transmission Operations and NIPSCO Gas Distribution Operations.

NiSource's goodwill assets as of JuneSeptember 30, 2014 were $3.7 billion pertaining primarily to the acquisition of Columbia on November 1, 2000. Of this amount, approximately $2.0 billion is allocated to Columbia Transmission Operations and $1.7 billion is allocated to Columbia Distribution Operations. In addition, NIPSCO Gas Distribution Operations' goodwill assets of $17.8 million at JuneSeptember 30, 2014 relate to the purchase of Northern Indiana Fuel and Light in March 1993 and Kokomo Gas in February 1992.

NiSource completed a quantitative ("step 1") fair value measurement of its reporting units during the May 1, 2012 goodwill test. The test indicated that the fair value of each of the reporting units that carry or are allocated goodwill substantially exceeded their carrying values, indicating that no impairment existed.

ASU 2011-08 allows entities testing goodwill for impairment the option of performing a qualitative ("step 0") assessment before calculating the fair value of a reporting unit for the goodwill impairment test. If a step 0 assessment is performed, an entity is no longer required to calculate the fair value of a reporting unit unless the entity determines that, based on that assessment, it is more likely than not that its fair value is less than its carrying amount.

NiSource applied the qualitative step 0 analysis to its reporting units for the annual impairment test performed as of May 1, 2014. For the current year test, NiSource assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units as compared to its base line May 1, 2012 step 1 fair value measurement. The results of this assessment indicated that it is not more likely than not that its reporting unit fair values are less than the reporting unit carrying values.

NiSource considered whether there were any events or changes in circumstances subsequent to the annual test that would reduce the fair value of any of the reporting units below their carrying amounts and necessitate another goodwill impairment test. No such indicators were noted that would require a subsequent goodwill impairment testing during the secondthird quarter.

 

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

11.10.    Income Taxes
NiSource’s interim effective tax rates reflect the estimated annual effective tax rates for 2014 and 2013, adjusted for tax expense associated with certain discrete items. The effective tax rates for the three months ended JuneSeptember 30, 2014 and 2013 were 33.5%45.1% and 31.2%36.0%, respectively. The effective tax rate for the sixnine months ended JuneSeptember 30, 2014 and 2013 were 37.0%37.7% and 34.4%34.7%, respectively. These effective tax rates differ from the Federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility ratemaking, and other permanent book-to-tax differences.
The increase in the three month effective tax rate of 2.3%9.1% in 2014 versus 2013 is primarily due to deferreda change in the estimated annual effective tax adjustments recordedrate due to a revision in 2013 related to state apportionment changes.estimated nontaxable income during the third quarter of 2014. The increase in the year-to-date effective tax rate of 2.6%3.0% is primarily due to the impact of the Indiana tax rate change, see below for further information, and deferred tax adjustments recorded in 2013 related to state apportionment changes.

On March 25, 2014, the governor of Indiana signed into law Senate Bill 1, which among other things, lowers the corporate income tax rate from 6.5% to 4.9% over six years beginning on July 1, 2015. The reduction in the tax rate will impact deferred income taxes and tax related regulatory assets and liabilities recoverable in the ratemaking process. In addition, other deferred tax assets and liabilities, primarily deferred tax assets related to the Indiana net operating loss carry forward, will be reduced to reflect the lower rate at which these temporary differences and tax benefits will be realized. In the first quarter of 2014, NiSource recorded tax expense of $7.1 million to reflect the effect of this rate change. This expense is largely attributable to the remeasurement of the Indiana net operating loss at the 4.9% rate. The majority of NiSource's tax temporary differences are related to NIPSCO's utility plant. The remeasurement of these temporary differences at 4.9% was recorded as a reduction of a regulatory asset.

There were no material changes recorded in the second quarter of 2014 to NiSource's uncertain tax positions as of December 31, 2013.

12.11.    Pension and Other Postretirement Benefits

NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover its employees. Benefits under the defined benefit retirement plans reflect the employees’ compensation, years of service and age at retirement. Additionally, NiSource provides 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 NiSource. 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.

For the sixnine months ended JuneSeptember 30, 2014, NiSource has contributed $12.535.3 million to its pension plans and $20.129.3 million to its other postretirement benefit plans.

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


The following tables provide the components of the plans’ net periodic benefits cost for the three and sixnine months ended JuneSeptember 30, 2014 and 2013:
 

Pension Benefits 
Other Postretirement
Benefits
Pension Benefits 
Other Postretirement
Benefits
Three Months Ended June 30, (in millions)
2014 2013 2014 2013
Three Months Ended September 30, (in millions)
2014 2013 2014 2013
Components of Net Periodic Benefit Cost              
Service cost$8.7
 $9.3
 $2.2
 $3.0
$8.7
 $9.0
 $2.0
 $3.0
Interest cost27.3
 24.3
 7.8
 8.1
27.2
 24.9
 7.0
 8.0
Expected return on assets(45.3) (42.1) (9.1) (7.6)(45.3) (42.0) (9.3) (7.6)
Amortization of transition obligation
 
 
 0.1

 
 
 0.2
Amortization of prior service cost (credit)
 0.1
 (0.9) (0.2)0.1
 
 (1.4) (0.2)
Recognized actuarial loss11.9
 19.7
 0.1
 2.8
11.9
 18.9
 0.2
 2.8
Settlement loss
 3.6
 
 

 4.0
 
 
Total Net Periodic Benefit Costs$2.6
 $14.9
 $0.1
 $6.2
Total Net Periodic Benefit Cost (Credit)$2.6
 $14.8
 $(1.5) $6.2
Pension Benefits 
Other Postretirement
Benefits
Pension Benefits 
Other Postretirement
Benefits
Six Months Ended June 30, (in millions)
2014 2013 2014 2013
Nine Months Ended September 30, (in millions)
2014 2013 2014 2013
Components of Net Periodic Benefit Cost              
Service cost$17.4
 $18.7
 $4.5
 $6.0
$26.1
 $27.7
 $6.5
 $9.0
Interest cost54.6
 48.6
 16.0
 16.2
81.8
 73.5
 23.0
 24.2
Expected return on assets(90.6) (84.5) (18.2) (15.2)(135.9) (126.5) (27.5) (22.8)
Amortization of transition obligation
 
 
 0.2

 
 
 0.4
Amortization of prior service cost (credit)
 0.2
 (1.5) (0.4)0.1
 0.2
 (2.9) (0.6)
Recognized actuarial loss23.8
 40.4
 0.1
 5.6
35.7
 59.3
 0.3
 8.4
Settlement loss
 24.3
 
 

 28.3
 
 
Total Net Periodic Benefit Costs$5.2
 $47.7
 $0.9
 $12.4
       
Total Net Periodic Benefit Cost (Credit)$7.8
 $62.5
 $(0.6) $18.6

In 2013, NiSource pension plans had lump sum payouts exceeding the plan'splans' 2013 service cost plus interest cost and, therefore, settlement accounting was required.

13.12.    Variable Interests and Variable Interest Entities
In general, a VIE is an entity that (1) has an insufficient amount of at-risk equity to permit the entity to finance its activities without additional financial subordinated support provided by any parties, (2) whose at-risk equity owners, as a group, do not have power, through voting rights or similar rights, to direct activities of the entity that most significantly impact the entity’s economic performance or (3) whose at-risk owners do not absorb the entity’s losses or receive the entity’s residual return. A VIE is required to be consolidated by a company if that company is determined to be the primary beneficiary of the VIE.
NiSource consolidates those VIEs for which it is the primary beneficiary. NiSource considers quantitative and qualitative elements in determining the primary beneficiary. Qualitative measures include the ability to control an entity and the obligation to absorb losses or the right to receive benefits.
NiSource’s analysis includes an assessment of guarantees, operating leases, purchase agreements, and other contracts, as well as its investments and joint ventures. For items that have been identified as variable interests, or where there is involvement with an identified VIE, an in-depth review of the relationship between the relevant entities and NiSource is made to evaluate qualitative and quantitative factors to determine the primary beneficiary, if any, and whether additional disclosures would be required under the current standard.


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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

NIPSCO has a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and First Air Partners LP, under which Pure Air provides scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at the Bailly Generating Station. NiSource has made an exhaustive effort to obtain information needed from Pure Air to determine the status of Pure Air as a VIE. However, NIPSCO has not been able to obtain this information and, as a result, it is unclear whether Pure Air is a VIE and if NIPSCO is the primary beneficiary. NIPSCO will continue to request the information required to determine whether Pure Air is a VIE. NIPSCO has no exposure to loss related to the service agreement with Pure Air and payments under this agreement were $10.6$17.0 million and $6.4$17.1 million for the sixnine months ended JuneSeptember 30, 2014 and 2013,, respectively.

14.13.    Long-Term Debt

On August 20, 2014, NiSource Finance negotiated a $750.0 million three-year bank term loan with a syndicate of banks which carries a floating interest rate of BBA LIBOR plus 100 basis points.

On July 15, 2014,, NiSource Finance redeemed $500.0$500.0 million of 5.40% senior unsecured notes at maturity.

15.14.    Short-Term Borrowings
NiSource Finance maintains a $2.0 billion revolving credit facility with a syndicate of banks led by Barclays Capital with a termination date of September 28, 2018. The purpose of the facility is to fund ongoing working capital requirements including the provision of liquidity support for NiSource’s $1.5 billion commercial paper program, provide for issuance of letters of credit, and also for general corporate purposes. At JuneSeptember 30, 2014, NiSource had no outstanding borrowings under this facility.
NiSource Finance's commercial paper program has a program limit of up to $1.5 billion with a dealer group comprised of Barclays, Citigroup, Credit Suisse, RBS and Wells Fargo. Commercial paper issuances are supported by available capacity under NiSource’s $2.0 billion unsecured revolving credit facility. At JuneSeptember 30, 2014, NiSource had $801.11,105.3 million of commercial paper outstanding.
As of JuneSeptember 30, 2014, NiSource had $30.531.2 million of stand-by letters of credit outstanding of which $14.315.0 million were under the revolving credit facility. At December 31, 2013, NiSource had $31.6 million of stand-by letters of credit outstanding of which $14.3 million were under the revolving credit facility.
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term debt on the Condensed Consolidated Balance Sheets (unaudited) in the amount of $300.0205.8 million and $265.1 million as of JuneSeptember 30, 2014 and December 31, 2013, respectively. Refer to Note 9,8, “Transfers of Financial Assets,” for additional information.
 
(in millions)June 30,
2014
 December 31,
2013
September 30,
2014
 December 31,
2013
Commercial Paper weighted average interest rate of 0.63% and 0.70% at June 30, 2014 and December 31, 2013, respectively.$801.1
 $433.6
Commercial Paper weighted average interest rate of 0.67% and 0.70% at September 30, 2014 and December 31, 2013, respectively.$1,105.3
 $433.6
Accounts receivable securitization facility borrowings300.0
 265.1
205.8
 265.1
Total Short-Term Borrowings$1,101.1
 $698.7
$1,311.1
 $698.7

Given their turnover is less than 90 days, cash flows related to the borrowings and repayments of the items listed above are presented net in the Condensed Statements of Consolidated Cash Flows (unaudited).

16.15.    Share-Based Compensation
The stockholders approved and adopted the NiSource Inc. 2010 Omnibus Incentive Plan (the “Omnibus Plan”), at the Annual Meeting of Stockholders held on May 11, 2010. The Omnibus Plan provides for awards to employees and non-employee directors of incentive and nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. The Omnibus Plan provides that the number of shares of common stock of NiSource available for awards is 8,000,000 plus the number of shares subject to outstanding awards granted under either the 1994 Plan (defined below) or the Director Stock Incentive Plan ("Director Plan") that expire or terminate for any reason. No further awards are permitted to be granted under the 1994 Plan or the Director Plan. At JuneSeptember 30, 2014, there were 6,320,4776,260,962 shares reserved for future awards under the Omnibus Plan.

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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Prior to May 11, 2010, NiSource issued long-term equity incentive grants to key management employees under a long-term incentive plan approved by stockholders on April 13, 1994 (“1994 Plan”). The types of equity awards previously authorized under the 1994 Plan did not significantly differ from those permitted under the Omnibus Plan.

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

NiSource recognized stock-based employee compensation expense of $5.716.3 million and $4.48.8 million for the three months ended JuneSeptember 30, 2014 and 2013, respectively, as well as related tax benefits of $1.95.4 million and $1.43.2 million, respectively. For the sixnine months ended JuneSeptember 30, 2014 and 2013, stock-based employee compensation expense of $11.0$27.3 million and $8.7$17.5 million was recognized, respectively, as well as related tax benefit of $4.1$10.1 million and $3.0$6.1 million, respectively.
As of JuneSeptember 30, 2014, the total remaining unrecognized compensation cost related to nonvested awards amounted to $28.926.8 million, which will be amortized over the weighted-average remaining requisite service period of 2.32.2 years.
Stock Options. As of JuneSeptember 30, 2014, approximately 0.1 million options were outstanding and exercisable with a weighted average strike price of $22.62. No options were granted during the sixnine months ended JuneSeptember 30, 2014 and 2013. As of JuneSeptember 30, 2014, the aggregate intrinsic value for the options outstanding and exercisable was $2.42.0 million. During the sixnine months ended JuneSeptember 30, 2014 and 2013, cash received from the exercise of options was $5.96.8 million and $15.322.6 million, respectively.
Restricted Stock Units and Restricted Stock. During the sixnine months ended JuneSeptember 30, 2014, NiSource granted 88,655148,133 restricted stock units and shares of restricted stock, subject to service conditions. The total grant date fair value of restricted stock units and shares of restricted stock was $2.84.8 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of any dividends not received during the vesting period, which will be expensed, net of forfeitures, over the vesting period which is generally three years. As of JuneSeptember 30, 2014, 257,351309,829 nonvested (all of which are expected to vest) restricted stock units and shares of restricted stock were granted and outstanding.
Performance Shares. During the sixnine months ended JuneSeptember 30, 2014, NiSource granted 535,037 performance shares subject to service and performance conditions. The grant date fair value of the awards was $16.6 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed, net of forfeitures, over the three year requisite service and performance period. As of JuneSeptember 30, 2014, 1,735,551 nonvested performance shares were granted and outstanding.
401(k) Match, Profit Sharing and Company Contribution. NiSource has a voluntary 401(k) savings plan covering eligible employees that allows for periodic discretionary matches as a percentage of each participant’s contributions payable in shares of common stock. NiSource also has a retirement savings plan that provides for discretionary profit sharing contributions payable in shares of common stock to eligible employees based on earnings results; and eligible exempt employees hired after January 1, 2010, receive a non-elective company contribution of three percent of eligible pay payable in shares of common stock. For the quarters ended JuneSeptember 30, 2014 and 2013, NiSource recognized 401(k) match, profit sharing and non-elective contribution expense of $8.410.5 million and $7.9 million, respectively. For the sixnine months ended JuneSeptember 30, 2014 and 2013, NiSource recognized 401(k) match, profit sharing and non-elective contribution expenses of $16.927.4 million and $14.322.2 million, respectively.


