Business context and reporting period
NiSource Inc. is a regulated natural gas and electric utility holding company serving approximately 3.7 million customers in six states. Its two reportable segments are Gas Distribution Operations and Electric Operations. This is the Form 10-K for the fiscal year ended December 31, 2022; it reports annual results, not standalone fourth-quarter results.
Financial and operating performance
| Metric | 2022 | 2021 |
|---|---|---|
| Operating revenue | $5,850.6 million | $4,899.6 million |
| Operating income | $1,265.8 million | $1,006.9 million |
| Net income attributable to NiSource | $804.1 million | $584.9 million |
| Net income available to common shareholders | $749.0 million | $529.8 million |
| Diluted EPS | $1.70 | $1.27 |
| Cash from operating activities | $1,409.4 million | $1,217.9 million |
| Cash used for investing activities | $2,570.2 million | $2,204.9 million |
| Capital expenditures | $2,298.0 million | $1,940.4 million |
Operating margin was approximately 21.6%, compared with 20.6% in 2021; net margin was approximately 13.5%, compared with 12.0%. These are calculated from reported figures. Revenue growth includes significant pass-through gas and fuel costs, which generally have little direct effect on earnings.
- Gas Distribution operating income increased to $915.8 million from $617.5 million. The increase reflected base-rate and regulatory capital program revenues and a $105.0 million insurance settlement related to the Greater Lawrence Incident, among other factors.
- Electric Operations operating income declined to $362.4 million from $387.8 million, despite higher revenue; costs included renewable joint-venture expenses and higher depreciation.
- Net cash from operations increased by $191.5 million, primarily from higher revenue and collection of prior-period under-recovered gas and fuel costs, partly offset by greater inventory purchases.
Debt, liquidity and capital
At December 31, 2022, consolidated indebtedness was $11,315.5 million, including $9,553.6 million of long-term debt and $1,761.9 million of short-term borrowings. Short-term borrowings rose from $560.0 million at year-end 2021. Cash and cash equivalents were $40.8 million. Reported net available liquidity was $1,565.6 million, including a $1.85 billion revolving facility, receivables programs and cash, net of specified borrowings and letters of credit. The debt-to-capitalization ratio was 58.9%, below the 70% covenant limit. Credit ratings were investment grade with stable outlooks.
NiSource invested $1.6 billion in gas infrastructure modernization during 2022 and expects approximately $15 billion of capital investments over 2023–2027. Its Board declared a $0.25-per-share quarterly common dividend in January 2023. The company reported $0.94 per share of common dividends for 2022.
Material changes, outlook and risks
- Management expects 2023–2027 investment to support infrastructure modernization, generation transition, renewables and customer growth. The filing does not provide a specific earnings or EPS forecast.
- NiSource plans to retire its remaining R.M. Schahfer coal units by the end of 2025 and remaining coal-fired generation by the end of 2028, subject to approvals and execution. Solar project supply-chain constraints, tariffs, labor availability, permitting and cost pressures have delayed or may affect projects and reliability planning.
- In November 2022, NiSource announced a goal of net-zero Scope 1 and Scope 2 greenhouse gas emissions by 2040. It also cited interim goals of a 50% reduction in fugitive methane emissions from main and service lines by 2025 and a 90% reduction in company-wide Scope 1 emissions by 2030, both from 2005 levels. Achievement depends on supportive policy, technology, project execution and other assumptions.
- NiSource announced its intention to sell a minority interest in NIPSCO; completion, timing and benefits are uncertain and depend in part on regulatory approvals and negotiations.
- Regulatory proceedings and cost recovery remain important: regulators may not approve full or timely recovery of capital, operating, environmental or generation-transition costs. The filing describes approved and pending rate cases; outcomes and timing are not assured.
- The Greater Lawrence Incident continues to present potential litigation and other liabilities. NiSource received a $105.0 million property-insurance settlement in 2022; the filing says some private claims remain unresolved and insurance has not covered all incident expenses. The company’s deferred prosecution agreement included ongoing compliance obligations.
- Other disclosed exposures include a FERC investigation involving NIPSCO and a customer, with estimated maximum NIPSCO disgorgement exposure of $9.7 million; environmental remediation liabilities of $86.5 million; and estimated MGP remediation liability of $81.0 million, with costs reasonably possible to be as much as $17 million higher.
- Additional risks include substantial debt and higher interest costs, inflation and supply-chain constraints, weather and commodity volatility, aging infrastructure, cybersecurity, climate-related physical and transition risks, and potential impacts on customer affordability and demand.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Management and the auditor reported effective internal controls as of year-end.
Important facts for investors to verify
- Progress, cost, timing and regulatory approval of the roughly $15 billion 2023–2027 capital plan and NIPSCO generation-transition projects.
- Whether rate-case decisions and regulatory trackers permit recovery of planned and incurred costs, and the resulting effects on earnings and cash flow.
- Execution, proceeds, dilution implications and credit effects of the proposed NIPSCO minority-interest sale and the Series C equity-unit settlement and remarketing obligations.
- Changes in short-term borrowing, refinancing needs, liquidity, interest expense and compliance with debt covenants.
- Developments in Greater Lawrence claims and compliance obligations, the FERC investigation, and environmental remediation estimates.
- Whether reported earnings growth is sustained by regulated returns and rate outcomes rather than primarily by pass-through revenues or unusual items, including the insurance settlement.