Nisource Inc 10-Q for FY2023 Q3
Nisource Inc. (NI)
10-Q
2023-11-01
For: 2023-09-30
View Original
Added on
April 07, 2026
About this 10-Q
Nisource Inc filed this 10-Q on November 1, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $1.03B
- down 5.7% from $1.09B a year earlier
- Net income
- $85.1M
- up 29.3% from net income of $65.8M a year earlier
- Diluted EPS
- $0.17
- up 41.7% from $0.12 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-16189
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(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 | ||||||
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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 ☑
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: 413,415,441 shares outstanding at October 24, 2023.
NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 2023
Table of Contents
| Page | |||||||||||
| PART I | FINANCIAL INFORMATION | ||||||||||
| Item 1. | Financial Statements - unaudited | ||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| PART II | OTHER INFORMATION | ||||||||||
| Item 1. | |||||||||||
| Item 1A. | |||||||||||
| Item 2. | |||||||||||
| Item 3. | |||||||||||
| Item 4. | |||||||||||
| Item 5. | |||||||||||
| Item 6. | |||||||||||
2
| DEFINED TERMS | |||||
The following is a list of frequently used abbreviations or acronyms that are found in this report: | |||||
| NiSource Subsidiaries and Affiliates (not exhaustive) | |||||
| 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 | ||||
| NIPSCO Holdings I | NIPSCO Holdings I LLC | ||||
| NIPSCO Holdings II | NIPSCO Holdings II LLC | ||||
| NiSource ("we," "us" or "our") | NiSource Inc. | ||||
| Rosewater | 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 | ||||
| Indiana Crossroads Solar | Indiana Crossroads Solar Generation LLC and its wholly owned subsidiary, Meadow Lake Solar Park LLC | ||||
Dunns Bridge I | Dunns Bridge I Solar Generation LLC and its wholly owned subsidiary, Dunns Bridge Solar Center, LLC | ||||
Dunns Bridge II | Dunns Bridge II Solar Generation LLC | ||||
Fairbanks | Fairbanks Solar Generation LLC | ||||
Cavalry | Cavalry Solar Generation LLC | ||||
| Abbreviations and Other | |||||
| AFUDC | Allowance for funds used during construction | ||||
| AOCI | Accumulated Other Comprehensive Income (Loss) | ||||
| ASC | Accounting Standards Codification | ||||
| ASU | Accounting Standards Update | ||||
| ATM | At-the-market | ||||
| BIP | Blackstone Infrastructure Partners L.P | ||||
| BTA | Build-transfer agreement | ||||
| CCRs | Coal Combustion Residuals | ||||
| CEP | Capital Expenditure Program | ||||
| CERCLA | Comprehensive Environmental Response Compensation and Liability Act (also known as Superfund) | ||||
| Corporate Units | Series A Corporate Units | ||||
| COVID-19 ("the COVID-19 pandemic" or "the pandemic") | Novel Coronavirus 2019 and its variants, including the Delta and Omicron variants, and any other variant that may emerge | ||||
| DPU | Department of Public Utilities | ||||
| EGUs | Electric Utility Generating Units | ||||
| EPA | United States Environmental Protection Agency | ||||
| EPS | Earnings per share | ||||
| Equity Units | Series A Equity Units | ||||
| FAC | Fuel adjustment clause | ||||
| FASB | Financial Accounting Standards Board | ||||
3
| DEFINED TERMS | |||||
| FERC | Federal Energy Regulatory Commission | ||||
| FMCA | Federally Mandated Cost Adjustment | ||||
| GAAP | Generally Accepted Accounting Principles | ||||
| GCA | Gas cost adjustment | ||||
| GHG | Greenhouse gases | ||||
| GWh | Gigawatt hours | ||||
| IRA | Inflation Reduction Act of 2022 | ||||
| IRP | Infrastructure Replacement Program | ||||
| IURC | Indiana Utility Regulatory Commission | ||||
| JV | Joint Venture | ||||
| 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 | ||||
| PHMSA | Pipeline and Hazardous Materials Safety Administration | ||||
| PPA | Power Purchase Agreement | ||||
| PUCO | Public Utilities Commission of Ohio | ||||
| RNG | Renewable Natural Gas | ||||
| ROU | Right of use | ||||
| 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 | ||||
| Section 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 | ||||
| VIE | Variable Interest Entity | ||||
Note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements in this Quarterly Report on Form 10-Q include, but are not limited to,
4
statements regarding the ability to complete the NIPSCO Minority Equity Interest Sale (as defined below) on the anticipated timeline or at all; statements regarding the anticipated benefits of the NIPSCO Minority Equity Interest Sale if completed; statements regarding the projected impact of the NIPSCO Minority Equity Interest Sales on our performance or opportunities; any statements regarding our expectations, beliefs, plans, objectives or prospects or future performance or financial condition as a result of or in connection with the NIPSCO Minority Equity Interest Sale; statements concerning our plans, strategies, objectives, expected performance, expenditures, recovery of expenditures through rates, stated on either a consolidated or segment basis, and any and all underlying assumptions and other statements that are other than statements of historical fact. 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. 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, but are not limited to, risks and uncertainties relating to the timing and certainty of closing the NIPSCO Minority Equity Interest Sale; the ability to satisfy the conditions to closing the NIPSCO Minority Equity Interest Sale; the ability to achieve the anticipated benefits of the NIPSCO Minority Equity Interest Sale; the effects of transaction costs; the effects of the NIPSCO Minority Equity Interest Sale on industry, market, economic, political or regulatory conditions outside of NiSource’s control; any disruption to NiSource’s business from the NIPSCO Minority Equity Interest Sale, including the diversion of management time on NIPSCO Minority Equity Interest Sale-related issues; our ability to execute our business plan or growth strategy, including utility infrastructure investments; potential incidents and other operating risks associated with our business; our ability to adapt to, and manage costs related to, advances in, 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 interest rates; inflation; recessions; economic regulation and the impact of regulatory rate reviews; our ability to obtain expected financial or regulatory outcomes; continuing and potential future impacts from the COVID-19 pandemic; economic conditions in certain industries; the reliability of customers and suppliers to fulfill their payment and contractual obligations; the ability of our subsidiaries to generate cash; pension 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 liabilities; changes in taxation; other matters in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2023, many of which risks are beyond our control. In addition, the relative contributions to profitability by each business segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time.
All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to the future results over time or otherwise, except as required by law.
5
| Index | Page | ||||
5. Equity | |||||
8. Fair Value | |||||
9. Income Taxes | |||||
12. Long-Term Debt | |||||
16. Other, Net | |||||
6
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) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Customer revenues | $ | $ | $ | $ | |||||||||||||||||||
| Other revenues | |||||||||||||||||||||||
| Total Operating Revenues | |||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Cost of energy | |||||||||||||||||||||||
| Operation and maintenance | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Gain on sale of assets, net | ( | ( | ( | ( | |||||||||||||||||||
| Other taxes | |||||||||||||||||||||||
| Total Operating Expenses | |||||||||||||||||||||||
| Operating Income | |||||||||||||||||||||||
| Other Income (Deductions) | |||||||||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||||||||
| Other, net | ( | ||||||||||||||||||||||
| Total Other Deductions, Net | ( | ( | ( | ( | |||||||||||||||||||
| Income before Income Taxes | |||||||||||||||||||||||
| Income Taxes | |||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
Net income (loss) attributable to noncontrolling interest | ( | ( | |||||||||||||||||||||
| Net Income Attributable to NiSource | |||||||||||||||||||||||
| Preferred dividends | ( | ( | ( | ( | |||||||||||||||||||
| Preferred redemption premium | ( | ||||||||||||||||||||||
| Net Income Available to Common Shareholders | |||||||||||||||||||||||
| Earnings Per Share | |||||||||||||||||||||||
Basic Earnings Per Share (1) | $ | $ | $ | ||||||||||||||||||||
| Diluted Earnings Per Share | $ | $ | $ | $ | |||||||||||||||||||
| Basic Average Common Shares Outstanding | |||||||||||||||||||||||
| Diluted Average Common Shares | |||||||||||||||||||||||
(1) Basic Earnings Per Share includes the incremental impact of participating securities under the Two-Class Method. See Note 4, "Earnings Per Share," for additional information.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
7
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) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Net Income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income: | |||||||||||||||||||||||
Net unrealized loss on available-for-sale debt securities(1) | ( | ( | ( | ( | |||||||||||||||||||
Reclassification adjustment for cash flow hedges(2) | ( | ( | |||||||||||||||||||||
Unrecognized pension and OPEB benefit (costs)(3) | ( | ||||||||||||||||||||||
| Total other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Comprehensive Income | $ | $ | $ | $ | |||||||||||||||||||
(1)Net unrealized loss on available-for-sale debt securities, net of $0.4 million tax benefit and $1.1 million tax benefit in the third quarter of 2023 and 2022, respectively, and $0.2 million of tax benefit and $3.7 million tax benefit for the nine months ended 2023 and 2022, respectively.
(2)Reclassification adjustment for cash flow hedges, net of $0.0 million tax expense and $5.3 million tax expense in the third quarter of 2023 and 2022, respectively , and $0.1 million of tax benefit and $39.4 million tax expense for the nine months ended 2023 and 2022, respectively.