25


Table of Contents
17.ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

16.    Other Commitments and Contingencies
A.    Guarantees and Indemnities. As a part of normal business, NiSource and certain 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. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended commercial purposes. The total guarantees and indemnities in existence at JuneSeptember 30, 2014 and the years in which they expire were:
 
(in millions)Total 2014 2015 2016 2017 2018 AfterTotal 2014 2015 2016 2017 2018 After
Guarantees of subsidiaries debt$7,710.5
 $500.0
 $230.0
 $616.5
 $507.0
 $800.0
 $5,057.0
$7,960.5
 $
 $230.0
 $616.5
 $1,257.0
 $800.0
 $5,057.0
Accounts receivable securitization300.0
 300.0
 
 
 
 
 
205.8
 205.8
 
 
 
 
 
Lines of credit801.1
 801.1
 
 
 
 
 
1,105.3
 1,105.3
 
 
 
 
 
Letters of credit30.5
 12.6
 17.9
 
 
 
 
31.2
 
 31.2
 
 
 
 
Other guarantees180.9
 49.4
 29.5
 
 
 
 102.0
142.4
 7.4
 29.5
 
 
 
 105.5
Total commercial commitments$9,023.0
 $1,663.1
 $277.4
 $616.5
 $507.0
 $800.0
 $5,159.0
$9,445.2
 $1,318.5
 $290.7
 $616.5
 $1,257.0
 $800.0
 $5,162.5
 
Guarantees of Subsidiaries Debt. NiSource has guaranteed the payment of $7.78.0 billion of debt for various wholly-owned subsidiaries including NiSource Finance and Columbia of Massachusetts, and through a support agreement, Capital Markets,

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

which is reflected on NiSource’s Condensed Consolidated Balance Sheets (unaudited). The subsidiaries are required to comply with certain covenants under the debt indenture and in the event of default, NiSource would be obligated to pay the debt’s principal and related interest. NiSource does not anticipate its subsidiaries will have any difficulty maintaining compliance. On October 3, 2011, NiSource executed a Second Supplemental Indenture to the original Columbia of Massachusetts Indenture dated April 1, 1991, for the specific purpose of guaranteeing Columbia of Massachusetts’ outstanding medium-term notes.
Lines and Letters of Credit and Accounts Receivable Advances. NiSource Finance maintains a $2.0 billion revolving credit facility with a syndicate of banks led by Barclays Capital with a termination date of September 28, 2018. The purpose of the facility is to fund ongoing working capital requirements including the provision of liquidity support for NiSource’s $1.5 billion commercial paper program, provide for the issuance of letters of credit, and also for general corporate purposes. At JuneSeptember 30, 2014, NiSource had no borrowings under its five-year revolving credit facility, $801.11,105.3 million in commercial paper outstanding and $300.0205.8 million outstanding under its accounts receivable securitization agreements. At JuneSeptember 30, 2014, NiSource issued stand-by letters of credit of approximately $30.531.2 million for the benefit of third parties. See Note 15,14, “Short-Term Borrowings,” for additional information.
Other Guarantees or Obligations. NiSource has additional purchase and sales agreement guarantees totaling $67.625.6 million, which guarantee performance of the seller’s covenants, agreements, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited). Management believes that the likelihood NiSource would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote.
NiSource has on deposit a letter of credit with Union Bank, N.A., Collateral Agent, in a debt service reserve account in association with Millennium's notes as required under the Deposit and Disbursement Agreement that governs the Millennium notes. This account is to be drawn upon by the note holders in the event that Millennium is delinquent on its principal and interest payments. The value of NiSource’s letter of credit represents 47.5% (NiSource’s ownership percentage in Millennium) of the debt service reserve account requirement, or $16.2 million. The total exposure for NiSource is $16.2 million. NiSource has an accrued liability of $1.5 million related to the inception date fair value of this guarantee as of JuneSeptember 30, 2014.
NiSource has issued other guarantees supporting derivative related payments associated with interest rate swap agreements issued by NiSource Finance, operating leases for many of its subsidiaries and for other agreements entered into by its current and former subsidiaries.
B.    Other Legal Proceedings. In the normal course of its business, NiSource and its subsidiaries have been named as defendants in various legal proceedings. In the opinion of management, the ultimate disposition of these currently asserted claims will not have a material impact on NiSource’s consolidated financial statements.

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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

C.    Environmental Matters. NiSource operations are subject to environmental statutes and regulations related to air quality, water quality, hazardous waste and solid waste. NiSource believes that it is in substantial compliance with those environmental regulations currently applicable to its operations and believes that it has all necessary permits to conduct its operations.
It is management’s continued intent to address environmental issues in cooperation with regulatory authorities in such a manner as to achieve mutually acceptable compliance plans. However, there can be no assurance that fines and penalties will not be incurred. Management expects a significant portion of environmental assessment and remediation costs to be recoverable through rates for certain NiSource companies.
As of JuneSeptember 30, 2014 and December 31, 2013, NiSource had recorded an accrual of approximately $132.9130.9 million and $143.9 million, respectively, to cover environmental remediation at various sites. The current portion of this accrual is included in "Legal and environmental" in the Condensed Consolidated Balance Sheets (unaudited). The noncurrent portion is included in "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets (unaudited). NiSource accrues for costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated. The original estimates for cleanup can differ materially from the amount ultimately expended. The actual future expenditures depend on many factors, including currently enacted laws and regulations, the nature and extent of contamination, the method of cleanup, and the availability of cost recovery from customers. These expenditures are not currently estimable at some sites. NiSource periodically adjusts its accrual as information is collected and estimates become more refined.
Air
The actions listed below could require further reductions in emissions from various emission sources. NiSource will continue to closely monitor developments in these matters.

29

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Climate ChangeChange.. On June 2, 2014, the EPA proposed a GHG performance standard for existing fossil-fuel fired electric generating units under section 111(d) of the Clean Air Act. The proposed rule establishes state-specific CO2CO2 emission rate goals and requires each state to submit a plan indicating how the generating units within the state will meet the EPA's emission rate goal. Final CO2CO2 emission rate standards are expected to be set by the EPA in June 2015, and state plans are required to be submitted to the EPA as early as June 2016. The cost to comply with this rule will depend on a number of factors, including the requirements of the final federal regulation and the level of NIPSCO's required GHG reductions. It is possible that this new rule, comprehensive federal or state GHG legislation, or other GHG regulation could result in additional expense or compliance costs that could materially impact NiSource's financial results.

National Ambient Air Quality StandardsStandards.. The CAA requires the EPA to set NAAQS for particulate matter and five other pollutants considered harmful to public health and the environment. Periodically the EPA imposes new or modifies existing NAAQS. States that contain areas that do not meet the new or revised standards must take steps to maintain or achieve compliance with the standards. These steps could include additional pollution controls on boilers, engines, turbines, and other facilities owned by electric generation, gas distribution, and gas transmission operations.

The following NAAQS were recently added or modified:

Particulate Matter:In December 2009, the EPA issued area designations for the 2006 24-hour PM2.5standard, and several counties in which NiSource operates were designated as non-attainment. In addition, a final rule was promulgated in December 2012 that lowered the annual PM2.5standard from 15 to 12 µg/m3. NiSource will continue to monitor these matters and cannot estimate their impact at this time.

Ozone (eight hour): On September 2, 2011, the EPA announced it would implement its 2008 eight-hour ozone NAAQS rather than tightening the standard in 2012. The EPA will review, and possibly propose a new standard in 2014. In addition, the EPA has designated the Chicago metropolitan area, including the area in which NIPSCO operates one of its electric generation facilities, as non-attainment for ozone. NiSource will continue to monitor this matter and cannot estimate the impact of any new rules at this time.

Nitrogen Dioxide (NO2)(NO2): The EPA revised the NO2 NAAQS by adding a one-hour standard while retaining the annual standard. The new standard could impact some NiSource combustion sources. The EPA designated all areas of the country as unclassifiable/attainment in January 2012. After the establishment of a new monitoring network and possible modeling implementation, areas will potentially be re-designated sometime in 2016. States with areas that do not meet the standard will be required to develop rules to bring areas into compliance within five years of designation. Additionally, under certain permitting circumstances emissions

27

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

from some existing NiSource combustion sources may need to be assessed and mitigated. NiSource will continue to monitor this matter and cannot estimate the impact of these rules at this time.

Waste
NiSource subsidiaries are potentially responsible parties at waste disposal sites under the CERCLA (commonly known as Superfund) and similar state laws. Additionally, a program has been instituted to identify and investigate former MGP sites where Gas Distribution Operations subsidiaries or predecessors may have liability. The program has identified 66 such sites where liability is probable. Remedial actions at many of these sites are being overseen by state or federal environmental agencies through consent agreements or voluntary remediation agreements.
NiSource utilizes a probabilistic model to estimate its future remediation costs related to its MGP sites. The model was prepared with the assistance of a third party and incorporates NiSource and general industry experience with remediating MGP sites. NiSource completes an annual refresh of the model in the second quarter of each fiscal year. No material changes to the estimated liability were noted as a result of the refresh completed as of June 30, 2014. The total estimated liability at NiSource related to the facilities subject to remediation was $123.7122.8 million and $129.5 million at JuneSeptember 30, 2014 and December 31, 2013, respectively. The liability represents NiSource’s best estimate of the probable cost to remediate the facilities. NiSource believes that it is reasonably possible that remediation costs could vary by as much as $25 million in addition to the costs noted above. Remediation costs are estimated based on the best available information, applicable remediation standards at the balance sheet date, and experience with similar facilities.
Additional Issues Related to Individual Business Segments
The sections below describe various regulatory actions that affect Columbia Pipeline Group Operations and Electric Operations.

30

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Columbia Pipeline Group Operations.

Air
In April 2014, the Pennsylvania DEP proposed a rule, Additional RACT Requirements for Major Sources of NOx and VOCs, which may require emissions reductions from several Columbia Transmission turbines and reciprocating engines. Management has been provided three years to make its emissions sources compliant. The rule is expected to be finalized by the end of 2014.2014 and would give facilities three years to bring emissions sources into compliance with the reductions required by this rule. Columbia Transmission will continue to monitor developments in this matter and cannot estimate costs at this time.
Waste
Columbia Transmission continues to conduct characterization and remediation activities at specific sites under a 1995 AOC (subsequently modified in 1996 and 2007). NiSource utilizes a probabilistic model to estimate its future remediation costs related to the 1995 AOC. The model was prepared with the assistance of a third party and incorporates NiSource and general industry experience with remediating sites. NiSource completes an annual refresh of the model in the second quarter of each fiscal year. No material changes to the liability were noted as a result of the refresh completed as of June 30, 2014. The total remaining liability at Columbia Transmission related to the facilities subject to remediation was $4.12.8 million and $8.7 million at JuneSeptember 30, 2014 and December 31, 2013, respectively. The liability represents Columbia Transmission’s best estimate of the cost to remediate the facilities or manage the sites. Remediation costs are estimated based on the information available, applicable remediation standards, and experience with similar facilities. Columbia Transmission expects that the remediation for these facilities will be substantially completed in 2015.
Electric Operations.
Air
NIPSCO is subject to a number of new air-quality mandates in the next several years. These mandates require NIPSCO to make capital improvements to its electric generating stations. The cost of capital improvements is estimated to be $860 million, of which approximately $195.2$155.8 million remains to be spent. This figure includes additional capital improvements associated with the New Source Review Consent Decree and the Utility Mercury and Air Toxics Standards Rule. NIPSCO believes that the capital costs will likely be recoverable from customers.

EPA Cross-State Air Pollution Rule / Clean Air Interstate Rule (CAIR) / Transport Rule: On July 6, 2011, the EPA announced its replacement for the 2005 CAIR to reduce the interstate transport of fine particulate matter and ozone. The CSAPR reduces overall emissions of SO2 and NOx by setting state-wide caps on power plant emissions. The EPA initially intended to implement an emissions trading program and other aspectsImplementation of the CSAPR in 2012, but this implementation date was delayed for

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

several years by litigation. Thelitigation, but the EPA now is seekingrecently received permission from a court to begin enforcing CSAPR on January 1, 2015. The EPA’s implementation of CSAPR wouldwill not significantly impact NIPSCO's current emissions control plans. NIPSCO utilizes the inventory model in accounting for emission allowances issued under the CAIR program whereby these allowances were recognized at zero cost upon receipt from the EPA. NIPSCO believes its current multi-pollutant compliance plan and New Source Review Consent Decree capital investments will allow NIPSCO to meet the emission requirements of CSAPR.
 
Utility Mercury and Air Toxics Standards Rule: On December 16, 2011, the EPA finalized the MATS rule establishing new emissions limits for mercury and other air toxics. Compliance for NIPSCO’s affected units is required by April 2016.2015, or by April 2016 for those affected units that have been approved for a one year compliance extension by IDEM. NIPSCO is implementing an IURC-approved plan for environmental controls to comply with MATS.
New Source Review:   On September 29, 2004, the EPA issued an NOV to NIPSCO for alleged violations of the CAA and the Indiana SIP. The NOV alleged that modifications were made to certain boiler units at three of NIPSCO's generating stations between the years 1985 and 1995 without obtaining appropriate air permits for the modifications. NIPSCO, the EPA, the Department of Justice, and IDEM have settled the matter through a consent decree, entered on July 22, 2011.

Water
TheOn August 15, 2014, the EPA published the final Phase II Rule of the Clean Water Act Section 316(b), which requires all large existing steam electric generating stations to meet certain performance standards to reduce the effects on aquatic organisms at their cooling water intake structures, became effective on September 7, 2004.structures. Under this rule, stations will either have to either demonstrate that the performance of their existing fish protection systems meet the new standards or develop new systems, such as a closed-cycle cooling tower. A pre-publication versionThe cost to comply will depend on a number of factors, including evaluation of the final rule was released on May 19, 2014.various compliance options available under the regulation and permitting-related discussions with IDEM. NIPSCO is stillcurrently evaluating the final rulethese options and cannot estimate the cost of compliance at this time.

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

On June 7, 2013, the EPA published a proposed rule to amend the effluent limitations guidelines and standards for the Steam Electric Power Generating category. These proposed regulations could impose new water treatment requirements on NIPSCO’s electric generating facilities. NIPSCO will continue to monitor developments in this matter and cannot estimate the cost of compliance at this time.
Waste
On June 21, 2010, the EPA published a proposed rule for regulation of CCRs. The proposal outlines multiple regulatory approaches that the EPA is considering. These proposed regulations could negatively affect NIPSCO’s ongoing byproduct reuse programs and would impose additional requirements on its management of coal combustion residuals. NIPSCO will continue to monitor developments in this matter and cannot estimate the cost of compliance at this time.

D.     Other Matters.

Transmission Upgrade Agreements. On February 11, 2014, NIPSCO entered into TUAs with upgrade sponsors to complete upgrades on NIPSCO’s transmission system on behalf of those sponsors. The upgrade sponsors have agreed to reimburse NIPSCO for the total cost to construct transmission upgrades and place them into service, which is estimated at $50.3 million, multiplied by a rate of 1.71 ("the multiplier").

On June 10, 2014, certain upgrade sponsors for both TUAs, filed a complaint at FERC against NIPSCO regarding the multiplier stated in the TUAs. On June 30, 2014, NIPSCO filed an answer defending the terms of the TUAs and the just and reasonable nature of the multiplier charged therein and moved for dismissal of the complaint. NIPSCO will continue to monitor developments in this matter but cannot estimate the impact (if any) on the Condensed Consolidated Financial Statements (unaudited) the complaint will have at this time.

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


Springfield, Massachusetts. On November 23, 2012, while Columbia of Massachusetts was investigating the source of an odor of gas at a service location in Springfield, Massachusetts, a gas service line was pierced and an explosion occurred. While this explosion impacted multiple buildings and resulted in several injuries, no life threatening injuries or fatalities have been reported. Columbia of Massachusetts is fully cooperating with both the Massachusetts DPU and the Occupational Safety & Health Administration in their investigations of this incident. Columbia of Massachusetts believes any costs associated with damages, injuries, and other losses related to this incident are substantially covered by insurance. Any amounts not covered by insurance are not expected to have a material impact on NiSource's consolidated financial statements. In accordance with GAAP, NiSource recorded any accruals and the related insurance recoveries resulting from this incident on a gross basis within the Condensed Consolidated Balance Sheets (unaudited).  


