Executive Summary / Key Takeaways

• Transformative Growth Trajectory: NiSource is accelerating its long-term growth outlook, projecting an 8-9% consolidated adjusted EPS compound annual growth rate (CAGR) through 2033, a significant increase from its historical 6-8% base business growth. This is primarily fueled by a substantial $28 billion capital expenditure plan, including a $7 billion strategic investment in data center infrastructure.
• Data Center Catalyst: The approval of the GenCo model and a landmark data center contract with a large, investment-grade customer in Northern Indiana positions NiSource at the forefront of the burgeoning digital economy. This initiative is expected to double NIPSCO's system load, generate over $1 billion in bill savings for existing retail customers, and contribute significantly to earnings.
• Operational Excellence and Technological Edge: NiSource leverages advanced AI and digital solutions, such as its Work Management Intelligence program, to drive operational efficiencies, reduce costs, and enhance service reliability. These technologies have delivered sustained productivity uplifts of over 20% in field operations.
• Robust Financial Health and Shareholder Returns: The company maintains a strong financial profile with a reaffirmed target of 14-16% FFO to debt, a dependable dividend (annualized $1.12 per share, 60% payout ratio), and a disciplined financing strategy, including a $1.5 billion ATM equity program and a strategic partnership with Blackstone Infrastructure Partners.
• Constructive Regulatory Environment: NiSource benefits from a highly constructive regulatory framework across its six states, enabling timely recovery of capital investments and supporting its energy transition and economic development initiatives. Recent approvals in Virginia and Indiana underscore this favorable environment.

Setting the Scene: A Regulated Utility's Strategic Evolution

NiSource Inc. (NYSE:NI), founded in 1847 and headquartered in Merrillville, Indiana, operates as a diversified energy holding company. It provides essential natural gas and electric utility services to approximately 3.3 million natural gas customers and 500,000 electric customers across six states: Ohio, Pennsylvania, Virginia, Kentucky, Maryland, and Indiana. The company's core strategy revolves around delivering safe, reliable, and affordable energy through disciplined capital deployment, operational excellence, and fostering constructive regulatory relationships. This foundational approach has historically generated competitive returns and strengthened its balance sheet.

The utility sector, in which NiSource operates, is characterized by high barriers to entry due to significant capital requirements and the need for extensive regulatory approvals. NiSource's regulated business model provides a stable revenue stream and predictable earnings, as rates are approved by state regulatory commissions. This framework allows the company to recover costs and earn a reasonable return on its investments, a key advantage in a capital-intensive industry. NiSource's geographic footprint across multiple states also diversifies its customer base, reducing dependence on any single region's economic conditions.

However, NiSource operates within a competitive landscape that includes larger, diversified utility companies such as Duke Energy (DUK), Dominion Energy (D), Southern Company (SO), and American Electric Power (AEP). While direct customer acquisition is often limited by regulation, competition arises in capital investment, talent acquisition, and securing favorable regulatory frameworks. Compared to some of these larger peers, NiSource, while robust, may exhibit a smaller operational scale, which can sometimes translate to differences in efficiency and market positioning. For instance, larger rivals might achieve greater economies of scale in resource allocation or have faster innovation cycles in grid technologies. NiSource's strength lies in its localized expertise and integrated gas and electric services, which allow for tailored solutions and strong regional relationships. The company's strategic investments in infrastructure modernization and renewable energy are aimed at long-term growth and sustainability, helping it adapt to evolving industry demands.

Indirect competition also stems from alternative energy providers and emerging technologies like battery storage solutions or decentralized energy systems. The rise of AI and data centers, while a significant opportunity, also presents a dynamic where some tech firms might invest in on-site power generation, potentially impacting traditional utility demand. NiSource's strategic response to this evolving landscape, particularly its focus on data center development, is designed to leverage its existing infrastructure and regulatory expertise to capture new growth.

Technological Differentiation and Innovation: Fueling Efficiency and Future Growth

NiSource is actively transforming its operations through a robust AI and digital strategy, which serves as a significant technological differentiator and a core driver of efficiency. The company's Work Management Intelligence program is a prime example, utilizing an ensemble of advanced AI models for forecasting shift availability, work volume, and job duration, along with a schedule optimizer to automatically generate more accurate weekly schedules. This technology has delivered sustained field productivity uplifts of over 20%, translating to more than 83,000 incremental work hours by the second quarter of 2025 and over 60,000 hours of productivity improvement compared to the same period in 2023.

