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 SeptemberJune 30, 20172018
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.)
Yes þ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer" "smaller reporting company," and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ                    Accelerated filer ¨        Emerging growth company ¨
Non-accelerated filer ¨                      Smaller reporting company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant 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: 336,793,693363,036,685 shares outstanding at October 23, 2017.July 24, 2018.

NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20172018
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.
   
 

DEFINED TERMS

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

 
NiSource Subsidiaries, Affiliates and Former Subsidiaries
Capital MarketsNiSource Capital Markets, Inc.
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.
NIPSCONorthern Indiana Public Service Company LLC
NiSource ("we," "us" or the Company“our”)NiSource Inc.
NiSource FinanceNiSource Finance Corp.
  
Abbreviations and Other 
AFUDCAllowance for funds used during construction
AOCIAccumulated Other Comprehensive Income (Loss)
ASCAccounting Standards Codification
ASUAccounting Standards Update
ATMAt-the-market
CAAClean Air Act
CCRsCoal Combustion Residuals
CEPCapital Expenditure Program
CERCLAComprehensive Environmental Response Compensation and Liability Act (also known as Superfund)
CIACContributions In Aid of Construction
CO2
Carbon Dioxide
CPPClean Power Plan
DPUDepartment of Public Utilities
DSMDemand Side Management
ECREnvironmental Cost Recovery
ECTEnvironmental Cost Tracker
EGUsElectric Utility Generating Units
ELGEffluent limitations guidelines
EPAUnited States Environmental Protection Agency
EPSEarnings per share
FACFuel adjustment clause
FASBFinancial Accounting Standards Board
FERCFederal Energy Regulatory Commission
GAAPGenerally Accepted Accounting Principles
GCAGas cost adjustment
GCRGas cost recovery
GHGGreenhouse gases
GSEPGas System Enhancement Program
gwhGigawatt hours
IBMInternational Business Machines Corporation
IRPInfrastructure Replacement Program
IRSInternal Revenue Service
IURCIndiana Utility Regulatory Commission
LDCsLocal distribution companies
LIBORLondon InterBank Offered Rate
LIFOLast In, First Out
MGPManufactured Gas Plant

DEFINED TERMS

IURCIndiana Utility Regulatory Commission
LDCsLocal distribution companies
MGPManufactured Gas Plant
MISOMidcontinent Independent System Operator
MMDthMillion dekatherms
MPSCMaryland Public Service Commission
NAAQSNational Ambient Air Quality Standards
NOLNet operating loss
NYMEXNew York Mercantile Exchange
OCCOhio Consumers' Counsel
OPEBOther Postretirement Benefits
OUCCPSCOfficePublic Service Commission
PUCPublic Utilities Commission
PUCOPublic Utilities Commission of Utility Consumer CounselorOhio
Pure AirPure Air on the Lake LP
RCRAResource Conservation and Recovery Act
ppbParts per billion
PUCOPublic Utilities Commission of Ohio
SECSecurities and Exchange Commission
TCJAAn Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (commonly known as the Tax Cuts and Jobs Act of 2017)
TDSICTransmission, Distribution and Storage System Improvement Charge
VIEVariable Interest Entities
VSCCVirginia State Corporation Commission
WCEWhiting Clean Energy
Note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Investors and prospective investors should understand that many factors govern whether any forward-looking statement contained herein will be or can be realized. Any one of those factors could cause actual results to differ materially from those projected. These forward-looking statements include, but are not limited to, statements concerning NiSource’s plans, strategies, objectives, expected performance, expenditures, recovery of expenditures through rates, stated on either a consolidated or segment basis, and any and all underlying assumptions and other statements that are other than statements of historical fact. All forward-looking statements are based on assumptions that management believes to be reasonable; however, there can be no assurance that actual results will not differ materially.
Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Quarterly Report on Form 10-Q include, among other things, NiSource’sour debt obligations; any changes in NiSource’sour credit rating; NiSource’sour ability to execute itsour growth strategy; changes in general economic, capital and commodity market conditions; pension funding obligations; economic regulation and the impact of regulatory rate reviews; NiSource'sour ability to obtain expected financial or regulatory outcomes; advances in technology; any damage to NiSource'sour reputation; compliance with environmental laws and the costs of associated liabilities; fluctuations in demand from residential and commercial customers; economic conditions of certain industries; the success of NIPSCO's electric generation strategy; the price of energy commodities and related transportation costs; the reliability of customers and suppliers to fulfill their payment and contractual obligations; potential impairments of goodwill or definite-lived intangible assets; changes in taxation and accounting principles; potential incidents and other operating risks associated with our business; the impact of an aging infrastructure; the impact of climate change; potential cyber-attacks; construction risks and natural gas costs and supply risks; extreme weather conditions; the attraction and retention of a qualified workforce; advances in technology; the ability of NiSource'sour subsidiaries to generate cash; tax liabilities associated with the separation of Columbia Pipeline Group, Inc. on July 1, 2015,2015; our ability to manage new initiatives and organizational changes; the performance of certain third-party suppliers upon which we rely; our ability to obtain sufficient insurance coverage; and other matters set forth in the “Risk Factors” section of NiSource’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2017, many of which risks are beyond the control of NiSource.our control. In addition, the relative contributions to profitability by each business segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. NiSource undertakesWe undertake no obligation to, and expressly disclaimsdisclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to the future results over time or otherwise, except as required by law.

IndexPage


PART I

ITEM 1. FINANCIAL STATEMENTS
NiSource Inc.
Condensed Statements of Consolidated Income (Loss) (unaudited)
  
Three Months Ended
September 30,
 Nine Months Ended
September 30,
(in millions, except per share amounts)2017 2016 2017 2016
Net Revenues      
Gas Distribution$239.4
 $212.3
 $1,403.0
 $1,244.3
Gas Transportation191.6
 180.0
 735.1
 689.5
Electric485.8
 465.5
 1,365.5
 1,249.2
Other0.2
 3.5
 2.7
 12.5
Gross Revenues917.0
 861.3
 3,506.3
 3,195.5
Cost of Sales (excluding depreciation and amortization)233.6
 218.2
 1,062.7
 949.6
Total Net Revenues683.4
 643.1
 2,443.6
 2,245.9
Operating Expenses       
Operation and maintenance383.3
 336.6
 1,184.9
 1,028.9
Depreciation and amortization143.0
 136.3
 428.5
 406.0
Gain on sale of assets and impairments, net
 (0.1) (0.1) (0.4)
Other taxes57.5
 56.6
 189.7
 178.1
Total Operating Expenses583.8
 529.4
 1,803.0
 1,612.6
Operating Income99.6
 113.7
 640.6
 633.3
Other Income (Deductions)       
Interest expense, net(87.9) (85.0) (260.8) (261.5)
Other, net4.8
 3.5
 9.8
 (1.9)
Loss on early extinguishment of long-term debt
 
 (111.5) 
Total Other Deductions, Net(83.1) (81.5) (362.5) (263.4)
Income from Continuing Operations before Income Taxes16.5

32.2

278.1

369.9
Income Taxes2.5
 8.5
 97.1
 130.6
Income from Continuing Operations14.0
 23.7
 181.0
 239.3
Income (Loss) from Discontinued Operations - net of taxes
 3.5
 (0.1) 3.4
Net Income14.0
 27.2
 180.9
 242.7
Basic Earnings Per Share       
Continuing operations$0.04
 $0.07
 $0.55
 $0.74
Discontinued operations
 0.01
 
 0.02
Basic Earnings Per Share$0.04

$0.08

$0.55

$0.76
Diluted Earnings Per Share       
Continuing operations$0.04
 $0.07
 $0.55
 $0.74
Discontinued operations
 0.01
 
 0.01
Diluted Earnings Per Share$0.04
 $0.08
 $0.55
 $0.75
Dividends Declared Per Common Share$0.175
 $0.165
 $0.700
 $0.640
Basic Average Common Shares Outstanding331.1
 322.3
 326.7
 321.4
Diluted Average Common Shares332.4
 323.9
 328.0
 323.2
  
Three Months Ended
June 30,
 Six Months Ended
June 30,
(in millions, except per share amounts)2018 2017 2018 2017
Operating Revenues      
Customer revenues$982.1
 $960.1
 $2,699.3
 $2,502.6
Other revenues24.9
 30.6
 58.5
 86.7
Total Operating Revenues1,007.0
 990.7
 2,757.8
 2,589.3
Operating Expenses       
Cost of sales (excluding depreciation and amortization)313.3
 276.8
 1,037.7
 829.1
Operation and maintenance365.2
 391.6
 767.7
 803.2
Depreciation and amortization144.6
 142.2
 289.3
 285.5
Gain on sale of assets and impairments, net
 (0.1) (0.3) (0.1)
Other taxes65.5
 56.2
 144.4
 132.2
Total Operating Expenses888.6
 866.7
 2,238.8
 2,049.9
Operating Income118.4
 124.0
 519.0
 539.4
Other Income (Deductions)       
Interest expense, net(88.7) (87.7) (181.8) (172.9)
Other, net12.8
 4.2
 44.1
 6.5
Loss on early extinguishment of long-term debt(12.5) (111.5) (12.5) (111.5)
Total Other Deductions, Net(88.4) (195.0) (150.2) (277.9)
Income (Loss) before Income Taxes30.0

(71.0)
368.8

261.5
Income Taxes5.5
 (26.6) 68.2
 94.6
Net Income (Loss)24.5
 (44.4) 300.6
 166.9
Preferred dividends(1.3) 
 (1.3) 
Net Income (Loss) Available to Common Shareholders23.2
 (44.4) 299.3
 166.9
Earnings (Loss) Per Share       
Basic Earnings (Loss) Per Share$0.07

$(0.14)
$0.86

$0.51
Diluted Earnings (Loss) Per Share$0.07
 $(0.14) $0.86
 $0.51
Dividends Declared Per Common Share$0.195
 $0.175
 $0.585
 $0.525
Basic Average Common Shares Outstanding354.2
 325.1
 346.2
 324.4
Diluted Average Common Shares355.2
 325.1
 347.1
 325.8

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

ITEM 1. FINANCIAL STATEMENTS (continued)


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

Three Months Ended
September 30,
 Nine Months Ended
September 30,
Three Months Ended
June 30,
 Six Months Ended
June 30,
(in millions, net of taxes)2017 2016 2017 20162018 2017 2018 2017
Net Income$14.0
 $27.2
 $180.9
 $242.7
Net Income (Loss)$24.5
 $(44.4) $300.6
 $166.9
Other comprehensive income:              
Net unrealized gain (loss) on available-for-sale securities(1)
0.1
 (0.3) 1.1
 2.2
(0.7) 0.6
 (2.4) 1.0
Net unrealized loss on cash flow hedges(2)
(9.3) (22.6) (21.2) (146.8)
Net unrealized gain (loss) on cash flow hedges(2)
(1.4) (16.8) 34.0
 (11.9)
Unrecognized pension and OPEB benefit(3)
1.1
 0.2
 1.5
 0.7
0.2
 0.2
 0.4
 0.4
Total other comprehensive loss(8.1) (22.7) (18.6) (143.9)
Comprehensive Income$5.9
 $4.5

$162.3

$98.8
Total other comprehensive income (loss)(1.9) (16.0) 32.0
 (10.5)
Comprehensive Income (Loss)$22.6
 $(60.4)
$332.6

$156.4
(1) Net unrealized gain (loss) on available-for-sale securities, net of zero and $0.1$0.2 million tax benefit and $0.4 million tax expense in the thirdsecond quarter of 20172018 and 2016,2017, respectively, and $0.6 million tax benefit and $1.2$0.6 million tax expense for the ninesix months ended 20172018 and 2016,2017, respectively.
(2) Net unrealized lossgain (loss) on cash flow hedges, net of $5.8$0.5 million and $14.0$10.3 million tax benefit in the thirdsecond quarter of 20172018 and 2016,2017, respectively, and $13.1$11.2 million tax expense and $90.6$7.3 million tax benefit for the ninesix months ended 2018 and 2017, and 2016, respectively. See Note 9, "Risk Management Activities," for additional information.
(3) Unrecognized pension and OPEB benefit, net of $0.5$0.1 million and $0.1$0.2 million tax expense in the thirdsecond quarter of 20172018 and 2016,2017, respectively, and $0.8$0.2 million and $0.4$0.3 million tax expense for the ninesix months ended 20172018 and 2016,2017, respectively.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
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)September 30,
2017
 December 31,
2016
June 30,
2018
 December 31,
2017
ASSETS      
Property, Plant and Equipment      
Utility plant$20,657.6
 $19,368.0
$21,914.8
 $21,026.6
Accumulated depreciation and amortization(6,906.2) (6,613.7)(7,083.7) (6,953.6)
Net utility plant13,751.4
 12,754.3
14,831.1
 14,073.0
Other property, at cost, less accumulated depreciation290.7
 313.7
16.8
 286.5
Net Property, Plant and Equipment14,042.1
 13,068.0
14,847.9
 14,359.5
Investments and Other Assets      
Unconsolidated affiliates5.6
 6.6
4.2
 5.5
Other investments207.7
 193.3
199.6
 204.1
Total Investments and Other Assets213.3
 199.9
203.8
 209.6
Current Assets      
Cash and cash equivalents19.3
 26.4
68.2
 29.0
Restricted cash9.0
 9.6
12.9
 9.4
Accounts receivable (less reserve of $17.4 and $23.3, respectively)480.0
 847.0
Accounts receivable (less reserve of $24.2 and $18.3, respectively)584.8
 898.9
Gas inventory325.2
 279.9
182.8
 285.1
Materials and supplies, at average cost102.3
 101.7
99.9
 105.9
Electric production fuel, at average cost84.0
 112.8
53.8
 80.1
Exchange gas receivable42.9
 5.4
29.6
 45.8
Regulatory assets203.9
 248.7
174.6
 176.3
Prepayments and other65.8
 130.6
109.1
 132.8
Total Current Assets1,332.4
 1,762.1
1,315.7
 1,763.3
Other Assets      
Regulatory assets1,666.2
 1,636.7
1,918.7
 1,624.9
Goodwill1,690.7
 1,690.7
1,690.7
 1,690.7
Intangible assets234.4
 242.7
Intangible assets, net226.2
 231.7
Deferred charges and other90.4
 91.8
104.9
 82.0
Total Other Assets3,681.7
 3,661.9
3,940.5
 3,629.3
Total Assets$19,269.5
 $18,691.9
$20,307.9
 $19,961.7
 
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
 
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)September 30,
2017
 December 31,
2016
June 30,
2018
 December 31,
2017
CAPITALIZATION AND LIABILITIES      
Capitalization      
Common Stockholders’ Equity   
Common stock - $0.01 par value, 400,000,000 shares authorized; 336,691,078 and 323,159,672 shares outstanding, respectively$3.4
 $3.3
Stockholders’ Equity   
Common stock - $0.01 par value, 400,000,000 shares authorized; 362,915,039 and 337,015,806 shares outstanding, respectively$3.7
 $3.4
Preferred stock - $1,000 par value, 20,000,000 shares authorized; 400,000 shares outstanding394.4
 
Treasury stock(94.6) (88.7)(99.9) (95.9)
Additional paid-in capital5,518.5
 5,153.9
6,151.2
 5,529.1
Retained deficit(1,020.6) (972.2)(965.5) (1,073.1)
Accumulated other comprehensive loss(43.7) (25.1)(20.9) (43.4)
Total Common Stockholders’ Equity4,363.0
 4,071.2
Total Stockholders’ Equity5,463.0
 4,320.1
Long-term debt, excluding amounts due within one year7,518.6
 6,058.2
7,092.5
 7,512.2
Total Capitalization11,881.6

10,129.4
12,555.5

11,832.3
Current Liabilities      
Current portion of long-term debt289.8
 363.1
597.7
 284.3
Short-term borrowings843.2
 1,488.0
600.0
 1,205.7
Accounts payable447.4
 539.4
455.0
 625.6
Dividends payable58.9
 
70.8
 
Customer deposits and credits253.1
 264.1
158.0
 262.6
Taxes accrued148.4
 195.4
165.8
 208.1
Interest accrued89.2
 120.3
103.3
 112.3
Risk management liabilities4.0
 43.2
Exchange gas payable68.0
 83.7
36.9
 59.6
Regulatory liabilities55.1
 116.7
121.5
 58.7
Legal and environmental27.5
 37.4
36.0
 32.1
Accrued compensation and employee benefits167.0
 161.4
135.8
 195.4
Other accruals119.2
 82.7
75.6
 90.8
Total Current Liabilities2,566.8
 3,452.2
2,560.4
 3,178.4
Other Liabilities      
Risk management liabilities28.7
 44.5
44.9
 28.5
Deferred income taxes2,619.4
 2,528.0
1,396.7
 1,292.9
Deferred investment tax credits12.6
 13.4
11.9
 12.4
Accrued insurance liabilities89.0
 82.8
86.0
 80.1
Accrued liability for postretirement and postemployment benefits397.3
 713.4
311.7
 337.1
Regulatory liabilities1,217.8
 1,265.1
2,821.4
 2,736.9
Asset retirement obligations268.5
 262.6
334.6
 268.7
Other noncurrent liabilities187.8
 200.5
184.8
 194.4
Total Other Liabilities4,821.1
 5,110.3
5,192.0
 4,951.0
Commitments and Contingencies (Refer to Note 14, "Other Commitments and Contingencies")
 
Commitments and Contingencies (Refer to Note 17, "Other Commitments and Contingencies")
 
Total Capitalization and Liabilities$19,269.5
 $18,691.9
$20,307.9
 $19,961.7
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
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)

Nine Months Ended September 30, (in millions)
2017 2016
Six Months Ended June 30, (in millions)
2018 2017
Operating Activities      
Net Income$180.9
 $242.7
$300.6
 $166.9
Adjustments to Reconcile Net Income to Net Cash from Continuing Operations:   
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:   
Loss on early extinguishment of debt111.5
 
12.5
 111.5
Depreciation and amortization428.5
 406.0
289.3
 285.5
Deferred income taxes and investment tax credits96.3
 137.7
66.3
 88.4
Other adjustments28.5
 24.5
11.3
 22.4
Changes in Assets and Liabilities:      
Components of working capital32.6
 (52.0)12.4
 (6.4)
Regulatory assets/liabilities(12.9) (202.2)141.7
 23.2
Postretirement and postemployment benefits(314.5) (20.9)
Other noncurrent assets(3.7) (3.0)
Deferred charges and other noncurrent assets1.2
 (1.1)
Other noncurrent liabilities(17.7) 
(25.8) (39.0)
Net Operating Activities from Continuing Operations529.5
 532.8
Net Operating Activities from (used for) Discontinued Operations0.1
 (0.8)
Net Cash Flows from Operating Activities529.6
 532.0
809.5
 651.4
Investing Activities      
Capital expenditures(1,216.4) (1,083.4)(832.5) (732.2)
Cost of removal(78.9) (79.5)(46.1) (55.6)
Purchases of available-for-sale securities(139.4) (33.4)(46.8) (105.6)
Sales of available-for-sale securities129.4
 25.9
47.5
 106.6
Other investing activities(0.8) 2.2
6.8
 0.9
Net Cash Flows used for Investing Activities(1,306.1) (1,168.2)(871.1) (785.9)
Financing Activities      
Issuance of long-term debt2,750.0
 500.0
350.0
 2,000.0
Repayments of long-term debt and capital lease obligations(1,352.4) (210.9)(491.2) (1,078.4)
Premiums and other debt related costs(139.8) (0.3)(15.2) (130.7)
Change in short-term borrowings, net(644.9) 491.6
Issuance of short-term debt (maturity > 90 days)600.0
 
Change in short-term borrowings, net (maturity ≤ 90 days)(1,205.7) (586.7)
Issuance of common stock332.6
 16.8
607.7
 46.2
Issuance of preferred stock394.4
 
Acquisition of treasury stock(5.9) (8.1)(4.0) (5.9)
Dividends paid - common stock(170.2) (152.3)(131.7) (113.2)
Net Cash Flows from Financing Activities769.4
 636.8
104.3
 131.3
Change in cash and cash equivalents from (used for) continuing operations(7.2) 1.4
Change in cash and cash equivalents from (used for) discontinued operations

0.1
 (0.8)
Cash and cash equivalents at beginning of period26.4
 15.5
Cash and Cash Equivalents at End of Period$19.3
 $16.1
Change in cash, cash equivalents and restricted cash42.7
 (3.2)
Cash, cash equivalents and restricted cash at beginning of period38.4
 36.0
Cash, Cash Equivalents and Restricted Cash at End of Period$81.1
 $32.8

Supplemental Disclosures of Cash Flow Information
As of September 30, (in millions)
2017 2016
Six Months Ended June 30, (in millions)
2018 2017
Non-cash transactions:      
Capital expenditures included in current liabilities$219.1
 $131.2
$191.9
 $206.9
Dividends declared but not paid$58.9
 $53.1
70.8
 57.0
Reclassification of other property to regulatory assets(1)
245.3
 
Change in estimated costs of asset retirement obligations(2)
$62.5
 $
(1)See Note 17-D "Other Matters" for additional information.
(2)See Note 7 "Asset Retirement Obligations" for additional information.

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

ITEM 1. FINANCIAL STATEMENTS (continued)


NiSource Inc.
Condensed Statements of Consolidated Equity (unaudited)
(in millions)
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 Total
Common
Stock
 Preferred Stock 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Deficit
 
Accumulated
Other
Comprehensive
Loss
 Total
Balance as of January 1, 2017$3.3
 $(88.7) $5,153.9
 $(972.2) $(25.1) $4,071.2
Balance as of January 1, 2018$3.4
 $
 $(95.9) $5,529.1
 $(1,073.1) $(43.4) $4,320.1
Comprehensive Income (Loss):                        
Net Income
 
 
 180.9
 
 180.9

 
 
 
 300.6
 
 300.6
Other comprehensive income, net of tax
 
 
 
 (18.6) (18.6)
 
 
 
 
 32.0
 32.0
Common stock dividends ($0.70 per share)
 
 
 (229.3) 
 (229.3)
Common stock dividends ($0.585 per share)
 
 
 
 (202.5) 
 (202.5)
Treasury stock acquired
 (5.9) 
 
 
 (5.9)
 
 (4.0) 
 
 
 (4.0)
Cumulative effect of change in accounting principle(1)

 
 
 
 9.5
 (9.5) 
Stock issuances:                        
Common stock - private placement(2)
0.3
 
 
 599.3
 
 
 599.6
Preferred stock
 394.4
 
 
 
 
 394.4
Employee stock purchase plan
 
 3.7
 
 
 3.7

 
 
 2.7
 
 
 2.7
Long-term incentive plan
 
 11.2
 
 
 11.2

 
 
 8.2
 
 
 8.2
401(k) and profit sharing
 
 28.8
 
 
 28.8

 
 
 11.9
 
 
 11.9
Dividend reinvestment plan
 
 6.3
 
 
 6.3
ATM program0.1
 
 314.6
 
 
 314.7
Balance as of September 30, 2017$3.4
 $(94.6) $5,518.5
 $(1,020.6) $(43.7) $4,363.0
Balance as of June 30, 2018$3.7
 $394.4
 $(99.9) $6,151.2
 $(965.5) $(20.9) $5,463.0

(1) See Note 2, "Recent Accounting Pronouncements," for additional information.
(2) See Note 5, "Equity," for additional information.