(3)Unrecognized pension and OPEB benefit (costs), net of $0.3 million of tax expense and $0.2 million tax expense in the third quarter of 2023 and 2022, respectively, and $0.5 million of tax expense and $0.6 million tax benefit for the nine months ended 2023 and 2022, respectively.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
8
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited)
| (in millions) | September 30, 2023 | December 31, 2022 | |||||||||
| ASSETS | |||||||||||
| Property, Plant and Equipment | |||||||||||
| Plant | $ | $ | |||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
Net Property, Plant and Equipment(1) | |||||||||||
| Investments and Other Assets | |||||||||||
| Unconsolidated affiliates | |||||||||||
Available-for-sale debt securities (amortized cost of $ | |||||||||||
| Other investments | |||||||||||
| Total Investments and Other Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | |||||||||||
| Restricted cash | |||||||||||
| Accounts receivable | |||||||||||
| Allowance for credit losses | ( | ( | |||||||||
| Accounts receivable, net | |||||||||||
| Gas inventory | |||||||||||
| Materials and supplies, at average cost | |||||||||||
| Electric production fuel, at average cost | |||||||||||
| Exchange gas receivable | |||||||||||
| Regulatory assets | |||||||||||
| Deposits to renewable generation asset developer | |||||||||||
| Prepayments and other | |||||||||||
Total Current Assets(1) | |||||||||||
| Other Assets | |||||||||||
| Regulatory assets | |||||||||||
| Goodwill | |||||||||||
| Deferred charges and other | |||||||||||
| Total Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
(1)Includes $1,338.6 million and $978.5 million at September 30, 2023 and December 31, 2022, respectively, of net property, plant and equipment assets and $65.5 million and $25.7 million at September 30, 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 11, "Variable Interest Entities," for additional information.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
9
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)
| (in millions, except share amounts) | September 30, 2023 | December 31, 2022 | ||||||||||||
| CAPITALIZATION AND LIABILITIES | ||||||||||||||
| Capitalization | ||||||||||||||
| Stockholders’ Equity | ||||||||||||||
Common stock - $ | $ | $ | ||||||||||||
Preferred stock - $ | ||||||||||||||
| Treasury stock | ( | ( | ||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained deficit | ( | ( | ||||||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||||||||
| Total NiSource Stockholders’ Equity | ||||||||||||||
| Noncontrolling interest in consolidated subsidiaries | ||||||||||||||
| Total Equity | ||||||||||||||
| Long-term debt, excluding amounts due within one year | ||||||||||||||
| Total Capitalization | ||||||||||||||
| Current Liabilities | ||||||||||||||
| Current portion of long-term debt | ||||||||||||||
| Short-term borrowings | ||||||||||||||
| Accounts payable | ||||||||||||||
| Dividends payable - common stock | ||||||||||||||
| Dividends payable - preferred stock | ||||||||||||||
| Customer deposits and credits | ||||||||||||||
| Taxes accrued | ||||||||||||||
| Interest accrued | ||||||||||||||
| Exchange gas payable | ||||||||||||||
| Regulatory liabilities | ||||||||||||||
| Asset retirement obligations | ||||||||||||||
| Accrued compensation and employee benefits | ||||||||||||||
| Obligations to renewable generation asset developer | ||||||||||||||
| Other accruals | ||||||||||||||
Total Current Liabilities(1) | ||||||||||||||
| Other Liabilities | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Accrued liability for postretirement and postemployment benefits | ||||||||||||||
| Regulatory liabilities | ||||||||||||||
| Asset retirement obligations | ||||||||||||||
| Other noncurrent liabilities and deferred credits | ||||||||||||||
Total Other Liabilities(1) | ||||||||||||||
Commitments and Contingencies (Refer to Note 14, "Other Commitments and Contingencies") | ||||||||||||||
| Total Capitalization and Liabilities | $ | $ | ||||||||||||
(1)Includes $41.0 million and $128.2 million at September 30, 2023 and December 31, 2022, respectively, of current liabilities and $55.0 million and $30.6 million at September 30, 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 11, "Variable Interest Entities," for additional information.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
10
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Statements of Consolidated Cash Flows (unaudited)
Nine Months Ended September 30, (in millions) | 2023 | 2022 | |||||||||
| Operating Activities | |||||||||||
| Net Income | $ | $ | |||||||||
Adjustments to Reconcile Net Income to Net Cash from Operating Activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred income taxes and investment tax credits | |||||||||||
| Gain on sale of assets | ( | ( | |||||||||
| Other adjustments | |||||||||||
| Changes in Assets and Liabilities: | |||||||||||
| Components of working capital | ( | ||||||||||
| Regulatory assets/liabilities | ( | ||||||||||
| Deferred charges and other noncurrent assets | ( | ( | |||||||||
| Other noncurrent liabilities and deferred credits | ( | ( | |||||||||
| Net Cash Flows from Operating Activities | |||||||||||
| Investing Activities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Insurance recoveries | |||||||||||
| Cost of removal | ( | ( | |||||||||
| Payment to renewable generation asset developer | ( | ( | |||||||||
| Other investing activities | ( | ( | |||||||||
| Net Cash Flows used for Investing Activities | ( | ( | |||||||||
| Financing Activities | |||||||||||
| Proceeds from Issuance of long-term debt | |||||||||||
Repayments of long-term debt and finance lease obligations | ( | ( | |||||||||
| Change in short-term borrowings, net (maturity ≤ 90 days) | |||||||||||
| Issuance of common stock, net of issuance costs | |||||||||||
| Redemption of preferred stock | ( | ||||||||||
| Preferred stock redemption premium | ( | ||||||||||
Equity costs, grant withholdings, and debt related costs | ( | ( | |||||||||
| Contributions from noncontrolling interest | |||||||||||
| Distributions to noncontrolling interest | ( | ( | |||||||||
| Dividends paid - common stock | ( | ( | |||||||||
| Dividends paid - preferred stock | ( | ( | |||||||||
| Contract liability payment | ( | ( | |||||||||
Payment of financing obligation to renewable generation asset developer | ( | ||||||||||
| Net Cash Flows from Financing Activities | |||||||||||
| Change in cash, cash equivalents and restricted cash | ( | ||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | $ | |||||||||
Reconciliation to Balance Sheet
Nine Months Ended September 30, (in millions) | 2023 | ||||
| Cash and cash equivalents | |||||
| Restricted Cash | |||||
| Total Cash, Cash Equivalents and Restricted Cash | |||||
11
ITEM 1. FINANCIAL STATEMENTS (continued)
Supplemental Disclosures of Cash Flow Information
Nine Months Ended September 30, (in millions) | 2023 | 2022 | |||||||||
| Non-cash transactions: | |||||||||||
| Capital expenditures included in current liabilities | $ | $ | |||||||||
| Dividends declared but not paid | |||||||||||
Purchase contract liability(1) | |||||||||||
(1) Refer to Note 5, "Equity," for additional information
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
12
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 July 1, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss, net of tax | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Preferred stock (See Note 5) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interest(2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||||||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
(1) See Note 5, "Equity," for additional information. (2) Contributions from noncontrolling interest is net of commitment and consulting fees and other legal costs related to the substantial completion closing of Dunns Bridge I of $ | |||||||||||||||||||||||||||||||||||||||||||||||
| (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 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||||||||||||||||||||||
Net income | |||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Preferred stock (See Note 5) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock redemption | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock redemption premium | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Contributions from noncontrolling interest(2) | |||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||||||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
(1) See Note 5, "Equity," for additional information. (2) Contributions from noncontrolling interest is net of commitment and consulting fees and other legal costs related to the mechanical completion closing of Dunns Bridge I of $ | |||||||||||||||||||||||||||||||||||||||||||||||
13
ITEM 1. FINANCIAL STATEMENTS (continued)
| (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 July 1, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Preferred stock (See Note 5) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||||||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||||||||||||||||||||||||||
| ATM program | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| (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 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
| Comprehensive Income: | |||||||||||||||||||||||||||||||||||||||||||||||
Net income (loss) | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income, net of tax | |||||||||||||||||||||||||||||||||||||||||||||||
| Dividends: | |||||||||||||||||||||||||||||||||||||||||||||||
Common stock ($ | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Preferred stock (See Note 5) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Distributions to noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||||||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||||||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||||||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||||||||||||||||||||||||||
| ATM program | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | $ | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||||||||||||||||||
(1) See Note 5, "Equity," for additional information. | |||||||||||||||||||||||||||||||||||||||||||||||
14
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Condensed Statements of Consolidated Equity (unaudited) (continued)
| Preferred | Common | ||||||||||||||||||||||
Shares (in thousands) | Shares | Shares | Treasury | Outstanding | |||||||||||||||||||
| Balance as of July 1, 2023 | ( | ||||||||||||||||||||||
| Issued: | |||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||
| Redeemed: | |||||||||||||||||||||||
| Preferred Stock | |||||||||||||||||||||||
| Balance as of September 30, 2023 | ( | ||||||||||||||||||||||
| Preferred | Common | ||||||||||||||||||||||
Shares (in thousands) | Shares | Shares | Treasury | Outstanding | |||||||||||||||||||
| Balance as of January 1, 2023 | ( | ||||||||||||||||||||||
| Issued: | |||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||
| Redeemed: | |||||||||||||||||||||||
| Preferred Stock | ( | ||||||||||||||||||||||
| Balance as of September 30, 2023 | ( | ||||||||||||||||||||||
| Preferred | Common | ||||||||||||||||||||||
Shares (in thousands) | Shares | Shares | Treasury | Outstanding | |||||||||||||||||||
| Balance as of July 1, 2022 | ( | ||||||||||||||||||||||
| Issued: | |||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||
| Balance as of September 30, 2022 | ( | ||||||||||||||||||||||
| Preferred | Common | ||||||||||||||||||||||
Shares (in thousands) | Shares | Shares | Treasury | Outstanding | |||||||||||||||||||
| Balance as of January 1, 2022 | ( | ||||||||||||||||||||||
| Issued: | |||||||||||||||||||||||
| Employee stock purchase plan | |||||||||||||||||||||||
| Long-term incentive plan | |||||||||||||||||||||||
| 401(k) and profit sharing | |||||||||||||||||||||||
| Balance as of September 30, 2022 | ( | ||||||||||||||||||||||
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
15
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
1. Basis of Accounting Presentation
Our accompanying Condensed Consolidated Financial Statements (unaudited) 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 include the accounts of us, our majority-owned subsidiaries, and VIEs of which we are the primary beneficiary after the elimination of all intercompany accounts and transactions.
The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 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 we believe that the disclosures made in this Quarterly Report on Form 10-Q are adequate to make the information herein not misleading.
2. Recent Accounting Pronouncements
3. Revenue Recognition
Revenue Disaggregation and Reconciliation. 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 Income (unaudited):
Three Months Ended September 30, 2023 (in millions) | Gas Distribution Operations(2) | Electric Operations(3) | Corporate and Other | Total | |||||||||||||||||||
Customer Revenues(1) | |||||||||||||||||||||||
| Residential | $ | $ | $ | $ | |||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Industrial | |||||||||||||||||||||||
| Off-system | |||||||||||||||||||||||
| Miscellaneous | |||||||||||||||||||||||
| Total Customer Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Other Revenues | |||||||||||||||||||||||
| Total Operating Revenues | $ | $ | $ | $ | |||||||||||||||||||
(1)Customer revenue amounts exclude intersegment revenues. See Note 17, "Business Segment Information," for discussion of intersegment revenues.
(2)Amounts included in Gas Distributions Operations Other revenues primarily relate to weather normalization adjustment mechanisms.
(3)Amounts included in Electric Operations Other revenues primarily relate to MISO multi-value projects and revenue from non-jurisdictional transmission assets.
16
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Three Months Ended September 30, 2022 (in millions) | Gas Distribution Operations(2) | Electric Operations(3) | Corporate and Other(4) | Total | |||||||||||||||||||
Customer Revenues(1) | |||||||||||||||||||||||
| Residential | $ | $ | $ | $ | |||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Industrial | |||||||||||||||||||||||
| Off-system | |||||||||||||||||||||||
| Miscellaneous | |||||||||||||||||||||||
| Total Customer Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Other Revenues | |||||||||||||||||||||||
| Total Operating Revenues | $ | $ | $ | $ | |||||||||||||||||||
(1)Customer revenue amounts exclude intersegment revenues. See Note 17, "Business Segment Information," for discussion of intersegment revenues.
(2)Amounts included in Gas Distributions Operations Other revenues primarily relate to weather normalization adjustment mechanisms.
(3)Amounts included in Electric Operations Other revenues primarily relate to MISO multi-value projects and revenue from non-jurisdictional transmission assets.
(4)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.
Nine months ended September 30, 2023 (in millions) | Gas Distribution Operations(2) | Electric Operations(3) | Corporate and Other | Total | |||||||||||||||||||
Customer Revenues(1) | |||||||||||||||||||||||
| Residential | $ | $ | $ | $ | |||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Industrial | |||||||||||||||||||||||
| Off-system | |||||||||||||||||||||||
| Miscellaneous | |||||||||||||||||||||||
| Total Customer Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Other Revenues | |||||||||||||||||||||||
| Total Operating Revenues | $ | $ | $ | $ | |||||||||||||||||||
(1)Customer revenue amounts exclude intersegment revenues. See Note 17, "Business Segment Information," for discussion of intersegment revenues. (2)Amounts included in Gas Distributions Operations Other revenues primarily relate to weather normalization adjustment mechanisms. (3)Amounts included in Electric Operations Other revenues primarily relate to MISO multi-value projects and revenue from non-jurisdictional transmission assets. | |||||||||||||||||||||||
Nine months ended September 30, 2022 (in millions) | Gas Distribution Operations(2) | Electric Operations(3) | Corporate and Other(4) | Total | |||||||||||||||||||
Customer Revenues(1) | |||||||||||||||||||||||
| Residential | $ | $ | $ | $ | |||||||||||||||||||
| Commercial | |||||||||||||||||||||||
| Industrial | |||||||||||||||||||||||
| Off-system | |||||||||||||||||||||||
| Miscellaneous | |||||||||||||||||||||||
| Total Customer Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Other Revenues | |||||||||||||||||||||||
| Total Operating Revenues | $ | $ | $ | $ | |||||||||||||||||||
(1)Customer revenue amounts exclude intersegment revenues. See Note 17, "Business Segment Information," for discussion of intersegment revenues. (2)Amounts included in Gas Distributions Operations Other revenues primarily relate to weather normalization adjustment mechanisms. (3)Amounts included in Electric Operations Other revenues primarily relate to MISO multi-value projects and revenue from non-jurisdictional transmission assets. (4)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. | |||||||||||||||||||||||
17
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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 nine months ended September 30, 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.
| (in millions) | Customer Accounts Receivable, Billed (less reserve) | Customer Accounts Receivable, Unbilled (less reserve) | |||||||||||||||
| Balance as of December 31, 2022 | $ | $ | |||||||||||||||
| Balance as of September 30, 2023 | |||||||||||||||||
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.
18
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 September 30, 2023 and December 31, 2022 are presented in the table below:
(in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | |||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | |||||||||||||||||||
| Current period provisions | |||||||||||||||||||||||
| Write-offs charged against allowance | ( | ( | ( | ||||||||||||||||||||
| Recoveries of amounts previously written off | |||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | $ | $ | |||||||||||||||||||
(in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | |||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| Current period provisions | |||||||||||||||||||||||
| Write-offs charged against allowance | ( | ( | ( | ||||||||||||||||||||
| Recoveries of amounts previously written off | |||||||||||||||||||||||
| Balance as of December 31, 2022 | $ | $ | $ | $ | |||||||||||||||||||
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 and nine months ended September 30, 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 and nine months ended September 30, 2023 and 2022 net of tax, related to the purchase contracts.
We adopted ASU 2020-06 on January 1, 2022, which requires us to assume share settlement of the remaining purchase contract payment balance from our Equity Units 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 September 30, 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 and nine months ended September 30, 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.
19
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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 net income per share is computed by dividing net income available to common shareholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share is computed by giving effect to all potential shares of common stock, to the extent they are dilutive.
The following table presents the calculation of our basic and diluted EPS:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions, except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
Net Income Available to Common Shareholders | $ | $ | $ | $ | |||||||||||||||||||
| Less: Income allocated to participating securities | |||||||||||||||||||||||
Net Income Available to Common Shareholders - Basic | |||||||||||||||||||||||
| Add: Dilutive effect of Equity Units | |||||||||||||||||||||||
Net Income Available to Common Shareholders - Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Average common shares outstanding - Basic | |||||||||||||||||||||||
| Dilutive potential common shares: | |||||||||||||||||||||||
| Equity Units purchase contracts | |||||||||||||||||||||||
| Equity Units purchase contract payment balance | |||||||||||||||||||||||
| Shares contingently issuable under employee stock plans | |||||||||||||||||||||||
| Shares restricted under employee stock plans | |||||||||||||||||||||||
| ATM forward agreements | |||||||||||||||||||||||
| Average Common Shares - Diluted | |||||||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
20
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
5. Equity
ATM Program. On February 22, 2021, we entered into six separate equity distribution agreements pursuant to which we are able to sell up to an aggregate of $750.0 million of our common stock. As of September 30, 2023, the ATM 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 September 30, 2023.
