10-Q 1 ni-2014331x10q.htm 10-Q NI-2014.3.31-10Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
or
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number 001-16189
NiSource Inc.
(Exact name of registrant as specified in its charter)
 
Delaware               
 
35-2108964        
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
801 East 86th Avenue
Merrillville, Indiana    
 
46410
(Address of principal executive offices)
 
(Zip Code)
(877) 647-5990
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes þ    No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)
Yesþ    No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer þ                    Accelerated filer ¨
Non-accelerated filer ¨                      Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨    No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 Par Value: 314,876,852 shares outstanding at April 24, 2014.



NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED MARCH 31, 2014
Table of Contents
 
 
 
 
Page
 
 
 
 
 
 
 
PART I
FINANCIAL INFORMATION
 
 
 
 
 
 
Item 1.
Financial Statements - unaudited
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
PART II
OTHER INFORMATION
 
 
 
 
 
 
Item 1.
 
 
 
 
 
Item 1A.
 
 
 
 
 
Item 2.
 
 
 
 
 
Item 3.
 
 
 
 
 
Item 4.
 
 
 
 
 
Item 5.
 
 
 
 
 
Item 6.
 
 
 
 

2


DEFINED TERMS

The following is a list of frequently used abbreviations or acronyms that are found in this report:

NiSource Subsidiaries and Affiliates
 
Capital Markets
NiSource Capital Markets, Inc.
CER
Columbia Energy Resources, Inc.
CGORC
Columbia Gas of Ohio Receivables Corporation
Columbia
Columbia Energy Group
Columbia Gulf
Columbia Gulf Transmission, LLC
Columbia of Kentucky
Columbia Gas of Kentucky, Inc.
Columbia of Maryland
Columbia Gas of Maryland, Inc.
Columbia of Massachusetts
Bay State Gas Company
Columbia of Ohio
Columbia Gas of Ohio, Inc.
Columbia of Pennsylvania
Columbia Gas of Pennsylvania, Inc.
Columbia of Virginia
Columbia Gas of Virginia, Inc.
Columbia Transmission
Columbia Gas Transmission, LLC
CPRC
Columbia Gas of Pennsylvania Receivables Corporation
Crossroads Pipeline
Crossroads Pipeline Company
Hardy Storage
Hardy Storage Company, LLC
Kokomo Gas
Kokomo Gas and Fuel Company
Millennium
Millennium Pipeline Company, L.L.C.
NARC
NIPSCO Accounts Receivable Corporation
NDC Douglas Properties
NDC Douglas Properties, Inc.
NEVCO
NiSource Energy Ventures, LLC
NIPSCO
Northern Indiana Public Service Company
NiSource
NiSource Inc.
NiSource Corporate Services
NiSource Corporate Services Company
NiSource Development Company
NiSource Development Company, Inc.
NiSource Finance
NiSource Finance Corporation
Northern Indiana Fuel and Light
Northern Indiana Fuel and Light Company
NiSource Midstream
NiSource Midstream Services, LLC
Pennant
Pennant Midstream, LLC
 
 
Abbreviations
 
AFUDC
Allowance for funds used during construction
AMRP
Accelerated Main Replacement Program
AOC
Administrative Order by Consent
AOCI
Accumulated Other Comprehensive Income (Loss)
ARRs
Auction Revenue Rights
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
BBA
British Banker Association
Bcf
Billion cubic feet
BNS
Bank of Nova Scotia
Board
Board of Directors
BPAE
BP Alternative Energy North America, Inc.

3


DEFINED TERMS (continued)

BTMU
The Bank of Tokyo-Mitsubishi UFJ, LTD.
BTU
British Thermal Unit
CAA
Clean Air Act
CAIR
Clean Air Interstate Rule
CAMR
Clean Air Mercury Rule
Ccf
Hundred cubic feet
CERCLA
Comprehensive Environmental Response, Compensation and
 
Liability Act (also known as Superfund)
CO2
Carbon Dioxide
CSAPR
Cross-State Air Pollution Rule
Day 2
Began April 1, 2005 and refers to the operational control of the energy markets by MISO, including the dispatching of wholesale electricity and generation, managing transmission constraints, and managing the day-ahead, real-time and financial transmission rights markets
DPU
Department of Public Utilities
DSIC
Distribution System Improvement Charge
DSM
Demand Side Management
Dth
Dekatherm
ECR
Environmental Cost Recovery
ECRM
Environmental Cost Recovery Mechanism
ECT
Environmental Cost Tracker
EERM
Environmental Expense Recovery Mechanism
EPA
United States Environmental Protection Agency
EPS
Earnings per share
FAC
Fuel adjustment clause
FASB
Financial Accounting Standards Board
FERC
Federal Energy Regulatory Commission
FGD
Flue Gas Desulfurization
FTRs
Financial Transmission Rights
GAAP
Generally Accepted Accounting Principles
GCIM
Gas Cost Incentive Mechanism
GCR
Gas cost recovery
GHG
Greenhouse gases
gwh
Gigawatt hours
Hilcorp
Hilcorp Energy Company
hp
Horsepower
IDEM
Indiana Department of Environmental Management
INDIEC
Indiana Industrial Energy Consumers, Inc.
IRP
Infrastructure Replacement Program
IRS
Internal Revenue Service
IURC
Indiana Utility Regulatory Commission
kV
Kilovolt
LDCs
Local distribution companies
LIBOR
London InterBank Offered Rate
LIFO
Last-in, first-out
LNG
Liquefied Natural Gas

