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.
There were no amounts excluded from effectiveness testing for derivatives in cash flow hedging relationships at September 30, 20172021 and December 31, 2016.2020.
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 September 30, 20172021 and December 31, 2016:2020:
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 September 30, 20172021 and December 31, 2016,2020, 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.
Realized gains and losses on available-for-sale securities were immaterial for the three and nine months ended September 30, 20172021 and 2016.2020.
The cost of maturities sold is based upon specific identification. At September 30, 2017,2021, approximately $8.4$12.6 million of U.S. Treasury debt securities and approximately $3.2$1.4 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 nine months endedas of September 30, 20172021 and 2016.December 31, 2020.
The following method and assumptions were used to estimate the fair value of each class of financial instruments.
classified within Level 2 of the fair value hierarchy. For the nine months endedAs of September 30, 2017,2021, there was no change in the method or significant assumptions used to estimate the fair value of long-term debt.
|
| | | | | | | | | | | | | | | |
| (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 |
| Long-term debt (including current portion) | $ | 7,808.4 |
| | $ | 8,550.7 |
| | $ | 6,421.3 |
| | $ | 7,064.1 |
|
8. 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 March 2018 and October 2018 and may be further extended if mutually agreed to by the parties thereto.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The following table provides the components of the plans’ actuarially determined net periodic benefit cost for the three and nine months ended September 30, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | OPEB |
Three Months Ended September 30, (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Components of Net Periodic Benefit (Income) Cost(1) | | | | | | | |
| Service cost | $ | 7.5 | | | $ | 8.1 | | | $ | 1.5 | | | $ | 1.7 | |
| Interest cost | 7.9 | | | 13.1 | | | 2.5 | | | 3.8 | |
| Expected return on assets | (25.2) | | | (28.3) | | | (3.8) | | | (3.6) | |
| Amortization of prior service credit | — | | | 0.2 | | | (0.6) | | | (0.4) | |
| Recognized actuarial loss | 5.5 | | | 8.6 | | | 1.2 | | | 1.2 | |
| Settlement loss | 2.9 | | | 8.0 | | | — | | | — | |
| Total Net Periodic Benefit (Income) Cost | $ | (1.4) | | | $ | 9.7 | | | $ | 0.8 | | | $ | 2.7 | |
(1)The service cost component and all non-service cost components of net periodic benefit (income) cost are presented in "Operation and maintenance" and "Other, net," respectively, on the Condensed Statements of Consolidated Income (Loss) (unaudited).
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | OPEB |
Nine Months Ended September 30, (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
Components of Net Periodic Benefit (Income) Cost(1) | | | | | | | |
| Service cost | $ | 22.6 | | | $ | 24.1 | | | $ | 4.5 | | | $ | 4.9 | |
| Interest cost | 23.5 | | | 40.1 | | | 7.5 | | | 11.6 | |
| Expected return on assets | (76.3) | | | (85.1) | | | (11.4) | | | (10.8) | |
| Amortization of prior service credit | — | | | 0.6 | | | (1.8) | | | (1.4) | |
| Recognized actuarial loss | 16.3 | | | 26.0 | | | 3.6 | | | 3.8 | |
| Settlement loss | 9.5 | | | 8.0 | | | — | | | — | |
| Total Net Periodic Benefit (Income) Cost | $ | (4.4) | | | $ | 13.7 | | | $ | 2.4 | | | $ | 8.1 | |
(1)The service cost component and all non-service cost components of net periodic benefit (income) cost are presented in "Operation and maintenance" and "Other, net," respectively, on the Condensed Statements of Consolidated Income (Loss) (unaudited).
During the first quarter of 2021, one of our qualified pension plans met the requirement for settlement accounting. A settlement charge of $3.3 million was recorded during the first quarter of 2021. As a result of the settlement, the pension plan was remeasured, resulting in a decrease to the net pension asset of $5.8 million, a net increase to regulatory assets of $2.1 million, and a net debit to accumulated other comprehensive loss of $0.4 million. Net periodic pension benefit cost for 2021 increased by $4.0 million as a result of the interim remeasurement.
During the second and third quarters of 2021, the requirements for settlement accounting were also met, resulting in settlement charges of $3.3 million and $2.9 million recorded for the three months ended June 30, 2021 and September 30, 2021, respectively.
The following table provides the key assumptions that were used to calculate the pension benefit obligation and the net periodic benefit cost at the interim remeasurement date for the plan that triggered settlement accounting:
| | | | | |
| February 28, 2021 |
| Weighted-average Assumption to Determine Benefit Obligation | |
| Discount rate | 2.57 | % |
| Weighted-average Assumptions to Determine Net Periodic Benefit Costs for the period ended | |
| Discount rate - service cost | 2.81 | % |
| Discount rate - interest cost | 1.57 | % |
| Expected return on assets | 4.80 | % |
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
12. Variable Interest Entities
A VIE is an entity in which the controlling interest is determined through means other than a majority voting interest. The primary beneficiary of a VIE is the business enterprise which has the power to direct the activities that most significantly impact the VIE’s economic performance. Also, the primary beneficiary either absorbs a significant amount of the VIE’s losses or has the right to receive benefits that could be significant to the VIE. We consider these qualitative elements in determining whether we are the primary beneficiary of a VIE, and we consolidate those VIEs for which we are determined to be the primary beneficiary.
Rosewater (a joint venture) owns and operates 102 MW of nameplate capacity wind generation assets. Members of the joint venture are NIPSCO (who is the managing member) and a tax equity partner. Earnings, tax attributes and cash flows are allocated to both NIPSCO and the tax equity partner in varying percentages by category and over the life of the partnership. Once the tax equity partner has earned their negotiated rate of return and we have reached the agreed upon contractual date, NIPSCO has the option to purchase at fair market value from the tax equity partner the remaining interest in the aforementioned joint venture. NIPSCO has an obligation to purchase, through a PPA at established market rates, 100% of the electricity generated by Rosewater.
We control decisions that are significant to Rosewater's ongoing operations and economic results. Therefore, we have concluded that we are the primary beneficiary of Rosewater and have consolidated Rosewater.
We have applied the HLBV method of attributing income and loss to the noncontrolling interest held by the tax equity partner. HLBV accounting was applied as the allocation of Rosewater's economic results to members differs from the members' relative ownership percentages. Using the HLBV method, our earnings are calculated based on how the partnership would distribute its cash if it were to hypothetically sell all of its assets for their carrying amounts and liquidate at each reporting period. Under HLBV, we calculate the liquidation value allocable to each partner at the beginning and end of each period based on the contractual terms of the related entity's operating agreement and adjust our income for the period to reflect the change in our associated book value.
In March 2021, in exchange for additional respective membership interests in Rosewater, NIPSCO contributed $0.1 million in cash, and the tax equity partner contributed $7.5 million in cash, the second of two contractual cash contributions for each partner, per the equity capital contribution agreement. NIPSCO also assumed an additional obligation of $6.0 million to the developer, which comes due in 2023 and is included in "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets (unaudited). From the contributed funds, Rosewater paid $7.4 million to the developer of the wind generation assets. The developer of the facility is not a partner in the joint venture for federal income tax purposes and does not receive any share of earnings, tax attributes, or cash flows of Rosewater. With asset construction now complete, NIPSCO and the tax equity partner have made total cash contributions of $0.8 million and $93.6 million, respectively, and NIPSCO has assumed an obligation to the developer of $75.7 million, totaling contributions of $170.1 million for both partners. We did not provide any financial or other support during the year that was not previously contractually required, nor do we expect to provide such support in the future.
At September 30, 2021 and December 31, 2020, $168.0 million and $156.4 million, respectively, in net assets (as detailed in the table below) related to Rosewater and the non-controlling interest attributable to the unrelated tax equity partner of $89.2 million and $85.6 million, respectively, were included in the Condensed Consolidated Balance Sheets (unaudited). Amounts allocated to the tax equity partner were $1.0 million and zero for the three months ended September 30, 2021 and 2020, respectively, and $3.4 million and zero for the nine months ended September 30, 2021 and 2020, respectively. These amounts are included in "Net loss attributable to non-controlling interest" on the Condensed Statements of Consolidated Income (Loss) (unaudited).
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Our Condensed Consolidated Balance Sheets (unaudited) included the following assets and liabilities associated with Rosewater:
| | | | | | | | | | | |
| (in millions) | September 30,
2021 | | December 31,
2020 |
| Net Property, Plant and Equipment | $ | 171.6 | | | $ | 175.6 | |
| Current assets | 5.3 | | 1.7 |
| | | |
Total assets(1) | $ | 176.9 | | | $ | 177.3 | |
| Current liabilities | $ | 3.1 | | | $ | 15.3 | |
| Asset retirement obligations | 5.7 | | 5.5 |
| Other noncurrent liabilities | 0.1 | | 0.1 |
| Total liabilities | $ | 8.9 | | | $ | 20.9 | |
(1)The assets of Rosewater represent assets of a consolidated VIE that can be used only to settle obligations of the consolidated VIE.
13. Long-Term Debt
In conjunction with debt retired in August and September 2020, we recorded a $231.7 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums.
In conjunction with debt retired in September 2020, Columbia of Massachusetts recorded an $11.7 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums.
14. Short-Term Borrowings
We generate short-term borrowings through several sources, described in further detail below.
Revolving Credit Facility. We maintain a revolving credit facility to fund ongoing working capital requirements, including the provision of liquidity support for our commercial paper program, provide for issuance of letters of credit and also for general corporate purposes. Our revolving credit facility has a program limit of $1.85 billion and is comprised of a syndicate of banks led by Barclays. We had no outstanding borrowings under this facility as of September 30, 2021 and December 31, 2020.
Commercial Paper Program. Our 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 $380.0 million and $503.0 million of commercial paper outstanding with weighted-average interest rates of 0.17% and 0.27% as of September 30, 2021 and December 31, 2020, respectively.
Accounts Receivable Transfer Programs. Columbia of Ohio, NIPSCO and Columbia of Pennsylvania each maintain a receivables agreement whereby they may transfer their customer accounts receivables to third-party financial institutions through wholly owned and consolidated special purpose entities. The 3 agreements expire between May 2022 and October 2022 and may be further extended if mutually agreed to by the parties thereto.
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 September 30, 2017,2021, the maximum amount of debt that could be recognized related to NiSource’sour accounts receivable programs is $265.0$205.0 million.
The following table reflects the gross receivables balance and net receivables transferred as well asWe had no short-term borrowings related to the securitization transactions as of September 30, 20172021 and December 31, 2016:
|
| | | | | | | |
| (in millions) | September 30, 2017 | | December 31, 2016 |
| Gross Receivables | $ | 371.6 |
| | $ | 618.3 |
|
| Less: Receivables not transferred | 109.4 |
| | 308.3 |
|
| Net receivables transferred | $ | 262.2 |
| | $ | 310.0 |
|
| Short-term debt due to asset securitization | $ | 262.2 |
| | $ | 310.0 |
|
For the nine months ended September 30, 20172021 and 2016, $47.8 million2020, zero and $11.0$122.0 million, respectively, waswere recorded as cash flows used for financing activities related to the change in short-term borrowings due to securitization transactions. For the accounts receivable transfer programs, we pay used facility fees for amounts borrowed, unused commitment fees for amounts not borrowed, and upfront renewal fees. Fees associated with the securitization transactions were $0.6$0.3 million and $0.4$0.6 million for the three months ended September 30, 20172021 and 2016,2020, respectively, and $1.9$1.1 million and $1.6$2.1 million for the nine months ended September 30, 2017 and 2016, respectively. NiSource remains responsible for collecting on the receivables securitized and the receivables cannot be transferred to another party.
9.Goodwill
The following presents NiSource’s goodwill balance allocated by segment as of September 30, 2017:
|
| | | | | | | | | | | | | | | | |
| (in millions) | | Gas Distribution Operations | | Electric Operations | | Corporate and Other | | Total |
| Goodwill | | $ | 1,690.7 |
| | $ | — |
| | $ | — |
| | $ | 1,690.7 |
|
NiSource applied the qualitative "step 0" analysis to its reporting units for the annual impairment test performed as of May 1, 2017. For this test, NiSource assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units as compared to its base line May 1, 2016 "step 1" fair value measurement. The results of this assessment indicated that it was not more likely than not that its reporting unit fair values were less than the reporting unit carrying values, accordingly, no "step 1" analysis was required.
10. Income Taxes
NiSource’s interim effective tax rates reflect the estimated annual effective tax rates for 2017 and 2016, adjusted for tax expense associated with certain discrete items. The effective tax rates for the three months ended September 30, 2017 and 2016 were 15.2% and 26.4%, respectively. The effective tax rate for the nine months ended September 30, 2017 and 2016 was 34.9% and 35.3%, respectively. These effective tax rates differ from the Federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility ratemaking, and other permanent book-to-tax differences.
The decrease in the three month effective tax rate in 2017 versus the same period in 2016 is primarily due to current year revisions of apportionment factors used to measure state deferred tax liabilities. There was no material change in the year-to-date effective tax rate in 2017 versus the same period in 2016.
Additionally, there were no material changes recorded in 2017 to NiSource's uncertain tax positions as of December 31, 2016.
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. 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 in the notes to its financial statements for the year ended December 31, 2016, that it expected to contribute $9.1 million to its pension plans in 2017. For the nine months ended September 30, 2017, NiSource contributed $281.6 million to its pension plans, which included a $277 million discretionary contribution made during the third quarter2021 and 2020, respectively. Columbia of 2017. NiSource does not anticipate any further pension contributions in 2017. ContributionsOhio, NIPSCO and Columbia of $21.8 million have been made to NiSource's 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"Pennsylvania remain responsible for collecting on the Condensed Statements of Consolidated Cash Flows (unaudited).