Preferred Stock. As of September 30, 2023, we had 20,000,000 902,500 shares of preferred stock in the aggregate for all series were outstanding. The following table displays preferred dividends declared for the period by outstanding series of shares:
| Three Months Ended September 30, | Nine Months Ended September 30, | September 30, | December 31, | ||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||||||||||||||||
| (in millions except shares and per share amounts) | Liquidation Preference Per Share | Shares | Dividends Declared Per Share(2) | Outstanding | |||||||||||||||||||||||||||||||||||||
| 5.650% Series A | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
| 6.500% Series B | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
Series C(1) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||
(1)The Series C Mandatory Convertible Preferred Stock initially will not bear any dividends. We recorded the initial present value of the purchase contract payments as a liability with 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 September 30, 2023. Holders of Series B–1 Preferred Stock are not entitled to receive dividend payments and have no conversion rights. The Series B–1 Preferred Stock is paired with the Series B Preferred Stock and may not be transferred, redeemed or repurchased except in connection with the simultaneous transfer, redemption, or repurchase of the underlying Series B Preferred Stock. As of September 30, 2023 and 2022, Series B Preferred Stock had $1.4 72.23
As of September 30, 2022, Series A Preferred Stock had $6.7 million of cumulative preferred dividends in arrears, or $16.63 per share. On June 15, 2023, we redeemed all 400,000 outstanding shares of Series A Preferred Stock for a redemption price of $1,000 per share or $400.0 million in total. Following the redemption, dividends ceased to accrue on such shares of Series A Preferred Stock, the shares of Series A Preferred Stock are no longer deemed outstanding and all rights of the holders of the shares of Series A Preferred Stock were terminated. In conjunction with the redemption, we recorded a $6.2 million preferred stock redemption premium, calculated as the difference between the carrying value on the redemption date of the Series A Preferred Stock and the total amount of consideration paid to redeem, which was recorded as a reduction to retained earnings during the second quarter of 2023. Since we are obligated to issue common stock under the Equity Units purchase contracts upon successful remarketing by the end of 2023, we did not recognize an excise tax liability, under the IRA, in connection with this redemption.
In June 2023, we filed a certificate of elimination to our Amended and Restated Certificate of Incorporation with the Secretary of State of Delaware to eliminate from the Amended and Restated Certificate of Incorporation all matters set forth in the Certificate of Designations with respect to the Series A Preferred Stock. As a result, the 400,000 shares that were previously designated as Series A Preferred Stock were returned to the status of authorized but unissued shares of preferred stock, par value $0.01 per share, without designation as to series. The certificate of elimination does not change the total number of authorized shares of capital stock of NiSource or the total number of authorized shares of preferred stock.
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 proceeds 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 future and a 1/10th, or 10 %, undivided beneficial ownership interest in one share of Series C Mandatory Convertible Preferred Stock, par value $0.01 per share, with a liquidation preference of $1,000 per share.
21
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Selected information about the Equity Units at the issuance 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 | $ | % | $ | |||||||||||||
(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 purchase contract liability of $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 shares to be purchased will be determined under a settlement rate formula based on the volume-weighted average share price of our common stock near the settlement date, subject to a maximum settlement rate. The Series C Mandatory Convertible Preferred Stock were pledged upon issuance as collateral to secure the purchase of common stock under the related purchase contracts.
The Series C Mandatory Convertible Preferred Stock is required 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 our 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 Series 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 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 September 30, 2023, no contract adjustment payments have been deferred with quarterly cash payments being remitted to the holders. As of September 30, 2023 and December 31, 2022 the purchase contract liability, net of issuance costs, was $16.4 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 $50.1 million were made during both nine month periods ended September 30, 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 forward purchase contract and the Series C Mandatory Convertible Preferred Stock, we have concluded that the ability to separate the Corporate Units is non-substantive. Accordingly, we are accounting for the Corporate Units as a single unit of account. We recorded the initial present value of the purchase contract payments as a liability with a corresponding reduction to preferred stock. This liability is included in "Other accruals" on the Condensed Consolidated Balance Sheets (unaudited).
Refer to Note 4, "Earnings Per Share," for 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 September 30, 2023, we would have issued approximately 0.6 million shares.
22
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
6. 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 settlement and rates were effective as of September 1, 2022. As part of the NIPSCO Electric base rate case and the Stipulation and Settlement Agreement filed on March 10, 2023, NIPSCO Electric agreed to change the depreciation methodology for its calculation of depreciation rates, which will reduce depreciation expense and subsequent revenues and cash flows. An order was received on August 2, 2023 approving the settlement, and rates were effective as of August 4, 2023. On October 11, 2023, the IURC issued an order clarifying how the rate increase should have been implemented, holding that the new rates should have only applied to electric usage on or after August 4, 2023, and not for electric usage prior to that date for bills yet to be rendered. NIPSCO was ordered to make a filing reflecting the calculation of the refund to customers by November 10, 2023. The refund amount was reserved for an estimated $12.4 million plus accrued interest.
Columbia of Ohio regulatory filing update
Columbia of Ohio's base rate case was filed on June 30, 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 and amortization" on the Condensed Statements of Consolidated Income (unaudited). NiSource recorded a decrease to depreciation expense of $19.0 million and $9.7 million for the three and nine months ended September 30, 2023. We recorded a decrease to depreciation expense of $2.2 million and an increase to depreciation expense of $4.5 million respectively, for the three and nine months ended September 30, 2022. Following the implementation of the electric base rate case, we began recognizing amounts to recover our investments of projects that have been placed in service. Refer to Note 11, "Variable Interest Entities," for additional information.
7. Risk Management Activities
23
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Risk management assets and liabilities on our derivatives are presented on the Condensed Consolidated Balance Sheets (unaudited) as shown below:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| (in millions) | Assets | Liabilities | Assets | Liabilities | |||||||||||||||||||
Current(1) | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Noncurrent(2) | |||||||||||||||||||||||
| Derivatives not designated as hedging instruments | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
(1)Current assets and liabilities are presented in "Prepayments and other" and "Other accruals", respectively, on the Condensed Consolidated Balance Sheets (unaudited).
(2)Noncurrent assets and liabilities are presented in "Deferred charges and other" and "Other noncurrent liabilities and deferred credits", respectively, on the Condensed Consolidated Balance Sheets (unaudited).
Our derivative instruments are subject to enforceable master netting arrangements or similar agreements. No collateral was either received or posted related to our outstanding derivative positions at September 30, 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 $35.2 million and $81.8 million at September 30, 2023 and December 31, 2022, respectively.
All gains and losses on 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. We, along with our utility customers, are exposed to variability in cash flows associated with natural gas purchases and volatility in natural gas prices. We purchase natural gas for sale and delivery to our retail, commercial and industrial customers, and for most customers the variability in the market price of gas is passed through in their rates. Some of our utility subsidiaries offer programs whereby variability in the market price of gas is assumed by the respective utility. The objective of our commodity price risk programs is to mitigate the gas cost variability on behalf of our customers, associated with natural gas purchases or sales by economically hedging the various gas cost components using a combination of futures, options, forwards or other derivative contracts. At September 30, 2023 and December 31, 2022, we had 85.2 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 and is limited to 20 % of NIPSCO's average annual GCA purchase volume. As of September 30, 2023, the remaining terms of these instruments range from to four years .
The following table summarizes the gains and losses associated with the commodity price risk programs deferred as regulatory assets and liabilities:
| (in millions) | September 30, 2023 | December 31, 2022 | |||||||||
| Regulatory Assets | |||||||||||
| Losses on commodity price risk programs | $ | $ | |||||||||
| Regulatory Liabilities | |||||||||||
| Gains on commodity price risk programs | |||||||||||
The net gain related to multiple of our settled interest rate swaps is 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 immaterial for the three and nine months ended September 30, 2023 and 2022 and are recorded in "Interest expense, net" on the Condensed Statements of Consolidated Income (unaudited). Amounts expected to be reclassified to earnings during the next twelve months are
24
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
8. Fair Value
A. Fair Value Measurements
Recurring Fair Value Measurements
The following tables present financial assets and liabilities measured and recorded at fair value on our Condensed Consolidated Balance Sheets (unaudited) on a recurring basis and their level within the fair value hierarchy as of September 30, 2023 and December 31, 2022:
Recurring Fair Value Measurements September 30, 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 September 30, 2023 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Risk management assets | $ | $ | $ | $ | |||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Risk management liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
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 | |||||||||||||||||||||||
| Risk management assets | $ | $ | $ | $ | |||||||||||||||||||
| Available-for-sale debt securities | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Risk management liabilities | $ | $ | $ | $ | |||||||||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||||||||
Risk Management Assets and Liabilities. Risk management assets and liabilities include exchange-traded NYMEX futures and NYMEX options and non-exchange-based forward purchase contracts.
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, and options. In certain instances, these instruments may utilize models to measure fair value. We use a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and market-corroborated inputs, (i.e., inputs derived principally from or corroborated by observable
25
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
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 that reduce exposures. As of September 30, 2023 and December 31, 2022, there were no
NIPSCO has entered into long-term forward natural gas purchase instruments to lock in a fixed price for its natural gas customers. We 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 7, "Risk Management Activities."
Available-for-Sale Debt Securities. Available-for-sale debt securities are investments pledged as collateral for trust accounts related to our wholly owned insurance company. We 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.
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 loss 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 other 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 September 30, 2023 and December 31, 2022, we have $0.9 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.
26
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, 2023 and December 31, 2022 were:
September 30, 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 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Corporate/Other debt securities | ( | ( | |||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
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 | $ | $ | $ | ( | $ | $ | |||||||||||||||||||||||
| Corporate/Other debt securities | ( | ( | |||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
(1)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 $59.2 million and $92.3 million, respectively, at September 30, 2023.
(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 $0.6 million at September 30, 2023. Realized gains and losses on available-for-sale securities were immaterial at December 31, 2022.
At September 30, 2023, approximately $11.9 million of U.S. Treasury debt securities and approximately $3.1 million of Corporate/Other debt securities have maturities of less than a year.
Non-recurring Fair Value Measurements
We measure the fair value of certain assets, including 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 using a discounted 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 fair value 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. Our 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. As of September 30, 2023, there was no change in the method or significant assumptions used to estimate the fair value of long-term debt.
27
The carrying amount and estimated fair values of these financial instruments were as follows:
| (in millions) | Carrying Amount as of September 30, 2023 | Estimated Fair Value as of September 30, 2023 | Carrying Amount as of Dec. 31, 2022 | Estimated Fair Value as of Dec. 31, 2022 | |||||||||||||||||||
| Long-term debt (including current portion) | $ | $ | $ | $ | |||||||||||||||||||
9. Income Taxes
Our interim effective tax rates reflect the estimated annual effective tax rates for 2023 and 2022 applied to year-to-date pretax income, adjusted for tax expense associated with certain discrete items. These adjustments have a relative impact on the effective tax rate proportionally to pretax income or loss. The effective tax rates for the three months ended September 30, 2023 and 2022 were 3.7 % and 15.6 %, respectively. The effective tax rates for the nine months ended September 30, 2023 and 2022 were 17.7 17.9 %, respectively. These effective tax rates differ from the federal statutory tax rate of 21 % primarily due to renewable partnership income, 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.
The decrease in the three month effective tax rate of 11.9 % in 2023 compared to 2022 is primarily attributed to decreases in renewable partnership income, partially offset by lower amortization of excess deferred federal income tax liabilities.
The decrease in the nine month effective tax rate of 0.2 % in 2023 compared to 2022 is primarily attributed to the jurisdictional mix of pre-tax book income.
As of September 30, 2023, there have been no material changes to our unrecognized tax benefits or possible changes that could reasonably be expected to occur during the next twelve months. See Note 11 to the Company’s Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of these unrecognized tax benefits.
10. 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 nine months ended September 30, 2023, we contributed $2.6 million to our pension plans and $16.7 million to our OPEB plans.
28
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The following table provides the components of the plans' actuarially determined net periodic benefit cost for the three and nine months ended September 30, 2023 and 2022:
| Pension Benefits | OPEB | ||||||||||||||||||||||
Three Months Ended September 30, (in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Components of Net Periodic Benefit Cost(1) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of prior service credit | ( | ( | |||||||||||||||||||||
| Recognized actuarial loss | |||||||||||||||||||||||
| Settlement loss | |||||||||||||||||||||||
| Total Net Periodic Benefit Cost | $ | $ | $ | $ | |||||||||||||||||||
(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). | |||||||||||||||||||||||
| Pension Benefits | OPEB | ||||||||||||||||||||||
Nine Months Ended September 30, (in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
Components of Net Periodic Benefit Cost(1) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of prior service credit | ( | ( | |||||||||||||||||||||
| Recognized actuarial loss | |||||||||||||||||||||||
| Settlement loss | |||||||||||||||||||||||
| Total Net Periodic Benefit Cost | $ | $ | $ | $ | |||||||||||||||||||
(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). | |||||||||||||||||||||||
During the third quarter of 2023, the requirements for settlement accounting were met for two of our pension plans, resulting in a settlement charge of $7.4 million for the three months ended September 30, 2023, and $7.5 million for the nine months ended September 30, 2023.
