NiSource(US:NI)2023-02-22 21:23Part I Business NiSource Inc. operates regulated gas distribution and electric utilities, prioritizing infrastructure, safety, and a net-zero emissions transition Business Strategy The company's strategy focuses on rate-regulated utilities, prioritizing safe service, infrastructure investment, and emissions reduction - NiSource's business strategy is focused on its core, rate-regulated utilities, with an emphasis on long-term infrastructure investment, safety programs, and aligning tariff structures with costs to generate sustainable returns23 - In 2022, NiSource achieved conformance certification to the American Petroleum Institute Recommended Practice 1173 for its Safety Management System (SMS), marking a key milestone in its journey towards operational excellence24 Gas Distribution Operations The Gas Distribution segment serves 3.3 million customers across six states, operating extensive pipelines with seasonal revenues and competition Gas Distribution Operations Overview | Metric | Value | | :--- | :--- | | Customers Served | ~3.3 million | | States of Operation | 6 | | Distribution Main Pipeline | ~54,800 miles | | Transmission Main Pipeline | ~1,000 miles | - As of December 31, 2022, 24.5% of residential customers and 33.3% of commercial customers participated in programs to purchase natural gas from third-party suppliers, using NiSource subsidiaries for transportation services27 - Revenues from gas distribution operations are highly seasonal, with the most significant portion generated during the heating season from November through March30 Electric Operations NIPSCO's Electric Operations serve 486,000 customers, transitioning from coal to renewables by 2028 and participating in the MISO market Owned Electric Generation Capacity (as of Dec 31, 2022) | Fuel Type | Generating Capacity (MW) | | :--- | :--- | | Steam - Coal | 1,177 | | CCGT | 563 | | Natural Gas | 155 | | Hydro | 16 | | Wind | 404 | | Total MW Capacity | 2,315 | - NIPSCO plans to retire its remaining coal generating assets by 2028, replacing them with a diverse portfolio including solar, energy storage, and new gas peaking resources31 - In 2022, NIPSCO's generating units were dispatched by MISO to meet 41.65% of its load requirements, with the remaining 58.35% purchased from the MISO market33 Regulatory NiSource's operations are extensively regulated, actively managing rate cases and using cost recovery mechanisms to align revenue with costs Selected Rate Case Actions (2022-2023) | Company | Status | Requested Incremental Revenue (in millions) | Approved Incremental Revenue (in millions) | | :--- | :--- | :--- | :--- | | Columbia of Pennsylvania | Approved Dec 2022 | $82.2 | $44.5 | | Columbia of Maryland | Approved Nov 2022 | $5.8 | $3.5 | | Columbia of Ohio | Approved Jan 2023 | $221.4 | $68.2 | | NIPSCO - Gas | Approved Jul 2022 | $109.7 | $71.8 | | NIPSCO - Electric | Order Expected Q3 2023 | $291.8 | In process | - The company's subsidiaries are subject to FERC jurisdiction for various activities, including NIPSCO's Market Based Rate authority and its role as a Transmission Owner within MISO42 - To mitigate the impact of declining average use per customer, several gas subsidiaries have adopted alternative rate designs, such as straight fixed variable rates (Columbia of Ohio) and weather normalization adjustments (Columbia of Maryland, Virginia, Pennsylvania, Kentucky)44 Environmental and Safety Matters The company addresses environmental and safety regulations, mitigating climate risks, and targeting net-zero Scope 1 and 2 GHG emissions by 2040 - The PIPES Act of 2020 requires PHMSA to update pipeline safety regulations, which may lead to increased costs for operators like NiSource49 - On November 7, 2022, NiSource announced a goal of achieving net-zero Scope 1 and Scope 2 greenhouse gas emissions by 204058 - The company is on track to reduce Scope 1 GHG emissions by 90% from 2005 levels by 2030 and had already achieved an approximate 58% reduction by the end of 202158 Human Capital NiSource employed 7,162 people as of 2022, focusing on DE&I, maintaining high retention, and implementing robust talent and safety programs Workforce Composition (as of Dec 31, 2022) | Metric | Value | | :--- | :--- | | Total Employees | 7,162 (7,117 full-time, 45 part-time) | | Unionized Workforce | 35% | | 2022 External Hires (Racially/Ethnically Diverse) | 28% | | 2022 External Hires (Female) | 44% | | 2022 Retention Rate | > 91% | - The Board of Directors is comprised of 33% women and 33% people of color63 - The company has implemented a hybrid working model, with 58% of the workforce onsite, 35% hybrid, and 7% remote70 Risk Factors NiSource faces significant operational, financial, and regulatory risks, including those from the Greater Lawrence Incident, supply chain, and economic conditions Operational Risks Operational risks include failure to complete the NIPSCO minority sale, utility hazards, aging