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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

18.17.    Accumulated Other Comprehensive Loss
The following tables display the components of Accumulated Other Comprehensive Loss for the three and sixnine months ended JuneSeptember 30, 2014 and 2013:
Three Months Ended June 30, 2014 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss(1)
Balance as of April 1, 2014$
 $(25.2) $(17.3) $(42.5)
Three Months Ended September 30, 2014 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss(1)
Balance as of July 1, 2014$0.5
 $(24.5) $(17.4) $(41.4)
Other comprehensive income before reclassifications0.5
 
 (0.3) 0.2
(0.5) 
 (0.1) (0.6)
Amounts reclassified from accumulated other comprehensive income
 0.7
 0.2
 0.9
(0.1) 0.6
 (0.1) 0.4
Net current-period other comprehensive income0.5
 0.7
 (0.1) 1.1
Balance as of June 30, 2014$0.5
 $(24.5) $(17.4) $(41.4)
Net current-period other comprehensive (loss) income(0.6) 0.6
 (0.2) (0.2)
Balance as of September 30, 2014$(0.1) $(23.9) $(17.6) $(41.6)
              
Six Months Ended June 30, 2014 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss(1)
Nine Months Ended September 30, 2014 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss(1)
Balance as of January 1, 2014$(0.3) $(25.8) $(17.5) $(43.6)$(0.3) $(25.8) $(17.5) $(43.6)
Other comprehensive income before reclassifications1.0
 0.1
 (0.3) 0.8
0.5
 0.1
 (0.4) 0.2
Amounts reclassified from accumulated other comprehensive income(0.2) 1.2
 0.4
 1.4
(0.3) 1.8
 0.3
 1.8
Net current-period other comprehensive (loss) income0.8
 1.3
 0.1
 2.2
Balance as of June 30, 2014$0.5
 $(24.5) $(17.4) $(41.4)
Net current-period other comprehensive income (loss)0.2
 1.9
 (0.1) 2.0
Balance as of September 30, 2014$(0.1) $(23.9) $(17.6) $(41.6)
Three Months Ended June 30, 2013 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss
(1)
Balance as of April 1, 2013$2.2
 $(27.7) $(36.8) $62.3
Three Months Ended September 30, 2013 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss
(1)
Balance as of July 1, 2013$(0.7) $(27.2) $(34.1) $(62.0)
Other comprehensive income before reclassifications(2.8) (0.1) 1.9
 (1.0)1.0
 (0.1) (0.6) 0.3
Amounts reclassified from accumulated other comprehensive income(0.1) 0.6
 0.8
 1.3
(0.1) 0.7
 0.7
 1.3
Net current-period other comprehensive income(2.9) 0.5
 2.7
 0.3
0.9
 0.6
 0.1
 1.6
Balance as of June 30, 2013$(0.7) $(27.2) $(34.1) $(62.0)
Balance as of September 30, 2013$0.2
 $(26.6) $(34.0) $(60.4)
              
Six Months Ended June 30, 2013 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss(1)
Nine Months Ended September 30, 2013 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss(1)
Balance as of January 1, 2013$2.6
 $(28.6) $(39.5) $(65.5)$2.6
 $(28.6) $(39.5) $(65.5)
Other comprehensive income before reclassifications(2.9) 
 3.2
 0.3
(1.9) (0.1) 2.6
 0.6
Amounts reclassified from accumulated other comprehensive income(0.4) 1.4
 2.2
 3.2
(0.5) 2.1
 2.9
 4.5
Net current-period other comprehensive (loss) income(3.3) 1.4
 5.4
 3.5
(2.4) 2.0
 5.5
 5.1
Balance as of June 30, 2013$(0.7) $(27.2) $(34.1) $(62.0)
Balance as of September 30, 2013$0.2
 $(26.6) $(34.0) $(60.4)
(1)All amounts are net of tax. Amounts in parentheses indicate debits.

Equity Investment
As Millennium is an equity method investment, NiSource is required to recognize a proportional share of Millennium’s OCI. The remaining unrecognized loss at JuneSeptember 30, 2014 of $17.116.9 million, net of tax, related to terminated interest rate swaps is being amortized over the period ending June 2025 into earnings using the effective interest method through interest expense as interest payments are made by Millennium. The unrecognized loss of $17.116.9 million and $17.7 million at JuneSeptember 30, 2014 and December 31, 2013, respectively, is included in gains and losses on cash flow hedges above.

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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

19.18.    Business Segment Information
Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. NiSource's Chief Executive Officer is the chief operating decision maker.
At JuneSeptember 30, 2014, NiSource’s operations are divided into three primary business segments. 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. The Columbia Pipeline Group Operations segment offers gas transportation and storage services for LDCs, marketers and industrial and commercial customers located in northeastern, mid-Atlantic, midwestern and southern states along with unregulated businesses that include midstream services and development of mineral rights positions. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.
The following table provides information about business segments. NiSource uses operating income as its primary measurement for each of the reported segments and makes decisions on finance, dividends and taxes at the corporate level on a consolidated basis. Segment revenues include intersegment sales to affiliated subsidiaries, which are eliminated in consolidation. Affiliated sales are recognized on the basis of prevailing market, regulated prices or at levels provided for under contractual agreements. Operating income is derived from revenues and expenses directly associated with each segment.
 
Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in millions)2014 2013 2014 20132014 2013 2014 2013
Revenues              
Gas Distribution Operations              
Unaffiliated$616.5
 $572.4
 $2,181.9
 $1,717.3
$411.9
 $409.5
 $2,593.8
 $2,126.8
Intersegment0.1
 
 0.3
 0.2

 
 0.3
 0.2
Total616.6
 572.4
 2,182.2
 1,717.5
411.9
 409.5
 2,594.1
 2,127.0
Columbia Pipeline Group Operations              
Unaffiliated311.3
 242.3
 614.5
 500.7
285.7
 251.3
 900.2
 752.0
Intersegment32.2
 31.5
 74.6
 74.5
31.9
 31.4
 106.5
 105.9
Total343.5
 273.8
 689.1
 575.2
317.6
 282.7
 1,006.7
 857.9
Electric Operations              
Unaffiliated405.3
 384.9
 855.5
 762.3
424.4
 413.6
 1,279.9
 1,175.9
Intersegment0.1
 0.2
 0.3
 0.4
0.3
 0.1
 0.6
 0.5
Total405.4
 385.1
 855.8
 762.7
424.7
 413.7
 1,280.5
 1,176.4
Corporate and Other              
Unaffiliated2.0
 1.9
 3.7
 3.4
1.9
 2.4
 5.6
 5.8
Intersegment128.9
 110.0
 255.7
 231.7
138.1
 119.6
 393.8
 351.3
Total130.9
 111.9
 259.4
 235.1
140.0
 122.0
 399.4
 357.1
Eliminations(161.3) (141.7) (330.9) (306.8)(170.3) (151.1) (501.2) (457.9)
Consolidated Gross Revenues$1,335.1
 $1,201.5
 $3,655.6
 $2,983.7
$1,123.9
 $1,076.8
 $4,779.5
 $4,060.5
Operating Income (Loss)              
Gas Distribution Operations$59.8
 $50.0
 $361.6
 $284.1
$0.8
 $(5.0) $362.4
 $279.1
Columbia Pipeline Group Operations103.7
 88.8
 262.6
 222.3
94.4
 98.7
 357.0
 321.0
Electric Operations62.9
 59.5
 141.8
 124.7
76.9
 87.5
 218.7
 212.2
Corporate and Other(6.8) (4.3) (12.7) (8.2)(14.3) (4.8) (27.0) (13.0)
Consolidated Operating Income$219.6
 $194.0
 $753.3
 $622.9
$157.8
 $176.4
 $911.1
 $799.3


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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

20.19.    Supplemental Cash Flow Information
The following table provides additional information regarding NiSource’s Condensed Statements of Consolidated Cash Flows (unaudited) for the sixnine months ended JuneSeptember 30, 2014 and 2013:
Six Months Ended June 30,Nine Months Ended September 30,
(in millions)2014 20132014 2013
Supplemental Disclosures of Cash Flow Information      
Non-cash transactions:      
Capital expenditures included in current liabilities$194.6
 $146.5
$213.9
 $202.7
Assets acquired under a capital lease55.8
 3.3
69.9
 5.7
Schedule of interest and income taxes paid:      
Cash paid for interest, net of interest capitalized amounts$207.6
 $204.5
$375.0
 $359.4
Cash paid for income taxes9.6
 6.0
12.2
 8.5

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS
NiSource Inc.

Note regarding forward-looking statements
The Management’s Discussion and Analysis, including statements regarding market risk sensitive instruments, contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 NiSource’s plans, objectives, expected performance, expenditures, and recovery of expenditures through rates, stated on either a consolidated or segment basis, the Proposed Separation, the Columbia Pipeline Partners LP initial public offering and any and all underlying assumptions and other statements that are other than statements of historical fact. From time to time, NiSource may publish or otherwise make available forward-looking statements of this nature. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of NiSource, are also expressly qualified by these cautionary 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.
Realization of NiSource’s objectivesFactors that could cause actual results to differ materially from the projections, forecasts, estimates and expected performance is subject to a wide range of risks and can be adversely affected by,expectations discussed in this Quarterly Report on Form 10-Q include, among other things, weather, fluctuations in supply and demand for energy commodities, growth opportunities for NiSource’s businesses, increased competition in deregulated energy markets, the success of regulatory and commercial initiatives, dealings with third parties over whom NiSource has no control, actual operating experience of NiSource’s assets, the regulatory process, regulatory and legislative changes, the impact of potential new environmental laws or regulations, the results of material litigation, changes in pension funding requirements, changes in general economic, capital and commodity market conditions, counterparty credit risk, the timing to consummate the Proposed Separation and the Columbia Pipeline Partners LP initial public offering (collectively, the “Proposed Transactions”), the risk that a condition to consummation of a proposed transaction is not satisfied, disruption to operations as a result of the Proposed Transactions, the inability of one or more of the businesses to operate independently following the completion of the Proposed Separation and the matters set forth in the “Risk Factors” section of NiSource’s 2013 Form 10-K and this Form 10-Q, many of which are beyond the control of NiSource. In addition, the relative contributions to profitability by each segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time. NiSource expressly disclaims a duty to update any of the forward-looking statements contained in this report.
The following Management’s Discussion and Analysis of Financial ConditionsCondition and Results of Operations should be read in conjunction with NiSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.


CONSOLIDATED REVIEW

Planned Separation of Columbia Pipeline Group and Initial Public Offering of Columbia Pipeline Partners LP
On September 28, 2014, NiSource announced that its Board of Directors had approved in principle plans to separate its natural gas pipeline and related businesses into a stand-alone publicly traded company (the “Proposed Separation”). If completed, the Proposed Separation will result in two energy infrastructure companies: NiSource Inc., a fully regulated natural gas and electric utilities company, and Columbia Pipeline Group Inc., a natural gas pipeline, midstream and storage company (“CPG”). The Proposed Separation is expected to occur in mid-2015.
Under the plan for the Proposed Separation, NiSource shareholders would retain their current shares of NiSource stock and receive a pro rata distribution of shares of CPG stock in a transaction that is expected to be tax-free to NiSource and its shareholders.
The Proposed Separation is subject to various conditions, including, without limitation, the receipt by NiSource of a legal opinion on the tax-free nature of the distribution and final approval of the NiSource Board of Directors. NiSource shareholder approval of the transaction is not required. There is no assurance that the transaction will be completed in mid-2015 or at all.
On September 29, 2014, Columbia Pipeline Partners LP, a wholly owned subsidiary (“CPPL”), filed with the Securities and Exchange Commission a Registration Statement on Form S-1 related to CPPL’s proposed initial public offering of common units representing limited partner interests in CPPL. We expect that CPPL will sell a minority share of its total limited partner interests in the offering, which is expected to occur in the first quarter of 2015. If the proposed offering closes, CPPL’s initial asset would consist of an approximate 14.6% ownership interest in CPG OpCo LP (“Columbia OpCo”), which is the entity that will own

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


substantially all of NiSource’s natural gas transmission, midstream and storage assets. In addition, NiSource, through its ownership of CPG, would indirectly own (a) the remaining ownership interest in Columbia OpCo, (b) the general partner of CPPL, (c) the remaining CPPL limited partner interests that are not sold in the offering and (d) all the incentive distribution rights in CPPL.
If the Proposed Separation occurs, CPG would no longer be a subsidiary of NiSource and, thus, NiSource would cease to own (a) any interest in Columbia OpCo, (b) the general partner of CPPL, (c) any of the limited partner interests in CPPL or (d) any of the incentive distribution rights in CPPL.
Executive Summary
NiSource (the “Company”) is an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are engaged in the transmission, storage and distribution of natural gas in the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England and the generation, transmission and distribution of electricity in Indiana. NiSource generates virtually 100% of its operating income through these rate-regulated businesses. A significant portion of NiSource’s operations is subject to seasonal fluctuations in sales. During the heating season, which is primarily from November through March, net revenues from gas sales are more significant, and during the cooling season, which is primarily from June through September, net revenues from electric sales and transportation services are more significant, than in other months.
For the sixnine months ended JuneSeptember 30, 2014, NiSource reported income from continuing operations of $344.9$376.4 million, or $1.10$1.19 per basic share, compared to $288.4$337.9 million, or $0.92$1.08 per basic share reported for the same period in 2013.
The increase in income from continuing operations was due primarily to the following items:
Regulatory and service programs at Gas Distribution Operations increased net revenues by $59.1$69.9 million primarily due to the impacts of the rate settlement in 2013 at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohio's approved infrastructure replacement program. Refer to Note 8, “Regulatory Matters,” to the Consolidated Financial Statements included in NiSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 for more information.
Colder weather in 2014 resulted in an increase in income from continuing operations of $26.4 million compared to the prior year. Weather statistics are provided in the Gas Distribution Operations’ segment discussion.
Growth projects placed in service resulted in an increase in demandDemand margin revenue of $22.4increased by $34.1 million at Columbia Pipeline Group Operations.Operations primarily as a result of growth projects placed in service. Refer to the Columbia Pipeline Group Operations' segment discussion for further information on growth projects.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


The Company recognized previously deferred gains of $17.8$20.8 million from the conveyances of mineral interests at Columbia Pipeline Group Operations. As of JuneSeptember 30, 2014, remaining gains of approximately $21.8$21.0 million recorded in "Deferred revenue" on the Condensed Consolidated Balance Sheets (unaudited) will be recognized in earnings upon performance of future obligations.
Net revenues increased by $20.6 million as a result of higher industrial usage at Electric Operations primarily due to large industrial customers expanding plant operations and using less internal generation. Refer to the Electric Operations' segment discussion for further information.
Increased third party drilling activity resulted in an increase in mineral rights royalty revenue at Columbia Pipeline Group Operations of $20.5 million. The Company expects to invest in excess of $20 million a year in its mineral rights positions.
These increases to income from continuing operations were partially offset by the following:
Employee and administrative expense increased by $26.9$55.2 million due primarily to outages and maintenance, greater labor expense due to a growing workforce and reduced payroll capitalization, and IT support and enhancement projects.
Interest expense increased by $17.6$23.5 million resulting from the issuance of $500.0 million of long-term debt in October 2013 and the issuance of $750.0 million of long-term debt in April 2013,2013. These increases were partially offset by the maturity of $500 million of long-term debt in July 2014 and the maturity of $420.3 million of long-term debt in March 2013.
Outside service costs increased by $22.7 million primarily due to costs associated with the Proposed Separation and Columbia of Pennsylvania's pipeline safety initiatives.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


Depreciation and amortization increased $13.9$21.2 million primarily due to higher capital expenditures. NiSource projects 2014 capital expenditures to be approximately $2.2 billion.
$2.2 billion.
These factors and other impacts to the financial results are discussed in more detail within the following discussions of “Results of Operations” and “Results and Discussion of Segment Operations.”
Platform for Growth
NiSource’s business plan will continue to center on commercial and regulatory initiatives; commercial growth and expansion of the gas transmission and storage business; financial management of the balance sheet; and cost and process excellence.
Commercial and Regulatory Initiatives
NiSource is moving forward on regulatory initiatives across several distribution company markets. Whether through full rate case filings or other approaches, NiSource’s goal is to develop strategies that benefit all stakeholders as it addresses changing customer conservation patterns, develops more contemporary pricing structures, and embarks on long-term investment programs to enhance its infrastructure.

NIPSCO continued to focus on customer service, reliability and long-term growth and modernization initiatives during the secondthird quarter, while executing on significant environmental investments.

On April 30, 2014, the IURC approved NIPSCO's seven-year, $710 million, natural gas modernization program, referred to as TDSIC. ThisThe program which complements the in-progress $1.1 billion electric TDSIC approved in February 2014, will addressand is addressing system modernization as well as system expansion in certain areas.

Progress also continued on two major NIPSCO electric transmission projects designed to enhance system flexibility and reliability. The route has been selectedRight-of-way acquisition and permitting are underway for theboth projects. The Greentown-Reynolds project is a 70-mile, 765-kV line. The project isline being constructed in a joint development agreement with Pioneer Transmission. TheTransmission, and the Reynolds-Topeka project is a 100-mile, 345-kV line, remains on schedule with right-of-way acquisition and permitting in process.line. The projects involve a NIPSCO investment of approximately $500 million and are anticipated to be in service by the end of 2018.

Two remaining FGD projects at NIPSCO’s coal-fired electric generating facilities remain on schedule and on budget.schedule. The FGD investments are part of approximately $860 million in environmental investments, including water quality and emission-control projects, recently completed and planned at NIPSCO’s electric generating facilities. One project is expected to be completed by the end of 2014 and the other by the end of 2015.

NiSource's Gas Distribution companies continue to execute their strategy of long-term infrastructure replacement and enhancement and advance their regulatory agenda.

On April 30, 2014, Columbia of Virginia filed a rate case with the VSCC to recover investments with a multi-year gas distribution system modernization program. If approved as filed, the case would increase annual revenues by approximately $24.9 million. The VSCC issued a procedural order in the case on May 28, 2014 which scheduled the case for hearing on December 9, 2014. New rates are subject to refund and are scheduled to becomebecame effective October 1, 2014.