11. 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 two solar facilities, Indiana Crossroads Solar and Dunns Bridge I, which went into service in June 2023, with a combined 465 307.2 million in developer payments. We control decisions that are significant to these entities' ongoing operations and economic results. Therefore, we have concluded that NIPSCO is the primary beneficiary and have consolidated all four entities.
Members of each respective JV include NIPSCO (who is the managing member) and a tax equity partner. Earnings, tax attributes and cash flows are allocated to both NIPSCO and the tax equity partner in varying percentages by category and over the life of the partnership. NIPSCO and each tax equity partner contributed cash to each JV. For the two wind facilities, NIPSCO assumed an obligation to the developers of each facility, representing the remaining economic interest. NIPSCO resolved this obligation by acquiring the developers' economic interests in June 2023 for $389.2 million. Once the tax equity partner has earned their negotiated rate of return and have reached a stated contractual date, NIPSCO has the option to purchase
29
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
the remaining interest in the respective JV, at fair market value from the tax equity partner. NIPSCO has an obligation to purchase 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) | September 30, 2023 | December 31, 2022 | |||||||||
| Net Property, Plant and Equipment | $ | $ | |||||||||
| Current assets | |||||||||||
Total assets(1) | |||||||||||
| Current liabilities | |||||||||||
| Asset retirement obligations | |||||||||||
| Total liabilities | $ | $ | |||||||||
(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.
12. 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.
On June 8, 2023, we completed the issuance and sale of an additional $300.0 million of 5.25 % senior unsecured notes maturing in 2028 (the "2028 Notes"). The terms of the 2028 Notes, other than the issue date and the price to the public, are identical to the terms of, and constitute as a reopening of, our 5.25 % senior unsecured notes due 2028 issued on March 24, 2023. With the incremental issuance, we now have $1.05 billion of 5.25 % senior unsecured notes maturing in 2028. On June 8, 2023, we also completed the issuance and sale of $450.0 million of 5.40 % senior unsecured notes maturing in 2033. These issuances resulted in approximately $742.5 million of total net proceeds after discount and debt issuance costs.
13. 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
Commercial Paper Program. Our commercial paper program has a program limit of up to $1.5 billion. We had $935.0 million and $415.0 million of commercial paper outstanding with weighted-average interest rates of 5.58 % and 4.60 % as of September 30, 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-party financial institutions through wholly owned and consolidated special purpose entities. The three agreements expire between May 2024 and October 2024 and may be further extended if mutually agreed to by the parties thereto.
All receivables transferred to third parties are valued at face value, which approximates fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables transferred is determined in part by required loss reserves under the agreements.
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term borrowings on the Condensed Consolidated Balance Sheets (unaudited). As of September 30, 2023, the maximum amount of debt that could be borrowed related to our accounts receivable programs was $295.6 million.
30
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
We had $285.0 million and $347.2 million of short-term borrowings related to the securitization transactions as of September 30, 2023 and December 31, 2022, respectively.
For the nine months ended September 30, 2023, $62.2 million was recorded as cash flows used for financing activities related to the change in short-term borrowings due to securitization transactions. For the nine months ended September 30, 2022, $318.2 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 $0.5 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively and $2.1 million and $1.7 million for the nine months ended September 30, 2023 and 2022, respectively. Columbia of Ohio, NIPSCO and Columbia of Pennsylvania remain responsible for collecting on the receivables securitized, and the receivables cannot be transferred to another party.
Term Credit Agreement. On December 20, 2022, we entered into a $1.0 billion term credit agreement with a syndicate of banks. On October 5, 2023, we entered into an amendment with the syndicate of banks to, among other things, extend the maturity date of the agreement from December 19, 2023 to March 15, 2024. With the amendment, we triggered extinguishment accounting and will record an immaterial loss on extinguishment of debt in the fourth quarter of 2023. 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 6.37 % and 5.37 % as of September 30, 2023 and December 31, 2022, respectively.
Items 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. Other Commitments and Contingencies
A. Guarantees and Indemnities. We and certain of our subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries as a part of normal business. Such agreements include guarantees and stand-by letters of credit. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries' intended commercial purposes. As of September 30, 2023 and December 31, 2022, we had issued stand-by letters of credit of $9.9 million and $10.2 million, respectively, for the benefit of third parties.
We provide guarantees related to our future performance under BTAs for our renewable generation projects. At September 30, 2023 and December 31, 2022, our guarantees for multiple BTAs totaled $642.4 million and $841.6 million, respectively. 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. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim, proceeding or investigation would not have a material adverse effect on our results of operations, financial position or liquidity. If one or more matters were decided against us, the effects could be material to our results of operations in the period in which we would be required to record or adjust the related liability and could also be material to our cash flows in the periods that we would be required to pay such liability.
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. It is probable that the OE will require the customer to repay certain DR revenues received from MISO, and will require NIPSCO to disgorge administrative fees and foregone margin charges that NIPSCO collected pursuant to its own IURC-approved tariff. The investigation remains ongoing. NIPSCO currently estimates the maximum amount of its disgorgement exposure to be $7.7 million which will be returned to customers. As of September 30, 2023, NIPSCO expects to recover more than 50 % of that amount.
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.
31
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
C. Environmental Matters. Our operations are subject to environmental statutes and regulations related to air quality, water quality, hazardous waste and solid waste. We believe that we are in substantial compliance with the environmental regulations currently applicable to our 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 majority of environmental assessment and remediation costs and asset retirement costs, further described below, to be recoverable through rates.
As of September 30, 2023 and December 31, 2022, we had recorded a liability of $82.7 million and $86.5 million, respectively, to cover environmental remediation at various sites. This liability is included in "Other accruals" and "Other noncurrent liabilities and deferred credits" in the Condensed Consolidated Balance Sheets (unaudited). We 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 laws and regulations, the nature and extent of impact and the method of remediation. These expenditures are not currently estimable at some sites. We periodically adjust our liability as information is collected and estimates become more refined.
CERCLA. Our subsidiaries are potentially responsible parties at waste disposal sites under CERCLA and similar state laws. Under 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. We maintain a program to identify and investigate former MGP sites where Gas Distribution Operations subsidiaries or predecessors may have liability. The program has identified 53 such sites where liability is probable. Remedial actions at many of these sites are being overseen by state or federal environmental agencies through consent agreements or voluntary remediation agreements.
We utilize a probabilistic model to estimate our future remediation costs related to MGP sites. The model was prepared with the assistance of a third party and incorporates our experience and general industry experience with remediating MGP sites. We completed an annual refresh of the model in the second quarter. No material changes to the estimated future remediation costs were noted as a result of an internal quarterly review of environmental reserves completed as of September 30, 2023. Our total estimated liability related to the facilities subject to remediation was $77.7 million and $81.0 million at September 30, 2023 and December 31, 2022, respectively. The liability represents our best estimate of the probable cost to remediate the MGP sites. Our model indicates that it is reasonably possible that remediation costs could vary by as much as $15.1 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. NIPSCO continues to meet the compliance requirements established by the EPA for the regulation of CCRs. The current CCR rule required 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. As allowed by the 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.
32
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
D. Other Matters. Generation Transition. NIPSCO has executed several PPAs to purchase 100 % of the output from renewable generation facilities at a fixed price per MWh. Each facility supplying the energy will have an associated nameplate capacity, and payments under the PPAs will not begin until the associated generation facility is constructed by the owner/seller. NIPSCO has also executed several BTAs with developers to construct renewable generation facilities. NIPSCO's purchase obligation under each respective BTA is dependent on satisfactory approval of the BTA by the IURC and timely completion of construction. NIPSCO and the tax equity partner, where applicable, for each respective BTA, are obligated to make cash contributions to acquire the project at the date construction is substantially complete. Certain BTA agreements require NIPSCO to make partial payments upon the developer's completion of significant construction milestones.
Proposed Sale of 19.9 % Equity Interest in Northern Indiana Public Service Company LLC. On June 17, 2023, NiSource and our wholly-owned subsidiary, NIPSCO Holdings II LLC, a Delaware limited liability company (“NIPSCO Holdings II”), entered into a purchase and sale agreement (the “BIP Purchase Agreement”) with BIP BLUE BUYER L.L.C., an affiliate of BIP. NIPSCO Holdings II is the 100 % owner of all issued and outstanding membership interests of NIPSCO. NIPSCO Holdings II is a wholly-owned subsidiary of NIPSCO Holdings I LLC (“NIPSCO Holdings I”), which is a wholly-owned subsidiary of NiSource. Under the terms of the BIP Purchase Agreement, BIP will acquire newly issued membership interests of NIPSCO Holdings II which will represent a 19.9 % ownership in NIPSCO Holdings II at closing, for a purchase price of $2.150 billion in cash, subject to adjustment based on the timing of closing and the amount of NiSource capital contributions made prior to closing (the “NIPSCO Minority Equity Interest Sale”). At the closing of the NIPSCO Minority Equity Interest Sale, through their respective percentage ownership of NIPSCO Holdings II, NiSource will own an 80.1 % controlling interest in NIPSCO, while BIP will own the remaining 19.9 % non-controlling interest. The parties currently expect for the NIPSCO Minority Equity Interest Sale to close by the end of 2023. The closing of the NIPSCO Minority Equity Interest Sale is subject to the satisfaction of certain customary closing conditions described in the BIP Purchase Agreement, including receipt of authorization by FERC. FERC approval was received on October 19, 2023.
The BIP Purchase Agreement may be terminated: (i) by mutual written consent of the parties; (ii) by either party if the closing has not occurred on or before one year after the effective date of the BIP Purchase Agreement; (iii) by BIP or NiSource, as the case may be, prior to the closing upon certain material breaches or failures to perform any of the representations, warranties, covenants or agreements by the other party; or (iv) by either party prior to the closing in the event of a final and non-appealable law or order restraining, enjoining or otherwise prohibiting the closing in any competent jurisdiction.
The BIP Purchase Agreement prohibits NIPSCO and NIPSCO Holdings II from paying any dividends or similar distributions to NiSource prior to the closing of the NIPSCO Minority Equity Interest Sale.
Pursuant to the terms of the BIP Purchase Agreement, at closing of the NIPSCO Minority Equity Interest Sale, BIP, NIPSCO Holdings I, NIPSCO Holdings II and NiSource will enter into an Amended and Restated Limited Liability Company Operating Agreement (the “Holdings II LLC Agreement”). The Holdings II LLC Agreement, among other things, provides for ongoing governance, exit rights, additional capital contributions, distributions, and other arrangements for NIPSCO Holdings II from and after the closing of the NIPSCO Minority Equity Interest Sale. As part of the NIPSCO Minority Equity Interest Sale, BIP is committed to funding its pro rata share of ongoing capital requirements, which is supported by a $250 million equity commitment letter. Upon the closing of the NIPSCO Minority Equity Interest Sale, the board of directors of NIPSCO Holdings II (the “Holdings II Board”) will consist of seven directors. The Holdings II LLC Agreement will allow BIP to appoint at least two directors to the Holdings II Board so long as BIP holds at least a 17.5 % Percentage Interest (as defined in the Holdings II LLC Agreement). The Holdings II LLC Agreement also contains certain investor protections, including, among other things, requiring BIP approval for NIPSCO Holdings II to take certain major actions. In addition, the Holdings II LLC Agreement will contain certain transfer restrictions and other transfer rights and obligations applicable to both BIP and NiSource.
NiSource intends to use the proceeds from the purchase price and future capital contributions by BIP to support NIPSCO’s capital expenditure plans for serving customers, reduce NiSource’s debt and fund ongoing capital needs associated with the renewable generation transition.
33
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, net 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 July 1, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
Other comprehensive loss before reclassifications | ( | ( | ( | ( | |||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||
Net current-period other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||
| Balance as of September 30, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(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, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | ( | ||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Balance as of September 30, 2023 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1)All amounts are net of tax. Amounts in parentheses indicate debits.
| (in millions) | Gains and Losses on Securities(1) | Gains and Losses on Cash Flow Hedges(1) | Pension and OPEB Items(1) | Accumulated Other Comprehensive Loss(1) | |||||||||||||||||||
| Balance as of July 1, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(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 | $ | $ | ( | $ | ( | $ | ( | ||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive loss | |||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
(1)All amounts are net of tax. Amounts in parentheses indicate debits.
