UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017March 31, 2023
or
¨☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-16189
NiSource Inc.
(Exact name of registrant as specified in its charter)
|
| | | | | | | | | | |
Delaware DE | | 35-2108964 |
(State or other jurisdiction of
incorporation or organization)
| | (I.R.S. Employer
Identification No.)
|
| | | |
801 East 86th Avenue Merrillville, Indiana
| | 46410 |
| Merrillville, | IN | | 46410 |
| (Address of principal executive offices) | | (Zip Code) |
(877) 647-5990
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
| Title of Each Class | Trading
Symbol(s) | Name of Each Exchange on Which Registered |
| Common Stock, par value $0.01 per share | NI | NYSE |
| Depositary Shares, each representing a 1/1,000th ownership interest in a share of 6.50% Series B Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, liquidation preference $25,000 per share and a 1/1,000th ownership interest in a share of Series B-1 Preferred Stock, par value $0.01 per share, liquidation preference $0.01 per share | NI PR B | NYSE |
| Series A Corporate Units | NIMC | NYSE |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company," and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer þ Accelerated filer ¨Emerging growth company ¨
☐Non-accelerated filer ¨Smaller reporting company ¨☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨☐ No þ
☑
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 Par Value: 336,793,693413,063,219 shares outstanding at October 23, 2017.April 25, 2023.
NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 2017MARCH 31, 2023
Table of Contents
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| PART I | FINANCIAL INFORMATION | |
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PART I | FINANCIAL INFORMATION | |
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| Item 1. | Financial Statements - unaudited | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| PART II | OTHER INFORMATION | |
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| Item 1. | | |
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| Item 1A. | | |
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| Item 2. | | |
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| Item 3. | | |
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| Item 4. | | |
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| Item 5. | | |
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| Item 6. | | |
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| DEFINED TERMS |
| The following is a list of frequently used abbreviations or acronyms that are found in this report:
|
|
NiSource Subsidiaries Affiliates and Former SubsidiariesAffiliates |
Capital Markets | NiSource Capital Markets, Inc. |
| Columbia of Kentucky | Columbia Gas of Kentucky, Inc. |
| Columbia of Maryland | Columbia Gas of Maryland, Inc. |
| Columbia of Massachusetts | Bay State Gas Company |
| Columbia of Ohio | Columbia Gas of Ohio, Inc. |
| Columbia of Pennsylvania | Columbia Gas of Pennsylvania, Inc. |
| Columbia of Virginia | Columbia Gas of Virginia, Inc. |
| NIPSCO | Northern Indiana Public Service Company LLC |
NiSource ("we," "us" or the Company"our") | NiSource Inc. |
NiSource FinanceRosewater | NiSource Finance Corp.Rosewater Wind Generation LLC and its wholly owned subsidiary, Rosewater Wind Farm LLC |
| Indiana Crossroads Wind | Indiana Crossroads Wind Generation LLC and its wholly owned subsidiary, Indiana Crossroads Wind Farm LLC |
| |
| Abbreviations and Other | |
AFUDC | |
| AFUDC | Allowance for funds used during construction |
AOCI | |
| AOCI | Accumulated Other Comprehensive Income (Loss) |
ASC | Accounting Standards Codification |
| ASU | Accounting Standards Update |
| ATM | At-the-market |
CAABTA | Clean Air ActBuild-transfer agreement |
CCRs | |
| |
| CCRs | Coal Combustion Residuals |
| CEP | Capital Expenditure Program |
| CERCLA | Comprehensive Environmental Response Compensation and Liability Act (also known as Superfund) |
CIACCorporate Units | Contributions In Aid of ConstructionSeries A Corporate Units |
CO2
COVID-19 ("the COVID-19 pandemic" or "the pandemic") | Carbon DioxideNovel Coronavirus 2019 and its variants, including the Delta and Omicron variants, and any other variant that may emerge |
CPP | Clean Power Plan |
| DPU | Department of Public Utilities |
DSMDSIC | Demand Side ManagementDistribution System Improvement Charge |
ECR | Environmental Cost Recovery |
ECTEPA | Environmental Cost Tracker |
EGUs | Electric Utility Generating Units |
ELG | Effluent limitations guidelines |
EPA | United States Environmental Protection Agency |
| EPS | Earnings per share |
FACEquity Units | Series A Equity Units |
| FAC | Fuel adjustment clause |
| FASB | Financial Accounting Standards Board |
GAAPFERC | Federal Energy Regulatory Commission |
| FMCA | Federally Mandated Cost Adjustment |
| GAAP | Generally Accepted Accounting Principles |
| GCA | Gas cost adjustment |
GCRGHG | Gas cost recoveryGreenhouse gases |
GHGGWh | Greenhouse gasesGigawatt hours |
GSEP | Gas System Enhancement Program |
gwhIRA | Gigawatt hoursInflation Reduction Act |
IBMIRP | International Business Machines Corporation |
IRP | Infrastructure Replacement Program |
| |
| IURC | Indiana Utility Regulatory Commission |
| JV | Joint Venture |
| | | | | |
| DEFINED TERMS |
| LIBOR | London InterBank Offered Rate |
| LIFO | Last In, First Out |
| LIHEAP | Low Income Heating Energy Assistance Programs |
| Massachusetts Business | All of the assets sold to, and liabilities assumed by, Eversource pursuant to the Asset Purchase Agreement |
| MGP | Manufactured Gas Plant |
| MISO | Midcontinent Independent System Operator |
| MMDth | Million dekatherms |
| MW | Megawatts |
| MWh | Megawatt hours |
| |
| NYMEX | New York Mercantile Exchange |
| OPEB | Other Postemployment Benefits |
| |
| |
DEFINED TERMS
PHMSA | Pipeline and Hazardous Materials Safety Administration |
IURCPPA | Indiana Utility Regulatory CommissionPower Purchase Agreement |
LDCs | Local distribution companies |
MGP | Manufactured Gas Plant |
MISOPUCO | Midcontinent Independent System Operator |
MMDth | Million dekatherms |
MPSC | Maryland Public Service Commission |
NAAQS | National Ambient Air Quality Standards |
NOL | Net operating loss |
NYMEX | New York Mercantile Exchange |
OCC | Ohio Consumers' Counsel |
OPEB | Other Postretirement Benefits |
OUCC | Office of Utility Consumer Counselor |
Pure Air | Pure Air on the Lake LP |
RCRA | Resource Conservation and Recovery Act |
ppb | Parts per billion |
PUCO | Public Utilities Commission of Ohio |
SEC | |
| |
| RNG | Renewable Natural Gas |
| |
| SAVE | Steps to Advance Virginia's Energy Plan |
| Scope 1 GHG Emissions | Direct emissions from sources owned or controlled by us (e.g., emissions from our combustion of fuel, vehicles, and process emissions and fugitive emissions) |
| Scope 2 GHG Emissions | Indirect emissions from sources owned or controlled by us |
| SEC | Securities and Exchange Commission |
TDSICSection 201 Tariffs | Tariffs imposed by Executive Order from the President of the U.S. on certain imported solar cells and modules at a rate of 15%, which were recently extended to 2026 |
| SMRP | Safety Modification and Replacement Program |
| SMS | Safety Management System |
| SOFR | Secured Overnight Financing Rate |
| STRIDE | Strategic Infrastructure Development Enhancement |
| TCJA | An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (commonly known as the Tax Cuts and Jobs Act of 2017) |
| TDSIC | Transmission, Distribution and Storage System Improvement Charge |
VIEU.S. Attorney's Office | U.S. Attorney's Office for the District of Massachusetts |
| |
| VIE | Variable Interest EntitiesEntity |
VSCC | Virginia State Corporation Commission |
Note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains “forward-looking statements”"forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Investors and prospective investors should understand that many factors govern whether any forward-looking statement contained herein will be or can be realized. Any one of those factors could cause actual results to differ materially from those projected. These forward-looking statements include, but are not limited to, statements concerning NiSource’sour plans, strategies, objectives, expected performance, expenditures, recovery of expenditures through rates, stated on either a consolidated or segment basis, and any and all underlying assumptions and other statements that are other than statements of historical fact. Expressions of future goals and expectations and similar expressions, including "may," "will," "should," "could," "would," "aims," "seeks," "expects," "plans," "anticipates," "intends," "believes," "estimates," "predicts," "potential," "targets," "forecast," and "continue," reflecting something other than historical fact are intended to identify forward-looking statements. All forward-looking statements are based on assumptions that management believes to be reasonable; however, there can be no assurance that actual results will not differ materially.
Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Quarterly Report on Form 10-Q include, among other things, NiSource’sour ability to execute our business plan or growth strategy, including utility infrastructure investments; potential incidents and other operating risks associated with our business; our ability to adapt to, and manage costs related to, advances in, or failures of, technology; impacts related to our aging infrastructure; our ability to obtain sufficient insurance coverage and whether such coverage will protect us against significant losses; the success of our electric generation strategy; construction risks and natural gas costs and supply risks; fluctuations in demand from residential and commercial customers; fluctuations in the price of energy commodities and related transportation costs or an inability to obtain an adequate, reliable and cost-effective fuel supply to meet customer demands; the attraction and retention of a qualified, diverse workforce and ability to maintain good labor relations; our ability to manage new initiatives and organizational changes; the actions of activist stockholders; the performance of third-party suppliers and service providers; potential cybersecurity attacks; increased requirements and costs related to cybersecurity; any damage to our reputation; any remaining liabilities or impact related to the sale of the Massachusetts Business; the impacts of natural disasters, potential terrorist attacks or other catastrophic events; the physical impacts of climate change and the transition to a lower carbon future; our ability to manage the financial and operational risks related to achieving our carbon emission reduction goals, including our Net-Zero Goal (as defined below); our debt obligations; any changes to our credit rating or the credit rating of certain of our subsidiaries; any adverse effects related to our equity units; adverse economic and capital market conditions or increases in NiSource’s credit rating; NiSource’s ability to execute its growth strategy; changes in general economic, capital and commodity market conditions; pension funding obligations;interest rates; inflation; recessions; economic regulation and the impact of regulatory rate reviews; NiSource'sour ability to obtain expected financial or regulatory outcomes; any damage to NiSource's reputation; compliance with environmental lawscontinuing and potential future impacts from the costs of associated liabilities; fluctuations in demand from residential and commercial customers;COVID-19 pandemic; economic conditions ofin certain industries; the success of NIPSCO's electric generation strategy; the price of energy commodities and related transportation costs; the reliability of customers and suppliers to fulfill their payment and contractual obligations; potential impairments of goodwill or definite-lived intangible assets; changes in taxation and accounting principles; potential incidents and other operating risks associated with our business; the impact of an aging infrastructure; the impact of climate change; potential cyber-attacks; construction risks and natural gas costs and supply risks; extreme weather conditions; the attraction and retention of a qualified workforce; advances in technology; the ability of NiSource'sour subsidiaries to generate cash; taxpension funding obligations; potential impairments of goodwill; the outcome of legal and regulatory proceedings, investigations, incidents, claims and litigation; potential remaining liabilities related to the Greater Lawrence Incident; compliance with applicable laws, regulations and tariffs; compliance with environmental laws and the costs of associated with the separation of Columbia Pipeline Group, Inc. on July 1, 2015, andliabilities; changes in taxation; other matters set forth in the “Risk Factors”"Risk Factors" section of NiSource’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016,2022, many of which risks are beyond the control of NiSource.our control. In addition, the relative contributions to profitability by each business segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. NiSource undertakesWe undertake no obligation to, and expressly disclaimsdisclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to the future results over time or otherwise, except as required by law.
PART I
ITEM 1. FINANCIAL STATEMENTS
NiSource Inc.
Condensed Statements of Consolidated Income (unaudited)
|
| | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, except per share amounts) | 2017 | | 2016 | | 2017 | | 2016 |
| Net Revenues | | | | | | |
| Gas Distribution | $ | 239.4 |
| | $ | 212.3 |
| | $ | 1,403.0 |
| | $ | 1,244.3 |
|
| Gas Transportation | 191.6 |
| | 180.0 |
| | 735.1 |
| | 689.5 |
|
| Electric | 485.8 |
| | 465.5 |
| | 1,365.5 |
| | 1,249.2 |
|
| Other | 0.2 |
| | 3.5 |
| | 2.7 |
| | 12.5 |
|
| Gross Revenues | 917.0 |
| | 861.3 |
| | 3,506.3 |
| | 3,195.5 |
|
| Cost of Sales (excluding depreciation and amortization) | 233.6 |
| | 218.2 |
| | 1,062.7 |
| | 949.6 |
|
| Total Net Revenues | 683.4 |
| | 643.1 |
| | 2,443.6 |
| | 2,245.9 |
|
| Operating Expenses | | | | | | | |
| Operation and maintenance | 383.3 |
| | 336.6 |
| | 1,184.9 |
| | 1,028.9 |
|
| Depreciation and amortization | 143.0 |
| | 136.3 |
| | 428.5 |
| | 406.0 |
|
| Gain on sale of assets and impairments, net | — |
| | (0.1 | ) | | (0.1 | ) | | (0.4 | ) |
| Other taxes | 57.5 |
| | 56.6 |
| | 189.7 |
| | 178.1 |
|
| Total Operating Expenses | 583.8 |
| | 529.4 |
| | 1,803.0 |
| | 1,612.6 |
|
| Operating Income | 99.6 |
| | 113.7 |
| | 640.6 |
| | 633.3 |
|
| Other Income (Deductions) | | | | | | | |
| Interest expense, net | (87.9 | ) | | (85.0 | ) | | (260.8 | ) | | (261.5 | ) |
| Other, net | 4.8 |
| | 3.5 |
| | 9.8 |
| | (1.9 | ) |
| Loss on early extinguishment of long-term debt | — |
| | — |
| | (111.5 | ) | | — |
|
| Total Other Deductions, Net | (83.1 | ) | | (81.5 | ) | | (362.5 | ) | | (263.4 | ) |
| Income from Continuing Operations before Income Taxes | 16.5 |
|
| 32.2 |
|
| 278.1 |
|
| 369.9 |
|
| Income Taxes | 2.5 |
| | 8.5 |
| | 97.1 |
| | 130.6 |
|
| Income from Continuing Operations | 14.0 |
| | 23.7 |
| | 181.0 |
| | 239.3 |
|
| Income (Loss) from Discontinued Operations - net of taxes | — |
| | 3.5 |
| | (0.1 | ) | | 3.4 |
|
| Net Income | 14.0 |
| | 27.2 |
| | 180.9 |
| | 242.7 |
|
| Basic Earnings Per Share | | | | | | | |
| Continuing operations | $ | 0.04 |
| | $ | 0.07 |
| | $ | 0.55 |
| | $ | 0.74 |
|
| Discontinued operations | — |
| | 0.01 |
| | — |
| | 0.02 |
|
| Basic Earnings Per Share | $ | 0.04 |
|
| $ | 0.08 |
|
| $ | 0.55 |
|
| $ | 0.76 |
|
| Diluted Earnings Per Share | | | | | | | |
| Continuing operations | $ | 0.04 |
| | $ | 0.07 |
| | $ | 0.55 |
| | $ | 0.74 |
|
| Discontinued operations | — |
| | 0.01 |
| | — |
| | 0.01 |
|
| Diluted Earnings Per Share | $ | 0.04 |
| | $ | 0.08 |
| | $ | 0.55 |
| | $ | 0.75 |
|
| Dividends Declared Per Common Share | $ | 0.175 |
| | $ | 0.165 |
| | $ | 0.700 |
| | $ | 0.640 |
|
| Basic Average Common Shares Outstanding | 331.1 |
| | 322.3 |
| | 326.7 |
| | 321.4 |
|
| Diluted Average Common Shares | 332.4 |
| | 323.9 |
| | 328.0 |
| | 323.2 |
|
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Statements of Consolidated Comprehensive Income (unaudited)
|
| | | | | | | | | | | | | | | |
| | Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in millions, net of taxes) | 2017 | | 2016 | | 2017 | | 2016 |
| Net Income | $ | 14.0 |
| | $ | 27.2 |
| | $ | 180.9 |
| | $ | 242.7 |
|
| Other comprehensive income: | | | | | | | |
Net unrealized gain (loss) on available-for-sale securities(1) | 0.1 |
| | (0.3 | ) | | 1.1 |
| | 2.2 |
|
Net unrealized loss on cash flow hedges(2) | (9.3 | ) | | (22.6 | ) | | (21.2 | ) | | (146.8 | ) |
Unrecognized pension and OPEB benefit(3) | 1.1 |
| | 0.2 |
| | 1.5 |
| | 0.7 |
|
| Total other comprehensive loss | (8.1 | ) | | (22.7 | ) | | (18.6 | ) | | (143.9 | ) |
| Comprehensive Income | $ | 5.9 |
| | $ | 4.5 |
|
| $ | 162.3 |
|
| $ | 98.8 |
|
(1) Net unrealized gain (loss) on available-for-sale securities, net of zero and $0.1 million tax benefit in the third quarter of 2017 and 2016, respectively, and $0.6 million and $1.2 million tax expense for the nine months ended 2017 and 2016, respectively.
(2) Net unrealized loss on cash flow hedges, net of $5.8 million and $14.0 million tax benefit in the third quarter of 2017 and 2016, respectively, and $13.1 million and $90.6 million tax benefit for the nine months ended 2017 and 2016, respectively.