infrastructure, supply chain issues, and cybersecurity threats - The company announced its intention to sell a minority interest in NIPSCO, but there is no assurance it will be completed on the anticipated timeline or at all84 - The electric generation transition is at risk due to supply chain issues, particularly the significant curtailment of imported solar panels and components, which could delay projects and impact reliability9798 - The company faces evolving and increasingly complex cybersecurity risks, including ransomware and attacks on critical infrastructure, which could disrupt operations and compromise sensitive data117120 Financial, Economic and Market Risks Financial risks stem from substantial indebtedness, potential credit rating downgrades, inflation, and rising interest rates impacting capital access and demand - As of December 31, 2022, the company had total consolidated indebtedness of $11,315.5 million, which could limit its financial flexibility and ability to borrow additional funds132 - A downgrade of credit ratings below investment grade could trigger collateral requirements of approximately $85.7 million as of December 31, 2022136 - Adverse economic conditions, including inflation and rising interest rates, could increase the cost of borrowing and make it more difficult to obtain financing for operations and capital investments138139 Litigation, Regulatory and Legislative Risks Litigation and regulatory risks include the Greater Lawrence Incident's financial impact and uncertain environmental regulations for GHG and CCRs - Total expenses related to the Greater Lawrence Incident have exceeded the company's liability insurance coverage, which has materially affected and may continue to affect financial results166 - The company is operating under a Deferred Prosecution Agreement (DPA) with the U.S. Attorney's Office related to the Greater Lawrence Incident, which imposes compliance obligations through February 2023167565 - The company faces significant uncertainty and risk from environmental regulations concerning Coal Combustion Residuals (CCRs) and greenhouse gas (GHG) emissions, which could lead to significant additional expenses and operating restrictions173174 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None180 Properties The company's principal properties include its Merrillville headquarters and various gas and electric operational facilities, owned free from major encumbrances - The company owns its 325,000 square foot headquarters building in Merrillville, Indiana184 Legal Proceedings Information on legal proceedings is incorporated by reference from Note 19 of the Notes to Consolidated Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 19 of the Notes to Consolidated Financial Statements186 Mine Safety Disclosures This item is not applicable to the company - Not applicable187 Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NiSource's common stock trades on the NYSE, with quarterly cash dividends declared and 412.5 million shares outstanding as of February 2023 - The company's common stock is listed on the NYSE under the symbol "NI"189 - On January 26, 2023, the Board declared a quarterly common dividend of $0.250 per share189 - As of February 15, 2023, NiSource had 412,507,944 shares of common stock outstanding191 Management's Discussion and Analysis of Financial Condition and Results of Operations NiSource's 2022 net income increased due to new gas rates and an insurance settlement, with significant capital investments planned for infrastructure and renewable transition Executive Summary In 2022, NiSource advanced strategic goals, investing $1.6 billion in infrastructure and progressing coal-to-renewable transition despite supply chain challenges - In 2022, the company invested $1.6 billion in infrastructure, replacing 410 miles of distribution main and service lines, 48 miles of underground cable, and 1,352 electric poles203 - The plan to replace coal generation capacity by 2028 is underway, but the company is adjusting to the dynamic renewable energy landscape and broad market issues, including supply chain challenges205206 Summary of Consolidated Financial Results NiSource's 2022 net income available to common shareholders significantly increased to $749.0 million, driven by new gas rates and an insurance settlement Consolidated Financial Results Summary | Year Ended December 31, (in millions) | 2022 | 2021 | | :--- | :--- | :--- | | Operating Revenues | $5,850.6 | $4,899.6 | | Operating Income | $1,265.8 | $1,006.9 | | Net Income attributable to NiSource | $804.1 | $584.9 | | Net Income Available to Common Shareholders | $749.0 | $529.8 | | Diluted Earnings Per Share | $1.70 | $1.27 | - The increase in 2022 net income was primarily due to higher revenues from gas base rate proceedings, regulatory capital programs, and an insurance settlement related to the Greater Lawrence Incident215 Results and Discussion of Segment Operations Gas Distribution operating