The following tables provide the components of the plans’ actuarially determined net periodic benefit cost for the three and nine months ended September 30, 2017 and 2016:
|
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postretirement Benefits |
Three Months Ended September 30, (in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Components of Net Periodic Benefit Cost | | | | | | | |
Service cost(1) | $ | 7.4 |
| | $ | 7.7 |
| | $ | 1.2 |
| | $ | 1.3 |
|
Interest cost(1) | 17.1 |
| | 22.4 |
| | 4.5 |
| | 5.5 |
|
| Expected return on assets | (30.8 | ) | | (33.2 | ) | | (4.0 | ) | | (4.3 | ) |
| Amortization of prior service credit | (0.1 | ) | | — |
| | (1.1 | ) | | (1.2 | ) |
| Recognized actuarial loss | 13.2 |
| | 15.3 |
| | 0.7 |
| | 0.8 |
|
| Settlement loss | 10.6 |
| | — |
| | — |
| | — |
|
| Total Net Periodic Benefit Cost | $ | 17.4 |
| | $ | 12.2 |
| | $ | 1.3 |
| | $ | 2.1 |
|
(1)Effective January 1, 2017, NiSource adopted the methodology of using a full yield curve (spot rate) approach to estimate the service and interest components of net periodic benefit cost. This change in accounting estimate resulted in a decrease in these costs for the three months ended September 30, 2017 when compared to the same period in 2016. |
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
Nine Months Ended September 30, (in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Components of Net Periodic Benefit Cost | | | | | | | |
Service cost(1) | $ | 22.4 |
| | $ | 23.1 |
| | $ | 3.6 |
| | $ | 3.7 |
|
Interest cost(1) | 51.5 |
| | 67.2 |
| | 13.4 |
| | 16.5 |
|
| Expected return on assets | (91.3 | ) | | (99.6 | ) | | (11.9 | ) | | (12.9 | ) |
| Amortization of prior service credit | (0.5 | ) | | (0.2 | ) | | (3.3 | ) | | (3.6 | ) |
| Recognized actuarial loss | 40.0 |
| | 45.9 |
| | 2.2 |
| | 2.4 |
|
| Settlement loss | 10.6 |
| | — |
| | — |
| | — |
|
| Total Net Periodic Benefit Cost | $ | 32.7 |
| | $ | 36.4 |
| | $ | 4.0 |
| | $ | 6.1 |
|
(1)Effective January 1, 2017, NiSource adopted the methodology of using a full yield curve (spot rate) approach to estimate the service and interest components of net periodic benefit cost. This change in accounting estimate resulted in a decrease in these costs for the nine months ended September 30, 2017 when compared to the same period in 2016.
As of August 31, 2017, one of NiSource's qualified pension plans paid lump sums in excess of the plan's 2017 service cost plus interest cost, thereby meeting the requirement for settlement accounting. A settlement charge of $10.6 million was recorded during the third quarter of 2017. As a result of the settlement, the pension plan was remeasured resulting in a decrease to the pension benefit obligation, net of plan assets, of $1.3 million, a net decrease to regulatory assets of $10.6 million and a net credit to accumulated other comprehensive loss of $1.3 million.
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 obligationreceivables securitized, and the net periodic benefit cost at the measurement dates of August 31, 2017 and December 31, 2016.receivables cannot be transferred to another party.
|
| | | | | |
| | August 31, 2017 | | December 31, 2016 |
| Weighted-average Assumption to Determine Benefit Obligation: | | | |
| Discount rate | 3.50 | % | | 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 assets | 7.25 | % | | 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.
12. 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 Markets redeemed $30.0 million of 7.86% and $2.0 million of 7.85% medium-term 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 Finance executed a tender offer for $990.7 million of outstanding notes consisting of a combination of its 6.40% notes due 2018, 6.80% notes due 2019, 5.45% notes due 2020, and 6.125% notes due 2022. In conjunction with the debt retired, NiSource Finance recorded a $111.5 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums.
On June 12, 2017, NIPSCO redeemed $22.5 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% senior unsecured notes at maturity.
13. Short-Term Borrowings
NiSource generates short-term borrowings from its revolving credit facility, commercial paper program, letter of credit issuances and accounts receivable transfer programs. Each of these borrowing sources is described further below.
NiSource Finance maintains a revolving credit facility to fund ongoing working capital requirements, including the provision of liquidity support for its commercial paper program, provide for issuance of letters of credit and also for general corporate purposes. NiSource Finance's revolving credit facility has a program limit of $1.85 billion and is comprised of a syndicate of banks led by Barclays. At September 30, 2017 and December 31, 2016, NiSource had no outstanding borrowings under this facility.
NiSource Finance's commercial paper program has a program limit of up to $1.5 billion with a dealer group comprised of Barclays, Citigroup, Credit Suisse and Wells Fargo. As of September 30, 2017 and December 31, 2016, NiSource had commercial paper outstanding of $581.0 million and $1,178.0 million, respectively.
As of September 30, 2017 and December 31, 2016, NiSource had $13.0 million and $14.7 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 of $262.2 million and $310.0 million as of September 30, 2017 and December 31, 2016, respectively. Refer to Note 8, "Transfers of Financial Assets," for additional information.
Short-term borrowings were as follows:
|
| | | | | | | |
| (in millions) | September 30,
2017 | | December 31,
2016 |
| 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 |
|
| Accounts receivable securitization facility borrowings | 262.2 |
| | 310.0 |
|
| Total Short-Term Borrowings | $ | 843.2 |
| | $ | 1,488.0 |
|
Given their maturities are less than 90 days, cash flows related to the borrowings and repayments of the itemsItems listed above are presented net in the Condensed Statements of Consolidated Cash Flows (unaudited). as their maturities are less than 90 days.
14.15. Other Commitments and Contingencies
A. Guarantees and Indemnities. As a partWe and 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.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’subsidiaries' intended commercial purposes. As of September 30, 20172021 and December 31, 2016, NiSource2020, we had issued stand-by letters of credit of $13.0$14.1 million and $14.7$15.2 million, respectively.
We provide guarantees related to our future performance under BTAs for our renewable generation projects. At September 30, 2021, our guarantees for multiple BTAs totaled $574.4 million. In October 2021, the amount of the guarantees increased to $774.4 million in accordance with the Fairbanks BTA. The amount of each guaranty will fluctuate upon the completion of the various steps outlined in each BTA. See ''- E. Other Matters - Generation Transition,'' below for more information.
B. Legal Proceedings. On September 13, 2018, a series of fires and explosions occurred in Lawrence, Andover and North Andover, Massachusetts related to the delivery of natural gas by Columbia of Massachusetts (the "Greater Lawrence Incident").
We have been subject to inquiries and investigations by government authorities and regulatory agencies regarding the Greater Lawrence Incident. On February 26, 2020, the Company and Columbia of Massachusetts entered into agreements with the U.S. Attorney’s Office for the District of Massachusetts to resolve the U.S. Attorney’s Office’s investigation relating to the Greater Lawrence Incident, as described below. The Company is partyand Columbia of Massachusetts entered into an agreement with the Massachusetts Attorney General’s Office (among other parties) to resolve the Massachusetts DPU and the Massachusetts Attorney General’s Office investigations, that was approved by the Massachusetts DPU on October 7, 2020 as part of the sale of the Massachusetts Business to Eversource.
U.S. Department of Justice Investigation. On February 26, 2020, the Company and Columbia of Massachusetts entered into agreements with the U.S. Attorney’s Office to resolve the U.S. Attorney’s Office’s investigation relating to the Greater Lawrence Incident. Columbia of Massachusetts agreed to plead guilty in the United States District Court for the District of Massachusetts (the ''Court'') to violating the Natural Gas Pipeline Safety Act (the ''Plea Agreement''), and the Company entered into a Deferred Prosecution Agreement (the ''DPA'').
On March 9, 2020, Columbia of Massachusetts entered its guilty plea pursuant to the Plea Agreement. The Court sentenced Columbia of Massachusetts on June 23, 2020, in accordance with the terms of the Plea Agreement (as modified). On June 23, 2021, the Court terminated Columbia of Massachusetts' period of probation under the Plea Agreement, which marked the completion of all terms of the Plea Agreement.
Under the DPA, the U.S. Attorney’s Office agreed to defer prosecution of the Company in connection with the Greater Lawrence Incident for a three-year period (which three-year period may be extended for twelve (12) months upon the U.S. Attorney’s Office’s determination of a breach of the DPA) subject to certain claims and legal proceedings arisingobligations of the Company, including, but not limited to, the Company's agreement, as to each of the Company’s subsidiaries involved in the ordinary coursedistribution of business, nonegas through pipeline facilities in Massachusetts, Indiana, Ohio, Pennsylvania, Maryland, Kentucky and Virginia, to implement and adhere to each of which is deemed to be individually material at this time. Duethe recommendations from the NTSB stemming from the Greater Lawrence Incident. Pursuant to the inherent uncertaintyDPA, if the Company complies with all of litigation, there can be no assurance thatits obligations under the resolution ofDPA, the U.S. Attorney’s Office will not file any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial position or liquidity. If one or more of such matters were decidedcriminal charges against the Company the effects could be materialrelated to the Company’s results of operationsGreater Lawrence Incident.
Private Actions. Various lawsuits, including several purported class action lawsuits, have been filed by various affected residents or businesses in the period in whichMassachusetts state courts against the Company would be required to record and/or adjustColumbia of Massachusetts in connection with the related liability and could also be material to the Company’s cash flows in the periodsGreater Lawrence Incident.
On July 26, 2019, the Company, would be requiredColumbia of Massachusetts and NiSource Corporate Services Company, a subsidiary of the Company, entered into a term sheet with the class action plaintiffs under which they agreed to settle the class action claims in connection with the Greater Lawrence Incident. Columbia of Massachusetts agreed to pay such liability.$143 million into a settlement fund to compensate the settlement class and the settlement class agreed to release Columbia of Massachusetts and affiliates from all
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
claims arising out of or related to the Greater Lawrence Incident. The following claims are not covered under the proposed settlement because they are not part of the consolidated class action: (1) physical bodily injury and wrongful death; (2) insurance subrogation, whether equitable, contractual or otherwise; and (3) claims arising out of appliances that are subject to the Massachusetts DPU orders. Emotional distress and similar claims are covered under the proposed settlement unless they are secondary to a physical bodily injury. The settlement class is defined under the term sheet as all persons and businesses in the three municipalities of Lawrence, Andover and North Andover, Massachusetts, subject to certain limited exceptions. The Court granted final approval of the settlement on March 12, 2020.
With respect to claims not included in the consolidated class action, many of the asserted wrongful death and bodily injury claims have settled, and we continue to discuss potential settlements with remaining claimants. The outcomes and impacts of such private actions are uncertain at this time.
Shareholder Derivative Lawsuit. On April 28, 2020, a shareholder derivative lawsuit was filed by the City of Detroit Police and Fire Retirement System in the United States District Court for the District of Delaware against certain of the Company’s current and former directors, alleging state-law claims for breaches of fiduciary duty with respect to the pipeline safety management systems relating to the distribution of natural gas prior to the Greater Lawrence Incident and also including federal-law claims related to our proxy statement disclosures regarding our safety systems. The remedies sought included damages for the alleged breaches of fiduciary duty, corporate governance reforms, and restitution of any unjust enrichment. The defendants filed a motion to dismiss the lawsuit, and oral argument was held on March 2, 2021. On March 9, 2021, the district court granted the defendants’ motion to dismiss. It dismissed the federal-law claims with prejudice for failure to state a claim on which relief can be granted and declined to exercise jurisdiction over the state-law claims, which were dismissed without prejudice.
Following the dismissal of the federal court action, on April 29, 2021, the same plaintiff filed a shareholder derivative lawsuit in the Delaware Court of Chancery against certain of our current and former directors. The new complaint alleged a single count for breach of fiduciary duty, and no longer alleged disclosure violations or breaches of federal securities laws. The complaint related to substantially the same matters as those alleged in the dismissed federal derivative complaint. The remedies sought included damages for the alleged breaches of fiduciary duty, corporate governance reforms, and restitution of compensation by the individual defendants. On May 19, 2021, the defendants filed a motion to dismiss the lawsuit, and on July 2, 2021, they filed their opening brief in support of the motion. On August 26, 2021, rather than respond to the defendants’ motion to dismiss and opening brief, the plaintiff filed an amended complaint. Like the original complaint in the Delaware Court of Chancery, the amended complaint alleges a single count for breach of fiduciary duty, based on substantially similar allegations, and seeks substantially similar remedies. On September 10, 2021, the defendants filed a motion to dismiss. On October 13, 2021, the defendants filed their opening brief in support of the motion. The plaintiff's opposition to the motion is due on December 3, 2021, and the defendants' reply brief is due on January 10, 2022. Because of the preliminary nature of this lawsuit, we are not able to estimate a loss or range of loss, if any, that may be incurred in connection with this matter at this time.
Other Claims and Proceedings. We are also party to certain other claims, regulatory and legal proceedings arising in the ordinary course of business in each state in which we have operations, none of which we believe to be individually material at this time.
Due to the inherent uncertainty of litigation, there can be no assurance that the outcome or resolution of any particular claim, proceeding or investigation would not have a material adverse effect on our results of operations, financial position or liquidity. Certain matters in connection with the Greater Lawrence Incident, for example, have had or may have a material impact as described above. If one or more other matters were decided against us, the effects could be material to our results of operations in the period in which we would be required to record or adjust the related liability and could also be material to our cash flows in the periods that we would be required to pay such liability.
C. Other Greater Lawrence Incident Matters. In connection with the Greater Lawrence Incident, Columbia of Massachusetts, in cooperation with the Massachusetts Governor’s office, replaced the entire affected pipeline system. We invested approximately $258 million of capital spend for the pipeline replacement; this work was completed in 2019. We maintain property insurance for gas pipelines and other applicable property. Columbia of Massachusetts has filed a proof of loss with its property insurer for the pipeline replacement. In January 2020, we filed a lawsuit against the property insurer, seeking payment of our property claim. On October 27, 2021, NiSource and the property insurer filed cross motions for summary judgment, each asking the court to determine whether there was coverage under the policy. We do not expect these motions to
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
be fully briefed and ruled upon until at least the first quarter of 2022. We are currently unable to predict the timing or amount of any insurance recovery under the property policy.
D. 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 portionmajority of environmental assessment and remediation costs to be recoverable through rates for certain NiSourceof our companies.
As of September 30, 20172021 and December 31, 2016, NiSource2020, we had recorded a liability of approximately $112.6$92.3 million and $111.4$92.6 million, respectively, to cover environmental remediation at various sites. The current portion of thisThis liability is included in "Legal"Other accruals" 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. NiSource 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 for natural gas facilities could restrict GHG emissions and impose additional costs. NiSource will 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 CO2 emissions from existing fossil-fuel EGUs under section 111(d) of the CAA. The final rule establishes national CO2 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. The public will have 60 days to comment on this proposal, after which time the proposal may become final. 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. At this time, NIPSCO cannot estimate the full cost of remediating properties that have not yet been investigated, but it is possible that the future costs could be material to the Condensed Consolidated Financial Statements (unaudited).