4


DEFINED TERMS (continued)

MATS
Mercury and Air Toxics Standards
Mcf
Thousand cubic feet
MMcf
Million cubic feet
MGP
Manufactured Gas Plant
MISO
Midcontinent Independent System Operator
Mitchell
Dean H. Mitchell Coal Fired Generating Station
Mizuho
Mizuho Corporate Bank Ltd.
MMDth
Million dekatherms
mw
Megawatts
NAAQS
National Ambient Air Quality Standards
NOV
Notice of Violation
NO2
Nitrogen dioxide
NOx
Nitrogen oxide
NYMEX
New York Mercantile Exchange
OCI
Other Comprehensive Income (Loss)
OPEB
Other Postretirement Benefits
OUCC
Indiana Office of Utility Consumer Counselor
PADEP
Pennsylvania Department of Environmental Protection
Piedmont
Piedmont Natural Gas Company, Inc.
PM
Particulate matter
PNC
PNC Bank, N.A.
PSC
Public Service Commission
PUC
Public Utility Commission
PUCO
Public Utilities Commission of Ohio
RA
Resource Adequacy
RBS
Royal Bank of Scotland, PLC
RCRA
Resource Conservation and Recovery Act
RDAF
Revenue decoupling adjustment factor
RTO
Regional Transmission Organization
SEC
Securities and Exchange Commission
SIP
State Implementation Plan
SO2
Sulfur dioxide
TDSIC
Transmission, Distribution and Storage System Improvement Charge
TIRF
Targeted Infrastructure Reinvestment Factor
VaR
Value-at-risk and instrument sensitivity to market factors
VIE
Variable Interest Entities
VSCC
Virginia State Corporation Commission
WACOG
Weighted Average Cost of Gas



5


PART I

ITEM 1. FINANCIAL STATEMENTS
NiSource Inc.
Condensed Statements of Consolidated Income (unaudited)
 
  
Three Months Ended
March 31,
(in millions, except per share amounts)
2014
 
2013
Net Revenues
 
 
Gas Distribution
$
1,215.0

 
$
892.2

Gas Transportation and Storage
578.5

 
468.5

Electric
450.0

 
377.3

Other
77.0

 
44.2

Gross Revenues
2,320.5

 
1,782.2

Cost of Sales (excluding depreciation and amortization)
1,061.3

 
676.0

Total Net Revenues
1,259.2

 
1,106.2

Operating Expenses
 
 
 
Operation and maintenance
501.2

 
454.3

Depreciation and amortization
148.7

 
143.6

Gain on sale of assets, net
(15.7
)
 
(0.2
)
Other taxes
101.1

 
86.7

Total Operating Expenses
735.3

 
684.4

Equity Earnings in Unconsolidated Affiliates
9.8

 
7.1

Operating Income
533.7

 
428.9

Other Income (Deductions)
 
 
 
Interest expense, net
(109.1
)
 
(98.6
)
Other, net
4.5

 
4.1

Total Other Deductions
(104.6
)
 
(94.5
)
Income from Continuing Operations before Income Taxes
429.1

 
334.4

Income Taxes
162.7

 
118.4

Income from Continuing Operations
266.4

 
216.0

(Loss) Income from Discontinued Operations - net of taxes
(0.2
)
 
8.1

Gain on Disposition of Discontinued Operations - net of taxes

 
36.4

Net Income
$
266.2

 
$
260.5

Basic Earnings Per Share
 
 
 
Continuing operations
$
0.85

 
$
0.69

Discontinued operations

 
0.15

Basic Earnings Per Share
$
0.85

 
$
0.84

Diluted Earnings Per Share
 
 
 
Continuing operations
$
0.85

 
$
0.69

Discontinued operations

 
0.14

Diluted Earnings Per Share
$
0.85

 
$
0.83

Dividends Declared Per Common Share
$
0.50

 
$
0.48

Basic Average Common Shares Outstanding
314.2

 
311.1

Diluted Average Common Shares
315.1

 
312.1

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

6

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Condensed Statements of Consolidated Comprehensive Income (unaudited)

 
Three Months Ended
March 31,
(in millions, net of taxes)
2014
 
2013
Net Income
$
266.2

 
$
260.5

Other comprehensive income (loss)
 
 
 
 Net unrealized gain (loss) on available-for-sale securities(1)
0.3

 
(0.4
)
Net unrealized gain on cash flow hedges(2)
0.6

 
0.9

Unrecognized pension benefit and OPEB benefit(3)
0.2

 
2.7

Total other comprehensive income
1.1

 
3.2

Total Comprehensive Income
$
267.3

 
$
263.7

(1) Net unrealized gain (loss) on available-for-sale securities, net of $0.2 million tax expense and $0.1 million tax benefit in the first quarter of 2014 and 2013, respectively.

