NiSource(US:NI)2022-02-23 19:38Part I Business NiSource Inc. is a regulated energy holding company with Gas Distribution and Electric Operations segments, focusing on safety, infrastructure investments, and renewable energy transition - NiSource is a fully regulated energy holding company deriving substantially all its revenue from its Gas Distribution and Electric Operations segments222324 Segment Overview | Segment | Customers Served | Key Infrastructure | | :--- | :--- | :--- | | Gas Distribution Operations | Approx. 3.2 million in 6 states | Approx. 54,600 miles of distribution main pipeline | | Electric Operations (NIPSCO) | Approx. 483,000 in northern Indiana | 2,315 MW total generating capacity; 3,024 circuit miles of transmission system | - The company's business strategy prioritizes safety through its Safety Management System (SMS) and focuses on long-term infrastructure and environmental investments, supported by regulatory initiatives to ensure sustainable returns and customer affordability2930 - NIPSCO is transitioning its electric generation portfolio, planning to replace retiring coal units with a diverse portfolio including solar, energy storage, and upgrades to existing natural gas facilities, as outlined in its 2021 Integrated Resource Plan2731 Active Rate Cases as of December 31, 2021 | Company | Requested Incremental Revenue (millions) | Status | Expected Effective Date | | :--- | :--- | :--- | :--- | | Columbia of Ohio | $221.4 | Order Expected Q3 2022 | Q3 2022 | | NIPSCO - Gas | $109.7 | Order Expected Q3 2022 | September 2022 | - As of December 31, 2021, the company had 7,342 employees, with 36% subject to collective bargaining agreements; in 2021, 38% of external hires were female and 21% were racially or ethnically diverse5051 Risk Factors The company faces a wide range of operational, financial, and litigation risks, including infrastructure, cybersecurity, indebtedness, and regulatory compliance - Operational risks include the inability to execute business plans and utility infrastructure investments, potential disruptions from aging infrastructure, and supply chain challenges impacting materials for gas and electric projects778486 - The company faces significant cybersecurity risks, including sophisticated attacks on its technology systems which could disrupt operations, and increasing compliance costs associated with new government directives like those from the TSA108110113 - Financial risks are significant due to substantial indebtedness of $9.8 billion as of year-end 2021; a drop in credit ratings could increase borrowing costs and require posting additional collateral, estimated at $56.2 million if downgraded below investment grade123125127 - The COVID-19 pandemic continues to pose risks, including potential for lower revenue from commercial/industrial customers, increased bad debt, and disruptions to operations from employee illness or work restrictions129131133 - Litigation and regulatory risks are highlighted by the Greater Lawrence Incident, which has led to material costs exceeding insurance coverage and an ongoing Deferred Prosecution Agreement (DPA) with the U.S. Attorney's Office165167 - The company is subject to risks from climate change, including physical impacts on infrastructure from extreme weather and transition risks associated with moving to a lower-carbon economy, which could affect demand and the viability of assets118119122 Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None175 Properties The company's principal properties consist of its Gas Distribution and Electric Operations infrastructure and its headquarters in Merrillville, Indiana - The company's main properties are its utility assets for Gas and Electric operations177178 - The corporate headquarters is a 325,000 square foot building in Merrillville, Indiana, which the company owns179 Legal Proceedings This section refers to Note 19-C in the Notes to Consolidated Financial Statements for a description of the company's legal proceedings - For a description of legal proceedings, see Note 19-C, "Legal Proceedings," in the Notes to Consolidated Financial Statements181 Mine Safety Disclosures This section is not applicable to the company - Not applicable182 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 a declared quarterly dividend of $0.235 per share and no equity repurchases in Q4 2021 - NiSource common stock is listed on the NYSE under the symbol "NI"184 - The Board declared a quarterly common dividend of $0.235 per share on January 26, 2022184 - As of February 15, 2022, NiSource had 17,282 common stockholders of record and 405,385,010 shares outstanding186 - No equity securities were purchased by or on behalf of the company during the three months ended December 31, 2021188 Reserved This section is not applicable - Not applicable190 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the year ended December 31, 2021, detailing