MGP. A We maintain 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 6454 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 itsour future remediation costs related to its 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. The2021. Our total estimated liability at NiSource related to the facilities subject to remediation was $108.0$86.3 million and $105.5$85.0 million at September 30, 20172021 and December 31, 2016,2020, respectively. The liability represents NiSource’sour best estimate of the probable cost to remediate the facilities. NiSource believesMGP sites. We believe that it is reasonably possible that remediation costs could vary by as much as $25$17 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,We are in compliance with the EPA issued aEPA's final rule for the 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. TheCCR 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 requirements that will be established by environmental authorities, 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,rule, 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, 2016will also continue to work with the IURC seeking approvalEPA and the Indiana Department of Environmental Management to obtain administrative approvals associated with the CCR rule. In the event that the approvals are not obtained, future operations could be impacted. We believe the possibility of such an outcome is remote.
E. Other Matters.
Generation Transition.NIPSCO has executed several PPAs to purchase 100% of the projectsoutput from renewable generation facilities at a fixed price per MWh. Each facility supplying the energy will have an associated nameplate capacity, 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 and an order is expected by the end of 2017.
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 postpone the earliest compliance dates for flue gas desulfurization wastewater and bottom ash transport water requirements to potentially consider revisions to technology and numeric limits achievable. NIPSCO is unable to estimate the impact of the postponement of these compliance dates at this time. Based upon a preliminary engineering study, capital compliance costs are currently expected to cost 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 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 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.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Schahfer Generating Stationpayments under the PPAs will not begin until the associated generation facility is constructed by the endowner/seller. NIPSCO has also executed several BTAs with developers to construct renewable generation facilities. NIPSCO's purchase obligation under each respective BTA is dependent on satisfactory approval of 2023. It is projected over the long term thatBTA by the costIURC, successful execution by NIPSCO of an agreement with a tax equity partner and timely completion of construction. NIPSCO has received IURC approval for all of its BTAs and PPAs. NIPSCO and the tax equity partner are obligated to customers to retire these units at these dates will be lower than maintaining and upgrading them for continuing generation.
NiSource and NIPSCO committedmake cash contributions to the retirementjoint venture that acquires the project at the date construction is substantially complete. Once the tax equity partner has earned its negotiated rate of return and we have reached the Bailly Generating Station units in connection withagreed upon contractual date, NIPSCO has the filing ofoption to purchase at fair market value from 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,tax equity partner the remaining net book value of the Bailly Generating Station units was reclassified from "Net utility plant" to "Other property, at cost, less accumulated depreciation" on the Condensed Consolidated Balance Sheets (unaudited).
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 chargesinterest 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.joint venture.
NIPSCO Pure Air. NIPSCO has a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and First Air Partners LP, under which Pure Air provides scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at the Bailly Generating Station. 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 has made an exhaustive effort to obtain information needed from Pure Air to determine the status of Pure Air as a VIE. However, NIPSCO has not been able to obtain this information and, as a result, it is unclear whether Pure Air is a VIE and if NIPSCO is the primary beneficiary. NIPSCO will continue to request the information required to determine whether Pure Air is a VIE. NIPSCO has no exposure to loss related to the service agreement with Pure Air and payments under this agreement were $16.5 million and $16.0 million for the nine months ended September 30, 2017 and 2016, respectively.Employee Separation Benefits. In accordance with GAAP, the renewed agreement was evaluated to determine whether the arrangement qualifies 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, NiSource capitalized this lease beginning in the third quarter of 2012.
As further discussed above in this Note 142020, we launched a program to evaluate our organizational structure under the heading "NIPSCO 2016 Integrated Resource Plan," NIPSCO plans to retireauspices of NiSource Next, which has continued into 2021. We recognized the generation station units serviced by Pure Air by May 31, 2018. In December 2016, as allowed by the provisionsmajority of the service agreement, NIPSCO provided Pure Air formal notice of intent to terminate the service agreement, effective May 31, 2018. Providing this notice to Pure Air triggeredrelated severance expense in 2020 when employees accepted severance offers, absent a contract termination liability of $16 million which was recorded in fourth quarter of 2016. Thisretention period. For employees that had a retention period, expense was included as part of the plant retirement-related charges discussed above. Payment of this liability is not due until NIPSCO ceases use of the scrubber services. The liability is presented in "Other accruals" on the Condensed Consolidated Balance Sheets (unaudited). In addition, NIPSCO remeasuredrecognized over the remaining capital lease assetservice period. The total severance expense for employees is approximately $42 million, with substantially all of it incurred and obligationpaid 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.date.
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 Statements (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.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
15.16. 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 | ) | |
| (in millions) | | (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, 2021 | | Balance as of July 1, 2021 | $ | 4.4 | | | $ | (113.1) | | | $ | (14.9) | | | $ | (123.6) | |
| Other comprehensive income (loss) before reclassifications | 0.1 |
| | (9.7 | ) | | — |
| | (9.6 | ) | Other comprehensive income (loss) before reclassifications | (0.6) | | | 6.5 | | | — | | | 5.9 | |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | 0.4 |
| | 1.1 |
| | 1.5 |
| Amounts reclassified from accumulated other comprehensive loss | (0.2) | | | 0.1 | | | 0.4 | | | 0.3 | |
| Net current-period other comprehensive income (loss) | 0.1 |
| | (9.3 | ) | | 1.1 |
| | (8.1 | ) | Net current-period other comprehensive income (loss) | (0.8) | | | 6.6 | | | 0.4 | | | 6.2 | |
| Balance as of September 30, 2017 | $ | 0.5 |
| | $ | (28.1 | ) | | $ | (16.1 | ) | | $ | (43.7 | ) | |
| | | | | | | | | |
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 | ) | |
| Balance as of September 30, 2021 | | Balance as of September 30, 2021 | $ | 3.6 | | | $ | (106.5) | | | $ | (14.5) | | | $ | (117.4) | |
(1)All amounts are net of tax. Amounts in parentheses indicate debits. | | (1)All amounts are net of tax. Amounts in parentheses indicate debits. | |
| (in millions) | | (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, 2021 | | Balance as of January 1, 2021 | $ | 6.0 | | | $ | (147.9) | | | $ | (14.8) | | | $ | (156.7) | |
| Other comprehensive income (loss) before reclassifications | 1.1 |
| | (23.3 | ) | | 0.2 |
| | (22.0 | ) | Other comprehensive income (loss) before reclassifications | (2.0) | | | 41.3 | | | (1.3) | | | 38.0 | |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | 2.1 |
| | 1.3 |
| | 3.4 |
| Amounts reclassified from accumulated other comprehensive loss | (0.4) | | | 0.1 | | | 1.6 | | | 1.3 | |
| Net current-period other comprehensive income (loss) | 1.1 |
| | (21.2 | ) | | 1.5 |
| | (18.6 | ) | Net current-period other comprehensive income (loss) | (2.4) | | | 41.4 | | | 0.3 | | | 39.3 | |
| Balance as of September 30, 2017 | $ | 0.5 |
| | $ | (28.1 | ) | | $ | (16.1 | ) | | $ | (43.7 | ) | |
| | Balance as of September 30, 2021 | | Balance as of September 30, 2021 | $ | 3.6 | | | $ | (106.5) | | | $ | (14.5) | | | $ | (117.4) | |
|
| | | | | | | | | | | | | | | |
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 reclassifications | 2.3 |
| | (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 | ) |
(1)All amounts are net of tax. Amounts in parentheses indicate debits.
| | | | | | | | | | | | | | | | | | | | | | | |
| (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, 2020 | $ | 3.6 | | | $ | (207.8) | | | $ | (17.7) | | | $ | (221.9) | |
| Other comprehensive income before reclassifications | 1.2 | | | 26.0 | | | 1.0 | | | 28.2 | |
| Amounts reclassified from accumulated other comprehensive loss | 0.2 | | | — | | | (0.1) | | | 0.1 | |
| Net current-period other comprehensive income | 1.4 | | | 26.0 | | | 0.9 | | | 28.3 | |
| | | | | | | |
| Balance as of September 30, 2020 | $ | 5.0 | | | $ | (181.8) | | | $ | (16.8) | | | $ | (193.6) | |
(1)All amounts are net of tax. Amounts in parentheses indicate debits. | | | | | | | |
| (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, 2020 | $ | 3.3 | | | $ | (77.2) | | | $ | (18.7) | | | $ | (92.6) | |
| Other comprehensive income (loss) before reclassifications | 2.0 | | | (104.6) | | | 1.4 | | | (101.2) | |
| Amounts reclassified from accumulated other comprehensive loss | (0.3) | | | — | | | 0.5 | | | 0.2 | |
| Net current-period other comprehensive income (loss) | 1.7 | | | (104.6) | | | 1.9 | | | (101.0) | |
| | | | | | | |
| Balance as of September 30, 2020 | $ | 5.0 | | | $ | (181.8) | | | $ | (16.8) | | | $ | (193.6) | |
16. Business Segment Information
At September 30, 2017, NiSource’s operations(1)All amounts are divided into two primary reportable segments. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customersnet of tax. Amounts 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.parentheses indicate debits.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
17. Other, Net
The following table displays the components of Other, Net included on the Condensed Statements of Consolidated Income (Loss) (unaudited):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Interest income | $ | 1.1 | | | $ | 1.3 | | | $ | 2.7 | | | $ | 4.4 | |
| AFUDC equity | 3.5 | | | 1.8 | | | 8.4 | | | 4.9 | |
| | | | | | | |
| Pension and other postretirement non-service benefit | 9.3 | | | 0.6 | | | 26.4 | | | 6.4 | |
| Sale of emission reduction credits | — | | | 4.6 | | | — | | | 4.6 | |
| Miscellaneous | 0.4 | | | (0.3) | | | (0.3) | | | (0.4) | |
| Total Other, net | $ | 14.3 | | | $ | 8.0 | | | $ | 37.2 | | | $ | 19.9 | |
18. Business Segment Information
At September 30, 2021, our operations are divided into 2 primary reportable segments, the Gas Distribution Operations and Electric Operations segments. Corporate costs and other activities that are not significant on a stand-alone basis to warrant treatment as an operating segment and that do not fit into one of our two segments are aggregated as "Corporate and Other" in the disclosures below. Refer to Note 3, "Revenue Recognition," for additional information on our segments and their sources of revenues.
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, |
| (in millions) | 2021 | | 2020 | | 2021 | | 2020 |
| Operating Revenues | | | | | | | |
| Gas Distribution Operations | | | | | | | |
| Unaffiliated | $ | 472.3 | | | $ | 470.1 | | | $ | 2,182.4 | | | $ | 2,304.4 | |
| Intersegment | 3.0 | | | 3.0 | | | 9.1 | | | 9.0 | |
| Total | 475.3 | | | 473.1 | | | 2,191.5 | | | 2,313.4 | |
| Electric Operations | | | | | | | |
| Unaffiliated | 478.9 | | | 432.2 | | | 1,284.9 | | | 1,165.7 | |
| Intersegment | 0.2 | | | 0.1 | | | 0.6 | | | 0.5 | |
| Total | 479.1 | | | 432.3 | | | 1,285.5 | | | 1,166.2 | |
| Corporate and Other | | | | | | | |
| Unaffiliated | 8.2 | | | 0.2 | | | 23.7 | | | 0.6 | |
| Intersegment | 108.6 | | | 120.5 | | | 329.9 | | | 327.9 | |
| Total | 116.8 | | | 120.7 | | | 353.6 | | | 328.5 | |
| Eliminations | (111.8) | | | (123.6) | | | (339.6) | | | (337.4) | |
| Consolidated Operating Revenues | $ | 959.4 | | | $ | 902.5 | | | $ | 3,491.0 | | | $ | 3,470.7 | |
| Operating Income (Loss) | | | | | | | |
| Gas Distribution Operations | $ | 11.0 | | | $ | (42.2) | | | $ | 419.1 | | | $ | 38.0 | |
| Electric Operations | 140.4 | | | 130.0 | | | 307.9 | | | 295.4 | |
| Corporate and Other | (4.3) | | | 5.0 | | | (4.5) | | | (0.7) | |
| Consolidated Operating Income | $ | 147.1 | | | $ | 92.8 | | | $ | 722.5 | | | $ | 332.7 | |
19. Subsequent Event
On October 1, 2021, NIPSCO retired R.M. Schahfer Generating Station Units 14 and 15. The net book value of the retired units was reclassified from "Net Property, Plant and Equipment," to current and long-term ''Regulatory Assets.'' The total net book value of R.M. Schahfer Generating Station's coal Units 14 and 15 and other associated plant retired is estimated to be approximately $600 million. The December 2019 NIPSCO electric rate case order allows for the recovery of, and on, the net book value of the station by the end of 2032 and implements a revenue credit for the retired units. The credit is based on the difference between the net book value of Units 14 and 15 upon retirement and the last base rate case proceeding. The credit will be provided to customers until new base rates are determined.
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions) | 2017 | | 2016 | | 2017 | | 2016 |
| Gross Revenues | | | | | | | |
| Gas Distribution Operations | | | | | | | |
| Unaffiliated | $ | 431.1 |
| | $ | 392.4 |
| | $ | 2,139.9 |
| | $ | 1,935.6 |
|
| Intersegment | 3.5 |
| | 3.1 |
| | 10.6 |
| | 9.6 |
|
| Total | 434.6 |
| | 395.5 |
| | 2,150.5 |
| | 1,945.2 |
|
| Electric Operations | | | | | | | |
| Unaffiliated | 485.8 |
| | 465.4 |
| | 1,365.5 |
| | 1,249.2 |
|
| Intersegment | 0.2 |
| | 0.4 |
| | 0.6 |
| | 0.6 |
|
| Total | 486.0 |
| | 465.8 |
| | 1,366.1 |
| | 1,249.8 |
|
| Corporate and Other | | | | | | | |
| Unaffiliated | 0.1 |
| | 3.5 |
| | 0.9 |
| | 10.7 |
|
| Intersegment | 126.4 |
| | 100.5 |
| | 367.7 |
| | 298.1 |
|
| Total | 126.5 |
| | 104.0 |
| | 368.6 |
| | 308.8 |
|
| Eliminations | (130.1 | ) | | (104.0 | ) | | (378.9 | ) | | (308.3 | ) |
| Consolidated Gross Revenues | $ | 917.0 |
| | $ | 861.3 |
| | $ | 3,506.3 |
| | $ | 3,195.5 |
|
| Operating Income (Loss) | | | | | | | |
| Gas Distribution Operations | $ | (23.7 | ) | | $ | 4.3 |
| | $ | 362.1 |
| | $ | 392.7 |
|
| Electric Operations | 124.4 |
| | 112.8 |
| | 286.3 |
| | 251.5 |
|
| Corporate and Other | (1.1 | ) | | (3.4 | ) | | (7.8 | ) | | (10.9 | ) |
| Consolidated Operating Income | $ | 99.6 |
| | $ | 113.7 |
| | $ | 640.6 |
| | $ | 633.3 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NiSource Inc.
|
| | | | |
| Index | Page |
| |
| |
| |
Gas Distribution Operations | |
Electric Operations | |
| |
| |
| |
| |
| |
| |
| |
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 the financial condition, results of operations and cash flows of NiSource and its subsidiaries. It also("Management’s Discussion") 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, 2016.2020.
