NiSource(US:NI)2024-02-21 12:09Part I Business NiSource Inc. is a regulated energy holding company serving approximately 3.8 million customers across six states, focused on infrastructure investment and renewable energy transition - NiSource is an energy holding company with fully regulated natural gas and electric utilities serving approximately 3.8 million customers in six states23 - On December 31, 2023, NiSource closed a transaction with Blackstone, selling a 19.9% minority interest in NIPSCO Holdings II for $2.16 billion in cash24219 - The company's business strategy is centered on safety, long-term infrastructure investment, aligning tariff structures with costs, and reducing emissions to generate sustainable returns26 - NiSource has two primary reportable segments: Gas Distribution Operations and Electric Operations28 Gas Distribution Operations The Gas Distribution segment serves 3.3 million customers in six states through 55,000 miles of pipelines, with revenues seasonally higher in winter Gas Distribution Operations Overview | Metric | Value | | :--- | :--- | | Customers | ~3.3 million | | States Served | 6 | | Distribution Main Pipeline | ~55,000 miles | | Transmission Main Pipeline | ~1,000 miles | - A significant portion of residential (25.9%) and commercial (34.7%) customers purchase natural gas from third-party suppliers, using NiSource's subsidiaries for transportation services30 - Revenues from gas distribution are seasonally higher during the heating season, primarily from November through March32 Electric Operations The Electric Operations segment serves 0.5 million customers in northern Indiana, transitioning its generation portfolio from coal to renewables by 2028 Electric Operations Overview | Metric | Value | | :--- | :--- | | Customers | ~0.5 million | | Service Area | 20 counties in northern Indiana | | Transmission System | ~2,920 circuit miles | Owned Generating Capacity as of Dec 31, 2023 | Fuel Type | Capacity (MW) | | :--- | :--- | | Steam - Coal | 1,177 | | CCGT | 563 | | Natural Gas | 155 | | Hydro | 16 | | Wind | 404 | | Solar | 465 | | Total | 2,780 | - NIPSCO plans to retire its remaining coal generating assets by 2028 and replace them with a diverse portfolio including solar, energy storage, and new gas peaking resources36 Regulatory NiSource's subsidiaries are regulated at state and federal levels, actively engaging in rate case proceedings to recover costs and earn returns on investment Recent Rate Case Actions (in millions) | Company | Requested Incremental Revenue | Approved Incremental Revenue | Rates Effective | | :--- | :--- | :--- | :--- | | Columbia of Pennsylvania | $82.2 | $44.5 | Dec 2022 | | Columbia of Maryland | $6.5 | $3.9 | Dec 2023 | | Columbia of Ohio | $221.4 | $68.3 | Mar 2023 | | NIPSCO - Gas | $109.7 | $71.8 | Sep 2022 | | NIPSCO - Electric | $291.8 | $261.9 | Aug 2023 | | Pending: NIPSCO - Gas | $161.9 | In process | Sep 2024 (Expected) | - The company utilizes regulatory trackers for cost recovery, such as the Fuel Adjustment Clause (FAC) for electric fuel costs and Gas Cost Adjustment (GCA) for gas commodity costs, which minimizes the impact of commodity price fluctuations on operating income495051 Environmental and Safety Matters The company is committed to environmental stewardship and safety, adhering to regulations and aiming for net-zero emissions by 2040 through infrastructure modernization - The company is subject to PHMSA regulations, with proposed rules in 2023 aiming to minimize methane emissions and enhance distribution system safety through improved leak detection, repair, and over-pressurization protections535455 - NiSource announced a goal of achieving net zero Scope 1 and Scope 2 greenhouse gas emissions by 2040, building on interim targets of reducing fugitive methane emissions by 50% by 2025 and Scope 1 GHG emissions by 90% by 2030, from 2005 levels70 - As of the end of 2022, the company had reduced Scope 1 GHG emissions by approximately 67% from 2005 levels, primarily through retiring coal-fired generation and ongoing pipe replacement programs7072 Human Capital As of December 31, 2023, NiSource employed 7,411 people, with a strong emphasis on diversity, equity, and inclusion, and high talent retention Workforce Composition (as of Dec 31, 2023) | Metric | Value | | :--- | :--- | | Total Employees | 7,411 (7,364 full-time, 47 part-time) | | Union Representation | 34% | | 2023 Retention Rate | >93% | - The company has a strong focus on DE&I, with 75% of its executive leadership team represented by people of color and females. In 2023, 32% of external hires were racially/ethnically diverse and 49% were female7778 - NiSource prioritizes internal talent development, filling 72% of leadership positions (supervisor and above) with internal employees in 202385 Information about our Executive Officers This section lists the executive officers of NiSource Inc., providing their age, current role, and