income increased due to new rates, while Electric Operations saw a decrease primarily from higher depreciation on renewable projects Segment Operating Income (in millions) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Gas Distribution Operations | $915.8 | $617.5 | | Electric Operations | $362.4 | $387.8 | Liquidity and Capital Resources NiSource maintains strong liquidity with $1.57 billion available, planning $15 billion in capital investments (2023-2027) for infrastructure and generation transition Net Available Liquidity (as of Dec 31, in millions) | | 2022 | 2021 | | :--- | :--- | :--- | | Revolving Credit Facility | $1,850.0 | $1,850.0 | | Less: Commercial Paper & Letters of Credit | ($425.2) | ($578.9) | | Accounts Receivable Programs (Net) | $100.0 | $251.2 | | Add: Cash and cash equivalents | $40.8 | $84.2 | | Net Available Liquidity | $1,565.6 | $1,606.5 | - The company expects to make capital investments totaling approximately $15 billion during the 2023-2027 period257 Credit Ratings (as of Dec 31, 2022) | Entity | S&P | Moody's | Fitch | | :--- | :--- | :--- | :--- | | NiSource | BBB+ | Baa2 | BBB | | NIPSCO | BBB+ | Baa1 | BBB | Market Risk Disclosures Principal market risks include commodity price, interest rate, and credit risk, with commodity risk largely mitigated by regulatory recovery mechanisms - Commodity price risk is limited for rate-regulated subsidiaries due to regulatory mechanisms (GCA and FAC) that allow for recovery of prudently incurred costs274 - A 100 basis point (1%) increase in short-term interest rates would have increased interest expense by $8.7 million for 2022277 Other Information This section outlines critical accounting estimates, including rate-regulated operations, pension benefits, goodwill valuation, and unbilled revenue Key Balances from Critical Accounting Estimates (Dec 31, 2022) | Account | Amount (in millions) | | :--- | :--- | | Regulatory Assets | $2,580.8 | | Regulatory Liabilities | $2,012.6 | | Goodwill | $1,486.0 | | Unbilled Revenue | $453.0 | - A 50 basis point decrease in the discount rate would increase the Projected Benefit Obligation for pension and other postretirement benefits by $56.7 million and $20.8 million, respectively296 Quantitative and Qualitative Disclosures About Market Risk This section incorporates by reference market risk disclosures from Item 7 of the report - Disclosures about market risk are reported in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures"305 Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2022, including the auditor's report and detailed notes Report of Independent Registered Public Accounting Firm Deloitte & Touche LLP issued an unqualified opinion on NiSource's 2022 financial statements and internal controls, identifying rate regulation as a critical audit matter - The auditor, Deloitte & Touche LLP, expressed an unqualified opinion on the financial statements and the company's internal control over financial reporting309310 - The accounting for rate-regulated subsidiaries was identified as a critical audit matter due to the significant management judgments required to assess the likelihood of recovering costs and refunding amounts to customers317 Consolidated Financial Statements The consolidated financial statements show NiSource's 2022 operating revenues of $5.85 billion, net income of $804.1 million, and total assets of $26.74 billion Key Financial Statement Data (Year Ended Dec 31, 2022, in millions) | Metric | Value | | :--- | :--- | | Operating Revenues | $5,850.6 | | Operating Income | $1,265.8 | | Net Income (Loss) attributable to NiSource | $804.1 | | Total Assets | $26,736.6 | | Total Stockholders' Equity | $7,901.8 | | Total Long-term debt | $9,523.6 | | Net Cash from Operating Activities | $1,409.4 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial items, including revenue, regulatory assets/liabilities, debt, pensions, and contingencies like the Greater Lawrence Incident 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 - None596 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022 - The CEO and CFO concluded that as of the end of the period, disclosure controls and procedures were effective at a reasonable assurance level597 - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2022598 Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2023613 Executive Compensation Information on executive compensation is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2023614 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2023615 Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2023616 Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2023 Proxy Statement - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 23, 2023617 Part IV Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section contains a list of all financial statements, schedules, and exhibits filed with the Form 10-K620621 Form 10-K Summary The company reports no Form 10-K summary - None638