NiSource isWe are an energy holding company under the Public Utility Holding Company Act of 2005 whose utility subsidiaries are fully regulated natural gas and electric utility companies serving customers in sevensix 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”''Business'' section of NiSource’sour Annual Report on Form 10-K for the fiscal year ended December 31, 20162020 for further discussion of itsour regulated utility business segments.
NiSource’sOur goal is to develop strategies that benefit all stakeholders as it addresseswe (i) embark on long-term infrastructure investment and safety programs to better serve our customers, (ii) align our tariff structures with our cost structure, and (iii) address changing customer conservation patterns, develops more contemporary pricing structures and embarks on long-term investment programs.patterns. These strategies are intended to improvefocus on improving safety and reliability, enhancing customer service, ensuring customer affordability and safety, enhance customer services and reducereducing emissions while generating sustainable returns. The safety of our customers, communities and employees remains our top priority. The SMS is an established operating model within NiSource. With the continued support and advice from our Quality Review Board (a panel of third parties with safety operations expertise engaged by management to advise on safety matters), we are continuing to mature our SMS processes, capabilities and talent as we collaborate within and across industries to enhance safety and reduce operational risk. 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.
SummaryYour Energy, Your Future: Our plan to replace our coal generation capacity by the end 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 Expenses | 583.8 |
| | 529.4 |
| | 54.4 |
| | 1,803.0 |
| | 1,612.6 |
| | 190.4 |
|
| Operating Income | 99.6 |
| | 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 Taxes | 2.5 |
| | 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 Income | 14.0 |
| | 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 Outstanding | 331.1 |
| | 322.3 |
| | 8.8 |
| | 326.7 |
| | 321.4 |
| | 5.3 |
|
2028 with primarily renewable resources is well underway. As of September 30, 2021, we have executed and received IURC approval for BTAs and PPAs with a combined nameplate capacity of 1,950 MW and 1,380 MW, respectively, under the plan. On a consolidated basis, NiSource reported income from continuing operations of $14.0 million, or $0.04 per basic shareOctober 21, 2021, we announced the Preferred Energy Resource Plan associated with our 2021 Integrated Resource Plan, which refines the timeline to retire the Michigan City Generating Station to occur between 2026 and 2028. The plan calls for the three months ended September 30, 2017, comparedreplacement of the retiring units with a diverse portfolio of resources including demand side management resources, incremental solar, stand-alone energy storage and upgrades to $23.7 million, or $0.07 per basic shareexisting facilities at the Sugar Creek Generating Station, among other steps. Additionally, the plan calls for a natural gas peaking unit to replace existing vintage gas peaking units at the same periodR.M. Schahfer Generating Station to support system reliability and resiliency, as well as upgrades to the transmission system to enhance its electric generation transition. The planned retirement of the two vintage gas peaking units at the R.M. Schahfer Generating Station is expected to occur between 2025 and 2028. Final retirement dates for these units, as well as Michigan City, will be subject to MISO approval. We intend to file our 2021 Integrated Resource Plan with the IURC in 2016. November 2021. For additional information, see "Results and Discussion of Segment Operations - Electric Operations," in this Management's Discussion.
NiSource Next: We are executing on a defined, comprehensive, multi-year program designed to deliver long-term safety, sustainable capability enhancements and cost optimization improvements. This program is advancing the high priority we place on safety and risk mitigation, further enabling our SMS, and enhancing the customer experience. NiSource Next is designed to (i) leverage our current scale, (ii) utilize technology, (iii) define clear roles and accountability with our leaders and employees, and (iv) standardize our processes to focus on operational rigor, quality management and continuous improvement.
COVID-19: The decreasesafety of our employees and customers, while providing essential services during the COVID-19 pandemic, is paramount. We continue to take a proactive, coordinated approach intended to prevent, mitigate and respond to COVID-19 by utilizing our Incident Command System (ICS). The ICS includes members of our executive council, a medical review professional, and members of functional teams from across our company. The ICS monitors state-by-state conditions and determines steps to conduct our operations safely for employees and customers.
We have implemented procedures designed to protect our employees who work in income from continuing operations during 2017 was due primarilythe field and who continue to decreased operating income, as discussed below.
For the three months ended September 30, 2017, NiSource reported operating incomework in operational and corporate facilities, including social distancing, wearing face coverings and more frequent cleaning 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 decrease
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
equipment and facilities. We have also implemented work-from-home policies and practices. We continue to employ physical and cybersecurity measures to ensure that our operational and support systems remain functional. Our actions to date have mitigated the spread of COVID-19 amongst our employees and principal field contractors. We are also continuously evaluating changes to CDC guidance, and updating our safety measures accordingly, in order to ensure employee and customer safety during this pandemic. We are following federal, state, and local laws, regulations and guidelines related to the COVID-19 vaccinations.
Since the beginning of the COVID-19 pandemic, we have been helping our customers navigate this challenging time. We plan to continue our payment assistance programs and customer education and awareness of energy assistance programs such as the Low Income Home Energy Assistance Program (LIHEAP) to help customers deal with the impact of the pandemic. Regulatory deferrals for certain costs have been allowed by all of our state regulatory commissions.
We continue to monitor how COVID-19 is affecting our workforce, customers, suppliers, operations, financial results and cash flow. The extent of the impact in income from continuing operations during 2017 was due primarily to a lossthe future will vary and depend on early extinguishmentthe duration and severity of long-term debt, partially offset by increased operating income, as discussed below.
NiSource's operating incomethe impact on the global, national and local economies. For information on the impacts of COVID-19 for the three and nine months ended September 30, 2017 was $640.6 million compared to $633.3 million for2021, the same period in 2016. The higher operating income was primarily due to increased net revenues from new rates from base-rate proceedingsstate-specific suspension of disconnections, and infrastructure replacement programs, along with increased rates from incremental capital spend on electric transmission projects at NIPSCO, partially offset by unfavorable effects of weather. The increase in net revenues was partially offset by increased operating expenses due to higher employeeCOVID-19 regulatory filings see Note 3, ''Revenue Recognition,'' and administrative expenses, increased outside service costs, higher material and supplies expenses and increased environmental costs. Additionally, depreciation expense and other taxes increased relative to 2016. These increases in operating expenses were partially offset by decreased amortization expense.
Other Income (Deductions), net
Other income (deductions), net reduced income by $83.1 million in the third quarter of 2017 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 million in the prior year. This change is due primarily to a loss on early extinguishment of long-term debt of $111.5 million which was incurred in 2017. Refer to Note 12, "Long-Term Debt,"7, ''Regulatory Matters,'' in the Notes to Condensed Consolidated Financial Statements (unaudited).
Economic Environment: We are monitoring risks related to increasing order and delivery lead times for construction and other materials, increasing risk of unavailability of materials due to global shortages in raw materials, and risk of decreased construction labor productivity in the event of disruptions in the availability of materials. We are also seeing increasing prices associated with certain materials and supplies. To the extent that delays occur or our costs increase, our business operations, results of operations, cash flows, and financial condition could be materially adversely affected.
We have also seen an increase in forecasted gas costs for the coming heating season that we expect to have an effect on customer bills. We do not expect this increase to have a material impact on our results of operations. For more information on our commodity price impacts, see " - Results and Discussion of Segment Operations - Gas Distribution Operations," and " - Market Risk Disclosures."
For more information on global availability of materials for our renewable projects, see " - Results and Discussion of Segment Operations - Electric Operations - Electric Supply and Generation Transition."
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Summary of Consolidated Financial Results
A summary of our consolidated financial results for the three and nine months ended September 30, 2021 and 2020 are presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions, except per share amounts) | 2021 | | 2020 | | Favorable (Unfavorable) | | 2021 | | 2020 | | Favorable (Unfavorable) |
| Operating Revenues | $ | 959.4 | | | $ | 902.5 | | | $ | 56.9 | | | $ | 3,491.0 | | | $ | 3,470.7 | | | $ | 20.3 | |
| Operating Expenses | | | | | | | | | | | |
| Cost of energy | 208.3 | | | 143.1 | | | (65.2) | | | 913.4 | | | 793.9 | | | (119.5) | |
| Other Operating Expenses | 604.0 | | | 666.6 | | | 62.6 | | | 1,855.1 | | | 2,344.1 | | | 489.0 | |
| Total Operating Expenses | 812.3 | | | 809.7 | | | (2.6) | | | 2,768.5 | | | 3,138.0 | | | 369.5 | |
| Operating Income | 147.1 | | | 92.8 | | | 54.3 | | | 722.5 | | | 332.7 | | | 389.8 | |
| Total Other Deductions, net | (70.1) | | | (330.6) | | | 260.5 | | | (216.3) | | | (508.6) | | | 292.3 | |
| Income Taxes | 14.8 | | | (64.9) | | | (79.7) | | | 90.6 | | | (73.9) | | | (164.5) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net Income (Loss) | 62.2 | | | (172.9) | | | 235.1 | | | 415.6 | | | (102.0) | | | 517.6 | |
| Net loss attributable to noncontrolling interest | (1.0) | | | — | | | 1.0 | | | (3.4) | | | — | | | 3.4 | |
| Net Income (Loss) Attributable to NiSource | 63.2 | | | (172.9) | | | 236.1 | | | 419.0 | | | (102.0) | | | 521.0 | |
| Preferred dividends | (13.8) | | | (13.8) | | | — | | | (41.4) | | | (41.4) | | | — | |
| Net Income (Loss) Available to Common Shareholders | 49.4 | | | (186.7) | | | 236.1 | | | 377.6 | | | (143.4) | | | 521.0 | |
| Earnings (Loss) Per Share | | | | | | | | | | | |
| Basic Earnings (Loss) Per Share | $ | 0.13 | | | $ | (0.49) | | | $ | 0.62 | | | $ | 0.96 | | | $ | (0.37) | | | $ | 1.33 | |
| Diluted Earnings (Loss) Per Share | $ | 0.12 | | | $ | (0.49) | | | $ | 0.61 | | | $ | 0.91 | | | $ | (0.37) | | | $ | 1.28 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
The majority of the cost of energy in both segments are tracked costs that are passed through directly to the customer, resulting in an equal and offsetting amount reflected in operating revenues.
On a consolidated basis, we reported a net income available to common shareholders of $49.4 million, or $0.12 per diluted share for the three months ended September 30, 2021, compared to a net loss available to common shareholders of $186.7 million, or $0.49 per diluted share for the same period in 2020. The increase in income was primarily due to the loss on sale of the Massachusetts business in 2020, as well as a favorable change in total other deductions for the three months ended September 30, 2021 compared to the same period in 2020. See below for the primary drivers of this change.
For the nine months ended September 30, 2021, we reported net income available to common shareholders of $377.6 million, or $0.91 per diluted share compared to net loss available to common shareholders of $143.4 million, or $0.37 per diluted share for the same period in 2020. The primary driver for this increase was the loss on sale of the Massachusetts business in 2020.
For additional information on operating income variance drivers see "Results and Discussion of Segment Operations" for Gas and Electric Operations in this Management's Discussion.
Other Deductions, net
Other deductions, net reduced income by $70.1 million during the three months ended September 30, 2021 compared to a reduction in income of $330.6 million in the same period in 2020. This change was primarily driven by the loss on early extinguishment of debt in 2020, lower long-term debt.and short-term debt interest in 2021 and higher non-service pension benefits in 2021. The lower interest in 2021 was due to lower rates on long-term debt and lower balances on short-term debt during the three months ended September 30, 2021 compared to the same period in 2020. The higher non-service pension costs were driven by a decrease in the pension benefit obligations. See Note 13, "Long-Term Debt," Note 14, "Short-Term Borrowings," and Note 11, "Pension and Other Postretirement Benefits," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information.
Other deductions, net reduced income by $216.3 million during the nine months ended September 30, 2021 compared to a reduction in income of $508.6 million in the same period in 2020. The drivers for this change were consistent with that of the quarter-to-date period.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Income Taxes
Refer to Note 10, "Income Taxes," in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on income taxes.
Capital Investment. Intaxes and the nine months ended September 30, 2017, NiSource invested $1,216.4 million in capital expenditures across its gas and electric utilities. These expenditures were primarily aimed at furthering the safety and reliability of NiSource's gas distribution system, construction of new electric transmission assets and maintaining NiSource’s existing electric generation fleet. NiSource continues to execute on an estimated $30 billion in total projected long-term regulated utility infrastructure investments and expects to invest a total of approximately $1.6 to $1.7 billion in capital during 2017 to continue to modernize and improve its system across all seven states.
Liquidity. NiSource believes that through income generated from operating activities, amounts available under its short-term revolving credit facility, commercial paper program, accounts receivable securitization facilities, long-term debt agreements and NiSource’s ability to access the capital markets, there is adequate capital available to fund its operating activities and capital expenditures in 2017 and beyond. At September 30, 2017 and December 31, 2016, NiSource had $1,275.3 million and $683.7 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 September 30, 2017, NiSource continued to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all seven states of its operating area. The discussion below summarizes significant regulatory developments that transpired during the third quarter of 2017:
Gas Distribution Operations
NIPSCO filed a gas base rate case with the IURC on September 27, 2017. 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 approved as filed, the fully implemented request would increase annual revenues by $143.5 million, inclusive of amounts being recovered through various tracker programs. An order is expectedchange in the second half of 2018.effective tax rate.
Columbia of Ohio filed a settlement agreement in its pending application for a five year extension of its IRP on August 18, 2017. This well-established pipeline replacement program, which is currently authorized through December 31, 2017,
Table of Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
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's base rate case settlement by the MPSC. The settlement supports continued accelerated replacement of aging pipe as well as adoption of additional pipeline safety upgrades and increases annual revenue by $2.4 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 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 June 30, 2017, NIPSCO filed its latest tracker update request, covering $177.3 million in cumulative net capital expenditures through April 30, 2017. An order approving the request was received from the IURC on October 31, 2017.