segment performance, liquidity, capital expenditure plans, and critical accounting policies Executive Summary In 2021, NiSource advanced strategic goals through infrastructure modernization, renewable energy transition, and operational efficiency programs, while actively monitoring economic risks - In 2021, NiSource invested $1.3 billion in infrastructure modernization, including replacing 390 miles of priority pipe198 - The company's "Your Energy, Your Future" plan to replace coal generation capacity by 2028 is underway, with a refined timeline to retire the Michigan City Generating Station between 2026 and 2028199200 - The "NiSource Next" initiative, launched in 2020, is a multi-year program to enhance safety, operational capabilities, and cost optimization, involving workforce optimization and process standardization in 2021201202 - The company is actively monitoring economic risks, including increasing lead times and prices for construction materials and increased competition for talent in the labor market207209 Summary of Consolidated Financial Results For 2021, NiSource reported a significant turnaround with net income of $529.8 million, driven by favorable rate cases and the absence of Massachusetts business-related expenses Consolidated Financial Results (in millions, except per share amounts) | Metric | 2021 | 2020 | 2019 | | :--- | :--- | :--- | :--- | | Operating Revenues | $4,899.6 | $4,681.7 | $5,208.9 | | Operating Income | $1,006.9 | $550.8 | $890.7 | | Net Income (Loss) attributable to NiSource | $584.9 | $(17.6) | $383.1 | | Net Income (Loss) Available to Common Shareholders | $529.8 | $(72.7) | $328.0 | | Diluted Earnings (Loss) Per Share | $1.27 | $(0.19) | $0.87 | - The increase in 2021 net income was primarily due to higher operating income from favorable rate case outcomes and lower operating expenses, as 2020 included significant costs and a loss on the sale of the Massachusetts business212 Results and Discussion of Segment Operations Gas Distribution operating income significantly increased in 2021 due to the absence of the Massachusetts business loss, while Electric Operations revenue rose from warmer weather, increased usage, and new rates, with ongoing renewable energy project development Gas Distribution Operations - Operating Income (in millions) | Year | Operating Income | | :--- | :--- | | 2021 | $617.5 | | 2020 | $199.1 | | 2019 | $675.4 | - The significant increase in Gas Distribution operating income in 2021 vs. 2020 is primarily due to the $412.4 million loss on the sale of the Massachusetts Business recorded in 2020227228 Electric Operations - Operating Income (in millions) | Year | Operating Income | | :--- | :--- | | 2021 | $387.8 | | 2020 | $348.8 | | 2019 | $406.8 | - Electric Operations revenue increased in 2021 due to warmer weather, increased customer usage as industrial and commercial activity recovered from COVID-19 impacts, and new rates from regulatory programs233235 - NIPSCO is executing its electric generation transition, with multiple Power Purchase Agreements (PPAs) and Build-Transfer Agreements (BTAs) for wind and solar projects approved by the IURC, targeting completion dates through 2023242 Liquidity and Capital Resources NiSource maintains adequate liquidity through operating cash flow and credit facilities, planning approximately $10 billion in capital investments for 2021-2024, while maintaining investment-grade credit ratings and compliance with debt covenants - Net cash from operating activities increased by $113.9 million to $1,217.9 million in 2021, primarily due to a decrease in payments related to the Greater Lawrence Incident248 - The company plans to make capital investments totaling approximately $10 billion during the 2021-2024 period, including $2.0 billion for renewable generation to replace retiring coal-fired capacity253 Net Available Liquidity (in millions) | Date | Amount | | :--- | :--- | | Dec 31, 2021 | $1,606.5 | | Dec 31, 2020 | $1,721.6 | - The company is in compliance with its primary debt covenant, maintaining a debt-to-capitalization ratio of 57.4% as of December 31, 2021, below the 70% maximum260 Environmental and Safety Matters The company is subject to extensive environmental and safety regulations, actively managing climate change risks through GHG emission reductions, renewable energy adoption, and exploration of lower-carbon technologies - The PIPES Act of 2020 requires updates to integrity management, emergency response, and O&M plans, which may increase costs for NiSource's subsidiaries273 - The company is actively implementing plans to reduce Scope 1 GHG emissions by 90% from 2005 levels by 2030, primarily through the retirement of coal-fired generation and increased use of renewable energy280 - NiSource is exploring emerging technologies like hydrogen and renewable natural gas (RNG) to support economy-wide decarbonization281 Market Risk Disclosures NiSource manages