(3) Unrecognized pension and OPEB benefit, net of $0.5 million and $0.1 million tax expense in the third quarter of 2017 and 2016, respectively, and $0.8 million and $0.4 million tax expense for the nine months ended 2017 and 2016, respectively.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc. Condensed Consolidated Balance Sheets (unaudited) |
| | | | | | | |
| (in millions) | September 30,
2017 | | December 31,
2016 |
| ASSETS | | | |
| Property, Plant and Equipment | | | |
| Utility plant | $ | 20,657.6 |
| | $ | 19,368.0 |
|
| Accumulated depreciation and amortization | (6,906.2 | ) | | (6,613.7 | ) |
| Net utility plant | 13,751.4 |
| | 12,754.3 |
|
| Other property, at cost, less accumulated depreciation | 290.7 |
| | 313.7 |
|
| Net Property, Plant and Equipment | 14,042.1 |
| | 13,068.0 |
|
| Investments and Other Assets | | | |
| Unconsolidated affiliates | 5.6 |
| | 6.6 |
|
| Other investments | 207.7 |
| | 193.3 |
|
| Total Investments and Other Assets | 213.3 |
| | 199.9 |
|
| Current Assets | | | |
| Cash and cash equivalents | 19.3 |
| | 26.4 |
|
| Restricted cash | 9.0 |
| | 9.6 |
|
| Accounts receivable (less reserve of $17.4 and $23.3, respectively) | 480.0 |
| | 847.0 |
|
| Gas inventory | 325.2 |
| | 279.9 |
|
| Materials and supplies, at average cost | 102.3 |
| | 101.7 |
|
| Electric production fuel, at average cost | 84.0 |
| | 112.8 |
|
| Exchange gas receivable | 42.9 |
| | 5.4 |
|
| Regulatory assets | 203.9 |
| | 248.7 |
|
| Prepayments and other | 65.8 |
| | 130.6 |
|
| Total Current Assets | 1,332.4 |
| | 1,762.1 |
|
| Other Assets | | | |
| Regulatory assets | 1,666.2 |
| | 1,636.7 |
|
| Goodwill | 1,690.7 |
| | 1,690.7 |
|
| Intangible assets | 234.4 |
| | 242.7 |
|
| Deferred charges and other | 90.4 |
| | 91.8 |
|
| Total Other Assets | 3,681.7 |
| | 3,661.9 |
|
| Total Assets | $ | 19,269.5 |
| | $ | 18,691.9 |
|
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| (in millions, except per share amounts) | 2023 | | 2022 | | | | |
| Operating Revenues | | | | | | |
| Customer revenues | $ | 1,896.1 | | | $ | 1,840.3 | | | | | |
| Other revenues | 69.9 | | | 33.0 | | | | | |
| Total Operating Revenues | 1,966.0 | | | 1,873.3 | | | | | |
| Operating Expenses | | | | | | | |
| Cost of energy | 765.1 | | | 706.7 | | | | | |
| Operation and maintenance | 391.2 | | | 394.3 | | | | | |
| Depreciation and amortization | 206.9 | | | 192.7 | | | | | |
| Gain on sale of assets, net | — | | | (105.0) | | | | | |
| Other taxes | 71.8 | | | 84.3 | | | | | |
| Total Operating Expenses | 1,435.0 | | | 1,273.0 | | | | | |
| | | | | | | |
| Operating Income | 531.0 | | | 600.3 | | | | | |
| Other Income (Deductions) | | | | | | | |
| Interest expense, net | (108.9) | | | (83.7) | | | | | |
| Other, net | 1.5 | | | 10.9 | | | | | |
| | | | | | | |
| Total Other Deductions, Net | (107.4) | | | (72.8) | | | | | |
| Income before Income Taxes | 423.6 | | | 527.5 | | | | | |
| Income Taxes | 85.8 | | | 96.2 | | | | | |
| | | | | | | |
| | | | | | | |
| Net Income | 337.8 | | | 431.3 | | | | | |
| Net income attributable to noncontrolling interest | 4.8 | | | 4.5 | | | | | |
| Net Income Attributable to NiSource | 333.0 | | | 426.8 | | | | | |
| Preferred dividends | (13.8) | | | (13.8) | | | | | |
| Net Income Available to Common Shareholders | 319.2 | | | 413.0 | | | | | |
| Earnings Per Share | | | | | | | |
| Basic Earnings Per Share | $ | 0.77 | | | $ | 1.02 | | | | | |
| Diluted Earnings Per Share | $ | 0.71 | | | $ | 0.94 | | | | | |
| Basic Average Common Shares Outstanding | 412.8 | | | 406.0 | | | | | |
| Diluted Average Common Shares | 447.1 | | | 441.4 | | | | | |
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc. Condensed Consolidated Balance Sheets (unaudited) (continued) |
| | | | | | | |
| (in millions, except share amounts) | September 30,
2017 | | December 31,
2016 |
| CAPITALIZATION AND LIABILITIES | | | |
| Capitalization | | | |
| Common Stockholders’ Equity | | | |
| Common stock - $0.01 par value, 400,000,000 shares authorized; 336,691,078 and 323,159,672 shares outstanding, respectively | $ | 3.4 |
| | $ | 3.3 |
|
| Treasury stock | (94.6 | ) | | (88.7 | ) |
| Additional paid-in capital | 5,518.5 |
| | 5,153.9 |
|
| Retained deficit | (1,020.6 | ) | | (972.2 | ) |
| Accumulated other comprehensive loss | (43.7 | ) | | (25.1 | ) |
| Total Common Stockholders’ Equity | 4,363.0 |
| | 4,071.2 |
|
| Long-term debt, excluding amounts due within one year | 7,518.6 |
| | 6,058.2 |
|
| Total Capitalization | 11,881.6 |
|
| 10,129.4 |
|
| Current Liabilities | | | |
| Current portion of long-term debt | 289.8 |
| | 363.1 |
|
| Short-term borrowings | 843.2 |
| | 1,488.0 |
|
| Accounts payable | 447.4 |
| | 539.4 |
|
| Dividends payable | 58.9 |
| | — |
|
| Customer deposits and credits | 253.1 |
| | 264.1 |
|
| Taxes accrued | 148.4 |
| | 195.4 |
|
| Interest accrued | 89.2 |
| | 120.3 |
|
| Exchange gas payable | 68.0 |
| | 83.7 |
|
| Regulatory liabilities | 55.1 |
| | 116.7 |
|
| Legal and environmental | 27.5 |
| | 37.4 |
|
| Accrued compensation and employee benefits | 167.0 |
| | 161.4 |
|
| Other accruals | 119.2 |
| | 82.7 |
|
| Total Current Liabilities | 2,566.8 |
| | 3,452.2 |
|
| Other Liabilities | | | |
| Risk management liabilities | 28.7 |
| | 44.5 |
|
| Deferred income taxes | 2,619.4 |
| | 2,528.0 |
|
| Deferred investment tax credits | 12.6 |
| | 13.4 |
|
| Accrued insurance liabilities | 89.0 |
| | 82.8 |
|
| Accrued liability for postretirement and postemployment benefits | 397.3 |
| | 713.4 |
|
| Regulatory liabilities | 1,217.8 |
| | 1,265.1 |
|
| Asset retirement obligations | 268.5 |
| | 262.6 |
|
| Other noncurrent liabilities | 187.8 |
| | 200.5 |
|
| Total Other Liabilities | 4,821.1 |
| | 5,110.3 |
|
| Commitments and Contingencies (Refer to Note 14, "Other Commitments and Contingencies") | — |
| | — |
|
| Total Capitalization and Liabilities | $ | 19,269.5 |
| | $ | 18,691.9 |
|
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc. Condensed Statements of Consolidated Cash Flows (unaudited)
|
| | | | | | | |
Nine Months Ended September 30, (in millions) | 2017 | | 2016 |
| Operating Activities | | | |
| Net Income | $ | 180.9 |
| | $ | 242.7 |
|
| Adjustments to Reconcile Net Income to Net Cash from Continuing Operations: | | | |
| Loss on early extinguishment of debt | 111.5 |
| | — |
|
| Depreciation and amortization | 428.5 |
| | 406.0 |
|
| Deferred income taxes and investment tax credits | 96.3 |
| | 137.7 |
|
| Other adjustments | 28.5 |
| | 24.5 |
|
| Changes in Assets and Liabilities: | | | |
| Components of working capital | 32.6 |
| | (52.0 | ) |
| Regulatory assets/liabilities | (12.9 | ) | | (202.2 | ) |
| Postretirement and postemployment benefits | (314.5 | ) | | (20.9 | ) |
| Other noncurrent assets | (3.7 | ) | | (3.0 | ) |
| Other noncurrent liabilities | (17.7 | ) | | — |
|
| Net Operating Activities from Continuing Operations | 529.5 |
| | 532.8 |
|
| Net Operating Activities from (used for) Discontinued Operations | 0.1 |
| | (0.8 | ) |
| Net Cash Flows from Operating Activities | 529.6 |
| | 532.0 |
|
| Investing Activities | | | |
| Capital expenditures | (1,216.4 | ) | | (1,083.4 | ) |
| Cost of removal | (78.9 | ) | | (79.5 | ) |
| Purchases of available-for-sale securities | (139.4 | ) | | (33.4 | ) |
| Sales of available-for-sale securities | 129.4 |
| | 25.9 |
|
| Other investing activities | (0.8 | ) | | 2.2 |
|
| Net Cash Flows used for Investing Activities | (1,306.1 | ) | | (1,168.2 | ) |
| Financing Activities | | | |
| Issuance of long-term debt | 2,750.0 |
| | 500.0 |
|
| Repayments of long-term debt and capital lease obligations | (1,352.4 | ) | | (210.9 | ) |
| Premiums and other debt related costs | (139.8 | ) | | (0.3 | ) |
| Change in short-term borrowings, net | (644.9 | ) | | 491.6 |
|
| Issuance of common stock | 332.6 |
| | 16.8 |
|
| Acquisition of treasury stock | (5.9 | ) | | (8.1 | ) |
| Dividends paid - common stock | (170.2 | ) | | (152.3 | ) |
| Net Cash Flows from Financing Activities | 769.4 |
| | 636.8 |
|
| Change in cash and cash equivalents from (used for) continuing operations | (7.2 | ) | | 1.4 |
|
Change in cash and cash equivalents from (used for) discontinued operations
| 0.1 |
| | (0.8 | ) |
| Cash and cash equivalents at beginning of period | 26.4 |
| | 15.5 |
|
| Cash and Cash Equivalents at End of Period | $ | 19.3 |
| | $ | 16.1 |
|
Supplemental Disclosures of Cash Flow Information
|
| | | | | | | |
As of September 30, (in millions) | 2017 | | 2016 |
| Non-cash transactions: | | | |
| Capital expenditures included in current liabilities | $ | 219.1 |
| | $ | 131.2 |
|
| Dividends declared but not paid | $ | 58.9 |
| | $ | 53.1 |
|
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Statements of Consolidated EquityComprehensive Income (unaudited)
| | | | | | | | | | | | | | | |
| | Three Months Ended
March 31, | | |
| (in millions, net of taxes) | 2023 | | 2022 | | | | |
| Net Income | $ | 337.8 | | | $ | 431.3 | | | | | |
| Other comprehensive income: | | | | | | | |
Net unrealized gain (loss) on available-for-sale debt securities(1) | 2.0 | | | (5.7) | | | | | |
Reclassification adjustment for cash flow hedges(2) | 0.1 | | | 47.0 | | | | | |
Unrecognized pension and OPEB benefit(3) | 0.3 | | | 0.1 | | | | | |
| Total other comprehensive income | 2.4 | | | 41.4 | | | | | |
| Comprehensive Income | $ | 340.2 | | | $ | 472.7 | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Deficit | | Accumulated Other Comprehensive Loss | | Total |
| Balance as of January 1, 2017 | $ | 3.3 |
| | $ | (88.7 | ) | | $ | 5,153.9 |
| | $ | (972.2 | ) | | $ | (25.1 | ) | | $ | 4,071.2 |
|
| Comprehensive Income (Loss): | | | | | | | | | | | |
| Net Income | — |
| | — |
| | — |
| | 180.9 |
| | — |
| | 180.9 |
|
| Other comprehensive income, net of tax | — |
| | — |
| | — |
| | — |
| | (18.6 | ) | | (18.6 | ) |
| Common stock dividends ($0.70 per share) | — |
| | — |
| | — |
| | (229.3 | ) | | — |
| | (229.3 | ) |
| Treasury stock acquired | — |
| | (5.9 | ) | | — |
| | — |
| | — |
| | (5.9 | ) |
| Stock issuances: | | | | | | | | | | | |
| Employee stock purchase plan | — |
| | — |
| | 3.7 |
| | — |
| | — |
| | 3.7 |
|
| Long-term incentive plan | — |
| | — |
| | 11.2 |
| | — |
| | — |
| | 11.2 |
|
| 401(k) and profit sharing | — |
| | — |
| | 28.8 |
| | — |
| | — |
| | 28.8 |
|
| Dividend reinvestment plan | — |
| | — |
| | 6.3 |
| | — |
| | — |
| | 6.3 |
|
| ATM program | 0.1 |
| | — |
| | 314.6 |
| | — |
| | — |
| | 314.7 |
|
| Balance as of September 30, 2017 | $ | 3.4 |
| | $ | (94.6 | ) | | $ | 5,518.5 |
| | $ | (1,020.6 | ) | | $ | (43.7 | ) | | $ | 4,363.0 |
|
(2)Reclassification adjustment for cash flow hedges, net of $0.1 million tax benefit and $21.3 million tax expense in the first quarter of 2023 and 2022, respectively.
|
| | | | | | | | |
Shares (in thousands) | Common Shares | | Treasury Shares | | Outstanding Shares |
| Balance as of January 1, 2017 | 326,664 |
| | (3,504 | ) | | 323,160 |
|
| Treasury Stock acquired | | | (245 | ) | | (245 | ) |
| Issued: | | | | | |
| Employee stock purchase plan | 155 |
| | — |
| | 155 |
|
| Long-term incentive plan | 241 |
| | — |
| | 241 |
|
| 401(k) and profit sharing | 1,188 |
| | — |
| | 1,188 |
|
| Dividend reinvestment plan | 261 |
| | — |
| | 261 |
|
| ATM program | 11,931 |
| | — |
| | 11,931 |
|
| Balance as of September 30, 2017 | 340,440 |
| | (3,749 | ) | | 336,691 |
|
(3)Unrecognized pension and OPEB benefit, net of $0.1 million and zero tax expense in the first quarter of 2023 and 2022, respectively.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited)
| | | | | | | | | | | |
| (in millions) | March 31,
2023 | | December 31,
2022 |
| ASSETS | | | |
| Property, Plant and Equipment | | | |
| Plant | $ | 28,065.6 | | | $ | 27,551.3 | |
| Accumulated depreciation and amortization | (7,838.0) | | | (7,708.7) | |
| | | |
| | | |
Net Property, Plant and Equipment(1) | 20,227.6 | | | 19,842.6 | |
| Investments and Other Assets | | | |
| Unconsolidated affiliates | 2.2 | | | 1.6 | |
| Available-for-sale debt securities (amortized cost of $162.8 and $166.7, allowance for credit losses of $0.8 and $0.9, respectively) | 150.4 | | | 151.6 | |
| Other investments | 74.3 | | | 71.0 | |
| Total Investments and Other Assets | 226.9 | | | 224.2 | |
| Current Assets | | | |
| Cash and cash equivalents | 106.4 | | | 40.8 | |
| Restricted cash | 41.9 | | | 34.6 | |
| Accounts receivable | 954.2 | | | 1,065.8 | |
| Allowance for credit losses | (31.4) | | | (23.9) | |
| Accounts receivable, net | 922.8 | | | 1,041.9 | |
| Gas inventory | 138.8 | | | 531.7 | |
| Materials and supplies, at average cost | 172.6 | | | 151.4 | |
| Electric production fuel, at average cost | 64.9 | | | 68.8 | |
| Exchange gas receivable | 92.1 | | | 128.1 | |
| | | |
| Regulatory assets | 237.6 | | | 233.2 | |
| | | |
| Deposits to renewable generation asset developer | 281.2 | | | 143.8 | |
| Prepayments and other | 278.2 | | | 210.0 | |
Total Current Assets(1) | 2,336.5 | | | 2,584.3 | |
| Other Assets | | | |
| Regulatory assets | 2,319.2 | | | 2,347.6 | |
| Goodwill | 1,485.9 | | | 1,485.9 | |
| | | |
| Deferred charges and other | 257.6 | | | 252.0 | |
| Total Other Assets | 4,062.7 | | | 4,085.5 | |
| Total Assets | $ | 26,853.7 | | | $ | 26,736.6 | |
(1)Includes $972.7 million and $978.5 million at March 31, 2023 and December 31, 2022, respectively, of net property, plant and equipment assets and $33.8 million and $25.7 million at March 31, 2023 and December 31, 2022, respectively, of current assets of consolidated VIEs that may be used only to settle obligations of the consolidated VIEs. Refer to Note 12, "Variable Interest Entities," for additional information.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)
| | | | | | | | | | | | |
| (in millions, except share amounts) | March 31,
2023 | | December 31,
2022 | |
| CAPITALIZATION AND LIABILITIES | | | | |
| Capitalization | | | | |
| Stockholders’ Equity | | | | |
| Common stock - $0.01 par value, 600,000,000 shares authorized; 412,982,639 and 412,142,602 shares outstanding, respectively | $ | 4.2 | | | $ | 4.2 | | |
| Preferred stock - $0.01 par value, 20,000,000 shares authorized; 1,302,500 and 1,302,500 shares outstanding, respectively | 1,546.5 | | | 1,546.5 | | |
| Treasury stock | (99.9) | | | (99.9) | | |
| Additional paid-in capital | 7,372.9 | | | 7,375.3 | | |
| Retained deficit | (1,114.8) | | | (1,213.6) | | |
| Accumulated other comprehensive loss | (34.7) | | | (37.1) | | |
| Total NiSource Stockholders’ Equity | 7,674.2 | | | 7,575.4 | | |
| Noncontrolling interest in consolidated subsidiaries | 329.5 | | | 326.4 | | |
| Total Equity | 8,003.7 | | | 7,901.8 | | |
| Long-term debt, excluding amounts due within one year | 10,264.7 | | | 9,523.6 | | |
| Total Capitalization | 18,268.4 | | | 17,425.4 | | |
| Current Liabilities | | | | |
| Current portion of long-term debt | 30.3 | | | 30.0 | | |
| Short-term borrowings | 1,281.6 | | | 1,761.9 | | |
| Accounts payable | 642.2 | | | 899.5 | | |
| Dividends payable - common stock | 103.4 | | | — | | |
| Dividends payable - preferred stock | 19.4 | | | — | | |
| Customer deposits and credits | 225.5 | | | 324.7 | | |
| Taxes accrued | 268.7 | | | 246.2 | | |
| Interest accrued | 139.2 | | | 138.4 | | |
| | | | |
| Exchange gas payable | 19.6 | | | 147.6 | | |
| Regulatory liabilities | 359.1 | | | 236.8 | | |
| | | | |
| | | | |
| Asset retirement obligations | 48.1 | | | 35.5 | | |
| Accrued compensation and employee benefits | 124.5 | | | 167.5 | | |
| | | | |
| Obligations to renewable generation asset developer | 347.2 | | | 347.2 | | |
| Other accruals | 298.1 | | | 325.2 | | |
Total Current Liabilities(1) | 3,906.9 | | | 4,660.5 | | |
| Other Liabilities | | | | |
| | | | |
| Deferred income taxes | 1,950.1 | | | 1,854.5 | | |
| | | | |
| | | | |
| Accrued liability for postretirement and postemployment benefits | 239.6 | | | 245.5 | | |
| Regulatory liabilities | 1,725.5 | | | 1,775.8 | | |
| Asset retirement obligations | 464.7 | | | 478.1 | | |
| Other noncurrent liabilities and deferred credits | 298.5 | | | 296.8 | | |
Total Other Liabilities(1) | 4,678.4 | | | 4,650.7 | | |
| Commitments and Contingencies (Refer to Note 15, "Other Commitments and Contingencies") | | | | |
| Total Capitalization and Liabilities | $ | 26,853.7 | | | $ | 26,736.6 | | |
(1)Includes $135.4 million and $128.2 million at March 31, 2023 and December 31, 2022, respectively, of current liabilities and $30.7 million and $30.6 million at March 31, 2023 and December 31, 2022, respectively, of other liabilities of consolidated VIEs that creditors do not have recourse to our general credit. Refer to Note 12, "Variable Interest Entities," for additional information.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Statements of Consolidated Cash Flows (unaudited)
| | | | | | | | | | | |
Three Months Ended March 31, (in millions) | 2023 | | 2022 |
| Operating Activities | | | |
| Net Income | $ | 337.8 | | | $ | 431.3 | |
| Adjustments to Reconcile Net Income to Net Cash from Operating Activities: | | | |
| | | |
| Depreciation and amortization | 206.9 | | | 192.7 | |
| Deferred income taxes and investment tax credits | 75.5 | | | 87.2 | |
| | | |
| | | |
| | | |
| Gain on sale of assets | — | | | (105.0) | |
| Other adjustments | 1.1 | | | 8.0 | |
| Changes in Assets and Liabilities: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Components of working capital | 71.1 | | | (42.4) | |
| Regulatory assets/liabilities | 11.0 | | | 24.9 | |
| | | |
| | | |
| Deferred charges and other noncurrent assets | (12.0) | | | (7.4) | |
| Other noncurrent liabilities and deferred credits | (8.0) | | | (9.5) | |
| | | |
| Net Cash Flows from Operating Activities | 683.4 | | | 579.8 | |
| Investing Activities | | | |
| Capital expenditures | (557.1) | | | (450.1) | |
| Insurance recoveries | — | | | 105.0 | |
| | | |
| | | |
| | | |
| | | |
| Payment to renewable generation asset developer | (137.3) | | | — | |
| Other investing activities | (33.4) | | | (25.3) | |
| | | |
| Net Cash Flows used for Investing Activities | (727.8) | | | (370.4) | |
| Financing Activities | | | |
| Proceeds from Issuance of long-term debt | 744.2 | | | — | |
| Repayments of finance lease obligations | (8.1) | | | (7.3) | |
| | | |
| | | |
| Change in short-term borrowings, net (maturity ≤ 90 days) | (480.4) | | | (40.0) | |
| Issuance of common stock, net of issuance costs | 3.0 | | | 2.8 | |
| | | |
| Equity costs, grant withholdings and debt related costs | (11.8) | | | (8.9) | |
| Contributions from noncontrolling interest | 3.6 | | | — | |
| Distributions to noncontrolling interest | (5.3) | | | (0.6) | |
| | | |
| Dividends paid - common stock | (103.2) | | | (95.3) | |
| Dividends paid - preferred stock | (8.1) | | | (8.1) | |
| Contract liability payment | (16.6) | | | (16.5) | |
| | | |
| Net Cash Flows from (used for) Financing Activities | 117.3 | | | (173.9) | |
| Change in cash, cash equivalents and restricted cash | 72.9 | | | 35.5 | |
| Cash, cash equivalents and restricted cash at beginning of period | 75.4 | | | 94.9 | |
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 148.3 | | | $ | 130.4 | |
Reconciliation to Balance Sheet
| | | | | |
Three Months Ended March 31,(in millions) | 2023 |
| Cash and cash equivalents | 106.4 |
| Restricted Cash | 41.9 |
| Total Cash, Cash Equivalents and Restricted Cash | 148.3 |
Supplemental Disclosures of Cash Flow Information
| | | | | | | | | | | |
Three Months Ended March 31, (in millions) | 2023 | | 2022 |
| Non-cash transactions: | | | |
| Capital expenditures included in current liabilities | $ | 261.1 | | | $ | 183.4 | |
| Dividends declared but not paid | 122.8 | | | 114.7 | |
| | | |
| | | |
| | | |
| | | |
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Statements of Consolidated Equity (unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
Stock | | Preferred Stock(1) | | Treasury
Stock | | Additional
Paid-In
Capital | | Retained
Deficit | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling Interest in Consolidated Subsidiaries | | Total |
| Balance as of January 1, 2023 | $ | 4.2 | | | $ | 1,546.5 | | | $ | (99.9) | | | $ | 7,375.3 | | | $ | (1,213.6) | | | $ | (37.1) | | | $ | 326.4 | | | $ | 7,901.8 | |
| Comprehensive Income: | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | 333.0 | | | — | | | 4.8 | | | 337.8 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 2.4 | | | — | | | 2.4 | |
| Dividends: | | | | | | | | | | | | | | | |
| Common stock ($0.50 per share) | — | | | — | | | — | | | — | | | (206.7) | | | — | | | — | | | (206.7) | |
| Preferred stock (See Note 5) | — | | | — | | | — | | | — | | | (27.5) | | | — | | | — | | | (27.5) | |
| Contributions from noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | 3.6 | | | 3.6 | |
| Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (5.3) | | | (5.3) | |
| | | | | | | | | | | | | | | |
| Stock issuances: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Employee stock purchase plan | — | | | — | | | — | | | 1.3 | | | — | | | — | | | — | | | 1.3 | |
| Long-term incentive plan | — | | | — | | | — | | | (6.3) | | | — | | | — | | | — | | | (6.3) | |
| 401(k) and profit sharing | — | | | — | | | — | | | 2.6 | | | — | | | — | | | — | | | 2.6 | |
| | | | | | | | | | | | | | | |
| Balance as of March 31, 2023 | $ | 4.2 | | | $ | 1,546.5 | | | $ | (99.9) | | | $ | 7,372.9 | | | $ | (1,114.8) | | | $ | (34.7) | | | $ | 329.5 | | | $ | 8,003.7 | |
(1)Series A, Series B, and Series C shares have an aggregate liquidation preference of $400M, $500M, and $863M, respectively. See Note 5, "Equity," for additional information. |
| | | | | | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Common
Stock | | Preferred Stock(1) | | Treasury
Stock | | Additional
Paid-In
Capital | | Retained
Deficit | | Accumulated
Other
Comprehensive
Loss | | Noncontrolling Interest in Consolidated Subsidiaries | | Total |
| Balance as of January 1, 2022 | $ | 4.1 | | | $ | 1,546.5 | | | $ | (99.9) | | | $ | 7,204.3 | | | $ | (1,580.9) | | | $ | (126.8) | | | $ | 325.6 | | | $ | 7,272.9 | |
| Comprehensive Income: | | | | | | | | | | | | | | | |
| Net income | — | | | — | | | — | | | — | | | 426.8 | | | — | | | 4.5 | | | 431.3 | |
| Other comprehensive income, net of tax | — | | | — | | | — | | | — | | | — | | | 41.4 | | | — | | | 41.4 | |
| Dividends: | | | | | | | | | | | | | | | |
| Common stock ($0.47 per share) | — | | | — | | | — | | | — | | | (190.7) | | | — | | | — | | | (190.7) | |
| Preferred stock (See Note 5) | — | | | — | | | — | | | — | | | (27.5) | | | — | | | — | | | (27.5) | |
| Distributions to noncontrolling interest | — | | | — | | | — | | | — | | | — | | | — | | | (0.6) | | | (0.6) | |
| Stock issuances: | | | | | | | | | | | | | | | |
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| Employee stock purchase plan | — | | | — | | | — | | | 1.2 | | | — | | | — | | | — | | | 1.2 | |
| Long-term incentive plan | — | | | — | | | — | | | 0.9 | | | — | | | — | | | — | | | 0.9 | |
| 401(k) and profit sharing | — | | | — | | | — | | | 2.5 | | | — | | | — | | | — | | | 2.5 | |
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| Balance as of March 31, 2022 | $ | 4.1 | | | $ | 1,546.5 | | | $ | (99.9) | | | $ | 7,208.9 | | | $ | (1,372.3) | | | $ | (85.4) | | | $ | 329.5 | | | $ | 7,531.4 | |
(1)Series A, Series B and Series C shares have an aggregate liquidation preference of $400M, $500M, and $863M, respectively. See Note 5, "Equity," for additional information. |
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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Statements of Consolidated Equity (unaudited) (continued)
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| Preferred | | Common |
Shares (in thousands) | Shares | | Shares | | Treasury | | Outstanding |
| Balance as of January 1, 2023 | 1,303 | | | 416,106 | | | (3,963) | | | 412,143 | |
| Issued: | | | | | | | |
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| Employee stock purchase plan | — | | | 48 | | | — | | | 48 | |
| Long-term incentive plan | — | | | 695 | | | — | | | 695 | |
| 401(k) and profit sharing | — | | | 97 | | | — | | | 97 | |
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| Balance as of March 31, 2023 | 1,303 | | | 416,946 | | | (3,963) | | | 412,983 | |
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| Preferred | | Common |
Shares (in thousands) | Shares | | Shares | | Treasury | | Outstanding |
| Balance as of January 1, 2022 | 1,303 | | | 409,266 | | | (3,963) | | | 405,303 | |
| Issued: | | | | | | | |
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| Employee stock purchase plan | — | | | 44 | | | — | | | 44 | |
| Long-term incentive plan | — | | | 300 | | | — | | | 300 | |
| 401(k) and profit sharing | — | | | 87 | | | — | | | 87 | |
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| Balance as of March 31, 2022 | 1,303 | | | 409,697 | | | (3,963) | | | 405,734 | |
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The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
1. Basis of Accounting Presentation
TheOur accompanying Condensed Consolidated Financial Statements (unaudited) for NiSource Inc. ("NiSource" or the “Company”) reflect all normal recurring adjustments that are necessary, in the opinion of management, to present fairly the results of operations in accordance with GAAP in the United States of America. The accompanying financial statements containinclude the accounts of us, our majority-owned subsidiaries, and VIEs of which we are the Companyprimary beneficiary after the elimination of all intercompany accounts and its majority-owned or controlled subsidiaries.transactions.