Building on this success, NiSource is expanding AI into additional high-value areas. A new supply chain program is leveraging generative AI-powered analysts to transform procurement processes, aiming to unlock greater efficiency and deeper insights across the full scale of the NiSource platform. The company is also piloting AI for system reliability and faster storm response, including outage prediction and resource staging. These initiatives are outcome-driven and designed to capture sustainable Operation and Maintenance (O&M) efficiencies while improving service quality for customers.

Further enhancing its operational capabilities, NiSource concluded all three phases of its Work & Asset Management (WAM) Enterprise Resource Planning (ERP) program by the second quarter of 2025. This comprehensive system optimizes the scheduling, dispatch, and execution of field operations across the enterprise. The WAM program has reached nearly 5,000 end users, converted over $500 million records, and integrated data from 23 host systems, standardizing how field work and assets are managed. This digital transformation improves asset visibility, streamlines scheduling, and enables real-time decision-making, contributing to the company's commitment to operational excellence.

For investors, these technological advancements are critical. They directly contribute to NiSource's competitive moat by driving sustainable cost savings, enhancing operational efficiency, and improving service reliability, which are paramount in a regulated utility environment. The ability to achieve significant productivity gains through AI and optimize asset management allows NiSource to manage costs effectively, support customer affordability, and maintain a strong financial profile, even amidst increasing capital investments. This technological leadership positions NiSource to better compete by offering more reliable and cost-effective services, thereby strengthening its market standing and long-term growth strategy.

Strategic Initiatives and Operational Momentum

NiSource's strategic initiatives are deeply intertwined with its commitment to operational excellence and a constructive regulatory environment. The company continues to advance its energy transition strategy, primarily through the retirement and replacement of coal-fired electric generation with low- or zero-emission alternatives. NiSource remains on track to retire R.M. Schahfer's remaining two coal units by the end of 2025 and the Michigan City Generating Station by the end of 2028. This transition is well underway, with 1,950 MW of owned renewable and 101 MW of storage projects, along with 1,000 MW from renewable PPA projects, already placed in service as of September 30, 2025. The Templeton and Carpenter projects are expected to be in service between 2025 and 2027.

Regulatory successes are a cornerstone of NiSource's strategy. In the second quarter of 2025, the Virginia rate case was approved, authorizing a $40.7 million revenue increase and a 9.75% Return on Equity (ROE). Similarly, the NIPSCO Electric rate case received approval in June 2025, providing a $257 million revenue uplift. These outcomes reinforce the strength of NiSource's stakeholder relationships and the predictability of its regulatory environment. The company's Net Zero Goal to reduce Scope 1 and Scope 2 GHG emissions by 2040, building on a 72% reduction in Scope 1 emissions from 2005 levels by the end of 2024, further aligns its operations with sustainability objectives.

Economic development is another key strategic pillar, expanding the customer base and distributing fixed costs more efficiently. NiSource is experiencing strong demand from potential data center customers and other large industrial loads across its service territories, particularly in Northern Indiana, Ohio, and Virginia. Examples include Columbia Gas of Virginia's partnership in delivering natural gas to Eli Lilly and Company's (LLY) new $5 billion manufacturing facility near Richmond, which is projected to create 650 permanent jobs. In Indiana, NIPSCO supports developments like GI Tech's manufacturing facility, Slate Automotive's electric truck plant, and FedEx's (FDX) distribution center, collectively projected to generate over 2,600 jobs.

The Data Center Catalyst: A New Growth Paradigm

The most significant strategic development for NiSource is its aggressive pivot towards capitalizing on the burgeoning data center industry, particularly in Northern Indiana. This initiative is set to fundamentally reshape the company's growth profile. On September 18, 2025, NIPSCO entered into a Data Center Contract with a wholly-owned subsidiary of a large publicly traded, investment-grade company. This landmark agreement, pending IURC approval, commits NIPSCO to provide electric service with capacity increasing to 2,400 MW by the end of 2032 and to construct up to 3,000 MW of dispatchable generation. The initial term of this contract is 15 years.