NIPSCO's request, filed in November 2016, to invest in environmental upgrades at its Michigan City Unit 12 and R.M. Schahfer Units 14 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 group 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.
Refer to Note 5, “Regulatory Matters,” as well as to Note 14, "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. We primarily evaluate segment results based on operating income. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other" within the Notes to the Condensed Consolidated Financial Statements (unaudited) and primarily are comprised of interest expense on holding company debt, and unallocated corporate costs and activities.
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, | | 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 Revenues | 340.0 |
| | 319.4 |
| | 20.6 |
| | 1,488.5 |
| | 1,375.6 |
| | 112.9 |
|
| Operating Expenses | | | | |
| | | | | | |
| Operation and maintenance | 257.9 |
| | 213.4 |
| | 44.5 |
| | 792.3 |
| | 668.3 |
| | 124.0 |
|
| Depreciation and amortization | 67.9 |
| | 64.3 |
| | 3.6 |
| | 199.5 |
| | 188.8 |
| | 10.7 |
|
| Other taxes | 37.9 |
| | 37.4 |
| | 0.5 |
| | 134.6 |
| | 125.8 |
| | 8.8 |
|
| Total Operating Expenses | 363.7 |
| | 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 |
|
| Commercial | 80.9 |
| | 71.6 |
| | 9.3 |
| | 456.0 |
| | 402.7 |
| | 53.3 |
|
| Industrial | 39.7 |
| | 36.4 |
| | 3.3 |
| | 156.5 |
| | 139.9 |
| | 16.6 |
|
| Off-System | 30.4 |
| | 19.9 |
| | 10.5 |
| | 97.1 |
| | 59.4 |
| | 37.7 |
|
| Other | 19.4 |
| | 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) | | | | |
| | | | | | |
| Residential | 14.5 |
| | 13.7 |
| | 0.8 |
| | 157.2 |
| | 169.5 |
| | (12.3 | ) |
| Commercial | 17.3 |
| | 16.3 |
| | 1.0 |
| | 111.3 |
| | 114.7 |
| | (3.4 | ) |
| Industrial | 125.9 |
| | 130.4 |
| | (4.5 | ) | | 380.3 |
| | 393.7 |
| | (13.4 | ) |
| Off-System | 11.1 |
| | 7.4 |
| | 3.7 |
| | 33.8 |
| | 27.3 |
| | 6.5 |
|
| Other | 0.3 |
| | — |
| | 0.3 |
| | 0.2 |
| | — |
| | 0.2 |
|
| Total | 169.1 |
| | 167.8 |
| | 1.3 |
| | 682.8 |
| | 705.2 |
| | (22.4 | ) |
| Heating Degree Days | 75 |
| | 33 |
| | 42 |
| | 2,911 |
| | 3,297 |
| | (386 | ) |
| Normal Heating Degree Days | 85 |
| | 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 |
|
Net revenues are calculated as gross revenues less the associated cost of sales (excluding depreciationFinancial and amortization). Cost of sales atoperational data for the Gas Distribution Operations segment is principally comprised offor the cost of natural gas used while providing transportationthree and distribution services to its customers. The majority of the cost of salesnine months ended September 30, 2021 and 2020 are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in gross revenues.presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2021 | | 2020 | | Favorable (Unfavorable) | | 2021 | | 2020 | | Favorable (Unfavorable) |
| Operating Revenues | $ | 475.3 | | | $ | 473.1 | | | $ | 2.2 | | | $ | 2,191.5 | | | $ | 2,313.3 | | | $ | (121.8) | |
| Operating Expenses | | | | | | | | | | | |
| Cost of energy | 89.0 | | | 63.0 | | | (26.0) | | | 597.0 | | | 559.6 | | | (37.4) | |
| Operation and maintenance | 232.4 | | | 275.2 | | | 42.8 | | | 725.1 | | | 868.4 | | | 143.3 | |
| Depreciation and amortization | 96.9 | | | 88.4 | | | (8.5) | | | 283.4 | | | 271.7 | | | (11.7) | |
| | | | | | | | | | | |
| Loss (gain) on sale of fixed assets and impairments, net | (0.1) | | | 35.6 | | | 35.7 | | | 8.0 | | | 400.2 | | | 392.2 | |
| Other taxes | 46.1 | | | 53.1 | | | 7.0 | | | 158.9 | | | 175.4 | | | 16.5 | |
| Total Operating Expenses | 464.3 | | | 515.3 | | | 51.0 | | | 1,772.4 | | | 2,275.3 | | | 502.9 | |
| Operating Income (Loss) | $ | 11.0 | | | $ | (42.2) | | | $ | 53.2 | | | $ | 419.1 | | | $ | 38.0 | | | $ | 381.1 | |
| Revenues | | | | | | | | | | | |
| Residential | $ | 309.8 | | | $ | 310.1 | | | $ | (0.3) | | | $ | 1,472.9 | | | $ | 1,544.0 | | | $ | (71.1) | |
| Commercial | 101.3 | | | 93.2 | | | 8.1 | | | 501.6 | | | 491.3 | | | 10.3 | |
| Industrial | 41.4 | | | 42.9 | | | (1.5) | | | 144.0 | | | 166.2 | | | (22.2) | |
| Off-System | 14.6 | | | 6.0 | | | 8.6 | | | 46.0 | | | 32.7 | | | 13.3 | |
| Other | 8.2 | | | 20.9 | | | (12.7) | | | 27.0 | | | 79.1 | | | (52.1) | |
| Total | $ | 475.3 | | | $ | 473.1 | | | $ | 2.2 | | | $ | 2,191.5 | | | $ | 2,313.3 | | | $ | (121.8) | |
| Sales and Transportation (MMDth) | | | | | | | | | | | |
| Residential | 12.4 | | | 15.5 | | | (3.1) | | | 161.5 | | | 173.8 | | | (12.3) | |
| Commercial | 17.3 | | | 17.7 | | | (0.4) | | | 118.8 | | | 119.8 | | | (1.0) | |
| Industrial | 123.3 | | | 131.9 | | | (8.6) | | | 384.4 | | | 402.9 | | | (18.5) | |
| Off-System | 4.1 | | | 3.7 | | | 0.4 | | | 15.7 | | | 19.0 | | | (3.3) | |
| Other | — | | | 0.1 | | | (0.1) | | | 0.2 | | | 0.3 | | | (0.1) | |
| Total | 157.1 | | | 168.9 | | | (11.8) | | | 680.6 | | | 715.8 | | | (35.2) | |
| Heating Degree Days | 44 | | | 91 | | | (47) | | | 3,353 | | | 3,259 | | | 94 | |
| Normal Heating Degree Days | 70 | | | 71 | | | (1) | | | 3,475 | | | 3,531 | | | (56) | |
| % Colder (Warmer) than Normal | (37) | % | | 28 | % | | | | (4) | % | | (8) | % | | |
| % Colder (Warmer) than 2020 | (52) | % | | | | | | 3 | % | | | | |
| Gas Distribution Customers | | | | | | | | | | | |
| Residential | | | | | | | 2,942,031 | | | 3,232,785 | | | (290,754) | |
| Commercial | | | | | | | 250,931 | | | 281,316 | | | (30,385) | |
| Industrial | | | | | | | 4,904 | | | 5,967 | | | (1,063) | |
| Other | | | | | | | 3 | | | 3 | | | — | |
| Total | | | | | | | 3,197,869 | | | 3,520,071 | | | (322,202) | |
Comparability of line item operating resultsoperation and maintenance expenses, depreciation and amortization, and other taxes may also be impacted by regulatory, depreciation and 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 offset by increases in net revenues and have essentially no impact on income from continuing operations.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations
Three and Nine Months Ended September 30, 2021 vs. September 30, 2020 Operating Income
For the three months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the third quarter of 2017,2021, 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$11.0 million, an increase of $20.6$53.2 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
comparable 2020 period. For the nine months ended September 30, 2017,2021, Gas Distribution Operations reported operating income of $362.1$419.1 million, a decreasean increase of $30.6$381.1 million from the comparable 20162020 period.
NetOperating Revenues
Operating revenues for the three months ended September 30, 2021 were $475.3 million, an increase of $2.2 million from the same period in 2020. Operating revenues for the nine months ended September 30, 20172021 were $1,488.5$2,191.5 million, an increasea decrease of $112.9$121.8 million from the same period in 2016. The change in net revenues was primarily driven by:2020.
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.
| | | | | | | | | | | |
| Favorable (Unfavorable) |
Changes in Operating Revenues (in millions) | Three Months Ended September 30, 2021 vs 2020 | | Nine Months Ended September 30, 2021 vs 2020 |
| Revenues associated with the Massachusetts Business in 2020 | $ | (40.4) | | | $ | (218.6) | |
| The effects of colder (warmer) weather in 2021 compared to 2020 | (1.3) | | | 12.2 | |
| New rates from base rate proceedings and regulatory capital programs | 18.8 | | | 79.4 | |
| Higher revenue due to the effects of resuming common credit mitigation practices | 0.8 | | | 3.9 | |
| The effects of customer growth | 0.1 | | | 5.1 | |
| Other | 2.7 | | | 1.2 | |
| Change in operating revenues (before cost of energy and other tracked items) | $ | (19.3) | | | $ | (116.8) | |
| Operating revenues offset in operating expense | | | |
| Higher cost of energy billed to customers | 32.3 | | | 145.5 | |
| Cost of energy associated with the Massachusetts Business in 2020 | (6.3) | | | (108.1) | |
| Operation and maintenance trackers associated with the Massachusetts Business in 2020 | (5.2) | | | (36.4) | |
| Higher (lower) tracker deferrals within operation and maintenance, depreciation, and tax | 0.7 | | | (6.0) | |
| Total change in operating revenues | $ | 2.2 | | | $ | (121.8) | |
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'sdays, net of weather normalization mechanisms. Our composite heating degree days reported do not directly correlate to the weather-related dollar impact on the results of Gas Distribution Operations. Heating degree days experienced during different times of the year or in different operating locations may have more or less impact on volume and dollars depending on when and where they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in 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 third quarter of 2017 was about 12% warmer than normal and about 127% colder than 2016, leading to increased net revenues of $0.2 million for the quarter ended September 30, 2017 compared to 2016.
Weather in the Gas Distribution Operations service territories for the nine months ended September 30, 2017 was about 19% warmer than normal and about 12% warmer than 2016, resulting in decreased net revenues of $14.6 million for the nine months ended September 30, 2017 compared to 2016.
Throughput
Total volumes sold and transported for the third quarter of 2017three months ended September 30, 2021 were 169.1157.1 MMDth, compared to 167.8168.9 MMDth for 2016.the same period in 2020. This decrease is primarily attributable to the sale of the Massachusetts Business and the effects of warmer weather during the three months ended September 30, 2021 compared to the same period in 2020.
Total volumes sold and transported for the nine months ended September 30, 20172021 were 682.8680.6 MMDth, compared to 705.2715.8 MMDth for 2016.the same period in 2020. This 3% decrease is primarily attributable to the sale of the Massachusetts Business, offset by the effects of warmercolder weather during the nine months ended September 30, 2021 compared to the same period in 2017.2020.
Economic ConditionsCommodity Price Impact
Cost of energy for the Gas Distribution Operations segment is principally comprised of the cost of natural gas used while providing transportation and distribution services to customers. All NiSourceof our Gas Distribution Operations companies have state-approved recovery mechanisms that provide a means for full recovery of prudently incurred gas costs. GasThese are tracked costs that are treated as pass-through costspassed through directly to the customer, 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
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations
recorded in the period and theperiod. 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 Therefore, increases in these tracked operating expenses are offset by increases in operating 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.have essentially no impact on net income.
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
Operating Expenses
Operating expenses were $51.0 million lower for the three months ended September 30, 2021 and $502.9 million lower for the nine months ended September 30, 2021 compared to further reduce NiSource's exposure to gas prices.the same respective periods in 2020.
| | | | | | | | | | | |
| Favorable (Unfavorable) |
Changes in Operating Expenses (in millions) | Three Months Ended September 30, 2021 vs 2020 | | Nine Months Ended September 30, 2021 vs 2020 |
| Operating expenses associated with the Massachusetts Business in 2020 | $ | 62.0 | | | $ | 188.8 | |
| Decrease (increase) in the loss on sale of the Massachusetts Business of $0.1 million and $(6.8) million in 2021 compared to $(35.6) million and $(400.2) million in 2020, respectively | 35.7 | | | 393.4 | |
| Lower (higher) expense related to the NiSource Next initiative | 12.3 | | | (6.7) | |
| Lower (higher) corporate insurance costs | 1.8 | | | (1.7) | |
| Higher employee and administrative related expenses | (23.4) | | | (33.0) | |
| Higher depreciation and amortization expense | (8.2) | | | (21.2) | |
| Higher outside services expenses | (5.1) | | | (7.9) | |
| Higher property tax expense | (2.5) | | | (7.1) | |
| Higher environmental costs | (1.6) | | | (4.2) | |
| | | |
| Other | 1.5 | | | (2.5) | |
| Change in operating expenses (before cost of energy and other tracked items) | $ | 72.5 | | | $ | 497.9 | |
| Operating expenses offset in operating revenue | | | |
| Higher cost of energy billed to customers | (32.3) | | | (145.5) | |
| Cost of energy associated with the Massachusetts Business in 2020 | 6.3 | | | 108.1 | |
| Operation and maintenance trackers associated with the Massachusetts Business in 2020 | 5.2 | | | 36.4 | |
| Lower (higher) tracker deferrals within operation and maintenance, depreciation, and tax | (0.7) | | | 6.0 | |
| Total change in operating expense | $ | 51.0 | | | $ | 502.9 | |
Columbia of Massachusetts Asset Sale
On October 9, 2020, we completed the sale of our Massachusetts Business. In March 2021, we reached an agreement with Eversource regarding the final purchase price, including net working capital adjustments, which resulted in a decrease (increase) in the pre-tax loss for the three and nine months ended September 30, 2021 of $0.1 million and $(6.8) million, respectively. The total loss on the sale as of September 30, 2021 is $419.2 million based on asset and liability balances as of the close of the transaction on October 9, 2020, transaction costs and the final purchase price. The pre-tax loss is presented as "Loss (gain) on sale of assets, net" on the Condensed Statements of Consolidated Income (Loss) (unaudited).