34
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
16. Other, Net
The following table displays the components of Other, Net included on the Condensed Statements of Consolidated Income (unaudited):
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Interest income | $ | $ | $ | $ | |||||||||||||||||||
| AFUDC equity | |||||||||||||||||||||||
| Pension and other postretirement non-service benefit (cost) | ( | ( | |||||||||||||||||||||
| Miscellaneous | ( | ( | ( | ( | |||||||||||||||||||
| Total Other, net | $ | ( | $ | $ | $ | ||||||||||||||||||
17. Business 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" and primarily are comprised of interest 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 revenues. The following table provides information about our reportable segments. We use operating income as our primary measurement for each of the reported segments and make decisions on finance, dividends, and taxes at the corporate level on a consolidated basis. Segment revenues include intersegment sales to affiliated subsidiaries, which are eliminated in consolidation. Affiliated sales are recognized on the basis of prevailing market, regulated prices or at levels provided for under contractual agreements. Operating income is derived from revenues and expenses directly associated with each segment.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Gas Distribution Operations | |||||||||||||||||||||||
| Unaffiliated | $ | $ | $ | $ | |||||||||||||||||||
| Intersegment | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Electric Operations | |||||||||||||||||||||||
| Unaffiliated | |||||||||||||||||||||||
| Intersegment | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||
| Unaffiliated | |||||||||||||||||||||||
| Intersegment | |||||||||||||||||||||||
| Total | |||||||||||||||||||||||
| Eliminations | ( | ( | ( | ( | |||||||||||||||||||
| Consolidated Operating Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Operating Income (Loss) | |||||||||||||||||||||||
| Gas Distribution Operations | $ | $ | $ | $ | |||||||||||||||||||
| Electric Operations | |||||||||||||||||||||||
| Corporate and Other | ( | ||||||||||||||||||||||
| Consolidated Operating Income | $ | $ | $ | $ | |||||||||||||||||||
35
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NiSource Inc.
| Index | Page | ||||
36
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
EXECUTIVE SUMMARY
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("Management’s Discussion") includes management’s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. See "Note regarding forward-looking statements" at the beginning of this report for a list of factors that may cause results to differ materially.
Management's Discussion is designed to provide an understanding of our operations and financial performance and should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
We 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 six states. We generate substantially all of our operating income through these rate-regulated businesses, which are summarized for financial reporting purposes into two primary reportable segments: Gas Distribution Operations and Electric Operations.
Refer to the ''Business'' section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 for further discussion of our regulated utility business segments.
Our goal is to develop strategies that benefit all stakeholders as we (i) focus 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. These strategies focus on improving safety and reliability, enhancing customer service, ensuring customer affordability and reducing 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, which is the foundation to our journey towards operational excellence. Additionally, we continue to pursue regulatory and legislative initiatives that will allow residential customers not currently on our system to obtain gas service in a cost effective manner.
Your Energy, Your Future: Our plan to replace our coal generation capacity by the end of 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. We achieved in service status in June 2023 and substantial completion in August 2023 for our first two solar BTA's. 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 IRA became effective. As a result of the IRA, we have made a filing with the IURC to fully-own two BTA projects in lieu of utilizing tax equity partnerships, and we are evaluating the impact of this legislation on our remaining projects, with potential to drive increased value to customers as part of our expansion of renewable projects and generation transition strategy. 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 retire the Michigan City Generating Station by the end of 2028. The 2021 Plan calls for the 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 new 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. In September of 2023, we filed a request for issuance of a certificate of public convenience and necessity for an approximately 400 MW natural gas peaking generation unit with the IURC. The planned retirement of the two vintage gas peaking units at the R.M. Schahfer Generating Station is also expected to occur by the end of 2028. Final retirement dates for these units, as well as Michigan City, will be subject to MISO approval.
NIPSCO Minority Equity Interest Sale: On June 17, 2023, NiSource and our wholly-owned subsidiary, NIPSCO Holdings II, entered into the BIP Purchase Agreement with an affiliate of BIP, pursuant to which BIP will acquire an indirect 19.9 percent equity interest in NIPSCO. Refer to Note 14, "Other Commitments and Contingencies - D. Other Matters," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for more information on this transaction.
37
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 are currently executing on 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.
Economic Environment: We continue to monitor risks related to increasing order and delivery lead times for construction and other materials, increasing risk of unavailability of materials due to global shortages in raw materials, and risk of decreased construction labor productivity in the event of disruptions in the availability of materials. We continue to see increasing prices associated with certain materials and supplies. To the extent that delays occur or our costs increase, our business operations, results of operations, cash flows, and financial condition could be materially adversely affected. For more information on supply chain impacts to our electric generation strategy, see "Results and Discussion of Segment Operations - Electric Operations," in this Management's Discussion. Additionally, for more information on global availability of materials for our renewable projects, see "Results and Discussion of Segment Operations - Electric Operations - Electric Supply and Generation Transition."
We 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 evaluating our future talent footprint by creating flexible work arrangements where possible to ensure we have the right people, in the right role, and at the right time.
After decreasing for the first three months of 2023, the market price of natural gas has stabilized at low levels, compared to 2022 prices, with little volatility. Changes in gas prices do not have a material impact on our results of operations, however higher natural gas prices can impact our cash flows and liquidity. For more information on our commodity price impacts, see "Results and Discussion of Segment Operations - Gas Distribution Operations," and "Market Risk Disclosures."
Due to rising interest rates, we experienced higher interest expense for the three and nine months periods ended September 30, 2023 compared to the same periods in 2022 associated with short-term borrowings. We continue to evaluate our financing plan to manage interest expense and exposure to rates. For more information on interest rate risk, see "Market Risk Disclosures".
38
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Summary of Consolidated Financial Results
A summary of our consolidated financial results for the three and nine months ended September 30, 2023 and 2022 are presented below:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions, except per share amounts) | 2023 | 2022 | Favorable (Unfavorable) | 2023 | 2022 | Favorable (Unfavorable) | |||||||||||||||||||||||||||||
| Operating Revenues | $ | 1,027.4 | $ | 1,089.5 | $ | (62.1) | $ | 4,083.4 | $ | 4,146.0 | $ | (62.6) | |||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||
| Cost of energy | 181.3 | 330.8 | 149.5 | 1,198.3 | 1,421.2 | 222.9 | |||||||||||||||||||||||||||||
Other Operating Expenses | 613.1 | 602.0 | (11.1) | 1,952.2 | 1,824.5 | (127.7) | |||||||||||||||||||||||||||||
| Total Operating Expenses | 794.4 | 932.8 | 138.4 | 3,150.5 | 3,245.7 | 95.2 | |||||||||||||||||||||||||||||
| Operating Income | 233.0 | 156.7 | 76.3 | 932.9 | 900.3 | 32.6 | |||||||||||||||||||||||||||||
| Total Other Deductions, Net | (130.8) | (81.5) | (49.3) | (346.7) | (229.8) | (116.9) | |||||||||||||||||||||||||||||
| Income Taxes | 3.8 | 11.7 | 7.9 | 103.7 | 119.9 | 16.2 | |||||||||||||||||||||||||||||
| Net Income | 98.4 | 63.5 | 34.9 | 482.5 | 550.6 | (68.1) | |||||||||||||||||||||||||||||
| Net income (loss) attributable to noncontrolling interest | 13.3 | (2.3) | (15.6) | 5.6 | (9.0) | (14.6) | |||||||||||||||||||||||||||||
| Net Income Attributable to NiSource | 85.1 | 65.8 | 19.3 | 476.9 | 559.6 | (82.7) | |||||||||||||||||||||||||||||
| Preferred dividends | (8.1) | (13.8) | 5.7 | (40.8) | (41.4) | 0.6 | |||||||||||||||||||||||||||||
| Net Income Available to Common Shareholders | 77.0 | 52.0 | 25.0 | 436.1 | 518.2 | (82.1) | |||||||||||||||||||||||||||||
| Earnings Per Share | |||||||||||||||||||||||||||||||||||
Basic Earnings Per Share | $ | 0.19 | $ | 0.13 | $ | 0.06 | 1.05 | $ | 1.28 | $ | (0.23) | ||||||||||||||||||||||||
| Diluted Earnings Per Share | $ | 0.17 | $ | 0.12 | $ | 0.05 | $ | 0.98 | $ | 1.18 | $ | (0.20) | |||||||||||||||||||||||
The majority of the cost of energy in both segments are tracked costs that are passed through directly to the customer, resulting in an equal and offsetting amount reflected in operating revenues.
The increase in net income available to common shareholders for the three months ended September 30, 2023 was primarily due to higher revenues, net of cost of energy, driven by rate increases from regulatory initiatives.
The decrease in net income available to common shareholders for the nine months ended September 30, 2023 is driven by the receipt of the insurance settlement related to the Greater Lawrence Incident received in 2022, as well as increased other deductions, partially offset by higher net revenues driven by rate increases from regulatory initiatives.
The decrease in preferred dividends for the three and nine months ended September 30, 2023 was due primarily to the redemption of Series A Preferred Stock in the second quarter 2023. See Note 5, "Equity," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information.
For additional information on operating income variance drivers see "Results and Discussion of Segment Operations" for Gas and Electric Operations in this Management's Discussion.
Other Deductions, net
The change in Other deductions, net for the three and nine months ended September 30, 2023 compared to the same period in 2022 is primarily driven by higher long-term and short-term debt interest in 2023 and higher non-service pension costs. See Note 12, "Long-Term Debt," Note 13, "Short-Term Borrowings," and Note 10, "Pension and Other Postemployment Benefits," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information.
Income Taxes
Refer to Note 9, "Income Taxes," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on income taxes and the change in the effective tax rates for the periods presented.
We continue to monitor risks related to the implementation of any final or proposed tax regulations related to the IRA.
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
39
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
gas transmission and distribution property must be capitalized as improvements or are allowable as deductions. We continue to analyze the provisions of the safe harbor method of accounting which we expect to adopt.
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.
40
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Gas Distribution Operations
Financial and operational data for the Gas Distribution Operations segment for the three and nine months ended September 30, 2023 and 2022 are presented below.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Favorable (Unfavorable) | 2023 | 2022 | Favorable (Unfavorable) | |||||||||||||||||||||||||||||
| Operating Revenues | $ | 531.5 | $ | 575.5 | $ | (44.0) | $ | 2,731.8 | $ | 2,759.6 | $ | (27.8) | |||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||
| Cost of energy | 72.1 | 158.0 | 85.9 | 823.1 | 1,000.5 | 177.4 | |||||||||||||||||||||||||||||
| Operation and maintenance | 241.0 | 237.0 | (4.0) | 789.5 | 774.1 | (15.4) | |||||||||||||||||||||||||||||
| Depreciation and amortization | 118.1 | 104.3 | (13.8) | 343.8 | 307.2 | (36.6) | |||||||||||||||||||||||||||||
| Gain on sale of fixed assets and impairments, net | — | — | — | — | (105.0) | (105.0) | |||||||||||||||||||||||||||||
| Other taxes | 48.1 | 42.8 | (5.3) | 160.9 | 158.0 | (2.9) | |||||||||||||||||||||||||||||
| Total Operating Expenses | 479.3 | 542.1 | 62.8 | 2,117.3 | 2,134.8 | 17.5 | |||||||||||||||||||||||||||||
| Operating Income | $ | 52.2 | $ | 33.4 | $ | 18.8 | $ | 614.5 | $ | 624.8 | $ | (10.3) | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Residential | $ | 352.7 | $ | 332.3 | $ | 20.4 | $ | 1,828.7 | $ | 1,772.7 | $ | 56.0 | |||||||||||||||||||||||
| Commercial | 108.9 | 115.5 | (6.6) | 627.4 | 634.3 | (6.9) | |||||||||||||||||||||||||||||
| Industrial | 46.4 | 42.9 | 3.5 | 169.6 | 159.3 | 10.3 | |||||||||||||||||||||||||||||
| Off-System | 9.8 | 72.7 | (62.9) | 49.9 | 150.5 | (100.6) | |||||||||||||||||||||||||||||
| Other | 13.7 | 12.1 | 1.6 | 56.2 | 42.8 | 13.4 | |||||||||||||||||||||||||||||
| Total | $ | 531.5 | $ | 575.5 | $ | (44.0) | $ | 2,731.8 | $ | 2,759.6 | $ | (27.8) | |||||||||||||||||||||||
| Sales and Transportation (MMDth) | |||||||||||||||||||||||||||||||||||
| Residential | 12.4 | 13.6 | (1.2) | 145.6 | 169.8 | (24.2) | |||||||||||||||||||||||||||||
| Commercial | 17.9 | 17.7 | 0.2 | 114.2 | 126.1 | (11.9) | |||||||||||||||||||||||||||||
| Industrial | 126.2 | 115.6 | 10.6 | 384.2 | 365.6 | 18.6 | |||||||||||||||||||||||||||||
| Off-System | 7.0 | 10.6 | (3.6) | 25.6 | 23.2 | 2.4 | |||||||||||||||||||||||||||||
| Other | — | — | — | 0.2 | 0.2 | — | |||||||||||||||||||||||||||||
| Total | 163.5 | 157.5 | 6.0 | 669.8 | 684.9 | (15.1) | |||||||||||||||||||||||||||||
| Heating Degree Days | 41 | 87 | (46) | 2,898 | 3,493 | (595) | |||||||||||||||||||||||||||||
| Normal Heating Degree Days | 60 | 60 | — | 3,428 | 3,428 | — | |||||||||||||||||||||||||||||
| % Colder (Warmer) than Normal | (32) | % | 45 | % | (15) | % | 2 | % | |||||||||||||||||||||||||||
| % Warmer than prior year | (53) | % | (17) | % | |||||||||||||||||||||||||||||||
| Gas Distribution Customers | |||||||||||||||||||||||||||||||||||
| Residential | 2,980,246 | 2,952,458 | 27,788 | ||||||||||||||||||||||||||||||||
| Commercial | 251,642 | 250,919 | 723 | ||||||||||||||||||||||||||||||||
| Industrial | 4,794 | 4,860 | (66) | ||||||||||||||||||||||||||||||||
| Other | 3 | 3 | — | ||||||||||||||||||||||||||||||||
| Total | 3,236,685 | 3,208,240 | 28,445 | ||||||||||||||||||||||||||||||||
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.