Shares (in thousands)
Common Shares Treasury Shares Outstanding Shares
Balance as of January 1, 2017326,664
 (3,504) 323,160
Preferred Common
(in thousands)Shares Shares Treasury Outstanding
Balance as of January 1, 2018
 340,813
 (3,797) 337,016
Treasury Stock acquired  (245) (245)
 
 (166) (166)
Issued:            
Common stock - private placement(1)

 24,964
 
 24,964
Preferred stock400
 
 
 
Employee stock purchase plan155
 
 155

 111
 
 111
Long-term incentive plan241
 
 241

 494
 
 494
401(k) and profit sharing1,188
 
 1,188

 496
 
 496
Dividend reinvestment plan261
 
 261
ATM program11,931
 
 11,931
Balance as of September 30, 2017340,440
 (3,749) 336,691
Balance as of June 30, 2018400
 366,878
 (3,963) 362,915
(1) See Note 5, "Equity," for additional information.


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

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

 
1.    Basis of Accounting Presentation

TheOur accompanying Condensed Consolidated Financial Statements (unaudited) for NiSource Inc. ("NiSource" or 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 contain theour accounts and that of the Company and itsour majority-owned or controlled subsidiaries.
The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in NiSource’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017. 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 believeswe believe that the disclosures made in this quarterly report on Form 10-Q are adequate to make the information herein not misleading.
2.    Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

NiSource isWe are currently evaluating the impact of certain ASUs on itsour Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited), which are described below:

StandardDescriptionEffective DateEffect on the financial statements or other significant matters
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

The pronouncement changes how defined benefit pension and other postretirement benefit plans present net periodic benefit cost. The service cost component of net periodic benefit cost will be included with other employee compensation costs whereas other components of the net periodic benefit cost will be disclosed separately outside of income from operations in the income statement. Additionally, only the service cost component of net periodic benefit cost will be eligible for capitalization.

Annual periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted.

NiSource plans to adopt the standard effective January 1, 2018. Upon adoption, NiSource will continue to present the service cost component of net periodic benefit cost within "Operation and maintenance"; however, other components of the net periodic benefit cost will be presented separately below "Operating Income" in the income statement. This change in income statement presentation will be implemented on a retrospective basis. Additionally, beginning prospectively on the date of adoption, only the service cost component of NiSource's net periodic benefit cost component will be eligible for capitalization as "Property, Plant and Equipment" on the balance sheet. NiSource is currently evaluating the impact of adoption on the Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).

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

StandardDescriptionEffective DateEffect on the financial statements or other significant matters
ASU 2016-12,2016-13, Revenue from Contracts with CustomersFinancial Instruments-Credit Losses (Topic 606): Narrow-Scope Improvements and Practical Expedients326)
The pronouncement clarifies implementation guidancechanges the impairment model for most financial assets, replacing the current "incurred loss" model. ASU 2016-13 will require the use of an "expected loss" model for instruments measured at amortized cost. It will also require entities to record allowances for available-for-sale debt securities rather than impair the carrying amount of the securities. Subsequent improvements to the estimated credit losses of available-for-sale securities will be recognized immediately in ASU 2014-09 on assessing collectability, noncash consideration and the presentationearnings instead of sales and other similar taxes collected from customers.over time as they are under historic guidance.Annual periods beginning after December 15, 2017,2019, including interim periods therein. Early adoption is permitted for annual or interim periods beginning after December 15, 2016.2018.NiSource has formed an internal stakeholder groupWe maintain investments in U.S. Treasury, corporate and mortgage-backed debt securities which are pledged as collateral for trust accounts related to promote information sharingour wholly-owned insurance company. These debt securities are classified as available for sale. We are currently evaluating the impact of adoption, if any, on our Condensed Consolidated Financial Statements (unaudited) and communication ofNotes to Condensed Consolidated Financial Statements (unaudited).
ASU 2018-11, Leases (Topic 842): Targeted Improvements
The pronouncement allows entities the new requirements. Additionally, NiSource participates in an informal forum of industry peers where questions can be askedoption to initially apply ASC 842 at the adoption date and interpretations of the new standard can be shared. Involvement in this group has resulted in additional clarity on industry-specific issues such as treatment of CIAC, scoping of tariff arrangements and presentation of alternative revenue programs. This clarity has furthered NiSource's adoption efforts. NiSource has separated its various revenue streams into high-level categories, which serve as the basis for accounting analysis and documentation as it relatesrecognize a cumulative-effect adjustment to the pronouncement's impact on NiSource's revenues. Substantiallyopening balance of retained earnings in the period of adoption.Annual periods beginning after December 15, 2018, including interim periods therein. Early adoption is permitted.We are the lessee for substantially all of NiSource’s revenues are tariff based, which NiSource concludedour current leasing activity. Upon adopting ASC 842 we will be in scopebegin recognizing right-of-use assets and liabilities associated with operating leases (other than short term operating leases) on our Condensed Consolidated Balance Sheets (unaudited). The impact of ASC 606. Based on evaluation performed to date, NiSource generally expects that the revenue from tariff based sales will continue to be equivalent to the natural gas or electricity supplied and billed each period (including unbilled revenues) and the adoption of the new guidance will not result in a material shift in the amount or timing of revenue recognition for such sales. NiSource has also undertaken efforts to outline mock footnote disclosures intended to satisfy ASC 606's disclosure requirements and expects to enhance its disclosures on revenue recognition policies and elections. Certain disclosure options continue to be evaluated at NiSource, including method and level of revenue disaggregation. NiSource intends to adopt this ASU effective January 1, 2018 and plans to use the modified retrospective method of adoption. If applicable, this method requires a cumulative effect adjustment to be recordedchange on the balance sheet asis not reasonably estimable at this time. We do not anticipate the adoption of ASC 842 will have a material impact to our results of operations or cash flows. We are implementing a new lease accounting system, which we will utilize to capture, track, and account for lease data. We began system testing at the end of June 2018 and anticipate full system implementation prior to the effective date of these standards. ASC 842 provides lessees the option of electing an accounting policy, by class of underlying asset, in which the lessee may choose not to separate nonlease components from lease components. We currently anticipate adopting this practical expedient for certain classes of leases. Further, we tentatively expect to elect the "practical expedient package" described in ASC 842-10-65-1. We maintain a substantial number of easements and expect the provisions of ASU 2018-01 will ease the process of implementing ASC 842. We tentatively plan to elect the transition method provided in ASU 2018-11. We intend to adopt these standards effective January 1, 2018 and disclosures reconciling results under the new revenue recognition guidance to results under previous guidance. In its evaluation, NiSource continues to monitor industry implementation issues which could impact accounting policies and revenue recognition, including NiSource's preliminary conclusions described above.2019.
ASU 2016-08,2018-01, Revenue from Contracts with CustomersLeases (Topic 606)842): Principal versus Agent ConsiderationsLand Easement Practical Expedient for Transition to Topic 842
The pronouncement clarifies the principal versus agent guidance inoffers a practical expedient for accounting for land easements under ASU 2014-09. The amendment clarifies how2016-02. This practical expedient allows an entity should identify the unitoption of accounting for the principal versus agentnot evaluating existing land easements under ASC 842. New or modified land easements will still require evaluation and how it should apply the control principle to certain types of arrangements.
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
The pronouncement outlinesunder ASC 842 on 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.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

StandardDescriptionEffective DateEffectprospective basis beginning on the financial statements or other significant mattersdate of adoption.
ASU 2016-02, Leases (Topic 842)
The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.Annual periods beginning after December 15, 2018, including interim periods therein. Early adoption is permitted.NiSource has formed an internal stakeholder group that meets periodically to share information and gather data related to leasing activity at NiSource. This includes compiling a list of all contracts that could meet the definition of a lease under the new standard and evaluating the accounting for these contracts under the new standard to determine the ultimate impact the new standard will have on NiSource’s financial statements. Also, this procedure has identified process improvements to ensure data from newly initiated leases is captured to comply with the new standard. This work included the assistance of a third-party advisory firm. NiSource plans to adopt this standard effective January 1, 2019.

Recently Adopted Accounting Pronouncements

StandardAdoption
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
NiSource elected to adopt this ASU effective October 1, 2017. Upon adoption, restricted cash on the Statements of Consolidated Cash Flows will no longer be presented as an investing activity and will instead be included as a component of beginning and ending cash balances. The adoption of this standard will be reflected in the Statements of Consolidated Cash Flows beginning with NiSource's Annual Report on Form 10-K for the year ending December 31, 2017 (including all prior periods presented).
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to accounting for Hedging Activities

NiSource elected to adopt this ASU effective September 30, 2017. Upon adoption, NiSource is no longer required to separately measure and report hedge ineffectiveness. The guidance also eases the requirements related to ongoing hedge effectiveness assessments at NiSource. The adoption of this standard did not have a material impact on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).

ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting

NiSource elected to adopt this ASU effective July 1, 2017. The adoption of this standard did not have a material impact on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).

ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
NiSource elected to adopt this ASU effective January 1, 2017. The adoption of this standard did not have a material impact on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).


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

Recently Adopted Accounting Pronouncements
StandardAdoption
ASU 2018-02, Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
We adopted this ASU effective March 31, 2018. Upon adoption, $9.5 million of tax effects that were stranded in accumulated other comprehensive loss as a result of the implementation of the TCJA were reclassified to retained deficit. This change is reflected on our Condensed Statements of Consolidated Equity (unaudited).
ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force)
We adopted this ASU effective January 1, 2018. The adoption of this standard did not have a material impact on our Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).
ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
See Note 3, "Revenue Recognition," for our discussion of the effects of implementing these standards.
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
We also adopted ASU 2017-07, Compensation -  Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, effective January 1, 2018. We continue to present the service cost component of net periodic benefit cost within "Operation and maintenance;" however, other components of the net periodic benefit cost (including regulatory deferrals and settlement charges) are now presented separately within "Other, net" on our Condensed Statements of Consolidated Income (Loss) (unaudited).
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Changes in income statement presentation were implemented on a retrospective basis. The impact of this ASU on previously issued annual financial statements is summarized in the tables below:
Year Ended December 31, 2016 (in millions)
 As Previously Reported 
Effect of Change(1)
 As Adjusted
Operation and maintenance $1,453.7
 $(7.9) $1,445.8
Total Operating Expenses 3,634.3
 (7.9) 3,626.4
Operating Income 858.2
 7.9
 866.1
Other Income (Deductions)      
Other, net 1.5
 (7.9) (6.4)
Total Other Deductions (348.0) (7.9) (355.9)
Income before Income Taxes $510.2
 $
 $510.2
(1) The effect of this change is attributable to our business segments: Gas Distribution Operations, Electric Operations, and Corporate and Other in the amounts of $4.3 million, $(9.8) million, and $(2.4) million, respectively.
Year Ended December 31, 2017 (in millions)
 As Previously Reported 
Effect of Change(1)
 As Adjusted
Operation and maintenance $1,612.3
 $(10.6) $1,601.7
Total Operating Expenses 3,964.0
 (10.6) 3,953.4
Operating Income 910.6
 10.6
 921.2
Other Income (Deductions)      
Other, net (2.8) (10.6) (13.4)
Total Other Deductions (467.5) (10.6) (478.1)
Income before Income Taxes $443.1
 $
 $443.1
(1) The effect of this change is attributable to our business segments: Gas Distribution Operations, Electric Operations, and Corporate and Other in the amounts of $(4.4) million, $(2.6) million, and $(3.6) million, respectively.
3.    Revenue Recognition
ASC 606 Adoption. In 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 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. In 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations, and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients. We adopted the provisions of ASC 606 beginning on January 1, 2018 using a modified retrospective method, which was applied to all contracts. No material adjustments were made to January 1, 2018 opening balances as a result of the adoption. As required under the modified retrospective method of adoption, results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 605.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


The table below provides results for the three and six months ended June 30, 2018 as if they had been prepared under historic accounting guidance. We included operating revenue information for the three and six months ended June 30, 2017 for comparability.
 Three Months Ended
June 30,
 Six Months Ended
June 30,
(in millions)2018 2017 2018 2017
Operating Revenues       
Gas Distribution$384.2
 $327.1
 $1,368.0
 $1,163.6
Gas Transportation216.9
 204.9
 559.1
 543.5
Electric405.0
 458.0
 828.3
 879.7
Other0.9
 0.7
 2.4
 2.5
Total Operating Revenues$1,007.0
 $990.7
 $2,757.8
 $2,589.3

Beginning in 2018 with the adoption of ASC 606, the Condensed Statements of Consolidated Income (Loss) (unaudited) disaggregates “Customer revenues” (i.e. ASC 606 Revenues) from “Other revenues,” both of which are discussed in more detail below.
Customer Revenues. Substantially all of our revenues are tariff-based, which we have concluded is within the scope of ASC 606. Under ASC 606, the recipients of our utility service meet the definition of a customer, while the operating company tariffs represent an agreement that meets the definition of a contract. ASC 606 defines a contract as an agreement between two or more parties, in this case us and the customer, which creates enforceable rights and obligations. In order to be considered a contract, we have determined that it is probable that substantially all of the consideration to which we are entitled from customers will be collected upon satisfaction of performance obligations. We maintain common utility credit risk mitigation practices, including requiring deposits and actively pursuing collection of past due amounts. In addition, our regulated operations utilize certain regulatory mechanisms that facilitate recovery of bad debt costs within tariff-based rates, which provides further evidence of collectibility.
We have identified our performance obligations created under tariff-based sales as 1) the commodity (natural gas or electricity, which includes generation and capacity) and 2) delivery. These commodities are sold and / or delivered to and generally consumed by customers simultaneously, leading to satisfaction of our performance obligations over time as gas or electricity is delivered to customers. Due to the at-will nature of utility customers, performance obligations are limited to the services requested and received to date. Once complete, we generally maintain no additional performance obligations.
Transaction prices for each performance obligation are generally prescribed by each operating company’s respective tariff. Rates include provisions to adjust billings for fluctuations in fuel and purchased power costs and cost of natural gas. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in regulatory assets or liabilities on the Condensed Consolidated Balance Sheets (unaudited) and are recovered from or returned to customers through adjustments to tariff rates. As we provide and deliver service to customers, revenue is recognized based on the transaction price allocated to each performance obligation. In general, revenue recognized from tariff-based sales is equivalent to the value of natural gas or electricity supplied and billed each period, in addition to an estimate for deliveries completed during the period but not yet billed to the customer.
In addition to tariff-based sales, our Gas Distribution Operations segment enters into balancing and exchange arrangements of natural gas as part of our operations and off-system sales programs. We have concluded that these sales are within the scope of ASC 606. Performance obligations for these types of sales include transportation and storage of natural gas and can be satisfied at a point in time or over a period of time, depending on the specific transaction. For those transactions that span a period of time, we record a receivable or payable for any cumulative gas imbalances, as well as for any gas inventory borrowed or lent under a Gas Distributions Operations exchange agreement.
Revenue Disaggregation and Reconciliation. We disaggregate revenue from contracts with customers based upon reportable segment as well as by customer class. As our revenues are primarily earned over a period of time, and we do not earn a material amount of revenues at a point in time, revenues are not disaggregated as such below. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia,
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Kentucky, Maryland, Indiana and Massachusetts. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.
The table below reconciles revenue disaggregation by customer class to segment revenue as well as to revenues reflected on the Condensed Statements of Consolidated Income (Loss) (unaudited):
Three Months Ended June 30, 2018 (in millions)
Gas Distribution Operations Electric Operations Corporate and Other Total
Customer Revenues(1)
       
Residential$389.7
 $113.1
 $
 $502.8
Commercial127.0
 116.6
 
 243.6
Industrial47.7
 152.0
 
 199.7
Off-system20.9
 
 
 20.9
Miscellaneous10.2
 4.7
 0.2
 15.1
Total Customer Revenues$595.5
 $386.4
 $0.2
 $982.1
Other Revenues6.4
 18.5
 
 24.9
Total Operating Revenues$601.9
 $404.9
 $0.2
 $1,007.0
(1) Customer revenue amounts exclude intersegment revenues. See Note 20, "Business Segment Information," for discussion of intersegment revenues.
Six Months Ended June 30, 2018 (in millions)Gas Distribution Operations Electric Operations Corporate and Other Total
Customer Revenues(1)
       
Residential$1,283.3
 $227.6
 $
 $1,510.9
Commercial435.3
 233.5
 
 668.8
Industrial122.3
 314.5
 
 436.8
Off-system43.2
 
 
 43.2
Miscellaneous27.0
 12.2
 0.4
 39.6
Total Customer Revenues$1,911.1
 $787.8
 $0.4
 $2,699.3
Other Revenues18.1
 40.4
 
 58.5
Total Operating Revenues$1,929.2
 $828.2
 $0.4
 $2,757.8
(1) Customer revenue amounts exclude intersegment revenues. See Note 20, "Business Segment Information," for discussion of intersegment revenues.
Customer Accounts Receivable. Accounts receivable on our Condensed Consolidated Balance Sheets (unaudited) includes both billed and unbilled amounts as well as certain amounts that are not related to customer revenues. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the date of the last cycle billing date through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates and weather. The opening and closing balances of customer receivables for the six months ended June 30, 2018 are presented in the table below. We had no significant contract assets or liabilities during the period. Additionally, we have not incurred any significant costs to obtain or fulfill contracts.
(in millions)
Customer Accounts Receivable, Billed (less reserve)(1)
 
Customer Accounts Receivable, Unbilled (less reserve)(2)
Balance as of December 31, 2017$477.0
 $356.0
Balance as of June 30, 2018373.6
 155.1
Increase (Decrease)$(103.4) $(200.9)
(1) Customer billed receivables decreased over the period due to the expected seasonal decrease in customer usage in June when compared to December.
(2) Customer unbilled receivables decreased over the period due to the expected seasonal decrease in customer usage in June when compared to December.

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

Utility revenues are billed to customers monthly on a cycle basis. We generally expect that substantially all customer accounts receivable will be collected within the month following customer billing, as this revenue consists primarily of monthly, tariff-based billings for service and usage.
Other Revenues. As permitted by accounting principles generally accepted in the United States, regulated utilities have the ability to earn certain types of revenue that are outside the scope of ASC 606. These revenues primarily represent revenue earned under Alternative Revenue Programs. Alternative Revenue Programs represent regulator-approved programs that allow for the adjustment of billings and revenue for certain broad, external factors, or for additional billings if the entity achieves certain objectives, such as a specified reduction of costs. We maintain a variety of these programs, including demand side management initiatives that recover costs associated with the implementation of energy efficiency programs, as well as normalization programs that adjust revenues for the effects of weather or other external factors. Additionally, we maintain certain programs with future test periods that operate similarly to FERC formula rate programs and allow for recovery of costs incurred to replace aging infrastructure. When the criteria to recognize Alternative Revenue have been met, we establish a regulatory asset and present revenue from Alternative Revenue Programs on the Condensed Statements of Consolidated Income (Loss) (unaudited) as “Other revenues.” When amounts previously recognized under Alternative Revenue accounting guidance are billed, we reduce the regulatory asset and record a customer account receivable.

4.    Earnings Per Share

Basic EPS is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding for the period. The weighted-average shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans. The calculation of diluted earnings per share excludes the impact of forward agreements (see Note 5, "Equity"), which had an anti-dilutive effect for the periods outstanding. The computation of diluted average common shares for the three months ended June 30, 2017 is not presented since we had a net loss on the Condensed Statements of Consolidated Income (Loss) (unaudited) during the period and any incremental shares would have had an anti-dilutive impact on EPS. The computation of diluted average common shares is as follows:
Three Months Ended Nine Months EndedThree Months Ended Six Months Ended
September 30, September 30,June 30, June 30,
(in thousands)2017 2016 2017 20162018 2018 2017
Denominator            
Basic average common shares outstanding331,139
 322,318
 326,662
 321,445
354,229
 346,165
 324,386
Dilutive potential common shares:            
Shares contingently issuable under employee stock plans604
 228
 503
 146
861
 789
 452
Shares restricted under employee stock plans653
 1,372
 866
 1,606
71
 167
 975
Diluted Average Common Shares332,396
 323,918
 328,031
 323,197
355,161
 347,121
 325,813

4.    Common Stock

5.    Equity
ATM Program.Program and Forward Sale Agreement. On May 3, 2017, NiSourcewe entered into four separate equity distribution agreements, pursuant to which NiSourcewe may sell, from time to time, up to an aggregate of $500.0 million of itsour common stock. During the three and six months ended June 30, 2017, we issued 1,318,461 shares of common stock under the program at an average price of $25.88 per share, receiving proceeds, net of fees, of $33.8 million. There was no activity under the ATM program in 2018. As of SeptemberJune 30, 2017,2018, the ATM program (including impacts of forward sales agreements discussed below) had approximately $182.8$10.0 million of equity remained available for issuance under the ATM program.issuance. The program expires on December 31, 2018. Shares
On November 13, 2017, under the ATM program, we executed a forward agreement, which allows us to issue a fixed number of shares at a price to be settled in the future. From November 13, 2017 to December 8, 2017, 6,345,860 shares were borrowed from third parties and sold by the dealer at a weighted average price of $27.24 per share. We may settle this agreement in shares, cash, or net shares by November 12, 2018. Had we settled all 6,345,860 shares under the forward agreement at June 30, 2018, we would have received approximately $169.4 million, based on a net price of $26.70 per share.
Private Placement of Common Stock. On May 4, 2018, we completed the sale of 24,964,163 shares of $0.01 par value common stock are offered pursuantat a price of $24.28 per share in a private placement to NiSource's shelf registration statementselected institutional and accredited investors. The private placement resulted in $606.0 million of gross proceeds or $599.6 million of net proceeds, after deducting commissions and sale expenses.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The common stock issued in connection with the private placement was registered on Form S-1, filed with the SEC.SEC on May 11, 2018.
Private Placement of Preferred Stock. On June 11, 2018, we completed the sale of 400,000 shares of 5.650% Series A Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock (the "Series A Preferred Stock") at a price of $1,000 per share. The following table summarizes NiSource's activity undertransaction resulted in $400.0 million of gross proceeds or $394.4 million of net proceeds, after deducting commissions and sales expenses. The Series A Preferred Stock was issued in a private placement pursuant to SEC Rule 144A. We agreed pursuant to a registration rights agreement to file with the ATM program:SEC a registration statement enabling holders to exchange their unregistered shares of Series A Preferred Stock for publicly registered shares with substantially identical terms.
Proceeds from the issuance of the Series A Preferred Stock were used to pay a portion of the notes tendered in June 2018 and the redemption of the remaining notes in July 2018. See Note 15, “Long-term Debt” for additional information regarding the tender offer and redemption.
Dividends on the Series A Preferred Stock accrue and are cumulative from the date the shares of Series A Preferred Stock were originally issued to, but not including, June 15, 2023 at a rate of 5.650% per annum of the $1,000 liquidation preference per share. On and after June 15, 2023, dividends on the Series A Preferred Stock will accumulate for each five year period at a percentage of the $1,000 liquidation preference equal to the five-year U.S. Treasury Rate plus (i) in respect of each five year period commencing on or after June 15, 2023 but before June 15, 2043, a spread of 2.843% (the “Initial Margin”), and (ii) in respect of each five year period commencing on or after June 15, 2043, the Initial Margin plus 1.000%. The Series A Preferred Stock may be redeemed by us at our option on June 15, 2023, or on each date falling on the fifth anniversary thereafter, or in connection with a ratings event (as defined in the Certificate of Designation of the Series A Preferred Stock).
Holders of Series A Preferred Stock generally have no voting rights, except for limited voting rights with respect to (i) potential amendments to our certificate of incorporation that would have a material adverse effect on the existing preferences, rights, powers or duties of the Series A Preferred Stock, (ii) the creation or issuance of any security ranking on a parity with the Series A Preferred Stock if the cumulative dividends payable on then outstanding Series A Preferred Stock are in arrears, or (iii) the creation or issuance of any security ranking senior to the Series A Preferred Stock. The Series A Preferred Stock does not have a stated maturity and is not subject to mandatory redemption or any sinking fund. The Series A Preferred Stock will remain outstanding indefinitely unless repurchased or redeemed by us. Any such redemption would be effected only out of funds legally available for such purposes and will be subject to compliance with the provisions of our outstanding indebtedness.
 Three Months Ended Nine Months Ended
 September 30, September 30,
 2017 2016 2017 2016
Number of shares issued10,612,915
 