The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in NiSource’sour Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022. Income for interim periods may not be indicative of results for the calendar year due to weather variations and other factors.
The Condensed Consolidated Financial Statements (unaudited) have been prepared pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although NiSource believeswe believe that the disclosures made in this quarterly reportQuarterly Report on Form 10-Q are adequate to make the information herein not misleading.
2. Recent Accounting Pronouncements
Recently IssuedAdopted Accounting Pronouncements
NiSource is currently evaluatingIn March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issuedASU 2021-01, Reference Rate Reform (Topic 848): Scope. These pronouncements provide temporary optional expedients and exceptions for applying GAAP principles to contract modifications and hedging relationships to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates. These pronouncements were effective upon issuance on March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, to extend the temporary accounting rules under Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. During 2022, the company applied a practical expedient under Topic 848 which allowed for the continuation of cash flow hedge accounting for interest rate derivative contracts upon the transition from LIBOR to alternative reference rates. The application of this expedient had no impact of certain ASUs on itsthe Condensed Consolidated Financial Statements (unaudited).
3. Revenue Recognition
Revenue Disaggregation and NotesReconciliation. We disaggregate revenue from contracts with customers based upon reportable segment, as well as by customer class. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, and Indiana. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.
The tables below reconcile revenue disaggregation by customer class to segment revenue, as well as to revenues reflected on the Condensed Statements of Consolidated Financial StatementsIncome (unaudited), which are described below::
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Three Months Ended March 31, 2023 (in millions) | Gas Distribution Operations(2) | | Electric Operations | | Corporate and Other | | Total |
Customer Revenues(1) | | | | | | | |
| Residential | $ | 987.0 | | | $ | 150.4 | | | $ | — | | | $ | 1,137.4 | |
| Commercial | 360.6 | | | 150.9 | | | — | | | 511.5 | |
| Industrial | 71.9 | | | 134.2 | | | — | | | 206.1 | |
| Off-system | 17.2 | | | — | | | — | | | 17.2 | |
| Miscellaneous | 18.4 | | | 5.5 | | | — | | | 23.9 | |
| Total Customer Revenues | $ | 1,455.1 | | | $ | 441.0 | | | $ | — | | | $ | 1,896.1 | |
| Other Revenues | 46.2 | | | 23.5 | | | 0.2 | | | 69.9 | |
| Total Operating Revenues | $ | 1,501.3 | | | $ | 464.5 | | | $ | 0.2 | | | $ | 1,966.0 | |
(1)Customer revenue amounts exclude intersegment revenues. See Note 18, "Business Segment Information," for discussion of intersegment revenues.
(2)Amounts included in Gas Distributions Operations Other revenues primarily relate to weather normalization adjustments driven by warmer weather in 2023 compared to 2022.
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Standard | Description | Effective Date | Effect on the financial statements or other significant matters |
ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
| The pronouncement changes how defined benefit pension and other postretirement benefit plans present net periodic benefit cost. The service cost component of net periodic benefit cost will be included with other employee compensation costs whereas other components of the net periodic benefit cost will be disclosed separately outside of income from operations in the income statement. Additionally, only the service cost component of net periodic benefit cost will be eligible for capitalization.
| Annual periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted.
| NiSource plans to adopt the standard effective January 1, 2018. Upon adoption, NiSource will continue to present the service cost component of net periodic benefit cost within "Operation and maintenance"; however, other components of the net periodic benefit cost will be presented separately below "Operating Income" in the income statement. This change in income statement presentation will be implemented on a retrospective basis. Additionally, beginning prospectively on the date of adoption, only the service cost component of NiSource's net periodic benefit cost component will be eligible for capitalization as "Property, Plant and Equipment" on the balance sheet. NiSource is currently evaluating the impact of adoption on the Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).
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ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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Three Months Ended March 31, 2022 (in millions) | Gas Distribution Operations | | Electric Operations | | Corporate and Other(2) | | Total |
Customer Revenues(1) | | | | | | | |
| Residential | $ | 976.9 | | | $ | 138.5 | | | $ | — | | | $ | 1,115.4 | |
| Commercial | 356.5 | | | 134.5 | | | — | | | 491.0 | |
| Industrial | 67.8 | | | 129.8 | | | — | | | 197.6 | |
| Off-system | 18.7 | | | — | | | — | | | 18.7 | |
| Miscellaneous | 14.0 | | | 3.6 | | | — | | | 17.6 | |
| Total Customer Revenues | $ | 1,433.9 | | | $ | 406.4 | | | $ | — | | | $ | 1,840.3 | |
| Other Revenues | 2.8 | | | 23.7 | | | 6.5 | | | 33.0 | |
| Total Operating Revenues | $ | 1,436.7 | | | $ | 430.1 | | | $ | 6.5 | | | $ | 1,873.3 | |
(1)Customer revenue amounts exclude intersegment revenues. See Note 18, "Business Segment Information," for discussion of intersegment revenues.
(2)Amounts associated with Corporate and Other revenues primarily relate to the Transition Services Agreement entered into in connection with the sale of the Massachusetts Business. | | | | | | | | | | | | | | | | | | | | | | | |
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Standard | Description | Effective Date | Effect on the financial statements or other significant matters |
ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
| The pronouncement clarifies implementation guidance in ASU 2014-09 on assessing collectability, noncash consideration and the presentation of sales and other similar taxes collected from customers. | Annual periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted for annual or interim periods beginning after December 15, 2016. | NiSource has formed an internal stakeholder group to promote information sharing and communication of the new requirements. Additionally, NiSource participates in an informal forum of industry peers where questions can be asked and interpretations of the new standard can be shared. Involvement in this group has resulted in additional clarity on industry-specific issues such as treatment of CIAC, scoping of tariff arrangements and presentation of alternative revenue programs. This clarity has furthered NiSource's adoption efforts. NiSource has separated its various revenue streams into high-level categories, which serve as the basis for accounting analysis and documentation as it relates to the pronouncement's impact on NiSource's revenues. Substantially all of NiSource’s revenues are tariff based, which NiSource concluded will be in scope of ASC 606. Based on evaluation performed to date, NiSource generally expects that the revenue from tariff based sales will continue to be equivalent to the natural gas or electricity supplied and billed each period (including unbilled revenues) and the adoption of the new guidance will not result in a material shift in the amount or timing of revenue recognition for such sales. NiSource has also undertaken efforts to outline mock footnote disclosures intended to satisfy ASC 606's disclosure requirements and expects to enhance its disclosures on revenue recognition policies and elections. Certain disclosure options continue to be evaluated at NiSource, including method and level of revenue disaggregation. NiSource intends to adopt this ASU effective January 1, 2018 and plans to use the modified retrospective method of adoption. If applicable, this method requires a cumulative effect adjustment to be recorded on the balance sheet as of January 1, 2018 and disclosures reconciling results under the new revenue recognition guidance to results under previous guidance. In its evaluation, NiSource continues to monitor industry implementation issues which could impact accounting policies and revenue recognition, including NiSource's preliminary conclusions described above. | | | | |
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations
| The pronouncement clarifies the principal versus agent guidance in ASU 2014-09. The amendment clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation, and how it should apply the control principle to certain types of arrangements. | | | | | | |
ASU 2014-09, Revenue from Contracts with Customers (Topic 606)
| The pronouncement outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. | | | | | | |
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Customer Accounts Receivable. Accounts receivable on our Condensed Consolidated Balance Sheets (unaudited) includes both billed and unbilled amounts, as well as certain amounts that are not related to customer revenues. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the date of the last cycle billing through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates, and weather. A significant portion of our operations are subject to seasonal fluctuations in sales. During the heating season, primarily from November through March, revenues and receivables from gas sales are more significant than in other months. The opening and closing balances of customer receivables for the three months ended March 31, 2023 are presented in the table below. We had no significant contract assets or liabilities during the period. Additionally, we have not incurred any significant costs to obtain or fulfill contracts.
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| (in millions) | Customer Accounts Receivable, Billed (less reserve) | | Customer Accounts Receivable, Unbilled (less reserve) | | |
| Balance as of December 31, 2022 | $ | 560.5 | | | $ | 453.0 | | | |
| Balance as of March 31, 2023 | 595.3 | | | 304.6 | | | |
Utility revenues are billed to customers monthly on a cycle basis. We expect that substantially all customer accounts receivable will be collected following customer billing, as this revenue consists primarily of periodic, tariff-based billings for service and usage. We maintain common utility credit risk mitigation practices, including requiring deposits and actively pursuing collection of past due amounts. Our regulated operations also utilize certain regulatory mechanisms that facilitate recovery of bad debt costs within tariff-based rates, which provides further evidence of collectibility. It is probable that substantially all of the consideration to which we are entitled from customers will be collected upon satisfaction of performance obligations.
Allowance for Credit Losses. To evaluate for expected credit losses, customer account receivables are pooled based on similar risk characteristics, such as customer type, geography, payment terms, and related macro-economic risks. Expected credit losses are established using a model that considers historical collections experience, current information, and reasonable and supportable forecasts. Internal and external inputs are used in our credit model including, but not limited to, energy consumption trends, revenue projections, actual charge-offs data, recoveries data, shut-offs, customer delinquencies, final bill data, and inflation. We continuously evaluate available information relevant to assessing collectability of current and future receivables. We evaluate creditworthiness of specific customers periodically or following changes in facts and circumstances. When we become aware of a specific commercial or industrial customer's inability to pay, an allowance for expected credit losses is recorded for the relevant amount. We also monitor other circumstances that could affect our overall expected credit losses including, but not limited to, creditworthiness of overall population in service territories, adverse conditions impacting an industry sector, and current economic conditions.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
At each reporting period, we record expected credit losses to an allowance for credit losses account. When deemed to be uncollectible, customer accounts are written-off. A rollforward of our allowance for credit losses as of March 31, 2023 and December 31, 2022 are presented in the table below:
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(in millions) | Gas Distribution Operations | | Electric Operations | | Corporate and Other | | Total |
| Balance as of January 1, 2023 | $ | 17.2 | | | $ | 5.9 | | | $ | 0.8 | | | $ | 23.9 | |
| Current period provisions | 10.4 | | | 2.0 | | | — | | | 12.4 | |
| Write-offs charged against allowance | (12.1) | | | (1.5) | | | — | | | (13.6) | |
| Recoveries of amounts previously written off | 8.5 | | | 0.2 | | | — | | | 8.7 | |
| Balance as of March 31, 2023 | $ | 24.0 | | | $ | 6.6 | | | $ | 0.8 | | | $ | 31.4 | |
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(in millions) | Gas Distribution Operations | | Electric Operations | | Corporate and Other | | Total |
| Balance as of January 1, 2022 | $ | 18.9 | | | $ | 3.8 | | | $ | 0.8 | | | $ | 23.5 | |
| Current period provisions | 29.1 | | | 6.9 | | | — | | | 36.0 | |
| Write-offs charged against allowance | (52.1) | | | (5.3) | | | — | | | (57.4) | |
| Recoveries of amounts previously written off | 21.3 | | | 0.5 | | | — | | | 21.8 | |
| Balance as of December 31, 2022 | $ | 17.2 | | | $ | 5.9 | | | $ | 0.8 | | | $ | 23.9 | |
4. Earnings Per Share
The calculations of basic and diluted EPS are based on the weighted average number of shares of common stock and potential common stock outstanding during the period. For the purposes of determining diluted EPS, the shares underlying the purchase contracts included within the Equity Units were included in the calculation of potential common stock outstanding for the three months ended March 31, 2023 and 2022 using the if-converted method under US GAAP. For the purchase contracts, the number of shares of our common stock that would be issuable at the end of each reporting period will be reflected in the denominator of our diluted EPS calculation. If the stock price falls below the initial reference price of $24.51, subject to anti-dilution adjustments, the number of shares of our common stock used in calculating diluted EPS will be the maximum number of shares per the contract as described in Note 5, "Equity." Conversely, if the stock price is above the initial reference price of $24.51, subject to anti-dilution adjustments, a variable number of shares of our common stock will be used in calculating diluted EPS. A numerator adjustment is reflected in the calculation of diluted EPS for interest expense incurred for the three months ended March 31, 2023 and 2022 net of tax, related to the purchase contracts.
We adopted ASU 2020-06 on January 1, 2022, which resulted in additional dilution from our Equity Units by requiring us to assume share settlement of the remaining purchase contract payment balance based on the average share price during the period.
The shares underlying the Series C Mandatory Convertible Preferred Stock included within the Equity Units are contingently convertible as the conversion is contingent on a successful remarketing as described in Note 5, "Equity." Contingently convertible shares where conversion is not tied to a market price trigger are excluded from the calculation of diluted EPS until such time as the contingency has been resolved under the if-converted method. As of March 31, 2023 and 2022, the contingency was not resolved and thus no shares were reflected in the denominator in the calculation of diluted EPS for the three months ended March 31, 2023 and 2022.
Diluted EPS also includes the incremental effects of the various long-term incentive compensation plans and the open ATM forward agreements during the period under the treasury stock method when the impact would be dilutive.
We began using the two-class method of computing earnings per share in 2023 because we have participating securities in the form of non-vested restricted stock units with a non-forfeitable right to dividend equivalents, for which vesting is predicated solely on the passage of time. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator.
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Standard | Description | Effective Date | Effect on the financial statements or other significant matters |
ASU 2016-02, Leases (Topic 842)
| The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. | Annual periods beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. | NiSource has formed an internal stakeholder group that meets periodically to share information and gather data related to leasing activity at NiSource. This includes compiling a list of all contracts that could meet the definition of a lease under the new standard and evaluating the accounting for these contracts under the new standard to determine the ultimate impact the new standard will have on NiSource’s financial statements. Also, this procedure has identified process improvements to ensure data from newly initiated leases is captured to comply with the new standard. This work included the assistance of a third-party advisory firm. NiSource plans to adopt this standard effective January 1, 2019. |
Recently Adopted Accounting Pronouncements
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Standard | Adoption |
ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
| NiSource elected to adopt this ASU effective October 1, 2017. Upon adoption, restricted cash on the Statements of Consolidated Cash Flows will no longer be presented as an investing activity and will instead be included as a component of beginning and ending cash balances. The adoption of this standard will be reflected in the Statements of Consolidated Cash Flows beginning with NiSource's Annual Report on Form 10-K for the year ending December 31, 2017 (including all prior periods presented). |
ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to accounting for Hedging Activities
| NiSource elected to adopt this ASU effective September 30, 2017. Upon adoption, NiSource is no longer required to separately measure and report hedge ineffectiveness. The guidance also eases the requirements related to ongoing hedge effectiveness assessments at NiSource. The adoption of this standard did not have a material impact on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).
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ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting
| NiSource elected to adopt this ASU effective July 1, 2017. The adoption of this standard did not have a material impact on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).
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ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
| NiSource elected to adopt this ASU effective January 1, 2017. The adoption of this standard did not have a material impact on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).
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Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
3. Earnings Per Share
During 2022, we had no outstanding securities other than common and preferred stock, which required holders’ participation in dividends and earnings; therefore, we were not required to calculate EPS under the two-class method. Basic EPSnet income per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding forduring the period. The weighted-averageDiluted net income per share is computed by giving effect to all potential shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans. The computation of diluted average common shares is as follows:
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| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| (in thousands) | 2017 | | 2016 | | 2017 | | 2016 |
| Denominator | | | | | | | |
| Basic average common shares outstanding | 331,139 |
| | 322,318 |
| | 326,662 |
| | 321,445 |
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| Dilutive potential common shares: | | | | | | | |
| Shares contingently issuable under employee stock plans | 604 |
| | 228 |
| | 503 |
| | 146 |
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| Shares restricted under employee stock plans | 653 |
| | 1,372 |
| | 866 |
| | 1,606 |
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| Diluted Average Common Shares | 332,396 |
| | 323,918 |
| | 328,031 |
| | 323,197 |
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4. Common Stock
ATM Program. On May 3, 2017, NiSource entered into four separate equity distribution agreements, pursuant to which NiSource may sell, from time to time, up to an aggregate of $500.0 million of its common stock. As of September 30, 2017, approximately $182.8 million of equity remained available for issuance under the ATM program. The program expires on December 31, 2018. Shares of common stock, to the extent they are offered pursuant to NiSource's shelf registration statement filed with the SEC. dilutive.
The following table summarizes NiSource's activity underpresents the ATM program:calculation of our basic and diluted EPS:
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| Three Months Ended
March 31, | | |
| (in millions, except per share amounts) | 2023 | | 2022 | | | | |
| Numerator: | | | | | | | |
| Net Income Available to Common Shareholders | $ | 319.2 | | | $ | 413.0 | | | | | |
| Less: Income allocated to participating securities | 0.2 | | | — | | | | | |
| Net Income Available to Common Shareholders - Basic | 319.0 | | | 413.0 | | | | | |
| Add: Dilutive effect of Equity Units | 0.4 | | | 0.5 | | | | | |
| Net Income Available to Common Shareholders - Diluted | $ | 319.4 | | | $ | 413.5 | | | | | |
| Denominator: | | | | | | | |
| Average common shares outstanding - Basic | 412.8 | | | 406.0 | | | | | |
| Dilutive potential common shares: | | | | | | | |
| Equity Units purchase contracts | 31.2 | | | 29.1 | | | | | |
| Equity Units purchase contract payment balance | 1.8 | | | 4.0 | | | | | |
| Shares contingently issuable under employee stock plans | 0.8 | | | 1.0 | | | | | |
| Shares restricted under employee stock plans | 0.5 | | | 0.4 | | | | | |
| ATM forward agreements | — | | | 0.9 | | | | | |
| Average Common Shares - Diluted | 447.1 | | | 441.4 | | | | | |
| Earnings per common share: | | | | | | | |
| Basic | $ | 0.77 | | | $ | 1.02 | | | | | |
| Diluted | $ | 0.71 | | | $ | 0.94 | | | | | |
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| | Three Months Ended | | Nine Months Ended |
| | September 30, | | September 30, |
| | 2017 | | 2016 | | 2017 | | 2016 |
| Number of shares issued | 10,612,915 |
| | — |
| | 11,931,376 |
| | — |
|
| Average price per share | $ | 26.67 |
| | $ | — |
| | $ | 26.58 |
| | $ | — |
|
Proceeds, net of fees (in millions) | $ | 281.0 |
| | $ | — |
| | $ | 314.7 |
| | $ | — |
|
5. Regulatory Matters
Gas Distribution Operations Regulatory Matters
Cost Recovery and Trackers. Comparability of Gas Distribution Operations line item operating results is impacted by regulatory trackers that allow for the recovery in rates of certain costs such as those described below. Increases in the expenses that are the subject of trackers result in a corresponding increase in net revenues and therefore have essentially no impact on total operating income results.
Certain operating costs of the NiSource distribution companies are significant, recurring in nature, and generally outside the control of the distribution companies. Some states allow the recovery of such costs through cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the distribution companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include GCR adjustment mechanisms, tax riders, and bad debt recovery mechanisms.
A portion of the distribution companies' revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in NiSource's operating area require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. NiSource distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.
Certain of the NiSource distribution companies have completed rate proceedings involving infrastructure replacement or are embarking upon regulatory initiatives to replace significant portions of their operating systems that are nearing the end of their
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
5. Equity
useful lives. Each LDC's approachATM Program. On February 22, 2021, we entered into six separate equity distribution agreements pursuant to cost recovery may be unique, givenwhich we are able to sell up to an aggregate of $750.0 million of our common stock. As of March 31, 2023, the different laws, regulations and precedent that existATM program had approximately $300.0 million of equity available for issuance. The program expires on December 31, 2023. There are no outstanding forward agreements as of March 31, 2023.
Preferred Stock. As of March 31, 2023, we had 20,000,000 shares of preferred stock authorized for issuance, of which 1,302,500 shares of preferred stock in each jurisdiction.the aggregate for all series were outstanding. The following table displays preferred dividends declared for the period by outstanding series of shares:
Columbia of Ohio.On November 28, 2012, | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Three Months Ended
March 31, | | | | March 31, | | December 31, |
| | | 2023 | | 2022 | | | | | | 2023 | | 2022 |
| (in millions except shares and per share amounts) | Liquidation Preference Per Share | Shares | Dividends Declared Per Share | | Outstanding |
| 5.650% Series A | $ | 1,000.00 | | 400,000 | | 28.25 | | | 28.25 | | | | | | | $ | 393.9 | | | $ | 393.9 | |
| 6.500% Series B | $ | 25,000.00 | | 20,000 | | 812.50 | | | 812.50 | | | | | | | $ | 486.1 | | | $ | 486.1 | |
Series C(1) | $ | 1,000.00 | | 862,500 | | — | | | — | | | | | | | $ | 666.5 | | | $ | 666.5 | |
(1)The Series C Mandatory Convertible Preferred Stock initially will not bear any dividends. We recorded the PUCO approved Columbia of Ohio’s application to extend its IRP for an additional five years (2013-2017), allowing Columbia of Ohio to continue to invest and recover on its accelerated main replacements. Columbia of Ohio filed its application to adjust rates associated with its IRP and DSM Riders on February 27, 2017, which requested authority to increase annual revenues by approximately $31.5 million. On March 23, 2017, the PUCO Staff filed comments which recommended approvalinitial present value of the applicationpurchase contract payments as a liability with only minor revisions.a corresponding reduction to preferred stock.