(2) Net unrealized gains on derivatives qualifying as cash flow hedges, net of $0.4 million and $0.6 million tax expense in the first quarter of 2014 and 2013, respectively.

(3) Unrecognized pension benefit and OPEB benefit, net of zero and $1.7 million tax expense in the first quarter of 2014 and 2013, respectively.
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.


7

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)


NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in millions)
March 31,
2014
 
December 31,
2013
ASSETS
 
 
 
Property, Plant and Equipment
 
 
 
Utility plant
$
23,695.7

 
$
23,303.7

Accumulated depreciation and amortization
(9,358.6
)
 
(9,256.5
)
Net utility plant
14,337.1

 
14,047.2

Other property, at cost, less accumulated depreciation
320.6

 
317.9

Net Property, Plant and Equipment
14,657.7

 
14,365.1

Investments and Other Assets
 
 
 
Unconsolidated affiliates
407.1

 
373.7

Other investments
203.1

 
204.0

Total Investments and Other Assets
610.2

 
577.7

Current Assets
 
 
 
Cash and cash equivalents
38.0

 
26.8

Restricted cash
10.9

 
8.0

Accounts receivable (less reserve of $34.6 and $23.5, respectively)
1,271.2

 
1,005.8

Income tax receivable
4.1

 
5.1

Gas inventory
97.9

 
354.6

Underrecovered gas and fuel costs
114.3

 
46.4

Materials and supplies, at average cost
104.8

 
101.2

Electric production fuel, at average cost
22.9

 
44.6

Price risk management assets
14.4

 
22.7

Exchange gas receivable
161.4

 
70.6

Regulatory assets
159.1

 
142.8

Prepayments and other
321.1

 
330.6

Total Current Assets
2,320.1

 
2,159.2

Other Assets
 
 
 
Regulatory assets
1,494.9

 
1,522.2

Goodwill
3,666.2

 
3,666.2

Intangible assets
272.9

 
275.7

Deferred charges and other
85.3

 
87.8

Total Other Assets
5,519.3

 
5,551.9

Total Assets
$
23,107.3

 
$
22,653.9

 
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
 

8

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)


NiSource Inc.
Condensed Consolidated Balance Sheets (unaudited) (continued)
(in millions, except share amounts)
March 31,
2014
 
December 31,
2013
CAPITALIZATION AND LIABILITIES
 
 
 
Capitalization
 
 
 
Common Stockholders’ Equity
 
 
 
Common stock - $0.01 par value, 400,000,000 shares authorized; 314,800,122 and 313,675,911 shares outstanding, respectively
$
3.2

 
$
3.2

Additional paid-in capital
4,715.6

 
4,690.1

Retained earnings
1,394.4

 
1,285.5

Accumulated other comprehensive loss
(42.5
)
 
(43.6
)
Treasury stock
(58.6
)
 
(48.6
)
Total Common Stockholders’ Equity
6,012.1

 
5,886.6

Long-term debt, excluding amounts due within one year
7,638.5

 
7,593.2

Total Capitalization
13,650.6

 
13,479.8

Current Liabilities
 
 
 
Current portion of long-term debt
530.5

 
542.1

Short-term borrowings
812.5

 
698.7

Accounts payable
714.4

 
619.0

Dividends payable
78.7

 

Customer deposits and credits
239.4

 
262.6

Taxes accrued
278.6

 
254.8

Interest accrued
75.3

 
136.4

Overrecovered gas and fuel costs
25.8

 
32.2

Exchange gas payable
143.1

 
186.4

Deferred revenue
7.9

 
18.5

Regulatory liabilities
79.1

 
60.2

Accrued liability for postretirement and postemployment benefits
6.2

 
6.2

Legal and environmental
25.5

 
32.3

Other accruals
323.8

 
329.0

Total Current Liabilities
3,340.8

 
3,178.4

Other Liabilities and Deferred Credits
 
 
 
Deferred income taxes
3,392.3

 
3,277.8

Deferred investment tax credits
20.0

 
20.9

Deferred credits
100.2

 
91.9

Noncurrent deferred revenue
21.8

 
17.1

Accrued liability for postretirement and postemployment benefits
508.1

 
527.5

Regulatory liabilities
1,677.6

 
1,669.8

Asset retirement obligations
176.5

 
174.4

Other noncurrent liabilities
219.4

 
216.3

Total Other Liabilities and Deferred Credits
6,115.9

 
5,995.7

Commitments and Contingencies (Refer to Note 17)

 

Total Capitalization and Liabilities
$
23,107.3

 
$
22,653.9

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

9

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Condensed Statements of Consolidated Cash Flows (unaudited)

Three Months Ended March 31, (in millions)
2014
 
2013
Operating Activities
 
 
 
Net Income
$
266.2

 
$
260.5

Adjustments to Reconcile Net Income to Net Cash from Continuing Operations:
 
 
 
Depreciation and amortization
148.7

 
143.6

Net changes in price risk management assets and liabilities
0.8

 
0.5

Deferred income taxes and investment tax credits
148.9

 
117.1

Deferred revenue
1.8

 
(0.4
)
Stock compensation expense and 401(k) profit sharing contribution
13.9

 
10.6

Gain on sale of assets
(15.7
)
 