 11,931,376
 
Average price per share$26.67
 $
 $26.58
 $
Proceeds, net of fees (in millions)
$281.0
 $
 $314.7
 $

5.6.    Gas in Storage
We use both the LIFO inventory methodology and the weighted-average cost methodology to value natural gas in storage. Gas Distribution Operations prices natural gas storage injections at the average of the costs of natural gas supply purchased during the year. For interim periods, the difference between current projected replacement cost and the LIFO cost for quantities of gas temporarily withdrawn from storage is recorded as a temporary LIFO liquidation credit or debit within the Condensed Consolidated Balance Sheets (unaudited). Due to seasonality requirements, we expect interim variances in LIFO layers to be replenished by year end. We had a temporary LIFO liquidation debit of $12.9 million and zero as of June 30, 2018 and December 31, 2017, respectively, for certain gas distribution companies recorded within “Prepayments and other,” on the Condensed Consolidated Balance Sheets (unaudited).
7.    Asset Retirement Obligations
In the second quarter of 2018, we made revisions to the estimated costs associated with refining the CCR compliance plan. The CCR rule requires the continued collection of data over time to determine the specific compliance solution. The change in estimated costs resulted in an increase to the asset retirement obligation liability of $62.5 million that was recorded in June 2018. See Note 17-C, "Environmental Matters," for additional information on CCRs.
8.    Regulatory Matters
Gas Distribution Operations Regulatory Matters
Cost Recovery and TrackersTrackers.. 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 those described below. Increases in the expenses that are the subject of trackers generally result in a corresponding increase in netoperating revenues and therefore have essentially no impact on total operating income results.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Certain operating costs of the NiSourceour distribution companies are significant, recurring in nature and generally outside the control of the distribution companies. Some states allow the recovery of such costs through 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 and bad debt recovery mechanisms.
A portion of the distribution companies' revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in NiSource'sour operating area 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. NiSourceOur distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.
Certain of the NiSourceour 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
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

useful lives. Each LDC's approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.
Columbia of Ohio.On November 28, 2012,January 10, 2018, the PUCO issued an entry to investigate the impacts of the TCJA including an invitation to utilities and other interested stakeholders to file public comments including: (1) those components of utility rates that the PUCO will need to reconcile with the TCJA; and (2) the process and mechanics for how the PUCO should do so. The PUCO also directed utilities to record a regulatory liability for the estimated reduction in federal income tax resulting from the TCJA. On February 15, 2018, Columbia of Ohio filed comments proposing to: (1) reflect the impact of the TCJA on its application to adjust rates associated with its IRP rider, subsequently filed on February 27, 2018; and (2) file a reduction in other base rates no later than October 15, 2018 reflecting the impact of the TCJA. The PUCO issued a procedural schedule on May 24, 2018 and a hearing was held on July 10, 2018.
On January 31, 2018, the PUCO approved Columbia of Ohio’s application to extend its IRP for an additional five years (2013-2017)(2018-2022), allowing Columbia of Ohio to continue to invest and recover on its accelerated main replacements. The Office of the Ohio Consumers’ Counsel filed an application for rehearing asserting certain issues with Columbia of Ohio's application. On May 9, 2018, the PUCO issued an order denying the application for rehearing.
As referred to above, Columbia of Ohio filed its most recent application to adjust rates associated with its IRP and DSM Ridersrider on February 27, 2017,2018, which requested authority to increase annual revenuesbillings by approximately $31.5 million. On March 23, 2017,$2.3 million (net of the impact of the TCJA) reflecting recovery of and return on approximately $207 million of incremental IRP capital additions in 2017. A stipulation was filed with the PUCO Staff filed comments which recommended approval ofon March 28, 2018. On April 25, 2018, the application with only minor revisions. The PUCO issued an order on April 26, 2017, approvingapproved Columbia of Ohio's application. NewOhio’s annual IRP tracker adjustment with rates went into effect oneffective May 1, 2017.2018.
On February 27,December 1, 2017, Columbia of Ohio filed an application requestingthat requested authority to extend its IRP for an additional five years (2018-2022). On July 10, 2017, the PUCO Staff recommended approval of Columbia of Ohio's IRP for the additional five years, with modifications to Columbia of Ohio's proposed IRP rates for the five-year period. A joint stipulation and recommendation, outlining annual maximum IRP rates for the five-year period, was filed on August 18, 2017 and was supported or not opposed by all parties except the OCC. A hearing was held on October 2, 2017 and briefing is scheduled to be completed by November 7, 2017. An order is expected by the end of 2017.
On October 27, 2017 Columbia of Ohio filed a 30-day notice that they plan to file a request forimplement a rider to begin recovering plant and associated deferrals related to theits CEP. The CEP was established in 2011 and allows for deferral of interest, depreciation and property taxes on certain plant investments not recovered through its IRP modernization tracker. The application requested authority to increase annual revenues, through the requested rider, by approximately $70 million, with biennial increases up to approximately $98 million in 2022. On May 9, 2018, the PUCO appointed an independent auditor to assist the PUCO with the review of the accounting accuracy, prudency and compliance of Columbia of Ohio with its Commission-approved CEP deferrals. The audit of the CEP is expected to be completed by September 4, 2018 at which point we anticipate a full procedural schedule will be established.
NIPSCO Gas. On January 3, 2018, the IURC initiated an investigation to review and consider the possible implications of the TCJA on utility rates. The Commission ordered a two phase investigation. Phase 1 solely dealt with the prospective changes in rates to reflect the change in tax rates. In accordance with the procedural schedule, on March 26, 2018, NIPSCO filed revised gas tariffs reflecting the impact of the change in tax rate for its applicable rates and charges. The IURC approved NIPSCO's Phase 1 filing on April 26, 2018. The revised tariffs were effective May 1, 2018. The stipulation and settlement agreement filed on April 20, 2018, in NIPSCO’s gas rate case (discussed immediately below) resolved all issues in Phase 2.
On September 27, 2017, NIPSCO filed a base rate case with the IURC, seeking an annual revenue increase of $143.5 million (inclusive of amounts being recovered through various tracker programs). As part of this filing and among other items, NIPSCO proposed to update base rates for ongoing infrastructure improvements, revised depreciation rates and ongoing level of expenses to reflect the current costs of providing natural gas service. NIPSCO submitted a rebuttal on March 28, 2018 updating its request, including the impact of the TCJA, seeking a revised annual revenue increase of $138.1 million. On April 20, 2018, a settlement
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

agreement was filed with the IURC seeking, among other items, an annual revenue increase of $107.3 million. An order from the IURC is expected in the third quarter of 2018 with rates expected to be effective October 1, 2018 for Phase 1 implementation.
On November 8, 2017, NIPSCO filed a petition with the IURC seeking approval of NIPSCO’s federally mandated pipeline safety compliance plan. As part of the aforementioned settlement agreement filed in NIPSCO’s gas base rate case proceeding, NIPSCO and the parties to the settlement agreement settled all issues in this proceeding as well, including moving certain costs from the base rate proceeding to this pipeline safety compliance plan. The updated four year compliance plan includes a total estimated $91.5 million of capital costs and $35.5 million of expected operating and maintenance costs. NIPSCO is requesting all associated accounting and ratemaking relief, including establishment of a periodic rate adjustment mechanism. An IURC order is expected in the second halfthird quarter of 2018.
On April 30, 2013, thenthe Governor of Indiana Governor Pence signed Senate Enrolled Act 560, the TDSIC statute, 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, eighty 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 twenty 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 February 28, 2017,April 2, 2018, NIPSCO filed TDSIC-6 requestinga new seven-year gas TDSIC plan with the IURC beginning in 2019. The filing seeks approval of $271.3 milliona total capital expenditure level of cumulative net capital spend through December 31, 2016.approximately $1.25 billion. An order approving NIPSCO's filing was received from the IURC on June 28, 2017, and new rates went into effect on July 1, 2017. On August 31, 2017, NIPSCO filed TDSIC-7 requesting approval of $328.9 million of cumulative net capital spend through June 30, 2017. An order is expected in the fourth quarter of 2018.
On February 27, 2018, NIPSCO filed TDSIC-8 requesting to recover an incremental increase to revenue of $0.8 million (net of the impacts of TCJA) associated with incremental capital investment of $77.9 million made in the second half of 2017. An IURC order was expected in the second quarter of 2018, with new rates effective in July. On June 20, 2018, the Indiana Supreme Court issued an order reversing the IURC and the Court of Appeals in NIPSCO’s gas TDSIC-4 proceeding and held that periodic rate increases are available only for specific projects designated in the threshold proceeding and multiple-unit-projects not identified with particularity are not recoverable through the tracker. A revised TDSIC-8 was filed on July 18, 2018 and reduced the previous February 27, 2018 request by $0.2 million associated with incremental capital investment of approximately $54 million. An order on the revised filing is expected in the third quarter of 2018. In the second quarter of 2018, NIPSCO recorded a liability of $2.5 million associated with the TDSIC-4 through TDSIC-8 filings for a related passback of revenue previously billed to customers. Timing of this passback has not yet been determined.
Columbia of Massachusetts. On February 2, 2018, the Massachusetts DPU opened an investigation into the effect of the reduction in federal income tax rates on the rates charged by utility companies. Columbia of Massachusetts was directed to account for any revenues associated with the difference between previous and current income tax rates and excess deferred income taxes as regulatory liabilities effective January 1, 2018. Companies were ordered to submit a proposal to revise rates by May 1, 2018. The order indicates that if a company files a base rate case prior to the conclusion of the investigation, it must address the TCJA issues as part of the case. Since CMA filed a base rate case on April 13, 2018, the changes in base rates and the regulatory liability disposition related to the TCJA are reflected in the case. On June 29, 2018, the Massachusetts DPU required companies in a rate case to reduce rates as of July 1, 2018 or, in the alternative, defer this rate reduction to coincide with the effective date of new rates in a rate case, provided that tax savings from July 1, 2018 through the effective date of new rates accrue interest at prime rate. On July 2, 2018, Columbia of Massachusetts filed tariffs reflecting revised rates incorporating the lower federal corporate income tax rate for effect July 1, 2018. In the filing, Columbia of Massachusetts noted the Massachusetts DPU stated it would address the refund of any tax savings accrued from January 1, 2018, through June 30, 2018, in a separate phase of its investigation. On July 10, 2018, the Massachusetts DPU approved the tariffs effective July 1, 2018, finding the adjustment is in the public interest, as it provides an immediate benefit to ratepayers.
As noted above, on April 13, 2018, Columbia of Massachusetts filed a rate case with the Massachusetts DPU, seeking approval for an annual revenue increase of approximately $43.8 million which is offset by revenue decreases in other rate factors of $19.7 million, representing a net increase in operating revenues of $24.1 million. Included in the filing is a proposal to adjust rates and address the regulatory liability disposition related to the TCJA. Rates are expected to go into effect March 1, 2019, upon approval from the Massachusetts DPU. On June 29, 2018, Columbia of Massachusetts filed a letter with a settlement negotiations update noting the Office of the Attorney General and Columbia of Massachusetts continue to discuss the possibility of a negotiated settlement.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

On July 7, 2014, the Governor of Massachusetts signed into law Chapter 149 of the Acts of 2014, An Act Relative to Natural Gas Leaks (“the Act”). The Act authorizes natural gas distribution companies to file gas infrastructure replacement plans with the Massachusetts DPU to address the replacement of aging natural gas pipeline infrastructure. In addition, the Act provides that the Massachusetts DPU may, after review of the plans, allow the proposed estimated costs of the plan into rates as of May 1 of the subsequent year. On October 31, 2016, Columbia of Massachusetts filed its GSEP for the 2017 construction year. In that filing, Columbia of Massachusetts proposed to recover a cumulative revenue requirement of $17.2 million. An order was received from the Massachusetts DPU on April 28, 2017 approving the filing and rates went into effect on May 1, 2017. On October 31, 2017, Columbia of Massachusetts filed its GSEP for the 2018 construction year. Columbia of Massachusetts is proposingproposed to recover incremental revenue of $9.7 million associated with incremental capital investment of $83.9 million to be made during calendar year 2018. The filing included a cumulative revenue requirementrequest for approval of $26.8 million includingan alternative calculation or a waiver to collectallow collection of the $3.1 million revenue requirement in excessthat exceeds the GSEP cap provision as previously calculated. On January 29, 2018, Columbia of Massachusetts filed a revision to its GSEP tracker for the 2018 construction season reducing the proposed revenue requirement to reflect the impact of the TCJA. The revenue requirement was reduced by $2.4 million due to the TCJA. An order was received from the Massachusetts DPU on April 30, 2018, approving an incremental revenue requirement of $6.1 million associated with the incremental capital investment of $83.9 million, with new rates effective May 1, 2018. The order did not approve the alternative cap calculation and the portion of the revenue requirement that exceeds the GSEP cap provision. IfOn May 21, 2018, Columbia of Massachusetts filed a motion for reconsideration on the Massachusetts DPU’s denial of Columbia of Massachusetts’s request for a waiver is not approved,on the cumulative1.5% revenue requirement will be $23.7 million. An order is expected fromcap calculation. On June 21, 2018, the Massachusetts DPU issued an order granting a waiver on the revenue cap allowing an incremental revenue requirement of $6.5 million with new rates effective July 1, 2018.
Columbia of Pennsylvania. On February 12, 2018, the Pennsylvania PUC established a docket to investigate the impact of the TCJA on customer rates. The Pennsylvania PUC directed Pennsylvania utilities to account for any revenues associated with the difference between previous and current income tax rates and excess deferred income taxes as regulatory liabilities effective January 1, 2018. On May 17, 2018, the Pennsylvania PUC issued an order directing utilities that do not have a pending rate case to implement a negative surcharge in their billings to reflect the annual reduction in federal tax expense and associated revenue requirement for each utility, effective July 1, 2018. Since Columbia of Pennsylvania has a pending rate case, it is not required to implement the negative surcharge, and it has made a proposal in its pending rate case regarding the use of 2018 tax over-collection proceeds.
As highlighted above, on March 16, 2018, Columbia of Pennsylvania filed a rate case with the Pennsylvania PUC, seeking approval for an annual revenue increase of $46.9 million. Included in the secondfiling is a proposal to adjust rates as a result of the TCJA. On March 21, 2018, Columbia of Pennsylvania filed a supplement to the rate case, under which it proposes to hold the overcollection of taxes during 2018 until the effective date of new base rates as credit to rate base for a period beginning January 2019 not to exceed three years. A decision on Columbia of Pennsylvania’s rate request is expected in the fourth quarter of 2018 with new rates effective May 1,to be implemented in December 2018.
Columbia of Virginia. On April 29, 2016,January 8, 2018, the VSCC issued an order regarding the TCJA requiring Columbia of Virginia filed a request withand other Virginia utilities subject to the VSCC, seeking an annual revenue increaseTCJA to accrue regulatory liabilities reflecting the impacts of $37.0 million. On September 28, 2016,the reduced corporate income tax rate effective January 1, 2018. In addition, pursuant to the order, Columbia of Virginia implemented updated interim base rates subjectis required to refund.reflect the impacts of the TCJA in its annual informational filing, including: (1) the expected cost of service impacts through calendar year 2018; (2) the amount of protected and unprotected excess accumulated deferred income taxes as of December 31, 2017, and the estimated reversal of such excess deferred income taxes during calendar year 2018; and (3) such additional information that the utility wishes to include addressing the financial and cost of service impacts of the TCJA and the appropriate treatment of the accrued regulatory liabilities. On April 25, 2018 the VSCC, by order, supplemented the above annual informational filing requirements of the January 17, 2017,8, 2018 order to include a proposed rate reduction that reflects the cost savings from the TCJA. This April 25, 2018 order directs that if a utility desires to propose an alternative method for returning the tax savings to customers, then it may instead file a rate case that incorporates the income tax savings. As a result of these orders, Columbia of Virginia presentedmade the decision to file a stipulation and proposed recommendation, representing a settlementrate case. This rate case is expected to be filed by all parties to the proceeding that included a base revenue increaseAugust 28, 2018.
Columbia of $28.5 million.Kentucky. On March 17, 2017, by final order, the VSCC approved the settlement agreement without modification. InJanuary 26, 2018, in accordance with the termsKentucky PSC investigation related to the TCJA, Columbia of Kentucky filed testimony and proposed a reduction to base rates effective May 1, 2018, to reflect the tax expense reduction as a result of the finalTCJA. Columbia of Kentucky was directed to account for any revenues associated with the difference between previous and current income tax rates and excess deferred income taxes as regulatory liabilities effective January 1, 2018. Columbia of Kentucky proposed to include the impact of the excess deferred taxes in rates effective October 2018 and to return the revenue related to the regulatory liability subsequent to this date. On April 30, 2018 Columbia of Kentucky received an order during 2017from the Kentucky PSC requiring implementation of interim proposed rates that are subject to future adjustment effective May 1, 2018. The order directs Columbia of Kentucky to file, by September 1, 2018, revised TCJA adjustment factors reflecting the tax expense savings from January 1, 2018, through April 30, 2018, and an estimate of the annual reduction due to the excess accumulated deferred income taxes to be effective with the first billing cycle of October 2018.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Columbia of Virginia completed its refundMaryland. On February 13, 2018, Columbia of Maryland filed a proposal with the Maryland PSC to reduce rates as a result of TCJA with an annual revenue decrease of $1.3 million. Columbia of Maryland was directed to account for any revenues associated with the difference between the interim customerprevious and current income tax rates implemented in 2016 and the rates approved by the final order.
excess deferred income taxes as regulatory liabilities effective January 1, 2018. On March 14, 2018, Columbia of Maryland.Maryland received approval, effective April 2, 2018, to implement new rates and pass-back the overcollection of taxes from the first quarter of 2018.
On April 14, 2017,13, 2018, Columbia of Maryland filed a request with the MPSCMaryland PSC to adjustincrease base rates.rates by $6.1 million, inclusive of the impacts of the TCJA. On July 28, 2017, all parties31, 2018, Columbia of Maryland filed a settlement agreement with the MPSC, under which Columbia of Maryland will receivePSC. If approved as filed, the settlement would result in an annual revenue increase of $2.4$3.7 million. The MPSC approvedAn order from the settlement on September 19, 2017 and rates went into effect on October 27, 2017.PSC is expected in the fourth quarter of 2018.
Electric Operations Regulatory Matters
Cost Recovery and Trackers. Comparability of Electric Operations line item operating results is impacted by regulatory trackers that allow for the recovery in rates of certain costs such as those described below. Increases in the expenses that are the subject of trackers result in a corresponding increase in netoperating revenues and therefore have essentially no impact on total operating income results.
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 through 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, resource capacity charges, federally mandated costs and environmental relatedenvironmental-related costs.
A portion of NIPSCO's revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, a quarterly regulatory proceeding in Indiana.
As noted above in the NIPSCO has approval fromGas regulatory matters, the IURC initiated an investigation on January 3, 2018, to recover certain environmental related costsreview and consider the implications of the TCJA on utility rates. The commission ordered a two phase investigation. Phase 1 solely dealt with the prospective changes in rates to reflect the change in tax rates. On March 26, 2018, NIPSCO filed revised electric tariffs reflecting the impact of the change in tax rate for its applicable rates and charges. The IURC approved NIPSCO's Phase 1 filing on April 26, 2018. The revised tariffs were effective May 1, 2018. On July 31, 2018, NIPSCO filed an unopposed motion requesting that the over-collection of income taxes from January 1, 2018 through an ECT. UnderApril 30, 2018 be passed back in NIPSCO’s TDSIC-4 filing, also filed on July 31, 2018, and requesting that all other Phase 2 issues be handled in a rate case filing to be made in the ECT,fourth quarter of 2018. The impact on NIPSCO electric of the Phase 2 investigation is unknown at this time.
On March 29, 2018, WCE, which is currently owned by BP p.l.c ("BP") and BP Products North America, which operates the BP Refinery, filed a petition at the IURC asking that the combined operations of WCE and BP be treated as a single premise, and the WCE generation be dedicated primarily to BP Refinery operations beginning in May 2019 as WCE has self-certified as a qualifying facility at FERC. BP Refinery plans to continue to purchase electric service from NIPSCO at a reduced demand level beginning in May 2019. NIPSCO is permittedcurrently evaluating the impact of the WCE petition, including the associated impacts on revenue. NIPSCO anticipates filing an electric rate case in the fourth quarter of 2018, in part, to recover (1) AFUDCaddress anticipated revenue loss resulting from this filing. NIPSCO also anticipates filing an updated Integrated Resource Plan in the fourth quarter of 2018, which will evaluate demand-side and supply-side resource alternatives to reliably and cost effectively meet NIPSCO customers' future energy requirements over the ensuing 20 years.  
On January 30, 2018, NIPSCO made a return on the capital investment expended by NIPSCOTDSIC-3 rate adjustment mechanism filing requesting a revenue decrease of $1.8 million to implement environmental compliance plan projects and (2) related operation and maintenance and depreciation expenses once the environmental facilities become operational. On July 28, 2017, NIPSCO filed ECR-30 which included $256.2be billed over six months, associated with $75.0 million of cumulative netincremental capital expenditures through the period ended Junemade from May 1, 2017 to November 30, 2017. An orderThe decrease was received fromdue to the IURCimpact of the TCJA as well as a shorter billing period compared to TDSIC-2. TDSIC-3 was approved on October 25, 2017,May 30, 2018 and new rates went into effectbecame effective for the first billing cycle of November 2017.
June. Additionally, the TDSIC-2 rates revised for tax reform approved as a part of NIPSCO’s Phase 1 filing described above were made effective on May 1, 2018, until TDSIC-3 rates went into effect. The impact of TCJA on TDSIC-2 was an approximate decrease in revenue of $1.2 million for the period from January through May 2018. NIPSCO made a TDSIC-2TDSIC-4 rate adjustment mechanism filing on June 30, 2017July 31, 2018 seeking recovery and ratemaking reliefan incremental semi-annual revenue decrease of $10.6 million due primarily to the pass back of a $14.1 million TCJA electric base rate customer refund for the period January through May 2018. The TCJA refund offsets a $3.5 million increase associated with $177.3$77.1 million of cumulative netincremental capital expenditures madefrom December 2017 through April 30, 2017.May 2018. An order approving the request was received from the IURC on October 31, 2017 and new rates are expected to go into effect with the first billing cycle of November 2017.
On November 1, 2016, NIPSCO filed a petition with the IURC for relief regarding the construction of additional environmental projects required to comply with the final rules for regulation of CCRs and the ELG. On June 9, 2017, a settlement agreement was filed with the IURC regarding the CCR projects and treatment of associated costs. An evidentiary hearing was held on August 21, 2017 and an order is expected by the end of 2017. Given the current postponement of the ELG rule, NIPSCO has agreed, with the settling parties, that the ELG projects and related costs would be addressed in a later proceeding. Refer to Note 14-C, “Environmental Matters,” for more information.