To fulfill this demand, NiSource's indirect subsidiary, GenCo, plans to construct 400 MW of new battery storage and a new power generation facility consisting of two 1,300 MW combined-cycle, natural gas-fired turbines, expected to reach commercial operation between 2028 and 2032. The aggregate cost of these Generation Assets and related transmission infrastructure, collectively termed "Contract Assets," is estimated to be approximately $7 billion. This project alone is expected to double NIPSCO's existing system load.

The GenCo business model, which received IURC approval on September 24, 2025, is a critical enabler of this strategy. It is designed to operate as a regulated entity that encapsulates activities for large load customers, thereby shielding existing NIPSCO retail customers from the costs associated with serving new data center customers. The contract is structured with fixed capacity charges and pass-through charges, designed to provide a return on invested capital and an unlevered internal rate of return greater than NIPSCO's current electric operations. Furthermore, NIPSCO plans to propose a mechanism to pass approximately $1 billion in savings back to existing retail customers over the contract's life, leveraging the existing system.

A significant financial aspect of this strategy is the expanded partnership with Blackstone Infrastructure Partners. On October 28, 2025, NiSource issued a 19.9% indirect equity interest in GenCo to affiliates of Blackstone (BX) in exchange for $35.2 million. Blackstone has committed to provide up to $1.32 billion in additional capital contributions to GenCo over a seven-year period, reinforcing the capital structure and positioning GenCo for long-term success. This partnership provides a robust platform for future investment and diversification from traditional capital markets.

For investors, the data center strategy represents a compelling upside. It diversifies NiSource's earnings profile with stable, predictable contracted earnings and cash flow, capitalizes on significant load growth, and establishes a customer-centric business model that supports communities. GenCo's capital investments are designed to drive immediate revenue and earnings growth, bolstering NiSource's financial profile. The company's strategic negotiation pipeline includes an additional 1 to 3 gigawatts of projects from new and existing customers, with potential for another 3 gigawatts in developing opportunities, creating a clear path to scale.

Financial Performance and Robust Capital Allocation

For the nine months ended September 30, 2025, net income attributable to NiSource increased to $671.7 million from $536.5 million in the same period of 2024. This growth was primarily driven by higher revenues resulting from capital investments, partially offset by increased operating and maintenance (O&M) and depreciation expenses, as well as higher interest expense.

Segment-wise, Columbia Operations reported external operating revenues of $2,326.7 million for the nine months ended September 30, 2025, up from $1,864.5 million in the prior year, with operating income rising to $620.1 million from $499.8 million. This was largely attributed to new rates from base rate proceedings, regulatory capital programs, and increased usage by residential and commercial customers due to colder weather. NIPSCO Operations saw external operating revenues increase to $2,409.0 million for the nine months ended September 30, 2025, compared to $2,002.2 million in 2024, with operating income reaching $678.5 million from $530.0 million. This growth was driven by new rates, regulatory capital, demand-side management programs, weather effects, and customer growth.

The company's capital expenditure plan is substantial. NiSource is introducing a consolidated capital expenditure plan of $28 billion over the next five years (2026-2030), representing a 45% increase from its prior five-year plan. This includes $21 billion for its base business and approximately $7 billion for strategic data center investments at GenCo. For 2025, capital investments are expected to total $4 billion to $4.3 billion, excluding data center contract-related spending.

NiSource maintains a strong liquidity position, supported by a $1.85 billion revolving credit facility and a commercial paper program of the same limit. As of September 30, 2025, the company had no outstanding borrowings under its revolving credit facility, though $1,060 million of commercial paper was outstanding. Long-term debt, excluding current portions, stood at $14,472.1 million as of September 30, 2025. Recent financing activities include the issuance of $1.5 billion in 5.85% senior unsecured notes maturing in 2055 and $900 million in 5.35% senior unsecured notes maturing in 2035 during March and June 2025, respectively. The company successfully repaid $1.25 billion of 0.95% senior unsecured notes in August 2025.