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 Revenues | 347.0 |
| | 323.8 |
| | 23.2 |
| | 965.2 |
| | 869.8 |
| | 95.4 |
|
| Operating Expenses | | | | |
|
| | | | | | |
| Operation and maintenance | 136.7 |
| | 127.6 |
| | 9.1 |
| | 422.1 |
| | 372.1 |
| | 50.0 |
|
| Depreciation and amortization | 69.8 |
| | 66.9 |
| | 2.9 |
| | 212.0 |
| | 202.8 |
| | 9.2 |
|
| Other taxes | 16.1 |
| | 16.5 |
| | (0.4 | ) | | 44.8 |
| | 43.4 |
| | 1.4 |
|
| Total Operating Expenses | 222.6 |
| | 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 |
|
| Commercial | 134.6 |
| | 127.1 |
| | 7.5 |
| | 379.0 |
| | 336.2 |
| | 42.8 |
|
| Industrial | 171.5 |
| | 155.8 |
| | 15.7 |
| | 531.4 |
| | 469.4 |
| | 62.0 |
|
| Wholesale | 3.7 |
| | 3.7 |
| | — |
| | 9.0 |
| | 8.8 |
| | 0.2 |
|
| Other | 38.2 |
| | 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) | | | | |
|
| | | | | | |
| Residential | 1,002.3 |
| | 1,147.5 |
| | (145.2 | ) | | 2,523.9 |
| | 2,744.9 |
| | (221.0 | ) |
| Commercial | 1,042.7 |
| | 1,102.8 |
| | (60.1 | ) | | 2,868.1 |
| | 2,954.8 |
| | (86.7 | ) |
| Industrial | 2,390.9 |
| | 2,356.3 |
| | 34.6 |
| | 7,192.7 |
| | 7,072.2 |
| | 120.5 |
|
| Wholesale | 6.1 |
| | 2.3 |
| | 3.8 |
| | 28.0 |
| | 3.6 |
| | 24.4 |
|
| Other | 31.2 |
| | 39.7 |
| | (8.5 | ) | | 96.3 |
| | 104.8 |
| | (8.5 | ) |
| Total | 4,473.2 |
| | 4,648.6 |
| | (175.4 | ) | | 12,709.0 |
| | 12,880.3 |
| | (171.3 | ) |
| Cooling Degree Days | 540 |
| | 681 |
| | (141 | ) | | 765 |
| | 966 |
| | (201 | ) |
| Normal Cooling Degree Days | 570 |
| | 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 |
|
Net revenues are calculated as gross revenues less the associated cost of sales (excluding depreciationFinancial and amortization). Cost of sales atoperational data for the Electric Operations segment is principally comprised of the cost of coal, related handling costs, natural gas purchased for the internal generation of electricity at NIPSCOthree and the cost of power purchased from third-party generators of electricity. The majority of the cost of salesnine months ended September 30, 2021 and 2020 are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in gross revenues.presented below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| (in millions) | 2021 | | 2020 | | Favorable (Unfavorable) | | 2021 | | 2020 | | Favorable (Unfavorable) |
| | | | | | | | | | | |
| Operating Revenues | 479.1 | | | $ | 432.3 | | | $ | 46.8 | | | 1,285.5 | | | $ | 1,166.2 | | | $ | 119.3 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | |
| Cost of energy | 119.3 | | | 80.1 | | | (39.2) | | | 316.4 | | | 234.3 | | | (82.1) | |
| Operation and maintenance | 120.5 | | | 126.9 | | | 6.4 | | | 366.9 | | | 355.8 | | | (11.1) | |
| Depreciation and amortization | 83.3 | | | 80.8 | | | (2.5) | | | 250.4 | | | 240.3 | | | (10.1) | |
| | | | | | | | | | | |
| Other taxes | 15.6 | | | 14.5 | | | (1.1) | | | 43.9 | | | 40.4 | | | (3.5) | |
| Total Operating Expenses | 338.7 | | | 302.3 | | | (36.4) | | | 977.6 | | | 870.8 | | | (106.8) | |
| Operating Income | $ | 140.4 | | | $ | 130.0 | | | $ | 10.4 | | | $ | 307.9 | | | $ | 295.4 | | | $ | 12.5 | |
| Revenues | | | | | | | | | | | |
| Residential | $ | 178.7 | | | $ | 168.3 | | | $ | 10.4 | | | $ | 439.8 | | | $ | 411.5 | | | $ | 28.3 | |
| Commercial | 151.6 | | | 135.4 | | | 16.2 | | | 404.4 | | | 365.4 | | | 39.0 | |
| Industrial | 126.0 | | | 105.8 | | | 20.2 | | | 368.3 | | | 301.4 | | | 66.9 | |
| Wholesale | 4.8 | | | 3.9 | | | 0.9 | | | 11.3 | | | 9.9 | | | 1.4 | |
| Other | 18.0 | | | 18.9 | | | (0.9) | | | 61.7 | | | 78.0 | | | (16.3) | |
| Total | $ | 479.1 | | | $ | 432.3 | | | $ | 46.8 | | | $ | 1,285.5 | | | $ | 1,166.2 | | | $ | 119.3 | |
| Sales (GWh) | | | | | | | | | | | |
| Residential | 1,159.4 | | | 1,145.3 | | | 14.1 | | | 2,785.0 | | | 2,734.8 | | | 50.2 | |
| Commercial | 1,057.0 | | | 996.0 | | | 61.0 | | | 2,829.1 | | | 2,706.5 | | | 122.6 | |
| Industrial | 2,081.0 | | | 1,909.1 | | | 171.9 | | | 6,295.1 | | | 5,447.7 | | | 847.4 | |
| Wholesale | 37.2 | | | 5.3 | | | 31.9 | | | 81.7 | | | 81.6 | | | 0.1 | |
| Other | 36.1 | | | 24.4 | | | 11.7 | | | 83.7 | | | 74.1 | | | 9.6 | |
| Total | 4,370.7 | | | 4,080.1 | | | 290.6 | | | 12,074.6 | | | 11,044.7 | | | 1,029.9 | |
| Cooling Degree Days | 658 | | | 599 | | | 59 | | | 976 | | | 891 | | 85 | |
| Normal Cooling Degree Days | 556 | | | 556 | | | — | | | 795 | | | 795 | | — | |
| % Warmer than Normal | 18 | % | | 8 | % | | | | 23 | % | | 12 | % | | |
| % Warmer than 2020 | 10 | % | | | | | | 10 | % | | | | |
| Electric Customers | | | | | | | | | | | |
| Residential | | | | | | | 421,074 | | | 417,703 | | | 3,371 | |
| Commercial | | | | | | | 57,860 | | | 57,241 | | | 619 | |
| Industrial | | | | | | | 2,140 | | | 2,160 | | | (20) | |
| Wholesale | | | | | | | 719 | | | 723 | | | (4) | |
| Other | | | | | | | 2 | | | 2 | | | — | |
| Total | | | | | | | 481,795 | | | 477,829 | | | 3,966 | |
Comparability of line item operating resultsoperation and maintenance expenses and depreciation and amortization 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 income from continuing operations.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
Three and Nine Months Ended September 30, 2021 vs. September 30, 2020 Operating Income
ThreeFor the three months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the third quarter of 2017,2021, Electric Operations reported operating income of $124.4$140.4 million, an increase of $11.6$10.4 million from the comparable 20162020 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 effects of cooler weather of $10.8 million.
Operating expenses were $11.6 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, 2017,2021, Electric Operations reported operating income of $286.3$307.9 million, an increase of $34.8$12.5 million from the comparable 20162020 period.
NetOperating Revenues
Operating revenues for the three months ended September 30, 2021 were $479.1 million, an increase of $46.8 million from the same period in 2020. Operating revenues for the nine months ended September 30, 20172021 were $965.2$1,285.5 million, an increase of $95.4$119.3 million from the same period in 2016. The change in net revenues was primarily driven by:2020.
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. | | | | | | | | | | | | |
| Favorable (Unfavorable) | |
Changes in Operating Revenues (in millions) | Three Months Ended September 30, 2021 vs 2020 | | Nine Months Ended September 30, 2021 vs 2020 | |
| The effects of warmer weather in 2021 compared to 2020 | $ | 11.5 | | | $ | 15.7 | | |
| Increased (decreased) customer usage | (2.7) | | | 13.5 | | |
| New rates from regulatory capital and DSM programs | 1.5 | | | 7.5 | | |
| The effects of customer growth | 1.5 | | | 3.6 | | |
| Higher revenue due to the effects of resuming common credit mitigation practices | 1.5 | | | 1.9 | | |
| Increased fuel handling costs | (3.9) | | | (10.4) | | |
| Other | 0.1 | | | 2.5 | | |
| Change in operating revenues (before cost of energy and other tracked items) | $ | 9.5 | | | $ | 34.3 | | |
| Operating revenues offset in operating expense | | | | |
| Higher cost of energy billed to customers | 39.2 | | | 82.1 | | |
| Higher (lower) tracker deferrals within operation and maintenance, depreciation and tax | (1.9) | | | 2.9 | | |
| Total change in operating revenues | $ | 46.8 | | | $ | 119.3 | | |
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.
Table of Contents
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 third quarter of 2017 was about 5% cooler than normal and about 24% cooler than 2016, resulting in decreased net revenues of $10.8 million for the quarter ended September 30, 2017 compared to 2016.
Weather in the Electric Operations’ territories for the nine months ended September 30, 2017 was about 3% warmer than normal and about 18% cooler than 2016, resulting in decreased net revenues of $17.3 million for the nine months ended September 30, 2017 compared to 2016.
Sales
Electric Operations sales for the third quarterthree months ended September 30, 2021 were 4,370.7 GWh, an increase of 2017 were 4,473.2 gwh, a decrease of 175.4 gwh290.6 GWh compared to the same period in 2016. The 4% decrease is2020. This increase was primarily attributable to decreased residential sales fromusage by industrial and commercial customers during the cooler weather in the current year.three months ended September 30, 2020 due to COVID-19.
Electric Operations sales for the nine months ended September 30, 20172021 were 12,709.0 gwh, a decrease12,074.6 GWh, an increase of 171.3 gwh1,029.9 GWh compared to the same period in 2016. The 1% decrease is2020. This increase was primarily attributedattributable to decreased residential salesusage by industrial and commercial customers during the second and third quarter of 2020 due to COVID-19. There was no significant variance during the first three months of 2021 compared to the same period in 2020.
Commodity Price Impact
Cost of energy for the Electric Operations segment is principally comprised of the cost of coal, related handling costs, natural gas purchased for internal generation of electricity at NIPSCO, and the cost of power purchased from cooler weather in the current year.
Economic Conditions
third-party generators of electricity. NIPSCO has a state-approved recovery mechanism that provides a means for full recovery of prudently incurred fuel costs. FuelThe majority of these fuel costs are treated as pass-through costspassed through directly to the customer, and have no impact on the net revenues recorded in the period. The fuel costs included in operating
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
revenues are matched with the fuel cost expense recorded in the period and theperiod. 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 Therefore, increases in these tracked operating expenses are offset by increases in operating 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 revenueshave essentially no impact on net income.
Operating Expenses
Operating expenses were $36.4 million higher for the quarterthree months ended September 30, 2017 and 20162021 compared to the same period in 2020. Operating expenses were a revenue increase of $7.8$106.8 million and $16.1 million, respectively. The adjustments to other gross revenueshigher for the nine months ended September 30, 2017 and 2016 were a revenue increase of $6.9 million and $34.5 million, respectively.2021 compared to the same period in 2020.
| | | | | | | | | | | |
| Favorable (Unfavorable) |
Changes in Operating Expenses (in millions) | Three Months Ended September 30, 2021 vs 2020 | | Nine Months Ended September 30, 2021 vs 2020 |
| Higher employee and administrative expenses | $ | (8.9) | | | $ | (12.2) | |
| Higher depreciation and amortization expense | (3.0) | | | (8.2) | |
| Increased operating expenses related to the accelerated retirement of the R.M. Schahfer Generating Station's coal Units 14 and 15 | (3.6) | | | (7.6) | |
| Lower (higher) expense related to the NiSource Next initiative | 5.6 | | | (4.3) | |
| Lower (higher) environmental costs | (2.2) | | | 6.9 | |
| Lower outside services expenses | 10.1 | | | 4.9 | |
| Lower materials and supplies expenses | 2.2 | | | 0.8 | |
| Other | 0.7 | | | (2.1) | |
| Change in operating expenses (before cost of energy and other tracked items) | $ | 0.9 | | | $ | (21.8) | |
| Operating expenses offset in operating revenue | | | |
| Higher cost of energy billed to customers | (39.2) | | | (82.1) | |
| Lower (higher) tracker deferrals within operation and maintenance, depreciation and tax | 1.9 | | | (2.9) | |
| Total change in operating expense | $ | (36.4) | | | $ | (106.8) | |
Electric Supply and Generation Transition
NIPSCO 2016 Integrated Resource Plan. Environmental, regulatory and economic factors, including low natural gas prices and aging coal-fired units, have led NIPSCOcontinues to consider modifying its currentexecute on an 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 overtransition consistent with the next seven years if the current fleet of coal-fired generating units remain operational.
On November 1, 2016, NIPSCO submittedpreferred pathway from its 20162018 Integrated Resource Plan, with the IURC.which outlines plans to retire its remaining coal-fired generation by 2028, to be replaced by lower-cost, reliable and cleaner options. The plan evaluated demand-sideis expected to be a key element of a 90% reduction in our Scope 1 GHG emissions by 2030 compared with 2005 levels and supply-side resource alternatives to reliablysave NIPSCO electric customers more than $4 billion over 30 years. We expect to have capital investment requirements of approximately $2.0 billion, primarily in 2022 and cost effectively meet NIPSCO customers' future energy requirements over2023, to replace the ensuing 20 years. The 2016 Integrated Resource Plan indicates that the most viable option for customers and NIPSCO involves the retirementgeneration capacity of Baillyall R.M. Schahfer Generating Station (Units 7 and 8) as soon as mid-2018 and two units (Units 17 and 18) at theStation's coal-fired units. We retired R.M. Schahfer Generating Station by the end ofUnits 14 and 15 on October 1, 2021. The remaining two units are still scheduled to be retired in 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 charges 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. Refer to Note 14-D,6, "Property, Plant and Equipment," Note 15-E, "Other Matters," and Note 19, "Subsequent Event" in the Notes to Condensed Consolidated Financial Statements (unaudited) for further information.