6.    Risk Management Activities

NiSource is exposed to certain risks relating to its ongoing business operations, namely commodity price risk and interest rate risk. NiSource recognizes that the prudent and selective use of derivatives may help to lower its cost of debt capital, manage its interest rate exposure and limit volatility in the pricefourth quarter of natural gas.2018.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


On February 1, 2018, NIPSCO and certain other MISO transmission owners filed with the FERC a request for waiver of tariff provisions to allow for implementation of TCJA provisions into 2018 transmission formula rates as soon as possible. On March 15, 2018, the FERC issued an order granting the request for waiver and set the effective date of the waiver at January 1, 2018. In the March billing cycle, the MISO began billing the new transmission rates reflecting the lower federal tax rate. In addition, the MISO began to re-bill January and February 2018 affected revenues and costs in the March 2018 billing cycle, and completed the re-settlement in the April 2018 billing cycle. The new 2018 transmission formula rates will lower revenue by approximately $8.5 million in 2018 associated with NIPSCO's multi-value projects.
Material Updates to Regulatory Assets and Liabilities Since December 31, 2017
TCJA-Related Regulatory Liabilities.As referenced above, during the six months ended June 30, 2018, we recorded additional TCJA-related regulatory liabilities of $65.0 million to reflect 2018 collections from customers which we believe are probable of being refunded back to customers once new customer rates are approved by our regulators.
As discussed in Note 13, "Income Taxes," in 2018 we began amortizing regulatory liabilities associated with excess deferred income taxes, which resulted in a $7.4 million and $17.8 million income tax benefit for the three and six months ended June 30, 2018, respectively. Related to this activity, we recorded an offsetting reserve of $4.7 million and $12.4 million (net of tax) in "Customer revenues" to reflect the probable future passback of this earnings benefit to customers for the three and six months ended June 30, 2018, respectively. In certain jurisdictions, we received additional regulatory guidance on the treatment and passback period of excess deferred income taxes, indicating that such a reserve was not required as of June 30, 2018.
Bailly Generating Station. During the six months ended June 30, 2018, we reclassified approximately $245 million from "Other property, at cost, less accumulated depreciation" to “Regulatory assets (noncurrent)” on the Condensed Consolidated Balance Sheets (unaudited) in connection with the retirement of Bailly Generating Station Units 7 and 8. Refer to Note 17-D, "Other Matters," in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.
9.    Risk Management Activities
We are exposed to certain risks relating to our ongoing business operations, namely commodity price risk and interest rate risk. We recognize that the prudent and selective use of derivatives may help to lower our cost of debt capital, manage our interest rate exposure and limit volatility in the price of natural gas.
Risk management assets and liabilities on NiSource’sour derivatives are presented on the Condensed Consolidated Balance Sheets (unaudited) as shown below:
(in millions)September 30, 2017 December 31, 2016June 30, 2018 December 31, 2017
Risk Management Assets - Current(1)
      
Interest rate risk programs$
 $17.0
$1.7
 $14.0
Commodity price risk programs0.2
 7.4
0.5
 0.5
Total$0.2
 $24.4
$2.2
 $14.5
Risk Management Assets - Noncurrent(2)
      
Interest rate risk programs$20.1
 $17.1
$23.5
 $5.6
Commodity price risk programs0.7
 7.5
1.8
 1.0
Total$20.8
 $24.6
$25.3
 $6.6
Risk Management Liabilities - Current(3)
      
Interest rate risk programs$36.9
 $15.3
$
 $38.6
Commodity price risk programs3.3
 1.5
4.0
 4.6
Total$40.2
 $16.8
$4.0
 $43.2
Risk Management Liabilities - Noncurrent      
Interest rate risk programs$
 $24.5
$
 $
Commodity price risk programs28.7
 20.0
44.9
 28.5
Total$28.7
 $44.5
$44.9
 $28.5
(1)Presented in "Prepayments and other" on the Condensed Consolidated Balance Sheets (unaudited).
(2)Presented in "Deferred charges and other" on the Condensed Consolidated Balance Sheets (unaudited).
(3)Presented in "Other accruals" on the
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Balance SheetsFinancial Statements (unaudited). (continued)

Commodity Price Risk Management
NiSource and NiSource’sWe, along with our utility customers, are exposed to variability in cash flows associated with natural gas purchases and volatility in natural gas prices. NiSource purchasesWe purchase natural gas for sale and delivery to itsour retail, commercial and industrial customers, and for most customers the variability in the market price of gas is passed through in their rates. Some of NiSource’sour utility subsidiaries offer programs whereby variability in the market price of gas is assumed by the respective utility. The objective of NiSource’sour commodity price risk programs is to mitigate the gas cost variability, for NiSourceus or on behalf of itsour customers, associated with natural gas purchases or sales by economically hedging the various gas cost components using a combination of futures, options, forwards or other derivative contracts.
NIPSCO received IURC approval to lock in a fixed price for its natural gas customers using long-term forward purchase instruments. The term of these instruments may range from five to ten years and is limited to tentwenty percent of NIPSCO’s average annual GCA purchase volume. Gains and losses on these derivative contracts are deferred as regulatory liabilities or assets and are remitted to or collected from customers through NIPSCO’s quarterly GCA mechanism. These instruments are not designated as accounting hedges.
Interest Rate Risk Management
As of SeptemberJune 30, 2017, NiSource Finance has2018, we have forward-starting interest rate swaps with an aggregate notional value totaling $1.0 billion$750.0 million to hedge the variability in cash flows attributable to changes in the benchmark interest rate during the periods from the effective dates of the swaps to the anticipated dates of forecasted debt issuances, which are expected to take place by the end of 2019. These interest rate swaps are designated as cash flow hedges. The effective portions of the gains and losses related to these swaps are recorded to AOCI and are recognized in earnings"Interest expense, net" concurrently with the recognition of interest expense on the associated debt, once issued. If it becomes probable that a hedged forecasted transaction will no longer occur, the accumulated gains or losses on the derivative will be recognized currently in earnings."Other, net."
On May 11, 2017, NiSource Finance settled $950.0 millionIn March 2018, we initiated settlement of forward-starting interest rate swap agreements contemporaneouslyswaps with the issuancea notional value of $2.0 billion of 3.49% and 4.375% senior notes, maturing in 2027 and 2047, respectively.$250.0 million. These derivative
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

contracts were accounted for as cash flow hedges. As part of the transaction, the associated net unrealized loss positiongain of $6.9$21.2 million is being amortized from accumulated other comprehensive loss into interest expense over the term of the associated interest payments.
On September 5, 2017, NiSource Finance settled $750.0 million of treasury lock agreements, initially entered into August 2017, contemporaneously with the issuance of $750.0 million of 3.95% senior notes, maturingwas recognized immediately in 2048. This derivative contract was accounted for as cash flow hedge. As part of the transaction, the associated net unrealized loss position of $19.0 million is being amortized from accumulated other comprehensive loss into interest expense over the term of the associated interest payments.
Cash associated with payments to settle interest rate swaps and treasury lock agreements are reflected within operating activities within the Condensed Statements of Consolidated Cash Flows (unaudited) for the nine months ended September 30, 2017.
Realized gains and losses from NiSource’s interest rate cash flow hedges are presented in “Interest expense, net”"Other, net" on the Condensed Statements of Consolidated Income (Loss) (unaudited). due to the probability associated with the forecasted borrowing transaction no longer occurring.
There were no amounts excluded from effectiveness testing for derivatives in cash flow hedging relationships at SeptemberJune 30, 20172018 and December 31, 2016.2017.
NiSource’sOur derivative instruments measured at fair value as of SeptemberJune 30, 20172018 and December 31, 20162017 do not contain any credit-risk-related contingent features.
7.10.    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’sour Condensed Consolidated Balance Sheets (unaudited) on a recurring basis and their level within the fair value hierarchy as of SeptemberJune 30, 20172018 and December 31, 20162017:
 
Recurring Fair Value Measurements
September 30, 2017
(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, 2017
Recurring Fair Value Measurements
June 30, 2018
(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, 2018
Assets              
Risk management assets$
 $21.0
 $
 $21.0
$
 $27.4
 $0.1
 $27.5
Available-for-sale securities
 139.3
 
 139.3

 130.1
 
 130.1
Total$
 $160.3
 $
 $160.3
$
 $157.5
 $0.1
 $157.6
Liabilities              
Risk management liabilities$
 $68.1
 $0.8
 $68.9
$
 $48.9
 $
 $48.9
Total$
 $68.1
 $0.8
 $68.9
$
 $48.9
 $
 $48.9

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

Recurring Fair Value Measurements
December 31, 2016
(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, 2016
Recurring Fair Value Measurements
December 31, 2017
(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, 2017
Assets              
Risk management assets$5.4
 $43.6
 $
 $49.0
$
 $21.1
 $
 $21.1
Available-for-sale securities
 131.5
 
 131.5

 133.9
 
 133.9
Total$5.4
 $175.1
 $
 $180.5
$
 $155.0
 $
 $155.0
Liabilities              
Risk management liabilities$1.2
 $58.9
 $1.2
 $61.3
$
 $71.4
 $0.3
 $71.7
Total$1.2
 $58.9
 $1.2
 $61.3
$
 $71.4
 $0.3
 $71.7

Risk management assets and liabilities include interest rate swaps, treasury lock agreements, exchange-traded NYMEX futures and NYMEX options and non-exchange-based forward purchase contracts. Exchange-tradedWhen utilized, 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, options and treasury lock agreements. In certain instances, these instruments may utilize models to measure fair value. NiSource usesWe use 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 within 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 within 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 SeptemberJune 30, 20172018 and December 31, 20162017, 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’sour financial instruments.
NiSource Finance hasWe have entered into forward-starting interest rate swaps and treasury lock agreements to hedge the interest rate risk on coupon payments of forecasted issuances of long-term debt. These derivatives are designated as cash flow hedges. Credit risk is considered in the fair value calculation of each agreement. As they are based on observable data and valuations of similar instruments, the hedges are categorized within Level 2 of the fair value hierarchy. There was no exchange of premium at the initial date of the swaps, and treasury lock agreements, and NiSourcewe can settle the contracts at any time. For additional information, see Note 6,9, "Risk Management Activities."
NIPSCO has entered into long-term forward natural gas purchase instruments that range from five to ten years to lock in a fixed price for its natural gas customers. NiSource valuesWe value these contracts using a pricing model that incorporates market-based information when available, as these instruments trade less frequently and are classified within Level 2 of the fair value hierarchy. For additional information, see Note 6,9, “Risk Management Activities.”
Available-for-sale securities are investments pledged as collateral for trust accounts related to NiSource’sour wholly-owned insurance company. Available-for-sale securities are included within “Other investments” in the Condensed Consolidated Balance Sheets (unaudited). NiSource valuesWe value U.S. Treasury, corporate debt and mortgage-backed securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently and are classified within Level 2. Total unrealized gains and losses from available-for-sale securities are included in other comprehensive income. The amortized cost, gross unrealized gains and losses and fair value of available-for-sale securities at June 30, 2018 and December 31, 2017 were:
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The amortized cost, gross unrealized gains and losses and fair value of available-for-sale securities at September 30, 2017 and December 31, 2016 were:
September 30, 2017 (in millions)
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
June 30, 2018 (in millions)
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
Available-for-sale securities              
U.S. Treasury debt securities$34.3
 $
 $(0.1) $34.2
$16.8
 $
 $(0.1) $16.7
Corporate/Other debt securities104.2
 1.3
 (0.4) 105.1
116.1
 0.3
 (3.0) 113.4
Total$138.5
 $1.3
 $(0.5) $139.3
$132.9
 $0.3
 $(3.1) $130.1
December 31, 2016 (in millions)
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
       
December 31, 2017 (in millions)
Amortized
Cost
 Gross Unrealized Gains Gross Unrealized Losses 
Fair
Value
Available-for-sale securities              
U.S. Treasury debt securities$35.0
 $0.1
 $(0.6) $34.5
$26.9
 $
 $(0.1) $26.8
Corporate/Other debt securities98.7
 0.3
 (2.0) 97.0
106.8
 0.9
 (0.6) 107.1
Total$133.7
 $0.4
 $(2.6) $131.5
$133.7
 $0.9
 $(0.7) $133.9
Realized gains and losses on available-for-sale securities were immaterial for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017.
The cost of maturities sold is based upon specific identification. At SeptemberJune 30, 2017,2018, approximately $8.4$3.2 million of U.S. Treasury debt securities and approximately $3.2$3.7 million of Corporate/Other debt securities have maturities of less than a 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 ninesix months ended SeptemberJune 30, 20172018 and 2016.2017.

Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the three and ninesix months ended SeptemberJune 30, 2017.2018.
B.    Other Fair Value Disclosures for Financial Instruments. The carrying amount of cash and cash equivalents, restricted cash, customer deposits and short-term borrowings is a reasonable estimate of fair value due to their liquid or short-term nature. NiSource’sOur long-term borrowings are recorded at historical amounts.
The following method and assumptions were used to estimate the fair value of each class of financial instruments.
Long-term Debt. The fair value of outstanding long-term debt is estimated based on the quoted market prices for the same or similar securities. 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 within Level 2 of the fair value hierarchy. For the ninesix months ended SeptemberJune 30, 20172018, there was no change in the method or significant assumptions used to estimate the fair value of long-term debt.
The carrying amount and estimated fair values of these financial instruments were as follows: 
(in millions)Carrying
Amount as of
September 30, 2017
 Estimated Fair
Value as of
September 30, 2017
 
Carrying
Amount as of
Dec. 31, 2016
 
Estimated Fair
Value as of
Dec. 31, 2016
Carrying
Amount as of
June 30, 2018
 Estimated Fair
Value as of
June 30, 2018
 
Carrying
Amount as of
Dec. 31, 2017
 
Estimated Fair
Value as of
Dec. 31, 2017
Long-term debt (including current portion)$7,808.4
 $8,550.7
 $6,421.3
 $7,064.1
$7,690.2
 $7,996.1
 $7,796.5
 $8,603.4

8.11.    Transfers of Financial Assets
Columbia of Ohio, NIPSCO and Columbia of Pennsylvania each maintain a receivables agreement whereby they transfer their customer accounts receivables to third party financial institutions through wholly-owned and consolidated special purpose entities. The three agreements expire between MarchAugust 2018 and October 2018March 2019 and may be further extended if mutually agreed to by the parties thereto.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

All receivables transferred to third parties 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 transferred is determined in part by required loss reserves under the agreements.
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). As of SeptemberJune 30, 2017,2018, the maximum amount of debt that could be recognized related to NiSource’sour accounts receivable programs is $265.0$320.0 million.
The following table reflects the gross receivables balance and net receivables transferred as well as short-term borrowings related to the securitization transactions as of SeptemberJune 30, 20172018 and December 31, 2016:2017:
 
(in millions)September 30, 2017 December 31, 2016June 30, 2018 December 31, 2017
Gross Receivables$371.6
 $618.3
$470.7
 $635.3
Less: Receivables not transferred109.4
 308.3
470.7
 298.6
Net receivables transferred$262.2
 $310.0
$
 $336.7
Short-term debt due to asset securitization$262.2
 $310.0
$
 $336.7
For the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, $47.8$336.7 million and $11.0$11.7 million, respectively, was recorded as cash flows used for financing activities related to the change in short-term borrowings due to securitization transactions. Fees associated with the securitization transactions were $0.6$0.7 million and $0.4$0.6 million for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively and $1.9$1.5 million and $1.6$1.3 million for the ninesix months ended SeptemberJune 30, 2018 and 2017, and 2016, respectively. NiSource remainsWe remain responsible for collecting on the receivables securitized, and the receivables cannot be transferred to another party.

9.12.    Goodwill
 The following presents NiSource’sour goodwill balance allocated by segment as of SeptemberJune 30, 2017:2018:
(in millions) Gas Distribution Operations Electric Operations Corporate and Other Total
Goodwill $1,690.7
 $
 $
 $1,690.7

NiSourceWe applied the qualitative "step 0" analysis to itsour reporting units for the annual impairment test performed as of May 1, 2017.2018. For this test, NiSourcewe assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units as compared to itstheir base line May 1, 2016 "step 1" fair value measurement. The results of this assessment indicated that it was not more likely than not that itsour reporting unit fair values were less than the reporting unit carrying values, accordingly, no "step 1" analysis was required.

10.13.    Income Taxes

NiSource’sOur interim effective tax rates reflect the estimated annual effective tax rates for 20172018 and 2016,2017, adjusted for tax expense associated with certain discrete items. The effective tax rates for the three months ended SeptemberJune 30, 2018 and 2017 were 18.3% and 2016 were 15.2% and 26.4%37.5%, respectively. The effective tax raterates for the ninesix months ended SeptemberJune 30, 2018 and 2017 were 18.5% and 2016 was 34.9% and 35.3%36.2%, respectively. These effective tax rates differ from the Federal statutory tax rate of 21% in 2018 and 35% in 2017, primarily due to the effects of tax credits, state income taxes, utility ratemaking and other permanent book-to-tax differences.
The decrease in the three month effective tax rate in 20172018 versus the same period in 20162017 is primarily due to current year revisions of apportionment factors used to measure state deferred tax liabilities. There was no materialthe change in the year-to-date effectiveFederal statutory rate due to the enactment of the TCJA. Additionally, in 2018 we began amortizing a portion of our regulatory liability associated with excess deferred taxes which resulted in a current year income tax rate in 2017 versusbenefit of $7.4 million and $17.8 million for the same period in 2016.three and six months ended June 30, 2018, respectively. Refer to Note 8, "Regulatory Matters," for additional information.
Additionally, thereThere were no material changes recorded in 20172018 to NiSource'sour uncertain tax positions as of December 31, 2016.2017.
14.    Pension and Other Postretirement Benefits
We provide defined contribution plans and noncontributory defined benefit retirement plans that cover certain of our employees. Benefits under the defined benefit retirement plans reflect the employees’ compensation, years of service and age at retirement. Additionally, we provide health care and life insurance benefits for certain retired employees. The majority of employees may
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

11.    Pension and Other Postretirement Benefits

NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover certain of 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.us. The expected cost of such benefits is accrued during the employees’ years of service. For most plans, cash contributions are remitted to grantor trusts.

NiSource previously disclosed inFor the notes to its financial statements for the yearsix months ended December 31, 2016, that it expected to contribute $9.1June 30, 2018, we contributed $1.4 million to itsour pension plans in 2017. For the nine months ended September 30, 2017, NiSource contributed $281.6and $11.3 million to its pension plans, which included a $277 million discretionary contribution made during the third quarter of 2017. NiSource does not anticipate any further pension contributions in 2017. Contributions of $21.8 million have been made to NiSource'sour other postretirement benefit plans during the nine months ended September 30, 2017. Contributions made to pension and other postretirement benefit plans are presented in "Operating activities" on the Condensed Statements of Consolidated Cash Flows (unaudited).

plans.
The following tables providetable provides the components of the plans’ actuarially determined net periodic benefit cost for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016:2017:

Pension Benefits 
Other Postretirement
Benefits
Pension Benefits 
Other Postretirement
Benefits
Three Months Ended September 30, (in millions)
2017 2016 2017 2016
Three Months Ended June 30, (in millions)
2018 2017 2018 2017
Components of Net Periodic Benefit Cost(1)              
Service cost(1)
$7.4
 $7.7
 $1.2
 $1.3
$7.9
 $7.5
 $1.3
 $1.2
Interest cost(1)
17.1
 22.4
 4.5
 5.5
16.6
 17.2
 4.4
 4.4
Expected return on assets(30.8) (33.2) (4.0) (4.3)(36.2) (30.2) (3.7) (3.9)
Amortization of prior service credit(0.1) 
 (1.1) (1.2)(0.1) (0.2) (1.0) (1.1)
Recognized actuarial loss13.2
 15.3
 0.7
 0.8
10.2
 13.4
 0.9
 0.7
Settlement loss10.6
 
 
 
3.5
 
 
 
Total Net Periodic Benefit Cost$17.4
 $12.2
 $1.3
 $2.1
$1.9
 $7.7
 $1.9
 $1.3
(1)Effective January 1, 2017, NiSource adopted the methodology of using a full yield curve (spot rate) approach to estimate theThe service cost component, and interestall non-service cost components, of net periodic benefit cost. This changecost are presented in accounting estimate resulted in a decrease in these costs for"Operation and maintenance" and "Other, net", respectively, on the three months ended September 30, 2017 when compared to the same period in 2016.Condensed Statements of Consolidated Income (Loss) (unaudited).
Pension Benefits 
Other Postretirement
Benefits
Pension Benefits 
Other Postretirement
Benefits
Nine Months Ended September 30, (in millions)
2017 2016 2017 2016
Six Months Ended June 30, (in millions)
2018 2017 2018 2017
Components of Net Periodic Benefit Cost(1)              
Service cost(1)
$22.4
 $23.1
 $3.6
 $3.7
$15.8
 $15.0
 $2.6
 $2.4
Interest cost(1)
51.5
 67.2
 13.4
 16.5
33.2
 34.4
 8.8
 8.9
Expected return on assets(91.3) (99.6) (11.9) (12.9)(72.5) (60.5) (7.4) (7.9)
Amortization of prior service credit(0.5) (0.2) (3.3) (3.6)(0.2) (0.4) (2.0) (2.2)
Recognized actuarial loss40.0
 45.9
 2.2
 2.4
20.4
 26.8
 1.8
 1.5
Settlement loss10.6
 
 
 
3.5
 
 
 
Total Net Periodic Benefit Cost$32.7
 $36.4
 $4.0
 $6.1
$0.2
 $15.3
 $3.8
 $2.7
(1)Effective January 1, 2017, NiSource adopted the methodology of using a full yield curve (spot rate) approach to estimate theThe service cost component, and interestall non-service cost components, of net periodic benefit cost. This changecost are presented in accounting estimate resulted in a decrease in these costs for"Operation and maintenance" and "Other, net", respectively, on the nine months ended September 30, 2017 when compared to the same period in 2016.Condensed Statements of Consolidated Income (Loss) (unaudited).