41
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 revenues for the three and nine months ended September 30, 2023 compared to the same periods in 2022 are presented below.
| Favorable (Unfavorable) | |||||||||||||||||
Changes in Operating Revenues (in millions) | Three Months Ended September 30, 2023 vs 2022 | Nine Months Ended September 30, 2023 vs 2022 | |||||||||||||||
| New rates from base rate proceedings and regulatory capital programs | $ | 42.3 | $ | 185.4 | |||||||||||||
Increased customer usage | 1.0 | 1.5 | |||||||||||||||
| The effects of customer growth | 1.8 | 4.3 | |||||||||||||||
The effects of weather in 2023 compared to 2022 | (2.6) | (41.3) | |||||||||||||||
| Other | 1.3 | 10.0 | |||||||||||||||
| Change in operating revenues (before cost of energy and other tracked items) | $ | 43.8 | $ | 159.9 | |||||||||||||
| Operating revenues offset in operating expense | |||||||||||||||||
| Lower cost of energy billed to customers | (85.9) | (177.4) | |||||||||||||||
Lower tracker deferrals within operation and maintenance, depreciation, and tax | (3.1) | (1.9) | |||||||||||||||
Increase (Reduction) in gross receipts tax, offset in operating expenses | 1.2 | (8.4) | |||||||||||||||
| Total change in operating revenues | $ | (44.0) | $ | (27.8) | |||||||||||||
Weather
In general, we calculate the weather-related revenue variance based on changing customer demand driven by weather variance from normal heating degree days, net of weather normalization mechanisms. Our composite heating degree days reported do not directly correlate to the weather-related dollar impact on the results of Gas Distribution Operations. Heating degree days experienced during different times of the year or in different operating locations may have more or less impact on volume and dollars depending on when and where they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in our aggregated composite heating degree day comparison.
Throughput
The increase in total volumes for the three months ended September 30, 2023, compared to the same period in 2022, is primarily attributable to increased industrial usage.
The decrease in total volumes for the nine months ended September 30, 2023 compared to the same period in 2022, is primarily attributable to the effects of warmer weather.
Commodity 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 of our Gas Distribution Operations companies have state-approved recovery mechanisms that provide a means for full recovery of prudently incurred gas costs. These are tracked costs that are passed through directly to the customer, and the gas costs included in revenues are matched with the gas cost expense recorded in the period. 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. Therefore, increases in these tracked operating expenses are offset by increases in operating revenues and 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.
42
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 expenses for the three and nine months ended September 30, 2023 compared to the same periods in 2022 are presented below.
| Favorable (Unfavorable) | |||||||||||||||||
Changes in Operating Expenses (in millions) | Three Months Ended September 30, 2023 vs 2022 | Nine Months Ended September 30, 2023 vs 2022 | |||||||||||||||
| Higher employee and administrative related expenses | $ | (8.2) | $ | (11.5) | |||||||||||||
(Higher) lower materials and supplies expense | (3.1) | 1.6 | |||||||||||||||
| Property insurance settlement related to the Greater Lawrence Incident received in 2022 | — | (105.0) | |||||||||||||||
| Higher depreciation and amortization expense | (14.1) | (38.5) | |||||||||||||||
| Higher property tax | (2.0) | (11.8) | |||||||||||||||
| Lower environmental expenses | — | 5.4 | |||||||||||||||
| Impacts from Columbia of Ohio's rate case | (4.2) | (9.3) | |||||||||||||||
| Lower outside services expenses | 7.7 | 10.7 | |||||||||||||||
| Other | (1.1) | (11.8) | |||||||||||||||
| Change in operating expenses (before cost of energy and other tracked items) | $ | (25.0) | $ | (170.2) | |||||||||||||
| Operating expenses offset in operating revenue | |||||||||||||||||
| Lower cost of energy billed to customers | 85.9 | 177.4 | |||||||||||||||
(Reduction) Increase in gross receipts tax, offset in operating revenues | (1.2) | 8.4 | |||||||||||||||
Lower tracker deferrals within operation and maintenance, depreciation, and tax | 3.1 | 1.9 | |||||||||||||||
| Total change in operating expense | $ | 62.8 | $ | 17.5 | |||||||||||||
43
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
Financial and operational data for the Electric Operations segment for the three and nine months ended September 30, 2023 and 2022 are presented below.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||
| (in millions) | 2023 | 2022 | Favorable (Unfavorable) | 2023 | 2022 | Favorable (Unfavorable) | |||||||||||||||||||||||||||||
| Operating Revenues | $ | 499.1 | $ | 516.5 | $ | (17.4) | $ | 1,360.9 | $ | 1,384.1 | $ | (23.2) | |||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||||||||||||||
| Cost of energy | 109.2 | 172.8 | 63.6 | 375.3 | 420.8 | 45.5 | |||||||||||||||||||||||||||||
| Operation and maintenance | 122.2 | 126.5 | 4.3 | 374.7 | 367.3 | (7.4) | |||||||||||||||||||||||||||||
| Depreciation and amortization | 82.3 | 88.1 | 5.8 | 275.0 | 267.0 | (8.0) | |||||||||||||||||||||||||||||
| Gain on sale of assets | — | — | — | (0.1) | — | 0.1 | |||||||||||||||||||||||||||||
| Other taxes | 9.6 | 5.8 | (3.8) | 28.7 | 33.9 | 5.2 | |||||||||||||||||||||||||||||
| Total Operating Expenses | 323.3 | 393.2 | 69.9 | 1,053.6 | 1,089.0 | 35.4 | |||||||||||||||||||||||||||||
| Operating Income | $ | 175.8 | $ | 123.3 | $ | 52.5 | $ | 307.3 | $ | 295.1 | $ | 12.2 | |||||||||||||||||||||||
| Revenues | |||||||||||||||||||||||||||||||||||
| Residential | $ | 176.0 | $ | 178.7 | $ | (2.7) | $ | 449.2 | $ | 454.3 | $ | (5.1) | |||||||||||||||||||||||
| Commercial | 156.6 | 158.9 | (2.3) | 437.6 | 428.1 | 9.5 | |||||||||||||||||||||||||||||
| Industrial | 116.0 | 152.1 | (36.1) | 363.3 | 421.0 | (57.7) | |||||||||||||||||||||||||||||
| Wholesale | 15.4 | 4.1 | 11.3 | 25.5 | 10.6 | 14.9 | |||||||||||||||||||||||||||||
| Other | 35.1 | 22.7 | 12.4 | 85.3 | 70.1 | 15.2 | |||||||||||||||||||||||||||||
| Total | $ | 499.1 | $ | 516.5 | $ | (17.4) | $ | 1,360.9 | $ | 1,384.1 | $ | (23.2) | |||||||||||||||||||||||
| Sales (GWh) | |||||||||||||||||||||||||||||||||||
| Residential | 1,034.6 | 1,080.6 | (46.0) | 2,540.5 | 2,745.2 | (204.7) | |||||||||||||||||||||||||||||
| Commercial | 1,011.0 | 1,044.7 | (33.7) | 2,743.7 | 2,845.3 | (101.6) | |||||||||||||||||||||||||||||
| Industrial | 2,023.7 | 2,076.3 | (52.6) | 5,955.3 | 6,078.8 | (123.5) | |||||||||||||||||||||||||||||
| Wholesale | 0.2 | 4.9 | (4.7) | 0.9 | 37.0 | (36.1) | |||||||||||||||||||||||||||||
| Other | 17.6 | 17.9 | (0.3) | 58.2 | 67.5 | (9.3) | |||||||||||||||||||||||||||||
| Total | 4,087.1 | 4,224.4 | (137.3) | 11,298.6 | 11,773.8 | (475.2) | |||||||||||||||||||||||||||||
| Cooling Degree Days | 475 | 592 | (117) | 681 | 934 | (253) | |||||||||||||||||||||||||||||
| Normal Cooling Degree Days | 573 | 573 | — | 820 | 820 | — | |||||||||||||||||||||||||||||
% (Colder) Warmer than Normal | (17) | % | 3 | % | (17) | % | 14 | % | |||||||||||||||||||||||||||
% (Colder) than prior year | (20) | % | (27) | % | |||||||||||||||||||||||||||||||
| Electric Customers | |||||||||||||||||||||||||||||||||||
| Residential | 426,054 | 423,764 | 2,290 | ||||||||||||||||||||||||||||||||
| Commercial | 58,556 | 58,196 | 360 | ||||||||||||||||||||||||||||||||
| Industrial | 2,126 | 2,133 | (7) | ||||||||||||||||||||||||||||||||
| Wholesale | 708 | 711 | (3) | ||||||||||||||||||||||||||||||||
| Other | 3 | 3 | — | ||||||||||||||||||||||||||||||||
| Total | 487,447 | 484,807 | 2,640 | ||||||||||||||||||||||||||||||||
The underlying reasons for changes in our operating revenues for the three and nine months ended September 30, 2023 compared to the same periods in 2022 are presented below.
44
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
| Favorable (Unfavorable) | |||||||||||||||||
Changes in Operating Revenues (in millions) | Three Months Ended September 30, 2023 vs 2022 | Nine Months Ended September 30, 2023 vs 2022 | |||||||||||||||
| New rates from regulatory capital and DSM programs | 45.5 | 51.0 | |||||||||||||||
Increased (Decreased) customer usage | 6.4 | (9.7) | |||||||||||||||
| FAC over earnings reserve | 5.2 | 5.2 | |||||||||||||||
Renewable Joint Venture revenue, fully offset by Joint Venture operating expense and noncontrolling interest net income (loss) | 4.4 | 7.8 | |||||||||||||||
The effects of weather in 2023 compared to 2022 | (16.8) | (27.6) | |||||||||||||||
| 2022 FAC refund | — | 8.0 | |||||||||||||||
| Other | 3.0 | (3.3) | |||||||||||||||
| Change in operating revenues (before cost of energy and other tracked items) | $ | 47.7 | $ | 31.4 | |||||||||||||
| Operating revenues offset in operating expense | |||||||||||||||||
Lower cost of energy billed to customers | (63.6) | (45.5) | |||||||||||||||
| Reduction in gross receipts tax, offset in operating expenses | — | (11.5) | |||||||||||||||
Higher (lower) tracker deferrals within operation and maintenance, depreciation and tax | (1.5) | 2.4 | |||||||||||||||
| Total change in operating revenues | $ | (17.4) | $ | (23.2) | |||||||||||||
Weather
In general, we calculate the weather-related revenue variance based on changing customer demand driven by weather variance from normal cooling degree days. Our composite cooling degree days reported do not directly correlate to the weather-related dollar impact on the results of Electric Operations. Cooling degree days experienced during different times of the year may have more or less impact on volume and dollars depending on when they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in our aggregated composite cooling degree day comparison.
Sales
The decrease in total volumes sold for the three and nine months ended September 30, 2023 compared to the same period in 2022 was primarily attributable to decreased usage by industrial and residential customers.
Commodity Price Impact
Cost of energy for the Electric Operations segment is principally comprised of the cost of coal, natural gas purchased for internal generation of electricity at NIPSCO, and the cost of power purchased from generators of electricity. NIPSCO has a state-approved recovery mechanism that provides a means for full recovery of prudently incurred costs of energy. The majority of these costs of energy are passed through directly to the customer, and the costs of energy included in operating revenues are matched with the cost of energy expense recorded in the period. 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. Therefore, increases in these tracked operating expenses are offset by increases in operating revenues and have essentially no impact on net income.
