NiSource Inc. (NI) is one of the largest fully-regulated utility companies in the United States, serving approximately 3.2 million natural gas customers and 500,000 electric customers across six states. The company's diverse portfolio of gas distribution, electric generation, and transmission assets positions it as a vital energy provider in its regional markets.
Company History and Background
NiSource Inc. was formed in 1999 through the merger of Columbia Energy Group and NIPSCO Industries, bringing together a rich history of energy service that dates back to the late 19th century. The company's operations span across Indiana, Ohio, Pennsylvania, Virginia, Maryland, and Kentucky, making it one of the largest natural gas distribution companies in the United States. In the early 2000s, NiSource faced challenges related to the separation of its electric and gas operations and the integration of various subsidiaries. The company responded by streamlining its operations, improving customer service, and strengthening its financial position through the divestiture of non-core businesses and implementation of cost-cutting initiatives.
A significant event in NiSource's history was the 2014 natural gas explosion in Massachusetts, which resulted in loss of life and property damage. This incident led to an increased focus on safety, compliance, infrastructure modernization, emergency response planning, and asset management. Over the past decade, NiSource has made substantial investments in its natural gas and electric systems to enhance safety, reliability, and environmental performance. The company has also diversified its energy generation portfolio, transitioning away from coal-fired power plants towards renewable sources such as wind and solar.
Business Segments
NiSource's operations are organized into two primary business segments: Columbia Operations and NIPSCO Operations. This diversification allows NiSource to better manage risks and capitalize on growth opportunities across different energy markets.
The Columbia Operations segment provides regulated natural gas service and transportation for residential, commercial, and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, and Maryland. In the third quarter of 2024, this segment reported operating revenues of $426.70 million, up from $414.00 million in the same period in 2023. Operating income for the quarter was $41.20 million, down from $54.60 million in the previous year. For the nine months ended September 30, 2024, operating revenues were $1.87 billion, with operating income of $499.80 million.
The NIPSCO Operations segment provides regulated gas and electric service in northern Indiana for residential, commercial, and industrial customers. This segment reported operating revenues of $652.90 million for the third quarter of 2024, up from $616.60 million in the same period in 2023. Operating income for the quarter was $171.30 million, slightly down from $173.10 million in the previous year. For the nine months ended September 30, 2024, operating revenues were $2.00 billion, with operating income of $530.00 million.
Key drivers of changes in operating revenues and income for both segments include new rates from base rate proceedings, regulatory capital programs, changes in customer usage and growth, and the effects of weather.
Financials
In the latest fiscal year ending December 31, 2023, NiSource reported annual revenue of $5.51 billion and net income of $714.30 million, demonstrating the scale and profitability of its regulated utility model. The company's operating cash flow (OCF) for the year was $1.94 billion, while free cash flow (FCF) was -$710.70 million.
For the most recent quarter ending September 30, 2024, NiSource reported revenue of $1.08 billion, an increase of $48.90 million or 4.7% compared to Q3 2023. This growth was driven by higher rates from base rate proceedings and regulatory capital programs, as well as the effects of customer growth and usage. Net income for the quarter was $97.00 million, up $1.40 million or 1.4% compared to Q3 2023, primarily due to higher revenues net of cost of energy and increased AFUDC equity, partially offset by higher depreciation expense. The company's OCF for the quarter was -$852.50 million, while FCF was $476.00 million.
Liquidity and Balance Sheet
NiSource's balance sheet has grown stronger in recent years, with total assets reaching $31.08 billion as of the end of 2023. The company's net debt-to-capitalization ratio stood at 58.15%, reflecting a prudent approach to capital structure management. The debt-to-equity ratio was 3.05 as of December 31, 2023.
As of the end of 2023, NiSource had cash and cash equivalents of $2.25 billion, with a $1.85 billion revolving credit facility that remained undrawn. The company also maintained accounts receivable securitization programs totaling $383.90 million, of which $337.60 million was utilized. NiSource's current ratio was 0.86, and its quick ratio was 0.72 as of December 31, 2023, indicating a solid short-term liquidity position.
Environmental Initiatives and Future Growth
One of the key drivers of NiSource's future growth is its commitment to the energy transition. The company has set a goal of achieving net-zero greenhouse gas emissions by 2040, which it plans to accomplish through a combination of coal plant retirements, renewable energy investments, and modernization of its gas distribution systems. These initiatives not only support environmental sustainability but also position NiSource to capitalize on evolving customer preferences and regulatory landscapes.
NiSource is executing a plan to retire its remaining coal-fired generation by 2028 and replace it with a mix of renewable energy, natural gas, and battery storage. The company has made significant progress on this transition, having executed Power Purchase Agreements (PPAs) and Build Transfer Agreements (BTAs) for over 1.95GW of renewable generation capacity.
Recent Performance and Outlook
In its latest quarterly results, NiSource reported adjusted earnings per share of $0.20, a year-over-year increase of $0.01. This performance was driven by higher rate base investments, improved customer usage, and increased net financing benefits. The company reaffirmed its 2024 adjusted EPS guidance range of $1.70 to $1.74, with the expectation of achieving the upper half of the range.
Looking ahead, NiSource has initiated 2025 adjusted EPS guidance of $1.84 to $1.88, consistent with maintaining its existing 6% to 8% annual growth commitment. The company has also outlined a robust $19.3 billion capital investment plan for the 2025-2029 period, which is equivalent to 89% of their total current rate base. This investment strategy is expected to drive an 8% to 10% rate base growth over the next five years, while maintaining the company's commitment to achieving a 14% to 16% FFO to debt ratio in all years of the plan.
NiSource projects less than 5% average annual bill increases across its service territory, underscoring its commitment to customer affordability while pursuing its growth strategy.
Industry Challenges and Company Resilience
Despite the challenges faced by the broader utility industry, such as evolving environmental regulations and economic headwinds, NiSource has demonstrated its resilience and adaptability. The company's diversified business model, constructive regulatory relationships, and prudent financial management have positioned it well to navigate these complex market conditions and continue its trajectory of steady growth and reliable service.
NiSource continues to invest heavily in its gas and electric distribution systems to enhance safety and reliability, with recent approvals for regulatory recovery mechanisms in several of its jurisdictions. The company is also exploring opportunities to support economic development, including potential data center projects in its service territory.
Conclusion
In conclusion, NiSource's strong operational performance, strategic investments, and focus on the energy transition make it a compelling investment opportunity in the regulated utility space. The company's ability to consistently meet and exceed its financial targets, coupled with its clear vision for future growth and sustainability, provides a solid foundation for long-term value creation. As NiSource continues to power forward, investors can look to its proven track record and ambitious plans as indicators of its potential for sustained success in the evolving energy landscape.