As of AugustMay 31, 2017, one2018, two of NiSource'sour qualified pension plans paid lump sums in excess of the respective plan's 20172018 service cost plus interest cost, thereby meeting the requirement for settlement accounting. A settlement charge of $10.6$3.5 million was recorded during the thirdsecond quarter of 2017.2018. As a result of the settlement, thethese pension plan was remeasured resulting in a decreaseplans were remeasured. The remeasurements led to an increase to the pension benefit obligation, net of plan assets, of $1.3$1.1 million, a net decrease to regulatory assets of $10.6$2.3 million, and a net credit to accumulated other comprehensive loss of $1.3$0.1 million. Net periodic pension benefit cost for 2018 increased by $1.1 million as a result of the interim remeasurement.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


The following table provides the key assumptions that were used to calculate the pension benefit obligation and the net periodic benefit cost for the plans that triggered settlement account at the measurement dates of AugustMay 31, 20172018 and December 31, 2016.

2017:
 August 31, 2017 December 31, 2016
Weighted-average Assumption to Determine Benefit Obligation:   
Discount rate3.50% 4.03%
Weighted-average Assumptions to Determine Net Periodic Benefit Costs for the period ended:   
Discount rate - service cost(1)
4.40% 4.24%
Discount rate - interest cost(1)
3.31% 4.24%
Expected return on assets7.25% 8.00%
(1) In January 2017, NiSource changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits. This change, compared to the previous method, resulted in a decrease in the actuarially-determined service and interest cost components. Historically, NiSource estimated service and interest cost utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. For fiscal 2017 and beyond, NiSource now utilizes a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.
 May 31, 2018 December 31, 2017
Weighted-average Assumption to Determine Benefit Obligation:   
Discount rate4.03% 3.58%
Weighted-average Assumptions to Determine Net Periodic Benefit Costs for the period ended:   
Discount rate - service cost3.79% 4.40%
Discount rate - interest cost3.15% 3.31%
Expected return on assets6.30% 7.25%

12.15.    Long-Term Debt

NiSource Finance is a 100% owned, consolidated finance subsidiary of NiSource that engages in financing activities to raise funds for the business operations of NiSource and its subsidiaries. NiSource Finance was incorporated in March 2000 under the laws of the state of Indiana. Prior to 2000, the function of NiSource Finance was performed by Capital Markets. NiSource Finance obligations are fully and unconditionally guaranteed by NiSource. Consequently, no separate financial statements for NiSource Finance are required to be reported. No NiSource subsidiaries guarantee debt.
NiSource announced on April 26, 2017, that it intends to merge NiSource Finance and Capital Markets with and into NiSource during the second half of 2017, pending receipt of applicable approvals. The mergers are expected to be completed during the fourth quarter of 2017. Upon completion of the mergers, NiSource will become the primary obligor of NiSource Finance's and Capital Markets' outstanding obligations. The mergers are not expected to have any impact on NiSource's consolidated financial statements or the credit ratings of outstanding debt securities.
On March 27, 2017, Capital Markets15, 2018, we redeemed $30.0$275.1 million of 7.86% and $2.0 million of 7.85% medium-term6.40% senior unsecured notes at maturity.
On April 3, 2017, Capital Markets redeemed $12.0 million of 7.82%, $10.0 million of 7.92%, $2.0 million of 7.93% and $1.0 million of 7.94% medium-term notes at maturity.
On May 22, 2017, NiSource Finance closed its placement of $2.0 billion in aggregate principal amount of its senior notes, comprised of $1.0 billion of 3.49% senior notes due 2027 and $1.0 billion of 4.375% senior notes due 2047. Related to this placement, NiSource settled $950.0 million of aggregate notional value forward-starting interest rate swaps, originally entered into to mitigate interest risk associated with the planned issuance of these notes. Refer to Note 6, "Risk Management Activities," for additional information.
During the second quarter of 2017, NiSource FinanceIn June 2018, we executed a tender offer for $990.7$209.0 million of outstanding notes consisting of a combination of its 6.40% notes due 2018,our 6.80% notes due 2019, 5.45% notes due 2020 and 6.125% notes due 2022. In conjunction with the debt retired, NiSource Financewe recorded a $111.5$12.5 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums.
On June 12, 2017, NIPSCO redeemed $22.511, 2018, we closed our private placement of $350.0 million of 7.59% medium-term notes at maturity.
On July 1, 2017, NIPSCO redeemed $55.0 million of 5.70% medium-term notes at maturity.
On August 4, 2017, NIPSCO redeemed $5.0 million of 7.02% medium-term notes at maturity.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

On September 14, 2017, NiSource Finance closed its placement of $750.0 million of 3.95% senior notes due 2048. Related to this placement, NiSource settled $750.0 million of aggregate notional value treasury lock agreements, originally entered into to mitigate the interest risk associated with the planned issuance of these notes. Refer to Note 6, "Risk Management Activities," for additional information.
On September 15, 2017, NiSource Finance redeemed $210.4 million of 5.25%3.65% senior unsecured notes at maturity.maturing in 2023 which resulted in approximately $346.6 million of net proceeds after deducting commissions and expenses. We used the net proceeds from this private placement to pay a portion of the redemption price for the notes subject to the tender offer described above.
In July 2018, we redeemed $551.1 million of outstanding notes representing the remainder of our 6.80% notes due 2019, 5.45% notes due 2020 and 6.125% notes due 2022. During the third quarter of 2018, we anticipate recording a $33.0 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums.
13.16.    Short-Term Borrowings
NiSource generatesWe generate short-term borrowings from itsour revolving credit facility, commercial paper program, letter of credit issuances, and accounts receivable transfer programs.programs and term loan borrowings. Each of these borrowing sources is described further below.
NiSource Finance maintainsWe maintain a revolving credit facility to fund ongoing working capital requirements, including the provision of liquidity support for itsour commercial paper program, provide for issuance of letters of credit and also for general corporate purposes. NiSource Finance'sOur revolving credit facility has a program limit of $1.85 billion and is comprised of a syndicate of banks led by Barclays. At SeptemberJune 30, 20172018 and December 31, 2016, NiSource2017, we had no outstanding borrowings under this facility.
NiSource Finance'sOur commercial paper program has a program limit of up to $1.5 billion with a dealer group comprised of Barclays, Citigroup, Credit Suisse and Wells Fargo. We had no commercial paper outstanding as of June 30, 2018 and $869.0 million outstanding as of December 31, 2017.
As of SeptemberJune 30, 20172018 and December 31, 2016, NiSource2017, we had commercial paper outstanding of $581.0$10.2 million and $1,178.0 million, respectively.
As of September 30, 2017 and December 31, 2016, NiSource had $13.0 million and $14.7$11.1 million of stand-by letters of credit, respectively. All stand-by letters of credit were under the revolving credit facility.
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) in the amount. We had no transfers as of $262.2 millionJune 30, 2018 and $310.0$336.7 million as of September 30, 2017 and December 31, 2016, respectively.2017. Refer to Note 8,11, "Transfers of Financial Assets," for additional information.
On April 18, 2018, we entered into a multiple-draw $600.0 million term loan agreement with a syndicate of banks led by MUFG Bank, Ltd. The term loan matures April 17, 2019, at which point any and all outstanding borrowings under the agreement are due. Interest charged on borrowings depends on the variable rate structure we elected at the time of each borrowing. Under the agreement, we borrowed an initial tranche of $150.0 million on April 18, 2018 with an interest rate of LIBOR plus 50 basis points and a second tranche of $450.0 million on May 31, 2018 with an interest rate of LIBOR plus 55 basis points.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Short-term borrowings were as follows: 
(in millions)September 30,
2017
 December 31,
2016
June 30,
2018
 December 31,
2017
Commercial Paper weighted-average interest rate of 1.50% and 1.24% at September 30, 2017 and December 31, 2016, respectively$581.0
 $1,178.0
Commercial paper weighted-average interest rate of 1.97% at December 31, 2017$
 $869.0
Accounts receivable securitization facility borrowings262.2
 310.0

 336.7
Term loan weighted-average interest rate of 2.64% at June 30, 2018600.0
 
Total Short-Term Borrowings$843.2
 $1,488.0
$600.0
 $1,205.7

Given their maturities are lessOther than 90 days,for the term loan, 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). as their maturities are less than 90 days.

14.17.    Other Commitments and Contingencies
A. Guarantees and Indemnities. As a part of normal business, NiSourceWe and certain of our subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries.subsidiaries as a part of normal business. 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. As of SeptemberJune 30, 20172018 and December 31, 2016, NiSource2017, we had issued stand-by letters of credit of $13.0$10.2 million and $14.7$11.1 million, respectively.  
 B. Legal Proceedings. The Company isWe are party to certain claims and legal proceedings arising in the ordinary course of business, none of which isare deemed to be individually material at this time. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’sour results of operations, financial position or liquidity. If one or more of such matters were decided against the Company,us, the effects could be material to the Company’sour results of operations in the period in which the Companywe would be required to record or adjust the related liability and could also be material to the Company’sour cash flows in the periods the Companythat we would be required to pay such liability.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

C. Environmental Matters.NiSource Our operations are subject to environmental statutes and regulations related to air quality, water quality, hazardous waste and solid waste. NiSource believesWe believe that it iswe are in substantial compliance with the environmental regulations currently applicable to itsour 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 NiSourceof our companies.
As of SeptemberJune 30, 20172018 and December 31, 2016, NiSource2017, we had recorded a liability of approximately $112.6$109.7 million and $111.4 million, respectively, to cover environmental remediation at various sites. The current portion of this liability 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 recognizesWe recognize 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 remediation activities may 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 impact and the method of remediation and the availability of cost recovery.remediation. These expenditures are not currently estimable at some sites. NiSourceWe periodically adjusts itsadjust our liability as information is collected and estimates become more refined.
Electric Operations' compliance estimates disclosed below are reflective of NIPSCO's Integrated Resource Plan submitted to the IURC on November 1, 2016. See section D, "Other Matters," below for additional information.
Air
The actions listed below could require further reductions in emissions from various emission sources. NiSourceWe will continue to closely monitor developments in these matters.
Future legislative and regulatory programs could significantly limit allowed GHG emissions or impose a cost or tax on GHG emissions. Additionally, rules that increase methane leak detection, require emission reductions or impose additional requirements
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

for natural gas facilities could restrict GHG emissions and impose additional costs. NiSource willWe carefully monitor all GHG reduction proposals and regulations.
National Ambient Air Quality Standards. The CAA requires the EPA to set NAAQS for six "criteria" air pollutants considered harmful to public health and the environment. Periodically, the EPA imposes new, or modifies existing, NAAQS. States containing areas that do not meet the new or revised standards, or contribute significantly to nonattainment of downwind states, may be required to take steps to achieve and maintain compliance with the standards. These steps could include additional pollution controls on boilers, engines, turbines and other facilities owned by electric generation and gas distribution operations.
Ozone: On October 26, 2015, the EPA issued a final rule to lower the 8-hour ozone standard from 75 ppb to 70 ppb. After the EPA proceeds with designations, areas where NiSource operates that are currently designated in attainment with the standards may be reclassified as nonattainment. NiSource will continue to monitor this matter and cannot estimate its impact at this time.
Clean Power Plan. On October 23, 2015, the EPA issued a final rule to regulate CO2CO2 emissions from existing fossil-fuel EGUs under section 111(d) of the CAA. The final rule establishes national CO2CO2 emission-rate standards that are applied to each state’s mix of affected EGUs to establish state-specific emission-rate and mass-emission limits. The final rule requires each state to submit a plan indicating how the state will meet the EPA's emission-rate or mass-emission limit, including possibly imposing reduction obligations on specific units. If a state does not submit a satisfactory plan, the EPA will impose a federal plan on that state.

On February 9, 2016, the U.S. Supreme Court stayed implementation of the CPP until litigation is decided on its merits. On October 16, 2017, the EPA published in the Federal Register a Notice of Proposed Rulemaking that would repeal the CPP. TheOn December 28, 2017, in a separate but related action, the EPA published an Advanced Notice of Proposed Rulemaking in the Federal Register to solicit information from the public will have 60 daysabout a potential future rulemaking to comment on this proposal, after which time the proposal may become final.limit greenhouse gas emissions from existing fossil-fuel EGUs. NIPSCO will continue to monitor this matter and cannot estimate its impact at this time. Should costs be incurred to comply with the CPP, NIPSCO believes such costs will be eligible for recovery through customer rates.
Waste
CERCLA. NiSourceOur subsidiaries are potentially responsible parties at waste disposal sites under the CERCLA (commonly known as Superfund) and similar state laws. Additionally, NiSourceUnder CERCLA, each potentially responsible party can be held jointly, severally and strictly liable for the remediation costs as the EPA, or state, can allow the parties to pay for remedial action or perform remedial action themselves and request reimbursement from the potentially responsible parties. Our affiliates have retained CERCLA environmental liabilities, including remediation liabilities, associated with certain current and former operations. These liabilities are not material to the Condensed Consolidated Financial Statements (unaudited).
MGP. 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 64 such sites where liability is probable. Remedial actions at many
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

of these sites are being overseen by state or federal environmental agencies through consent agreements or voluntary remediation agreements.
NiSource utilizesWe utilize a probabilistic model to estimate its future remediation costs related to itsour MGP sites. The model was prepared with the assistance of a third party and incorporates NiSourceour experience and general industry experience with remediating MGP sites. NiSource completesWe complete an annual refresh of the model in the second quarter of each fiscal year. No material changes to the estimated future remediation costs were noted as a result of the refresh completed as of June 30, 2017. The2018. Our total estimated liability at NiSource related to the facilities subject to remediation was $108.0$105.5 million and $105.5$106.9 million at SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively. The liability represents NiSource’sour best estimate of the probable cost to remediate the facilities. NiSource believesWe believe 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.
CCRs. On April 17, 2015, the EPA issued a final rule for regulation of CCRs. The rule regulates CCRs under the RCRA Subtitle D, which determines them to be nonhazardous. The rule is implemented in phases and requires increased groundwater monitoring, reporting, recordkeeping and posting of related information to the Internet. The rule also establishes requirements related to CCR management and disposal. The rule will allow NIPSCO to continue its byproduct beneficial use program.
The publication of the CCR rule resulted in revisions to previously recorded legal obligations associated with the retirement of certain NIPSCO facilities. The actual asset retirement costs related to the CCR rule may vary substantially from the estimates used to record the increased asset retirement obligation due to the uncertainty about the compliance strategies that will be used and the preliminary nature of available data used to estimate costs. In addition, to comply with the rule, NIPSCO will be required to incur future capital expenditures to modify its infrastructure and manage CCRs. Capital compliance costs are currently expected to total approximately $193 million. As allowed by the EPA, NIPSCO will continue to collect data over time to determine the specific compliance solutions and associated costs and, as a result, the actual costs may vary.
NIPSCO filed a petition on November 1, 2016 with the IURC seeking approval of the projects and recovery of the costs associated with CCR compliance. On June 9, 2017, NIPSCO filed with the IURC a settlement reached with certain parties regarding the CCR projects and treatment of associated costs. An evidentiary hearing was held on August 21, 2017 andThe IURC approved the settlement in an order is expected by the endon December 13, 2017.
Table of 2017.Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Water
ELG. On November 3, 2015, the EPA issued a final rule to amend the ELG and standards for the Steam Electric Power Generating category. The final rule became effective January 4, 2016. The rule imposes new water treatment and discharge requirements on NIPSCO's electric generating facilities to be applied between 2018 and 2023. On April 25, 2017, the EPA published notice in the Federal Register that the EPA is reconsidering the ELG in response to several petitions for reconsideration. On September 18, 2017, the EPA published notice in the Federal Register their intention to postponepostponed the earliest compliance dates for flue gas desulfurization wastewater and bottom ash transport water requirements from 2018 to 2020 to potentially consider revisions to technology and numeric limits achievable. NIPSCO is unable to estimate the financial impact of the postponement of these compliance datesEPA reconsideration at this time. Based upon a preliminary engineering study of the November 3, 2015 final rule, capital compliance costs are currentlywere expected to costbe approximately $170 million. On November 1, 2016, NIPSCO filed a petition with the IURC seeking approval of the projects and recovery of the costs associated with ELG compliance. Given the current postponement of certain compliance dates under the ELG rule, NIPSCO has agreed with the settling parties, as part of the settlement agreement discussed in the "CCRs" subsection above, that these ELG projects and related costs would be addressed in a later proceeding.
D. Other Matters.
NIPSCO 2016 Integrated Resource Plan. Environmental, regulatory and economic factors, including low natural gas prices and aging coal-fired units, have led NIPSCO to consider modifyingpursue modification of its current electric generation supply mix to include less coal-fired generation. Due to enacted CCR and ELG (subsequently postponed) legislation,regulations, NIPSCO would expect to incurhave incurred over $1 billion in operating, maintenance, environmental and other costs over the next seven years if the current fleet of coal-fired generating units were to remain operational.
On November 1, 2016, NIPSCO submitted its 2016 Integrated Resource Plan with the IURC. The plan evaluated demand-side and supply-side resource alternatives to reliably and cost effectively meet NIPSCO customers' future energy requirements over the ensuing 20 years. The 2016 Integrated Resource Plan indicatesindicated that the most viable option for customers and NIPSCO involves the retirement of Bailly Generating Station (Units 7 and 8) as soon as mid-2018 and two units (Units 17 and 18) at the R.M.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Schahfer Generating Station by the end of 2023. It is projected over the long term that the cost to customers to retire these units at these dates will be lower than maintaining and upgrading them for continuingcontinued generation.
NiSource and NIPSCOWe committed to the retirement of the Bailly Generating Station units in connection with the filing of the 2016 Integrated Resource Plan, pending approval by the MISO. In the fourth quarter of 2016, the MISO approved NIPSCO's plan to retire the Bailly Generating Station units by May 31, 2018. In accordance with ASC 980-360,
On February 1, 2018, as previously approved by the MISO, NIPSCO commenced a four-month outage of Bailly Generating Station Unit 8 in order to begin work on converting the unit to a synchronous condenser (a piece of equipment designed to maintain voltage to ensure continued reliability on the transmission system). Approximately $15 million of net book value of Unit 8 remained in “Net Utility Plant” as it is expected to remain used and useful upon completion of the synchronous condenser, while the remaining net book value of the Bailly Generating Station unitsapproximately $142 million was reclassified from "Net utility plant" to "Other property, at cost, less accumulated depreciation"“Regulatory assets (noncurrent)” on the Condensed Consolidated Balance Sheets (unaudited). On May 31, 2018, Units 7 and 8 were retired from service. As a result, the remaining net book value of Unit 7 of approximately $103 million was reclassified to “Regulatory assets (noncurrent)” on the Condensed Consolidated Balance Sheets (unaudited).These amounts continue to be amortized at a rate consistent with their inclusion in customer rates.
In connection withNIPSCO anticipates updating its Integrated Resource Plan in a filing by the MISO's approvalend of NIPSCO's planned retirement of the Bailly Generating Station units, NiSource recorded $22.1 million of plant retirement-related charges in the fourth quarter of 2016. These charges were comprised of contract termination charges related to NIPSCO's capital lease with Pure Air (discussed further below), voluntary employee severance benefits, and write downs of certain materials and supplies inventory balances.2018.
NIPSCO Pure Air. NIPSCO hashad a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and First Air Partners LP, under which Pure Air providesprovided scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at the Bailly Generating Station. Services under this contract commenced on July 1, 1992 and expired on June 30, 2012. The agreement was renewed effective July 1, 2012 for ten years, requiring NIPSCO to pay for the services under a combination of fixed and variable charges. NiSource hasWe made an exhaustive effort to obtain information needed from Pure Air to determine the status of Pure Air as a VIE. However, NIPSCO haswas not been able to obtain this information and, as a result, it is unclearwas not determined whether Pure Air iswas a VIE and ifwhether NIPSCO iswas 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 paymentsPayments under this agreement were $16.5$7.6 million and $16.0$10.4 million for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively. In accordance with GAAP, the renewed agreement was evaluated to determine whether the arrangement qualifiesqualified as a lease. Based on the terms of the agreement, the arrangement qualified for capital lease accounting. As the effective date of the new agreement was July 1, 2012, NiSourcewe capitalized this lease beginning in the third quarter of 2012.
As further discussed above in this Note 1417 under the heading "NIPSCO 2016 Integrated Resource Plan," NIPSCO plans to retireretired the generation station units serviced by Pure Air byon May 31, 2018. In December 2016, as allowed by the provisions of the service
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

agreement, NIPSCO provided Pure Air formal notice of intent to terminate the service agreement, effective May 31, 2018. Providing this notice to Pure Air triggered a contract termination liability of $16 million, which was recorded in fourth quarter of 2016. This expense was included as partIn connection with the closure of Bailly Units 7 and 8, NIPSCO paid the plant retirement-related charges discussed above. Paymenttermination payment to Pure Air during the second quarter of 2018. Cash flows associated with this liability is not due until NIPSCO ceases use of the scrubber services. The liability ispayment are presented in "Other accruals"within operating activities on the Condensed Consolidated Balance Sheets (unaudited). In addition, NIPSCO remeasured the remaining capital lease asset and obligation to reflect the change in estimated remaining minimum lease payments. This remeasurement was a non-cash transaction that had no impact on the Statements of Consolidated Income.
Technology Services. On December 31, 2013, NiSource Corporate Services Company signed a seven-year agreement with IBM to continue to provide business process and support functions to NiSource under a combination of fixed and variable charges, with the variable charges fluctuating based on the actual need for such services. The agreement was effective January 1, 2014 with a commencement date of April 1, 2014.
In April 2017, NiSource initiated a process to terminate its agreement with IBM and began negotiating contracts with IT service providers other than IBM. The terminated agreement calls for NiSource to pay certain charges in the event of a termination by NiSource for any reason other than material breach by IBM. NiSource and IBM are in discussions with respect to the charges owed IBM. Liabilities recorded related to termination charges as of September 30, 2017 are not material to the Condensed Consolidated Financial StatementsCash Flows (unaudited).
In May and June 2017, NiSource executed agreements with new IT service providers. The new agreements have terms ending at various dates throughout 2022. Knowledge sharing and transition of responsibilities from IBM to the new service providers is currently underway and is expected to be substantially complete by the end of 2017. Costs associated with transition activities, including legal and consulting fees, are expensed as incurred. Annual payments for services received under the new agreements are not expected to result in a material change to NiSource’s aggregate contractual obligations.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

