NiSource Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. NiSource is a regulated natural gas and electric utility holding company serving six states. Financial statements are unaudited.
Financial results and position
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Operating revenue | $1,873.3 million | $1,545.6 million |
| Operating income | $600.3 million | $433.2 million |
| Net income attributable to NiSource | $426.8 million | $295.5 million |
| Net income available to common shareholders | $413.0 million | $281.7 million |
| Basic / diluted EPS | $1.02 / $0.94 | $0.72 / $0.72 |
| Cash from operations | $579.8 million | $448.3 million |
| Capital expenditures | $450.1 million | $367.0 million |
Operating margin was approximately 32.0% of revenue, compared with 28.0% in Q1 2021. Operating cash flow less capital expenditures was approximately $129.7 million. The filing attributes much of the earnings increase to higher gas base-rate and regulatory-program revenues and a $105 million insurance settlement tied to the Greater Lawrence Incident; the settlement makes the comparison less representative of recurring performance.
At March 31, 2022, cash and cash equivalents were $114.5 million and total debt, including short-term borrowings and current maturities, was approximately $9.76 billion. Equity was $7.53 billion. Net available liquidity was $1.91 billion, including cash and undrawn borrowing capacity. The revolving credit facility is $1.85 billion and was extended to February 2027. The debt-to-capitalization covenant limit is 70%; the reported ratio was 56.4%.
Changes versus prior year
- Revenue increased $327.7 million and operating income rose $167.1 million. Gas Distribution Operations operating income increased $163.9 million; Electric Operations operating income increased $11.3 million.
- Higher gas and electric energy costs largely flowed through to customers under regulatory recovery mechanisms. Management said these tracked cost increases generally do not materially affect earnings.
- Gas revenue growth reflected new base rates and regulatory capital programs, colder weather, and customer growth. Electric revenue benefited in part from renewable joint-venture PPA revenue; electric sales volume declined, primarily due to lower industrial usage.
- Diluted EPS was affected by additional dilution from Equity Units following adoption of new accounting guidance; diluted average shares rose to 441.4 million from 393.9 million.
Outlook, risks and notable items
- NiSource expects approximately $8 billion of capital investment during 2022–2024, and about $2 billion to replace the capacity of the R.M. Schahfer coal units, primarily during 2022–2024, with any remainder in 2025. Actual spending and timing may change.
- The plan to replace coal generation with primarily renewable resources faces solar-panel availability, federal trade investigations and tariffs, supply-chain and labor constraints, permitting and interconnection risks, and potential cost increases. Most affected solar and storage projects were estimated to be delayed six to 18 months; the company expected the remaining Schahfer coal units to retire by the end of 2025, later than previously planned.
- Higher natural-gas commodity prices were expected to affect customer bills during 2022, although NiSource reported no material impact on Q1 results. Coal delivery shortages could constrain generation and require more costly market power purchases.
- Columbia of Ohio’s rate case request sought $221.4 million of annual revenue; the commission staff recommended a $35.2 million to $57.6 million increase. NiSource was reviewing the recommendation. A NIPSCO Gas settlement was filed seeking a proposed $71.8 million increase, with rates expected in steps beginning September 2022, subject to approval.
- The company received $105 million under a settlement of its Greater Lawrence Incident property-insurance claim. Related remaining private claims and a shareholder derivative suit remain matters to monitor; the filing says it cannot estimate a loss for the derivative suit. NiSource’s deferred prosecution agreement related to the incident remains subject to compliance obligations.
- Environmental remediation liabilities were $91.3 million; the estimated MGP remediation liability was $84.8 million, with possible variation of up to $17 million. Certain other site remediation costs are not fully estimable and could be material.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor verification points
- Separate recurring operating performance from the $105 million insurance settlement and confirm whether future results reflect additional incident-related costs or recoveries.
- Track solar project schedules, costs, regulatory recovery, tax-credit timing, and adequacy of replacement capacity as coal retirements approach.
- Review outcomes of the Ohio, NIPSCO Gas, Pennsylvania and Virginia rate proceedings and the timing of infrastructure-program cost recovery.
- Monitor capital spending, funding needs, short-term borrowing usage, and the impact of Equity Units and potential ATM share issuance on dilution.
- Follow Greater Lawrence claims and DPA compliance, environmental remediation estimates, and coal ash pond approvals and obligations.