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TableOn March 21, 2014, Columbia of ContentsPennsylvania filed a rate case with the Pennsylvania PUC seeking an annual revenue increase of approximately $54.1 million to support continuation of Columbia of Pennsylvania’s ongoing infrastructure modernization program. On September 5, 2014, the parties to the rate case filed a joint petition which seeks approval of a full settlement which features an annual increase of $32.5 million. On October 17, 2014, the administrative law judge assigned to the case issued a Recommended Decision in which he recommended that the settlement be approved, without modification. A final order from the Pennsylvania PUC is expected in the fourth quarter of 2014.

ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
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On June 26, 2014, Massachusetts Governor Deval Patrick signed into law House Bill 4164, an Act relative to natural gas leaks. The centerpiece of the Bill significantly reduces the lag in recovery associated with priority pipe replacement under Columbia of Massachusetts’ current Targeted Infrastructure Reinvestment Factor. Columbia of Massachusetts will make its first filing under the new law on October 31, 2014. Recovery of infrastructure investments made under this program are expected to begin May 1, 2015.


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On March 21, 2014, Columbia of Pennsylvania filed a rate case with the Pennsylvania PUC to support continuation of Columbia of Pennsylvania’s ongoing infrastructure modernization program. If approved, the case would increase annual revenues by approximately $54.1 million. The case is currently in discovery, and a final order from the Pennsylvania PUC is expected in the fourth quarter of 2014.ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
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Refer to Note 6, “Regulatory Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for a complete discussion of regulatory and commercial matters.

Modernization, Commercial Growth and Expansion of the Columbia Pipeline Group Operations
Columbia Pipeline Group Operations continues to make progress on its long-term infrastructure modernization program, as well as a series of midstream and core growth initiatives tied to NiSource's asset position in the Utica and Marcellus Shale production regions.

Columbia Transmission began engineering and planning for the approximately $50 million Utica Access project. The project includes construction of nearly 5 miles of 20 inch pipeline and other facilities to provide 205,000 Dth per day of new firm service to allow Utica production access to liquid trading points on its system. This project is expected to be in service late in 2016.

Columbia Transmission is on track with the second year of its long-term system modernization program. UnderThe second year of the program Columbia Transmission will investincludes planned modernization investments of approximately $300 million annually in improvements to system reliability, safety and flexibility.$330 million. Columbia Transmission and its customers have agreed to the initial five years of the comprehensive modernization program, with an opportunity to mutually extend the agreement. The overall program is expected to last 10 years or more and involves an aggregate investment in excess of $4 billion.

In August 2014, Columbia Pipeline Group confirmed details of its planned $1.75 billion investment in the Leach XPress and Rayne XPress projects. The projects will create a new pathway for delivering natural gas supplies to market, providing transportation capacity of approximately 1.5 Bcf per day for Marcellus and Utica shale gas on the Columbia Transmission system and 1.0 Bcf per day on the Columbia Gulf system. The projects, expected to be placed into service by the end of 2017, include approximately150 miles of new transmission pipeline and new compression facilities at multiple sites in Ohio and West Virginia.

The Columbia Pipeline Group Operations segment will invest approximately $870 million in its WB XPress project. This project will transport approximately 1.3 Bcf of Marcellus Shale production on the Columbia Transmission system to pipeline interconnects and East Coast markets, which includes access to the Cove Point LNG terminal. Resolution of conditions precedent is anticipated in the fourth quarter of 2014. The project is expected to be placed in service during the fourth quarter of 2018.

NiSource Midstream began work on its $120 million Washington County Gathering project. The project, anchored by a long-term agreement with a subsidiary of Range Resources Corporation, will consist of gathering pipelines and compression facilities in western Pennsylvania to transport production into a nearby Columbia Transmission pipeline. The project is expected to be in service during the fourth quarter of 2015, with additional expansion expected as gas production grows.

NiSource Midstream is expanding and optimizing its Big Pine Gathering System to support Marcellus Shale production in Western Pennsylvania by investing $65 million in facility enhancements to make a connection to the Big Pine pipeline and add compression facilities that will add incremental capacity. The project is expected to be in service during the third quarter of 2015.

Financial Management of the Balance Sheet
On August 20, 2014, NiSource Finance negotiated a $750.0 million million three-year bank term loan with a syndicate of banks which carries a floating interest rate of BBA LIBOR plus 100 basis points.

On July 15, 2014,, NiSource Finance redeemed $500.0$500.0 million million of 5.40% senior unsecured notes at maturity.

Additionally on July 15, 2014, $500.0 million of fixed-to-variable interest rate swaps expired, whereby NiSource Finance received payments based upon a fixed 5.40% interest rate and paid a floating interest rate amount based on U.S. 6-month BBA LIBOR plus an average of 0.78% per annum.


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On March 14,September 28, 2014, NiSource announced that its Board of Directors has approved in principle plans to separate its natural gas pipeline and related businesses into a stand-alone publicly traded company whereby NiSource will continue as a fully regulated natural gas and electric utilities company. The separation announcement triggered ratings reviews by Standard & Poor’s, Moody’s, and Fitch. On September 29, 2014, Standard & Poor's affirmed the senior unsecured ratings for NiSource and the existing ratings of its other rated subsidiaries at BBB-. Standard & Poor'sBBB- and the NiSource Finance commercial paper rating of A-3, placing the company’s ratings on watch positive. On September 29, 2014, Moody's Investors Service affirmed the NiSource senior unsecured rating of Baa2 and commercial paper rating of P-2, with a stable outlook. Additionally, Moody's affirmed NIPSCO’s Baa1 rating and affirmed the Baa2 rating for Columbia of Massachusetts. On September 29, 2014, Fitch affirmed the senior unsecured ratings for NiSource at BBB-, and the existing ratings of all other subsidiaries. Fitch's outlook for NiSource and all of its subsidiaries is stable. On January 31, 2014, Moody's Investors Service upgraded the senior unsecured rating for NiSource to Baa2 from Baa3 and NiSource’s commercial paper rating to P-2 from P-3. Additionally, the rating for NIPSCO was upgraded to Baa1 from Baa2.
Ethics and Controls
NiSource has had a long-term commitment to providing accurate and complete financial reporting as well as high standards for ethical behavior by its employees. NiSource’s senior management takes an active role in the development of this Form 10-Q and the monitoring of the company’s internal control structure and performance. In addition, NiSource will continue its mandatory ethics training program for all employees.
Refer to “Controls and Procedures” included in Item 4.

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Results of Operations
Quarter Ended JuneSeptember 30, 2014
Net Income
NiSource reported net income of $78.231.4 million, or $0.250.10 per basic share, for the three months ended JuneSeptember 30, 2014, compared to net income of $71.748.1 million, or $0.230.16 per basic share, for the secondthird quarter of 2013. Income from continuing operations was $78.531.5 million, or $0.250.10 per basic share, for the three months ended JuneSeptember 30, 2014, compared to income from continuing operations of $72.449.5 million, or $0.230.16 per basic share, for the secondthird quarter of 2013. Operating income was $219.6157.8 million, ana increasedecrease of $25.618.6 million from the same period in 2013. All per share amounts are basic earnings per share. Basic average shares of common stock outstanding at JuneSeptember 30, 2014 were 315.0315.4 million compared to 312.2312.8 million at JuneSeptember 30, 2013.
Comparability of line item operating results between quarterly periods is impacted by regulatory and tax trackers that allow for the recovery in rates of certain costs such as bad debt expenses. Therefore, increases in these tracked operating expenses are offset by increases in net revenues and have essentially no impact on income from continuing operations.
Net Revenues
Total consolidated net revenues (gross revenues less cost of sales) for the quarter ended JuneSeptember 30, 2014, were $963.4893.4 million, a $111.259.6 million increase from the same period last year. This increase in net revenues was primarily due to increased Columbia Pipeline Group Operations' net revenues of $69.7$35.0 million, higher Gas Distribution Operations' net revenues of $26.1$19.5 million and increased Electric Operations' net revenues of $15.3$5.7 million.
Columbia Pipeline Group Operations’ net revenues increased primarily due to higher regulatory trackers, which are offset in expense, of $47.5$15.6 million, increased demand margin revenue of $15.0$11.8 million primarily as a result of growth projects placed in service, and higher mineral rights royalty revenue of $7.5$5.9 million and increased condensate revenue of $2.6 million.
Gas Distribution Operations’ net revenues increased primarily due to an increase of $19.0$10.2 million for regulatory and service programs, including the impacts of the rate settlement in 2013 at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohio's approved infrastructure replacement program.program and the impacts of the rate case at Columbia of Massachusetts. Additionally, there was an increase in net revenues as result of a settlement of $3.2 million at Columbia of Massachusetts in 2013, increased industrial and commercial usage of $1.4 million, higher net revenues due to increased margins of $1.4 million and higher large customer revenue of $1.3 million.
Electric Operations’ net revenues increased primarily due to higher industrial commercial, and residential usage of $8.1$7.4 million, increased trackers, which are offset in expense, of $4.4 million and an increase in the return on the environmental capital investment recovery of $5.0$4.2 million due to an increased plant balance eligible for recovery, lower fuel handling costs of $2.2 million and the effects of weather of $2.1 million.recovery. These increases were partially offset by a decrease in off-system salesthe effects of $5.5weather of $10.3 million.

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Operating Expenses
Operating expenses for the secondthird quarter of 2014 were $754.9747.6 million, an increase of $88.779.7 million from the 2013 period. This increase was primarily due to higher operation and maintenance expenses of $80.7$60.6 million, and increased depreciation and amortization of $5.8$8.5 million and a decrease in the gain on the sale of assets of $6.9 million. The increase in operation and maintenance expenses was primarily due to increased employee and administrative costs of $31.7 million, higher regulatory trackers, which are offset in net revenues, of $48.1$18.6 million, higherincreased outside service costs of $11.2$13.4 million, increased employee and administrative costs of $11.1 million, and higher electric generation costs of $11.0$3.4 million asand increased storm damage costs of $3.3 million. These increases were partially offset by a resultdecrease in software data conversion costs of outages$7.5 million and maintenance.lower environmental costs of $3.7 million. The increase in depreciation and amortization is primarily due to higher capital expenditures placed in service. The decrease in the gain on the sale of assets primarily resulted from the sale of storage base gas in 2013.
Equity Earnings in Unconsolidated Affiliates
Equity Earnings in Unconsolidated Affiliates were $11.112.0 million during the secondthird quarter of 2014 compared to $8.010.5 million for the secondthird quarter of 2013. Equity Earnings in Unconsolidated Affiliates includes investments in Millennium, Hardy Storage and Pennant, which are integral to the Columbia Pipeline Group Operations’ business. Equity earnings increased primarily from increased earnings at Millennium attributable to growth projects placed in service.
Other Income (Deductions)
Other Income (Deductions) reduced income by $101.6100.4 million in the secondthird quarter of 2014 compared to a reduction in income of $88.799.0 million in the prior year. The increase in deductions is primarily due to an increase in interest expense of $7.1$5.9 million resulting from the issuance of $500.0 million of long-term debt in October 2013.2013 and the expiration of $500.0 million of interest rate swaps in July 2014. These increases were partially offset by the maturity of $500.0 million of long-term debt in July 2014. Other, net of $9.2 million was recorded in 2014 compared to $4.7 million in the prior year. This increase is primarily attributable to current period transmission upgrade agreement income.

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Income Taxes
Income tax expense for the quarter ended JuneSeptember 30, 2014 was $39.525.9 million compared to $32.927.9 million in the prior year. NiSource’s interim effective tax rates reflect the estimated annual effective tax rates for 2014 and 2013, adjusted for tax expense associated with certain discrete items. The effective tax rates for the quarters ended JuneSeptember 30, 2014 and 2013 were 33.5%45.1% and 31.2%36.0%, respectively. These effective tax rates differ from the Federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility rate-making,ratemaking, and other permanent book-to-tax differences. The 2.3% increase fromin the three month effective tax rate of 9.1% in 2014 versus 2013 to 2014 is primarily due to deferreda change in the estimated annual effective tax adjustments recordedrate due to a revision in 2013 related to state apportionment changes.estimated nontaxable income during the third quarter of 2014. Refer to Note 11,10, "Income Taxes," in the Notes to Condensed Consolidated Financial Statements (unaudited) for further discussion of income taxes.
Results of Operations
SixNine Months Ended JuneSeptember 30, 2014
Net Income
NiSource reported net income of $344.4$375.8 million, or $1.10$1.19 per basic share, for the sixnine months ended JuneSeptember 30, 2014, compared to net income of $332.2$380.3 million, or $1.06$1.22 per basic share, for the sixnine months ended 2013. Income from continuing operations was $344.9$376.4 million, or $1.101.19 per basic share, for the sixnine months ended JuneSeptember 30, 2014, compared to income from continuing operations of $288.4$337.9 million, or $0.92$1.08 per basic share, for the sixnine months ended 2013. Operating income was $753.3$911.1 million, an increase of $130.4$111.8 million from the same period in 2013. All per share amounts are basic earnings per share. Basic average shares of common stock outstanding at JuneSeptember 30, 2014 were 314.6314.9 million compared to 311.7312.1 million at JuneSeptember 30, 2013.
Comparability of line item operating results between quarterly periods is impacted by regulatory and tax trackers that allow for the recovery in rates of certain costs such as bad debt expenses. Therefore, increases in these tracked operating expenses are offset by increases in net revenues and have essentially no impact on income from continuing operations.
Net Revenues
Total consolidated net revenues (gross revenues less cost of sales) for the sixnine months ended JuneSeptember 30, 2014, were $2,222.6$3,116.0 million, a $264.2$323.8 million increase from the same period last year. This increase in net revenues was primarily due to increased Gas Distribution Operations' net revenues of $117.4 million, higher Columbia Pipeline Group Operations' net revenues of $113.9$148.9 million, higher Gas Distribution Operations' net revenues of $136.9 million, and increased Electric Operations' net revenues of $32.6$38.3 million.

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Columbia Pipeline Group Operations’ net revenues increased primarily due to higher regulatory trackers, which are offset in expense, of $87.6 million, increased demand margin revenue of $34.1 million primarily as a result of growth projects placed in service, higher mineral rights royalty revenue of $20.5 million due to increased third party drilling activity and higher condensate revenue of $3.7 million.
Gas Distribution Operations’ net revenues increased primarily due to an increase of $59.1$69.9 million for regulatory and service programs, including the impacts of the rate settlement in 2013 at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohio's approved infrastructure replacement program. Additionally, there wereprogram, the effects of colder weather of $19.9$19.7 million and increased regulatory and tax trackers, which are offset in expense, of $17.4 million,$17.0 million. Additionally, there was higher residential, commercial and commercialindustrial usage of $7.2$8.8 million, an increase in off-system sales of $4.6$5.1 million, higher revenue of $4.0$4.9 million due to increased customer count and an increase in large customer revenue of $3.3$4.6 million. Also, there were higher net revenues due to increased margins of $3.9 million, higher net revenues from the recovery of storage inventory costs of $3.6 million and a settlement of $3.2 million at Columbia of Massachusetts in 2013. These increases were partially offset by a decrease of $5.5$5.8 million resulting from NIPSCO’s GCIM.
Columbia Pipeline Group Operations’ net revenues increased primarily due to higher regulatory trackers, which are offset in expense, of $72.0 million, increased demand margin revenue of $22.4 million primarily as a result of growth projects placed in service and higher mineral rights royalty revenue of $14.6 million.
Electric Operations’ net revenues increased primarily due to higher industrial and residential usage of $15.7$21.9 million, an increase in the return on the environmental capital investment recovery of $13.1$17.3 million due to an increased plant balance eligible for recovery, the effects of weather of $6.5 million and higher off-system sales of $4.1 million.recovery. Additionally, there waswere increased revenuenet revenues of $2.8$4.1 million as a result of two electric transmission projects authorized by MISO.the MISO and higher off-system sales of $3.9 million. These increases were partially offset by a decrease in transmission upgrade revenue of $6.5 million and lower trackers, which are offset in expense,the effects of $4.0weather of $3.8 million.