In addition, 20,000 shares of Series B–1 Preferred Stock, par value $0.01 per share, were outstanding as of March 31, 2023. Holders of Series B–1 Preferred Stock are not entitled to receive dividend payments and have no conversion rights. The PUCO issued an order on April 26, 2017, approving Columbia of Ohio's application. New rates went into effect on May Series B–1 2017.
On February 27, 2017, Columbia of Ohio filed an application requesting authority to extend its IRP for an additional five years (2018-2022). On July 10, 2017, the PUCO Staff recommended approval of Columbia of Ohio's IRP for the additional five years, with modifications to Columbia of Ohio's proposed IRP rates for the five-year period. A joint stipulation and recommendation, outlining annual maximum IRP rates for the five-year period, was filed on August 18, 2017 and was supported or not opposed by all parties except the OCC. A hearing was held on October 2, 2017 and briefingPreferred Stock is scheduled to be completed by November 7, 2017. An order is expected by the end of 2017.
On October 27, 2017 Columbia of Ohio filed a 30-day notice that they plan to file a request for a rider to begin recovering plant and associated deferrals related to the CEP. The CEP was established in 2011 and allows for deferral of interest, depreciation and property taxes on certain plant investments not recovered through its IRP modernization tracker.
NIPSCO Gas.On September 27, 2017, NIPSCO filed a base rate casepaired with the IURC, seeking an annual revenue increase of $143.5 million (inclusive of amounts being recovered through various tracker programs). As part of this filingSeries B Preferred Stock and among other items, NIPSCO proposed to update base rates for ongoing infrastructure improvements, revised depreciation rates and ongoing level of expenses to reflectmay not be transferred, redeemed or repurchased except in connection with the current costs of providing natural gas service. An order is expected in the second half of 2018.
On April 30, 2013, then Indiana Governor Pence signed Senate Enrolled Act 560, the TDSIC statute, into law. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for newsimultaneous transfer, redemption, or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisionsrepurchase of the TDSIC statute require that, among other things, requests for recovery include a seven-year planunderlying Series B Preferred Stock.
As of eligible investments. Once the plan is approved by the IURC, eighty percent of eligible costs can be recovered using a periodic rate adjustment mechanism. The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on,March 31, 2023 and of, the investment, including AFUDC, post-in-service carrying charges, operation and maintenance expenses, depreciation and property taxes. The remaining twenty percent of recoverable costs are to be deferred for future recovery in the public utility’s next general rate case. The periodic rate adjustment mechanism is capped at an annual increase of no more than two percent of total retail revenues. On February 28, 2017, NIPSCO filed TDSIC-6 requesting approval of $271.32022, Series A Preferred Stock had $6.7 million of cumulative net capital spend through December 31, 2016. An order approving NIPSCO's filing was received from the IURC on June 28, 2017,preferred dividends in arrears, or $16.63 per share, and new rates went into effect on July 1, 2017. On August 31, 2017, NIPSCO filed TDSIC-7 requesting approval of $328.9Series B Preferred Stock had $1.4 million of cumulative preferred dividends in arrears, or $72.23 per share.
Equity Units. On April 19, 2021, we completed the sale of 8.625 million Equity Units, initially consisting of Corporate Units, each with a stated amount of $100. The offering generated net capital spend through June 30, 2017. An order is expectedproceeds of $835.5 million, after underwriting and issuance expenses. Each Corporate Unit consists of a forward contract to purchase shares of our common stock in the fourth quarterfuture and a 1/10th, or 10%, undivided beneficial ownership interest in one share of 2017.Series C Mandatory Convertible Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share.
Columbia of Massachusetts.On July 7, 2014,Selected information about the Governor of Massachusetts signed into law Chapter 149 ofEquity Units at the Acts of 2014, An Act Relative to Natural Gas Leaks (“the Act”). The Act authorizes natural gas distribution companies to file gas infrastructure replacement plans with the Massachusetts DPU to address the replacement of aging natural gas pipeline infrastructure. In addition, the Act provides that the Massachusetts DPU may, after review of the plans, allow the proposed estimatedissuance date is presented below:
| | | | | | | | | | | | | | | | | |
| (in millions except contract rate) | Issuance Date | Units Issued | Total Net Proceeds(1) | Purchase Contract Annual Rate | Purchase Contract Liability |
| Equity Units | April 19, 2021 | 8.625 | $ | 835.5 | | 7.75 | % | $ | 168.8 | |
(1)Issuance costs of $27.0 million were recorded on a relative fair value basis as a reduction to preferred stock of $22.5 million and a reduction to the plan into rates aspurchase contract liability of May$4.5 million.
The purchase contract obligates holders to purchase shares of our common stock on December 1, 2023, subject to early settlement in certain situations. The purchase price paid under the purchase contract is $100 and the number of the subsequent year. On October 31, 2016, Columbia of Massachusetts filed its GSEP for the 2017 construction year. In that filing, Columbia of Massachusetts proposedshares to recover a cumulative revenue requirement of $17.2 million. An order was received from the Massachusetts DPU on April 28, 2017 approving the filing and rates went into effect on May 1, 2017. On October 31, 2017, Columbia of Massachusetts filed its GSEP for the 2018 construction year. Columbia of Massachusetts is 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 requirementbe purchased will be $23.7 million. An order is expected fromdetermined under a settlement rate formula based on the Massachusetts DPU involume-weighted average share price of our common stock near the second quarter of 2018, with new rates effective May 1, 2018.
Columbia of Virginia. On April 29, 2016, Columbia of Virginia filed a request with the VSCC, seeking an annual revenue increase of $37.0 million. On September 28, 2016, Columbia of Virginia implemented updated interim base ratessettlement date, subject to refund. On January 17, 2017, Columbiaa maximum settlement rate. The Series C Mandatory Convertible Preferred Stock will initially be pledged upon issuance as collateral to secure the purchase of Virginia presented a stipulation and proposed recommendation, representing a settlement by all parties tocommon stock under the proceeding that included a base revenue increase of $28.5 million. On March 17, 2017, by final order, the VSCC approved the settlement agreement without modification. In accordance with the terms of the final order, during 2017 Columbiarelated purchase contracts.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The Series C Mandatory Convertible Preferred Stock is expected to be remarketed prior to December 1, 2023, and each share, unless previously converted, will automatically convert to common stock based on a conversion rate on the mandatory conversion date, which is expected to be on or about March 1, 2024. The conversion rate will be determined based on the volume-weighted average share price of Virginia completed its refundour common stock near the conversion date, subject to a minimum and maximum conversion rate. Prior to December 1, 2023, the Series C Mandatory Convertible Preferred Stock will not bear any dividends and the liquidation preference will not accrete. Following a successful remarketing, dividends may become payable on the Series C Mandatory Convertible Preferred Stock and/or the minimum conversion rate of the differenceSeries C Mandatory Convertible Preferred Stock may be increased. If no successful remarketing of the Series C Mandatory Convertible Preferred Stock has previously occurred, effective as of December 1, 2023, the conversion rate will be zero, no shares of our common stock will be delivered upon automatic conversion and each share of Series C Mandatory Convertible Preferred Stock will be automatically transferred to us on the mandatory conversion date without any payment of cash or shares of our common stock thereon. In the event of such a remarketing failure, any shares of Series C Mandatory Convertible Preferred Stock held as part of Corporate Units will be automatically delivered to us on December 1, 2023 in full satisfaction of the relevant holder's obligation under the related purchase contracts.
We will pay quarterly contract adjustment payments at the rate of 7.75% per year on the stated amount of $100 per Equity Unit. The contract adjustment payments are payable in cash, shares of our common stock or a combination thereof, at our election. The payment of contract adjustment payments may also be deferred until the purchase contract settlement date, December 1, 2023, at our election. If we exercise our option to defer the payment of contract adjustment payments, then until the deferred contract adjustment payments have been paid, we will not declare or pay any dividends on, or make any distributions on, or redeem, purchase or acquire, or make a liquidation payment with respect to, any shares of our capital stock; make any payment of principal of, or interest or premium, if any, on, or repay, repurchase or redeem any of our debt securities that rank on parity with, or junior to, the contract adjustment payments; or make any guarantee payments under any guarantee by us of securities of any of our subsidiaries if our guarantee ranks on parity with, or junior to, the contract adjustment payments. As of March 31, 2023, no contract adjustment payments have been deferred with quarterly cash payments being remitted to the holders. As of March 31, 2023 and December 31, 2022 the purchase contract liability, net of issuance costs, was $48.8 million and $65.0 million, respectively. Purchase contract payments are recorded against this liability. Accretion of the purchase contract liability is recorded as interest expense. Cash payments of $16.7 million were made during the three months ended March 31, 2023 and 2022.
The Series C Mandatory Convertible Preferred Stock and forward purchase contracts are legally detachable and separately exercisable, however, due to the economic linkage between the interim customer rates implemented in 2016forward purchase contract and the rates approved bySeries C Mandatory Convertible Preferred Stock, we have concluded that the final order.
Columbia of Maryland.On April 14, 2017, Columbia of Maryland filed a request withability to separate the MPSC to adjust base rates. On July 28, 2017, all parties filed a settlement agreement with the MPSC, under which Columbia of Maryland will receive an annual revenue increase of $2.4 million. The MPSC approved the settlement on September 19, 2017 and rates went into effect on October 27, 2017.
Electric Operations Regulatory Matters
Cost Recovery and Trackers. Comparability of Electric Operations line item operating resultsCorporate Units is impacted by regulatory trackers that allownon-substantive. Accordingly, we are accounting for the recovery in ratesCorporate Units as a single unit of certain costs suchaccount. We recorded the initial present value of the purchase contract payments as those described below. Increases in the expenses that are the subject of trackers result ina liability with a corresponding increasereduction to preferred stock. This liability is included in net revenues and therefore have essentially no impact"Other accruals" on total operating income results.theCondensed Consolidated Balance Sheets (unaudited).
Certain operating costs of the Electric Operations are significant, recurring in nature, and generally outside the control of NIPSCO. The IURC allows for recovery of such costs through cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for NIPSCO to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include electric energy efficiency programs, MISO non-fuel costs and revenues, resource capacity charges, federally mandated costs and environmental related costs.
A portion of NIPSCO's revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, a quarterly regulatory proceeding in Indiana.
NIPSCO has approval from the IURC to recover certain environmental related costs through an ECT. Under the ECT, NIPSCO is permitted to recover (1) AFUDC and a return on the capital investment expended by NIPSCO to implement environmental compliance plan projects and (2) related operation and maintenance and depreciation expenses once the environmental facilities become operational. On July 28, 2017, NIPSCO filed ECR-30 which included $256.2 million of cumulative net capital expenditures through the period ended June 30, 2017. An order was received from the IURC on October 25, 2017, and new rates went into effect the first billing cycle of November 2017.
NIPSCO made a TDSIC-2 rate adjustment mechanism filing on June 30, 2017 seeking recovery and ratemaking relief associated with $177.3 million of cumulative net capital expenditures made through April 30, 2017. An order approving the request was received from the IURC on October 31, 2017 and new rates are expected to go into effect with the first billing cycle of November 2017.
On November 1, 2016, NIPSCO filed a petition with the IURC for relief regarding the construction of additional environmental projects required to comply with the final rules for regulation of CCRs and the ELG. On June 9, 2017, a settlement agreement was filed with the IURC regarding the CCR projects and treatment of associated costs. An evidentiary hearing was held on August 21, 2017 and an order is expected by the end of 2017. Given the current postponement of the ELG rule, NIPSCO has agreed, with the settling parties, that the ELG projects and related costs would be addressed in a later proceeding. Refer to Note 14-C, “Environmental Matters,”4, "Earnings Per Share," for more information.additional information regarding our treatment of the Equity Units for diluted EPS. Under the terms of the Equity Units, assuming no anti-dilution or other adjustments such as a fundamental change, the maximum number of shares of common stock we will issue under the purchase contracts is 35.2 million and maximum number of shares of common stock we will issue under the Series C Mandatory Convertible Preferred Stock is 35.2 million. Had we settled the remaining purchase contract payment balance in shares at March 31, 2023, we would have issued approximately 1.8 million shares.
6. Risk Management ActivitiesGas in Storage
NiSource is exposedWe use both the LIFO inventory methodology and the weighted-average cost methodology to certain risks relating to its ongoing business operations, namely commodity price risk and interest rate risk. NiSource recognizes thatvalue natural gas in storage. Natural gas storage injections are priced at the prudent and selective useaverage of derivatives may help to lower itsthe costs of natural gas supply purchased during the year. For interim periods, the difference in the cost of debt capital, manage its interest rate exposurereplacing the current portion of stored gas inventory compared to the amount stated on a LIFO basis is recorded within the Condensed Consolidated Balance Sheets (unaudited). Due to seasonality requirements, we expect interim variances in LIFO layers to be replenished by year end. The LIFO basis exceeded the cost of replacing the current portion of stored gas by $22.3 million and limit volatility inzero as of March 31, 2023 and December 31, 2022, respectively, for certain gas distribution companies recorded within "Prepayments and other" on the price of natural gas.Condensed Consolidated Balance Sheets (unaudited).
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
7. Regulatory Matters
NIPSCO change in accounting estimate
As part of the NIPSCO Gas Settlement and Stipulation Agreement filed on March 2, 2022, NIPSCO Gas agreed to change the depreciation methodology for its calculation of depreciation rates, which reduces depreciation expense and subsequent revenues and cash flows. An order was received on July 27, 2022 approving the rate case and rates were effective as of September 1, 2022. NIPSCO has proposed a similar change in depreciation methodology in its pending electric base rate case, and this proposed change is included in the settlement that has been filed for approval. An order is expected in the electric rate case in August of 2023.
Columbia of Ohio regulatory filing update
Columbia of Ohio's base rate case was filed on June 21, 2021, requesting a net rate increase of approximately 21.3% or $221.4 million increase in revenue per year. The case was filed in conjunction with applications for an alternative rate plan, approval of certain deferral authority, and updates to certain riders. On October 31, 2022, Columbia of Ohio filed a joint stipulation and recommendation with certain parties to settle the base rate case. On January 26, 2023, the PUCO modified and approved the joint stipulation and recommendation, and Columbia of Ohio placed rates into effect on March 1, 2023. Applications for Rehearing were filed by the three parties who opposed certain rate design and energy efficiency assistance components of the joint stipulation and recommendation, which was granted for further consideration by the PUCO on March 22, 2023.
Regulatory deferral related to renewable energy investments
In accordance with the accounting principles of ASC 980, we recognize a regulatory liability or asset for amounts representing the timing difference between the profit earned from the JVs and the amount included in regulated rates to recover our approved investments in consolidated JVs. The amounts recorded in income will ultimately reflect the amount allowed in regulated rates to recover our investments over the useful life of the projects. The offset to the regulatory liability or asset associated with our renewable investments included in regulated rates is recorded in "Depreciation expense" on the Condensed Statements of Consolidated Income (unaudited). NiSource recorded a decrease to depreciation expense of $4.4 million and $2.9 million for the three months ended March 31, 2023 and 2022, respectively. Refer to Note 12, "Variable Interest Entities," for additional information.
8. Risk Management Activities
We are exposed to certain risks relating to our ongoing business operations; namely commodity price risk and interest rate risk. We recognize that the prudent and selective use of derivatives may help to lower our cost of debt capital, manage our interest rate exposure and limit volatility in the price of natural gas.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Risk management assets and liabilities on NiSource’sour derivatives are presented on the Condensed Consolidated Balance Sheets (unaudited) as shown below:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| (in millions) | Assets | | Liabilities | | Assets | | Liabilities |
Current(1) | | | | | | | |
| Derivatives designated as hedging instruments | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Derivatives not designated as hedging instruments | 5.0 | | | 5.4 | | | 18.8 | | | 1.1 | |
| Total | $ | 5.0 | | | $ | 5.4 | | | $ | 18.8 | | | $ | 1.1 | |
Noncurrent(2) | | | | | | | |
| Derivatives designated as hedging instruments | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Derivatives not designated as hedging instruments | 46.5 | | | 1.1 | | | 66.0 | | | 1.9 | |
| Total | $ | 46.5 | | | $ | 1.1 | | | $ | 66.0 | | | $ | 1.9 | |
|
| | | | | | | |
| (in millions) | September 30, 2017 | | December 31, 2016 |
Risk Management Assets - Current(1) | | | |
| Interest rate risk programs | $ | — |
| | $ | 17.0 |
|
| Commodity price risk programs | 0.2 |
| | 7.4 |
|
| Total | $ | 0.2 |
| | $ | 24.4 |
|
Risk Management Assets - Noncurrent(2) | | | |
| Interest rate risk programs | $ | 20.1 |
| | $ | 17.1 |
|
| Commodity price risk programs | 0.7 |
| | 7.5 |
|
| Total | $ | 20.8 |
| | $ | 24.6 |
|
Risk Management Liabilities - Current(3) | | | |
| Interest rate risk programs | $ | 36.9 |
| | $ | 15.3 |
|
| Commodity price risk programs | 3.3 |
| | 1.5 |
|
| Total | $ | 40.2 |
| | $ | 16.8 |
|
| Risk Management Liabilities - Noncurrent | | | |
| Interest rate risk programs | $ | — |
| | $ | 24.5 |
|
| Commodity price risk programs | 28.7 |
| | 20.0 |
|
| Total | $ | 28.7 |
| | $ | 44.5 |
|
(1)PresentedCurrentassets and liabilities are presented in "Prepayments and other" and "Other accruals", respectively, on the Condensed Consolidated Balance Sheets (unaudited).
(2)PresentedNoncurrentassets and liabilities are presented in "Deferred charges and other" and "Other noncurrent liabilities and deferred credits", respectively, on the Condensed Consolidated Balance Sheets (unaudited).
(3)Presented in "Other accruals"Our derivative instruments aresubject to enforceable master netting arrangements or similar agreements. No collateral was either received or posted related to our outstanding derivative positions at March 31, 2023. If the above gross asset and liability positions were presented net of amounts owed or receivable from counterparties, we would report a net asset position of $45.0 million and $81.8 million at March 31, 2023 and December 31, 2022, respectively.
All gains and losses on the Condensed Consolidated Balance Sheets (unaudited).derivative contracts are deferred as regulatory liabilities or assets and are remitted to or collected from customers through NIPSCO’s quarterly GCA mechanism.
Derivatives Not Designated as Hedging Instruments
Commodity Price Risk Management
NiSource and NiSource’sprice risk management. We, along with our utility customers, are exposed to variability in cash flows associated with natural gas purchases and volatility in natural gas prices. NiSource purchasesWe purchase natural gas for sale and delivery to itsour retail, commercial and industrial customers, and for most customers the variability in the market price of gas is passed through in their rates. Some of NiSource’sour utility subsidiaries offer programs whereby variability in the market price of gas is assumed by the respective utility. The objective of NiSource’sour commodity price risk programs is to mitigate the gas cost variability, for NiSourceus or on behalf of itsour customers, associated with natural gas purchases or sales by economically hedging the various gas cost components using a combination of futures, options, forwards or other derivative contracts. At March 31, 2023 and December 31, 2022, we had 92.8 MMDth and 99.0 MMDth, respectively, of net energy derivative volumes outstanding related to our natural gas hedges.
NIPSCO has received IURC approval to lock in a fixed price for its natural gas customers using long-term forward purchase instruments. The term of these instruments may range from five to ten years and is limited to ten percent20% of NIPSCO’sNIPSCO's average annual GCA purchase volume. Gains and losses on these derivative contracts are deferred as regulatory liabilities or assets and are remitted to or collected from customers through NIPSCO’s quarterly GCA mechanism. These instruments are not designated as accounting hedges.
Interest Rate Risk Management
As of September 30, 2017, NiSource Finance has forward-starting interest rate swaps with an aggregate notional value totaling $1.0 billionMarch 31, 2023, the remaining terms of these instruments range from one to hedge the variability in cash flows attributable to changes in the benchmark interest rate during the periods from the effective dates of the swaps to the anticipated dates of forecasted debt issuances, which are expected to take place by the end of 2019. These interest rate swaps are designated as cash flow hedges. four years.
The effective portions offollowing table summarizes the gains and losses related to these swaps are recorded to AOCI and are recognized in earnings concurrentlyassociated with the recognitioncommodity price risk programs:
| | | | | | | | | | | |
| (in millions) | March 31, 2023 | | December 31, 2022 |
| Regulatory Assets | | | |
| Losses on commodity price risk programs | $ | 21.7 | | | $ | 10.0 | |
| Regulatory Liabilities | | | |
| Gains on commodity price risk programs | 52.3 | | | 90.0 | |
Our derivative instruments measured at fair value as of interest expense on the associated debt, once issued. If it becomes probable that a hedged forecasted transaction willMarch 31, 2023 and December 31, 2022 do not contain any credit-risk-related contingent features.
Derivatives Designated as Hedging Instruments
Interest rate risk management. As of March 31, 2023, we have no longer occur, the accumulated gains or losses on the derivative will be recognized currently in earnings.
On May 11, 2017, NiSource Finance settled $950.0 million of forward-startingactive interest rate swap agreements contemporaneously with the issuance of $2.0 billion of 3.49% and 4.375% senior notes, maturing in 2027 and 2047, respectively. These derivativepositions.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
contracts were accounted for as cash flow hedges. As partThe net gain related to multiple of the transaction, the associated net unrealized loss position of $6.9 million is being amortized from accumulated other comprehensive loss into interest expense over the term of the associated interest payments.
On September 5, 2017, NiSource Financeour settled $750.0 million of treasury lock agreements, initially entered into August 2017, contemporaneously with the issuance of $750.0 million of 3.95% senior notes, maturing in 2048. This derivative contract was accounted for as cash flow hedge. As part of the transaction, the associated net unrealized loss position of $19.0 million is being amortized from accumulated other comprehensive loss into interest expense over the term of the associated interest payments.
Cash associated with payments to settle interest rate swaps, and treasury lock agreementsis recorded in AOCI. We amortize the net gain over the life of the debt associated with these swaps as we recognize interest expense. These amounts are reflected within operating activities within the Condensed Statements of Consolidated Cash Flows (unaudited)immaterial for the ninethree months ended September 30, 2017.