(0.2
)
Income from unconsolidated affiliates
(9.6
)
 
(7.3
)
Gain on disposition of discontinued operations - net of taxes

 
(36.4
)
Loss (Income) from discontinued operations - net of taxes
0.2

 
(8.1
)
Amortization of debt related costs
2.4

 
2.3

AFUDC equity
(4.0
)
 
(3.5
)
Distributions of earnings received from equity investees
7.6

 
7.0

Changes in Assets and Liabilities:
 
 
 
Accounts receivable
(265.1
)
 
(161.4
)
Income tax receivable
0.9

 
50.4

Inventories
274.0

 
254.7

Accounts payable
126.5

 
25.4

Customer deposits and credits
(23.1
)
 
(102.0
)
Taxes accrued
19.3

 
28.1

Interest accrued
(61.1
)
 
(65.5
)
(Under)Overrecovered gas and fuel costs
(74.2
)
 
69.3

Exchange gas receivable/payable
(134.2
)
 
(89.8
)
Other accruals
(30.1
)
 
(26.6
)
Prepayments and other current assets
4.5

 
(5.8
)
Regulatory assets/liabilities
2.9

 
5.8

Postretirement and postemployment benefits
(19.3
)
 
(36.8
)
Deferred credits
8.4

 
7.7

Deferred charges and other noncurrent assets
(0.2
)
 
(0.4
)
Other noncurrent liabilities
4.0

 
(2.0
)
Net Operating Activities from Continuing Operations
394.4

 
436.8

Net Operating Activities (used for) from Discontinued Operations
(0.4
)
 
12.3

Net Cash Flows from Operating Activities
394.0

 
449.1

Investing Activities
 
 
 
Capital expenditures
(386.3
)
 
(369.3
)
Proceeds from disposition of assets
5.3

 
0.5

Restricted cash (deposits) withdrawals
(2.9
)
 
23.6

Contributions to equity investees
(31.0
)
 
(17.1
)
Other investing activities
7.0

 
(5.3
)
Net Investing Activities used for Continuing Operations
(407.9
)
 
(367.6
)
Net Investing Activities from Discontinued Operations

 
121.5

Net Cash Flows used for Investing Activities
(407.9
)
 
(246.1
)
Financing Activities
 
 
 
Repayments of long-term debt and capital lease obligations
(9.1
)
 
(427.1
)
Change in short-term borrowings, net
113.8

 
354.3

Issuance of common stock
8.9

 
17.2

Acquisition of treasury stock
(10.0
)
 
(7.6
)
Dividends paid - common stock
(78.5
)
 
(74.7
)
Net Cash Flows from (used for) Financing Activities
25.1

 
(137.9
)
Change in cash and cash equivalents from (used for) continuing operations
11.6

 
(68.7
)
Cash contributions (to) from discontinued operations
(0.4
)
 
133.8

Cash and cash equivalents at beginning of period
26.8

 
36.3

Cash and Cash Equivalents at End of Period
$
38.0

 
$
101.4


The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

10

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.
Condensed Statement of Consolidated Common Stockholders' Equity (unaudited)
(in millions)
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Total
Balance as of January 1, 2014
$
3.2

 
$
(48.6
)
 
$
4,690.1

 
$
1,285.5

 
$
(43.6
)
 
$
5,886.6

Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
Net Income

 

 

 
266.2

 

 
266.2

Other comprehensive income, net of tax

 

 

 

 
1.1

 
1.1

Common stock dividends

 

 

 
(157.3
)
 

 
(157.3
)
Treasury stock acquired

 
(10.0
)
 

 

 

 
(10.0
)
Issued:
 
 
 
 
 
 
 
 
 
 
 
Employee stock purchase plan

 

 
0.8

 

 

 
0.8

Long-term incentive plan

 

 
8.4

 

 

 
8.4

401(k) and profit sharing issuance

 

 
14.3

 

 

 
14.3

Dividend reinvestment plan

 

 
2.0

 

 

 
2.0

Balance as of March 31, 2014
$
3.2

 
$
(58.6
)
 
$
4,715.6

 
$
1,394.4

 
$
(42.5
)
 
$
6,012.1


The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.


11

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)

 
1.    Basis of Accounting Presentation

The accompanying Condensed Consolidated Financial Statements (unaudited) for NiSource (the “Company”) reflect all normal recurring adjustments that are necessary, in the opinion of management, to present fairly the results of operations in accordance with GAAP in the United States of America.
The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in NiSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Income for interim periods may not be indicative of results for the calendar year due to weather variations and other factors.

The Condensed Consolidated Financial Statements (unaudited) have been prepared pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although NiSource believes that the disclosures made are adequate to make the information not misleading. 

2.    Recent Accounting Pronouncements

In April 2014, the FASB issued ASU 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. ASU 2014-08 changes the criteria for reporting a discontinued operation. Under the new pronouncement, a disposal of a part of an organization that has a major effect on its operations and financial results is a discontinued operation. NiSource is required to adopt ASU 2014-08 prospectively for all disposals or components of its business classified as held for sale during fiscal periods beginning after December 15, 2014. NiSource is currently evaluating what impact, if any, adoption of ASU 2014-08 will have on its Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).