business experience over the past five years Key Executive Officers | Name | Age | Title | | :--- | :--- | :--- | | Lloyd M. Yates | 63 | President and Chief Executive Officer | | Shawn Anderson | 42 | Executive Vice President and Chief Financial Officer | | Melody Birmingham | 52 | Executive Vice President, and President, NiSource Utilities | | Donald E. Brown | 52 | Executive Vice President and Chief Innovation Officer | | William Jefferson, Jr | 62 | Executive Vice President, Operations and Chief Safety Officer | Risk Factors NiSource faces operational, financial, and legal/regulatory risks, including execution challenges, substantial indebtedness, and compliance with evolving environmental laws Operational Risks Operational risks include business plan execution failure, inherent utility hazards, supply chain issues, cybersecurity threats, and climate change impacts - The company faces risks in executing its business plan, including natural gas pipeline modernization and renewable energy projects, which could be hindered by operational, financial, or regulatory conditions, as well as supply chain challenges9697 - Inherent hazards in utility operations, such as gas leaks, downed power lines, and other incidents, could result in loss of life, property damage, and substantial financial losses98 - The electric generation strategy faces risks from supply chain issues for solar panels and other components, which could delay the retirement of coal units and impact the ability to meet capacity obligations and decarbonization goals109110111 - Cybersecurity attacks on information or operational technology systems pose a significant risk, potentially disrupting operations, leading to data loss, and resulting in liability132133134 - Achieving the 2040 Net Zero Goal is subject to risks and uncertainties, requiring supportive policies, favorable stakeholder environments, and advancement of technologies that are not currently economical145 Financial, Economic and Market Risks Significant financial risks stem from substantial indebtedness of $14.1 billion, potential credit rating downgrades, and adverse economic conditions impacting capital access and customer demand - The company has substantial indebtedness, totaling $14,127.9 million as of December 31, 2023, which could limit its ability to borrow additional funds and reduce cash flow available for other corporate purposes146 - A downgrade of credit ratings could adversely affect the ability to access capital, increase financing costs, and trigger collateral requirements amounting to approximately $90.1 million if ratings fall below investment grade149150 - Adverse economic conditions, including inflation and rising interest rates, could negatively affect the company's ability to raise capital on favorable terms, impacting its ability to fund its infrastructure investment program152153 Litigation, Regulatory and Legislative Risks The company is exposed to risks from legal and regulatory proceedings, where unfavorable outcomes could materially affect financial results, and compliance costs may not be fully recoverable - The outcomes of legal and regulatory proceedings are inherently uncertain and could have a material adverse effect on the company's results of operations, financial position, or liquidity170 - The cost of compliance with numerous environmental laws, including potential future GHG legislation and regulations concerning Coal Combustion Residuals (CCR), could be significant and may not be fully recoverable from customers172173175 - Changes in tax laws or their interpretation could adversely affect financial results, including expected returns from planned renewable energy projects179 Unresolved Staff Comments The company reports no unresolved staff comments - None180 Cybersecurity NiSource maintains a comprehensive cybersecurity program with Board oversight, including risk assessments and incident response, reporting no material incidents - The cybersecurity program includes risk assessment, third-party risk management, security controls, and an incident response plan183 - Oversight is provided by the Board's Audit Committee, and the program is led by a Chief Information Security Officer (CISO) with over 15 years of experience and multiple certifications187188 - The company is not aware of any material cybersecurity incidents during the past year190 Properties This section describes NiSource's principal properties, including its Merrillville headquarters, with most properties owned free from major encumbrances - The company owns its 325,000 square foot headquarters building, the Southlake Complex, in Merrillville, Indiana194 - Principal properties are generally owned free from major encumbrances, and utility infrastructure is located on land with appropriate rights obtained from governmental authorities or private owners195 Legal Proceedings This section refers to Note 19 of the Notes to Consolidated Financial Statements