45
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 expenses for the three and nine months ended September 30, 2023 compared to the same periods in 2022 are presented below.
| Favorable (Unfavorable) | |||||||||||
Changes in Operating Expenses (in millions) | Three Months Ended September 30, 2023 vs 2022 | Nine Months Ended September 30, 2023 vs 2022 | |||||||||
Lower depreciation and amortization expense excluding the regulatory deferral adjustment associated with the Joint Ventures | 9.6 | 1.3 | |||||||||
Lower (higher) outside services expenses primarily related to higher generation-related maintenance | $ | 3.8 | $ | (8.6) | |||||||
Lower employee and administrative expenses | 2.0 | 4.9 | |||||||||
Renewable Joint Venture operating expenses, offset by Joint Venture operating revenues | (11.2) | (14.4) | |||||||||
| Other | 0.6 | (2.4) | |||||||||
| Change in operating expenses (before cost of energy and other tracked items) | $ | 4.8 | $ | (19.2) | |||||||
| Operating expenses offset in operating revenue | |||||||||||
Lower cost of energy billed to customers | 63.6 | 45.5 | |||||||||
| Reduction in gross receipts tax, offset in operating revenues | — | 11.5 | |||||||||
Lower (higher) tracker deferrals within operation and maintenance, depreciation and tax | 1.5 | (2.4) | |||||||||
| Total change in operating expense | $ | 69.9 | $ | 35.4 | |||||||
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 R.M. Schahfer by the end of 2025 and the remaining coal-fired generation at Michigan City 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 to obtain an administrative approval associated with the operation of R.M. Schahfer’s remaining two coal units until 2025. In the event that the approval is not obtained, future operations could be impacted. We cannot estimate the financial impact on us if this approval is not obtained.
The current replacement plan primarily includes renewable sources of energy, including wind, solar, battery storage, and flexible natural gas resources to be obtained through a combination of NIPSCO ownership and PPAs. NIPSCO has sold, and may in the future sell, renewable energy credits from its renewable generation to third parties to offset customer costs. NIPSCO has executed several PPAs to purchase 100% of the output from renewable generation facilities at a fixed price per MWh. Each facility supplying the energy will have an associated nameplate capacity, and payments under the PPAs will not begin until the associated generation facility is constructed by the owner/seller. NIPSCO has also executed several BTAs with developers to construct renewable generation facilities.
Three wind projects and two solar projects have been placed into service, totaling approximately 1,269 MW of nameplate capacity. NIPSCO has executed commercial agreements for each of the nine remaining identified projects. Dunns Bridge II, Cavalry, Fairbanks, Indiana Crossroads II, GreenRiver, Appleseed, Carpenter and Templeton have received IURC approval. Additional approvals by the IURC may be required to obtain recovery for increases in projects costs. NIPSCO has recently filed with the IURC seeking approval for the Gibson project, and has filed for a new gas peaking resource to be located at Schahfer generating station. NIPSCO also filed with the IURC for a project cost update and full ownership of the Cavalry and Dunns Bridge II projects as a result of the option to use tax credit transferability under the IRA. Our current replacement program includes a diverse portfolio of resources detailed in the Preferred Energy Resource Plan outlined in our 2021 Integrated Resource Plan. See "Executive Summary - Your Energy, Your Future" in this Management's Discussion for additional information.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Electric Operations
Project Status. Our contract amendments to certain solar agreements will result in the majority of our remaining projects and investments being placed in service in 2024 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) limited supply of solar panels and other uncertainties related to the 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. Final findings from the DOC Investigation were released on August 18, 2023 affirming the preliminary determination made in December 2022. At this time, we do not believe any significant panel tariffs will impact our projects.
| Project Name | Transaction Type | Technology | Nameplate Capacity (MW) | Storage Capacity (MW) | |||||||||||||||||||
Cavalry(1) | BTA | Solar & Storage | 200 | 60 | |||||||||||||||||||
Dunns Bridge II(1) | BTA | Solar & Storage | 435 | 75 | |||||||||||||||||||
Fairbanks(1) | BTA | Solar | 250 | — | |||||||||||||||||||
Gibson(1) | BTA | Solar | 200 | — | |||||||||||||||||||
| Indiana Crossroads II | 15 year PPA | Wind | 204 | — | |||||||||||||||||||
| Green River | 20 year PPA | Solar | 200 | — | |||||||||||||||||||
| Templeton | 20 year PPA | Wind | 200 | — | |||||||||||||||||||
| Carpenter | 20 year PPA | Wind | 200 | — | |||||||||||||||||||
| Appleseed | 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. Alternatively, NIPSCO is evaluating the optionality related to the transferability of credits afforded by the passage of the IRA. NIPSCO has filed with the IURC for direct ownership of Dunns Bridge II and Cavalry and may seek direct ownership of the Fairbanks and Gibson projects.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Liquidity and Capital Resources
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 with a maturity date of December 19, 2023. On October 5, 2023, we entered into an amendment to, among other things, extend the maturity date of the agreement to March 15, 2024. 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 June 8, 2023, we completed the issuance and sale of a reopening of $300.0 million of 5.25% senior unsecured notes maturing in 2028 and $450.0 million of 5.40% senior unsecured notes maturing in 2033, which resulted in approximately $742.5 million of net proceeds after discount and debt issuance costs. On June 15, 2023, we redeemed all 400,000 shares of Series A Preferred Stock for a redemption price of $1,000 per share, or $400.0 million in total. 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 September 30, 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," Note 12, "Long-Term Debt," and Note 13, "Short-Term Borrowings," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for more information.
On June 17, 2023, NiSource and our wholly-owned subsidiary, NIPSCO Holdings II, entered into the BIP Purchase Agreement with an affiliate of BIP, pursuant to which BIP will acquire an indirect 19.9 percent equity interest in NIPSCO for a purchase price of $2.150 billion in cash, subject to adjustments based on the timing of closing and the amount of capital contributions made by NiSource prior to closing. NiSource intends to use the proceeds from the purchase price and BIP's capital contribution to support NIPSCO’s capital expenditure plans for serving customers, reduce NiSource’s debt and fund ongoing capital needs associated with the renewable generation transition. Refer to Note 14, "Other Commitments and Contingencies - D. Other Matters," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for more information on this transaction.
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:
Nine Months Ended September 30, | |||||||||||||||||
| (in millions) | 2023 | 2022 | Change in 2023 vs 2022 | ||||||||||||||
| Cash from (used for): | |||||||||||||||||
| Operating Activities | $ | 1,535.9 | $ | 1,036.2 | $ | 499.7 | |||||||||||
| Investing Activities | (2,503.3) | (1,682.7) | (820.6) | ||||||||||||||
| Financing Activities | 998.6 | 630.2 | 368.4 | ||||||||||||||
Operating Activities
The increase in cash from operating activities was primarily driven by year over year change in accounts receivable collections and inventory driven by the implementation of new rates and the impact of lower gas prices, partially offset by higher accounts payables.
Investing Activities
The increase in cash used for investing activities was due to increased capital expenditures related to system growth and reliability and payments to renewable generation asset developers related to milestone payments for certain of our BTA projects in 2023, 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 $16.0 billion during the 2024-2028 period, including capital investments to support our generation transition strategy. These forecasted capital investments and
48
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
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.
49
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory Capital Programs. We are in the process of upgrading and modernizing 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 | TDSIC - 7 | $ | 10.1 | $ | 207.1 | 3/23-8/23 | New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development. | March 2024 | ||||||||||||
| 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 2 | $ | 4.2 | $ | 38.2 | 4/22-9/22 | Project costs to comply with federal mandates. | April 2023 | ||||||||||||
NIPSCO - Gas(3) | FMCA 1 | $ | (4.0) | $ | 13.4 | 10/22-3/23 | Project costs to comply with federal mandates. | October 2023 | ||||||||||||
Columbia of Virginia | SAVE - 2024 | $ | 7.9 | $ | 69.0 | 1/24-12/24 | Replacement projects that (1) enhance system safety or reliability, or (2) reduce, or potentially reduce, greenhouse gas emissions. | January 2024 | ||||||||||||
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 - 2024 | $ | 5.2 | $ | 40.2 | 1/24-12/24 | Replacement of mains and inclusion of system safety investments. | January 2024 | ||||||||||||
| 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(5) | STRIDE - 2023 | $ | 1.3 | $ | 18.0 | 1/23-12/23 | Pipeline upgrades designed to improve public safety or infrastructure reliability. | January 2023 | ||||||||||||
Columbia of Maryland(5) | STRIDE - 2024 | $ | 1.3 | $ | 15.4 | 1/24 -12/24 | Pipeline upgrades designed to improve public safety or infrastructure reliability. | January 2024 | ||||||||||||
| 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(6) | TDSIC - 3 | $ | 21.2 | $ | 144.8 | 8/23-9/24 | 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)Columbia of Maryland’s current STRIDE expires December 31, 2023. On June 23, 2023, CMD filed an application for approval of a new five-year STRIDE. A final order is anticipated Q4 2023.
(6)NIPSCO Electric TDSIC-3 is for a 14-month billing period due to the rate case order received in August 2023 and a subsequent 9 month hold-out period. Coincident with the implementation of Step-1 base rates and in August 2023 in Cause No. 45772, TDSIC-3 incremental revenue decreased from that originally filed for and approved as a result of $554.7 million of in service capital moving out of this tracker into base rates.
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
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
total estimated $53.0 million of federally mandated retirement costs. Due to the NIPSCO electric settlement agreement filed on March 10, 2023, both FMCA cases were stayed pending the outcome of NIPSCO’s electric base rate case, which proposed these pond closure costs be recovered through base rates, rather than the FMCA Tracker. NIPSCO received an order approving its electric base rate case settlement on August 2, 2023. Upon the expiration of the time for appeals of this order, NIPSCO will file to dismiss the independent requests for CCR ash pond recovery, as that recovery has been approved within electric base rates under the terms of the settlement. Refer to Note 14, "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 Mega rule. An unopposed settlement was filed on September 8, 2023. The record of the case is submitted for a decision by the PUCO. It is anticipated that the PUCO will rule on this Application and settlement by the end of 2023.
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 12, "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 13, "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 11, "Variable Interest Entities," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on contributions from noncontrolling interest activity.
NIPSCO Minority Equity Interest Sale. Refer to Note 14, "Other Commitments and Contingencies - D. Other Matters," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for information on the BIP Purchase Agreement and use of proceeds from this transaction.
Sources of Liquidity
The following table displays our liquidity position as of September 30, 2023 and December 31, 2022:
| (in millions) | September 30, 2023 | December 31, 2022 | ||||||
| Current Liquidity | ||||||||
| Revolving Credit Facility | $ | 1,850.0 | $ | 1,850.0 | ||||
Accounts Receivable Programs(1) | 295.6 | 447.2 | ||||||
| Less: | ||||||||
| Commercial Paper | 935.0 | 415.0 | ||||||
| Accounts Receivable Programs Utilized | 285.0 | 347.2 | ||||||
| Letters of Credit Outstanding Under Credit Facility | 9.9 | 10.2 | ||||||
| Add: | ||||||||
| Cash and Cash Equivalents | 56.0 | 40.8 | ||||||
| Net Available Liquidity | $ | 971.7 | $ | 1,565.6 | ||||
(1)Represents the lesser of the seasonal limit or maximum borrowings supportable by the underlying receivables.
Debt Covenants. We are subject to financial covenants under our revolving credit facility and term credit agreement, which require us to maintain a debt to capitalization ratio that does not exceed 70.0%. As of September 30, 2023, the ratio was 63.1%.
Credit Ratings. The credit rating agencies periodically review our ratings, taking into account factors such as our capital structure and earnings profile. The following table includes our and NIPSCO's credit ratings and ratings outlook as of September 30, 2023. There were no changes to the below credit ratings or outlooks since 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.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
| S&P | Moody's | Fitch | ||||||||||||||||||
| Rating | Outlook | Rating | Outlook | Rating | Outlook | |||||||||||||||
| NiSource | BBB+ | Stable | Baa2 | Stable | BBB | Stable | ||||||||||||||
| NIPSCO | BBB+ | Stable | Baa1 | Stable | BBB | Stable | ||||||||||||||
| Commercial Paper | A-2 | Stable | P-2 | Stable | F2 | Stable | ||||||||||||||
Certain of our subsidiaries have agreements that contain ''ratings triggers'' that require increased collateral if our credit rating or the credit ratings of certain of our subsidiaries are below investment grade. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. As of September 30, 2023, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $89.5 million. In addition to agreements with ratings triggers, there are other agreements that contain ''adequate assurance'' or ''material adverse change'' provisions that could necessitate additional credit support such as letters of credit and cash collateral to transact business.
Equity. Our authorized capital stock consists of 620,000,000 shares, $0.01 par value, of which 600,000,000 are common stock and 20,000,000 are preferred stock. As of September 30, 2023, 413,324,607 shares of common stock and 902,500 shares of preferred stock were outstanding.
Contractual Obligations. A summary of contractual obligations is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. Except for our March and June 2023 debt issuances, there were no additional material changes from year-end during the nine months ended September 30, 2023. Refer to Note 12, "Long-Term Debt," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information regarding the debt issuances.
Guarantees, Indemnities and Other Off Balance Sheet Arrangements. We and certain of our subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries as a part of normal business. Such agreements include guarantees and stand-by letters of credit. Refer to Note 14, "Other Commitments and Contingencies," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information about such arrangements.
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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.