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Operating Expenses
Operating expenses for the sixnine months ended JuneSeptember 30, 2014 were $1,490.2$2,237.8 million, an increase of $139.6$219.3 million from the 2013 period. This increase was primarily due to higher operation and maintenance expenses of $127.6$188.2 million, increased other taxes of $17.1$20.8 million and higher depreciation and amortization of $10.9$19.4 million. These increases were partially offset by an increase in the gain on sale of assets of $16.0$9.1 million. The increase in operation and maintenance expenses was primarily due to increased regulatory trackers, which are offset in net revenues, of $81.3$99.9 million, higher employee and administrative costs of $26.9$55.2 million, increased outside service costs of $22.7 million, higher electric generation costs of $10.9$14.3 million and higher outside servicean increase of uncollectibles of $4.5 million. These increases were partially offset by lower software data conversion costs of $6.1$7.5 million and a decrease in environmental costs of $5.5 million. The increase in other taxes is primarily due to higher property and other taxes of $10.0$13.9 million and increased tax trackers, which are offset in net revenues, of $7.1$6.9 million. The increase in depreciation and amortization is primarily due to higher capital expenditures placed in service. The increase in the gain on sale of assets primarily relates to recognized gains of $17.8 million resultingresults from conveyances of mineral interests of $20.8 million, offset by the sale of storage base gas in 2013 of $11.1 million at Columbia Pipeline Group Operations.
Equity Earnings in Unconsolidated Affiliates
Equity Earnings in Unconsolidated Affiliates were $20.9$32.9 million during the sixnine months ended JuneSeptember 30, 2014, compared to $15.1$25.6 million from the 2013 period. Equity Earnings in Unconsolidated Affiliates includes investments in Millennium, Hardy Storage and Pennant, which are integral to the Columbia Pipeline Group Operations’ business. Equity earnings increased primarily from increased earnings at Millennium attributable to growth projects placed in service.
Other Income (Deductions)
Other Income (Deductions) reduced income by $206.2$306.6 million infor the sixnine months ended JuneSeptember 30, 2014,, compared to a reduction in income of $183.2$282.2 million in the prior year. The increase in deductions is primarily due to an increase in interest expense of $17.6$23.5 million resulting from the issuance of $500.0 million of long-term debt in October 2013 and the issuance of $750.0 million of long-term debt in April 2013,2013. These increases were partially offset by the maturity of $500 million of long-term debt in July 2014 and the maturity of $420.3 million of long-term debt in March 2013.

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Income Taxes
Income tax expense for the sixnine months ended JuneSeptember 30, 2014 was $202.2$228.1 million compared to $151.3$179.2 million in the prior year. NiSource’s interim effective tax rates reflect the estimated annual effective tax rates for 2014 and 2013, adjusted for tax expense associated with certain discrete items. The effective tax rates for the sixnine months ended JuneSeptember 30, 2014 and 2013 were 37.0%37.7% and 34.4%34.7%, respectively. These effective tax rates differ from the Federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility rate-making, and other permanent book-to-tax differences. The 2.6% increase from 2013 to 2014in the year-to-date effective tax rate of 3.0% is primarily due to the impact of the Indiana tax rate change, and deferred tax adjustments recodedrecorded in 2013 related to state apportionment changes. Refer to Note 11,10, "Income Taxes," in the Notes to Condensed Consolidated Financial Statements (unaudited) for further discussion of income taxes.
Discontinued Operations
There was a net loss of $0.5$0.6 million in the sixnine months ended JuneSeptember 30, 2014 from discontinued operations compared to net income of $7.4$7.5 million in 2013. The net income in 2013 relates primarily to a settlement at NiSource's former exploration and production subsidiary, CER. A gain on the disposition of discontinued operations of $36.4 million was recorded in the first quarter of 2013 as a result of a gain on the sale of the service plan and leasing business lines of NiSource's Retail Services business.

Liquidity and Capital Resources
A significant portion of NiSource’s operations, most notably in the gas distribution, gas transportation and electric businesses, are subject to seasonal fluctuations in cash flow. During the heating season, which is primarily from November through March, cash receipts from gas sales and transportation services typically exceed cash requirements. During the summer months, cash on hand, together with the seasonal increase in cash flows from the electric business during the summer cooling season and external short-term and long-term financing, is used to purchase gas to place in storage for heating season deliveries and perform necessary maintenance of facilities. NiSource believes that through income generated from operating activities, amounts available under its short-term revolver, commercial paper program and long-term debt agreements and NiSource’s ability to access the capital markets, there is adequate capital available to fund its operating activities and capital expenditures in 2014.

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Operating Activities
Net cash from operating activities for the sixnine months endedJune September 30, 2014 was $651.0$886.5 million,, a decrease of $243.5$192.1 million compared to the sixnine months endedJune September 30, 2013.2013. The decrease in net cash from operating activities was primarily attributable to an income tax refund received in 2013. No income tax refunds were received in 2014. Additionally, there was a decrease of $98.5 million in working capital from (under)overrecovered gas and fuel costs due to the timing of gas and fuel cost recoveries in 2014 compared to 2013.
Pension and Other Postretirement Plan Funding.    NiSource expects to make contributions of approximately $38.3 million to its pension plans and approximately $39.1 million to its other postretirement benefit plans in 2014, which could change depending on market conditions. For the sixnine months ended JuneSeptember 30, 2014, NiSource has contributed $12.535.3 million to its pension plans and $20.129.3 million to its other postretirement benefit plans.
Investing Activities
NiSource’s capital expenditures for the sixnine months endedJune September 30, 2014 were $852.9$1,441.7 million,, compared to $801.7$1,297.3 million for the comparable period in 2013.2013. This increased spending is mainly due to continued spending on infrastructure replacement programs in the Gas Distributions Operations segment, higher spending in the Columbia Pipeline Group Operations segment for various growth projects primarily in the Marcellus and Utica Shale areas and for expenditures under its modernization program and increased expenditures in the Electric Operations segment primarily due to TDSIC and other tracker program spend. NiSource projects 2014 capital expenditures to be approximately $2.2 billion.$2.2 billion.
Restricted cash was $9.816.0 million and $8.0 million as of JuneSeptember 30, 2014 and December 31, 2013, respectively.
Contributions to equity investees increased$22.1decreased $13.3 million primarily due to higherlower contributions made by Columbia Transmission to Millennium and NiSource Midstream to Pennant. Refer to the Columbia Pipeline Group Operations segment discussion in the Management's Discussion and Analysis of Financial ConditionsCondition and Results of Operations for information on these contributions.

Financing Activities
Credit Facilities.    NiSourceNiSource Finance maintains a $2.0 billion revolving credit facility with a syndicate of banks led by Barclays Capital with a termination date of September 28, 2018. The purpose of the facility is to fund ongoing working capital requirements

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including the provision of liquidity support for NiSource’sNiSource Finance’s $1.5 billion commercial paper program, provide for issuance of letters of credit, and also for general corporate purposes.
NiSource Finance's commercial paper program has a program limit of up to $1.5 billion with a dealer group comprised of Barclays, Citigroup, Credit Suisse, RBS and Wells Fargo. Commercial paper issuances are supported by available capacity under NiSource’s $2.0NiSource Finance’s $2.0 billion unsecured revolving credit facility.
NiSource Finance had no borrowings outstanding under its revolving credit facility at JuneSeptember 30, 2014 and December 31, 2013. In addition, NiSource Finance had $801.1$1,105.3 million in commercial paper outstanding at JuneSeptember 30, 2014, at a weighted average interest rate of 0.63%0.67% and $433.6 million in commercial paper outstanding at December 31, 2013, at a weighted average interest rate of 0.70%.
As of JuneSeptember 30, 2014 and December 31, 2013,, NiSource had $300.0$205.8 million and $265.1$265.1 million,, respectively, of short-term borrowings recorded on the Condensed Consolidated Balance Sheets (unaudited) and cash from financing activities in the same amount relating to its accounts receivable securitization facilities. See Note 9,8, “Transfers of Financial Assets,” to the Condensed Consolidated Financial Statements (unaudited).
As of JuneSeptember 30, 2014, NiSource had $30.531.2 million of stand-by letters of credit outstanding of which $14.315.0 million were under the revolving credit facility. At December 31, 2013, NiSource had $31.6 million of stand-by letters of credit outstanding of which $14.3 million were under the revolving credit facility.
As of JuneSeptember 30, 2014, an aggregate of $1,184.6$879.7 million of credit was available under the credit facility.
Debt Covenants. NiSource is subject to a financial covenant under its revolving credit facility and its three-year term loan,loans, which requires NiSource to maintain a debt to capitalization ratio that does not exceed 70%. A similar covenant in a 2005 private placement note purchase agreement requires NiSource to maintain a debt to capitalization ratio that does not exceed 75%. As of JuneSeptember 30, 2014, the ratio was 60.6%61.8%.

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NiSource is also subject to certain other non-financial covenants under the revolving credit facility and the term loan.loans. Such covenants include a limitation on the creation or existence of new liens on NiSource’s assets, generally exempting liens on utility assets, purchase money security interests, preexisting security interests and an additional subset of assets equal to $150 million. An asset sale covenant generally restricts the sale, lease and/or transfer of NiSource’s assets to no more than 10% of its consolidated total assets and dispositions for a price not materially less than the fair market value of the assets disposed of that do not impair the ability of NiSource and NiSource Finance to perform obligations under the revolving credit facility, and that, together with all other such dispositions, would not have a material adverse effect. The revolving credit facility and the term loanloans also include a cross-default provision, which triggers an event of default under the credit facility in the event of an uncured payment default relating to any indebtedness of NiSource or any of its subsidiaries in a principal amount of $50 million or more.
NiSource’s indentures generally do not contain any financial maintenance covenants. However, NiSource’s indentures are generally subject to cross-default provisions ranging from uncured payment defaults of $5 million to $50 million, and limitations on the incurrence of liens on NiSource’s assets, generally exempting liens on utility assets, purchase money security interests, preexisting security interests and an additional subset of assets capped at 10% of NiSource’s consolidated net tangible assets.
Sale of Trade Accounts Receivables.    Refer to Note 9,8, “Transfers of Financial Assets,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on the sale of accounts receivable.
All accounts receivable sold to the commercial paper conduits are valued at face value, which approximates fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables sold is determined, in part, by required loss reserves under the agreements.

Credit Ratings.    On March 14,September 28, 2014, NiSource announced that its Board of Directors has approved in principle plans to separate its natural gas pipeline and related businesses into a stand-alone publicly traded company whereby NiSource will continue as a fully regulated natural gas and electric utilities company. The separation announcement triggered ratings reviews by Standard & Poor’s, Moody’s, and Fitch. On September 29, 2014, Standard & Poor's affirmed the senior unsecured ratings for NiSource and the existing ratings of its other rated subsidiaries at BBB-. Standard & Poor's outlook forBBB- and the NiSource and allFinance commercial paper rating of its subsidiaries is stable.A-3, placing the company’s ratings on watch positive. On January 31,September 29, 2014, Moody's Investors Service upgradedaffirmed the NiSource senior unsecured rating for NiSource toof Baa2 from Baa3 and NiSource’s commercial paper rating toof P-2, from P-3.with a stable outlook. Additionally, Moody's upgraded theaffirmed NIPSCO’s Baa1 rating for NIPSCO to Baa1 from Baa2 and affirmed the Baa2 rating for Columbia of Massachusetts. Moody's outlook for NiSource and all of its subsidiaries is stable. On December 9, 2013,September 29, 2014, Fitch affirmed the senior

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NiSource Inc.


unsecured ratings for NiSource at BBB-, and the existing ratings of allits other rated subsidiaries. Fitch's outlook for NiSource and all of its subsidiaries is stable. Although all ratings continue to be investment grade, a downgrade by either Standard & Poor's or Fitch would result in a rating that is below investment grade.

Certain NiSource affiliates have agreements that contain “ratings triggers” that require increased collateral if the credit ratings of NiSource or certain of its subsidiaries are rated below BBB- by Standard & Poor’s or Baa3 by Moody’s. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. The collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $38.0 million.$38.9 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.

Contractual Obligations.    There were no material changes recorded during the sixnine months endedJune September 30, 2014 to NiSource’s contractual obligations as of December 31, 2013.2013.
Market Risk Disclosures
Risk is an inherent part of NiSource’s energy businesses. The extent to which NiSource properly and effectively identifies, assesses, monitors and manages each of the various types of risk involved in its businesses is critical to its profitability. NiSource seeks to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following principal market risks that are involved in NiSource’s energy businesses: commodity price risk, interest rate risk and credit risk. Risk management at NiSource is a multi-faceted process with oversight by the Risk Management Committee that requires constant communication, judgment and knowledge of specialized products and markets. NiSource’s 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 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, NiSource’s risk management process, policies and procedures continue to evolve and are subject to ongoing review and modification.

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NiSource Inc.


Commodity Price Risk
NiSource is exposed to commodity price risk as a result of its subsidiaries’ operations involving natural gas and power. To manage this market risk, NiSource’s subsidiaries use derivatives, including commodity futures contracts, swaps and options. NiSource is not involved in speculative energy trading activity.
Commodity price risk resulting from derivative activities at NiSource’s rate-regulated subsidiaries is limited, since regulations allow recovery of prudently incurred purchased power, fuel and gas costs through the ratemaking 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 ratemaking process and may be more exposed to commodity price risk. Some of NiSource’s rate-regulated utility subsidiaries offer commodity price risk products to its customers for which derivatives are used to hedge forecasted customer usage under such products. These subsidiaries do not have regulatory recovery orders for these products and are subject to gains and losses recognized in earnings due to hedge ineffectiveness.
There are no material commodity price risk assets or liabilities as of September 30, 2014 and December 31, 2013.
Interest Rate Risk
NiSource is exposed to interest rate risk as a result of changes in interest rates on borrowings under its revolving credit agreement, term loan,loans, commercial paper program and accounts receivable programs, which have interest rates that are indexed to short-term market interest rates. NiSource is also exposed to interest rate risk due to changes in interest rates on fixed-to-variable interest rate swaps that hedge the fair value of long-term debt. 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 $4.25.6 million and $7.9$13.6 million for the three and sixnine months ended JuneSeptember 30, 2014, respectively, and $3.13.6 million and $7.1$10.7 million for the three and sixnine months ended JuneSeptember 30, 2013, respectively.


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NiSource Inc.


Credit Risk
Due to the nature of the industry, credit risk is embedded in many of NiSource’s business activities. NiSource’s 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 Corporate Credit Risk 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 NiSource 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, letters of credit and qualified guarantees of support.
NiSource closely monitors the financial status of its banking credit providers and interest rate swap counterparties.providers. NiSource evaluates the financial status of its 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.
Fair Value Measurement
NiSource measures certain financial assets and liabilities at fair value. The level of the fair value hierarchy disclosed is based on the lowest level of input that is significant to the fair value measurement. NiSource’s financial assets and liabilities include price risk assets and liabilities, available-for-sale securities and a deferred compensation plan obligation.
Exchange-traded derivative contracts are generally based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, and options. In certain instances, NiSource may utilize models to measure fair value. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable market data by correlation or other means. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures.


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NiSource Inc.


Price risk management assets also include fixed-to-floating interest rate swaps, which are designated as fair value hedges, as a means to achieve its targeted level of variable-rate debt as a percent of total debt. NiSource uses a calculation of future cash inflows and estimated future outflows related to the swap agreements, which are discounted and netted to determine the current fair value. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as current and projected interest rates and volatility. As they are based on observable data and valuations of similar instruments, the interest rate swaps are categorized in Level 2 in the fair value hierarchy. Credit risk is considered in the fair value calculation of the interest rate swap.
Refer to Note 8,7, “Fair Value” in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information on NiSource’s fair value measurements.
Off Balance Sheet Arrangements
As a part of normal business, NiSource and certain 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.

NiSource has purchase and sales agreement guarantees totaling $67.625.6 million, which guarantee performance of the seller’s covenants, agreements, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited). Management believes that the likelihood NiSource would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote.

NiSource has other guarantees outstanding. Refer to Note 17-A,16-A, “Guarantees and Indemnities,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information about NiSource’s off balance sheet arrangements.


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NiSource Inc.


Other Information

Critical Accounting Policies
There were no significant changes to critical accounting policies for the period ended JuneSeptember 30, 2014.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. NiSource is required to adopt ASU 2014-09 for periods beginning after December 15, 2016, including interim periods, and the new standard is to be applied retrospectively with early adoption not permitted. NiSource is currently evaluating the impact the adoption of ASU 2014-09 will have on its Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).
In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. NiSource is required to adopt ASU 2014-08 prospectively for all disposals or components of its business classified as held for sale during fiscal periods beginning after December 15, 2014. NiSource is currently evaluating what impact, if any, adoption of ASU 2014-08 will have on its Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).



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NiSource Inc.