for a description of the company's legal proceedings - For a description of legal proceedings, see Note 19, "Other Commitments and Contingencies - C. Legal Proceedings," in the Notes to Consolidated Financial Statements196 Mine Safety Disclosures This section is not applicable to the company - Not applicable197 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NiSource's common stock is traded on the NYSE under the symbol "NI", with a quarterly cash dividend of $0.265 per share declared in January 2024 - NiSource common stock is listed on the NYSE under the symbol "NI"198 - As of February 14, 2024, NiSource had 15,832 common stockholders of record and 447,524,529 shares outstanding200 - On January 25, 2024, the Board declared a quarterly common dividend of $0.265 per share198 Reserved This section is not applicable - Not applicable204 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's 2023 financial condition and results, covering segment performance, liquidity, capital resources, and market risks Executive Summary In 2023, NiSource advanced strategic goals by placing two solar projects in service, securing favorable rate cases, and closing the NIPSCO minority interest sale, investing $1.5 billion in infrastructure - In 2023, the company invested $1.5 billion in infrastructure modernization, including replacing 339 miles of distribution main and service lines212 - The company is advancing its "Your Energy, Your Future" initiative, with plans to retire remaining coal-fired electric generation by 2028 and replace it with a mix of low or zero-emission sources214 - The NIPSCO Minority Interest Transaction with Blackstone closed on December 31, 2023, providing a capital contribution of $2.16 billion in cash219 Summary of Consolidated Financial Results For 2023, NiSource reported Net Income Available to Common Shareholders of $661.7 million, a decrease from $749.0 million in 2022, primarily due to weather and non-recurring insurance Consolidated Financial Results (in millions, except per share amounts) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Operating Revenues | $5,505.4 | $5,850.6 | $4,899.6 | | Operating Income | $1,295.5 | $1,265.8 | $1,006.9 | | Net Income attributable to NiSource | $714.3 | $804.1 | $584.9 | | Net Income Available to Common Shareholders | $661.7 | $749.0 | $529.8 | | Diluted Earnings Per Share | $1.48 | $1.70 | $1.27 | - The decrease in net income available to common shareholders in 2023 was primarily driven by lower revenue from weather effects, the absence of a 2022 insurance settlement, and higher interest expense, partially offset by lower tax expense226 Results and Discussion of Operations This section details the operational and financial performance of NiSource's Gas Distribution and Electric Operations segments, highlighting impacts of new rates, weather, and customer usage Gas Distribution Operations Gas Distribution Operations operating income decreased to $901.9 million in 2023 due to non-recurring insurance gain and warmer weather, partially offset by new rates Gas Distribution Operations Financial Summary (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Operating Revenues | $3,732.7 | $4,019.8 | | Operating Income | $901.9 | $915.8 | - The change in operating revenues before pass-through costs was a favorable $200.3 million, primarily driven by $241.1 million from new rates, offset by a $59.9 million negative impact from warmer weather236 - Operating expenses before pass-through costs increased by $214.2 million, largely due to a $105.0 million property insurance settlement gain recorded in 2022 that did not recur, higher depreciation ($50.6M), and higher employee-related expenses ($38.3M)240 Electric Operations Electric Operations operating income increased to $378.7 million in 2023, driven by new rates, despite negative impacts from colder weather and decreased customer usage Electric Operations Financial Summary (in millions) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Operating Revenues | $1,785.0 | $1,831.7 | | Operating Income | $378.7 | $362.4 | - The change in operating revenues before pass-through costs was a favorable $89.7 million, primarily driven by $103.5 million from new rates, offset by a $25.6 million negative impact from weather244 - The company is executing its electric generation transition to retire remaining coal units by 2028. It has executed agreements for eight remaining renewable projects, including BTAs for Cavalry, Dunns Bridge II, Fairbanks, and Gibson, and PPAs for four other projects249252253 Liquidity and Capital Resources NiSource maintains adequate liquidity via operating cash flow, a $1.85 billion revolving credit facility, and capital markets access, significantly strengthened by a $2.16 billion NIPSCO minority interest sale Net Available Liquidity (in millions) | Component | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Revolving Credit Facility | $1,850.0 | $1,850.0 | | Accounts Receivable Programs | $383.9 | $447.2 | | Less: Commercial Paper & Other | ($1,408.5) | ($772.4) | | Add: Cash and Cash Equivalents | $2,245.4 | $40.8 | | Net Available Liquidity | $3,070.8 | $1,565.6 | Capital Investments (in billions) | Period | Amount | | :--- | :--- | | 2023 Actual | $3.6 | | 2024-2028 Estimated | ~$16.0 | - The company maintains investment-grade credit ratings from S&P (BBB+), Moody's (Baa2), and Fitch (BBB), all with stable outlooks274275 Market Risk Disclosures The company actively manages market risks, including commodity price, interest rate, and credit risk, with commodity price risk largely mitigated by regulatory recovery mechanisms - Commodity price risk is limited for earnings as regulatory mechanisms (GCA and FAC) allow for the recovery of prudently incurred fuel and gas costs from customers286 - The company is exposed to interest rate risk on its variable-rate borrowings. A 100 basis point (1%) increase in short-term rates would have increased 2023 interest expense by $18.9 million290 Other Information This section outlines the company's critical accounting estimates, requiring significant management judgment, including rate-regulated operations, pension benefits, goodwill impairment, and income taxes - The company's accounting for its rate-regulated subsidiaries allows certain costs to be deferred as regulatory assets ($2.46 billion at year-end 2023) for future recovery through customer rates293 - Pension and postretirement benefit calculations require significant judgment on assumptions like discount rates and expected long-term rates of return on plan assets (7.00% for pension assets in 2023)298301 - Goodwill, primarily from the 2000 Columbia acquisition, totaled $1.486 billion at year-end 2023. The annual impairment test in May 2023 indicated no impairment304305 Quantitative and Qualitative Disclosures About Market Risk This section refers back to the "Market Risk Disclosures" section within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Disclosures about market risk are reported in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures"314 Financial Statements and Supplementary Data This section contains the company's consolidated financial statements for the three years ended December 31, 2023, along with the unqualified audit report from Deloitte & Touche LLP Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on NiSource's consolidated financial statements and internal control over financial reporting, identifying two critical audit matters - The auditor, Deloitte & Touche LLP, issued an unqualified (clean) opinion on the financial statements, stating they present fairly, in all material respects, the financial position and results of operations318 - The audit identified two Critical Audit Matters: 1) The accounting and tax treatment of the $2.16 billion minority interest investment in NIPSCO Holdings II LLC due to its complexity. 2) The impact of rate regulation and the significant judgments required to assess the likelihood of recovering costs deferred as regulatory assets323326328 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None602 Controls and Procedures Management concluded the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified audit opinion from Deloitte & Touche LLP - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period603 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023. This assessment was audited by Deloitte & Touche LLP, which also issued an unqualified opinion604605 Other Information This section discloses that no director or Section 16 officer adopted, terminated, or modified a Rule 10b5-1 trading arrangement during 2023 - During 2023, no director or Section 16 officer adopted, terminated, or modified a Rule 10b5-1 trading arrangement614 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable to the company - Not applicable615 Part III Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024 - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024618 Executive Compensation Information required by this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024 - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024619 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024 - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024620 Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024 - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024621 Principal Accounting Fees and Services Information required by this item is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024 - Information is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 13, 2024622 Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Annual Report on Form 10-K, including an index of all filed documents - This section contains a list of all financial statements, schedules, and exhibits filed with the Form 10-K625626 Form 10-K Summary The company reports no Form 10-K summary - None641