The current replacement plan primarily includes renewable sources of energy, including wind, solar, and battery storage to be obtained through a combination of NIPSCO ownership and PPAs. NIPSCO has sold, and may in the future sell, renewable energy credits from this generation to third parties because this helps keep our energy more affordable for our customers. NIPSCO has executed several PPAs to purchase 100% of the output from renewable generation facilities at a fixed price per MWh. Each facility supplying the energy will have an associated nameplate capacity, and payments under the PPAs will not begin until the associated generation facility is constructed by the owner/seller. NIPSCO has also executed several BTAs with developers to construct renewable generation facilities. Our current replacement program will be augmented by the Preferred Energy Resource Plan outlined in our 2021 Integrated Resource Plan. See "Executive Summary - Your Energy, Your Future" in this Management's Discussion for additional information.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
The following table summarizes the executed PPAs and BTAs from our generation transition:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Project Name | Transaction Type | Technology | Nameplate Capacity (MW) | Storage Capacity (MW) | Submitted to IURC | IURC Approval | Targeted Construction Completion | |
| Jordan Creek | 20 year PPA | Wind | 400 | — | 02/01/2019 | 6/05/2019 | In Service (12/10/2020) | |
Rosewater(1) | BTA | Wind | 102 | — | 02/01/2019 | 8/07/2019 | In Service (12/29/2020) | |
Indiana Crossroads I(2) | BTA | Wind | 300 | — | 10/22/2019 | 2/19/2020 | Q4 2021 | |
| Greensboro | 20 year PPA | Solar & Storage | 100 | 30 | 7/17/2020 | 1/27/2021 | Q4 2022 | |
| Brickyard | 20 year PPA | Solar | 200 | — | 7/17/2020 | 1/27/2021 | Q4 2022 | |
Cavalry(2) | BTA | Solar & Storage | 200 | 60 | 11/30/2020 | 5/5/2021 | Q4 2023 | |
Dunn's Bridge I(2) | BTA | Solar | 265 | — | 11/30/2020 | 5/5/2021 | Q4 2022 | |
Dunn's Bridge II(2) | BTA | Solar & Storage | 435 | 75 | 11/30/2020 | 5/5/2021 | Q4 2023 | |
| Green River | 20 year PPA | Solar | 200 | — | 12/23/2020 | 5/5/2021 | Q2 2023 | |
Gibson(3) | 22 year PPA | Solar | 280 | — | 01/29/2021 | 6/29/2021 | Q2 2023 | |
Fairbanks(2) | BTA | Solar | 250 | — | 03/03/2021 | 6/29/2021 | Q3 2023 | |
Indiana Crossroads(2) | BTA | Solar | 200 | — | 03/19/2021 | 7/28/2021 | Q4 2022 | |
Elliott(2)(3) | BTA | Solar | 200 | — | 03/31/2021 | 7/28/2021 | Q2 2023 | |
| Indiana Crossroads II | 15 year PPA | Wind | 204 | — | 04/30/2021 | 9/1/2021 | Q4 2023 | |
(1)Refer to Note 12, "Variable Interest Entities," for additional information.
(2)Ownership of the facility will be transferred to joint ventures whose members include NIPSCO and an unrelated tax equity partner.
(3)See below for additional information related to the targeted construction completion time of this project.
On October 27, 2021, we received notice of a potential force majeure event under the BTA for our Elliott solar generation project related to the supply of solar panel modules to be installed by the seller developing the project under the BTA. The notice states that shipments for the Elliott project will be delayed because solar panel modules currently being imported by a certain supplier, including those to be delivered to the Elliott project, have been, or are reasonably likely to be, detained by U.S. Customs and Border Protection (“CBP”) in connection with the June 24, 2021 Withhold Release Order ("WRO") on silica-based products made by Hoshine Silicon Industry Co., Ltd. The supplier of the solar panel modules has advised the sellers that the delivery of any additional similar solar panel modules has been delayed indefinitely. We have been informed that the supplier is taking actions to avoid detention of any future similar shipments, but even if these actions are successful, the delivery of solar panel modules will likely be delayed by several months. At this time, no claim of an actual force majeure has been provided by the seller under the BTA. Further, no additional details have been provided on the extent or expected duration of the potential detainment or the ability to obtain substitute solar panel modules that are not subject to the WRO, or the expected impact, if any, to the timely performance of the seller's obligations under the BTA. We have been informed that the seller is working diligently to determine whether and how to mitigate the effects of the potential detainment in order to minimize potential delays or failure to perform under the BTA.
Also on October 27, 2021, we received a substantially similar notice of a potential force majeure event from the same seller claiming a potential force majeure under our PPA for the Gibson solar project.
NIPSCO and the seller are evaluating options to mitigate delays and maintain the original project schedules, including various alternative power supply options in the event either or both of the Elliott and Gibson projects were to become delayed. We cannot currently predict what, if any, impact these notifications of potential force majeure or general availability of solar panels will have on NIPSCO or on our results of operations.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Liquidity and Capital Resources
We continually evaluate the availability of adequate financing to fund our ongoing business operations, working capital and core safety and infrastructure investment programs. Our financing is sourced through cash flow from operations and the issuance of debt and/or equity. External debt financing is provided primarily through the issuance of long-term debt, accounts receivable securitization programs and our $1.5 billion commercial paper program, which is backstopped by our committed revolving credit facility with a total availability from third-party lenders of $1.85 billion. The commercial paper program and credit facility provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves our desired capital structure. We utilize an ATM equity program that allows us to issue and sell shares of our common stock up to an aggregate issuance of $750.0 million through December 31, 2023. As of September 30, 2021, the ATM program (including the impact of the forward sale agreements) had approximately $300.0 million of equity available for issuance. On April 19, 2021, we completed the sale of 8.625 million Equity Units, which provided net proceeds of $835.5 million, after underwriting and issuance costs. We intend to use the net proceeds from the offering for renewable generation investments and general corporate purposes, including additions to working capital and repayment of existing indebtedness. See Note 5, ''Equity,'' in the Notes to Condensed Consolidated Financial Statements (unaudited) for more information on our ATM program and Equity Units.
We believe these sources provide adequate capital to fund our operating activities and capital expenditures in 2021 and beyond.
Greater Lawrence Incident: As discussed in Note 15, ''Other Commitments and Contingencies,'' in the Notes to the Condensed Consolidated Financial Statements (unaudited), due to the inherent uncertainty of litigation, there can be no assurance that the outcome or resolution of any particular claim related to the Greater Lawrence Incident will not continue to have an adverse impact on our cash flows. Through income generated from operating activities, amounts available under the short-term revolving credit facility, and our ability to access capital markets, we believe we have adequate capital available to settle remaining anticipated claims associated with the Greater Lawrence Incident.
Operating Activities
Net cash from operating activities from continuing operations for the nine months ended September 30, 20172021 was $529.5$939.3 million, a decreasean increase of $3.3$80.7 million compared to the nine months ended September 30, 2016.2020. This decreaseincrease was primarily driven by pension plan contributionsa year over year decrease in 2017 partiallynet payments related to the Greater Lawrence Incident. During 2021, we paid approximately $13.0 million compared to $221.8 million of payments during the same period in 2020. This was offset by a combination$131.8 million of changes in weather, gas prices and the related approved rates for recovery, which significantly impacted regulatory assets and regulatory liabilities between the two periods.
Regulatory Assets and Liabilities. During the nine months ended September 30, 2016, over-collected gas costs from 2015 were returned to customers resulting in a use of cash. In 2017, lessdecreased cash was required to be returned to customers because the balance of over-collected 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 made 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.
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. As of September 30, 2017, NiSource has a recorded deferred tax asset of $818.1 millioninflows related to a Federal NOL carryforward. As a resultthe under collection of being in an NOL position, NiSource was not required to make any cash payments for Federal income tax purposes during the nine months ended September 30, 2017 or 2016. This NOL carryforward expires in 2030; however, NiSource expects to fully utilize the carryforward benefit prior to its expiration.gas and fuel costs
Investing Activities
Net cash used for investing activities for the nine months ended September 30, 20172021 was $1,306.1$1,394.2 million, an increasea decrease of $137.9$5.7 million compared to the nine months ended September 30, 2016. This increase was mostly attributable to increased capital expenditures in 2017.
NiSource’s capital expenditures for the nine months ended September 30, 2017 were $1,216.4 million compared to $1,083.4 million for the comparable period in 2016. 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 projects2020. We project total 20172021 capital expenditures to be approximately $1.6$2 billion.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Liquidity and Capital Resources
Regulatory Capital Programs. We replace pipe and modernize our gas infrastructure to $1.7 billion.enhance safety and reliability by reducing leaks, which subsequently reduces GHG emissions. In 2021, we continue to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all six states of our operating area.
The following table describes the most recent vintage of our regulatory programs to recover infrastructure replacement and other federally mandated compliance investments currently in rates or pending commission approval:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | | | |
| Company | Program | Incremental Revenue | Incremental Capital Investment | Investment Period | Costs Covered(1) | Rates
Effective |
| Columbia of Ohio | IRP - 2021 | $ | 22.2 | | $ | 212.6 | | 1/20-12/20 | Replacement of (1) hazardous service lines, (2) cast iron, wrought iron, uncoated steel, and bare steel pipe, (3) natural gas risers prone to failure and (4) installation of AMR devices. | May 2021 |
| Columbia of Ohio | CEP - 2021 | 18.0 | | 177.2 | | 1/20-12/20 | Assets not included in the IRP. | September 2021 |
| NIPSCO - Gas | TDSIC 3 | 0.2 | | 52.1 | | 1/21-6/21 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | January 2022 |
NIPSCO - Gas(2) | FMCA 6 | (2.1) | | 20.7 | | 10/20-3/21 | Project costs to comply with federal mandates. | October 2021 |
Columbia of Pennsylvania(3) | DSIC - Q4 2020 | 0.8 | | 25.0 | | 9/20-11/20 | Eligible project costs including piping, couplings, gas service lines, excess flow valves, risers, meter bars, meters, and other related capitalized cost, to improve the distribution system. | January 2021 |
Columbia of Virginia(4) | SAVE - 2022 | 15.8 | | 63.0 | | 1/22-12/22 | Replacement projects that (1) enhance system safety or reliability, or (2) reduce, or potentially reduce, greenhouse gas emissions. | January 2022 |
| Columbia of Kentucky | SMRP - 2021 | 2.6 | | 40.0 | | 1/21-12/21 | Replacement of mains and inclusion of system safety investments. | May 2021 |
| | | | | | |
| Columbia of Maryland | STRIDE - 2022 | $ | 1.4 | | $ | 17.5 | | 1/22-12/22 | Pipeline upgrades designed to improve public safety or infrastructure reliability. | January 2022 |
| | | | | | |
NIPSCO - Electric(5) | TDSIC - 9 | $ | 0.2 | | $ | 42.7 | | 2/21-5/21 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | February 2022 |
(1)Programs do not include any costs already included in base rates.
(2)Decrease in incremental revenue due to lower O&M expenses as compared to the prior filing.
(3)Effective January 23, 2021, Columbia of Pennsylvania's DSIC rate was set to zero due to the inclusion of the incremental capital and revenue in base rates following the Pennsylvania PUC's Final Order in the 2020 rate case.
(4)Columbia of Virginia filed its application to amend and extend its SAVE program with the Virginia SCC on August 12, 2021, requesting approval of a two-year SAVE program for calendar years 2022-2023 that includes incremental capital investments of $63.0 million and $72.0 million, respectively. Commission action is expected on or before December 10, 2021.
(5)On April 1, 2021, NIPSCO filed a notice with the IURC that it intended to terminate its current Electric TDSIC plan effective May 31, 2021. NIPSCO filed for a new electric TDSIC plan on June 1, 2021. An order is expected by the end of 2021. NIPSCO filed the TDSIC-9 petition on September 28, 2021, and an order is expected in January 2022.
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 issuanceactivity.
Short-term Debt and Sale of common stock under NiSource's ATM program.
Long-term Debt. Trade Accounts Receivables. Refer to Note 12, “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.
Short-term Debt. Refer to Note 13, “Short-Term14, ''Short-Term Borrowings,”'' in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on short-term debt activity.activity, including sale of trade accounts receivable.
Equity Unit Sale. Refer to Note 5, ''Equity,'' in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on equity units activity.
Non-controlling Interest. Refer to Note 12, "Variable Interest Entities," in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on contributions from non-controlling interest activity.
Net Available Liquidity. As of September 30, 2017,2021, an aggregate of $1,275.3$1,698.3 million of net liquidity was available, including cash and credit available under the revolving credit facility and accounts receivable securitization programs.facility.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Liquidity and Capital Resources
The following table displays NiSource'sour liquidity position as of September 30, 20172021 and December 31, 2016:2020:
| | | | | | | | |
| (in millions) | September 30, 2021 | December 31, 2020 |
| Current Liquidity | | |
| Revolving Credit Facility | $ | 1,850.0 | | $ | 1,850.0 | |
Accounts Receivable Program(1) | 203.9 | | 273.3 | |
| Less: | | |
| | |
| Commercial Paper | 380.0 | | 503.0 | |
| | |
| Letters of Credit Outstanding Under Credit Facility | 14.1 | | 15.2 | |
| Add: | | |
| Cash and Cash Equivalents | 38.5 | | 116.5 | |
| Net Available Liquidity | $ | 1,698.3 | | $ | 1,721.6 | |
|
| | | | | | |
| (in millions) | September 30, 2017 | December 31, 2016 |
| Current Liquidity | | |
| Revolving Credit Facility | $ | 1,850.0 |
| $ | 1,850.0 |
|
Accounts Receivable Program(1) | 262.2 |
| 310.0 |
|
| Less: | | |
| Drawn on Revolving Credit Facility | — |
| — |
|
| Commercial Paper | 581.0 |
| 1,178.0 |
|
| Accounts Receivable Program Utilized | 262.2 |
| 310.0 |
|
| Letters of Credit Outstanding Under Credit Facility | 13.0 |
| 14.7 |
|
| Add: | | |
| Cash and Cash Equivalents | 19.3 |
| 26.4 |
|
| Net Available Liquidity | $ | 1,275.3 |
| $ | 683.7 |
|
(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 NiSource to maintain a debt to capitalization ratio that does not exceed 75%. As of September 30, 2017,2021, the ratio was 66.5%59.7%.
Sale of Trade Accounts Receivables. Refer to Note 8, “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 subsidiaries'NIPSCO's credit ratings and ratings outlook as of September 30, 2017. Aside from those disclosed below, there2021. There were no changes to the below credit ratings or outlooks since December 31, 2016.2020.