RESULTS AND DISCUSSION OF SEGMENT OPERATIONS
Presentation of Segment Information
NiSource’s operations are divided into three primary business segments: Gas Distribution Operations, Columbia Pipeline Group Operations and Electric Operations.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations

Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in millions)2014 2013 2014 20132014 2013 2014 2013
Net Revenues              
Sales revenues$616.6
 $572.4
 $2,182.2
 $1,717.5
$411.9
 $409.5
 $2,594.1
 $2,127.0
Less: Cost of gas sold (excluding depreciation and amortization)257.2
 239.1
 1,180.2
 832.9
114.6
 131.7
 1,294.8
 964.6
Net Revenues359.4
 333.3
 1,002.0
 884.6
297.3
 277.8
 1,299.3
 1,162.4
Operating Expenses              
Operation and maintenance206.8
 197.1
 435.6
 415.5
208.8
 199.1
 644.4
 614.6
Depreciation and amortization54.1
 50.1
 106.3
 98.6
55.4
 51.1
 161.7
 149.7
Gain on sale of assets(0.2) (0.1) (0.2) (0.1)
Loss (Gain) on sale of assets
 1.3
 (0.2) 1.2
Other taxes38.9
 36.2
 98.7
 86.5
32.3
 31.3
 131.0
 117.8
Total Operating Expenses299.6
 283.3
 640.4
 600.5
296.5
 282.8
 936.9
 883.3
Operating Income$59.8
 $50.0
 $361.6
 $284.1
Operating Income (Loss)$0.8
 $(5.0) $362.4
 $279.1
Revenues ($ in millions)              
Residential$391.1
 $352.0
 $1,396.9
 $1,095.9
$249.1
 $235.3
 $1,646.0
 $1,331.2
Commercial129.4
 113.2
 495.7
 383.5
77.0
 68.7
 572.7
 452.2
Industrial48.1
 43.6
 132.4
 108.6
36.9
 32.0
 169.3
 140.6
Off System65.9
 77.3
 137.8
 156.7
28.5
 54.8
 166.3
 210.4
Other(17.9) (13.7) 19.4
 (27.2)20.4
 18.7
 39.8
 (7.4)
Total$616.6
 $572.4
 $2,182.2
 $1,717.5
$411.9
 $409.5
 $2,594.1
 $2,127.0
Sales and Transportation (MMDth)              
Residential35.0
 34.8
 191.5
 166.8
15.4
 15.2
 206.9
 182.0
Commercial27.4
 27.0
 117.5
 102.3
17.5
 16.2
 135.0
 118.5
Industrial121.7
 113.4
 258.5
 246.7
126.2
 120.7
 384.7
 367.4
Off System14.2
 18.4
 28.5
 40.1
7.1
 15.6
 35.6
 55.7
Other(0.3) 0.2
 (0.1) 0.4

 
 (0.1) 0.4
Total198.0
 193.8
 595.9
 556.3
166.2
 167.7
 762.1
 724.0
Heating Degree Days555
 563
 3,992
 3,482
100
 94
 4,092
 3,576
Normal Heating Degree Days599
 599
 3,491
 3,491
85
 85
 3,576
 3,576
% (Warmer) Colder than Normal(7)% (6)% 14% %
% Colder than Normal18% 11% 14% %
Customers              
Residential    3,051,277
 3,035,524
    3,035,401
 3,022,289
Commercial    278,776
 278,200
    276,923
 276,219
Industrial    7,546
 7,493
    7,512
 7,488
Other    14
 21
    15
 22
Total

 

 3,337,613
 3,321,238


 

 3,319,851
 3,306,018
NiSource’s Gas Distribution Operations serve approximately 3.3 million customers in seven states: Ohio, Indiana, Pennsylvania, Massachusetts, Virginia, Kentucky and Maryland. The regulated subsidiaries offer both traditional bundled services as well as transportation only for customers that purchase gas from alternative suppliers. The operating results reflect the temperature-sensitive nature of customer demand with 74% of annual residential and commercial throughput affected by seasonality. As a result, segment operating income is higher in the first and fourth quarters reflecting the heating demand during the winter season.

Regulatory Matters
Refer to Note 6, “Regulatory Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on significant rate developments and cost recovery and trackers for the Gas Distribution Operations segment.

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NiSource Inc.
Gas Distribution Operations

Customer Usage. 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. Usage for the sixnine months ended JuneSeptember 30, 2014 increased from the same period last year primarily due to colder weather compared to the prior year. While historically, 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, the NiSource LDCs have pursued changes in rate design to more effectively match recoveries with costs incurred. Each of the states in which the NiSource LDCs 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 “de-coupled” rate design which more closely links the recovery of fixed costs with fixed charges. Columbia of Massachusetts and Columbia of Virginia received regulatory approval of decoupling mechanisms which adjust revenues to an approved benchmark level through a volumetric adjustment factor. Columbia of Maryland has received regulatory approval to implement a residential class revenue normalization adjustment, a decoupling mechanism whereby monthly revenues that exceed or fall short of approved levels are reconciled in subsequent months. In a prior base rate proceeding, Columbia of Pennsylvania implemented a residential weather normalization adjustment charge. In a prior base rate proceeding, NIPSCO implemented a higher fixed customer charge for residential and small customer classes moving toward full straight fixed variable rate design.
Environmental Matters
Various environmental matters occasionally impact the Gas Distribution Operations segment. As of JuneSeptember 30, 2014, a reserve has been recorded to cover probable and estimable environmental response actions. Refer to Note 17-C,16-C, “Environmental Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Gas Distribution Operations segment.
Weather
In general, NiSource calculates the weather related revenue variance based on changing customer demand driven by weather variance from normal heating degree-days. Normal is evaluated using heating degree days across the NiSource distribution region. While the temperature base for measuring heating degree days (i.e. the estimated average daily temperature at which heating load begins) varies slightly across the region, the NiSource composite measurement is based on 65 degrees. NiSource 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 the aggregated NiSource composite heating degree-day comparison.
Weather in the Gas Distribution Operations’ territories for the secondthird quarter of 2014 was 7%18% warmercolder than normal and 1% warmer6% colder than the secondthird quarter in 2013.
Weather in the Gas Distribution Operations’ territories for the sixnine months ended JuneSeptember 30, 2014 was 14% colder than normal and 15%14% colder than the same period in 2013.
Throughput
Total volumes sold and transported of 198.0166.2 MMDth for the secondthird quarter of 2014 increased decreased by 4.21.5 MMDth from the same period last year. This 2.2% increase0.9% decrease in volumes was primarily attributable to higher industrial throughput partially offset by a decrease in off-system sales.sales partially offset by higher industrial throughput.

Total volumes sold and transported of 595.9762.1 MMDth for the sixnine months ended JuneSeptember 30, 2014 increased by 39.638.1 MMDth from the same period last year. This 7.1%5.3% increase in volume was primarily attributable to colder weather.

Net Revenues
Net revenues for the secondthird quarter of 2014 were $359.4$297.3 million,, an increase of $26.1$19.5 million from the same period in 2013. The increase in net revenues is due primarily to an increase of $19.0$10.2 million for regulatory and service programs, including the implementation of rates under Columbia of Ohio's approved infrastructure replacement program and the impacts of the rate case at Columbia of Massachusetts. Additionally, there was an increase in net revenues as result of a settlement of $3.2 million at Columbia of Massachusetts in 2013, increased industrial and commercial usage of $1.4 million, higher net revenues due to increased margins of $1.4 million and higher large customer revenue of $1.3 million.


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NiSource Inc.
Gas Distribution Operations

Net revenues for the nine months ended September 30, 2014 were $1,299.3 million, an increase of $136.9 million from the same period in 2013. The increase in net revenues is due primarily to an increase of $69.9 million for regulatory and service programs, including the impacts of the rate settlement in 2013 at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohio's approved infrastructure replacement program.


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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations

Net revenues for the six months ended June 30, 2014 were $1,002.0 million, an increase of $117.4 million from the same period in 2013. The increase in net revenues is due primarily to an increase of $59.1 million for regulatory and service programs, including the impacts of the rate settlement in 2013 at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohio's approved infrastructure replacement program. Additionally, there wereprogram, the effects of colder weather of $19.9$19.7 million and increased regulatory and tax trackers, which are offset in expense, of $17.4 million,$17.0 million. Additionally, there was higher residential, commercial and commercialindustrial usage of $7.2$8.8 million, an increase in off-system sales of $4.6$5.1 million, higher revenue of $4.0$4.9 million due to increased customer count and an increase in large customer revenue of $3.3$4.6 million. Also, there were higher net revenues due to increased margins of $3.9 million, higher net revenues from the recovery of storage inventory costs of $3.6 million and a settlement of $3.2 million at Columbia of Massachusetts in 2013. These increases were partially offset by a decrease of $5.5$5.8 million resulting from NIPSCO’s GCIM.

At NIPSCO, sales revenues and customer billings are adjusted for amounts related to under and over-recovered purchased gas costs from prior periods per regulatory order. These amounts are primarily reflected in the “Other” gross revenues statistic provided at the beginning of this segment discussion. The adjustment to Other gross revenues for the three and sixnine months ended JuneSeptember 30, 2014 was a revenue decreaseincrease of $31.8$10.0 million and $0.3$9.7 million, respectively, compared to an increase of $8.1 million and a decrease of $25.8 million and $50.5$42.4 million for the three and sixnine months ended JuneSeptember 30, 2013, respectively.

Operating Income
For the secondthird quarter of 2014, Gas Distribution Operations reported operating income of $59.8$0.8 million,, an increase of $9.8$5.8 million from the comparable 2013 period. Operating income increased as a result of higher net revenues, as described above, partially offset by increased operating expenses. Operating expenses were $16.3$13.7 million higher than the comparable period reflecting increased outside service costsemployee and administrative expenses of $9.8$12.9 million and higher depreciation of $4.0$4.3 million due to increased capital expenditures and an increaseexpenditures. These increases were partially offset by a decrease in employee and administrative expensesenvironmental costs of $2.3$3.7 million.

For the sixnine months ended JuneSeptember 30, 2014, Gas Distribution Operations reported operating income of $361.6$362.4 million, an increase of $77.5$83.3 million from the comparable 2013 period. Operating income increased as a result of higher net revenues, as described above, partially offset by increased operating expenses. Operating expenses were $39.9$53.6 million higher than the comparable period reflecting higher employee and administrative expenses of $17.7 million, increased regulatory and tax trackers, which are offset in net revenues, of $17.4$17.0 million and higher depreciation of $7.7$12.0 million due to increased capital expenditures, an increase in employee and administrative expenses of $6.1 million and higherexpenditures. Additionally, there was increased other taxes of $5.2$6.3 million, higher outside service costs of $4.0 million and increased uncollectibles of $3.7 million. These increases were partially offset by a decrease in environmental costs of $5.8 million.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Columbia Pipeline Group Operations

Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in millions)2014 2013 2014 20132014 2013 2014 2013
Net Revenues              
Transportation revenues$181.5
 $171.6
 $403.8
 $382.5
$194.0
 $176.4
 $597.8
 $558.9
Storage revenues49.3
 48.7
 99.2
 99.2
49.1
 48.6
 148.3
 147.8
Other revenues112.7
 53.5
 186.1
 93.5
74.5
 57.7
 260.6
 151.2
Total Sales Revenues343.5
 273.8
 689.1
 575.2
317.6
 282.7
 1,006.7
 857.9
Less: Cost of sales (excluding depreciation and amortization)0.1
 0.1
 0.2
 0.2

 0.1
 0.2
 0.3
Net Revenues343.4
 273.7
 688.9
 575.0
317.6
 282.6
 1,006.5
 857.6
Operating Expenses              
Operation and maintenance205.1
 150.1
 370.8
 282.7
194.4
 165.3
 565.2
 448.0
Depreciation and amortization28.8
 26.5
 58.5
 52.2
29.2
 26.7
 87.7
 78.9
Gain on sale of assets(0.3) 
 (17.8) (0.2)(3.0) (11.1) (20.8) (11.3)
Other taxes17.2
 16.3
 35.7
 33.1
14.6
 13.5
 50.3
 46.6
Total Operating Expenses250.8
 192.9
 447.2
 367.8
235.2
 194.4
 682.4
 562.2
Equity Earnings in Unconsolidated Affiliates11.1
 8.0
 20.9
 15.1
12.0
 10.5
 32.9
 25.6
Operating Income$103.7
 $88.8
 $262.6
 $222.3
$94.4
 $98.7
 $357.0
 $321.0
Throughput (MMDth)              
Columbia Transmission194.2
 196.6
 653.7
 632.4
160.9
 158.4
 814.6
 790.8
Columbia Gulf145.4
 169.8
 330.3
 360.0
143.0
 134.0
 473.3
 494.0
Crossroads Pipeline3.5
 3.3
 9.2
 8.3
3.2
 4.1
 12.4
 12.4
Intrasegment eliminations(21.6) (81.4) (83.2) (175.3)(22.1) (36.5) (105.3) (211.8)
Total321.5
 288.3
 910.0
 825.4
285.0
 260.0
 1,195.0
 1,085.4

NiSource’s Columbia Pipeline Group Operations segment primarily consists of the operations of Columbia Transmission, Columbia Gulf, NiSource Midstream, NEVCO, Crossroads Pipeline, and the equity investments in Pennant, Millennium and Hardy Storage. In total, NiSource owns a pipeline network of approximately 15,000 miles extending from the Gulf of Mexico to New York and the eastern seaboard. The pipeline network serves customers in 16 northeastern, mid-Atlantic, midwestern and southern states, as well as the District of Columbia. In addition, the Columbia Pipeline Group Operations segment operates one of the nation’s largest underground natural gas storage systems.

Columbia Pipeline Group Operations’ most significant projects are as follows:

Warren County. The Columbia Pipeline Group Operations segment spentinvested approximately $37 million on an expansion project, which included 2.5 miles of 24-inch new pipeline and modifications to existing compression assets, with Virginia Power Services Energy Corporation, Inc., the energy manager for Virginia Electric and Power Company. This project expanded the Columbia Transmission system in order to provide up to nearly 250,000 Dth per day of transportation capacity under a long-term, firm contract. The project went into service in the second quarter of 2014.

West Side Expansion. The Columbia Pipeline Group Operations segment is investinginvested approximately $200 million in new pipeline and compression to increase supply origination from the Smithfield and Waynesburg areas on the Columbia Transmission system and provide a backhaul transportation path to Gulf Coast markets on the Columbia Gulf system. This investment will increase capacity up to 444,000 Dth per day from the Smithfield and Waynesburg areas and up to 540,000 Dth per day from Leach to Rayne transporting Marcellus production under long-term, firm contracts. Limited interim service is beingwas provided throughout 2014 with the project fully in service by the fourth quarter ofin October 2014.

Giles County. The Columbia Pipeline Group Operations segment is spendingspent approximately $25 million to construct nearly thirteen13 miles of 8-inch pipeline to provide 45,00046,000 Dth per day of firm service to a third party off of its Line KAVA system into Columbia of Virginia's system. Columbia of Virginia will expandexpanded pipeline facilities and an existing direct connection with the third party's plant in Giles County, Virginia. The project is planned to bewas placed into service in service by the fourth quarter ofOctober 2014.

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NiSource Inc.
Columbia Pipeline Group Operations


Line 1570 Expansion. The Columbia Pipeline Group Operations segment is replacing 18.7approximately 19 miles of 20-inch bare steel pipe with 24-inch pipe from Waynesburg, Pennsylvania to Redd Farm, Pennsylvania at an approximate cost of $20 million. The project also includes the installation of two compressors at Redd Farm and an uprate in horsepower at Waynesburg, increasing capacity by nearly 100,00099,000 Dth per day. The project is expected to be in service in the fourth quarter of 2014.

Big Pine Expansion. The Columbia Pipeline Group Operations segment is investing approximately $65 million to make a connection to the Big Pine pipeline and add compression facilities that will add incremental capacity. The additional 9 mile 20-inch pipeline and compression facilities will support Marcellus shale production in western Pennsylvania. Approximately half of the increased capacity generated by the endproject is expected to be supported by a long-term fee-based agreement with a regional producer, with the remaining capacity expected to be sold to other area producers in the near term. The project is expected to be placed in service by the third quarter of 2014.2015.

East Side Expansion. The Columbia Pipeline Group Operations segment plans to invest approximately $275 million in developing its East Side Expansion project, which will provide access for Marcellus supplies to the northeastern and mid-Atlantic markets. Backed by binding precedent agreements, the project will add up to 312,000 Dth per day of capacity, which is expected to be placed in service by the end of the third quarter of 2015.