Realized gainsMarch 31, 2023 and losses from NiSource’s interest rate cash flow hedges2022 and are presentedrecorded in “Interest"Interest expense, net”net" on the Condensed Statements of Consolidated Income (unaudited). There were no amounts excluded from effectiveness testingAmounts expected to be reclassified to earnings during the next twelve months are immaterial. Amortization will continue for derivatives in cash flow hedging relationships at September 30, 2017 and December 31, 2016.350 months. See Note 16, "Accumulated Other Comprehensive Loss," for additional information.
NiSource’s derivative instruments measured at fair value as of September 30, 2017 and December 31, 2016 do not contain any credit-risk-related contingent features.
7.9. Fair Value
A. Fair Value Measurements
Recurring Fair Value Measurements.Measurements
The following tables present financial assets and liabilities measured and recorded at fair value on NiSource’sour Condensed Consolidated Balance Sheets (unaudited) on a recurring basis and their level within the fair value hierarchy as of September 30, 2017March 31, 2023 and December 31, 2016:2022:
| | | | | | | | | | | | | | | | | | | | | | | |
Recurring Fair Value Measurements
March 31, 2023 (in millions) | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Balance as of March 31, 2023 |
| Assets | | | | | | | |
| | | | | | | |
| Risk management assets | $ | — | | | $ | 51.5 | | | $ | — | | | $ | 51.5 | |
| | | | | | | |
| Available-for-sale debt securities | — | | | 150.4 | | | — | | | 150.4 | |
| Total | $ | — | | | $ | 201.9 | | | $ | — | | | $ | 201.9 | |
| Liabilities | | | | | | | |
| | | | | | | |
| Risk management liabilities | $ | — | | | $ | 6.5 | | | $ | — | | | $ | 6.5 | |
| Total | $ | — | | | $ | 6.5 | | | $ | — | | | $ | 6.5 | |
| Recurring Fair Value Measurements
December 31, 2022 (in millions) | | Recurring Fair Value Measurements
December 31, 2022 (in millions) | Quoted Prices in
Active Markets
for Identical
Assets
(Level 1) | | Significant
Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Balance as of December 31, 2022 |
| Assets | | Assets | |
| | Recurring Fair Value Measurements
September 30, 2017 (in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance as of September 30, 2017 | |
| Assets | | | | | | | | |
| Risk management assets | $ | — |
| | $ | 21.0 |
| | $ | — |
| | $ | 21.0 |
| Risk management assets | $ | — | | | $ | 84.8 | | | $ | — | | | $ | 84.8 | |
| Available-for-sale securities | — |
| | 139.3 |
| | — |
| | 139.3 |
| |
| | Available-for-sale debt securities | | Available-for-sale debt securities | — | | | 151.6 | | | — | | | 151.6 | |
| Total | $ | — |
| | $ | 160.3 |
| | $ | — |
| | $ | 160.3 |
| Total | $ | — | | | $ | 236.4 | | | $ | — | | | $ | 236.4 | |
| Liabilities | | | | | | | | Liabilities | |
| | Risk management liabilities | $ | — |
| | $ | 68.1 |
| | $ | 0.8 |
| | $ | 68.9 |
| Risk management liabilities | $ | — | | | $ | 3.0 | | | $ | — | | | $ | 3.0 | |
| Total | $ | — |
| | $ | 68.1 |
| | $ | 0.8 |
| | $ | 68.9 |
| Total | $ | — | | | $ | 3.0 | | | $ | — | | | $ | 3.0 | |
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
|
| | | | | | | | | | | | | | | |
Recurring Fair Value Measurements
December 31, 2016 (in millions) | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | | Significant Unobservable Inputs (Level 3) | | Balance as of December 31, 2016 |
| Assets | | | | | | | |
| Risk management assets | $ | 5.4 |
| | $ | 43.6 |
| | $ | — |
| | $ | 49.0 |
|
| Available-for-sale securities | — |
| | 131.5 |
| | — |
| | 131.5 |
|
| Total | $ | 5.4 |
| | $ | 175.1 |
| | $ | — |
| | $ | 180.5 |
|
| Liabilities | | | | | | | |
| Risk management liabilities | $ | 1.2 |
| | $ | 58.9 |
| | $ | 1.2 |
| | $ | 61.3 |
|
| Total | $ | 1.2 |
| | $ | 58.9 |
| | $ | 1.2 |
| | $ | 61.3 |
|
Risk Management Assets and Liabilities. Risk management assets and liabilities include interest rate swaps, treasury lock agreements, exchange-traded NYMEX futures and NYMEX options and non-exchange-based forward purchase contracts. Exchange-traded
Level 1- When utilized, exchange-traded derivative contracts are based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore, nonperformance risk has not been incorporated into these valuations. These financial assets and liabilities are deemed to be cleared and settled daily by NYMEX as the related cash collateral is posted with the exchange. As a result of this exchange rule, NYMEX derivatives are considered to have no fair value at the balance sheet date for financial reporting purposes, and are presented in Level 1 net of posted cash; however, the derivatives remain outstanding and are subject to future commodity price fluctuations until they are settled in accordance with their contractual terms.
Level 2- Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, options and treasury lock agreements.options. In certain instances, these instruments may utilize models to measure fair value. NiSource usesWe use a similar model
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and market-corroborated inputs, (i.e., inputs derived principally from or corroborated by observable market data by correlation or other means). Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized within Level 2.
Level 3- Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized within Level 3.
Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements whichthat reduce exposures. As of September 30, 2017March 31, 2023 and December 31, 2016,2022, there were no material transfers between fair value hierarchies. Additionally, there were no changes in the method or significant assumptions used to estimate the fair value of NiSource’sour financial instruments.
NiSource Finance has entered into forward-starting interest rate swaps and treasury lock agreements to hedge the interest rate risk on coupon payments of forecasted issuances of long-term debt. These derivatives are designated as cash flow hedges. Credit risk is considered in the fair value calculation of each agreement. As they are based on observable data and valuations of similar instruments, the hedges are categorized within Level 2 of the fair value hierarchy. There was no exchange of premium at the initial date of the swaps and treasury lock agreements, and NiSource can settle the contracts at any time. For additional information see Note 6, "Risk Management Activities."
NIPSCO has entered into long-term forward natural gas purchase instruments that range from five to ten years to lock in a fixed price for its natural gas customers. NiSource valuesWe value these contracts using a pricing model that incorporates market-based information when available, as these instruments trade less frequently and are classified within Level 2 of the fair value hierarchy. For additional information, see Note 6, “Risk8, "Risk Management Activities.”"
Available-for-Sale Debt Securities. Available-for-sale debt securities are investments pledged as collateral for trust accounts related to NiSource’s wholly-ownedour wholly owned insurance company. Available-for-sale securities are included within “Other investments” in the Condensed Consolidated Balance Sheets (unaudited). NiSource valuesWe value U.S. Treasury, corporate debt and mortgage-backed securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently and are classified within Level 2. Total
Our available-for-sale debt securities impairments are recognized periodically using an allowance approach. At each reporting date, we utilize a quantitative and qualitative review process to assess the impairment of available-for-sale debt securities at the individual security level. For securities in a loss position, we evaluate our intent to sell or whether it is more-likely-than-not that we will be required to sell the security prior to the recovery of its amortized cost. If either criteria is met, the loss is recognized in earnings immediately, with the offsetting entry to the carrying value of the security. If both criteria are not met, we perform an analysis to determine whether the unrealized gainsloss is related to credit factors. The analysis focuses on a variety of factors that include, but are not limited to, downgrade on ratings of the security, defaults in the current reporting period or projected defaults in the future, the security's yield spread over treasuries, and losses from available-for-sale securities areother relevant market data. If the unrealized loss is not related to credit factors, it is included in other comprehensive income. If the unrealized loss is related to credit factors, the loss is recognized as credit loss expense in earnings during the period, with an offsetting entry to the allowance for credit losses. The amount of the credit loss recorded to the allowance account is limited by the amount at which the security's fair value is less than its amortized cost basis. If certain amounts recorded in the allowance for credit losses are deemed uncollectible, the allowance on the uncollectible portion will be charged off, with an offsetting entry to the carrying value of the security. Subsequent improvements to the estimated credit losses of available-for-sale debt securities will be recognized immediately in earnings. As of March 31, 2023 and December 31, 2022, we have $0.8 million and $0.9 million, respectively, recorded as an allowance for credit losses on available-for-sale debt securities as a result of the analysis described above. Continuous credit monitoring and portfolio credit balancing mitigates our risk of credit losses on our available-for-sale debt securities.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The amortized cost, gross unrealized gains and losses, allowance for credit losses, and fair value of available-for-sale securities at September 30, 2017March 31, 2023 and December 31, 20162022 were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2023 (in millions) | Amortized
Cost | | Gross Unrealized Gains | | Gross Unrealized Losses(1) | | Allowance for Credit Losses | | Fair
Value |
| Available-for-sale debt securities | | | | | | | | | |
| U.S. Treasury debt securities | $ | 67.0 | | | $ | 0.1 | | | $ | (3.3) | | | $ | — | | | $ | 63.8 | |
| Corporate/Other debt securities | 95.8 | | | — | | | (8.4) | | | (0.8) | | | 86.6 | |
| Total | $ | 162.8 | | | $ | 0.1 | | | $ | (11.7) | | | $ | (0.8) | | | $ | 150.4 | |
| | | | | | | | | |
December 31, 2022 (in millions) | Amortized
Cost | | Gross Unrealized Gains | | Gross Unrealized Losses(2) | | Allowance for Credit Losses | | Fair
Value |
| Available-for-sale debt securities | | | | | | | | | |
| U.S. Treasury debt securities | $ | 67.7 | | | $ | — | | | $ | (4.5) | | | $ | — | | | $ | 63.2 | |
| Corporate/Other debt securities | 99.0 | | | — | | | (9.7) | | | (0.9) | | | 88.4 | |
| Total | $ | 166.7 | | | $ | — | | | $ | (14.2) | | | $ | (0.9) | | | $ | 151.6 | |
|
| | | | | | | | | | | | | | | |
September 30, 2017 (in millions) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| Available-for-sale securities | | | | | | | |
| U.S. Treasury debt securities | $ | 34.3 |
| | $ | — |
| | $ | (0.1 | ) | | $ | 34.2 |
|
| Corporate/Other debt securities | 104.2 |
| | 1.3 |
| | (0.4 | ) | | 105.1 |
|
| Total | $ | 138.5 |
| | $ | 1.3 |
| | $ | (0.5 | ) | | $ | 139.3 |
|
December 31, 2016 (in millions) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| Available-for-sale securities | | | | | | | |
| U.S. Treasury debt securities | $ | 35.0 |
| | $ | 0.1 |
| | $ | (0.6 | ) | | $ | 34.5 |
|
| Corporate/Other debt securities | 98.7 |
| | 0.3 |
| | (2.0 | ) | | 97.0 |
|
| Total | $ | 133.7 |
| | $ | 0.4 |
| | $ | (2.6 | ) | | $ | 131.5 |
|
(2)Fair value of U.S. Treasury debt securities and Corporate/Other debt securities in an unrealized loss position without an allowance for credit losses is $61.0 million and $85.5 million, respectively, at December 31, 2022.
The cost of maturities sold is based upon specific identification. Realized gains and losses on available-for-sale securities were immaterial for the three and nine months ended September 30, 2017March 31, 2023 and 2016.2022.
The cost of maturities sold is based upon specific identification. At September 30, 2017,March 31, 2023, approximately $8.4$6.3 million of U.S. Treasury debt securities and approximately $3.2$4.1 million of Corporate/Other debt securities have maturities of less than a year.
Non-recurring Fair Value Measurements
There are no material items inWe measure the fair value reconciliation of Level 3certain assets, and liabilities measuredincluding goodwill, on a non-recurring basis, typically when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Purchase Contract Liability. At April 19, 2021, we recorded the purchase contract liability at fair value onusing a recurring basis fordiscounted cash flow method and observable, market-corroborated inputs. This estimate was made at April 19, 2021, and will not be remeasured at each subsequent balance sheet date. It has been categorized within Level 2 of the three and nine months ended September 30, 2017 and 2016.
Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the three and nine months ended September 30, 2017.hierarchy. Refer to Note 5, "Equity," for additional information.
B. Other Fair Value Disclosures for Financial Instruments. The carrying amount of cash and cash equivalents, restricted cash, notes receivable, customer deposits and short-term borrowings is a reasonable estimate of fair value due to their liquid or short-term nature. NiSource’sOur long-term borrowings are recorded at historical amounts.
The following method and assumptions were used to estimate the fair value of each class of financial instruments.
Long-term Debt. The fair value of outstanding long-term debt is estimated based on the quoted market prices for the same or similar securities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. These fair value measurements are classified within Level 2 of the fair value hierarchy. For the nine months endedSeptember 30, 2017,As of March 31, 2023, there was no change in the method or significant assumptions used to estimate the fair value of long-term debt.
The carrying amount and estimated fair values of these financial instruments were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Carrying Amount as of March 31, 2023 | | Estimated Fair Value as of March 31, 2023 | | Carrying Amount as of Dec. 31, 2022 | | Estimated Fair Value as of Dec. 31, 2022 |
| Long-term debt (including current portion) | $ | 10,295.0 | | | $ | 9,488.2 | | | $ | 9,553.6 | | | $ | 8,479.4 | |
|
| | | | | | | | | | | | | | | |
| (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 |
|
ITEM 1. FINANCIAL STATEMENTS (continued)
8. TransfersNotes to Condensed Consolidated Financial Statements (unaudited) (continued)
10. Income Taxes
Our interim effective tax rates reflect the estimated annual effective tax rates for 2023 and 2022, adjusted for tax expense associated with certain discrete items. The effective tax rates for the three months ended March 31, 2023 and 2022 were 20.3% and 18.2%, respectively. These effective tax rates differ from the federal statutory tax rate of 21% primarily due to increased amortization of excess deferred federal income tax liabilities, as specified in the TCJA, tax credits, state flow through, and other permanent book-to-tax differences. These adjustments have a relative impact on the effective tax rate proportionally to pretax income or loss.
The increase in the three month effective tax rate of 2.1% in 2023 compared to 2022 is primarily attributed to renewable partnership income, partially offset by increased amortization of excess deferred federal income tax liabilities, the Pennsylvania rate differential, and restricted stock unit excess benefit.
There were no material changes recorded in 2023 to our uncertain tax positions recorded as of December 31, 2022.
11. Pension and Other Postemployment Benefits
We provide defined contribution plans and noncontributory defined benefit retirement plans that cover certain of our employees. Benefits under the defined benefit retirement plans reflect the employees' compensation, years of service and age at retirement. Additionally, we provide health care and life insurance benefits for certain retired employees. The majority of employees may become eligible for these benefits if they reach retirement age while working for us. The expected cost of such benefits is accrued during the employees' years of service. We determined that, for certain rate-regulated subsidiaries, the future recovery of postretirement benefit costs is probable, and we record regulatory assets and liabilities for amounts that would otherwise have been recorded to expense or accumulated other comprehensive loss. Current rates of rate-regulated companies include postretirement benefit costs, including amortization of the regulatory assets and liabilities that arose prior to inclusion of these costs in rates. For most plans, cash contributions are remitted to grantor trusts.
For the three months ended March 31, 2023, we contributed $1.2 million to our pension plans and $5.6 million to our OPEB plans.
The following table provides the components of the plans' actuarially determined net periodic benefit cost for the three months ended March 31, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | OPEB |
Three Months Ended March 31, (in millions) | 2023 | | 2022 | | 2023 | | 2022 |
Components of Net Periodic Benefit (Income) Cost(1) | | | | | | | |
| Service cost | $ | 5.1 | | | $ | 7.1 | | | $ | 1.3 | | | $ | 1.6 | |
| Interest cost | 17.1 | | | 9.4 | | | 5.4 | | | 3.0 | |
| Expected return on assets | (23.6) | | | (22.9) | | | (3.8) | | | (4.0) | |
| Amortization of prior service credit | — | | | — | | | (0.5) | | | (0.6) | |
| Recognized actuarial loss | 8.4 | | | 4.5 | | | 0.8 | | | 0.7 | |
| | | | | | | |
| Total Net Periodic Benefit (Income) Cost | $ | 7.0 | | | $ | (1.9) | | | $ | 3.2 | | | $ | 0.7 | |
(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 (unaudited). |
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12. Variable Interest Entities
A VIE is an entity in which the controlling interest is determined through means other than a majority voting interest. NIPSCO owns and operates two wind facilities, Rosewater and Indiana Crossroads Wind, which have 102 MW and 302 MW of nameplate capacity, respectively. NIPSCO also owns one solar facility, Indiana Crossroads Solar, which is expected to go into service in 2023 with 200 MW of nameplate capacity. We control decisions that are significant to these entities' ongoing operations and economic results. Therefore, we have concluded that we are the primary beneficiary and have consolidated all three entities.
Members of the respective JVs are NIPSCO (who is the managing member) and tax equity partners. 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. NIPSCO and each tax equity partner contributed cash, and NIPSCO also assumed an obligation to the developers
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial AssetsStatements (unaudited) (continued)
of the wind facilities representing the remaining economic interest. The developers of the wind facilities are not a partner in the JV for federal income tax purposes and do not receive any share of earnings, tax attributes, or cash flows of each JV. 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 respective JV. NIPSCO has an obligation to purchase, through a PPA at established market rates, 100% of the electricity generated by our in-service JVs.
We did not provide any financial or other support during the quarter that was not previously contractually required, nor do we expect to provide such support in the future.
Our Condensed Consolidated Balance Sheets (unaudited) included the following assets and liabilities associated with VIEs.
| | | | | | | | | | | |
| (in millions) | March 31, 2023 | | December 31, 2022 |
| Net Property, Plant and Equipment | $ | 972.7 | | | $ | 978.5 | |
| Current assets | 33.8 | | | 25.7 | |
| | | |
Total assets(1) | 1,006.5 | | | 1,004.2 | |
| Current liabilities | 135.4 | | | 128.2 | |
| Asset retirement obligations | 30.7 | | | 30.6 | |
| | | |
| Total liabilities | $ | 166.1 | | | $ | 158.8 | |
(1)The assets of each VIE represent assets of a consolidated VIE that can be used only to settle obligations of the respective consolidated VIE. The creditors of the liabilities of the VIEs do not have recourse to the general credit of the primary beneficiary.
13. Long-Term Debt
On March 24, 2023, we completed the issuance and sale of $750.0 million of 5.25% senior unsecured notes maturing in 2028, which resulted in approximately $742.2 million of net proceeds after discount and debt issuance costs.
14. Short-Term Borrowings
We generate short-term borrowings from our revolving credit facility, commercial paper program, accounts receivable transfer programs, and term credit agreement. Each of these borrowing sources is described further 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.We had no outstanding borrowings under this facility as of March 31, 2023 and December 31, 2022.
Commercial Paper Program. Our commercial paper program has a program limit of up to $1.5 billion. We had zero and $415.0 million of commercial paper outstanding with weighted-average interest rates of zero and 4.60% as of March 31, 2023 and December 31, 2022, respectively.
Accounts Receivable Transfer Programs. Columbia of Ohio, NIPSCO and Columbia of Pennsylvania each maintain a receivables agreement whereby they transfer their customer accounts receivables to third partythird-party financial institutions through wholly-ownedwholly owned and consolidated special purpose entities. The three agreements expire between March 2018August 2023 and October 2018May 2024 and may be further extended if mutually agreed to by the parties thereto.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
All receivables transferred to third parties are valued at face value, which approximates fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables transferred is determined in part by required loss reserves under the agreements.
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term borrowings on the Condensed Consolidated Balance Sheets (unaudited). As of September 30, 2017,March 31, 2023, the maximum amount of debt that could be recognizedborrowed related to NiSource’sour accounts receivable programs is $265.0$635.5 million.
The following table reflects the gross receivables balanceWe had $281.8 million and net receivables transferred as well as$347.2 million of short-term borrowings related to the securitization transactions as of September 30, 2017March 31, 2023 and December 31, 2016:2022, respectively.
|
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| (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 |
|
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
For the ninethree months ended September 30, 2017 and 2016, $47.8March 31, 2023 $65.4 million and $11.0 million, respectively, was recorded as cash flows used for financing activities related to the change in short-term borrowings due to securitization transactions. For the three months ended March 31, 2022 $355.0 million was recorded as cash flows from financing activities related to the change in short-term borrowings due to securitization transactions. Fees associated with the securitization transactions were $0.6$0.9 million and $0.4$0.3 million for the three months ended September 30, 2017March 31, 2023 and 2016, respectively,2022, respectively. Columbia of Ohio, NIPSCO and $1.9 million and $1.6 million for the nine months ended September 30, 2017 and 2016, respectively. NiSource remainsColumbia of Pennsylvania remain responsible for collecting on the receivables securitized, and the receivables cannot be transferred to another party.
9.Goodwill
Term Credit Agreement. On December 20, 2022, we entered into a $1.0 billion term credit agreement with a syndicate of banks. The following presents NiSource’s goodwill balance allocated by segmentagreement matures on December 19, 2023 and interest charged on the borrowings depends on the variable rate structure elected at the time of each borrowing. The available variable rate structures from which we can choose are defined in the agreement. Under the agreement, we borrowed $1.0 billion on December 20, 2022 with an interest rate of SOFR plus 105 basis points. We had $1.0 billion outstanding with interest rates of 5.81% and 5.37% as of September 30, 2017:
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| (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 DecemberMarch 31, 2016.
Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
11. Pension and Other Postretirement Benefits
NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover certain of its employees. Benefits under the defined benefit retirement plans reflect the employees’ compensation, years of service and age at retirement. Additionally, NiSource provides health care and life insurance benefits for certain retired employees. The majority of employees may become eligible for these benefits if they reach retirement age while working for NiSource. 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 quarter of 2017. NiSource does not anticipate any further pension contributions in 2017. Contributions 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" 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:
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| 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 obligation and the net periodic benefit cost at the measurement dates of August 31, 20172023 and December 31, 2016.2022, respectively.
|
| | | | | |
| | 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, excluding the term credit agreement, 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, 2017March 31, 2023 and December 31, 2016, NiSource2022, we had issued stand-by letters of credit of $13.0$10.2 million for the benefit of third parties.
We provide guarantees related to our future performance under BTAs for our renewable generation projects. At March 31, 2023 and $14.7December 31, 2022, our guarantees for multiple BTAs totaled $841.6 million. As of April 2023, the amount of the guarantees increased to $938.9 million respectively. 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 ''- D. Other Matters - Generation Transition,'' below for more information.
B. Legal Proceedings. The Company is party to certain claims and legal proceedings arising in the ordinary course of business, none of which is deemed to be individually material at this time.
Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim, proceeding or proceedinginvestigation would not have a material adverse effect on the Company’sour results of operations, financial position or liquidity. If one or more of such matters were decided against the Company,us, the effects could be material to the Company’sour results of operations in the period in which the Companywe would be required to record or adjust the related liability and could also be material to the Company’sour cash flows in the periods the Companythat we would be required to pay such liability.
Private Actions. 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"). There continue to be asserted wrongful death and bodily injury claims as it relates to the Greater Lawrence Incident. We continue to discuss potential settlements with remaining claimants. The outcomes and impacts of such private actions are uncertain at this time.
FERC Investigation. In April 2022, NIPSCO was notified that the FERC Office of Enforcement (“OE”) is conducting an investigation of an industrial customer for allegedly manipulating the MISO Demand Response (“DR”) market. The customer and NIPSCO are cooperating with the investigation. If the OE ultimately were to seek to require the customer to repay any portion of the DR revenue received from MISO, it is reasonably possible that the OE would also seek to require NIPSCO to disgorge administrative fees and foregone margin charges that NIPSCO collected pursuant to its own IURC-approved tariff. NIPSCO currently estimates the maximum amount of its disgorgement exposure to be $9.7 million, and the investigation is still ongoing. NIPSCO intends to seek indemnification under its agreements with the customer for any liability NIPSCO incurs related to this matter.
Other Legal Proceedings.We are also party to 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.
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
C. Environmental Matters.NiSource Our operations are subject to environmental statutes and regulations related to air quality, water quality, hazardous waste and solid waste. NiSource believesWe believe that it iswe are in substantial compliance with the environmental regulations currently applicable to itsour operations.
It is management's continued intent to address environmental issues in cooperation with regulatory authorities in such a manner as to achieve mutually acceptable compliance plans. However, there can be no assurance that fines and penalties will not be incurred. Management expects a significant portionmajority of environmental assessment and remediation costs and asset retirement costs, further described below, to be recoverable through rates for certain NiSource companies.rates.
As of September 30, 2017March 31, 2023 and December 31, 2016, NiSource2022, we had recorded a liability of approximately $112.6$84.3 million and $111.4$86.5 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, we 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 6453 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. The2022. Our total estimated liability at NiSource related to the facilities subject to remediation was $108.0$79.3 million and $105.5$81.0 million at September 30, 2017March 31, 2023 and December 31, 2016,2022, respectively. The liability represents NiSource’sour best estimate of the probable cost to remediate the facilities. NiSource believesMGP sites. Our model indicates 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,NIPSCO continues to meet the EPA issued acompliance requirements established in the EPA'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.
D. Other Matters.
Generation Transition.NIPSCO filedhas executed several PPAs to purchase 100% of the output from renewable generation facilities at a petitionfixed 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. NIPSCO's purchase obligation under each respective BTA is dependent on November 1, 2016 with the IURC seekingsatisfactory approval of the projects and recovery of the costs associated with CCR compliance. On June 9, 2017, NIPSCO filed withBTA by the IURC, successful execution by NIPSCO of an agreement with a settlement reached with certain parties regarding the CCR projectstax equity partner and treatmenttimely completion 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,construction. NIPSCO has agreed withreceived IURC approval for all of its BTAs and PPAs. NIPSCO and the settling parties as part oftax equity partner, for each respective BTA, are obligated to make cash contributions to 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 Station byJV that acquires the endproject at the date construction is substantially complete. Certain agreements require NIPSCO to make partial payments upon the developer's completion of 2023. It is projected oversignificant construction milestones. Once the long term thattax equity partner has earned its negotiated rate of return and we have reached the costagreed upon contractual date, NIPSCO has the option to customers to retire these unitspurchase 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 accordance with ASC 980-360,fair market value the remaining interest in the JV from the tax equity partner.
16. Accumulated Other Comprehensive Loss
The following tables display the components of Accumulated Other Comprehensive Loss, net book value of tax:
| | | | | | | | | | | | | | | | | | | | | | | |
| (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, 2023 | $ | (11.2) | | | $ | (12.6) | | | $ | (13.3) | | | $ | (37.1) | |
| Other comprehensive income before reclassifications | 1.7 | | | — | | | — | | | 1.7 | |
| Amounts reclassified from accumulated other comprehensive loss | 0.3 | | | 0.1 | | | 0.3 | | | 0.7 | |
| Net current-period other comprehensive income | 2.0 | | | 0.1 | | | 0.3 | | | 2.4 | |
| | | | | | | |
| Balance as of March 31, 2023 | $ | (9.2) | | | $ | (12.5) | | | $ | (13.0) | | | $ | (34.7) | |
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| | | | | | | |
(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, 2022 | $ | 2.1 | | | $ | (122.5) | | | $ | (6.4) | | | $ | (126.8) | |
| Other comprehensive income (loss) before reclassifications | (5.9) | | | 47.0 | | | — | | | 41.1 | |
| Amounts reclassified from accumulated other comprehensive loss | 0.2 | | | — | | | 0.1 | | | 0.3 | |
| Net current-period other comprehensive income (loss) | (5.7) | | | 47.0 | | | 0.1 | | | 41.4 | |
| | | | | | | |
| Balance as of March 31, 2022 | $ | (3.6) | | | $ | (75.5) | | | $ | (6.3) | | | $ | (85.4) | |
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(1)All amounts are net of tax. Amounts in parentheses indicate debits.
17. Other, Net
The following table displays the Bailly Generating Station units was reclassified from "Net utility plant" to "Other property, at cost, less accumulated depreciation"components of Other, Net included 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 charges in the fourth quarter of 2016. These charges were comprised of contract termination charges related to NIPSCO's capital lease with Pure Air (discussed further below), voluntary employee severance benefits, and write downs of certain materials and supplies inventory balances.
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. 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 14 under the heading "NIPSCO 2016 Integrated Resource Plan," NIPSCO plans to retire the generation station units serviced by Pure Air by May 31, 2018. In December 2016, as allowed by the provisions 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 triggered a contract termination liability of $16 million which was recorded in fourth quarter of 2016. This 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 remeasured the remaining capital lease asset and obligation to reflect the change in estimated remaining minimum lease payments. This remeasurement was a non-cash transaction that had no impact on the Statements of Consolidated Income.Income (unaudited):
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. | | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| (in millions) | 2023 | | 2022 | | | | |
| Interest income | $ | 1.8 | | | $ | 0.9 | | | | | |
| AFUDC equity | 4.8 | | | 3.0 | | | | | |
| | | | | | | |
| Pension and other postretirement non-service benefit (cost) | (3.5) | | | 7.6 | | | | | |
| | | | | | | |
| Miscellaneous | (1.6) | | | (0.6) | | | | | |
| Total Other, net | $ | 1.5 | | | $ | 10.9 | | | | | |
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. 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 | ) |
| Other comprehensive income (loss) before reclassifications | 0.1 |
| | (9.7 | ) | | — |
| | (9.6 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | 0.4 |
| | 1.1 |
| | 1.5 |
|
| Net current-period other comprehensive income (loss) | 0.1 |
| | (9.3 | ) | | 1.1 |
| | (8.1 | ) |
| 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 | ) |
| Other comprehensive income (loss) before reclassifications | 1.1 |
| | (23.3 | ) | | 0.2 |
| | (22.0 | ) |
| Amounts reclassified from accumulated other comprehensive loss | — |
| | 2.1 |
| | 1.3 |
| | 3.4 |
|
| Net current-period other comprehensive income (loss) | 1.1 |
| | (21.2 | ) | | 1.5 |
| | (18.6 | ) |
| Balance as of September 30, 2017 | $ | 0.5 |
| | $ | (28.1 | ) | | $ | (16.1 | ) | | $ | (43.7 | ) |
|
| | | | | | | | | | | | | | | |
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.
16.18. Business Segment Information
At September 30, 2017, NiSource’sOur operations are divided into two primary reportable segments. Thesegments, the Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts. Thethe Electric Operations segments. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, provides electric service in 20 counties in the northern partare presented as "Corporate and Other" and primarily are comprised of Indiana.
Tableinterest expense on holding company debt, and unallocated corporate costs and activities. Refer to Note 3, "Revenue Recognition," for additional information on our segments and their sources of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
revenues. The following table provides information about businessour reportable 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
March 31, | | |
| (in millions) | 2023 | | 2022 | | | | |
| Operating Revenues | | | | | | | |
| Gas Distribution Operations | | | | | | | |
| Unaffiliated | $ | 1,501.3 | | | $ | 1,436.7 | | | | | |
| Intersegment | 3.1 | | | 3.1 | | | | | |
| Total | 1,504.4 | | | 1,439.8 | | | | | |
| Electric Operations | | | | | | | |
| Unaffiliated | 464.5 | | | 430.1 | | | | | |
| Intersegment | 0.2 | | | 0.2 | | | | | |
| Total | 464.7 | | | 430.3 | | | | | |
| Corporate and Other | | | | | | | |
| Unaffiliated | 0.2 | | | 6.5 | | | | | |
| Intersegment | 116.7 | | | 113.5 | | | | | |
| Total | 116.9 | | | 120.0 | | | | | |
| Eliminations | (120.0) | | | (116.8) | | | | | |
| Consolidated Operating Revenues | $ | 1,966.0 | | | $ | 1,873.3 | | | | | |
| Operating Income (Loss) | | | | | | | |
| Gas Distribution Operations | $ | 446.9 | | | $ | 510.8 | | | | | |
| Electric Operations | 81.9 | | | 99.2 | | | | | |
| Corporate and Other | 2.2 | | | (9.7) | | | | | |
| Consolidated Operating Income | $ | 531.0 | | | $ | 600.3 | | | | | |
|
| | | | | | | | | | | | | | | |
| | 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’sManagement'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’sManagement'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, 2016.2022.
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, 20162022 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. Serving as a guiding practice for our SMS, NiSource is certified in conformance to the American Petroleum Institute Recommended Practice 1173. This certification marks an important milestone for our SMS and NiSource’s journey towards operational excellence. 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, initiated through our 2018 Integrated Resource Plan ("2018 Plan"), is well underway, and we are continually adjusting to the dynamic renewable energy landscape. As of March 31, 2023, 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 2018 Plan. We continue to make significant progress on our first two solar BTAs and anticipate completion of these projects and tax equity financing by June 2023. We have also taken contractual actions on a number of our other renewable projects to address the timing of these projects as well as consider the broad market issues facing the industry. We remain on track to retire R.M Schahfer's remaining two coal units by the end of 2025. On January 1, 2023, the provisions of the 2022 IRA became effective. We are evaluating the impact of this legislation to our renewable projects with potential to drive increased value to customers as part of our expansion of renewable projects and generation transition strategy. We will analyze opportunities to leverage the IRA on a consolidatedproject-by-project basis NiSource reported income from continuing operationsin consideration of $14.0 million, or $0.04 per basic shareseveral factors, both quantitative and qualitative, to enable project success and ensure value for the three months ended September 30, 2017, comparedcustomer and company. For additional information, see "Results and Discussion of Segment Operations - Electric Operations," in this Management's Discussion.
In 2021, we announced and filed with the IURC the Preferred Energy Resource Plan associated with our 2021 Integrated Resource Plan ("2021 Plan"). The 2021 Plan lays out a timeline to $23.7 million, or $0.07 per basic shareretire the Michigan City Generating Station by the end of 2028. The 2021 Plan calls for the same period in 2016.replacement of the retiring units with a diverse portfolio of resources including demand side management resources, incremental solar, stand-alone energy storage and upgrades to existing facilities at the Sugar Creek Generating Station, among other steps. Additionally, the 2021 Plan calls for a natural gas peaking unit to replace existing vintage gas peaking units at the R.M. Schahfer Generating Station to support system reliability and resiliency, as well as upgrades to the transmission system to enhance our electric generation transition. The decrease in income from continuing operations during 2017 was due primarilyplanned retirement of the two vintage gas peaking units at the R.M. Schahfer Generating Station is also expected to decreased operating income, as discussed below.
For the three months ended September 30, 2017, NiSource reported operating income of $99.6 million compared to $113.7 million for the same period in 2016. The lower operating income was primarily due to increased operating expenses, including higher employee and administrative expenses, increased outside service costs and higher depreciation expense. These increases in operating expenses were partially offset by increased net revenues from new rates from base-rate proceedings and infrastructure replacement programs and increased rates from incremental capital spend on electric transmission projects at NIPSCO. These favorable net revenue drivers were partially offsetoccur by the effectsend of year-over-year weather variations, which reduced revenue2028. Final retirement dates for these units, as well as Michigan City, will be subject to MISO approval. We are continuing to evaluate potential projects under the 2021 Plan given the responses to our Request for Proposal issued 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 decreaseAugust 2022.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Transformation: Our Enterprise-wide Transformation Roadmap focuses on operational excellence, safety, operation and maintenance management, and unlocking efficiencies. We have formally launched several initiatives that will enable us to streamline work and improve logistics company-wide. These efforts will include investments in proven technologies backed with standardized processes that will change the way we plan, schedule, and execute work in the field and how we engage and provide service to our customers. Taken together, all the initiatives under the Enterprise-wide Transformation Roadmap will prioritize safety and continue to optimize our long-term growth profile.
in income from continuing operations during 2017 was due primarilyEconomic Environment: We are monitoring risks related to a loss on early extinguishmentincreasing order and delivery lead times for construction and other materials, increasing risk of long-term debt, partially offset by increased operating income, as discussed below.
NiSource's operating income for the nine months ended September 30, 2017 was $640.6 million compared to $633.3 million for the same period in 2016. The higher operating income was primarilyunavailability of materials due to increased net revenues from new rates from base-rate proceedingsglobal shortages in raw materials, and infrastructure replacement programs, along with increased rates from incremental capital spend on electric transmission projects at NIPSCO, partially offset by unfavorable effectsrisk of weather. The increase in net revenues was partially offset by increased operating expenses due to higher employee 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 millionconstruction labor productivity in the third quarterevent of 2017 compared to a reduction in income of $81.5 milliondisruptions in the prior year.
Other income (deductions), net reduced income by $362.5 million inavailability of materials. We continue to see increasing prices associated with certain materials and supplies. To the nine months ended September 30, 2017 compared to a reduction in incomeextent that delays occur or our costs increase, our business operations, results 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,"in the Notes to Condensed Consolidated Financial Statements (unaudited) foroperations, cash flows, and financial condition could be materially adversely affected. For more information on the early extinguishment of long-term debt.
Income Taxes
Refersupply chain impacts to Note 10, "Income Taxes," in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on income taxes.
Capital Investment. In 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 existingour 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 “Resultsstrategy, see "Results and Discussion of Segment Operations”Operations - Electric Operations," in this Management's Discussion. Additionally, for more information on global availability of materials for our renewable projects, see "Results and “LiquidityDiscussion of Segment Operations - Electric Operations - Electric Supply and Capital Resources.”Generation Transition."
Regulatory DevelopmentsWe are faced with increased competition for employee and contractor talent in the current labor market, which has resulted in increased costs to attract and retain talent. We are ensuring that we use all internal human capital programs (development, leadership enablement programs, succession, performance management) to promote retention of our current employees along with having a competitive and attractive appeal for potential recruits. With a focus on workforce planning, we are anticipating to evaluate our talent footprint for the future by creating flexible work arrangements where we can, to ensure we have the right people, in the right role, and at the right time. To the extent we are unable to execute on our workforce planning initiatives and experience increased employee and contractor costs, our business operations, results of operations, cash flows, and financial condition could be materially adversely affected.
DuringThere has been volatility in the quarter ended September 30, 2017, NiSourcemarket price of natural gas costs which influences customer bills. For the first three quarters of 2022, gas prices increased. Prices began to decrease in November of 2022 and have 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 transpireddecrease during the thirdfirst quarter of 2017:
2023. Changes in gas prices do not 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."
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 measuresDue 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 expectedrising interest rates, we experienced higher interest expense in the second halffirst quarter of 2018.
Columbia2023 compared to the first quarter of Ohio filed a settlement agreement in its pending application for a five year extension of its IRP2022 associated with short-term borrowings. We continue to evaluate our financing plan to manage interest expense and exposure to rates. For more information on August 18, 2017. This well-established pipeline replacement program, which is currently authorized through December 31, 2017,interest rate risk, see "Market Risk Disclosures".
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Summary of Consolidated Financial Results
covers replacementA summary 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 GSEPour consolidated financial results 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.three months ended March 31, 2023 and 2022 are presented below:
Electric Operations | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions, except per share amounts) | 2023 | | 2022 | | Favorable (Unfavorable) | | | | | | |
| Operating Revenues | $ | 1,966.0 | | | $ | 1,873.3 | | | $ | 92.7 | | | | | | | |
| Operating Expenses | | | | | | | | | | | |
| Cost of energy | 765.1 | | | 706.7 | | | (58.4) | | | | | | | |
| Other Operating Expenses | 669.9 | | | 566.3 | | | (103.6) | | | | | | | |
| Total Operating Expenses | 1,435.0 | | | 1,273.0 | | | (162.0) | | | | | | | |
| Operating Income | 531.0 | | | 600.3 | | | (69.3) | | | | | | | |
| Total Other Deductions, Net | (107.4) | | | (72.8) | | | (34.6) | | | | | | | |
| Income Taxes | 85.8 | | | 96.2 | | | 10.4 | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Net Income | 337.8 | | | 431.3 | | | (93.5) | | | | | | | |
| Net income attributable to noncontrolling interest | 4.8 | | | 4.5 | | | (0.3) | | | | | | | |
| Net Income Attributable to NiSource | 333.0 | | | 426.8 | | | (93.8) | | | | | | | |
| Preferred dividends | (13.8) | | | (13.8) | | | — | | | | | | | |
| Net Income Available to Common Shareholders | 319.2 | | | 413.0 | | | (93.8) | | | | | | | |
| Earnings Per Share | | | | | | | | | | | |
| Basic Earnings Per Share | $ | 0.77 | | | $ | 1.02 | | | $ | (0.25) | | | | | | | |
| Diluted Earnings Per Share | $ | 0.71 | | | $ | 0.94 | | | $ | (0.23) | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
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’s operations are divided into two primary reportable segments: Gas Distribution Operations and Electric Operations.
Table of Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | 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 depreciation and amortization). Cost of sales at the Gas Distribution Operations segment is principally comprised of the cost of natural gas used while providing transportation and distribution services to its customers. The majority of the cost of salesenergy in both segments are tracked costs that are passed through directly to the customer, resulting in an equal and offsetting amount reflected in grossoperating revenues.
ComparabilityThe decrease in net income available to common shareholders during the three months ended March 31, 2023 was primarily due to an insurance settlement related to the Greater Lawrence Incident received in 2022, decreased revenue related to weather and increased other deductions, partially offset by higher revenues from outcomes of line itemgas base rate proceedings and regulatory capital programs.
For additional information on operating results may also be impacted by regulatory, taxincome variance drivers see "Results and depreciation trackers (other than thoseDiscussion of Segment Operations" for cost of sales) that allowGas and Electric Operations in this Management's Discussion.
Other Deductions, net
The change in Other deductions, net for the recoverythree months ended March 31, 2023 compared to the same period in rates of certain2022 is primarily driven by higher long-term and short-term debt interest in 2023 and higher non-service pension costs. Therefore, increasesSee Note 13, "Long-Term Debt," Note 14, "Short-Term Borrowings," and Note 11, "Pension and Other Postemployment Benefits," in these tracked operating expenses are offset by increasesthe Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information.
Income Taxes
Refer to Note 10, "Income Taxes," in net revenues and have essentially no impactthe Notes to the Condensed Consolidated Financial Statements (unaudited) for information on income taxes and the change in the effective tax rate.
Changes in tax laws, as well as the potential tax effects of business decisions, could negatively impact our business, results of operations (including our expected project returns from continuing operations.our planned renewable energy projects), financial condition and cash flows. We continue to monitor the implementation of any final and proposed tax legislation and regulations related to the IRA which introduces a new corporation minimum tax, excise tax on stock buy-backs, and an extension of a technology neutral investment tax credit and production tax credit regime beginning in 2023.
On April 14, 2023, the IRS issued Revenue Procedure 2023-15 which provides a safe harbor method of accounting that taxpayers may use to determine whether expenses to repair, maintain, replace, or improve linear property and non-linear natural gas transmission and distribution property must be capitalized as improvements or are allowable as deductions. We are analyzing the provisions of the safe harbor method of accounting which we expect to adopt.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
RESULTS AND DISCUSSION OF SEGMENT OPERATIONS
Presentation of Segment Information
Our operations are divided into two primary reportable segments, the Gas Distribution Operations and the Electric Operations segments. 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, 2017 vs. September 30, 2016 Operating Income
ForFinancial and operational data for the third quarter of 2017, Gas Distribution Operations reported ansegment for the three months ended March 31, 2023 and 2022 are presented below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2023 | | 2022 | | Favorable (Unfavorable) | | | | | | |
| Operating Revenues | $ | 1,504.4 | | | $ | 1,439.8 | | | $ | 64.6 | | | | | | | |
| Operating Expenses | | | | | | | | | | | |
| Cost of energy | 602.7 | | | 589.1 | | | (13.6) | | | | | | | |
| Operation and maintenance | 285.7 | | | 277.3 | | | (8.4) | | | | | | | |
| Depreciation and amortization | 110.1 | | | 100.7 | | | (9.4) | | | | | | | |
| | | | | | | | | | | |
| Gain on sale of fixed assets and impairments, net | — | | | (105.0) | | | (105.0) | | | | | | | |
| Other taxes | 59.0 | | | 66.9 | | | 7.9 | | | | | | | |
| Total Operating Expenses | 1,057.5 | | | 929.0 | | | (128.5) | | | | | | | |
| Operating Income | $ | 446.9 | | | $ | 510.8 | | | $ | (63.9) | | | | | | | |
| Revenues | | | | | | | | | | | |
| Residential | $ | 1,025.3 | | | $ | 977.6 | | | $ | 47.7 | | | | | | | |
| Commercial | 365.9 | | | 357.5 | | | 8.4 | | | | | | | |
| Industrial | 72.0 | | | 68.1 | | | 3.9 | | | | | | | |
| Off-System | 17.2 | | | 18.7 | | | (1.5) | | | | | | | |
| Other | 24.0 | | | 17.9 | | | 6.1 | | | | | | | |
| Total | $ | 1,504.4 | | | $ | 1,439.8 | | | $ | 64.6 | | | | | | | |
| Sales and Transportation (MMDth) | | | | | | | | | | | |
| Residential | 103.6 | | | 122.9 | | | (19.3) | | | | | | | |
| Commercial | 68.4 | | | 79.9 | | | (11.5) | | | | | | | |
| Industrial | 132.6 | | | 135.1 | | | (2.5) | | | | | | | |
| Off-System | 7.4 | | | 4.3 | | | 3.1 | | | | | | | |
| Other | 0.2 | | | 0.2 | | | — | | | | | | | |
| Total | 312.2 | | | 342.4 | | | (30.2) | | | | | | | |
| Heating Degree Days | 2,339 | | | 2,841 | | | (502) | | | | | | | |
| Normal Heating Degree Days | 2,824 | | | 2,824 | | | — | | | | | | | |
| % Colder (Warmer) than Normal | (17) | % | | 1 | % | | | | | | | | |
| % Warmer than prior year | (18) | % | | | | | | | | | | |
| Gas Distribution Customers | | | | | | | | | | | |
| Residential | 3,003,277 | | 2,980,965 | | 22,312 | | | | | | |
| Commercial | 255,384 | | 254,876 | | 508 | | | | | | |
| Industrial | 4,934 | | 4,920 | | 14 | | | | | | |
| Other | 3 | | 3 | | — | | | | | | |
| Total | 3,263,598 | | 3,240,764 | | 22,834 | | | | | | |
| | | | | | | | | | | |
Comparability of operation and maintenance expenses, depreciation and amortization, and other taxes may be impacted by regulatory, depreciation, and tax trackers that allow for the recovery in rates of certain costs.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations
The underlying reasons for changes in our operating loss of $23.7 million, versus operating income of $4.3 million in the comparable 2016 period.
