NiSource Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. NiSource is a regulated natural gas and electric utility holding company serving six states. Results are seasonal and may not indicate full-year performance.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Operating revenue | $1,966.0 million | $1,873.3 million | +5.0% |
| Operating income | $531.0 million | $600.3 million | -11.5% |
| Net income attributable to NiSource | $333.0 million | $426.8 million | -22.0% |
| Net income available to common shareholders | $319.2 million | $413.0 million | -22.7% |
| Basic / diluted EPS | $0.77 / $0.71 | $1.02 / $0.94 | Down $0.25 / $0.23 |
| Operating cash flow | $683.4 million | $579.8 million | +$103.6 million |
| Capital expenditures | $557.1 million | $450.1 million | +$107.0 million |
Operating margin was approximately 27.0%, versus 32.0% a year earlier; net margin was approximately 17.2%, versus 23.0%. The prior-year period included a $105 million insurance settlement related to the Greater Lawrence Incident, contributing to the year-over-year earnings decline. Other factors included warmer weather and higher interest expense. Rate-case outcomes and regulatory capital programs partly offset these impacts. Higher tracked energy costs generally pass through to customers and have little effect on earnings.
Balance sheet, debt and liquidity
- At March 31, 2023, cash and cash equivalents were $106.4 million; cash, cash equivalents and restricted cash totaled $148.3 million.
- Long-term debt, including the current portion, was $10.295 billion; short-term borrowings were $1.282 billion. NiSource issued $750 million of 5.25% senior unsecured notes due 2028 in March, receiving approximately $742.2 million net.
- Net available liquidity was reported at $2.300 billion. The company had no commercial paper outstanding and $1.0 billion outstanding under its term credit agreement, maturing December 19, 2023.
- The debt-to-capitalization ratio under the revolving credit facility covenant was 59.1%, against a maximum of 70.0%.
- Total equity was $8.004 billion. Common dividends declared were $0.50 per share for the quarter.
Operating cash flow increased year over year, primarily from changes in receivable collections and lower cash outflows for inventory. Investing cash outflow was $727.8 million, including capital expenditures and renewable-project developer payments. Financing cash flow was $117.3 million.
Operations and material changes
- Gas Distribution: Segment revenue was $1.504 billion, up $64.6 million, while operating income fell $63.9 million to $446.9 million. New rates and regulatory programs added revenue, but warmer weather reduced revenue by $33.3 million; Q1 heating degree days were 17% warmer than normal.
- Electric Operations: Segment revenue was $464.7 million, up $34.4 million, while operating income fell $17.3 million to $81.9 million. Sales volumes declined 4.2%; increased customer energy costs were largely passed through under recovery mechanisms.
- Quarter-end net property, plant and equipment was $20.228 billion, up from $19.843 billion at year-end 2022. Short-term borrowings declined from $1.762 billion at year-end, while long-term debt increased.
Outlook, commentary and risks
- Management expects capital investments of $3.3–$3.6 billion in 2023 and approximately $15 billion over 2023–2027; estimates remain subject to review and adjustment. The filing does not provide a specific earnings or EPS forecast.
- NiSource says it remains on track to retire the remaining two R.M. Schahfer coal units by the end of 2025 and remaining coal-fired generation by the end of 2028. It reports approved and executed renewable BTAs and PPAs totaling 1,950 MW and 1,380 MW, respectively, and is assessing project timing and costs.
- Management cited supply-chain delays, inflation in materials, labor availability and rising interest rates as potential pressures on project execution and costs. Solar projects also face uncertainty around tariffs and the U.S. Department of Commerce investigation.
- The Greater Lawrence Incident remains subject to wrongful-death and bodily-injury claims; settlement outcomes are uncertain. A separate FERC investigation could expose NIPSCO to up to $9.7 million of estimated disgorgement, with indemnification being pursued from the customer.
- Recorded environmental remediation liabilities were $84.3 million. The filing notes that additional costs, including at sites not yet investigated, could be material, though management expects a majority of environmental and retirement costs to be recoverable through rates.
- NiSource’s 2040 net-zero greenhouse-gas goal depends on supportive policies and technologies becoming feasible. The company reported Scope 1 emissions reductions of approximately 67% from 2005 levels through year-end 2022.
- The company expects to remarket Series C mandatory convertible preferred stock before December 1, 2023; outcomes affect potential conversion and financing. Failure to complete a successful remarketing has specified adverse consequences for holders and the related purchase contracts.
Important facts for investors to verify
- Progress, final costs and regulatory recovery for renewable generation projects, including construction, interconnection, tax-equity financing and tariff exposure.
- Outcomes of pending rate proceedings, particularly NIPSCO Electric and Columbia of Virginia, and the timing and amount of approved rate increases.
- Cash needs and refinancing plans for the $1.0 billion term credit agreement due December 2023, alongside capital spending and the potential NIPSCO minority-interest sale.
- Developments in the Greater Lawrence claims, FERC investigation and environmental remediation obligations.
- Whether weather, interest costs, construction inflation and customer affordability affect future earnings, cash flows and execution of stated investment plans.