15.18.    Accumulated Other Comprehensive Loss
The following tables display the components of Accumulated Other Comprehensive Loss:
Three Months Ended September 30, 2017 (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, 2017$0.4
 $(18.8) $(17.2) $(35.6)
Three Months Ended June 30, 2018 (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, 2018$(1.5) $(0.3) $(17.2) $(19.0)
Other comprehensive income (loss) before reclassifications0.1
 (9.7) 
 (9.6)(0.6) (2.0) 0.6
 (2.0)
Amounts reclassified from accumulated other comprehensive loss
 0.4
 1.1
 1.5
(0.1) 0.6
 (0.4) 0.1
Net current-period other comprehensive income (loss)0.1
 (9.3) 1.1
 (8.1)(0.7) (1.4) 0.2
 (1.9)
Balance as of September 30, 2017$0.5
 $(28.1) $(16.1) $(43.7)
Balance as of June 30, 2018$(2.2) $(1.7) $(17.0) $(20.9)
              
Nine Months Ended September 30, 2017 (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, 2017$(0.6) $(6.9) $(17.6) $(25.1)
Six Months Ended June 30, 2018 (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, 2018$0.2
 $(29.4) $(14.2) $(43.4)
Other comprehensive income (loss) before reclassifications1.1
 (23.3) 0.2
 (22.0)(2.5) 49.1
 
 46.6
Amounts reclassified from accumulated other comprehensive loss
 2.1
 1.3
 3.4
Amounts reclassified from accumulated other comprehensive loss(2)
0.1
 (15.1) 0.4
 (14.6)
Net current-period other comprehensive income (loss)1.1
 (21.2) 1.5
 (18.6)(2.4) 34.0
 0.4
 32.0
Balance as of September 30, 2017$0.5
 $(28.1) $(16.1) $(43.7)
Reclassification due to adoption of ASU 2018-02 (Refer to Note 2)
 (6.3) (3.2) (9.5)
Balance as of June 30, 2018$(2.2) $(1.7) $(17.0) $(20.9)
Three Months Ended September 30, 2016 (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, 2016$2.0
 $(139.7) $(18.6) $(156.3)
Other comprehensive loss before reclassifications(0.3) (22.9) 
 (23.2)
Amounts reclassified from accumulated other comprehensive loss
 0.3
 0.2
 0.5
Net current-period other comprehensive income (loss)(0.3) (22.6) 0.2
 (22.7)
Balance as of September 30, 2016$1.7
 $(162.3) $(18.4) $(179.0)
        
Nine Months Ended September 30, 2016 (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, 2016$(0.5) $(15.5) $(19.1) $(35.1)
Other comprehensive income (loss) before reclassifications2.3
 (148.0) 
 (145.7)
Amounts reclassified from accumulated other comprehensive loss(0.1) 1.2
 0.7
 1.8
Net current-period other comprehensive income (loss)2.2
 (146.8) 0.7
 (143.9)
Balance as of September 30, 2016$1.7
 $(162.3) $(18.4) $(179.0)
Three Months Ended June 30, 2017 (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, 2017$(0.2) $(2.0) $(17.4) $(19.6)
Other comprehensive income (loss) before reclassifications0.8
 (18.2) 0.1
 (17.3)
Amounts reclassified from accumulated other comprehensive loss(0.2) 1.4
 0.1
 1.3
Net current-period other comprehensive income (loss)0.6
 (16.8) 0.2
 (16.0)
Balance as of June 30, 2017$0.4
 $(18.8) $(17.2) $(35.6)
        
Six Months Ended June 30, 2017 (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, 2017$(0.6) $(6.9) $(17.6) $(25.1)
Other comprehensive income (loss) before reclassifications1.0
 (13.6) 0.2
 (12.4)
Amounts reclassified from accumulated other comprehensive loss
 1.7
 0.2
 1.9
Net current-period other comprehensive income (loss)1.0
 (11.9) 0.4
 (10.5)
Balance as of June 30, 2017$0.4
 $(18.8) $(17.2) $(35.6)
(1)All amounts are net of tax. Amounts in parentheses indicate debits.
(2) Reclassification from accumulated other comprehensive loss for cash flow hedges relates primarily to the interest rate swap settlement gain. Refer to Note 9 "Risk Management Activities" for additional information.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

19.    Other, Net
 Three Months Ended
June 30,
 Six Months Ended
June 30,
(in millions)2018 2017 2018 2017
Interest Income$1.1
 $0.9
 $2.8
 $1.8
AFUDC Equity3.9
 3.7
 7.6
 6.2
Pension and other postretirement non-service cost6.1
 0.5
 12.3
 1.7
Interest rate swap settlement gain(1)

 
 21.2
 
Miscellaneous1.7
 (0.9) 0.2
 (3.2)
Total Other, net$12.8
 $4.2
 $44.1
 $6.5
(1)See Note 9, "Risk Management Activities," for additional information.

16.20.    Business Segment Information
At September 30, 2017, NiSource’sOur operations are divided into two primary reportable 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 Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

The following table provides information about our business segments. NiSource usesWe use operating income as itsour primary measurement for each of the reported segments and makesmake 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
September 30,
 Nine Months Ended
September 30,
Three Months Ended
June 30,
 Six Months Ended
June 30,
(in millions)2017 2016 2017 20162018 2017 2018 2017
Gross Revenues       
Operating Revenues       
Gas Distribution Operations              
Unaffiliated$431.1
 $392.4
 $2,139.9
 $1,935.6
$601.9
 $532.5
 $1,929.2
 $1,708.8
Intersegment3.5
 3.1
 10.6
 9.6
3.2
 3.6
 6.5
 7.1
Total434.6
 395.5
 2,150.5
 1,945.2
605.1
 536.1
 1,935.7
 1,715.9
Electric Operations              
Unaffiliated485.8
 465.4
 1,365.5
 1,249.2
404.9
 458.0
 828.2
 879.7
Intersegment0.2
 0.4
 0.6
 0.6
0.2
 0.2
 0.4
 0.4
Total486.0
 465.8
 1,366.1
 1,249.8
405.1
 458.2
 828.6
 880.1
Corporate and Other              
Unaffiliated0.1
 3.5
 0.9
 10.7
0.2
 0.2
 0.4
 0.8
Intersegment126.4
 100.5
 367.7
 298.1
116.1
 121.7
 230.2
 241.3
Total126.5
 104.0
 368.6
 308.8
116.3
 121.9
 230.6
 242.1
Eliminations(130.1) (104.0) (378.9) (308.3)(119.5) (125.5) (237.1) (248.8)
Consolidated Gross Revenues$917.0
 $861.3
 $3,506.3
 $3,195.5
Consolidated Operating Revenues$1,007.0
 $990.7
 $2,757.8
 $2,589.3
Operating Income (Loss)              
Gas Distribution Operations$(23.7) $4.3
 $362.1
 $392.7
$39.1
 $43.7
 $360.8
 $382.5
Electric Operations124.4
 112.8
 286.3
 251.5
82.4
 85.6
 165.5
 163.2
Corporate and Other(1.1) (3.4) (7.8) (10.9)(3.1) (5.3) (7.3) (6.3)
Consolidated Operating Income$99.6
 $113.7
 $640.6
 $633.3
$118.4
 $124.0
 $519.0
 $539.4

Table of Contents

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

IndexPage
Executive Summary
Summary of Consolidated Financial Results
Results and Discussion of Segment Operations
Gas Distribution Operations
Electric Operations
Off Balance Sheet Arrangements
Table of Contents

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


EXECUTIVE SUMMARY


This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) analyzes theour financial condition, results of operations and cash flows and those of NiSource and itsour subsidiaries. It also includes management’s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. See "Note regarding forward-looking statements" at the beginning of this report for a list of factors that may cause results to differ materially.
Management’s Discussion is designed to provide an understanding of NiSource'sour operations and financial performance and should be read in conjunction with NiSource’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017.
NiSource isWe are an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are fully regulated natural gas and electric utility companies serving customers in seven states. NiSource generatesWe generate substantially all of itsour operating income through these rate-regulated businesses which are summarized for financial reporting purposes into two primary reportable segments: Gas Distribution Operations and Electric Operations.
Refer to the “Business” section of NiSource’sour Annual Report on Form 10-K for the fiscal year ended December 31, 20162017 for further discussion of itsour regulated utility business segments.
NiSource’sOur goal is to develop strategies that benefit all stakeholders as it addresseswe address changing customer conservation patterns, developsdevelop more contemporary pricing structures and embarksembark on long-term investment programs. These strategies are intended to improve reliability and safety, enhance customer servicesservice and reduce emissions while generating sustainable returns. Additionally, NiSource continueswe continue to pursue regulatory and legislative initiatives that will allow residential customers not currently on NiSource'sour system to obtain gas service in a cost effective manner.
Summary of Consolidated Financial Results
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions, except per share amounts)2017 2016 2017 vs. 2016 2017 2016 2017 vs. 2016
Total Net Revenues$683.4
 $643.1
 $40.3
 $2,443.6
 $2,245.9
 $197.7
Total Operating Expenses583.8
 529.4
 54.4
 1,803.0
 1,612.6
 190.4
Operating Income99.6
 113.7
 (14.1) 640.6
 633.3
 7.3
Total Other Deductions, net(83.1) (81.5) (1.6) (362.5) (263.4) (99.1)
Income Taxes2.5
 8.5
 (6.0) 97.1
 130.6
 (33.5)
Income from Continuing Operations

14.0
 23.7
 (9.7) 181.0
 239.3
 (58.3)
Income (Loss) from Discontinued Operations - net of taxes
 3.5
 (3.5) (0.1) 3.4
 (3.5)
Net Income14.0
 27.2
 (13.2) 180.9
 242.7
 (61.8)
Basic Earnings Per Share from Continuing Operations$0.04
 $0.07
 $(0.03) $0.55
 $0.74
 $(0.19)
Basic Average Common Shares Outstanding331.1
 322.3
 8.8
 326.7
 321.4
 5.3
On a consolidated basis, NiSource reported income from continuingOur operations are affected by the cost of $14.0 million, or $0.04 per basic sharesales. Cost of sales for the three months ended September 30, 2017, comparedGas Distribution Operations segment is principally comprised of the cost of natural gas used while providing transportation and distribution services to $23.7 million, or $0.07 per basic sharecustomers. Cost of sales for the same periodElectric Operations segment is comprised of the cost of coal, related handling costs, natural gas purchased for the internal generation of electricity at NIPSCO and the cost of power purchased from third-party generators of electricity.
The majority of the cost of sales are tracked costs that are passed through directly to the customer, resulting in 2016.an equal and offsetting amount reflected in operating revenues. As a result, we believe net revenues, a non-GAAP financial measure defined as operating revenues less cost of sales (excluding depreciation and amortization), provides management and investors a useful measure to analyze profitability. The decrease in income from continuing operations during 2017 was due primarilypresentation of net revenues herein is intended to decreasedprovide supplemental information for investors regarding operating performance. Net revenues do not intend to represent operating income, the most comparable GAAP measure, as discussed below.
For the three months ended September 30, 2017, NiSourcean indicator of operating performance and are not necessarily comparable to similarly titled measures reported operating income of $99.6 million compared to $113.7 million for the same period in 2016. The lower operating income was primarily due to increased operating expenses, including higher employee and administrative expenses, increased outside service costs and higher depreciation expense. These increases in operating expenses were partially offset by increased net revenues from new rates from base-rate proceedings and infrastructure replacement programs and increased rates from incremental capital spend on electric transmission projects at NIPSCO. These favorable net revenue drivers were partially offset by the effects of year-over-year weather variations, which reduced revenue in 2017 compared to 2016.
For the nine months ended September 30, 2017, NiSource reported consolidated income from continuing operations of $181.0 million, or $0.55 per basic share compared to $239.3 million, or $0.74 per basic share for the same period in 2016. The decreaseother companies.
Table of Contents

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


For the three and six months ended June 30, 2018 and 2017, operating income and a reconciliation of net revenues to the most directly comparable GAAP measure, operating income, was as follows:
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Operating Income$118.4
 $124.0
 $(5.6) $519.0
 $539.4
 $(20.4)
 Three Months Ended June 30, Six Months Ended June 30,
(in millions, except per share amounts)2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Operating Revenues$1,007.0
 $990.7
 $16.3
 $2,757.8
 $2,589.3
 $168.5
Cost of Sales (excluding depreciation and amortization)313.3
 276.8
 36.5
 1,037.7
 829.1
 208.6
Total Net Revenues693.7
 713.9
 (20.2) $1,720.1
 $1,760.2
 $(40.1)
Other Operating Expenses575.3
 589.9
 (14.6) 1,201.1
 1,220.8
 (19.7)
Operating Income118.4
 124.0
 (5.6) 519.0
 539.4
 (20.4)
Total Other Deductions(88.4) (195.0) 106.6
 (150.2) (277.9) 127.7
Income Taxes5.5
 (26.6) 32.1
 68.2
 94.6
 (26.4)
Net Income (Loss)24.5
 (44.4) 68.9
 300.6
 166.9
 133.7
Preferred dividends(1.3) 
 (1.3) (1.3) 
 (1.3)
Net Income Available to Common Shareholders23.2
 (44.4) 67.6
 299.3
 166.9
 132.4
Basic Earnings (Loss) Per Share$0.07
 $(0.14) $0.21
 $0.86
 $0.51
 $0.35
Basic Average Common Shares Outstanding354.2
 325.1
 29.1
 346.2
 324.4
 21.8
On a consolidated basis, we reported net income available to common shareholders of $23.2 million, or $0.07 per basic share for the three months ended June 30, 2018, compared to a net loss available to common shareholders of $44.4 million, or $0.14 per basic share for the same period in 2017. The increase in net income from continuing operationsavailable to common shareholders during 20172018 was due primarily to a loss on early extinguishment of long-term debt in 2017 and decreased income taxes and operating expenses, partially offset by increased operating income,a decrease in net revenues as discussed below.
NiSource'sFor the three months ended June 30, 2018, we reported operating income for the nine months ended September 30, 2017 was $640.6of $118.4 million compared to $633.3$124.0 million for the same period in 2016.2017. The higherlower operating income was primarily due to decreased net revenues, attributable to a regulatory revenue reserve in 2018 resulting from the probable future refund of certain collections and new rates as a result of implementation of regulatory outcomes related to the lower income tax rate under the TCJA. These decreases were offset by increased net revenues due to weather variability between the three months ended June 30, 2018 compared to the same period in 2017, as well as from new rates from base-rate proceedings and infrastructure replacement programs, along with increased rates from incremental capital spend on electric transmission projects at NIPSCO,programs. Other operating expenses decreased due to lower outside service costs and employee and administrative costs, partially offset by unfavorable effectshigher depreciation expense.
On a consolidated basis, we reported net income available to common shareholders of weather.$299.3 million, or $0.86 per basic share for the six months ended June 30, 2018, compared to $166.9 million, or $0.51 per basic share for the same period in 2017. The increase in net revenuesincome available to common shareholders during 2018 was due primarily to a loss on early extinguishment of long-term debt in 2017 and decreased income taxes and operating expenses partially offset by a decrease in net revenues as discussed below.
For the six months ended June 30, 2018, we reported operating income of $519.0 million compared to $539.4 million for the same period in 2017. The lower operating income was primarily due to decreased net revenues, attributable to a regulatory revenue reserve in 2018 resulting from the probable future refund of certain collections and new rates as a result of implementation of regulatory outcomes related to the lower income tax rate under the TCJA. These decreases were offset by increased net revenues due to weather variability between the six months ended June 30, 2018 compared to the same period in 2017, as well as from new rates from infrastructure replacement programs. Other operating expenses decreased due to higher employee and administrative expenses, increasedlower outside service costs, higher materialand materials and supplies expenses and increased environmental costs. Additionally, depreciation expense and other taxes increased relative to 2016. These increases in operating expenses werecosts, partially offset by decreased amortizationhigher depreciation expense.
Table of Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


Other Income (Deductions), net
Other income (deductions), net reduced income by $83.1$88.4 million in the thirdsecond quarter of 20172018 compared to a reduction in income of $81.5 million in the prior year.
Other income (deductions), net reduced income by $362.5 million in the nine months ended September 30, 2017 compared to a reduction in income of $263.4$195.0 million in the prior year. This change is primarily due primarily to a loss on early extinguishment of long-term debt of $111.5 million which was incurred induring the second quarter of 2017. Refer to Note 12, "Long-Term Debt,"
Other income (deductions), net reduced income by $150.2 million in the Notessix months ended June 30, 2018 compared to Condensed Consolidated Financial Statements (unaudited) for informationa reduction in income of $277.9 million in the prior year. This change is primarily due to a loss on the early extinguishment of long-term debt.debt of $111.5 million during the second quarter of 2017.
Income Taxes
On December 22, 2017, the President signed into law the TCJA, which, among other things, enacted significant changes to the Internal Revenue Code of 1986, as amended, including a reduction in the maximum U.S. federal corporate income tax rate from 35% to 21%, and certain other provisions related specifically to the public utility industry, including the continuation of certain interest expense deductibility and excluding 100% expensing of capital investments. These changes were effective January 1, 2018.
The decrease in income tax expense from 2017 to 2018 is primarily attributable to the decrease in the federal corporate income tax rate and the effect of amortizing the regulatory liability associated with excess deferred income taxes.
Refer to “Liquidity and Capital Resources” below and Note 10,13, "Income Taxes," in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on income taxes.taxes and the change in the effective tax rate.
Capital Investment. InInvestment
For the ninesix months ended SeptemberJune 30, 2017, NiSource2018, we invested $1,216.4$832.5 million in capital expenditures across itsour gas and electric utilities. These expenditures were primarily aimed at furthering the safety and reliability of NiSource'sour gas distribution system, construction of new electric transmission assets and maintaining NiSource’sour existing electric generation fleet. NiSource continuesWe continue to execute on an estimated $30 billion in total projected long-term regulated utility infrastructure investments and expectsexpect to invest a total of approximately $1.6$1.7 to $1.7$1.8 billion in capital during 20172018 to continue to modernize and improve itsour system across all seven states.
Liquidity. NiSource believes that
Liquidity
As discussed in further detail below in "Liquidity and Capital Resources," the enactment of the TCJA has and will continue to have an unfavorable impact on our liquidity in 2018; however, through income generated from operating activities, amounts available under itsour short-term revolving credit facility, commercial paper program, accounts receivable securitization facilities, term loan borrowings, long-term debt agreements and NiSource’sour ability to access the capital markets, we believe there is adequate capital available to fund itsour operating activities and capital expenditures in 20172018 and beyond. At SeptemberJune 30, 20172018 and December 31, 2016, NiSource2017, we had $1,275.3$2,228.0 million and $683.7$998.9 million, respectively, of net liquidity available, consisting of cash and available capacity under credit facilities. Additionally, as of September 30, 2017, NiSource has approximately $183 million of available remaining capacity to issue shares of common stock under its ATM program.
These factors and other impacts to the financial results are discussed in more detail within the following discussions of “Results and Discussion of Segment Operations” and “Liquidity and Capital Resources.”
Regulatory Developments
During the quarter ended SeptemberJune 30, 2017, NiSource2018, we continued to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all seven states of itsour operating area. The discussion below summarizes significant regulatory developments that transpired during the thirdsecond quarter of 2017:2018:
Gas Distribution Operations
NIPSCO filed a gasis awaiting an order on the settlement with parties on its base rate case withpending before the IURC on September 27, 2017.IURC. The request, which seeks NIPSCO's first natural gas base rate increase in more than 25 years, supports continued investment in system upgrades, technology improvements and other measures to increase pipeline safety and system reliability. If the settlement is approved as filed, the fully implemented request wouldit will result in an annual revenue increase annual revenues by $143.5of $107.3 million, inclusive of amounts being recovered through various tracker programs.programs and reflecting the impact of the TCJA. An order is expected from the IURC in the second halfthird quarter of 2018.
Columbia of Ohio filed a settlement agreement in its pendingNIPSCO's application for a five year extensionnew seven-year gas infrastructure modernization program remains pending before the IURC. The filing represents approximately $1.25 billion of its IRP on August 18, 2017. This well-established pipeline replacementgas infrastructure investments through 2025. The program which is currently authorizedallows for modernization of underground natural gas infrastructure and recovery of associated costs through December 31, 2017,the TDSIC. An
Table of Contents

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


IURC order on the new seven-year plan is expected in the fourth quarter of 2018. On July 18, 2018, NIPSCO filed its latest revised TDSIC-8, covering approximately $54 million of investments made in the second half of 2017. This request remains pending before the IURC with an order expected the third quarter of 2018.
Columbia of Pennsylvania's base rate case remains pending before the Pennsylvania PUC. Filed on March 16, 2018, the request seeks approval for an annual revenue increase of $46.9 million to upgrade and replace the underground natural gas distribution pipelines and enhance pipeline safety. An order is expected in the fourth quarter of 2018 with new rates to be implemented in December 2018.
On April 25, 2018, the PUCO approved Columbia of Ohio’s annual IRP tracker adjustment. The order allowed recovery to begin on approximately $207 million of infrastructure investments made in 2017 with the May 2018 billing cycle. This well-established pipeline replacement program covers replacement of priority mainline pipe and targeted customer service lines. An order by the PUCO is expected by the end of 2017.
New rates went into effect on October 27, 2017 following approval of Columbia of Maryland'sMassachusetts' base rate case remains pending before the Massachusetts DPU. The request, filed April 13, 2018, seeks authorization to increase base rates to recover operating costs associated with federal and state regulatory mandates and capital costs associated with upgrading its gas distribution infrastructure. If approved as filed, the request would increase annual revenues by $24.1 million, net of infrastructure trackers and impacts of the TCJA. If approved, rates are expected to go into effect March 1, 2019.
Also at Columbia of Massachusetts, the Massachusetts DPU approved the 2018 GSEP on April 30, 2018. This approval authorizes recovery of incremental capital investments of $83.9 million. New rates were effective May 1, 2018.
On July 31, 2018, Columbia of Maryland filed a settlement byin its base rate case pending before the MPSC. TheMaryland PSC. If approved as filed, the settlement supports continued accelerated replacement of aging pipe as well as adoption of additional pipeline safety upgrades and increaseswould result in an annual revenue by $2.4increase of $3.7 million.
NIPSCO continues to execute on its seven-year, $850 million gas infrastructure modernization program to further improve system reliability and safety. New rates under NIPSCO's semi-annual tracker update took effect July 1, 2017. The latest update, covering $328.9 million of cumulative net capital spend through June 30, 2017, was filed on August 31, 2017. An A Maryland PSC order is expected in the fourth quarter of 2017.
On October 31, 2017, Columbia of Massachusetts filed its GSEP for the 2018 construction year. Columbia of Massachusetts is proposing to recover a cumulative revenue requirement of $26.8 million including a waiver to collect the $3.1 million revenue requirement in excess of the GSEP cap provision. If the waiver is not approved, the cumulative revenue requirement will be $23.7 million. An order is expected from the Massachusetts DPU in the second quarter of 2018, with new rates effective May 1, 2018.
Electric Operations
NIPSCO continues to execute on its seven-year electric infrastructure modernization program, which includes enhancements to its electric transmission and distribution system designed to further improve system safety and reliability. The IURC-approved program represents approximately $1.25 billion of electric infrastructure investments expected to be made through 2022. On JuneJanuary 30, 2017,2018, NIPSCO filed its latest tracker update request, covering $177.3$75.0 million in cumulative net capital expendituresincremental investments made from May 2017 through AprilNovember 2017. The filing was approved by the IURC on May 30, 2017.2018 with rates in effect with the first billing cycle of June 2018. NIPSCO filed its latest update request on July 31, 2018 seeking a semi-annual incremental rate decrease of $10.6 million, due primarily to the pass-back to customers of a $14.1 million base rate refund for the January through May 2018 period related to the TCJA. An order approving the request was received fromis expected in the IURC on October 31, 2017.fourth quarter of 2018.
NIPSCO's request, filedtwo major transmission projects were completed and placed into service in November 2016,June 2018. The 100-mile 345-kV and 65-mile 765-kV projects are expected to invest in environmental upgrades at its Michigan City Unit 12enhance region-wide system flexibility and R.M. Schahfer Units 14reliability, and 15 generating facilities remains pending before the IURC. On June 9, 2017, NIPSCO, along with the Indiana OUCC, the Citizens Action Coalition and a grouprepresent an investment of NIPSCO industrial customers, submitted a settlement agreement seeking, among other things, approval and cost recovery for the CCR projects and moving ELG-related investments to a later proceeding. An IURC order is expected before the end of 2017.approximately $600 million.
Refer to Note 5,8, “Regulatory Matters,” as well as to Note 14,17, "Other Commitments and Contingencies," in the Notes to Condensed Consolidated Financial Statements (unaudited) for a complete discussion of key regulatory matters.
RESULTS AND DISCUSSION OF SEGMENT OPERATIONS
Presentation of Segment Information
NiSource’sOur operations are divided into two primary reportable segments: Gas Distribution Operations and Electric Operations.