Net revenues for third quarter of 2017 were $340.0 million, an increase of $20.6 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings and infrastructure replacement programs of $16.0 million.
Higher revenues from increased industrial, commercial and residential customer usage of $2.9 million.
The effects of increased residential customer growth of $1.3 million.
Operating expenses were $48.6 million higher for the third quarter of 2017three months ended March 31, 2023 compared to the same period in 2016. This change was primarily driven by:2022 are presented below.
Increased employee and administrative expenses of $25.4 million which includes the impact of a pension settlement charge recorded in 2017 along with a charge related to Columbia of Pennsylvania's portion of a 2017 pension contribution which, per regulatory order, is expensed on a cash basis.
Higher outside service costs of $14.4 million due to increased line locating expenses and IT service provider transition costs.
Increased depreciation of $3.6 million due to higher capital expenditures placed in service.
Nine months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the nine months ended September 30, 2017, Gas Distribution Operations reported operating income of $362.1 million, a decrease of $30.6 million from the comparable 2016 period.
Net revenues for the nine months ended September 30, 2017 were $1,488.5 million, an increase of $112.9 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings and infrastructure replacement programs of $97.1 million.
Higher regulatory, tax and depreciation trackers, which are offset in expense, of $24.7 million.
The effects of increased residential customer growth of $5.7 million.
Partially offset by:
The effects of warmer weather of $14.6 million.
Operating expenses were $143.5 million higher for the nine months ended September 30, 2017 compared to the same period in 2016. This change was primarily driven by:
Increased employee and administrative expenses of $51.3 million which includes the impact of the aforementioned pension settlement charge and pension contribution.
Higher outside service costs of $32.9 million due to IT service provider transition costs and increased line locating expenses.
Higher regulatory, tax and depreciation trackers, which are offset in net revenues, of $24.7 million.
Increased depreciation of $9.7 million due to higher capital expenditures placed in service.
Increased property taxes of $6.9 million due to higher capital expenditures placed in service and an accrual adjustment recorded in 2016.
Higher environmental costs of $4.9 million.
| | | | | | | | | |
| | | Favorable (Unfavorable) |
Changes in Operating Revenues (in millions) | | | Three Months Ended March 31, 2023 vs 2022 | | |
| New rates from base rate proceedings and regulatory capital programs | | | $ | 82.6 | | | |
| Increased customer usage | | | 3.7 | | | |
| The effects of customer growth | | | 1.2 | | | |
| | | | | |
| The effects of weather in 2023 compared to 2022 | | | (33.3) | | | |
| | | | | |
| Reduction in gross receipts tax, offset in operating expenses | | | (6.3) | | | |
| Other | | | 5.2 | | | |
| Change in operating revenues (before cost of energy and other tracked items) | | | $ | 53.1 | | | |
| Operating revenues offset in operating expense | | | | | |
| Higher cost of energy billed to customers | | | 13.6 | | | |
| Lower tracker deferrals within operation and maintenance, depreciation, and tax | | | (2.1) | | | |
| Total change in operating revenues | | | $ | 64.6 | | | |
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 ContentsThroughput
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations
WeatherThe decrease in the Gas Distribution Operations service territoriestotal volumes 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 quarterthree months ended September 30, 2017March 31, 2023, compared to 2016.
Weatherthe same period 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 2017 were 169.1 MMDth, compared to 167.8 MMDth for 2016.
Total volumes sold and transported for the nine months ended September 30, 2017 were 682.8 MMDth, compared to 705.2 MMDth for 2016. This 3% decrease2022, is primarily attributable to the effects of warmer weather in 2017.weather.
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 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 to further reduce NiSource's exposure to gas prices.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
ElectricGas 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 | $ | 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 depreciation and amortization). Cost of sales at the Electric Operations segment is principally comprised of the cost of coal, related handling costs, natural gas purchasedThe underlying reasons for changes in our operating expenses for the internal generation of electricity at NIPSCO and the cost of power purchased from third-party generators of electricity. The majority of the cost of sales are tracked costs that are passed through directlythree months ended March 31, 2023 compared to the customer resultingsame period in an equal and offsetting amount reflected in gross revenues.2022 are presented below.
Comparability of line item operating results may also be impacted by regulatory and depreciation trackers (other than those for cost of sales) that allow for the recovery in rates of certain costs. Therefore, increases in these tracked operating expenses are offset by increases in net revenues and have essentially no impact on income from continuing operations. | | | | | | | | | |
| | | Favorable (Unfavorable) |
Changes in Operating Expenses (in millions) | | | Three Months Ended March 31, 2023 vs 2022 | | |
| Reduction in gross receipts tax, offset in operating revenues | | | $ | 6.3 | | | |
| Lower employee and administrative related expenses | | | 4.1 | | | |
| | | | | |
| | | | | |
| Property insurance settlement related to the Greater Lawrence Incident received in 2022 | | | (105.0) | | | |
| Higher depreciation and amortization expense | | | (9.8) | | | |
| Higher other than income taxes primarily due to property tax | | | (2.6) | | | |
| Impacts from Columbia of Ohio's rate case settlement | | | (2.6) | | | |
| Higher expenses related to uncollectible customer accounts | | | (1.8) | | | |
| Higher outside services expenses | | | (1.3) | | | |
| | | | | |
| Other | | | (4.3) | | | |
| Change in operating expenses (before cost of energy and other tracked items) | | | $ | (117.0) | | | |
| Operating expenses offset in operating revenue | | | | | |
| Higher cost of energy billed to customers | | | (13.6) | | | |
| Lower tracker deferrals within operation and maintenance, depreciation, and tax | | | 2.1 | | | |
| Total change in operating expense | | | $ | (128.5) | | | |
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
ThreeFinancial and operational data for the Electric Operations segment for the three months ended September 30, 2017 vs. September 30, 2016 Operating IncomeMarch 31, 2023 and 2022 are presented below.
For the third quarter | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, | | |
| (in millions) | 2023 | | 2022 | | Favorable (Unfavorable) | | | | | | |
| | | | | | | | | | | |
| Operating Revenues | $ | 464.7 | | | $ | 430.3 | | | $ | 34.4 | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | |
| Cost of energy | 162.4 | | | 117.6 | | | (44.8) | | | | | | | |
| Operation and maintenance | 125.3 | | | 116.6 | | | (8.7) | | | | | | | |
| Depreciation and amortization | 85.9 | | | 82.9 | | | (3.0) | | | | | | | |
| | | | | | | | | | | |
| Other taxes | 9.2 | | | 14.0 | | | 4.8 | | | | | | | |
| Total Operating Expenses | 382.8 | | | 331.1 | | | (51.7) | | | | | | | |
| Operating Income | $ | 81.9 | | | $ | 99.2 | | | $ | (17.3) | | | | | | | |
| Revenues | | | | | | | | | | | |
| Residential | $ | 150.4 | | | $ | 138.5 | | | $ | 11.9 | | | | | | | |
| Commercial | 150.9 | | | 134.5 | | | 16.4 | | | | | | | |
| Industrial | 134.4 | | | 130.0 | | | 4.4 | | | | | | | |
| Wholesale | 2.6 | | | 2.6 | | | — | | | | | | | |
| Other | 26.4 | | | 24.7 | | | 1.7 | | | | | | | |
| Total | $ | 464.7 | | | $ | 430.3 | | | $ | 34.4 | | | | | | | |
| Sales (GWh) | | | | | | | | | | | |
| Residential | 766.1 | | | 819.2 | | | (53.1) | | | | | | | |
| Commercial | 856.2 | | | 885.3 | | | (29.1) | | | | | | | |
| Industrial | 1,937.7 | | | 2,007.8 | | | (70.1) | | | | | | | |
| Wholesale | — | | | 4.4 | | | (4.4) | | | | | | | |
| Other | 22.8 | | | 25.1 | | | (2.3) | | | | | | | |
| Total | 3,582.8 | | | 3,741.8 | | | (159.0) | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Electric Customers | | | | | | | | | | | |
| Residential | 425,090 | | | 423,177 | | | 1,913 | | | | | | | |
| Commercial | 58,499 | | | 58,092 | | | 407 | | | | | | | |
| Industrial | 2,133 | | | 2,135 | | | (2) | | | | | | | |
| Wholesale | 708 | | | 712 | | | (4) | | | | | | | |
| Other | 3 | | | 2 | | | 1 | | | | | | | |
| Total | 486,433 | | | 484,118 | | | 2,315 | | | | | | | |
Comparability of 2017, Electric Operations reported operating income of $124.4 million, an increase of $11.6 million from the comparable 2016 period.
Net revenues for the third quarter of 2017 were $347.0 million, an increase of $23.2 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings of $22.4 million.
Increased rates from incremental capital spend on electric transmission projects of $7.4 million.
Higheroperation and maintenance expenses and depreciation and amortization may be impacted by 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 higherthat allow for the third quarterrecovery in rates of 2017certain costs.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
The underlying reasons for changes in our operating revenues for the three months ended March 31, 2023 compared to the same period in 2016. This change was primarily driven by:2022 are presented below.
Higher regulatory and depreciation trackers, which are offset in net revenues, of $5.4 million.
Increased employee and administrative expenses of $4.0 million.
Nine months ended September 30, 2017 vs. September 30, 2016 Operating Income
For the nine months ended September 30, 2017, Electric Operations reported operating income of $286.3 million, an increase of $34.8 million from the comparable 2016 period.
Net revenues for the nine months ended September 30, 2017 were $965.2 million, an increase of $95.4 million from the same period in 2016. The change in net revenues was primarily driven by:
New rates from base-rate proceedings of $64.5 million.
Higher regulatory and depreciation trackers, which are offset in expense, of $25.8 million.
Increased rates from incremental capital spend on electric transmission projects of $18.2 million.
Partially offset by:
The effects of cooler weather of $17.3 million.
Operating expenses were $60.6 million higher for the nine months ended September 30, 2017 compared to the same period in 2016. This change was primarily driven by:
Higher regulatory and depreciation trackers, which are offset in net revenues, of $25.8 million.
Increased outside service costs of $13.9 million, primarily due to vegetation management activities and generation-related maintenance.
Higher employee and administrative expenses of $8.3 million.
Increased materials and supplies expenses of $8.0 million driven by generation-related maintenance and increased chemical usage.
Higher gross receipts taxes of $5.0 million driven by higher revenues.
Partially offset by:
Decreased amortization expense of $10.8 million. | | | | | | | |
| | | Favorable (Unfavorable) |
Changes in Operating Revenues (in millions) | | | Three Months Ended March 31, 2023 vs 2022 |
| | | |
| | | |
| New rates from regulatory capital and DSM programs | | | $ | 4.0 | |
| PPA revenue from renewable JV projects, fully offset by JV operating expenses and noncontrolling interest net income (loss) | | | 0.6 | |
| Decreased customer usage | | | (8.3) | |
| Reduction in gross receipts tax, offset in operating expenses | | | (5.9) | |
| The effects of weather in 2023 compared to 2022 | | | (2.0) | |
| | | |
| | | |
| Other | | | (1.7) | |
| Change in operating revenues (before cost of energy and other tracked items) | | | $ | (13.3) | |
| Operating revenues offset in operating expense | | | |
| Higher cost of energy billed to customers | | | 44.8 | |
| Higher tracker deferrals within operation and maintenance, depreciation and tax | | | 2.9 | |
| Total change in operating revenues | | | $ | 34.4 | |
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 ContentsSales
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
WeatherThe decrease in the Electric Operations’ territoriestotal volumes sold 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 ninethree 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 quarter of 2017 were 4,473.2 gwh, a decrease of 175.4 gwhMarch 31, 2023 compared to the same period in 2016. The 4% decrease is2022 was primarily attributable to decreased usage by industrial and residential sales fromcustomers.
Commodity Price Impact
Cost of energy for the cooler weather in the current year.
Electric Operations salessegment is principally comprised of the cost of coal, natural gas purchased for internal generation of electricity at NIPSCO, and the nine months ended September 30, 2017 were 12,709.0 gwh, a decreasecost of 171.3 gwh compared to the same period in 2016. The 1% decrease is primarily attributed to decreased residential salespower purchased from cooler weather in the current year.
Economic Conditions
generators of electricity. NIPSCO has a state-approved recovery mechanism that provides a means for full recovery of prudently incurred fuel costs. Fuel costs of energy. The majority of these costs of energy are treated as pass-throughpassed through directly to the customer, and the costs and have no impact onof energy included in operating revenues are matched with the net revenuescost of energy expense recorded in the period. The fuel costs included in revenues are matched with the fuel cost expense recorded in the period and the difference is recorded on the Condensed Consolidated Balance Sheets (unaudited) as under-recovered or over-recovered fuel cost to be included in future customer billings.
At NIPSCO, sales 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 revenues for the quarter ended September 30, 2017 and 2016 were a revenue increase of $7.8 million and $16.1 million, respectively. The adjustments to other gross revenues for the nine months ended September 30, 2017 and 2016 were a revenue increase of $6.9 million and $34.5 million, respectively.have essentially no impact on net income.
Electric Supply
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. Schahfer Generating Station by the end of 2023. It is projected over the long term that the cost to customers to retire these units at these dates will be lower than maintaining and upgrading them for continuing generation.
NiSource and NIPSCO committed to the retirement of the Bailly Generating Station units in connection with the filing of the 2016 Integrated Resource Plan, pending approval by the MISO. In the fourth quarter of 2016, the MISO approved NIPSCO's plan to retire the Bailly Generating Station units by May 31, 2018.
In connection with the MISO's approval of NIPSCO's planned retirement of the Bailly Generating Station units, NiSource recorded $22.1 million of plant retirement-related charges in the fourth quarter of 2016. These 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, "Other Matters," in the Notes to Condensed Consolidated Financial Statements (unaudited) for information.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
Liquidity and Capital Resources
Operating Activities
Net cash fromThe underlying reasons for changes in our operating activities from continuing operationsexpenses for the ninethree months ended September 30, 2017 was $529.5 million, a decrease of $3.3 millionMarch 31, 2023 compared to the nine months ended September 30, 2016. This decrease was drivensame period in 2022 are presented below.
| | | | | | | |
| | | Favorable (Unfavorable) |
Changes in Operating Expenses (in millions) | | | Three Months Ended March 31, 2023 vs 2022 |
| Higher outside services expenses primarily related to higher generation-related maintenance | | | $ | (7.0) | |
| Renewable JV project expenses, offset by JV operating revenues | | | (1.2) | |
| Reduction in gross receipts tax, offset in operating revenues | | | 5.9 | |
| Lower employee and administrative expenses | | | 3.3 | |
| | | |
| | | |
| | | |
| | | |
| Other | | | (5.0) | |
| Change in operating expenses (before cost of energy and other tracked items) | | | $ | (4.0) | |
| Operating expenses offset in operating revenue | | | |
| Higher cost of energy billed to customers | | | (44.8) | |
| Higher tracker deferrals within operation and maintenance, depreciation and tax | | | (2.9) | |
| Total change in operating expense | | | $ | (51.7) | |
Electric Supply and Generation Transition
NIPSCO continues to execute on an electric generation transition consistent with the 2018 Plan and 2021 Plan, which outlines the path to retire the remaining two coal units at Schahfer by pensionthe end of 2025 and the remaining coal-fired generation by the end of 2028, to be replaced by lower-cost, reliable and cleaner options. See "Project Status" discussion, below, and "Liquidity and Capital Resources" in this Management's Discussion for anticipated barriers to the success of our electric generation transition and additional information on our capital investment spend.
NIPSCO continues to work with the EPA and the Indiana Department of Environmental Management to obtain administrative approvals associated with the operation of R.M. Schahfer’s remaining two coal units beyond 2023. In the event that the approvals are not obtained, future operations could be impacted. We cannot estimate the financial impact on us if these approvals are not obtained.
The current replacement plan contributions in 2017 partially offset byprimarily includes renewable sources of energy, including wind, solar, and battery storage to be obtained through a combination of changesNIPSCO ownership and PPAs. NIPSCO has sold, and may 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 costsfuture sell, renewable energy credits from 2015 were returnedthis generation to customers resulting in a use of cash. In 2017, less cash was requiredthird parties to be returnedoffset customer costs. NIPSCO has executed several PPAs 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 statuspurchase 100% of the pension plans (and barring unforeseen market volatilityoutput 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.
Three wind projects have been placed into service, totaling approximately 804 MW of nameplate capacity. All announced projects below have received IURC approval. NIPSCO is evaluating potentially amending other BTAs and PPAs. Any amendments that would negatively impactresult in increased project costs may require additional approval by the valuation of its plan assets), NiSource does not believe material contributionsIURC in order to its pension plansobtain recovery for increased costs. Our current replacement program will be requiredaugmented 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 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 million related to a Federal NOL carryforward. As a result 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.
Investing Activities
Net cash used for investing activities for the nine months ended September 30, 2017 was $1,306.1 million, an increase of $137.9 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 projects total 2017 capital expenditures to be approximately $1.6 to $1.7 billion.
Financing Activities
Common Stock. Refer to Note 4, “Common Stock,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on common stock activity, including cash received for the issuance of common stock under NiSource's ATM program.
Long-term Debt. 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-Term Borrowings,” in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on short-term debt activity.
Net Available Liquidity. As of September 30, 2017, an aggregate of $1,275.3 million of net liquidity was available, including cash and credit available under the revolving credit facility and accounts receivable securitization programs.additional information.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
| | | | | | | | | | | | | | | | | |
| Project Name | Transaction Type | Technology | Nameplate Capacity (MW) | Storage Capacity (MW) | | | |
Dunn's Bridge I(1) | BTA | Solar | 265 | — | | | |
Indiana Crossroads(1) | BTA | Solar | 200 | — | | | |
Dunn's Bridge II(1) | BTA | Solar & Storage | 435 | 75 | | | |
Cavalry(1) | BTA | Solar & Storage | 200 | 60 | | | |
Fairbanks(1) | BTA | Solar | 250 | — | | | |
Elliott(1) | BTA | Solar | 200 | — | | | |
| Indiana Crossroads II | 15 year PPA | Wind | 204 | — | | | |
| Brickyard | 20 year PPA | Solar | 200 | — | | | |
| Greensboro | 20 year PPA | Solar & Storage | 100 | 30 | | | |
| Gibson | 22 year PPA | Solar | 280 | — | | | |
| Green River | 20 year PPA | Solar | 200 | — | | | |
(1)Ownership of the facility will be transferred to JVs whose members are expected to include NIPSCO and an unrelated tax equity partner.
Project Status. Our contract amendments with certain solar agreements will result in the majority of our remaining projects, and investments, being placed in service between 2023 and 2025. These amendments also formally address inflationary cost pressures communicated from the developers of our solar and storage projects that are primarily due to (i) unavailability of solar panels and other uncertainties related to the pending U.S. Department of Commerce investigation on Antidumping and Countervailing Duties petition filed by a domestic solar manufacturer (the "DOC Investigation"), (ii) the U.S. Department of Homeland Security's June 2021 Withhold Release Order on silica-based products made by Hoshine Silicon Industry Co., Ltd./Uyghur Forced Labor Prevention Act, (iii) Section 201 Tariffs and (iv) persistent general global supply chain and labor availability issues. We are also monitoring our other renewable projects as upcoming project milestones related to permitting and obtaining interconnection rights are expected to occur. Preliminary findings from the DOC Investigation were released in December 2022, with a final decision expected in May 2023. The resolution of these issues, including the final conclusion of the DOC Investigation will determine which, if any, of our solar projects will be subject to any tariffs imposed.
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. On December 20, 2022 we entered into a $1.0 billion term credit agreement that matures on December 19, 2023. On March 24, 2023, we completed the issuance and sale of $750.0 million of 5.25% senior unsecured notes maturing in 2028, which resulted in approximately $742.2 million of net proceeds after discount and debt issuance costs. On November 7, 2022, we announced that we intend to pursue the sale of a minority interest in our NIPSCO business unit. We maintain an ATM equity program that provides an opportunity to issue and sell shares of our common stock up to an aggregate issuance of $750.0 million through December 31, 2023. As of March 31, 2023, the ATM program had approximately $300.0 million of equity available for issuance. We also expect to remarket the Series C Mandatory Convertible Preferred Stock prior to December 1, 2023, which could result in additional cash proceeds. See Note 5, "Equity," in the Notes to the 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 2023 and beyond.
The following table summarizes our cash flow activities:
| | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, |
| (in millions) | 2023 | | 2022 | | Change in 2023 vs 2022 |
| Cash from (used for): | | | | | |
| Operating Activities | $ | 683.4 | | | $ | 579.8 | | | $ | 103.6 | |
| Investing Activities | (727.8) | | | (370.4) | | | (357.4) | |
| Financing Activities | 117.3 | | | (173.9) | | | 291.2 | |
Operating Activities
The increase in cash from operating activities was primarily driven by year over year change in accounts receivable collections and decreased cash outflows related to inventory balances due to lower gas costs. This was partially offset by increased purchases from gas suppliers, driven by lower gas costs.
Investing Activities
Our current year investing activities were comprised of increased capital expenditures related to system growth and reliability, payments to renewable generation asset developers related to Dunn's Bridge II and Cavalry Solar milestone payments, as well as the property insurance settlement related to the Greater Lawrence Incident received in the prior year.