Chesapeake, Virginia LNG Facility Modernization. The Columbia Pipeline Group Operations segment is investing approximately $30$33 million to upgrade the facility and extend its associated customer contracts for 15 years. The project's first phase was completed in the fourth quarter of 2013. The remainder of the project is expected to be completed by mid-2015.placed into service in the second quarter of 2015.

Washington County Gathering. The Columbia Pipeline Group Operations segment will constructis constructing a field gathering system in Pennsylvania that will gather well pad production of primarily dry gas from a third party producer. Pipeline laterals will be built to connect well pads as drilling is developed. The approximate $120 million investment will include about 2520 miles of gathering pipelines of varying diameter, a compressor station and dehydration unit. The gas gathering agreement has an initial 15-year term with the option to extend. ConstructionThe project is expected to begin in late 2014 with an expectedbe in service date during the second halffourth quarter of 2015.2015, with additional expansion expected as gas production grows.

Kentucky Power.Power Plant. The Columbia Pipeline Group Operations segment is constructing nearly three3 miles of 16 inch16-inch greenfield pipeline from Columbia Transmission's Line P that will serve a third-party natural gas-fired electric generation plant in Kentucky. The project will cost nearly $25approximately $24 million and will provide 72,000 Dth per day of capacity to the plant under an executed binding precedent agreement. The project is expected to be in service by the middleend of the second quarter of 2016.

Utica Access. The Columbia Pipeline Group Operations segment is investing approximately $50$51 million to construct nearly 5 miles of 20 inch20-inch greenfield pipeline and other facilities to provide 205,000 Dth per day of new firm service to allow Utica production access to liquid trading points on its system. This project is expected to be in service lateby the end of the fourth quarter of 2016.

Leach XPress. The Columbia Pipeline Group Operations segment will invest approximately $1.4 billion in 2016.this project. The project involves the installation of approximately 124 miles of 36-inch pipeline from Majorsville to the Crawford compressor station (Crawford) located on the Columbia Transmission system, and 27 miles of 36-inch pipeline from Crawford to the McArthur compressor station located on the Columbia Transmission system, and approximately 101,700 hp across multiple sites. The project will provide approximately 1.5 Bcf per day of capacity out of the Marcellus and Utica production regions to the Leach compressor station (Leach) located on the Columbia Gulf system, TCO Pool, and other markets on the Columbia Transmission system. Virtually all of the project’s capacity has been secured with long-term firm contracts. The project is expected to go in service during the fourth quarter of 2017.
Rayne XPress. The Columbia Pipeline Group Operations segment will invest approximately $330 million to modify existing facilities and to add new compression. This project would transport approximately 1 Bcf per day of growing southwest Marcellus and Utica production away from constrained production areas to markets and liquid transaction points. Capable of receiving gas from Columbia Transmission’s Leach XPress project, gas would be transported from the Leach, Kentucky interconnect with Columbia Transmission in a southerly direction towards the Rayne compressor station in southern Louisiana to reach various Gulf Coast markets. Definitive agreements for firm service have been secured for the project’s capacity. The project is expected to be placed in service by the end of the fourth quarter of 2017.


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NiSource Inc.
Columbia Pipeline Group Operations

WB XPress. The Columbia Pipeline Group Operations segment will invest approximately $870 million in this project that will transport approximately 1.3 Bcf of Marcellus Shale production on the Columbia Transmission system to pipeline interconnects and East Coast markets, which includes access to the Cove Point LNG terminal. Resolution of conditions precedent is anticipated in the fourth quarter of 2014. The project is expected to be placed in service during the fourth quarter of 2018.

Cameron Access. The Columbia Pipeline Group Operations segment has entered into binding precedent agreements for the improvement to existing pipeline and the construction of new pipeline and compression facilities along the Columbia Gulf system to connect with the Cameron LNG Terminal in southern Louisiana. The approximately $310 million project will transport supplies from numerous supply basins to the planned LNG export facility, which received Department of Energy approval late in 2013. The project will offer an initial capacity of up to 800,000 Dth per day and is expected to be placed into service as early asby the thirdfirst quarter of 2017.2018.
Equity Investments
Pennant. NiSource Midstream entered into a 50:50 joint venture in 2012 with affiliates of Hilcorp to construct new wet natural gas gathering pipeline infrastructure and NGL processing facilities to support natural gas production in the Utica Shale region of northeastern Ohio and western Pennsylvania. NiSource Midstream and Hilcorp jointly own Pennant with NiSource Midstream serving as the operator of Pennant and the facilities. NiSource accounts for the joint venture under the equity method of accounting.

Pennant is investinginvested in the construction of 20-24 inch wet gas gathering pipeline facilities with a capacity of approximately 500 MMcf per day. In addition, Pennant constructed a gas processing facility in New Middletown, Ohio that will have an initial capacity of 200 MMcf per day and is constructing a NGL pipeline with an initial capacity of 45,000 barrels per day that can be expanded to 90,000 barrels per day. Consistent with the terms of the joint venture, NiSource Midstream will operateoperates the gas processing facility, NGL pipeline and associated wet gas gathering system. The joint venture is designed and anticipated to serve other producers with significant acreage development in the area with an interest in obtaining capacity on the system. The construction of the facilities will allow Pennant to becomebe a full-service solution for providers in the northern Utica Shale region, offering access to wet gas gathering and processing as well as residue gas and NGL takeaway to attractive market destinations. NiSource Midstream's initial investment in this area, including the gathering pipeline, related laterals, NGL pipeline and the processing plant, will beis approximately $185$195 million. Portions of the facilities were placed in service in the fourth quarter of 2013 and the second quarter of 2014, with the remainder to be placed in service in the third quarter ofOctober 2014.


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NiSource Inc.
Columbia Pipeline Group Operations

During the secondthird quarter of 2014, NiSource Midstream made cash contributions to Pennant totaling $23.8$9.0 million. A cash contributionCash contributions of $15.6$41.9 million waswere made during the same period last year. For the sixnine months ended JuneSeptember 30, 2014 and 2013, NiSource Midstream made cash contributions to Pennant of $52.2 million. A cash contribution$61.2 million and of $26.1$68.0 million, was made during the same period last year.respectively.

In a separate agreement with Hilcorp, test wells were drilled in 2012 and continued in 2013 to support the development of the hydrocarbon potential on more than 100,000 combined acres in the Utica/Point Pleasant Shale formation. Production wells were drilled in 2013 and 2014, with the full production program in development. NiSource is investing alongside Hilcorp in the development of the acreage, with NiSource owning both a working and overriding royalty interest. All of the Hilcorp/NiSource acreage is dedicated to Pennant.

Millennium. Millennium operates approximately 250253 miles of pipeline and three compressor stations with approximately 43,000 hp of installed capacity under the jurisdictional authority of the FERC. The Millennium pipeline has the capability to transport natural gas to markets along its route, which lies between Corning, New York and Ramapo, New York, as well as to the New York City market through its pipeline interconnections. Columbia Transmission owns a 47.5% interest in Millennium and acts as operator for the pipeline in partnership with DTE Millennium Company and National Grid Millennium LLC, which each own an equal remaining share of the company.

During the secondthird quarter of 2014 and 2013, Columbia Transmission made no contributions of zero and $2.4 million, respectively, to Millennium. For the sixnine months ended JuneSeptember 30, 2014 and 2013, Columbia Transmission made contributions of $2.6 million and $6.6$9.0 million, respectively, to fund its share of capital projects. During the secondthird quarter of 2014 and 2013, Columbia Transmission received distributions of earnings of $4.8$14.2 million and $4.3$6.2 million, respectively. For the sixnine months ended JuneSeptember 30, 2014 and 2013, Columbia transmission received distributions of earnings of $11.9$26.1 million and $10.9$17.1 million, respectively.

Millennium began two projects in 2012 that added approximately 30,000 hp of compression to its system. The first project went into service onin June 1, 2013 and increased capacity at its interconnections with Algonquin Gas Transmission, with a total investment

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NiSource Inc.
Columbia Pipeline Group Operations

of approximately $50 million. The second project included a total investment of approximately $40 million that increased capacity with interconnections to other third-party facilities. The second project was placed into service onin March 31, 2014. Columbia Transmission's share of the above investments is limited to its 47.5% interest in Millennium.

Hardy Storage. Hardy Storage is a 50:50 joint venture between subsidiaries of Columbia Transmission and Piedmont that manages an undergroundconsists of 29 storage wells in a depleted gas production field in Hardy and Hampshire counties in West Virginia. Columbia Transmission serves as operator of the company, which is regulated by the FERC. Hardy Storage hasfacilities interconnect with Columbia Transmission and include approximately 37 miles of pipeline and nearly 7,200 hp of installed capacity with a working storage capacity of 12 Bcf and the ability to deliver 176,000 Dth of natural gas per day.

During both the secondthird quarter of 2014 and 2013, NiSource received $0.5 million and $1.0 million of available accumulated earnings, respectively.earnings. For the sixnine months ended JuneSeptember 30, 2014 and 2013, NiSource received $1.0$1.5 million and $1.4$1.9 million of available accumulated earnings, respectively. NiSource made no contributions during 2014 or 2013.

Nature of Sales
Columbia Transmission and Columbia Gulf compete for transportation customers based on the type of service a customer needs, operating flexibility, available capacity and price. Columbia Gulf and Columbia Transmission provide a significant portion of total transportation services under firm contracts and derive a smaller portion of revenues through interruptible contracts, with management seeking to maximize the portion of physical capacity sold under firm contracts.

Firm service contracts require pipeline capacity to be reserved for a given customer between certain receipt and delivery points. Firm customers generally pay a “capacity reservation” fee based on the amount of capacity being reserved regardless of whether the capacity is used, plus an incremental usage fee when the capacity is used. Annual capacity reservation revenues derived from firm service contracts generally remain constant over the life of the contract because the revenues are based upon capacity reserved and not whether the capacity is actually used. The high percentage of revenue derived from capacity reservation fees mitigates the risk of revenue fluctuations within the Columbia Pipeline Group Operations segment due to changes in near-term supply and demand conditions. The following percentages exclude the impact of intrasegment revenues and over / under collections of tracker-related revenues. For the quarter ended JuneSeptember 30, 2014, approximately 94.3%94.6% of the transportation revenues were derived from capacity reservation fees paid under firm contracts and 3.9%3.6% of the transportation revenues were derived from usage fees under firm contracts compared to approximately 93.1%93.7% and 5.0%4.1%, respectively, for the quarter ended JuneSeptember 30, 2013. For the sixnine months ended JuneSeptember 30, 2014, approximately 93.4%93.8% of the transportation revenues were derived from capacity reservation fees paid under firm

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NiSource Inc.
Columbia Pipeline Group Operations

contracts and 4.6%4.3% of the transportation revenues were derived from usage fees under firm contracts compared to approximately 92.6%92.9% and 5.8%5.3% respectively, for the sixnine months ended JuneSeptember 30, 2013.

Interruptible transportation service is typically short term in nature and is generally used by customers that either do not need firm service or have been unable to contract for firm service. These customers pay a usage fee only for the volume of gas actually transported. The ability to provide this service is limited to available capacity not otherwise used by firm customers, and customers receiving services under interruptible contracts are not assured capacity in the pipeline facilities. Columbia Pipeline Group Operations provides interruptible service at competitive prices in order to capture short term market opportunities as they occur and interruptible service is viewed by management as an important strategy to optimize revenues from the gas transmission assets. For both the quarters ended JuneSeptember 30, 2014 and 2013, approximately 1.8% and 2.2%, respectively, of the transportation revenues were derived from interruptible contracts. For the sixnine months ended JuneSeptember 30, 2014 and 2013, approximately 2.1%2.0% and 1.6%1.8%, respectively, of the transportation revenues were derived from interruptible contracts.

Regulatory Matters
Refer to Note 6, “Regulatory Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on regulatory matters for the Columbia Pipeline Group Operations segment.

Environmental Matters
Various environmental matters occasionally impact the Columbia Pipeline Group Operations segment. As of JuneSeptember 30, 2014, a reserve has been recorded to cover probable and estimable environmental response actions. Refer to Note 17-C,16-C, “Environmental Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Columbia Pipeline Group Operations segment.

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NiSource Inc.
Columbia Pipeline Group Operations


Throughput
Columbia Transmission's throughput consists of gas transportation service deliveries to LDC city gates, to gas fired power plants, other industrial customers, or other interstate pipelines in its market area. Columbia Transmission's market area covers portions of northeastern, mid-Atlantic, midwestern, and southern states as well as the District of Columbia. Gas delivered via transportation services to storage is not accounted for as throughput until it is withdrawn from storage and delivered to one of the aforementioned locations via a transportation service. Throughput for Columbia Gulf traditionally consists of gas delivered to Columbia Transmission at Leach, Kentucky as well as gas delivered south of Leach to other interstate pipelines or to an LDC's city gate. Market conditions on Columbia Gulf have resulted incontinue to support greater use of backhaul transportation services from supplies originating near Leach, Kentucky and its Louisiana interconnects to markets in the southeastern United States. Crossroads Pipeline serves customers in northern Indiana and Ohio via gas flowing west to east originating from outside the Chicago area to Cygnet, Ohio where it interconnects with Columbia Transmission. Intra-segment eliminations represent gas delivered to an affiliated pipeline within the segment.

Throughput for the Columbia Pipeline Group Operations segment totaled 321.5285.0 MMDth for the secondthird quarter of 2014, compared to 288.3260.0 MMDth for the same period in 2013. The increase of 33.225.0 MMDth reflected increased Marcellus natural gas production and favorable pricing conditions to third party interconnects in the Southeast region of the United States, which have been running at near full capacity.States.

Throughput for the Columbia Pipeline Group Operations segment totaled 910.01,195.0 MMDth for the sixnine months ended JuneSeptember 30, 2014, compared to 825.41,085.4 MMDth for the same period in 2013. The increase of 84.6109.6 MMDth was primarily attributable to much colder than normal weatherincreased natural gas production on the Columbia Pipeline Group system and the favorable pricing conditionstransportation of volumes to third party interconnects mentioned above.

Net Revenues
Net revenues were $343.4$317.6 million for the secondthird quarter of 2014, an increase of $69.7$35.0 million from the same period in 2013. The increase in net revenues is due primarily to higher regulatory trackers, which are offset in expense, of $47.5$15.6 million, increased demand margin revenue of $15.0$11.8 million primarily as a result of growth projects placed in service, and higher mineral rights royalty revenue of $7.5$5.9 million and increased condensate revenue of $2.6 million.

Net revenues were $688.9$1,006.5 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $113.9$148.9 million from the same period in 2013. The increase in net revenues is due primarily to higher regulatory trackers, which are offset in expense, of $72.0$87.6 million, increased demand margin revenue of $22.4$34.1 million primarily as a result of growth projects placed in service, and higher mineral rights royalty revenue of $14.6$20.5 million due to increased third party drilling activity and higher condensate revenue of $3.7 million.

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NiSource Inc.
Columbia Pipeline Group Operations

 
Operating Income
Operating income was $103.7$94.4 million for the secondthird quarter of 2014, an increasea decrease of $14.9$4.3 million from the secondthird quarter of 2013. Operating income increaseddecreased as a result of increased operating expenses, partially offset by higher net revenues, as described above, and higher equity earnings partially offset by increased operating expenses. Equity earnings increased $3.1 million due to higher earnings at Millennium attributable to growth projects placed in service.earnings. Operating expenses were $57.9$40.8 million higher than the comparable period primarily as a result of increased regulatory trackers, which are offset in net revenues, of $47.5$15.6 million, higher employee and administrative expenses of $4.2$13.5 million, a decrease in gains on the sale of assets of $8.1 million primarily resulting from the sale of storage base gas in 2013, higher outside service costs of $5.8 million, and increased depreciation of $2.3$2.5 million. These increases were partially offset by a decrease in software data conversion costs of $7.5 million. Equity earnings increased $1.5 million due to higher earnings at Millennium.

Operating income was $262.6$357.0 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $40.3$36.0 million from the comparable 2013 period. Operating income increased as a result of higher net revenues, as described above, and higher equity earnings partially offset by increased operating expenses. Equity earnings increased $5.8 million due to higher earnings at Millennium attributable to growth projects placed in service. Operating expenses were $79.4$120.2 million higher than the comparable period primarily as a result of increased regulatory trackers, which are offset in net revenues, of $72.0$87.6 million, higher employee and administrative expenses of $10.9$24.4 million, increased depreciation of $6.3$8.8 million, higher outside service costs of $7.5 million and higherincreased property taxes of $2.5$3.1 million. These increases were partially offset by an increase in the gainsgain on the sale of assets of $17.6$9.5 million primarily resulting from conveyances of mineral interests.interests of $20.8 million, offset by the sale of storage base gas in 2013 of $11.1 million and lower software data conversion costs of $7.5 million. Equity earnings increased $7.3 million due to higher earnings at Millennium attributable to growth projects placed in service.