Table of Contents

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





For the three and six months ended June 30, 2018 and 2017, operating income and a reconciliation of net revenues to the most directly comparable GAAP measure, operating income, was as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2017 2016 2017 vs. 2016 2017 2016 2017 vs. 2016
Net Revenues           
Sales revenues$434.6
 $395.5
 $39.1
 $2,150.5
 $1,945.2
 $205.3
Less: Cost of gas sold (excluding depreciation and amortization)94.6
 76.1
 18.5
 662.0
 569.6
 92.4
Net Revenues340.0
 319.4
 20.6
 1,488.5
 1,375.6
 112.9
Operating Expenses    
      
Operation and maintenance257.9
 213.4
 44.5
 792.3
 668.3
 124.0
Depreciation and amortization67.9
 64.3
 3.6
 199.5
 188.8
 10.7
Other taxes37.9
 37.4
 0.5
 134.6
 125.8
 8.8
Total Operating Expenses363.7
 315.1
 48.6
 1,126.4
 982.9
 143.5
Operating Income (Loss)$(23.7) $4.3
 $(28.0) $362.1
 $392.7
 $(30.6)
Revenues    
      
Residential$264.2
 $247.7
 $16.5
 $1,404.4
 $1,254.9
 $149.5
Commercial80.9
 71.6
 9.3
 456.0
 402.7
 53.3
Industrial39.7
 36.4
 3.3
 156.5
 139.9
 16.6
Off-System30.4
 19.9
 10.5
 97.1
 59.4
 37.7
Other19.4
 19.9
 (0.5) 36.5
 88.3
 (51.8)
Total$434.6
 $395.5
 $39.1
 $2,150.5
 $1,945.2
 $205.3
Sales and Transportation (MMDth)    
      
Residential14.5
 13.7
 0.8
 157.2
 169.5
 (12.3)
Commercial17.3
 16.3
 1.0
 111.3
 114.7
 (3.4)
Industrial125.9
 130.4
 (4.5) 380.3
 393.7
 (13.4)
Off-System11.1
 7.4
 3.7
 33.8
 27.3
 6.5
Other0.3
 
 0.3
 0.2
 
 0.2
Total169.1
 167.8
 1.3
 682.8
 705.2
 (22.4)
Heating Degree Days75
 33
 42
 2,911
 3,297
 (386)
Normal Heating Degree Days85
 85
 
 3,576
 3,608
 (32)
% Warmer than Normal(12)% (61)% 

 (19)% (9)%  
Gas Distribution Customers           
Residential      3,114,223
 3,088,525
 25,698
Commercial      275,424
 274,276
 1,148
Industrial      6,163
 6,408
 (245)
Other      3
 
 3
Total      3,395,813
 3,369,209
 26,604
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Operating Income$39.1
 $43.7
 $(4.6) $360.8
 $382.5
 $(21.7)
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Net Revenues           
Operating Revenues$605.1
 $536.1
 $69.0
 $1,935.7
 $1,715.9
 $219.8
Less: Cost of gas sold (excluding depreciation and amortization)197.6
 131.2
 66.4
 789.4
 567.4
 222.0
Net Revenues407.5
 404.9
 2.6
 1,146.3
 1,148.5
 (2.2)
Operating Expenses    
      
Operation and maintenance248.5
 253.2
 (4.7) 535.7
 537.7
 (2.0)
Depreciation and amortization71.8
 66.3
 5.5
 142.5
 131.6
 10.9
Other taxes48.1
 41.7
 6.4
 107.3
 96.7
 10.6
Total Operating Expenses368.4
 361.2
 7.2
 785.5
 766.0
 19.5
Operating Income$39.1
 $43.7
 $(4.6) $360.8
 $382.5
 $(21.7)
Revenues    
      
Residential$387.6
 $338.4
 $49.2
 $1,280.6
 $1,140.2
 $140.4
Commercial126.9
 105.3
 21.6
 435.8
 375.1
 60.7
Industrial47.8
 45.3
 2.5
 122.5
 116.8
 5.7
Off-System20.9
 35.8
 (14.9) 43.2
 66.7
 (23.5)
Other21.9
 11.3
 10.6
 53.6
 17.1
 36.5
Total$605.1
 $536.1
 $69.0
 $1,935.7
 $1,715.9
 $219.8
Sales and Transportation (MMDth)    
      
Residential39.0
 29.2
 9.8
 174.1
 142.7
 31.4
Commercial30.0
 24.6
 5.4
 112.2
 94.0
 18.2
Industrial140.1
 121.6
 18.5
 285.6
 254.4
 31.2
Off-System6.8
 11.9
 (5.1) 14.4
 22.7
 (8.3)
Other0.2
 
 0.2
 0.3
 (0.1) 0.4
Total216.1
 187.3
 28.8
 586.6
 513.7
 72.9
Heating Degree Days624
 457
 167
 3,447
 2,836
 611
Normal Heating Degree Days599
 599
 
 3,491
 3,491
 
% (Warmer) Colder than Normal4% (24)% 

 (1)% (19)%  
Gas Distribution Customers           
Residential      3,149,948
 3,122,349
 27,599
Commercial      278,251
 277,187
 1,064
Industrial      6,193
 6,203
 (10)
Other      3
 
 3
Total      3,434,395
 3,405,739
 28,656

Net revenues are calculated as gross revenues less the associated cost
Table of sales (excluding depreciation and amortization). Cost of sales at the Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations segment is principally comprised of the cost of natural gas used while providing transportation and distribution services to its customers. The majority of the cost of sales are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in gross revenues.





Comparability of line item operating results may also be impacted by regulatory, tax and depreciation trackers (other than those for cost of sales) that allow for the recovery in rates of certain costs. Therefore, increases in these tracked operating expenses are generally offset by increases in net revenues and have essentially no impact on net income.
Three months ended June 30, 2018 vs. June 30, 2017 Operating Income
For the three months ended June 30, 2018, Gas Distribution Operations reported operating income of $39.1 million, a decrease of $4.6 million from continuing operations.the comparable 2017 period.
Net revenues for the three months ended June 30, 2018 were $407.5 million, an increase of $2.6 million from the same period in 2017. The change in net revenues was primarily driven by:
The effects of colder weather in 2018 of $10.3 million.
New rates from infrastructure replacement programs of $8.5 million.
The effects of increased customer usage and growth of $5.3 million.
Higher regulatory, tax and depreciation trackers, which are offset in operating expense, of $2.9 million.
Partially offset by:
A regulatory revenue reserve in 2018 resulting from the probable future refund of certain collections from customers as a result of the lower income tax rate from the TCJA of $18.8 million.
Decreased rates from implementation of regulatory outcomes related to the TCJA of $6.4 million.
Operating expenses were $7.2 million higher for the three months ended June 30, 2018 compared to the same period in 2017. This change was primarily driven by:
Increased depreciation of $5.1 million due to higher capital expenditures placed in service.
Higher regulatory, tax and depreciation trackers, which are offset in net revenues, of $2.9 million.
Increased property taxes of $2.3 million.
Partially offset by:
Decreased employee and administrative expenses of $3.7 million.
Six months ended June 30, 2018 vs. June 30, 2017 Operating Income
For the six months ended June 30, 2018, Gas Distribution Operations reported operating income of $360.8 million, a decrease of $21.7 million from the comparable 2017 period.
Net revenues for the six months ended June 30, 2018 were $1,146.3 million, a decrease of $2.2 million from the same period in 2017. The change in net revenues was primarily driven by:
A regulatory revenue reserve in 2018 resulting from the probable future refund of certain collections from customers as a result of the lower income tax rate from the TCJA of $66.5 million.
Decreased rates from implementation of regulatory outcomes related to the TCJA of $6.4 million.
Partially offset by:
The effects of colder weather in 2018 of $34.9 million.
New rates from infrastructure replacement programs of $20.5 million.
Increased customer usage and growth of $11.7 million.
Operating expenses were $19.5 million higher for the six months ended June 30, 2018 compared to the same period in 2017. This change was primarily driven by:

Increased depreciation of $10.2 million due to higher capital expenditures placed in service.
Higher employee and administrative expenses of $3.8 million.
Increased property taxes of $2.6 million.
Table of Contents

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





Three months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the third quarter of 2017, Gas Distribution Operations reported an operating loss of $23.7 million, versus operating income of $4.3 million in the comparable 2016 period.
Net revenues for third quarter of 2017 were $340.0 million, an increase of $20.6 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings and infrastructure replacement programs of $16.0 million.
Higher revenues from increased industrial, commercial and residential customer usage of $2.9 million.
The effects of increased residential customer growth of $1.3 million.
Operating expenses were $48.6 million higher for the third quarter of 2017 compared to the same period in 2016. This change was primarily driven by:
Increased employee and administrative expenses of $25.4 million which includes the impact of a pension settlement charge recorded in 2017 along with a charge related to Columbia of Pennsylvania's portion of a 2017 pension contribution which, per regulatory order, is expensed on a cash basis.
Higher outside service costs of $14.4 million due to increased line locating expenses and IT service provider transition costs.
Increased depreciation of $3.6 million due to higher capital expenditures placed in service.

Nine months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the nine months ended September 30, 2017, Gas Distribution Operations reported operating income of $362.1 million, a decrease of $30.6 million from the comparable 2016 period.
Net revenues for the nine months ended September 30, 2017 were $1,488.5 million, an increase of $112.9 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings and infrastructure replacement programs of $97.1 million.
Higher regulatory, tax and depreciation trackers, which are offset in expense, of $24.7 million.
The effects of increased residential customer growth of $5.7 million.
Partially offset by:
The effects of warmer weather of $14.6 million.
Operating expenses were $143.5 million higher for the nine months ended September 30, 2017 compared to the same period in 2016. This change was primarily driven by:
Increased employee and administrative expenses of $51.3 million which includes the impact of the aforementioned pension settlement charge and pension contribution.
Higher outside service costs of $32.9 million due to IT service provider transition costs and increased line locating expenses.
Higher regulatory, tax and depreciation trackers, which are offset in net revenues, of $24.7 million.
Increased depreciation of $9.7 million due to higher capital expenditures placed in service.
Increased property taxes of $6.9 million due to higher capital expenditures placed in service and an accrual adjustment recorded in 2016.
Higher environmental costs of $4.9 million.

Weather
In general, NiSource calculateswe calculate the weather-related revenue variance based on changing customer demand driven by weather variance from normal heating degree days. NiSource'sOur 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 theour aggregated NiSource composite heating degree day comparison.
Table of Contents

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





Weather in the Gas Distribution Operations service territories for the thirdsecond quarter of 20172018 was about 12% warmer4% colder than normal and about 127%37% colder than 2016,2017, leading to increased net revenues of $0.2$10.3 million for the quarter ended SeptemberJune 30, 20172018 compared to 2016.the same period in 2017.
Weather in the Gas Distribution Operations service territories for the ninesix months ended SeptemberJune 30, 20172018 was about 19%1% warmer than normal and about 12% warmer22% colder than 2016, resulting in decreased2017, leading to increased net revenues of $14.6$34.9 million for the ninesix months ended SeptemberJune 30, 20172018 compared to 2016.the same period in 2017.
Throughput
Total volumes sold and transported for the thirdsecond quarter of 20172018 were 169.1216.1 MMDth, compared to 167.8187.3 MMDth for 2016.the same period in 2017. This 15% increase is primarily attributable to the effects of colder weather and increased industrial usage due to energy production from electric generating customers in 2018.
Total volumes sold and transported for the ninesix months ended SeptemberJune 30, 20172018 were 682.8586.6 MMDth, compared to 705.2513.7 MMDth for 2016.the same period in 2017. This 3% decrease14% increase is primarily attributable to the effects of warmercolder weather and increased industrial usage due to energy production from electric generating customers in 2017.2018.
Economic Conditions
All NiSourceof our Gas Distribution Operations companies have state-approved recovery mechanisms that provide a means for full recovery of prudently incurred gas costs. Gas costs are treated as pass-through costs and have no impact on the net revenues recorded in the period. The gas costs included in revenues are matched with the gas cost expense recorded in the period and the difference is recorded on the Condensed Consolidated Balance Sheets (unaudited) as under-recovered or over-recovered gas cost to be included in future customer billings.
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 adjustments to other gross revenues for the quarter ended September 30, 2017 and 2016 were a revenue decrease of $0.3 million and a revenue increase of $4.4 million, respectively. The adjustments to other gross revenues for the nine months ended September 30, 2017 and 2016 were a revenue decrease of $29.3 million and a revenue increase of $15.2 million, respectively.
Certain Gas Distribution Operations companies continue to offer choice opportunities, where customers can choose to purchase gas from a third-party supplier, through regulatory initiatives in their respective jurisdictions. These programs serve to further reduce NiSource'sour exposure to gas prices.

Table of Contents

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

For the three and six months ended June 30, 2018 and 2017, operating income and a reconciliation of net revenues to the most directly comparable GAAP measure, operating income, was as follows:
 Three Months Ended September 30, Nine Months Ended September 30,
(in millions)2017 2016 2017 vs. 2016 2017 2016 2017 vs. 2016
Net Revenues           
Sales revenues$486.0
 $465.8
 $20.2
 $1,366.1
 $1,249.8
 $116.3
Less: Cost of sales (excluding depreciation and amortization)139.0
 142.0
 (3.0) 400.9
 380.0
 20.9
Net Revenues347.0
 323.8
 23.2
 965.2
 869.8
 95.4
Operating Expenses    

      
Operation and maintenance136.7
 127.6
 9.1
 422.1
 372.1
 50.0
Depreciation and amortization69.8
 66.9
 2.9
 212.0
 202.8
 9.2
Other taxes16.1
 16.5
 (0.4) 44.8
 43.4
 1.4
Total Operating Expenses222.6
 211.0
 11.6
 678.9
 618.3
 60.6
Operating Income$124.4
 $112.8
 $11.6
 $286.3
 $251.5
 $34.8
Revenues    

      
Residential$138.0
 $145.1
 $(7.1) $363.7
 $346.1
 $17.6
Commercial134.6
 127.1
 7.5
 379.0
 336.2
 42.8
Industrial171.5
 155.8
 15.7
 531.4
 469.4
 62.0
Wholesale3.7
 3.7
 
 9.0
 8.8
 0.2
Other38.2
 34.1
 4.1
 83.0
 89.3
 (6.3)
Total$486.0
 $465.8
 $20.2
 $1,366.1
 $1,249.8
 $116.3
Sales (Gigawatt Hours)    

      
Residential1,002.3
 1,147.5
 (145.2) 2,523.9
 2,744.9
 (221.0)
Commercial1,042.7
 1,102.8
 (60.1) 2,868.1
 2,954.8
 (86.7)
Industrial2,390.9
 2,356.3
 34.6
 7,192.7
 7,072.2
 120.5
Wholesale6.1
 2.3
 3.8
 28.0
 3.6
 24.4
Other31.2
 39.7
 (8.5) 96.3
 104.8
 (8.5)
Total4,473.2
 4,648.6
 (175.4) 12,709.0
 12,880.3
 (171.3)
Cooling Degree Days540
 681
 (141) 765
 966
 (201)
Normal Cooling Degree Days570
 570
 

 745
 799
 

% Warmer (Colder) than Normal(5)% 19% 

 3% 21% 

Electric Customers           
Residential      407,998
 405,895
 2,103
Commercial      55,912
 55,418
 494
Industrial      2,311
 2,341
 (30)
Wholesale      740
 742
 (2)
Other      2
 2
 
Total      466,963
 464,398
 2,565
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Operating Income$82.4
 $85.6
 $(3.2) $165.5
 $163.2
 $2.3
 Three Months Ended June 30, Six Months Ended June 30,
(in millions)2018 2017 2018 vs. 2017 2018 2017 2018 vs. 2017
Net Revenues           
Operating revenues$405.1
 $458.2
 $(53.1) $828.6
 $880.1
 $(51.5)
Less: Cost of sales (excluding depreciation and amortization)115.6
 145.7
 (30.1) 248.3
 261.9
 (13.6)
Net Revenues289.5
 312.5
 (23.0) 580.3
 618.2
 (37.9)
Operating Expenses    

      
Operation and maintenance128.3
 145.3
 (17.0) 254.5
 284.1
 (29.6)
Depreciation and amortization64.5
 70.2
 (5.7) 130.0
 142.2
 (12.2)
Other taxes14.3
 11.4
 2.9
 30.3
 28.7
 1.6
Total Operating Expenses207.1
 226.9
 (19.8) 414.8
 455.0
 (40.2)
Operating Income$82.4
 $85.6
 $(3.2) $165.5
 $163.2
 $2.3
Revenues    

      
Residential$113.1
 $110.0
 $3.1
 $227.6
 $225.7
 $1.9
Commercial116.6
 123.7
 (7.1) 233.5
 244.4
 (10.9)
Industrial152.2
 180.8
 (28.6) 314.9
 359.9
 (45.0)
Wholesale3.9
 2.5
 1.4
 8.6
 5.3
 3.3
Other19.3
 41.2
 (21.9) 44.0
 44.8
 (0.8)
Total$405.1
 $458.2
 $(53.1) $828.6
 $880.1
 $(51.5)
Sales (Gigawatt Hours)    

      
Residential844.7
 769.0
 75.7
 1,633.1
 1,521.6
 111.5
Commercial943.7
 930.4
 13.3
 1,849.4
 1,825.4
 24.0
Industrial2,228.7
 2,438.5
 (209.8) 4,562.5
 4,801.8
 (239.3)
Wholesale41.5
 1.7
 39.8
 92.3
 21.9
 70.4
Other27.3
 31.7
 (4.4) 60.5
 65.1
 (4.6)
Total4,085.9
 4,171.3
 (85.4) 8,197.8
 8,235.8
 (38.0)
Cooling Degree Days392
 264
 128
 392
 264
 128
Normal Cooling Degree Days229
 229
 

 229
 229
 

% Warmer than Normal71% 15% 

 71% 15% 

Electric Customers           
Residential      410,064
 407,406
 2,658
Commercial      56,321
 55,804
 517
Industrial      2,295
 2,309
 (14)
Wholesale      738
 743
 (5)
Other      2
 2
 
Total      469,420
 466,264
 3,156

Net revenues are calculated as gross revenues less the associated cost
Table of sales (excluding depreciation and amortization). Cost of sales at the Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations segment is principally comprised of the cost of coal, related handling costs, natural gas purchased for the internal generation of electricity at NIPSCO and the cost of power purchased from third-party generators of electricity. The majority of the cost of sales are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in gross revenues.

Comparability of line item operating results may also be impacted by regulatory and depreciation trackers (other than those for cost of sales) that allow for the recovery in rates of certain costs. Therefore, increases in these tracked operating expenses are offset by increases in net revenues and have essentially no impact on net income.
Three months ended June 30, 2018 vs. June 30, 2017 Operating Income
For the three months ended June 30, 2018, Electric Operations reported operating income of $82.4 million, a decrease of $3.2 million from continuing operations.the comparable 2017 period.
Net revenues for the three months ended June 30, 2018 were $289.5 million, a decrease of $23.0 million from the same period in 2017. The change in net revenues was primarily driven by:
Lower regulatory and depreciation trackers, which are offset in operating expense, of $11.0 million.
Decreased rates from implementation of regulatory outcomes related to the TCJA of $8.6 million.
Lower industrial and commercial usage of $6.8 million.
A regulatory revenue reserve in 2018 resulting from the probable future refund of certain collections from customers as a result of the lower income tax rate from the TCJA of $3.8 million.
Partially offset by:
The effects of warmer weather of $6.5 million.
Increased rates from infrastructure replacement programs of $6.0 million.

Operating expenses were $19.8 million lower for the three months ended June 30, 2018 compared to the same period in 2017. This change was primarily driven by:
Decreased outside service costs of $11.4 million on lower generation-related maintenance activities.
Lower regulatory and depreciation trackers, which are offset in net revenues, of $11.0 million.
Six months ended June 30, 2018 vs. June 30, 2017 Operating Income
For the six months ended June 30, 2018, Electric Operations reported operating income of $165.5 million, an increase of $2.3 million from the comparable 2017 period.
Net revenues for the six months ended June 30, 2018 were $580.3 million, a decrease of $37.9 million from the same period in 2017. The change in net revenues was primarily driven by:
Lower regulatory and depreciation trackers, which are offset in operating expense, of $24.2 million.
A regulatory revenue reserve in 2018 resulting from the probable future refund of certain collections from customers as a result of the lower income tax rate from the TCJA of $16.3 million.
Decreased rates from implementation of regulatory outcomes related to the TCJA of $8.6 million.
Increased fuel handling costs of $5.9 million.
Decreased industrial usage of $5.5 million.
Partially offset by:
Increased rates from infrastructure replacement programs of $11.4 million.
The effects of warmer weather of $9.5 million.
Operating expenses were $40.2 million lower for the six months ended June 30, 2018 compared to the same period in 2017. This change was primarily driven by:
Lower regulatory and depreciation trackers, which are offset in net revenues, of $24.2 million.
Decreased outside service costs of $15.7 million and lower materials and supplies costs of $5.0 million primarily related to lower generation-related maintenance activities.