3.    Earnings Per Share

Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The weighted average shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans. The numerator in calculating both basic and diluted EPS for each period is reported net income. The computation of diluted average common shares follows:
 
 
Three Months Ended
 
March 31,
(in thousands)
2014
 
2013
Denominator
 
 
 
Basic average common shares outstanding
314,222

 
311,120

Dilutive potential common shares:
 
 
 
Stock options
59

 
156

Shares contingently issuable under employee stock plans
399

 
276

Shares restricted under stock plans
442

 
523

Diluted Average Common Shares
315,122

 
312,075

 
4.    Gas in Storage
Both the LIFO inventory methodology and the weighted average cost methodology are used to value natural gas in storage. Gas Distribution Operations price natural gas storage injections at the average of the costs of natural gas supply purchased during the year. For interim periods, the difference between current projected replacement cost and the LIFO cost for quantities of gas temporarily withdrawn from storage is recorded as a temporary LIFO liquidation credit or debit within the Condensed Consolidated Balance Sheets (unaudited). Due to seasonality requirements, NiSource expects interim variances in LIFO layers to be replenished by year-end. NiSource had a temporary LIFO liquidation debit of $10.3 million and zero as of March 31, 2014 and December 31, 2013, respectively, for certain gas distribution companies recorded within “Prepayments and other,” on the Condensed Consolidated Balance Sheets (unaudited).

12

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


5.    Discontinued Operations and Assets and Liabilities Held for Sale

On September 1, 2013, NiSource sold the commercial and industrial natural gas portfolio of its unregulated natural gas marketing business. The sale included the physical contracts and associated financial hedges that comprise the portfolio, as well as the gas inventory and customer deposits of the business. The sale resulted in an after tax loss of $1.5 million which was recorded during the third quarter of 2013.

During 2012, NiSource began marketing to sell the service plan and leasing business lines of its Retail Services business. The sale of the business lines closed in January 2013 resulting in gain from the disposition of discontinued operations of $36.4 million, net of taxes, which was recorded during the first quarter of 2013.

There were no assets and liabilities of discontinued operations and held for sale on the Condensed Consolidated Balance Sheets (unaudited) at March 31, 2014 and December 31, 2013.
 
 
 
 
 
Results from discontinued operations are provided in the following table. These results are primarily from a settlement at NiSource's former exploration and production subsidiary, CER, NiSource's Retail Services business, and NiSource's unregulated natural gas marketing business.
 
Three Months Ended
March 31,
(in millions)
2014
 
2013
Revenues from Discontinued Operations
$

 
$
16.2

(Loss) Income from discontinued operations
(0.3
)
 
13.2

Income tax (benefit) expense
(0.1
)
 
5.1

(Loss) Income from Discontinued Operations - net of taxes
$
(0.2
)
 
$
8.1

Gain on Disposition of Discontinued Operations - net of taxes
$

 
$
36.4


6.    Asset Retirement Obligations
Certain costs of removal that have been, and continue to be, included in depreciation rates and collected in the service rates of the rate-regulated subsidiaries are classified as “Regulatory liabilities” on the Condensed Consolidated Balance Sheets (unaudited).

Changes in NiSource’s liability for asset retirement obligations for the three months ended March 31, 2014 and 2013 are presented in the table below:
 
(in millions)
2014
 
2013
Balance as of January 1,
$
174.4

 
$
160.4

Accretion expense
0.4

 
0.3

Accretion recorded as a regulatory asset/liability
2.1

 
2.3

Additions
0.1

 
2.9

Settlements
(0.5
)
 
(0.3
)
Change in estimated cash flows

 
(0.3
)
Balance as of March 31,
$
176.5

 
$
165.3

 

13

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

7.    Regulatory Matters
Gas Distribution Operations Regulatory Matters

Significant Rate Developments. On April 30, 2013, Indiana Governor Pence signed Senate Enrolled Act 560 into law. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a seven year plan of eligible investments.  Once the plan is approved by the IURC, 80 percent of eligible costs can be recovered using a periodic rate adjustment mechanism.  The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on, and of, the investment, including AFUDC, post in service carrying charges, operation and maintenance expenses, depreciation, and property taxes.  The remaining 20 percent of recoverable costs are to be deferred for future recovery in the public utility’s next general rate case.  The periodic rate adjustment mechanism is capped at an annual increase of no more than two percent of total retail revenues. On October 3, 2013, NIPSCO filed its gas TDSIC seven-year plan of eligible investments for a total of approximately $710 million with the IURC. An order is expected by the second quarter of 2014.

On November 25, 2013, Columbia of Ohio filed a Notice of Intent to file an application to adjust rates associated with its IRP and DSM Riders. Columbia of Ohio filed its Application on February 28, 2014, requesting authority to increase revenues by approximately $25.5 million. The parties have settled all issues, and on April 7, 2014 filed a stipulation providing for a revenue increase of approximately $25.5 million. On April 23, 2014, Columbia of Ohio received approval of its annual infrastructure replacement and demand-side management rider request from the PUCO. New rates are effective April 30, 2014.

