NiSource Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2019. NiSource is a regulated natural gas and electric utility holding company serving customers in seven states. Results are unaudited and interim results may vary with weather and other factors.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Operating revenue | $931.5 million | $895.0 million | $3,811.7 million | $3,652.8 million |
| Operating income (loss) | $91.0 million | $(315.9) million | $928.7 million | $203.1 million |
| Net income (loss) | $6.6 million | $(339.5) million | $522.4 million | $(38.9) million |
| Net income (loss) available to common shareholders | $(7.2) million | $(345.1) million | $481.0 million | $(45.8) million |
| Basic EPS | $(0.02) | $(0.95) | $1.29 | $(0.13) |
- Revenue and operating results: Q3 operating revenue rose 4.1%. Nine-month revenue increased 4.4%. Management attributed improved results mainly to lower Greater Lawrence Incident expenses, new base rates and infrastructure-replacement revenues; nine-month results also benefited from insurance recoveries. Q3 remained a loss for common shareholders after preferred dividends.
- Utility segments: Gas Distribution operating income was $(48.6) million for Q3 and $605.8 million for nine months, versus $(455.2) million and $(94.4) million, respectively, in 2018. Electric Operations operating income increased to $140.7 million for Q3 and $321.4 million for nine months, from $134.9 million and $300.4 million.
- Cash flow: Nine-month operating cash flow was $1,231.8 million, compared with $927.2 million in 2018. Capital expenditures were $1,310.0 million; net cash used in investing was $1,393.8 million. Financing provided $77.9 million. Cash, cash equivalents and restricted cash ended the period at $37.0 million.
- Liquidity and debt: Net available liquidity was $1,362.8 million at September 30. Long-term debt, excluding current maturities, was $7,853.8 million; short-term borrowings were $1,615.1 million, including an $850 million term loan due April 2020. Total reported borrowings, including current long-term debt, were approximately $9.48 billion. The debt-to-capitalization covenant ratio was 61.8%, against a 70% limit under the revolving credit facility and term loan.
- Capital and equity: NiSource issued $750 million of 2.95% senior notes due 2029. It paid $223.8 million in common dividends and $36.7 million in preferred dividends during the first nine months. Stockholders’ equity was $5,848.5 million at quarter-end.
Changes versus the prior comparable period
- The year-over-year earnings improvement primarily reflects the exceptionally large Greater Lawrence Incident charges recorded in 2018; in 2019, nine-month insurance recoveries exceeded incident-related expenses recorded during the period. Incident-related operating expense impact was $21 million in Q3 2019 and a net benefit of $175 million for the first nine months of 2019, compared with substantial 2018 charges.
- Higher depreciation and interest expense partly offset operating improvements. Nine-month preferred dividends increased to $41.4 million from $6.9 million, reducing earnings available to common shareholders.
- Gas Distribution revenue growth reflected rate and infrastructure-program changes; Electric Operations revenue was broadly flat for nine months. Electric sales volumes fell 4.3% for the nine-month period, while gas throughput declined about 1.0%.
Outlook, risks and unusual items
- Investment outlook: Management expected 2019 capital expenditures of approximately $1.7–$1.8 billion and described approximately $30 billion of projected long-term regulated utility infrastructure investment. These are expectations, not guarantees.
- Greater Lawrence Incident: Management estimated third-party claim costs of $995–$1,020 million and other incident-related costs of $430–$440 million, excluding estimated pipeline-replacement capital costs of $255–$260 million. Available third-party liability insurance is $800 million; $670 million of recoveries had been recorded through September 30, and the company said total incident expenses had exceeded available coverage. Uninsured costs and regulatory recovery of pipeline investment remain uncertain. Government fines and penalties could not be reasonably estimated.
- A proposed $143 million settlement of consolidated class-action claims received preliminary court approval in October 2019, but remained subject to final approval. It does not cover bodily-injury and wrongful-death claims, insurance subrogation, or certain appliance-related claims.
- Investigations related to the incident include proceedings involving the Massachusetts DPU, the U.S. Department of Justice and the SEC. The NTSB issued its final report after quarter-end; it attributed the incident to weak engineering management and inadequate overpressure protection. After-quarter-end Massachusetts actions included limits on non-emergency gas-system work pending DPU modification and additional audits and investigations.
- Electric generation transition: NIPSCO’s preferred resource plan calls for retiring 2,080 MW of coal capacity: Schahfer units by 2023 and Michigan City Unit 12 by 2028. Replacement plans include renewables, battery storage and power-purchase agreements; timing, approvals and execution remain relevant risks.
- Other risks include regulatory rate outcomes, environmental obligations, weather, commodity and interest-rate exposure, credit ratings and financing needs. Management said it believed available capital was adequate, while also noting incident costs and the Tax Cuts and Jobs Act affected liquidity.
Important facts for investors to verify
- Progress toward final approval and funding of the $143 million class settlement, and exposure from excluded injury, wrongful-death and other claims.
- Final incident-related costs, insurance recoveries and any DPU, DOJ or SEC findings, penalties, or restrictions on Massachusetts operations.
- Whether pipeline-replacement capital is reimbursed by insurance or recovered through customer rates, and any potential disallowance.
- Refinancing or repayment plans for the $850 million term loan due April 2020, alongside short-term borrowing levels and credit ratings.
- Delivery of planned capital spending, rate recovery, and NIPSCO’s coal-retirement and replacement-resource schedule.