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NiSource Inc.
Electric Operations


Three Months Ended
June 30,
 Six Months Ended June 30,Three Months Ended
September 30,
 Nine Months Ended September 30,
(in millions)2014 2013 2014 20132014 2013 2014 2013
Net Revenues              
Sales revenues$405.4
 $385.1
 $855.8
 $762.7
$424.7
 $413.7
 $1,280.5
 $1,176.4
Less: Cost of sales (excluding depreciation and amortization)146.3
 141.3
 326.7
 266.2
147.5
 142.2
 474.2
 408.4
Net Revenues259.1
 243.8
 529.1
 496.5
277.2
 271.5
 806.3
 768.0
Operating Expenses              
Operation and maintenance122.2
 108.7
 234.7
 216.6
120.5
 107.1
 355.2
 323.7
Depreciation and amortization60.1
 60.4
 120.5
 123.6
62.4
 60.6
 182.9
 184.2
Gain on sale of assets(0.1) 
 (0.1) 

 
 (0.1) 
Other taxes14.0
 15.2
 32.2
 31.6
17.4
 16.3
 49.6
 47.9
Total Operating Expenses196.2
 184.3
 387.3
 371.8
200.3
 184.0
 587.6
 555.8
Operating Income$62.9
 $59.5
 $141.8
 $124.7
$76.9
 $87.5
 $218.7
 $212.2
Revenues ($ in millions)              
Residential$100.2
 $95.7
 $213.4
 $204.0
$122.3
 $122.1
 $335.7
 $326.1
Commercial108.7
 104.3
 214.9
 208.0
122.4
 116.8
 337.3
 324.8
Industrial172.0
 152.3
 351.7
 311.7
185.3
 155.3
 537.0
 467.0
Wholesale0.3
 16.0
 21.7
 17.7
4.9
 3.1
 26.6
 20.8
Other24.2
 16.8
 54.1
 21.3
(10.2) 16.4
 43.9
 37.7
Total$405.4
 $385.1
 $855.8
 $762.7
$424.7
 $413.7
 $1,280.5
 $1,176.4
Sales (Gigawatt Hours)              
Residential793.2
 769.1
 1,689.4
 1,633.2
915.2
 1,000.5
 2,604.6
 2,633.7
Commercial964.9
 942.6
 1,900.4
 1,863.8
1,031.6
 1,066.1
 2,932.0
 2,929.9
Industrial2,455.8
 2,256.3
 5,062.9
 4,575.9
2,504.7
 2,337.2
 7,567.6
 6,913.1
Wholesale12.1
 494.7
 323.9
 556.0
161.4
 108.6
 485.3
 664.6
Other34.9
 27.0
 68.3
 60.2
36.4
 31.3
 104.7
 91.5
Total4,260.9
 4,489.7
 9,044.9
 8,689.1
4,649.3
 4,543.7
 13,694.2
 13,232.8
Cooling Degree Days276
 250
 276
 250
381
 531
 657
 781
Normal Cooling Degree Days229
 229
 229
 229
570
 570
 799
 799
% Warmer than Normal21% 9% 21% 9%
% Colder than Normal(33)% (7)% (18)% (2)%
Electric Customers              
Residential    401,671
 401,162
    401,683
 401,174
Commercial    54,303
 54,189
    54,383
 54,267
Industrial    2,370
 2,376
    2,364
 2,371
Wholesale    767
 728
    751
 728
Other    6
 6
    4
 6
Total

 

 459,117
 458,461


 

 459,185

458,546
NiSource generates and distributes electricity, through its subsidiary NIPSCO, to approximately 459 thousand customers in 20 counties in the northern part of Indiana. The operating results reflect the temperature-sensitive nature of customer demand with annual sales affected by temperatures in the northern part of Indiana. As a result, segment operating income is generally higher in the second and third quarters, reflecting cooling demand during the summer season.


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NiSource Inc.
Electric Operations

Electric Supply
On October 28, 2011, NIPSCO filed its 2011 Integrated Resource Plan with the IURC. The plan evaluates demand-side and supply-side resource alternatives to reliably and cost-effectively meet NIPSCO customers' future energy requirements over the next twenty years. Existing resources are expected to be sufficient, assuming favorable outcomes for environmental upgrades, to meet customers' needs for the next decade. NIPSCO continues to monitor and assess economic, regulatory and legislative activity, and will update its resource plan as appropriate.
Regulatory Matters
Refer to Note 6, “Regulatory Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on significant rate developments and cost recovery and trackers for the Electric Operations segment.
Environmental Matters
Various environmental matters occasionally impact the Electric Operations segment. As of JuneSeptember 30, 2014, a reserve has been recorded to cover probable and estimable environmental response actions. Refer to Note 17-C,16-C, “Environmental Matters,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Electric Operations segment.

Transmission Upgrade Agreements
On February 11, 2014, NIPSCO entered into TUAs with upgrade sponsors to complete upgrades on NIPSCO’s transmission system on behalf of those sponsors. The upgrade sponsors have agreed to reimburse NIPSCO for the total cost to construct transmission upgrades and place them into service, which is estimated at $50.3 million, multiplied by a rate of 1.71 ("the multiplier").

On June 10, 2014, certain upgrade sponsors for both TUAs, filed a complaint at FERC against NIPSCO regarding the multiplier stated in the TUAs. On June 30, 2014, NIPSCO filed an answer defending the terms of the TUAs and the just and reasonable nature of the multiplier charged therein and moved for dismissal of the complaint. NIPSCO will continue to monitor developments in this matter but cannot estimate the impact (if any) on the Condensed Consolidated Financial Statements (unaudited) the complaint will have at this time.

Sales
Electric Operations sales quantities for the secondthird quarter of 2014 were 4,260.94,649.3 gwh, a decreasean increase of 228.8105.6 gwh compared to the secondthird quarter of 2013. The 5.1% decrease2.3% increase is primarily attributable to a decrease in market opportunities for off-system sales during the second quarter of 2014, partially offset by an increase in industrial usage.usage due to large industrial customers expanding plant operations and using less internal generation.

Electric Operations sales quantities for the sixnine months ended JuneSeptember 30, 2014 were 9,044.913,694.2 gwh, an increase of 355.8461.4 gwh compared to the same period in 2013. The 4.1%3.5% increase is primarily attributable to an increase in industrial usage due to large industrial customers expanding plant operations and using less internal generation.

Net Revenues
Net revenues were $259.1277.2 million for the secondthird quarter of 2014, an increase of $15.3$5.7 million from the same period in 2013. The increase in net revenues is due primarily to higher industrial commercial, and residential usage of $8.1$7.4 million, increased trackers, which are offset in expense, of $4.4 million and an increase in the return on the environmental capital investment recovery of $5.0$4.2 million due to an increased plant balance eligible for recovery, lower fuel handling costs of $2.2 million and the effects of weather of $2.1 million.recovery. These increases were partially offset by a decrease in off-system salesthe effects of $5.5weather of $10.3 million.

Net revenues were $529.1$806.3 million for the sixnine months ended JuneSeptember 30, 2014, an increase of $32.6$38.3 million from the same period in 2013. The increase in net revenues is due primarily to higher industrial and residential usage of $15.7$21.9 million, an increase in the return on the environmental capital investment recovery of $13.1$17.3 million due to an increased plant balance eligible for recovery, the effects of weather of $6.5 million and higher off-system sales of $4.1 million.recovery. Additionally, there was increased revenuenet revenues of $2.8$4.1 million as a result of two electric transmission projects authorized by the MISO.MISO and higher off-system sales of $3.9 million. These increases were partially offset by a decrease in transmission upgrade revenue of $6.5 million and lower trackers, which are offset in expense,the effects of $4.0weather of $3.8 million.
At NIPSCO, sales revenues and customer billings are adjusted for amounts related to under and over-recovered purchased fuel costs from prior periods per regulatory order. These amounts are primarily reflected in the “Other” gross revenues statistic provided at the beginning of this segment discussion. The adjustment to Other gross revenues for the three and sixnine months endedJune 30,

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONSCONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations

September 30, 2014 was a revenue decrease of $22.2 million and an increase of $10.5 million and $30.8$8.6 million, respectively, compared to a revenue increase of $6.9 million and a decrease of $0.3$6.6 million for the three and sixnine months ended JuneSeptember 30, 2013,, respectively.
Operating Income
For the secondthird quarter of 2014, Electric Operations reported operating income of $62.9$76.9 million,, an increase a decrease of $3.4$10.6 million from the comparable 2013 period. Operating income increaseddecreased as a result of increased operating expenses, partially offset by higher net revenues, as described above, partially offset by increased operating expenses.above. Operating expenses increased $11.9$16.3 million due primarily to higher electric generation costs of $11.0 million as a result of outages and maintenance and increased employee and administrative expenses of $5.6$5.3 million, an increase in trackers, which are offset in net revenues, of $4.4 million, higher electric generation costs of $3.4 million and increased storm damage costs of $3.3 million.

For the for the sixnine months ended JuneSeptember 30, 2014, Electric Operations reported operating income of $141.8$218.7 million, an increase of $17.1$6.5 million from the comparable 2013 period. Operating income increased as a result of higher net revenues, as described above, partially offset by increased operating expenses. Operating expenses increased $15.5$31.8 million due primarily to higher employee and administrative expenses of $12.1$15.3 million, and increased electric generation costs of $10.9$14.3 million as a result of maintenance related outages and higher storm damage costs of $2.6 million. These increases were partially offset by a decrease in trackers, which are offset in net revenues, of $4.0 million.


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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NiSource Inc.

For a discussion regarding quantitative and qualitative disclosures about market risk see “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Disclosures.”

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
NiSource’s Chief Executive Officer and its Principal Financial Officer, after evaluating the effectiveness of NiSource’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded based on the evaluation required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15 that, as of the end of the period covered by this report, NiSource’s disclosure controls and procedures are considered effective.

Changes in Internal Controls
During the quarter ended June 30, 2014, NiSource implemented the second phase of a multi-year process of migrating all of its subsidiaries to a common general ledger system. During this phase, Columbia of Ohio, Columbia of Pennsylvania, Columbia of Virginia, Columbia of Kentucky and Columbia of Maryland migrated to this new general ledger system. The implementation is not being madeThere have been no changes in response to any deficiency in our internal controls. This implementation has resulted in certain changes to business processes and internal controls impacting our financial reporting. NiSource has taken steps to monitor and maintain appropriateNiSource's internal control over financial reporting during the fiscal quarter covered by this phase and will continuereport that has materially affected, or is reasonably likely to evaluate the operating effectiveness of related controls during subsequent phases and periods.materially affect, NiSource's internal control over financial reporting.




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PART II

ITEM 1. LEGAL PROCEEDINGS
NiSource Inc.

None.On August 29, 2014, Pike County Conservation District issued an NOV to Columbia Transmission alleging violations of the Pennsylvania Clean Streams Law and Columbia Transmission’s Erosion and Sediment Control General Permit in connection with Columbia Transmission’s Line 1278 Replacement Project. Discussions are ongoing with the Pike County Conservation District to resolve this NOV.

ITEM 1A. RISK FACTORS

There werehave been no material changes fromto the risk factors previously disclosed in NiSource’s 2013our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (“Form 10-K”), except for the addition of the risk factors set forth below. The risks and uncertainties described below should be read in conjunction with the risk factors and other information disclosed in our Form 10-K.

The Proposed Separation may not be completed on the currently contemplated timeline or terms, or at all, and may not achieve the intended benefits.

The Proposed Separation is subject to conditions, including, without limitation, final NiSource Board of Directors approval and the receipt by NiSource of a legal opinion to the effect that the distribution of CPG shares to NiSource shareholders will qualify as tax-free under Section 355 of the U.S. Internal Revenue Code. Unanticipated developments or changes in market conditions may delay the Proposed Separation, and the Proposed Separation may not occur on the currently contemplated timeline or at all.
NiSource cannot predict with certainty when the benefits expected from the Proposed Separation will occur or the extent to which they will be achieved, if at all. Furthermore, there are various uncertainties and risks relating to the process of the Proposed Separation that could have a negative impact on our financial condition, results of operations and cash flows, including disruption of our operations and impairment of our relationship with regulators, key personnel, customers and vendors.
If the Proposed Separation is successfully completed, NiSource will face new and unique risks, including the possibility of reduced financial resources and less diversification of revenue sources, which may adversely impact NiSource’s financial condition, results of operations and cash flows. In addition, the changes in our operational and financial profile may not meet some or all of our shareholders’ investment strategies, which could cause investors to sell their NiSource shares and otherwise decrease demand for shares of NiSource common stock. Excess selling will cause the relative market price of NiSource common stock to decrease, and the market price of NiSource common stock may be subject to greater volatility following the completion of the Proposed Separation.
A condition to the Proposed Separation is the receipt by NiSource of a legal opinion to the effect that the distribution of CPG shares to NiSource shareholders will qualify as tax-free under Section 355 of the U.S. Internal Revenue Code. However, even if we receive such an opinion, the Internal Revenue Service could determine on audit that the distribution is taxable. Both NiSource and our shareholders could incur significant U.S. federal income tax liabilities if taxing authorities conclude the distribution is taxable.
Following the Proposed Separation, both NiSource and CPG are expected to have investment grade credit ratings. However, there is no assurance that this will occur, and even if both NiSource and CPG have investment grade credit ratings at the time the Proposed Separation is completed, there is no assurance that they will continue to maintain such investment grade credit ratings in the future.
Inability to complete the planned initial public offering of Columbia Pipeline Partners LP on the currently contemplated timeline or terms may adversely impact our stock price and our ability to enhance our growth potential.
On September 29, 2014, a registration statement relating to the proposed initial public offering, or IPO, of common units representing limited partner interests in Columbia Pipeline Partners LP was filed with the Securities and Exchange Commission but has not yet become effective. Completion of the registration is subject to market conditions and numerous other risks beyond our control, including, but not limited to, the general economy, credit markets, equity markets and energy prices.  Therefore, it is possible that the master limited partnership will not complete an offering of securities, will not raise the planned amount of capital even if an offering of securities is completed, and will not be able to complete its proposed actions on February 18, 2014.the timetable indicated. Furthermore,

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ITEM 1A. RISK FACTORS (continued)
NiSource Inc.

the structure, nature, purpose, proposed assets and liabilities, and proposed manner of offering of the master limited partnership may change materially from those anticipated. If the IPO is not completed or is delayed, our stock price may decline and our growth potential may be negatively impacted. 

A registration statement relating to common units of Columbia Pipeline Partners LP has been filed with the SEC but has not yet become effective. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This quarterly report on Form 10-Q shall not constitute an offer to sell or the solicitation of an offer to buy any securities.  Any offers, solicitations of offers to buy, or any sales of securities of Columbia Pipeline Partners LP will be made only in accordance with the registration requirements of the Securities Act of 1933 or an exemption therefrom.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.


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ITEM 6. EXHIBITS
NiSource Inc.
 
(10.1)Term Loan Agreement (the "Agreement") with the lenders party thereto, CoBank, ACB, as Syndication Agent, JPMorgan Chase Bank, N.A., as Administrative Agent, and J.P. Morgan Securities LLC and CoBank, ACB, as Joint Lead Arrangers and Joint Bookrunners dated August 20, 2014.
(31.1)Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
(31.2)Certification of Stephen P. Smith, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
(32.1)Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
  
(32.2)Certification of Stephen P. Smith, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith).
  
(101.INS)XBRL Instance Document
  
(101.SCH)XBRL Schema Document
  
(101.CAL)XBRL Calculation Linkbase Document
  
(101.LAB)XBRL Labels Linkbase Document
  
(101.PRE)XBRL Presentation Linkbase Document
  
(101.DEF)XBRL Definition Linkbase Document
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, NiSource hereby agrees to furnish the SEC, upon request, any instrument defining the rights of holders of long-term debt of NiSource not filed as an exhibit herein. No such instrument authorizes long-term debt securities in excess of 10% of the total assets of NiSource and its subsidiaries on a consolidated basis.


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SIGNATURE
NiSource Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
   NiSource Inc. 
   (Registrant)
    
Date:July 31,October 30, 2014By:    /s/ Joseph W. Mulpas
   Joseph W. Mulpas
   
Vice President and Chief Accounting Officer
(Principal Accounting Officer
and Duly Authorized Officer)


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