As we evaluate adjustments to renewable generation project timing, we remain on track to make capital investments totaling $3.3 billion to $3.6 billion during the 2023 period. We also expect to invest approximately $15.0 billion during the 2023-2027 period, including capital investments to support our generation transition strategy. These forecasted capital investments and those included in our Annual Report on Form 10-K for the year ended December 31, 2022, are subject to continuing review and adjustment. Actual capital expenditures may vary from these estimates. For additional information, see "Results and Discussion of Segment Operations - Electric Operations," in this Management's Discussion.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory Capital Programs. We replace pipe and modernize our gas infrastructure to enhance safety and reliability by reducing leaks. An ancillary benefit of these programs is the reduction of GHG emissions. In 2023, 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 as well as 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 - 2023 | $ | 38.4 | | $ | 316.3 | | 1/22-12/22 | Replacement of (1) hazardous service lines, (2) cast iron, wrought iron, uncoated steel, and bare steel pipe. | May 2023 |
| Columbia of Ohio | CEP - 2023 | $ | 31.0 | | $ | 265.6 | | 1/22-12/22 | Assets not included in the IRP. | September 2023 |
NIPSCO - Gas(2) | TDSIC 4 | $ | 3.1 | | $ | 77.5 | | 7/21-12/21 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | July 2022 |
| NIPSCO - Gas | TDSIC 6 | $ | (2.5) | | $ | 149.8 | | 1/22-2/23 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | September 2023 |
NIPSCO - Gas(2)(3) | FMCA 1 | $ | 1.5 | | $ | 14.1 | | 10/21-3/22 | Project costs to comply with federal mandates. | October 2022 |
NIPSCO - Gas(2)(3) | FMCA 2 | $ | 4.2 | | $ | 38.2 | | 4/22-9/22 | Project costs to comply with federal mandates. | April 2023 |
Columbia of Virginia(4) | SAVE - 2023 | $ | 4.5 | | $ | 45.9 | | 1/23-12/23 | Replacement projects that (1) enhance system safety or reliability, or (2) reduce, or potentially reduce, greenhouse gas emissions. | January 2023 |
| Columbia of Kentucky | SMRP - 2023 | $ | 1.6 | | $ | 41.6 | | 1/23-12/23 | Replacement of mains and inclusion of system safety investments. | January 2023 |
| Columbia of Maryland | STRIDE - 2023 | $ | 1.3 | | $ | 18.0 | | 1/23-12/23 | Pipeline upgrades designed to improve public safety or infrastructure reliability. | January 2023 |
| NIPSCO - Electric | TDSIC - 1 | $ | 10.4 | | $ | 148.5 | | 6/21-1/22 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | August 2022 |
| NIPSCO - Electric | TDSIC - 2 | $ | 6.6 | | $ | 143.5 | | 2/22-7/22 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | February 2023 |
NIPSCO - Electric(5) | TDSIC - 3 | $ | 45.6 | | $ | 130.2 | | 8/22-1/23 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | August 2023 |
(1)Programs do not include any costs already included in base rates.
(2)On March 1, 2023, incremental tracker revenue was updated as certain investments are now being recovered through base rates.
(3)NIPSCO received approval for a new certificate of public convenience and necessity on December 28, 2022 for an additional Pipeline Safety III Compliance Plan, including $235.3M in capital and $34.1M in operation and maintenance expense project investments.
(4)Columbia of Virginia received a final order on November 1, 2022 modifying the SAVE filing incremental revenue and investments.
(5)NIPSCO Electric TDSIC-3 is for a 14-month billing period in anticipation of a rate case order in August 2023 and a subsequent 9 month hold-out period.
On March 30, 2022, NIPSCO Electric filed a petition with the IURC seeking approval of NIPSCO's federally mandated costs for closure of Michigan City Generating Station's CCR ash ponds. The project includes a total estimated $40.0 million of federally mandated retirement costs. On November 2, 2022, NIPSCO Electric filed a petition with the IURC seeking approval of NIPSCO's federally mandated costs for closure of R.M. Schahfer Generation Station's multi-cell unit. The project includes a total estimated $53.0 million of federally mandated retirement costs. Due to the Settlement filed on March 10, 2023, both FMCA cases have been stayed pending the outcome of NIPSCO’s electric base rate case, which proposes these pond closure costs be recovered through base rates, rather than the FMCA Tracker. Refer to Note 15, "Other Commitments and Contingencies - C. Environmental Matters," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for further discussion of the CCRs.
Columbia of Ohio filed an application on February 28, 2023, to establish a new PHMSA IRP Rider in order to recover costs incurred to comply with the PHMSA regulations. As proposed, the rider would provide for cost deferrals and carrying costs during the investment period, with rates effective in May 2024. It is anticipated that the PUCO will rule on this application in 2023.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Financing Activities
Common Stock, Preferred Stock and Equity Units. Refer to Note 5, "Equity," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on common and preferred stock and equity units activity.
Long-Term Debt. Refer to Note 13, "Long-Term Debt," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on long-term debt activity.
Short-Term Debt. Refer to Note 14, "Short-Term Borrowings," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on short-term debt activity.
Noncontrolling Interest. Refer to Note 12, "Variable Interest Entities," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on contributions from noncontrolling interest activity.
Sources of Liquidity
The following table displays NiSource'sour liquidity position as of September 30, 2017March 31, 2023 and December 31, 2016:2022:
| | | | | | | | |
| (in millions) | March 31, 2023 | December 31, 2022 |
| Current Liquidity | | |
| Revolving Credit Facility | $ | 1,850.0 | | $ | 1,850.0 | |
Accounts Receivable Programs(1) | 635.5 | | 447.2 | |
| Less: | | |
| | |
| Commercial Paper | — | | 415.0 | |
| Accounts Receivable Programs Utilized | 281.8 | | 347.2 | |
| Letters of Credit Outstanding Under Credit Facility | 10.2 | | 10.2 | |
| Add: | | |
| Cash and Cash Equivalents | 106.4 | | 40.8 | |
| Net Available Liquidity | $ | 2,299.9 | | $ | 1,565.6 | |
|
| | | | | | |
| (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%70.0%. As of September 30, 2017,March 31, 2023, the ratio was 66.5%59.1%.
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, thereMarch 31, 2023. There were no changes to the below credit ratings or outlooks since December 31, 2016.February 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,March 31, 2023, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $42.9$80.8 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. The authorized capital stock of NiSource consists of 420,000,000 shares, $0.01 par value, of which 400,000,000 are common stock and 20,000,000 are preferred stock. As of September 30, 2017, 336,691,078 shares of common stock were outstanding. NiSource has no preferred stock outstanding as of September 30, 2017.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Equity. Our authorized capital stock consists of 620,000,000 shares, $0.01 par value, of which 600,000,000 are common stock and 20,000,000 are preferred stock. As of March 31, 2023, 412,982,639 shares of common stock and 1,302,500 shares of preferred stock were outstanding.
Contractual Obligations. Aside fromA summary of contractual obligations is included in the previously referenced issuances and repayments of long-termCompany's Annual Report on Form 10-K for the year ended December 31, 2022. Except for our March 2023 debt issuance, there were no additional material changes recordedfrom year-end during the ninethree months ended September 30, 2017March 31, 2023. Refer to NiSource’s contractual obligations as of December 31, 2016.Note 13, "Long-Term Debt,"in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information regarding the debt issuance.
Guarantees, Indemnities and Other Off Balance Sheet Arrangements
As a partArrangements. We 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.
Refer to Note 14, “Other15, "Other Commitments and Contingencies,”" in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information about such arrangements.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory, Environmental and Safety Matters
Cost Recovery and Trackers
Comparability 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 Operations 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.
We recognize that energy efficiency reduces emissions, conserves natural resources and saves our customers money. Our gas distribution companies offer programs such as energy efficiency upgrades, home checkups and weatherization services. The increased efficiency of natural gas appliances and improvements in home building codes and standards contributes to a long-term trend of declining average use per customer. While we are looking to expand offerings so the energy efficiency programs can benefit as many customers as possible, our 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 future growth in per customer usage as a result of 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, Environmental and Safety 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 |
| Currently Approved in Current or Future Rates | | | | | |
| | | | | | | |
Columbia of Pennsylvania(1) | 10.95 | % | None specified | $ | 82.2 | | $ | 44.5 | | March 18, 2022 | Approved
December 8, 2022 | December 2022 |
| Columbia of Maryland | 10.85 | % | 9.65 | % | $ | 5.8 | | $ | 3.5 | | May 13, 2022 | Approved
November 17, 2022 | December 2022 |
Columbia of Kentucky(2) | 10.30 | % | 9.35 | % | $ | 26.7 | | $ | 18.3 | | May 28, 2021 | Approved
December 28, 2021 | January 2022 |
Columbia of Virginia(3) | 10.95 | % | None specified | $ | 14.2 | | $ | 1.3 | | August 28, 2018 | Approved
June 12, 2019 | February 2019 |
| Columbia of Ohio | 10.95 | % | 9.60 | % | $ | 221.4 | | $ | 68.3 | | June 30, 2021 | Approved
January 26, 2023 | March 2023 |
NIPSCO - Gas(4) | 10.50 | % | 9.85 | % | $ | 109.7 | | $ | 71.8 | | September 29, 2021 | Approved
July 27, 2022 | September 2022 |
| NIPSCO - Electric | 10.80 | % | 9.75 | % | $ | 21.4 | | $ | (53.5) | | October 31, 2018 | Approved
December 4, 2019 | January 2020 |
| Active Rate Cases | | | | | | | |
Columbia of Virginia(5) | 10.75 | % | In process | $ | 40.6 | | In process | April 29, 2022 | Order Expected Q2 2023 | Interim Rates
October 2022 |
NIPSCO - Electric(6) | 10.40 | % | In process | $ | 291.8 | | In process | September 19, 2022 | Order Expected Q3 2023 | September 2023 |
(1)No approved ROE is identified for this matter since the approved revenue increase is the result of a black box settlement under which parties agree upon the amount of increase.
(2)The approved ROE for natural gas capital riders (e.g.,SMRP) is 9.275%.
(3)Columbia of Virginia's rate case resulted in a black box settlement, representing a settlement to a specific revenue increase but not a specified ROE. The settlement provides use of a 9.70% ROE for future SAVE filings.
(4)New rates are implemented in 2 steps, with implementation of Step 1 rates in September 2022. The Step 2 rates were filed on February 21, 2023, with rates effective March 2023.
(5)Beginning October 2022, interim rates are being billed subject to refund, pending a final commission order. On December 9, 2022, a Stipulation and Proposed Recommendation was filed with the Virginia State Corporation Commission recommending approval of $25.8 million of incremental revenue.
(6) If the pending settlement is approved, new rates will be implemented in 2 steps, with implementation of Step 1 rates to be effective in September 2023 and Step 2 rates to be effective in March 2024. In addition to the requested incremental revenue of $291.8 million, an additional request was made for $103.2 million for costs associated with a new Variable Cost Tracker (VCT) bringing the total requested incremental revenue to $395.0 million. A settlement agreement was filed on March 10, 2023, with supporting testimony filed on March 17, 2023, reflecting incremental revenue of $261.9 million plus an additional $29.9 million for recovery of costs associated with a new Environmental Cost Tracker (replacing the VCT). The evidentiary hearing occurred in April 2023 with an anticipated final order August 2023.
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, 2023. Among other things, the PIPES Act requires that PHMSA revise the pipeline safety regulations to require 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 failure that can lead to overpressurization. PHMSA must also require that operators implement and utilize advanced leak detection and repair technologies that enable the location and categorization of all leaks that are hazardous, or potentially hazardous, to human safety or the environment. Natural gas companies, including NiSource and our subsidiaries, may see increased costs depending on how PHMSA implements the new mandates resulting from the PIPES Act.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory, Environmental and Safety Matters
Climate Change Issues
Physical Climate Risks. 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.
Transition Climate Risks. 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.
Regarding federal policies, we continue to monitor the implementation of any final and proposed climate change-related legislation and regulations, including the Infrastructure Investment and Jobs Act, signed into law in November 2021; the IRA, signed into law in August 2022; and the EPA's proposed methane regulations for the oil and natural gas industry, but we cannot predict their impact on our business at this time. We have identified potential opportunities associated with the Infrastructure Investment and Jobs Act and the IRA and are evaluating how they may align with our strategy going forward. The energy-related provisions of the Infrastructure Investment and Jobs Act include new federal funding for power grid infrastructure and resiliency investments, new and existing energy efficiency and weatherization programs, electric vehicle infrastructure for public chargers and additional LIHEAP funding over the next five years. The IRA contains climate and energy provisions, including funding to decarbonize the electric sector.
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.
On June 30, 2022, the Supreme Court of the United States ruled for the petitioners in West Virginia v. EPA, which examined the authority of the EPA to regulate GHG emissions from the power sector. We will continue to evaluate this matter, but we remain committed to our previously stated carbon reduction goals.
We also continue to monitor the implementation of any final and proposed state policy. The Virginia Clean Economy Act was signed into law in 2020. While the Act does not establish any new mandates on Columbia of Virginia, certain natural gas customers may, over the long-term, reduce their use of natural gas to meet the 100% renewable electricity requirement. Columbia of Virginia will continue to monitor this matter, but we cannot predict its final impact on our business at this time. Separately, the Virginia Energy Innovation Act, enacted into law in April 2022, and effective July 1, 2022, allows natural gas utilities to supply alternative forms of gas that meet certain standards and reduce emissions intensity. The Act also provides that the costs of enhanced leak detection and repair may be added to a utility’s plan to identify proposed eligible infrastructure replacement projects and related cost recovery mechanisms, known as the SAVE Plan. Furthermore, under the Act, utilities can recover eligible biogas supply infrastructure costs on an ongoing basis. The provisions of these laws may provide opportunities for Columbia of Virginia as it participates in the transition to a lower carbon future.
The Climate Solutions Now Act of 2022 requires Maryland to reduce GHG emissions by 60% by 2031 (from 2006 levels), and it requires the state to reach net zero emissions by 2045. The Maryland Department of the Environment is required to adopt a plan to achieve the 2031 goal by December 2023, and it is required to adopt a plan for the net zero goal by 2030. The Act also enacts a state policy to move to broader electrification of both existing buildings and new construction, and requires the Public Service Commission to complete a study assessing the capacity of gas and electric distribution systems to successfully serve customers under a transition to a highly electrified building sector. Columbia of Maryland will continue to monitor this matter, but we cannot predict its final impact on our business at this time.
NIPSCO, Columbia of Maryland, Columbia of Pennsylvania, Columbia of Virginia and Columbia of Kentucky each filed petitions to implement the Green Path Rider, which will be a voluntary rider that allows customers to opt in and offset either 50% or 100% of their natural gas related emissions. To reduce the emissions, the utilities will purchase RNG attributes and carbon offsets to match the usage for customers opting into the program. The program was approved by the IURC at NIPSCO in November 2022 with a January 2023 start date. After reaching settlement with other parties in September 2022, NIPSCO
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory, Environmental and Safety Matters
agreed to add a third tier to offset 25% of customer usage. Columbia of Maryland’s filing was denied by the PUC in January 2023. The filings for Columbia of Pennsylvania, Columbia of Virginia and Columbia of Kentucky are still being evaluated. Additionally, NIPSCO has a voluntary Green Power Rider program in place that allows customers to designate a portion or all their monthly electric usage to come from power generated by renewable energy sources.
Net-Zero Goal. In response to these transition risks and opportunities, on November 7, 2022, we announced a goal of net-zero greenhouse gas emissions by 2040 covering both Scope 1 and Scope 2 emissions ("Net-Zero Goal"). Our Net-Zero Goal builds on greenhouse gas emission reductions achieved to-date and demonstrates that continued execution of our long-term business plan will drive further greenhouse gas emission reductions. We remain on track to achieve previously announced interim greenhouse gas emission reduction targets by reducing fugitive methane emissions from main and service lines by 50 percent from 2005 levels by 2025 and reducing Scope 1 greenhouse gas emissions from company-wide operations by 90 percent from 2005 levels by 2030. We plan to achieve our Net-Zero Goal primarily through continuation and enhancement of existing programs, such as retiring and replacing coal-fired electric generation with low- or zero-emission electric generation, ongoing pipe replacement and modernization programs, and deployment of advanced leak-detection technologies. In addition, we plan to advance other low- or zero-emission energy resources and technologies, such as hydrogen, renewable natural gas, and/or deployment of carbon capture and utilization technologies, if and when these become technologically and economically feasible. Carbon offsets and renewable energy credits may also be used to support achievement of our Net-Zero Goal. As of the end of 2022, we had reduced Scope 1 GHG emissions by approximately 67% from 2005 levels.
Our greenhouse gas emissions projections, including achieving a Net-Zero Goal, are subject to various assumptions that involve risks and uncertainties. Achievement of our Net-Zero Goal by 2040 will require supportive regulatory and legislative policies, favorable stakeholder environments and advancement of technologies that are not currently economical to deploy. Should such regulatory and legislative policies, stakeholder environments or technologies fail to materialize, our actual results or ability to achieve our Net-Zero Goal, including by 2040, may differ materially.
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. Additionally, as discussed above in this Management's Discussion within "Liquidity and Capital Resources - Regulatory Capital Programs," our natural gas distribution companies are lowering methane emissions by replacing aging infrastructure, which also increases safety and reliability for customers and communities.
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 is exposed toOur Gas and Electric Operations have commodity price risk as a resultprimarily related to the purchases of its 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 and does not bear signification exposure to earnings risk, since regulationsour current regulatory mechanisms allow recovery of prudently incurred purchased power, fuel and gas costs through the ratemakingrate-making process, including gains or losses on these derivative instruments. These changes are included in the GCA and FAC regulatory rate-recovery mechanisms. If states should explore additional regulatory reform,these mechanisms were to be adjusted or eliminated, these subsidiaries may begin providing services without the benefit of the traditional ratemakingrate-making process and may be more exposed to commodity price risk. For additional information, see "Results and Discussion of Segment Operations" in this Management's Discussion.
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Our subsidiaries are required to make cash margin deposits with their brokers to cover actual and potential losses in the value of outstanding exchange traded derivative contracts. The amount of these deposits, some of which 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 the Condensed Consolidated Financial Statements (unaudited) for further information on NiSource'sour commodity price risk assets and liabilities as of September 30, 2017 orMarch 31, 2023 and December 31, 2016.2022.
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, term credit agreement and accounts receivable programs, and term loan, which have interest rates that are indexed to short-term market interest rates. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $3.7$4.5 million and $12.6$1.5 million for the three and nine months ended September 30, 2017March 31, 2023 and $3.0 million and $6.8 million for the three and nine months ended September 30, 2016,2022, 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 long-term debt issuances. From time to time we may enter into forward interest rate instruments to lock in long term interest costs and/ or rates.
Refer to Note 6,8, "Risk Management Activities," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for further information on NiSource'sour interest rate risk assets and liabilities as of September 30, 2017March 31, 2023 and December 31, 2016.
Table of Contents
ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
2022.
Credit Risk
Due to the nature of the industry, credit risk is embedded in many of NiSource’sour business activities. NiSource’sOur extension of credit is governed by a Corporate Credit Risk Policy. In addition, Risk Management Committee guidelines are in place which document management approval levels for credit limits, evaluation of creditworthiness, and credit risk mitigation efforts. Exposures to credit risks are monitored by the risk management function, which is independent of commercial operations. Credit risk arises due to the possibility that a customer, supplier or counterparty will not be able or willing to fulfill its obligations on a transaction on or before the settlement date. For derivative-related contracts, credit risk arises when counterparties are obligated to deliver or purchase defined commodity units of gas or power to NiSourceus at a future date per execution of contractual terms and conditions. Exposure to credit risk is measured in terms of both current obligations and the market value of forward positions net of any posted collateral such as cash and letters of credit.
NiSource closely monitorsWe evaluate the financial status of its banking credit providers. NiSource evaluates 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 PoliciesEstimates
Pension and Other Postretirement Benefits. On January 1, 2017, NiSource changed the method used to estimate the service and interest componentsA summary of net periodic benefit cost for pension and other postretirement benefits. This change, compared to the previous method, resulted in a decreaseour critical accounting estimates is included in the actuarially-determined service and interest cost components. Historically, NiSource estimated service and interest costs utilizing a single weighted-average discount rate derived fromCompany's Annual Report on Form 10-K for the yield curve used to measure the benefit obligation at the beginning of the period. NiSource now utilizes a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. NiSource believes the new approach provides a more precise measurement of service and interest costs by aligning the timing of the plan’s liability cash flows to the corresponding spot rates on the yield curve. The benefit obligations measured under this approach are unchanged. NiSource accounted for this change as a prospective change in accounting estimate. For further information on NiSource’s pension and other postretirement benefits, see Note 11, “Pension and Other Postretirement Benefits,” in the Notes to Condensed Consolidated Financial Statements (unaudited).
year ended December 31, 2022. There were no additional significantmaterial changes to critical accounting policies for the period ended September 30, 2017.made as of March 31, 2023.
Recently Issued Accounting Pronouncements
Refer to Note 2, "Recent Accounting Pronouncements," in the Notes to the 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 quantitativeQuantitative and qualitative disclosures about market risk see “Management’sare reported in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Disclosures.”"
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
NiSource’sOur chief executive officer and itsour chief financial officer are responsible for evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). NiSource'sOur disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including NiSource'sour chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, NiSource'sour chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that financial information was processed, recorded and reported accurately.
Changes in Internal Controls
There have been no changes in NiSource'sour internal control over financial reporting during the fiscalmost recently completed quarter covered by this report that has materially affected, or is reasonably likely to materially affect, NiSource'sour internal control over financial reporting.
NiSource Inc.
PART II
ITEM 1. LEGAL PROCEEDINGS
NiSource Inc.
The Company is party to certain claims andFor a description of our legal proceedings, arisingsee Note 15, "Other Commitments and Contingencies - B. Legal Proceedings," in the ordinary course of business, none of which is deemed to be individually material at this time. DueNotes to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial position or liquidity. If one or more of such matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could also be material to the Company’s cash flows in the periods the Company would be required to pay such liability.Condensed Consolidated Financial Statements (unaudited).
ITEM 1A. RISK FACTORS
NiSource’s operations and financial results are subjectPlease refer to various risks and uncertainties, including those disclosedthe risk factors set forth in NiSource’s most recentPart I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2016.2022. There have been no material changes to such risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
NiSource Inc.
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SIGNATURE
NiSource Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| Date: | November 1, 2017May 3, 2023 | By: | /s/ Joseph W. MulpasGunnar J. Gode |
| | | Joseph W. MulpasGunnar J. Gode |
| | | Vice President, and Chief Accounting Officer
(Principal Accounting Officer
and Duly Authorized Officer)
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