NiSource Inc. (NYSE:NI) is a leading energy holding company that provides natural gas, electricity, and other energy-related products and services to approximately 3.7 million customers across six states - Ohio, Pennsylvania, Virginia, Kentucky, Maryland, and Indiana. The company operates through two primary reportable segments: Columbia Operations and NIPSCO Operations.

Business Overview

NiSource's Solid Financial Performance

For the full year 2023, NiSource reported annual net income of $714.3 million, annual revenue of $5,505.4 million, annual operating cash flow of $1,935.1 million, and annual free cash flow of -$710.7 million. In the first quarter of 2024, the company reported adjusted EPS of $0.85, a 10% increase from the $0.77 reported in the same period last year.

The increase in first-quarter earnings was primarily driven by positive results from regulatory activity and other income, partially offset by higher operation and maintenance (O&M) expenses and depreciation. Normalized customer usage also provided an $8 million and $4 million pre-tax benefit in the Columbia and NIPSCO segments, respectively.

Reaffirming Guidance and Long-Term Growth Targets

NiSource is reaffirming its 2024 adjusted EPS guidance of $1.70 to $1.74 and its long-term annual adjusted EPS growth rate of 6% to 8% from 2023 to 2028. The company also remains confident in achieving its 14% to 16% FFO to debt ratio target in all years of the plan.

Robust Capital Investment Plan

NiSource has a $16.4 billion base capital investment plan projected over the next five years, with an additional $1.5 billion in upside projects. This capital plan is focused on renewable electricity generation, gas and electric customer growth, distribution modernization, and system hardening for both the electric and gas businesses.

The company recently announced the addition of the full ownership of the Fairbanks and Gibson solar projects to its base capital plan. This move simplifies the project structure and reduces costs to customers compared to the previous tax equity configuration.

Regulatory Strength and Stakeholder Alignment

NiSource's superior regulatory and stakeholder foundation is a key differentiator. The company has a long history of working collaboratively with regulators and stakeholders to deliver value across diverse constituencies. This is evidenced by the recent NIPSCO Gas general rate case settlement and the company's proactive engagement in regulatory proceedings, such as the upcoming NIPSCO electric Integrated Resource Plan (IRP) process.

Geographic Diversification and Business Mix

NiSource's operations are diversified across six states, with a mix of natural gas distribution and electric generation and transmission activities. As of the end of 2023, the company's rate base was composed of $9 billion in Indiana, $4 billion in Ohio, $3 billion in Pennsylvania, and over $1 billion in Virginia.

The company's gas distribution business serves approximately 3.3 million customers, while its electric operations serve around 500,000 customers. This diversification helps mitigate risks and provides a balanced growth profile.

Renewable Energy Transition

NiSource is actively transitioning its electric generation mix to lower-cost, reliable, and cleaner options. The company has executed several power purchase agreements (PPAs) and build-transfer agreements (BTAs) for wind, solar, and solar-plus-storage projects, with a combined nameplate capacity of 1,950 MW and 1,400 MW, respectively.

The company is also on track to retire the remaining two coal units at the R.M. Schahfer Generating Station by the end of 2025 and the coal-fired generation at the Michigan City Generating Station by the end of 2028. These retirements will be replaced by a diverse portfolio of renewable and flexible natural gas resources.

Operational Excellence and Safety Focus

NiSource has made significant strides in enhancing the safety and reliability of its gas and electric systems. The company's safety management system has been reconfirmed for American Petroleum Institute Recommended Practice 1173, making NiSource one of only two utilities in the world to maintain this designation.

The company has implemented various safety-enhancing measures, such as automatic shutoff valves, remote pressure monitoring, and advanced leak detection technologies. These initiatives have resulted in a 36% reduction in miles of pipe designated as priority compared to 2017 and 98% of gas service lines mapped as of the end of 2023, up from only 4% six years ago.

Emerging Opportunities in Data Centers and Economic Development

NiSource's service territories, particularly in Northern Indiana, offer attractive fundamentals for data center development, including robust electric transmission, available energy capacity, plentiful land, and a pro-business policy environment. The company is actively engaged with several data center developers and is working to structure opportunities that benefit all stakeholders, including customers and shareholders.

Additionally, the company's service areas have seen strong economic development activity, with projects such as a $200 million advanced electronics manufacturing and testing facility in Waynesboro, Virginia. NiSource's ability to support this growth through new gas infrastructure investments further enhances the value proposition for all customers.

Liquidity

NiSource maintains a strong liquidity position, with $1.85 billion in available capacity under its revolving credit facility and access to various financing sources, including its at-the-market (ATM) equity program, the NIPSCO minority interest transaction, and potential use of hybrid securities and senior unsecured debt.

The company's balance sheet is well-positioned, with a targeted FFO to debt ratio of 14% to 16% in all years of the plan. NiSource's credit ratings of BBB+ (S&P), Baa2 (Moody's), and BBB (Fitch) provide financial flexibility and access to capital markets.

Risks and Challenges

While NiSource's outlook remains positive, the company faces risks and challenges, including regulatory uncertainty, potential changes in environmental regulations, weather-related impacts, and the ability to successfully execute its renewable energy transition and infrastructure investment plans.

Conclusion

NiSource is a well-diversified utility company with a strong financial profile, robust capital investment plan, and a superior regulatory and stakeholder foundation. The company's focus on operational excellence, safety, and the energy transition, coupled with emerging opportunities in data centers and economic development, position it for sustainable growth in the years ahead. With a clear strategic vision and a commitment to delivering value to all stakeholders, NiSource is an attractive investment proposition in the utility sector.