NiSource Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. NiSource is a regulated natural gas and electric utility holding company operating in six states. Results are seasonal and interim performance may not indicate full-year results.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Operating revenue | $1,545.6 million | $1,605.5 million |
| Operating income | $433.2 million | $148.2 million |
| Net income attributable to NiSource | $295.5 million | $75.6 million |
| Net income available to common shareholders | $281.7 million | $61.8 million |
| Diluted EPS | $0.72 | $0.16 |
| Cash from operating activities | $448.3 million | $369.9 million |
| Capital expenditures | $367.0 million | $452.1 million |
Operating margin was approximately 28.0%, versus 9.2% in Q1 2020; the comparison is heavily affected by the prior-year Massachusetts sale loss. Net cash used in investing activities was $401.8 million; financing activities used $75.4 million. Cash, cash equivalents and restricted cash ended the quarter at $96.7 million.
At March 31, 2021, long-term debt including current maturities was $9.25 billion and commercial paper borrowings were $520 million. Cash and cash equivalents were $89.1 million. Net available liquidity was $1.866 billion, including availability under the $1.85 billion revolving credit facility. The debt-to-capitalization covenant limit is 70%; the reported ratio was 62.2%.
Material changes versus prior period
- Revenue declined $59.9 million, primarily reflecting the 2020 sale of the Massachusetts business; this was partly offset by new rates, colder weather in gas territories, and customer growth.
- Operating income rose $285.0 million and common earnings rose $219.9 million. The principal comparison benefit was the $280.2 million Massachusetts sale loss recorded in Q1 2020. In Q1 2021, NiSource recorded a further $6.9 million pretax sale loss after final purchase-price adjustments; cumulative sale loss was $419.3 million.
- Operating cash flow increased $78.4 million, mainly because Greater Lawrence-related payments were approximately $6 million versus $150 million in Q1 2020.
- Gas Distribution operating income increased $268.4 million, including the prior-year sale-loss comparison; Electric Operations operating income increased $9.4 million to $87.9 million.
- Other comprehensive income was $81.2 million, primarily reflecting an $84.6 million after-tax gain on cash-flow hedges, compared with a $138.0 million comprehensive loss in Q1 2020.
Outlook, management commentary and risks
- Management expects 2021 capital expenditures of approximately $1.9–$2.1 billion and says available financing is adequate for operations and investment plans.
- NIPSCO plans to replace its remaining coal generation by the end of 2028, primarily with renewable resources. Two Schahfer coal units are expected to retire by the end of 2021 and the remaining two by 2023. Management estimates approximately $2.0 billion of incremental investment, primarily in 2022–2023, and targets a 90% greenhouse-gas emissions reduction by 2030 versus 2005.
- In March, NIPSCO executed three solar build-transfer agreements totaling 650 MW and a 200 MW wind power purchase agreement. Regulatory approvals and timely project execution remain relevant conditions and risks.
- On April 19, 2021, after quarter-end, NiSource issued 8.625 million equity units for net proceeds of $835.5 million. Proceeds are intended for renewable investment and general corporate purposes, including working capital and debt repayment. The units include future common-share purchase contracts and mandatory convertible preferred interests; potential dilution and distributions should be monitored.
- COVID-19-related disconnection moratoriums, payment plans and regulatory deferrals continue in some jurisdictions. The company reported $22.2 million of specified COVID-19 regulatory assets across listed jurisdictions at quarter-end; collectibility and recovery timing remain subject to regulatory processes.
- Greater Lawrence Incident costs recorded since 2018 were approximately $1.04 billion, excluding pipeline replacement capital costs. The $143 million class-action settlement was approved; some bodily-injury and wrongful-death claims remain unresolved. NiSource says additional outcomes could materially affect earnings, cash flows or liquidity. It also cannot predict timing or amount of insurance recovery for the approximately $258 million pipeline replacement.
- Environmental remediation liabilities totaled $90.6 million, including an estimated $84.3 million for 54 former manufactured-gas-plant sites; the company says remediation estimates may vary. Other risks include pipeline safety, cyberattacks, extreme weather, commodity and interest-rate exposure, regulatory decisions and customer payment risk.
- Management reported disclosure controls were effective and no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- How much of the earnings improvement reflects the nonrecurring 2020 Massachusetts sale loss versus underlying rate, weather and operating trends.
- Final recovery and settlement exposure for Greater Lawrence claims, plus any insurance proceeds or further Massachusetts sale-related tax or purchase-price adjustments.
- Regulatory approvals, costs, timing and financing for NIPSCO’s renewable projects and coal-unit retirements.
- Execution of the equity-unit funding, including future share issuance, dilution and contract-adjustment distributions.
- Cash generation, capital spending, debt levels and liquidity as COVID-related customer arrears and regulatory deferrals evolve.