On April 16, 2013, Columbia of Massachusetts submitted a filing with the Massachusetts DPU requesting an annual revenue requirement increase of $30.1 million. Pursuant to the procedural schedule for this case, on September 3, 2013, Columbia of Massachusetts filed its updated revenue requirement of $29.5 million and on October 16, 2013, filed an updated cost of service for $30.0 million. A final revenue requirement update of $29.9 million was filed on December 16, 2013. On February 28, 2014 the Massachusetts DPU issued an order granting an annual revenue requirement increase of $19.3 million effective March 1, 2014, and the compliance filing associated with the order has been approved. Columbia of Massachusetts currently has two Motions for Reconsideration and Clarification pending before the Massachusetts DPU with regard to specific findings in the order.

On September 16, 2013, Columbia of Massachusetts filed its Peak Period Gas Adjustment Factor (“GAF”) for the period November 1, 2013 through April 30 2014, and its Peak Period 2012-2013 GAF Reconciliation. On January 17, 2014, Columbia of Massachusetts filed a revision to the GAF effective February 1, 2014, and on February 18, 2014, Columbia of Massachusetts filed its second revision to the GAF effective March 1, 2014, to eliminate Columbia of Massachusetts’s projected Peak Period under-collection of $50 million. On February 28, 2014, the Massachusetts DPU approved the revision subject to further review and reconciliation, but deferred recovery of $25 million of the projected under-collection to November 2014 - April 2015, and thus, this deferred amount will be incorporated into the proposed GAF to be submitted in Columbia of Massachusetts’s 2014-2015 Peak Period GAF filing.

On March 21, 2014, Columbia of Pennsylvania filed a base rate case with the Pennsylvania PUC, seeking a revenue increase of approximately $54.1 million annually. The case is driven by Columbia of Pennsylvania’s capital investment program which exceeds $180 million in both 2014 and 2015 as well as new pipeline safety-related operation and maintenance expenditures. Columbia of Pennsylvania seeks Pennsylvania PUC approval to implement additional rates to recover costs that are projected to be incurred after the implementation of those new rates, as authorized by the Pennsylvania General Assembly with the passage of Act 11 of 2012. Columbia of Pennsylvania's filing seeks to implement rates in December 2014 under which Columbia of Pennsylvania would immediately begin to recover costs that are projected for the twelve-month period ending December 31, 2015. The case is currently in discovery, and a final order from the Pennsylvania PUC is expected in the fourth quarter of 2014.

Cost Recovery and Trackers. A significant portion of the distribution companies' revenue is related to the recovery of gas costs, the review and recovery of which occurs via standard regulatory proceedings. All states require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. NiSource distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.


14

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Certain operating costs of the NiSource distribution companies are significant, recurring in nature, and generally outside the control of the distribution companies. Some states allow the recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the distribution companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include GCR adjustment mechanisms, tax riders, gas energy efficiency programs, and bad debt recovery mechanisms.

Comparability of Gas Distribution Operations line item operating results is impacted by regulatory trackers that allow for the recovery in rates of certain costs such as bad debt expenses. Increases in the expenses that are subject to trackers result in a corresponding increase in net revenues and therefore have essentially no impact on total operating income results.

Certain of the NiSource distribution companies have completed rate proceedings involving infrastructure replacement or are embarking upon regulatory initiatives to replace significant portions of their operating systems that are nearing the end of their useful lives. Each LDC's approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.

Columbia Pipeline Group Operations Regulatory Matters
Significant Rate Developments. On January 30, 2014, Columbia Transmission received FERC approval of its December 2013 filing to recover costs associated with the first year of its comprehensive system modernization program. During 2013, Columbia Transmission completed more than 30 individual projects representing a total investment of about $300 million. The program includes replacement of aging pipeline and compressor facilities, enhancements to system inspection capabilities, and improvements in real-time analytics and control systems. Recovery of the 2013 investments began on February 1, 2014.
The second year of the program includes planned modernization investments of approximately $300 million. Columbia Transmission and its customers have agreed to the initial five years of the comprehensive modernization program, with an opportunity to mutually extend the agreement.

Cost Recovery Trackers. A significant portion of the regulated transmission and storage companies' revenue is related to the recovery of their operating costs, the review and recovery of which occurs via standard regulatory proceedings with the FERC under section 4 of the Natural Gas Act. However, certain operating costs of the NiSource regulated transmission and storage companies are significant and recurring in nature, such as fuel for compression and lost and unaccounted for gas. The FERC allows for the recovery of such costs via cost tracking mechanisms. These tracking mechanisms allow the transmission and storage companies' rates to fluctuate in response to changes in certain operating costs or conditions as they occur to facilitate the timely recovery of its costs incurred. The tracking mechanisms involve a rate adjustment that is filed at a predetermined frequency, typically annually, with the FERC and is subject to regulatory review before new rates go into effect. Other such costs under regulatory tracking mechanisms include third-party pipeline transportation, electric compression, certain environmental, and certain operational purchases and sales of natural gas.

