NiSource Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. NiSource is a regulated natural gas and electric utility holding company serving six states. Its reportable businesses are Gas Distribution Operations and Electric Operations.
Financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Operating revenue | $1,183.2 million | $986.0 million | $3,056.5 million | $2,531.6 million |
| Operating income | $143.3 million | $142.2 million | $743.6 million | $575.4 million |
| Net income attributable to NiSource | $67.0 million | $60.3 million | $493.8 million | $355.8 million |
| Net income available to common shareholders | $53.2 million | $46.5 million | $466.2 million | $328.2 million |
| Diluted EPS | $0.12 | $0.11 | $1.06 | $0.80 |
- Q2 revenue increased 20%, but much of the increase reflected higher energy costs passed through to customers. Operating income was nearly unchanged; common earnings rose partly because losses attributable to noncontrolling interests were higher.
- For the first half, revenue rose 21% and operating income rose 29%. Management attributed the increase in common earnings mainly to gas base-rate and regulatory-program revenues and a $105 million insurance settlement related to the Greater Lawrence Incident, partly offset by higher income taxes.
- Six-month operating margin was approximately 24% of revenue, versus 23% a year earlier; this comparison is affected by pass-through energy costs and the insurance settlement. Q2 operating margin was approximately 12%, versus 14%.
- Cash from operations was $907.2 million for the first half, up from $703.0 million. Capital expenditures were $917.0 million; net cash used in investing was $951.1 million. Cash, cash equivalents and restricted cash totaled $99.5 million at June 30.
- Long-term debt, including current maturities, was $9.56 billion; short-term borrowings were $555 million. Total debt was approximately $10.11 billion. The company reported $1.64 billion of net available liquidity and a 57.3% debt-to-capitalization ratio against a 70% covenant limit.
Material changes and notable items
- Gas Distribution operating income increased $19.4 million in Q2 and $183.3 million for the first half. First-half results included the $105 million insurance recovery and higher revenues from rate proceedings and regulatory capital programs.
- Electric Operations operating income decreased $7.0 million in Q2 and increased $4.3 million for the first half. Higher depreciation and renewable-joint-venture costs weighed on results.
- On June 10, NiSource issued $350 million of 5.00% senior unsecured notes due 2052, generating approximately $344.6 million net proceeds. Long-term debt carrying value increased from $9.18 billion at year-end to $9.52 billion.
- A pension plan settlement resulted in a $6.3 million Q2 charge and a $5.7 million increase in 2022 pension benefit cost following remeasurement.
Outlook, management commentary and risks
- No specific earnings guidance was stated in the provided filing text. Management said liquidity sources were adequate to fund operations and capital expenditures.
- NiSource expects approximately $8 billion of capital investment during 2022–2024. Approximately $2 billion is expected for replacing R.M. Schahfer coal generation, primarily during 2022–2024, with any remainder in 2025.
- Solar and storage project schedules were delayed an estimated six to 18 months, with most projects and investment expected in service in 2023–2024. Cited causes included supply-chain and labor constraints, solar-panel availability, tariffs and the U.S. Department of Commerce investigation. The company warned that cost or schedule changes could require further regulatory approval and affect project viability.
- NiSource expected to retire the remaining two R.M. Schahfer coal units by the end of 2025, earlier than the broader 2018 plan’s 2026–2028 retirement window; timing remains subject to project and regulatory conditions. It reported 1,950 MW of approved build-transfer agreements and 1,380 MW of approved power purchase agreements under the 2018 plan.
- Natural-gas commodity prices rose substantially; management expected higher costs to affect customer bills during 2022 but reported no material effect on first-half results, citing cost-recovery mechanisms. Rail coal-delivery problems at Michigan City were described as resolved, though monitored.
- Columbia of Ohio’s pending rate case requested a $221.4 million annual revenue increase; regulatory staff recommended $35.2–$57.6 million. The case remained pending, with settlement discussions and a hearing schedule under consideration. NIPSCO’s gas rate case was approved July 27, 2022.
- Greater Lawrence Incident claims remain a contingency. The company’s three-year deferred prosecution agreement remained in effect, subject to compliance with specified obligations; some private claims remained unresolved. Environmental remediation liabilities were $98.2 million, including $91.9 million for manufactured gas plant sites; management noted possible additional variation in MGP costs of up to $17 million.
- Other disclosed risks include inflation, supply-chain and workforce pressures, interest rates, regulatory outcomes, severe weather and climate policy. Management reported effective disclosure controls and no material quarterly change in internal control over financial reporting.
Key facts for investors to verify
- How much first-half earnings improvement is recurring, excluding the $105 million insurance recovery and other unusual items.
- Final outcomes and timing for Columbia of Ohio and other pending rate cases, and expected recovery of infrastructure and renewable investment costs.
- Solar and storage project delays, revised costs, regulatory approvals, tax-credit timing and implications for coal retirement plans.
- Debt, borrowing costs, access to capital and liquidity needs as the capital program proceeds; also monitor the equity-unit purchase contracts and potential dilution.
- Remaining Greater Lawrence claims, compliance with the deferred prosecution agreement, and the adequacy and recoverability of environmental remediation estimates.