principal market risks including commodity price, interest rate, and credit risk, largely mitigating commodity price risk through regulatory recovery mechanisms - The company's primary market risks are commodity price risk, interest rate risk, and credit risk282 - Commodity price risk is limited for rate-regulated subsidiaries as prudently incurred gas and fuel costs are recovered through rate-making processes like the GCA and FAC mechanisms284285 - A 100 basis point (1%) change in short-term interest rates would have increased or decreased 2021 interest expense by $3.1 million288 Other Information This section outlines the company's critical accounting policies and estimates, including rate-regulated accounting, pension and postretirement benefits, goodwill impairment, unbilled revenue, and income taxes - The company's accounting for its rate-regulated subsidiaries under ASC 980 is a critical policy, allowing it to defer costs and revenues as regulatory assets and liabilities; as of Dec 31, 2021, regulatory assets totaled $2.5 billion and regulatory liabilities totaled $2.0 billion294 - Pension and postretirement benefit calculations require significant judgment on assumptions like discount rates and expected returns on assets; a 50 basis point change in the discount rate would impact the 2021 projected benefit obligation by approximately $80 million for pensions and $28 million for other benefits301309 - Goodwill, primarily from the 2000 Columbia acquisition, totaled $1.486 billion at year-end 2021; the annual impairment test in Q2 2021 indicated no impairment310311 Quantitative and Qualitative Disclosures About Market Risk This section refers to the 'Market Risk Disclosures' section within Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures"318 Financial Statements and Supplementary Data This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2021, and the preceding two years, along with the independent auditor's report and detailed notes - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements and the effectiveness of internal control over financial reporting322323 - The critical audit matters identified were the impact of rate regulation on the financial statements and the accounting for the 2021 Equity Units, both of which involved significant management judgments327336 Key Balance Sheet Items (in millions) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $24,156.9 | $22,040.5 | | Net Property, Plant and Equipment | $17,881.8 | $16,619.5 | | Total Liabilities | $16,884.0 | $16,202.7 | | Long-term debt (incl. current portion) | $9,241.5 | $9,243.1 | | Total Stockholders' Equity | $7,272.9 | $5,837.8 | 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 - None618 Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2021, with no material changes in the most recent quarter - The CEO and CFO concluded that as of the end of the period, disclosure controls and procedures were effective at a reasonable assurance level619 - Management concluded that internal control over financial reporting was effective as of December 31, 2021, a conclusion audited and affirmed by Deloitte & Touche LLP620621 - No changes in internal control over financial reporting occurred during the most recently completed quarter that materially affected, or are reasonably likely to materially affect, internal controls622 Other Information This section is not applicable - Not applicable631 Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This section is not applicable - Not applicable632 Part III Directors, Executive Officers and Corporate Governance Information regarding directors and corporate governance is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022 - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022635 Executive Compensation Information regarding executive compensation is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022 - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022636 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022 - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022637 Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022 - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022638 Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022 - Information required by this item is incorporated by reference from the Proxy Statement for the Annual Meeting of Stockholders to be held on May 24, 2022639 Part IV Exhibits, Financial Statement Schedules This section lists the financial statements, financial statement schedules, and exhibits filed as part of the Form 10-K report, including an index of all filed documents - This section contains a list of all financial statements and schedules included in Item 8642 - An Exhibit Index is provided, listing all exhibits filed with the report, with management contracts and compensatory plans identified by an asterisk643 Form 10-K Summary This section is not applicable - None657