A credit rating is not a recommendation to buy, sell, or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating organization. |
| | | | | | | | | | | | | | | | | | | |
| S&P | Moody's | Fitch |
| Rating | Outlook | Rating | Outlook | Rating | Outlook |
NiSource(1) | BBB+ | Stable | Baa2 | Stable | BBB | Stable |
NiSource FinanceNIPSCO | BBB+ | Stable | Baa2Baa1 | Stable | BBB | Stable |
Capital Markets | BBB+ | Stable | Baa2 | Stable | BBB | Stable |
NIPSCO | BBB+ | Stable | Baa1 | Stable | BBB | Stable |
Columbia of Massachusetts | BBB+ | Stable | Baa2 | Stable | Not rated | Not rated |
| Commercial Paper | A-2 | Stable | P-2 | Stable | F3F2 | Stable |
(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”''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 September 30, 2017,2021, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $42.9$46.7 million. In addition to agreements with ratings triggers, there are other agreements that contain “adequate assurance”''adequate assurance'' or “material''material adverse change”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 420,000,000620,000,000 shares, $0.01 par value, of which 400,000,000600,000,000 are common stock and 20,000,000 are preferred stock. As of September 30, 2017, 336,691,0782021, 392,628,625 shares of common stock were outstanding. NiSource has noand 1,302,500 shares of preferred stock outstanding aswere outstanding.
Contractual Obligations. A summary of contractual obligations is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Other than the purchase contract liability related to our Equity Units, discussed in Note 5, "Equity," in the Notes to the Condensed Consolidated Financial Statements (unaudited), there were no material changes from year-end during the nine months ended September 30, 2017.2021.
Guarantees and Indemnities. We and certain of our subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries as a part of normal business. Refer to Note 15, ''Other Commitments and Contingencies,'' in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on guarantees.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory and Other Matters
Cost Recovery and Trackers
Contractual Obligations. AsideComparability of our 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 subject to approved regulatory tracker mechanisms generally lead to increased regulatory assets, which ultimately result in a corresponding increase in operating revenues and, therefore, have essentially no impact on total operating income results. Certain approved regulatory tracker mechanisms allow for abbreviated regulatory proceedings in order for the operating companies to quickly implement revised rates and recover associated costs.
A portion of the Gas Distribution revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in our operating area require periodic review of actual gas procurement activity to determine prudence and to confirm the recovery of prudently incurred energy commodity costs supplied to customers.
Increased efficiency of natural gas appliances and improvements in home building codes and standards has contributed to a long-term trend of declining average use per customer. As a result, Gas Distribution Operations have pursued changes in rate design to more effectively match recoveries with costs incurred. Columbia of Ohio has adopted a straight fixed variable rate design that closely links the recovery of fixed costs with fixed charges. Columbia of Maryland and Columbia of Virginia have regulatory approval for weather and revenue normalization adjustments for certain customer classes, which adjust monthly revenues that exceed or fall short of approved levels. Columbia of Pennsylvania continues to operate its pilot residential weather normalization adjustment and also has a fixed customer charge. This weather normalization adjustment only adjusts revenues when actual weather compared to normal varies by more than 3%. Columbia of Kentucky incorporates a weather normalization adjustment for certain customer classes and also has a fixed customer charge. In a prior gas base rate proceeding, NIPSCO implemented a higher fixed customer charge for residential and small customer classes moving toward recovering more of its fixed costs through a fixed recovery charge, but has no weather or usage protection mechanism.
A portion of the Electric Operations revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, which is updated quarterly to reflect actual costs incurred to supply electricity to customers.
While increased efficiency of electric appliances and improvements in home building codes and standards has similarly impacted the average use per electric customer in recent years, NIPSCO expects a future trend with increases in per customer usage driven by increasing electric applications. Further growth is anticipated as electric vehicles become more prevalent. These ongoing changes in use of electricity will likely lead to development of innovative rate designs, and NIPSCO will continue efforts to design rates that increase the certainty of recovery of fixed costs.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory and Other Matters
Rate Case Actions
The following table describes current rate case actions as applicable in each of our jurisdictions net of tracker impacts:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | | | | | |
| Company | Proposed ROE | Approved ROE | Requested Incremental Revenue | Approved Incremental Revenue | Filed | Status | Rates
Effective |
| | | | | | | |
Columbia of Pennsylvania(1) | 9.86 | % | 9.86 | % | $ | 76.8 | | $ | 63.5 | | April 24, 2020 | Approved
February 19, 2021 | January 2021 |
Columbia of Pennsylvania(2) | 10.95 | % | In process | $ | 98.3 | | In process | March 30, 2021 | Order Expected Q4 2021 | December 2021 |
Columbia of Maryland(3) | 10.85 | % | In process | $ | 4.8 | | In process | May 14, 2021 | Order Expected December 2021 | December 2021 |
Columbia of Kentucky(4) | 10.30 | % | In process | $ | 26.7 | | In process | May 28, 2021 | Order Expected Q1 2022 | January 2022 |
| Columbia of Ohio | 10.95 | % | In process | $ | 221.4 | | In process | June 30, 2021 | Order Expected Q3 2022 | July 2022 |
NIPSCO - Gas(5) | 10.50 | % | In process | $ | 115.3 | | In process | September 29, 2021 | Order Expected Q3 2022 | September 2022 |
| | | | | | | |
| | | | | | | |
(1)The 9.86% ROE and the $76.8 million requested incremental revenue stated above reflect compromise positions taken by Columbia of Pennsylvania during the briefing stages of its 2020 base rate case. In its initial filing on April 24, 2020, Columbia of Pennsylvania proposed an ROE of 10.95% and requested incremental revenue of $100.4 million. A Final Order from the previously referenced issuancesPennsylvania PUC was received on February 19, 2021 for rates effective retroactive to January 23, 2021. On March 8, 2021, the Pennsylvania Office of Consumer Advocate filed a Petition for Reconsideration, seeking to have the Pennsylvania PUC modify its February 19 Final Order. On April 15, 2021, the Pennsylvania PUC issued an Opinion and repaymentsOrder denying the Office of long-term debt, there were no material changes recorded duringConsumer Advocate’s Petition. Parties have 30 days in which to file an appeal. The OCA did not file a Notice of Appeal by the nine months endedCommission’s May 17, 2021 due date. CPA began back billing customers for usage from January 23, 2021 at the new rates beginning March 20, 2021.
(2)CPA filed a Joint Petition for Settlement on September 7, 2021 for an annual revenue increase of $58.5 million. On October 5, 2021 a Recommended Decision was issued by the Administrative Law Judge (ALJ) that recommended approval of this amount without modification.
(3)On October 29, 2021, the Public Utility Law Judge issued a proposed order which, if approved by the Maryland PSC, will authorize $2.6 million in incremental annual revenue. The proposed order will become a final order on December 10, 2021, unless modified or reversed by the Maryland PSC.
(4)Columbia of Kentucky filed a Joint Stipulation, Settlement Agreement and Recommendation on October 27, 2021 for an annual revenue increase of $18.6 million.
(5)Proposed new rates would be implemented in 2 steps, with implementation of step 1 rates to be effective in September 2022 and step 2 rates to be effective in March 2023.
COVID-19 Regulatory Deferrals
In addition to the cost deferred to a regulatory asset as noted in Note 7, "Regulatory Matters," in the Notes to Condensed Consolidated Financial Statements (unaudited), certain states have permitted us to track lost late and disconnect fee revenues due to the pandemic. While these costs do not qualify as regulatory assets under ASC 980, we will consider seeking recovery of these costs in future regulatory proceedings.
PHMSA Regulations
On December 27, 2020, the Protecting Our Infrastructure of Pipelines and Enhancing Safety (PIPES) Act of 2020 was signed into law, reauthorizing funding for federal pipeline safety programs through September 30, 20172023. Among other things, the PIPES Act requires that PHMSA revise the pipeline safety regulations to NiSource’s contractual obligationsrequire operators to update, as needed, their existing distribution integrity management plans, emergency response plans, and operation and maintenance plans. The PIPES Act also requires PHMSA to adopt new requirements for managing records and updating, as necessary, existing district regulator stations to eliminate common modes of December 31, 2016.failure that can lead to overpressurization. PHMSA must also require that operators implement leak detection and repair programs that meet safety needs and protect the environment, require the use of advanced leak detection practices and technologies, and require operators to be able to locate and categorize all leaks that are hazardous to human safety or the environment, or that can become hazardous. Natural gas companies, including us and our subsidiaries, may see increased costs depending on how PHMSA implements the new mandates resulting from the PIPES Act.
Off BalanceITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory and Other Matters
Climate Change Issues
Increased frequency of severe and extreme weather events associated with climate change could materially impact our facilities, energy sales, and results of operations. We are unable to predict these events. However, we perform ongoing assessments of physical risk, including physical climate risk, to our business. More extreme and volatile temperatures, increased storm intensity and flooding, and more volatile precipitation leading to changes in lake and river levels are among the weather events that are most likely to impact our business. Efforts to mitigate these physical risks continue to be implemented on an ongoing basis.
Future legislative and regulatory programs, at both the federal and state levels, could significantly limit allowed GHG emissions or impose a cost or tax on GHG emissions. Revised or additional future GHG legislation and/or regulation related to the generation of electricity or the extraction, production, distribution, transmission, storage and end use of natural gas could materially impact our gas supply,financial position, financial results and cash flows.
On July 8, 2019, the EPA published the final ACE rule, which establishes emission guidelines for states to use when developing plans to limit carbon dioxide at coal-fired electric generating units based on heat rate improvement measures. The U.S. Court of Appeals for the D.C. Circuit vacated and remanded the rule on January 19, 2021. On October 29, 2021, the U.S. Supreme Court agreed to review the scope of the EPA’s authority to impose GHG emission standards under the Clean Air Act. We will continue to monitor this matter.
In February 2021, the United States rejoined the Paris Agreement, an international treaty through which parties set nationally determined contributions to reduce GHG emissions, build resilience, and adapt to the impacts of climate change. Subsequently, the Biden Administration released a target for the United States to achieve a 50%-52% GHG reduction from 2005 levels by 2030, which supports the President's goals to create a carbon-free power sector by 2035 and net zero emissions economy no later than 2050. There are many pathways to reach these goals.
There is also increasing interest at the federal level to legislate GHG reductions related to the production, storage, transmission and use of electricity and natural gas. There is a proposal in draft Build Back Better legislation that contemplates a new methane fee. If enacted, certain NiSource gas storage facilities may be affected unless emissions are reduced, but the impact is not expected to be material, and any federally mandated costs are potentially recoverable through rates. On November 2, 2021, the EPA proposed methane regulations for the oil and natural gas industry. We continue to monitor all proposed legislation and regulations, but we cannot predict their final form or impact on our business at this time.
In October 2021, a work group of the Maryland Commission of Climate Change published a Building Energy Transition Plan. Policy proposals included in this draft plan, such as the adoption of an all-electric construction code, are supported by the Commission but do not necessarily reflect current state policy. The report is intended to guide Maryland policy makers on decisions related to reducing GHG emissions from buildings in pursuit of achieving targets in Maryland's 2030 Greenhouse Gas Reduction Act Plan and the Commission's recommendation that Maryland achieve net-zero emissions by 2045. Columbia of Maryland will continue to monitor this matter, but we cannot predict its final impact on our business at this time.
In response to these transition risks, we continue to actively implement our plans to reduce Scope 1 GHG emissions by 90 percent from 2005 levels, by 2030 through the retirement of coal-fired electric generation, increased sourcing of renewable energy, priority pipeline replacement, and leak detection and repair. As discussed above in this Management's Discussion within "Results and Discussion of Segment Operations - Electric Operations", NIPSCO continues to execute on an electric generation transition consistent with the preferred pathways identified in its 2018 and 2021 Integrated Resource Plans. We expect to have capital investment requirements of approximately $2.0 billion, primarily in 2022 and 2023, to replace the generation capacity previously supplied by R.M. Schahfer. NIPSCO has sold, and may in the future sell, renewable energy credits from this generation to third parties because this helps keep our energy more affordable for our customers.
Additionally, we joined the Low-Carbon Resources Initiative (LCRI) in 2021, a five-year initiative to accelerate the development and demonstration of low-carbon energy technologies. LCRI's Research Vision focuses on technologies such as clean hydrogen, bioenergy and renewable natural gas needed to enable affordable pathways to economy-wide decarbonization.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
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.
Refer to Note 14, “Other15, ''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 NiSource isWe manage risk through a multi-faceted process with oversight by the Risk Management Committee that requires constant communication, judgment and knowledge of specialized products and markets. 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 its subsidiaries’our 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 isare reflected in NiSource’sour restricted cash balance, may fluctuate significantly during periods of high volatility in the energy commodity markets.
Refer to Note 6,8, "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 September 30, 20172021 or December 31, 2016.2020.
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 now-settled term loan, which have interest rates that are indexed to short-term market interest rates. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $3.7$0.4 million and $12.6$1.8 million for the three and nine months ended September 30, 20172021, and $3.0$3.2 million and $6.8$10.9 million for the three and nine months ended September 30, 2016,2020, 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 6,8, "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 September 30, 20172021 and December 31, 2016.
Table of Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
2020.
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
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
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.
NiSourceWe 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 changedCertain individual state regulatory commissions instituted regulatory moratoriums in connection with the method usedCOVID-19 pandemic that impacted our ability to estimatepursue our credit risk mitigation practices for customer accounts receivable. Following the service and interest componentsissuances of net periodic benefit costthese moratoriums, certain of our regulated operations have been authorized to recognize a regulatory asset for pension and other postretirement benefits. This change, comparedbad debt costs above levels currently in rates. We have now resumed our common credit mitigation practices in all jurisdictions as all moratoriums have expired. Refer 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,”7, "Regulatory Matters" in the Notes to Condensed Consolidated Financial Statements (unaudited). for state-specific regulatory moratoriums.
Other Information
Critical Accounting Estimates
For our annual goodwill impairment analysis performed as of May 1, 2021, we performed a qualitative "step 0" assessment and determined that it was more likely than not that the estimated fair value of the reporting unit substantially exceeded the related carrying value of our reporting unit. For this test, we assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units as compared to their baseline May 1, 2020 "step 1" fair value measurement. There werehave been no impairments to the carrying value of our goodwill during the periods presented.
Refer to Note 3, "Revenue Recognition," in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional significant changesinformation about management judgment used in determining allowance for credit losses.
Refer to critical accounting policiesNote 12, "Variable Interest Entities," in the Notes to Condensed Consolidated Financial Statements (unaudited) for the period ended September 30, 2017.additional information about management judgement used in determining how to account for our VIE.
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.
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.”