NiSource Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparative period is Q1 2023. NiSource is a regulated natural gas and electric utility holding company serving six states. Effective in 2024, it reports Columbia Operations and NIPSCO Operations as its primary segments; prior-period segment data was recast.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Operating revenue | $1,706.3 million | $1,966.0 million |
| Operating income | $583.4 million | $531.0 million |
| Net income | $400.3 million | $337.8 million |
| Net income attributable to NiSource | $365.0 million | $333.0 million |
| Net income available to common shareholders | $344.3 million | $319.2 million |
| Basic / diluted EPS | $0.77 / $0.77 | $0.77 / $0.71 |
| Cash from operating activities | $456.2 million | $683.4 million |
| Capital expenditures | $589.5 million | $557.1 million |
Operating margin was approximately 34.2%, compared with 27.0% a year earlier; net margin was approximately 23.5%, compared with 17.2%. Lower energy costs passed through to customers drove much of the revenue decline and expense reduction; these tracked costs generally have little effect on earnings. Excluding that pass-through effect, higher revenues from rate outcomes and regulatory programs supported operating income. Management attributed the increase in common earnings primarily to higher revenues net of energy costs, partly offset by the larger noncontrolling interest following the NIPSCO minority investment.
Columbia Operations operating income rose to $362.0 million from $351.8 million; NIPSCO Operations increased to $216.4 million from $177.0 million. Net income attributable to noncontrolling interests increased to $35.3 million from $4.8 million. The effective tax rate fell to 16.0% from 20.3%. Basic EPS was unchanged; diluted EPS increased partly because 2023 diluted EPS included shares and interest effects related to Equity Units that were settled in December 2023.
Balance sheet, debt and liquidity
At March 31, 2024, cash and cash equivalents were $102.2 million, versus $2,245.4 million at year-end; total assets were $29.34 billion, versus $31.08 billion. Long-term debt, excluding current maturities, was $11.72 billion, and short-term borrowings were $1.22 billion. The sharp cash decline reflects financing and capital-allocation activity, including repayment of $1.65 billion of term credit agreements, redemption of $500 million of Series B and B-1 preferred stock, and dividends. Net available liquidity was $1.14 billion, down from $3.07 billion at year-end. The company reported a 57.0% debt-to-capitalization ratio against a 70.0% revolving-credit covenant limit.
Quarterly operating cash flow fell by $227.2 million year over year, primarily due to working-capital changes associated with collections, inventory and exchange gas receivables, partly offset by higher payables and net income. Investing cash use was $723.0 million. Financing cash use was $1.87 billion. In March, NiSource issued $650 million of 5.35% senior notes due 2034, generating approximately $642.6 million net proceeds. It also established a $900 million at-the-market equity program; about $700 million remained available at quarter-end, including a forward sale agreement.
Outlook, strategy and material items
- Management expects 2024 capital investment of $3.3–$3.5 billion and approximately $16.4 billion over 2024–2028, including generation transition spending. These estimates remain subject to review and may vary.
- NiSource says it remains on track to retire the remaining R.M. Schahfer coal units by the end of 2025 and Michigan City coal generation by the end of 2028, subject to required approvals. Most remaining renewable BTA and PPA projects are expected to enter service in 2024 and 2025. NIPSCO’s planned R.M. Schahfer gas peaking facility is subject to regulatory proceedings.
- In January, the IURC approved full ownership of the Cavalry and Dunns Bridge II projects. NiSource filed in March to modify ownership plans for Gibson and Fairbanks; the filings were pending. Cavalry reached mechanical completion in March, prompting a $110.6 million developer payment.
- NiSource filed for approval to defer certain costs of its work-and-asset-management system as a regulatory asset and include the assets in rate base after they are placed in service. A first-phase program launch was anticipated in Q3 2024.
- A proposed settlement in the pending NIPSCO Gas rate case, filed March 20, would provide $120.9 million of incremental revenue if approved; the filing anticipated rate steps in September 2024 and March 2025. The company also had pending Columbia of Pennsylvania and Columbia of Virginia rate cases.
Risks and contingencies
Key exposures include regulatory outcomes and cost recovery, construction delays and material or labor constraints, interest rates and financing needs, weather and severe events, cybersecurity, aging infrastructure, commodity supply, and environmental requirements. Management cautions that interim results may not indicate full-year results because of seasonality and other factors. NiSource reported $77.8 million of environmental remediation liabilities; its estimate for 53 identified manufactured-gas-plant sites was $72.8 million, with possible additional variation of up to $15.1 million. It noted that remediation costs at some sites are not currently estimable and could be material. Renewable-project performance guarantees totaled $672.3 million. The company is assessing the potential effect of EPA rules issued April 25, 2024, including coal-ash and power-sector emissions rules. The company’s net-zero-by-2040 goal depends on supportive policy, stakeholder conditions and technologies that may not become economically viable. NiSource said there were no material changes to its previously disclosed risk factors and no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress and final approval of pending rate cases, renewable ownership filings, and the work-and-asset-management regulatory petition.
- Whether the stated 2024 and 2024–2028 capital plans, project schedules and coal-retirement plans remain achievable, and how costs are recovered from customers.
- Cash generation, working-capital trends, available liquidity and reliance on short-term borrowing and the ATM equity program to fund investment.
- Effects of the NIPSCO minority interest on earnings attributable to NiSource and future distributions to noncontrolling investors.
- Potential financial exposure from environmental remediation, EPA rule changes, construction guarantees and other legal or regulatory proceedings.