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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) | 11.20 | % | 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 Maryland | 10.95 | % | None specified | $ | 6.5 | $ | 3.9 | May 12, 2023 | Approved October 26, 2023 | December 2023 | |||||||||||||
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) | 10.75 | % | None specified | $ | 40.5 | $ | 25.8 | April 29, 2022 | Approved May 15, 2023 | October 2022 | |||||||||||||
| 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(5) | 10.40 | % | 9.80 | % | $ | 291.8 | $ | 261.9 | September 19, 2022 | Approved August 2, 2023 | August 2023 | ||||||||||||
| Active Rate Cases | |||||||||||||||||||||||
NIPSCO - Gas(6) | 10.70 | % | In process | $ | 161.9 | In process | October 25, 2023 | Order Expected Q3 2024 | September 2024 | ||||||||||||||
(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 and filings other than base rates.
(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) New rates will be implemented in 2 steps, with implementation of Step 1 rates to be effective in August 2023 and Step 2 rates to be effective in March 2024. The order reflects incremental revenue of $261.9 million plus an estimated additional $29.9 million for recovery of costs associated with a new Environmental Cost Tracker (replacing the VCT).
(6) New rates expected to be implemented in 2 steps, with implementation of Step 1 rates to be effective in September 2024 and Step 2 Rates in March 2025.
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.
In May 2023, PHMSA proposed numerous regulatory revisions under the PIPES Act of 2020 to minimize methane emissions and improve public safety. Under these proposed revisions, NiSource's subsidiaries would be required to detect and repair an increased number of gas leaks, reduce the time to repair leaks, increase leak survey frequency, and expand its existing advanced leak detection program. We continue to evaluate the proposed rule for impacts on our business.
CCR Regulation
In May 2023, EPA proposed changes to the CCR regulations for inactive surface impoundments at inactive facilities, referred to as “legacy CCR surface impoundments.” EPA is also proposing to extend a subset of requirements in the CCR regulations to areas not previously subject to the CCR regulations, referred to as “CCR management units.” NIPSCO potentially has areas that could become subject to the proposed changes. We continue to evaluate the proposed rule for impacts on our business.
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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.
In May 2023, EPA released a package of proposed regulatory actions to reduce carbon dioxide emissions from new natural gas-fired electric generating units (EGUs), existing natural gas-fired EGUs, and existing coal-fired EGUs. We are reviewing the potential impacts of the proposed rules but we are unable to estimate impacts on our business at this time.
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 (PSC) 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. In May 2023, the Maryland Department of the Environment issued draft Building Energy Performance Standards (BEPS), which would require net-zero direct greenhouse gas emissions from large buildings by 2040. On September 11, 2023, updated draft BEPS were presented to, and adopted, with amendments, by the Maryland Air Quality Control Advisory Council (AQCAC). The draft regulations will now undergo formal public notice and comment rulemaking. Columbia of Maryland is advocating for compliance pathways that use RNG, hydrogen, and emissions offsets. Separately, the PSC has also initiated a proceeding related to Near-Term, Priority Actions and Comprehensive, Long-Term Planning for Maryland's Gas Companies. Columbia of Maryland will continue to monitor these matters, but we cannot predict their final impact on our business at this time.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Regulatory, Environmental and Safety Matters
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 agreed to add a third tier to offset 25% of customer usage. Columbia of Maryland’s filing was denied by the PSC in January 2023. Columbia of Virginia received a final order in May 2023, approving the Green Path Rider and began enrolling customers in September 2023. Columbia of Pennsylvania filed a Joint Petition for Nonunanimous Settlement with the Bureau of Investigation and Enforcement (I&E) and the Office of Small Business Advocate (OSBA) in March 2023, in support of the Commission’s adoption of the Green Path Rider. Columbia of Pennsylvania received an order in June 2023 that rejected the settlement agreement and denied implementation of the Green Path Rider. On September 19, 2023, Columbia of Kentucky filed a motion for a decision with the PSC on its Green Path filing. The motion is still pending with the commission. 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 GHG 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 GHG 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 our businesses. The extent to which we properly and effectively identify, assess, monitor and manage each of the various types of risk involved in our businesses is critical to our profitability. We seek to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following principal market risks that are involved in our businesses: commodity price risk, interest rate risk and credit risk. We manage risk through a multi-faceted process with oversight by the Risk Management Committee that requires constant communication, judgment and knowledge of specialized products and markets. Our senior management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. These may include, but are not limited to market, operational, financial, compliance and strategic risk types. In recognition of the increasingly varied and complex nature of the energy business, our risk management process, policies and procedures continue to evolve and are subject to ongoing review and modification.
Commodity Price Risk
Our Gas and Electric Operations have commodity price risk primarily related to the purchases of natural gas and power. To manage this market risk, our subsidiaries use derivatives, including commodity futures contracts, swaps, forwards and options. We do not participate in speculative energy trading activity.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
NiSource Inc.
Commodity price risk resulting from derivative activities at our rate-regulated subsidiaries is limited and does not bear signification exposure to earnings risk, since our current regulatory mechanisms allow recovery of prudently incurred purchased power, fuel and gas costs through the rate-making process, including gains or losses on these derivative instruments. These changes are included in the GCA and FAC regulatory rate-recovery mechanisms. If these mechanisms were to be adjusted or eliminated, these subsidiaries may begin providing services without the benefit of the traditional rate-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.
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 are reflected in our restricted cash balance, may fluctuate significantly during periods of high volatility in the energy commodity markets.
Refer to Note 7, "Risk Management Activities," in the Notes to the Condensed Consolidated Financial Statements (unaudited) for further information on our commodity price risk assets and liabilities as of September 30, 2023 and December 31, 2022.
Interest Rate Risk
We are exposed to interest rate risk as a result of changes in interest rates on borrowings under our revolving credit agreement, commercial paper program, term credit agreement and accounts receivable programs, 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 $4.8 million and $12.4 million for the three and nine months ended September 30, 2023 and $2.3 million and $5.0 million for the three and nine months ended September 30, 2022, respectively. We are also exposed to interest rate risk as a result of changes in benchmark rates that can influence the interest rates of future 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.
Credit Risk
Due to the nature of the industry, credit risk is embedded in many of our business activities. Our extension of credit is governed by a Corporate Credit Risk Policy. In addition, Risk Management Committee guidelines are in place which document management approval levels for credit limits, evaluation of creditworthiness, and credit risk mitigation efforts. Exposures to credit risks are monitored by the risk management function, which is independent of commercial operations. Credit risk arises due to the possibility that a customer, supplier or counterparty will not be able or willing to fulfill its obligations on a transaction on or before the settlement date. For derivative-related contracts, credit risk arises when counterparties are obligated to deliver or purchase defined commodity units of gas or power to us at a future date per execution of contractual terms and conditions. Exposure to credit risk is measured in terms of both current obligations and the market value of forward positions net of any posted collateral such as cash and letters of credit.
We evaluate the financial status of our banking partners through the use of market-based metrics such as credit default swap pricing levels, and also through traditional credit ratings provided by major credit rating agencies.
Other Information
Critical Accounting Estimates
A summary of our critical accounting estimates is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022. There were no material changes made as of September 30, 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.
57
NiSource Inc.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are 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
Our chief executive officer and our 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)). Our 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 our 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, our 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 our internal control over financial reporting during the most recently completed quarter covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
58
NiSource Inc.
PART II
ITEM 1. LEGAL PROCEEDINGS
For a description of our legal proceedings, see Note 14, "Other Commitments and Contingencies - B. Legal Proceedings," in the Notes to the Condensed Consolidated Financial Statements (unaudited).
ITEM 1A. RISK FACTORS
Please refer to the risk factors set forth in Part I, Item 1A of the Annual Report on Form 10-K for the year ended December 31, 2022, as supplemented by the risk factor set forth below. There have been no material changes to such risk factors, other than the risks described below.
The NIPSCO Minority Equity Interest Sale is Subject to Risk and Uncertainties that Could Have a Material Adverse Effect on Our Cash Flows, Liquidity, Financial Condition, or Stock Price.
The NIPSCO Minority Equity Interest Sale is subject to various risks and uncertainties. The timing and certainty of the closing of the NIPSCO Minority Equity Interest Sale is subject to our ability to satisfy the conditions to closing the NIPSCO Minority Equity Interest Sale. Furthermore, our efforts to close the NIPSCO Minority Equity Interest Sale may cause disruption to NiSource’s business including the diversion of management time on NIPSCO Minority Equity Interest Sale-related issues. In addition, we have incurred, and will continue to incur, significant costs, expenses, and fees for professional services and other costs in connection with the NIPSCO Minority Equity Interest Sale, and many of these fees and costs are payable by us regardless of whether or not the NIPSCO Minority Equity Interest Sale is consummated.
Additionally, even if we close the NIPSCO Minority Equity Interest Sale, we may not be able to achieve the anticipated benefits from the NIPSCO Minority Equity Interest Sale fully, or at all, or the benefits may take longer to realize than anticipated, whether as a result of our execution or as a result of various factors, including prevailing market conditions, that could negatively impact the benefits we are able to achieve.
Our failure to consummate the NIPSCO Minority Equity Interest Sale at all, or in a timely manner, potential business disruptions, related costs and expenses, or our failure to achieve anticipated benefits of the NIPSCO Minority Equity Interest Sale could have a material adverse effect on our cash flows, liquidity, financial condition and stock price.
Finally, we cannot fully anticipate the effects of the NIPSCO Minority Equity Interest Sale on the industry, market, economic, political or regulatory conditions outside of our control. Any such consequential effects could have a potential adverse impact on our business.
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
Director and Officer Trading Arrangements
During the three months ended September 30, 2023, no director or Section 16 officer of the Company adopted, terminated or modified a ‘Rule 10b5-1 trading arrangement’ or ‘non-Rule 10b5-1 trading arrangement,’ as each term is defined in Item 408(a) of Regulation S-K.
59
ITEM 6. EXHIBITS
NiSource Inc.
| (10.1) | |||||
| (10.2) | Amendment No. 1 to the Sixth Amended and Restated Revolving Credit Agreement dated February 18, 2022, made as of August 23, 2023 by and among NiSource Inc., the financial institutions listed on the signature pages and Barclays Bank PLC, as administrative agent (incorporated by reference to Exhibit 10.1 to the NiSource Inc. Form 8-K filed on August 23, 2023). | ||||
| (10.3) | Amendment No. 1 to the Credit Agreement dated December 20, 2022, made as of October 5, 2023 by and among NiSource Inc., the financial institutions listed on the signature pages and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the NiSource Inc. Form 8-K filed on October 5, 2023). | ||||
| (31.1) | |||||
| (31.2) | |||||
| (32.1) | |||||
| (32.2) | |||||
| (101.INS) | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | ||||
| (101.SCH) | Inline XBRL Schema Document | ||||
| (101.CAL) | Inline XBRL Calculation Linkbase Document | ||||
| (101.LAB) | Inline XBRL Labels Linkbase Document | ||||
| (101.PRE) | Inline XBRL Presentation Linkbase Document | ||||
| (101.DEF) | Inline XBRL Definition Linkbase Document | ||||
| (104) | Cover page Interactive Data File (formatted as inline XBRL, and contained in Exhibit 101.) | ||||
* | Exhibit filed herewith. | ||||
** | Schedules and similar attachments to this Exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule or exhibit to the U.S. Securities and Exchange Commission (the “SEC”) upon request | ||||
60
SIGNATURE
NiSource Inc.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| NiSource Inc. | ||||||||||||||
| (Registrant) | ||||||||||||||
| Date: | November 1, 2023 | By: | /s/ Gunnar J. Gode | |||||||||||
| Gunnar J. Gode | ||||||||||||||
| Vice President, Chief Accounting Officer (Principal Accounting Officer) | ||||||||||||||
61
Exhibit 31.1
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Lloyd M. Yates, certify that:
1.I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter ended September 30, 2023;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | November 1, 2023 | By: | /s/ Lloyd M. Yates | ||||||||||||||
| Lloyd M. Yates | |||||||||||||||||
| President and Chief Executive Officer | |||||||||||||||||
Exhibit 31.2
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Shawn Anderson, certify that:
1.I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter ended September 30, 2023;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: | November 1, 2023 | By: | /s/ Shawn Anderson | ||||||||||||||
| Shawn Anderson | |||||||||||||||||
| Executive Vice President and Chief Financial Officer | |||||||||||||||||
Exhibit 32.1
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of NiSource Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lloyd M. Yates, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Lloyd M. Yates | ||||||||||||||
| Lloyd M. Yates | ||||||||||||||
| President and Chief Executive Officer | ||||||||||||||
| Date: | November 1, 2023 | |||||||||||||
Exhibit 32.2
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of NiSource Inc. (the “Company”) on Form 10-Q for the quarter ending September 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Shawn Anderson, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Shawn Anderson | ||||||||||||||
| Shawn Anderson | ||||||||||||||
| Executive Vice President and Chief Financial Officer | ||||||||||||||
| Date: | November 1, 2023 | |||||||||||||