NiSource's financial health is further underscored by its credit metrics. The company's debt to capitalization ratio was 54.70% as of September 30, 2025, well within its revolving credit facility covenant of 70%. The FFO to debt ratio for 2024 was 14.6%, up from 14.1% in 2023, aligning with its target range of 14% to 16% in all years of the plan. NiSource expects to issue $300 million to $500 million of maintenance ATM equity annually across the five-year plan to support its consolidated capital expenditures. The annualized dividend target was increased to $1.12 per share in January 2025, representing a payout ratio of approximately 60%, at the low end of its 60% to 70% guidance.

Outlook and Growth Trajectory

NiSource is embarking on a period of accelerated growth, underpinned by its strategic investments and a clear financial roadmap. The company is reaffirming the upper half of its 2025 adjusted EPS guidance of $1.85 to $1.89. Looking ahead, NiSource is initiating 2026 consolidated EPS guidance of $2.02 to $2.07, which includes an incremental $0.01 to $0.02 per share contribution from GenCo-related assets.

The company's base business is projected to achieve a 6% to 8% annual adjusted EPS growth rate through 2030, fueled by $21 billion in base plan capital expenditures and an 8% to 10% rate base growth from 2026 to 2030. Crucially, the introduction of data center investments through GenCo is expected to drive a consolidated adjusted EPS compound annual growth rate of 8% to 9% through 2033. The GenCo contribution alone is projected to add an incremental $0.10 to $0.15 per share in 2030, growing to $0.25 to $0.45 per share through 2033. This significant acceleration is supported by a forecasted consolidated rate base growth of 9% to 11% over the same five-year horizon.

Management's outlook emphasizes customer affordability, projecting flat O&M expenses over the life of the plan and annual bill increases of less than 5% across NiSource. This is achieved through operational excellence, AI-driven efficiencies, and the customer flowback mechanism from the data center contract, which refunds system costs to customers.

Risks and Challenges

While NiSource's growth trajectory is compelling, investors should consider several key risks. The construction of the $7 billion Contract Assets for data centers involves significant risks, including potential delays, cost overruns, or performance issues, which could reduce returns and necessitate additional financing. The company will require substantial additional financing for these projects, and such financing may not always be available on favorable terms.

Customer concentration risk is notable, as the initial data center customer will be a significant consumer of NIPSCO's electric operations, with generating capacity for the Contract Assets expected to be equivalent to NIPSCO's existing generating assets. The customer retains the right to terminate the Data Center Contract for convenience or reduce committed capacity, which could impact expected earnings, even with reimbursement provisions.

Furthermore, the long-term MISO capacity accreditation of capacity resources remains uncertain. If the resources constructed for data centers lose accreditation, NiSource would need to build additional generation assets, incurring further investment and financing risks. The regulatory framework for GenCo's operations under the Data Center Contract differs from NIPSCO's traditional utility regulation, meaning investment recovery and returns will depend more on contractual performance rather than traditional rate-making processes.

Environmental liabilities, such as those related to MGP sites ($77.3 million estimated liability with a possible $16.5 million variation) and the Legacy CCR Rule ($38.8 million accrued in Q2 2025), also present ongoing financial obligations. The potential for increased frequency of severe weather events due to climate change could also impact facilities and operations.

Conclusion

NiSource Inc. stands at a pivotal juncture, transforming its investment profile from a stable, regulated utility to a dynamic growth story fueled by the burgeoning digital economy. The company's strategic pivot towards serving the data center industry in Northern Indiana, underpinned by the innovative GenCo model and a landmark contract with a major hyperscaler, represents a significant upside opportunity. This initiative, coupled with a robust $28 billion capital plan and a strategic partnership with Blackstone, is set to accelerate consolidated adjusted EPS growth to an impressive 8-9% CAGR through 2033.

NiSource's commitment to operational excellence, driven by advanced AI and digital technologies, provides a strong foundation for efficiency and cost management, supporting customer affordability while enhancing service reliability. While the scale of new investments and the unique regulatory and commercial structures introduce new risks, the company has implemented comprehensive mitigation strategies, including fixed-rate contracts, cost-sharing provisions, and a strong balance sheet. NiSource's established regulatory relationships and diversified asset base provide a competitive edge in its core markets. The company's ability to seamlessly integrate its traditional utility strengths with emerging growth opportunities positions it as a compelling investment for those seeking a blend of regulated stability and differentiated growth in the evolving energy landscape.