NiSource Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report; the figures below are full-year results, not standalone fourth-quarter results. NiSource is a regulated gas and electric utility holding company serving approximately 3.7 million customers in six states.
Financial performance
| Metric | 2020 | 2019 |
|---|---|---|
| Operating revenue | $4,681.7 million | $5,208.9 million |
| Operating income | $550.8 million | $890.7 million |
| Operating margin | 11.8% | 17.1% |
| Net income (loss) attributable to NiSource | $(17.6) million | $383.1 million |
| Net income (loss) available to common shareholders | $(72.7) million | $328.0 million |
| Basic EPS | $(0.19) | $0.88 |
| Cash from operating activities | $1,104.0 million | $1,583.3 million |
| Capital expenditures and related investing activity | $1,720.8 million | $1,867.8 million |
| Consolidated debt, including short-term borrowings | $9,746.1 million | $9,642.8 million |
| Net available liquidity at year-end | $1,721.6 million | $1,409.1 million |
Operating revenue declined 10.1% year over year. The filing attributes the results principally to the October 2020 sale of the Massachusetts business, a $412.4 million estimated loss on that sale, and the absence of significant 2019 insurance recoveries related to the Greater Lawrence Incident. 2020 also included a $243.5 million loss on early extinguishment of debt. The income tax benefit was $17.1 million, compared with tax expense of $123.5 million in 2019.
Gas Distribution Operations reported $199.1 million of operating income, down from $675.4 million; Electric Operations reported $348.8 million, down from $406.8 million. The gas business was affected by the Massachusetts sale and warmer weather, among other factors. Electric sales fell 6.5%, mainly reflecting reduced commercial and industrial usage, including pandemic impacts and industrial self-generation. Most gas and fuel costs are recovered through regulatory mechanisms and largely pass through revenue and expense.
Liquidity, debt and capital
Cash and cash equivalents were $116.5 million at year-end. Short-term borrowings were $503.0 million, versus $1,773.2 million a year earlier; long-term debt, including current maturities, was $9,243.1 million. The revolving-credit-facility debt-to-capitalization ratio was 62.5%, below the 70% covenant limit. NiSource reported investment-grade ratings with stable outlooks from S&P, Moody’s and Fitch.
Operating cash flow decreased by $479.3 million, principally reflecting $227 million of net Greater Lawrence-related payments in 2020 versus net receipts of $289 million in 2019. Management cited the Massachusetts sale proceeds, financing capacity and expected capital-market access as liquidity sources. The Board declared a 2021 quarterly common dividend of $0.22 per share; future dividends remain subject to Board discretion and applicable restrictions.
Material developments, outlook and risks
- Massachusetts sale: Closed October 9, 2020, for approximately $1.113 billion in net proceeds. The reported estimated pretax sale loss was $412.4 million and remained subject to final working-capital determination. NiSource retained certain indemnification and other liabilities.
- Capital plans: Management projected 2021 capital investment of approximately $1.9–$2.1 billion. NiSource Next and the Massachusetts sale were projected to reduce ongoing operation and maintenance costs by approximately 8% in 2021 versus 2020.
- Generation transition: NIPSCO’s plan targets replacement of 80% of coal capacity by the end of 2023 and all coal generation by the end of 2028, primarily with renewables. Two R.M. Schahfer units were expected to retire by the end of 2021, with the remaining units scheduled for 2023; Michigan City was scheduled for retirement by the end of 2028. Management estimated replacement investment opportunities of approximately $1.8–$2.0 billion, primarily in 2022–2023. Project timing, approvals, costs and recovery remain execution risks.
- COVID-19: The company reported lower revenue, higher bad-debt expense and pandemic-related costs, and slower customer collections. Some disconnection protections and payment-plan requirements remained in effect, and certain incremental costs were authorized for regulatory deferral. Future effects were uncertain.
- Greater Lawrence Incident: NiSource had recorded $1.036 billion of third-party claims, fines, penalties and settlements, with estimated total costs in that category of $1.036–$1.050 billion. The full $800 million of available liability insurance had been collected, and incident expenses exceeded that coverage. Certain injury claims and other matters remained unresolved; recovery of approximately $258 million spent replacing affected pipeline depended on pending property-insurance litigation.
- Regulatory and other risks: Regulatory recovery and rate outcomes, infrastructure safety and aging assets, environmental compliance, weather and commodity supply, debt and financing access, cybersecurity, pension obligations, and execution of renewable projects could affect results. A Pennsylvania rate-case administrative-law-judge recommendation proposed denying the requested increase; a final commission order was expected in Q1 2021.
The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. The auditor identified rate regulation and judgments about future recovery of costs through customer rates as a critical audit matter.
Investor verification priorities
- Track final working-capital and transaction adjustments for the Massachusetts sale, and any continuing indemnity or other retained liabilities.
- Monitor Greater Lawrence claims, the property-insurance lawsuit, remaining incident costs, and compliance with the federal deferred-prosecution agreement.
- Verify regulatory decisions and timing for rate cases, pandemic-related regulatory assets, and recovery of retired-plant balances.
- Assess whether the $1.9–$2.1 billion 2021 capital plan and coal-replacement projects proceed on schedule, within budget, and with required approvals and cost recovery.
- Monitor operating cash flow, debt, liquidity, credit ratings and covenant headroom alongside the planned capital spending and common dividend.