Electric Operations Regulatory Matters

Significant Rate Developments. On July 19, 2013, NIPSCO filed its electric TDSIC, further discussed above, with the IURC. The filing included the seven-year plan of eligible investments for a total of approximately $1.1 billion with the majority of the spend occurring in years 2016 through 2020. On February 17, 2014, the IURC issued an order approving NIPSCO’s seven-year plan of eligible investments. The Order also granted NIPSCO ratemaking relief associated with the eligible investments through a rate adjustment mechanism. NIPSCO anticipates filing its first semi-annual tracker petition in the third quarter of 2014. On March 10, 2014 the OUCC filed a Petition for Reconsideration with the IURC which is still pending. In addition, two parties have filed Notices of Appeal with the Indiana Court of Appeals to appeal the IURC's ruling.

On November 12, 2013, several industrial customers, including INDIEC, filed a complaint at the FERC regarding the 12.38% base ROE used to set the MISO Transmission Owners' transmission rates and requesting a reduction in the base ROE to 9.15%. The complaint further requests that FERC limit the capital structure of MISO Transmission Owners to no more than 50% common equity for ratemaking purposes and that FERC eliminate incentive adders for membership in a RTO. NIPSCO joined in an answer defending the 12.38% base ROE and motion to dismiss the complaint filed on behalf of a group of MISO Transmission Owners on January 6, 2014. NIPSCO is unable to estimate the impact of this complaint or the timing of any potential impact at this time.


15

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Cost Recovery and Trackers. A significant portion of NIPSCO's revenue is related to the recovery of fuel costs to generate power and purchased power. These costs are recovered through a FAC, a standard, quarterly, “summary” regulatory proceeding in Indiana.

Certain operating costs of the Electric Operations are significant, recurring in nature, and generally outside the control of NIPSCO. The IURC allows for recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for NIPSCO to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include electric energy efficiency programs, MISO non-fuel costs and revenues, resource capacity charges, and environmental related costs.

NIPSCO has approval from the IURC to recover certain environmental related costs through an ECT. Under the ECT, NIPSCO is permitted to recover (1) AFUDC and a return on the capital investment expended by NIPSCO to implement environmental compliance plan projects through an ECRM and (2) related operation and maintenance and depreciation expenses once the environmental facilities become operational through an EERM. On January 31, 2014, NIPSCO filed ECR-23 which included $583.5 million of net capital expenditures for the period ending December 31, 2013. An order is expected by the second quarter of 2014.
 
8.    Risk Management Activities

NiSource is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. Derivative natural gas contracts are entered into to manage the price risk associated with natural gas price volatility and to secure forward natural gas prices. Interest rate swaps are entered into to manage interest rate risk or fair value risk associated with NiSource’s borrowings. NiSource designates some of its commodity forward contracts as cash flow hedges of forecasted purchases of commodities and designates its interest rate swaps as fair value hedges of fixed-rate borrowings.
Accounting Policy for Derivative Instruments.    Unrealized and realized gains and losses are recognized each period as components of AOCI, regulatory assets and liabilities or earnings depending on the designation of the derivative instrument and regulatory accounting treatment. For subsidiaries that utilize derivatives for cash flow hedges, the effective portions of the gains and losses are recorded to AOCI and are recognized in earnings concurrent with the disposition of the hedged risks. If a forecasted transaction corresponding to a cash flow hedge is no longer probable to occur, the accumulated gains or losses on the derivative are recognized currently in earnings. For fair value hedges, the gains and losses are recorded in earnings each period together with the change in the fair value of the hedged item. As a result of the rate-making process, the rate-regulated subsidiaries generally record gains and losses as regulatory liabilities or assets and recognize such gains or losses in earnings when both the contracts settle and the physical commodity flows. These gains and losses recognized in earnings are then subsequently recovered or passed back to customers in revenues through rates. When gains and losses are recognized in earnings, they are recognized in revenues or cost of sales for derivatives that correspond to commodity risk activities and are recognized in interest expense for derivatives that correspond to interest-rate risk activities.
For its commodity price risk programs, NiSource has elected not to net the fair value amounts of its derivative instruments or the fair value amounts recognized for its right to receive or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. NiSource discloses amounts recognized for the right to reclaim cash collateral within “Restricted cash” and amounts recognized for the obligation to return cash collateral within “Other accruals” on the Condensed Consolidated Balance Sheets (unaudited).

16

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Commodity Price Risk Programs.    
Commodity price risk program derivatives consist of NYMEX gas options, NYMEX gas futures and FTRs. Contracted gross volumes are as follows:
 
March 31, 2014
 
December 31, 2013
Commodity Price Risk Program:
 
 
 
Gas price volatility program derivatives (MMDth)
13.9

 
17.0

Price Protection Service program derivatives (MMDth)
0.3

 
0.7

DependaBill program derivatives (MMDth)
0.1

 
0.2

Electric energy program FTR derivatives (mw)