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

Three months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the third quarter of 2017, Electric Operations reported operating income of $124.4 million, an increase of $11.6 million from the comparable 2016 period.
Net revenues for the third quarter of 2017 were $347.0 million, an increase of $23.2 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings of $22.4 million.
Increased rates from incremental capital spend on electric transmission projects of $7.4 million.
Higher regulatory and depreciation trackers, which are offset in expense, of $5.4 million.
Partially offset by:
The effectsIncreased depreciation of cooler weather of $10.8 million.
Operating expenses were $11.6$5.3 million higher for the third quarter of 2017 compared to the same period in 2016. This change was primarily driven by:
Higher regulatory and depreciation trackers, which are offset in net revenues, of $5.4 million.
Increased employee and administrative expenses of $4.0 million.
Nine months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the nine months ended September 30, 2017, Electric Operations reported operating income of $286.3 million, an increase of $34.8 million from the comparable 2016 period.
Net revenues for the nine months ended September 30, 2017 were $965.2 million, an increase of $95.4 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings of $64.5 million.
Higher regulatory and depreciation trackers, which are offset in expense, of $25.8 million.
Increased rates from incremental capital spend on electric transmission projects of $18.2 million.
Partially offset by:
The effects of cooler weather of $17.3 million.
Operating expenses were $60.6 million higher for the nine months ended September 30, 2017 compared to the same period in 2016. This change was primarily driven by:
Higher regulatory and depreciation trackers, which are offset in net revenues, of $25.8 million.
Increased outside service costs of $13.9 million, primarily due to vegetation management activities and generation-related maintenance.
Higher employee and administrative expenses of $8.3 million.
Increased materials and supplies expenses of $8.0 million driven by generation-related maintenance and increased chemical usage.
Higher gross receipts taxes of $5.0 million driven by higher revenues.
Partially offset by:
Decreased amortization expense of $10.8 million.capital expenditures placed in service.
Weather
In general, NiSource calculateswe calculate the weather-related revenue variance based on changing customer demand driven by weather variance from normal heating or cooling degree days. NiSource'sOur composite heating or cooling degree days reported do not directly correlate to the weather-related dollar impact on the results of Electric Operations. Heating or cooling degree days experienced during different times of the year may have more or less impact on volume and dollars depending on when they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in theour aggregated NiSource composite heating or cooling degree day comparison.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations

Weather in the Electric Operations’ territories for the thirdsecond quarter of 20172018 was about 5% cooler71% warmer than normal and about 24% cooler48% warmer than 2016,in 2017, resulting in decreasedincreased net revenues of $10.8$6.5 million for the quarter ended SeptemberJune 30, 20172018 compared to 2016.the same period in 2017.
Weather in the Electric Operations’Operations' territories for the ninesix months ended SeptemberJune 30, 20172018 was about 3%71% warmer than normal and about 18% cooler48% warmer than 2016,2017, resulting in decreasedincreased net revenues of $17.3$9.5 million for the ninesix months ended SeptemberJune 30, 20172018 compared to 2016.2017.
Sales
Electric Operations sales for the thirdsecond quarter of 20172018 were 4,473.24,085.9 gwh, a decrease of 175.485.4 gwh compared to the same period in 2016. The 4% decrease is primarily attributable to decreased residential sales from the cooler weather in the current year.2017.
Electric Operations sales for the ninesix months ended SeptemberJune 30, 20172018 were 12,709.08,197.8 gwh, a decrease of 171.338.0 gwh compared to the same period in 2016. The 1% decrease2017.
BP Products North America. On March 29, 2018, WCE, which is currently owned by BP p.l.c ("BP") and BP Products North America, which operates the BP Refinery, filed a petition at the IURC asking that the combined operations of WCE and BP be treated as a single premise, and the WCE generation be dedicated primarily attributed to decreased residential salesBP Refinery operations beginning in May 2019 as WCE has self-certified as a qualifying facility at FERC. BP Refinery plans to continue to purchase electric service from cooler weatherNIPSCO at a reduced demand level beginning in May 2019. Refer to Note 8, "Regulatory Matters," in the current year.Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.
Economic Conditions
NIPSCO has a state-approved recovery mechanism that provides a means for full recovery of prudently incurred fuel costs. Fuel costs are treated as pass-through costs and have no impact on the net revenues recorded in the period. The fuel costs included in revenues are matched with the fuel cost expense recorded in the period and the difference is recorded on the Condensed Consolidated Balance Sheets (unaudited) as under-recovered or over-recovered fuel cost to be included in future customer billings.
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 adjustments to other gross revenues for the quarter ended September 30, 2017 and 2016 were a revenue increase of $7.8 million and $16.1 million, respectively. The adjustments to other gross revenues for the nine months ended September 30, 2017 and 2016 were a revenue increase of $6.9 million and $34.5 million, respectively.
Electric Supply
NIPSCO 2016 Integrated Resource Plan. Environmental, regulatory and economic factors, including low natural gas prices and aging coal-fired units, have ledOn February 1, 2018, as previously approved by the MISO, NIPSCO to consider modifying its current electric generation supply mix to include less coal-fired generation. Due to enacted CCR and ELG (subsequently postponed) legislation, NIPSCO would expect to incur over $1 billion in operating, maintenance, environmental and other costs over the next seven years if the current fleet of coal-fired generating units remain operational.
On November 1, 2016, NIPSCO submitted its 2016 Integrated Resource Plan with the IURC. The plan evaluated demand-side and supply-side resource alternatives to reliably and cost effectively meet NIPSCO customers' future energy requirements over the ensuing 20 years. The 2016 Integrated Resource Plan indicates that the most viable option for customers and NIPSCO involves the retirementcommenced a four-month outage of Bailly Generating Station (UnitsUnit 8 in order to begin work on converting the unit to a synchronous condenser (a piece of equipment designed to maintain voltage to ensure continued reliability on the transmission system). On May 31, 2018, Units 7 and 8) as soon as mid-2018 and two units (Units 17 and 18) at the R.M. Schahfer Generating Station by the end of 2023. It is projected over the long term that the cost to customers to retire these units at these dates will be lower than maintaining and upgrading them for continuing generation.
NiSource and NIPSCO committed to the retirement of the Bailly Generating Station units in connection with the filing of the 2016 Integrated Resource Plan, pending approval by the MISO. In the fourth quarter of 2016, the MISO approved NIPSCO's plan to retire the Bailly Generating Station units by May 31, 2018.
In connection with the MISO's approval of NIPSCO's planned retirement of the Bailly Generating Station units, NiSource recorded $22.1 million of plant retirement-related charges in the fourth quarter of 2016. These charges8 were comprised of contract termination charges related to NIPSCO's capital lease with Pure Air, voluntary employee severance benefits and write downs of certain materials and supplies inventory balances.retired from service. Refer to Note 14-D,17-D, "Other Matters," in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information.

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


Liquidity and Capital Resources
Operating Activities
Net cash from operating activities from continuing operations for the ninesix months ended SeptemberJune 30, 20172018 was $529.5$809.5 million, a decreasean increase of $3.3$158.1 million compared to the ninesix months ended SeptemberJune 30, 2016.2017. This decreaseincrease was driven by pension plan contributions in 2017 partially offset by a combination of changes in weather, gas prices, and the related approved rates for recovery, which significantly impacted regulatory assets and regulatory liabilities betweenas discussed further below. Additionally, cash from operations increased as a result of lower operations and maintenance spend in the two periods.current year, higher sales due to colder weather during the winter heating season and increased rates from infrastructure replacement programs.
Regulatory Assets and Liabilities. DuringFor the ninesix months ended SeptemberJune 30, 2016, over-collected2018 the source of cash related to regulatory assets and liabilities is primarily attributable to the over-collection of gas costs which resulted from 2015 were returned to customers resulting in a use of cash. In 2017, less cash was required to be returned to customers because the balance of over-collecteddecreasing gas costs from 2016 was smaller than in 2015.
Pension and Other Postretirement Plan Funding. For the nine months ended September 30, 2017, NiSource contributed $281.6 million to its pension plans (including a $277 million discretionary contribution madeprices during the third quarter of 2017) and $21.8 million to its other postretirement benefit plans. Given the current funded status of the pension plans (and barring unforeseen market volatility that would negatively impact the valuation of its plan assets), NiSource does not believe material contributions to its pension plans will be required for the foreseeable future.period.
NiSource will continue to contribute to its other postretirement plans. In total, NiSource expects to contribute $25.3 million to these plans in 2017.
For the nine months ended September 30, 2016, NiSource contributed $2.7 million to its pension plans and $18.6 million to its other postretirement benefit plans.
Income Taxes. Rates for our regulated customers include provisions for the collection of U.S. federal income taxes. The reduction in the U.S. federal corporate income tax rate as a result of the TCJA has, and is expected to continue to lead to a decrease in the amount billed to customers through rates, ultimately resulting in lower cash collections from operating activities. As discussed in further detail in Note 8, "Regulatory Matters," our regulated subsidiaries are engaged with the relevant state utility commissions to address the impacts of the TCJA on future customer rates. Through the first six months of 2018, billings to customers decreased approximately $15 million compared to the same period in 2017 as a result of adjustments to certain rates in our Kentucky, Ohio, Maryland and Indiana jurisdictions. Additionally, during the first half of 2018, we recorded additional TCJA-related regulatory liabilities of $65.0 million related to 2018 collections from customers, which we believe are probable of being refunded back to customers once new customer rates are approved by our regulators.
In addition, we will be required to pass back to customers “excess deferred taxes,” which represent amounts collected from customers in the past to cover deferred tax liabilities that, as a result of the passage of the TCJA, are now expected to be less than the originally billed amounts. Approximately $1.5 billion of excess deferred taxes related to implementation of the TCJA were recorded within "Regulatory liabilities (noncurrent)" on the Condensed Consolidated Balance Sheets (unaudited) as of December 31, 2017. The majority of these balances relate to temporary book-to-tax differences on utility property protected by IRS normalization rules. Once modified rates are approved by our regulators, we expect this portion of the balances will be passed back to customers over the remaining average useful life of the associated property. The pass back period for the remainder of the balance will be determined by our state utility commissions in future proceedings. Our estimate of the amount and pass-back period of excess deferred taxes is subject to change pending final review by the utility commissions of the states in which we operate.
As of SeptemberJune 30, 2017, NiSource has2018, we had a recorded deferred tax asset of $818.1$493.5 million related to a Federal NOL carryforward. As a result of being in an NOL position, NiSource waswe were not required to make any cash payments for Federal income tax purposes during the ninesix months ended SeptemberJune 30, 20172018 or 2016.2017. This NOL carryforward expires in 2030; however, NiSource expectswe expect to fully utilize the carryforward benefit prior to its expiration.
Investing Activities
Net cash used for investing activities for the ninesix months ended SeptemberJune 30, 20172018 was $1,306.1$871.1 million, an increase of $137.9$85.2 million compared to the ninesix months ended SeptemberJune 30, 2016.2017. This increase was mostly attributable to increased capital expenditures in 2017.2018.
NiSource’sOur capital expenditures for the ninesix months ended SeptemberJune 30, 20172018 were $1,216.4$832.5 million compared to $1,083.4$732.2 million for the comparable period in 2016.2017. The increase in capital spend was driven by favorable weather conditions in 2017 which allowed for extended periods of construction as well as an increase in planned capital expenditures in the current year. NiSource projectsyear and the timing of payments through June 2018 compared to June 2017. We project total 20172018 capital expenditures to be approximately $1.6$1.7 to $1.7$1.8 billion.
Financing Activities
Common Stock and Preferred Stock. Refer to Note 4, “Common Stock,5, “Equity,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on common and preferred stock activity, including cash received for the issuance of common stock under NiSource's ATM program.activity.
Long-term Debt. Refer to Note 12,15, “Long-Term Debt,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on long-term debt activity, including cash paid for debt extinguishment premiums and other issuance costs.activity.
Short-term Debt. Refer to Note 13,16, “Short-Term Borrowings,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on short-term debt activity.
Net Available Liquidity. As of SeptemberJune 30, 2017,2018, an aggregate of $1,275.3$2,228.0 million of net liquidity was available, including cash and credit available under the revolving credit facility and accounts receivable securitization programs.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


The following table displays NiSource'sour liquidity position as of SeptemberJune 30, 20172018 and December 31, 2016:2017:
(in millions)September 30, 2017December 31, 2016June 30, 2018December 31, 2017
Current Liquidity  
Revolving Credit Facility$1,850.0
$1,850.0
$1,850.0
$1,850.0
Accounts Receivable Program(1)
262.2
310.0
320.0
336.7
Less:  
Drawn on Revolving Credit Facility

Commercial Paper581.0
1,178.0

869.0
Accounts Receivable Program Utilized262.2
310.0

336.7
Letters of Credit Outstanding Under Credit Facility13.0
14.7
10.2
11.1
Add:  
Cash and Cash Equivalents19.3
26.4
68.2
29.0
Net Available Liquidity$1,275.3
$683.7
$2,228.0
$998.9
(1)Represents the lesser of the seasonal limit or maximum borrowings supportable by the underlying receivables.
Debt Covenants. NiSource isWe are subject to financial covenants under itsour revolving credit facility and term loan agreement, which require NiSourceus to maintain a debt to capitalization ratio that does not exceed 70%. A similar covenant in a 2005 private placement note purchase agreement requires NiSourceus to maintain a debt to capitalization ratio that does not exceed 75%. As of SeptemberJune 30, 2017,2018, the ratio was 66.5%60.3%.
Sale of Trade Accounts Receivables. Refer to Note 8,11, “Transfers of Financial Assets,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on the sale of trade accounts receivable.
Credit Ratings. The credit rating agencies periodically review the Company’sour ratings, taking into account factors such as itsour capital structure and earnings profile. The following table includes NiSource'sour and certain of our subsidiaries' credit ratings and ratings outlook as of SeptemberJune 30, 2017. Aside2018. In June 2018, Fitch upgraded the NiSource Commercial Paper rating to 'F2' from those disclosed below, there'F3'. There were no other changes to the below credit ratings or outlooks since December 31, 2016.2017.
 S&PMoody'sFitch
 RatingOutlookRatingOutlookRatingOutlook
NiSource(1)
BBB+StableBaa2StableBBBStable
NiSource FinanceBBB+StableBaa2StableBBBStable
Capital MarketsBBB+StableBaa2StableBBBStable
NIPSCOBBB+StableBaa1StableBBBStable
Columbia of MassachusettsBBB+StableBaa2StableNot ratedNot rated
Commercial PaperA-2StableP-2StableF3F2Stable
(1)In April 2017, Moody's assigned a Baa2 senior unsecured rating to NiSource, with a stable outlook.

Certain NiSourceof our subsidiaries have agreements that contain “ratings triggers” that require increased collateral if our credit rating or the credit ratings of NiSource or certain of itsour subsidiaries are below investment grade. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. As of SeptemberJune 30, 2017,2018, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $42.9$52.9 million. In addition to agreements with ratings triggers, there are other agreements that contain “adequate assurance” or “material adverse change” provisions that could necessitate additional credit support such as letters of credit and cash collateral to transact business.
Equity. NiSource has a shelf registration statement on file with the SEC that authorizes NiSource to issue an indeterminate amount of common stock and preferred stock, as well as other securities. TheOur authorized capital stock of NiSource consists of 420,000,000 shares, $0.01 par value, of which 400,000,000 are common stock and 20,000,000 are preferred stock. As of SeptemberJune 30, 2017, 336,691,0782018, 362,915,039 shares of common stock were outstanding. NiSource has noand 400,000 shares of preferred stock outstanding as of September 30, 2017.were outstanding.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


Contractual Obligations. Aside from the previously referenced issuances and repayments of long-term debt, there were no material changes recorded during the ninesix months ended SeptemberJune 30, 20172018 to NiSource’sour contractual obligations as of December 31, 2016.2017.
Off Balance Sheet Arrangements
As a partWe, along with certain of normal business, NiSource and certainour 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.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


Refer to Note 14,17, “Other Commitments and Contingencies,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information about such arrangements.
Market Risk Disclosures
Risk is an inherent part of NiSource’sour businesses. The extent to which NiSourcewe properly and effectively identifies, assesses, monitorsidentify, assess, monitor and managesmanage each of the various types of risk involved in itsour businesses is critical to itsour profitability. NiSource seeksWe seek to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following principal market risks that are involved in NiSource’sour businesses: commodity price risk, interest rate risk and credit risk. Risk management at NiSourcefor us 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’sOur senior management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. These may include, but are not limited to market, operational, financial, compliance and strategic risk types. In recognition of the increasingly varied and complex nature of the energy business, NiSource’sour risk management process, policies and procedures continue to evolve and are subject to ongoing review and modification. 
Commodity Price Risk
NiSource isWe are exposed to commodity price risk as a result of itsour subsidiaries’ operations involving natural gas and power. To manage this market risk, NiSource’sour subsidiaries use derivatives, including commodity futures contracts, swaps, forwards and options. NiSource doesWe do not participate in speculative energy trading activity.
Commodity price risk resulting from derivative activities at NiSource’sour 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.
NiSourceOur subsidiaries are required to make cash margin deposits with their brokers to cover actual and potential losses in the value of outstanding exchange traded derivative contracts. The amount of these deposits, some of which is reflected in NiSource’sour restricted cash balance, may fluctuate significantly during periods of high volatility in the energy commodity markets.
Refer to Note 6,9, "Risk Management Activities," in the Notes to Condensed Consolidated Financial Statements (unaudited) for further information on NiSource'sour commodity price risk assets and liabilities as of SeptemberJune 30, 20172018 or December 31, 2016.2017.
Interest Rate Risk
NiSource isWe are exposed to interest rate risk as a result of changes in interest rates on borrowings under itsour revolving credit agreement, commercial paper program, accounts receivable programs and term loan, which have interest rates that are indexed to short-term market interest rates. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $3.7$2.9 million and $12.6$5.9 million for the three and ninesix months ended SeptemberJune 30, 20172018, and $3.0$4.1 million and $6.8$8.9 million for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively. NiSource isWe are also exposed to interest rate risk as a result of changes in benchmark rates that can influence the interest rates of future debt issuances.
Refer to Note 6,9, "Risk Management Activities," in the Notes to Condensed Consolidated Financial Statements (unaudited) for further information on NiSource'sour interest rate risk assets and liabilities as of SeptemberJune 30, 20172018 and December 31, 2016.2017. 
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


Credit Risk
Due to the nature of the industry, credit risk is embedded in many of NiSource’sour business activities. NiSource’sOur extension of credit is governed by a Corporate Credit Risk Policy. In addition, Risk Management Committee guidelines are in place which document management approval levels for credit limits, evaluation of creditworthiness, and credit risk mitigation efforts. Exposures to credit risks are monitored by the risk management function which is independent of commercial operations. Credit risk arises due to the possibility that a customer, supplier or counterparty will not be able or willing to fulfill its obligations on a transaction on or before the settlement date. For derivative-related contracts, credit risk arises when counterparties are obligated to deliver or purchase defined commodity units of gas or power to NiSourceus at a future date per execution of contractual terms and conditions. Exposure to credit risk is measured in terms of both current obligations and the market value of forward positions net of any posted collateral such as cash and letters of credit.
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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.


We closely monitorsmonitor the financial status of itsour banking credit providers. NiSource evaluatesWe evaluate the financial status of itsour 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.
Other Information
Critical Accounting Policies
Pension and Other Postretirement Benefits. On January 1, 2017, NiSource changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits. This change, compared to the previous method, resulted in a decrease in the actuarially-determined service and interest cost components. Historically, NiSource estimated service and interest costs utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. NiSource now utilizes a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. NiSource believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plan’s liability cash flows to the corresponding spot rates on the yield curve. The benefit obligations measured under this approach are unchanged. NiSource accounted for this change as a prospective change in accounting estimate. For further information on NiSource’s pension and other postretirement benefits, see Note 11, “Pension and Other Postretirement Benefits,” in the Notes to Condensed Consolidated Financial Statements (unaudited).

There were no additional significant changes to critical accounting policies for the period ended SeptemberJune 30, 2017.2018.
Recently Issued Accounting Pronouncements
Refer to Note 2, "Recent Accounting Pronouncements," in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information about recently issued and adopted accounting pronouncements.
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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’sOur chief executive officer and itsour chief financial officer are responsible for evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). NiSource'sOur disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including NiSource'sour chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, NiSource'sour chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that financial information was processed, recorded and reported accurately.
Changes in Internal Controls
There have been no changes in NiSource'sour internal control over financial reporting during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, NiSource'sour internal control over financial reporting.










PART II

ITEM 1. LEGAL PROCEEDINGS
NiSource Inc.

The Company isWe are party to certain claims and legal proceedings arising in the ordinary course of business, none of which is deemed to be individually material at this time. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’sour results of operations, financial position or liquidity. If one or more of such matters were decided against the Company,us, the effects could be material to the Company’sour results of operations in the period in which the Companywe would be required to record or adjust the related liability and could also be material to the Company’sour cash flows in the periods the Companywe would be required to pay such liability.

ITEM 1A. RISK FACTORS

NiSource’sOur operations and financial results are subject to various risks and uncertainties, including those disclosed in NiSource’sour most recent Annual Report on Form 10-K for the year ended December 31, 2016.2017. There have been no material changes to such risk factors.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.Refer to Note 5, "Equity," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information regarding private placements of shares of common stock and preferred stock that occurred during the quarter ended June 30, 2018.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.


ITEM 6. EXHIBITS
NiSource Inc.
 
(4.1)(3.1)

  
(4.2)(4.1)

  
(4.3)(10.1)
(10.2)
Common Stock Subscription Agreement, dated as of May 2, 2018, by and among NiSource Inc. and the purchasers named therein (incorporated by reference toExhibit 10.1 of the NiSource Inc. Form 8-K filed on May 2, 2018).
(10.3)
Registration Rights Agreement, dated as of May 2, 2018, by and among NiSource Inc. and the purchasers named therein (incorporated by reference to Exhibit 10.2 of the NiSource Inc. Form 8-K filed on September 8, 2017)May 2, 2018).
(10.4)
Purchase Agreement, dated as of June 6, 2018, by and among NiSource Inc. and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and MUFG Securities Americas Inc., as representatives, relating to the 5.650% Series A Preferred Stock (incorporated by reference to Exhibit 10.1 of the NiSource Inc. Form 8-K filed on June 12, 2018).
(10.5)

Purchase Agreement, dated as of June 6, 2018, by and among NiSource Inc. and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and MUFG Securities Americas Inc., as representatives, relating to the 3.650% Notes due 2023 (incorporated by reference to Exhibit 10.2 of the NiSource Inc. Form 8-K filed on June 12, 2018).
(10.6)
Registration Rights Agreement, dated as of June 11, 2018, by and among NiSource Inc. and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and MUFG Securities Americas Inc., as representatives, relating to the 5.650% Series A Preferred Stock (incorporated by reference to Exhibit 10.3 of the NiSource Inc. Form 8-K filed on June 12, 2018).
(10.7)
Registration Rights Agreement, dated as of June 11, 2018, by and among NiSource Inc. and Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and MUFG Securities Americas Inc., as representatives, relating to the 3.650% Notes due 2023 (incorporated by reference to Exhibit 10.4 of the NiSource Inc. Form 8-K filed on June 12, 2018).
  
(12)
  
(31.1)
  
(31.2)
  
(32.1)
  
(32.2)
  
(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
  
*Exhibit filed herewith.




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:NovemberAugust 1, 20172018By:    /s/ Joseph W. Mulpas
   Joseph W. Mulpas
   
Vice President and Chief Accounting Officer
(Principal Accounting Officer
and Duly Authorized Officer)


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