 
1,248.0

Interest Rate Risk Activities. NiSource recognizes that the prudent and selective use of derivatives may help it to lower its cost of debt capital and manage its interest rate exposure. NiSource Finance has entered into various “receive fixed” and “pay floating” interest rate swap agreements which modify the interest rate characteristics of a portion of its outstanding long-term debt from fixed to variable rate. These interest rate swaps also serve to hedge the fair market value of NiSource Finance’s outstanding debt portfolio. As of March 31, 2014, NiSource had $7.7 billion of outstanding fixed rate debt, of which $500 million is subject to fluctuations in interest rates as a result of the fixed-to-variable interest rate swap transactions. These interest rate swaps are designated as fair value hedges. NiSource had no net gain or loss recognized in earnings due to hedging ineffectiveness for the three months ended March 31, 2014 and 2013.
On July 22, 2003, NiSource Finance entered into fixed-to-variable interest rate swap agreements in a notional amount of $500 million with four counterparties which will expire on July 15, 2014. NiSource Finance receives payments based upon a fixed 5.40% interest rate and pays a floating interest amount based on U.S. 6-month BBA LIBOR plus an average of 0.78% per annum. There was no exchange of premium at the initial date of the swaps.
Contemporaneously with the issuance on September 16, 2005 of $1 billion of its 5.25% and 5.45% notes, maturing September 15, 2017 and 2020, respectively, NiSource Finance settled $900 million of forward starting interest rate swap agreements with six counterparties. NiSource paid an aggregate settlement payment of $35.5 million which is being amortized from AOCI to interest expense over the term of the underlying debt, resulting in an effective interest rate of 5.67% and 5.88%, respectively. As of March 31, 2014, AOCI includes $7.8 million related to forward starting interest rate swap settlement, net of tax. These derivative contracts are accounted for as a cash flow hedge.
As of March 31, 2014, NiSource holds a 47.5% interest in Millennium. As NiSource reports Millennium as an equity method investment, NiSource is required to recognize a proportional share of Millennium’s OCI. NiSource’s proportionate share of the remaining unrecognized loss associated with settled interest rate swaps was $17.4 million and $17.7 million, net of tax, as of March 31, 2014 and December 31, 2013, respectively. Millennium is amortizing the losses related to these terminated interest rate swaps into earnings using the effective interest method through interest expense as interest payments are made. NiSource records its proportionate share of the amortization as Equity Earnings in Unconsolidated Affiliates in the Condensed Statements of Consolidated Income (unaudited).

17

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

NiSource’s location and fair value of derivative instruments on the Condensed Consolidated Balance Sheets (unaudited) were:
 
Asset Derivatives (in millions)
March 31,
2014
 
December 31,
2013
Balance Sheet Location
Fair Value
 
Fair Value
Derivatives designated as hedging instruments
 
 
 
Commodity price risk programs
 
 
 
Price risk management assets (current)
$
0.1

 
$

Interest rate risk activities
 
 
 
Price risk management assets (current)
10.7

 
21.2

Total derivatives designated as hedging instruments
$
10.8

 
$
21.2

Derivatives not designated as hedging instruments
 
 
 
Commodity price risk programs
 
 
 
Price risk management assets (current)
$
3.6

 
$
1.5

Price risk management assets (noncurrent)

 
0.5

Total derivatives not designated as hedging instruments
$
3.6

 
$
2.0

Total Asset Derivatives
$
14.4

 
$
23.2

 
 
 
 
There were no significant liability derivatives as of March 31, 2014 and December 31, 2013.

As noted in NiSource's accounting policy for derivative instruments, above, for its commodity price risk programs, NiSource has elected not to net fair value amounts for its derivative instruments or the fair value amounts recognized for its right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement.

The tables below represent the amounts subject to an enforceable master netting arrangement not otherwise disclosed:
Offsetting of Derivative Assets (in millions)
As of March 31, 2014
 
 
 
 
 
 
 
 
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Assets Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the Statement of Financial Position
 
Net Amount
 
 
 
 
 
 
 
 
 
 
Counterparty B
$
3.7

 
$

 
$
3.7

 
$
(0.4
)
 
$
3.3

Other (1)
10.7

 

 
10.7

 

 
10.7

Total
$
14.4

 
$

 
$
14.4

 
$
(0.4
)
 
$
14.0

Offsetting of Derivative Liabilities (in millions)
As of March 31, 2014
 
 
 
 
 
 
 
 
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Liabilities Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the Statement of Financial Position
 
Net Amount
 
 
 
 
 
 
 
 
 
 
Counterparty B
$
(0.4
)
 
$

 
$
(0.4
)
 
$
0.4

 
$

Total
$
(0.4
)
 
$

 
$
(0.4
)
 
$
0.4

 
$


18

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Offsetting of Derivative Assets (in millions)
As of December 31, 2013
 
Gross Amounts of Recognized Assets
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Assets Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the Statement of Financial Position
 
Net Amount
 
 
 
 
 
 
 
 
 
 
Counterparty B
$
2.1

 
$

 
$
2.1

 
$
(1.7
)
 
$
0.4

Other (1)
21.1

 

 
21.1

 

 
21.1

Total
$
23.2

 
$

 
$
23.2

 
$
(1.7
)
 
$
21.5

Offsetting of Derivative Liabilities (in millions)
As of December 31, 2013
 
Gross Amounts of Recognized Liabilities
 
Gross Amounts Offset in the Statement of Financial Position
 
Net Amounts of Liabilities Presented in the Statement of Financial Position
 
Gross Amounts Not Offset in the Statement of Financial Position
 
Net Amount
 
 
 
 
 
 
 
 
 
 
Counterparty B
$
(1.7
)
 
$

 
$
(1.7
)
 
$
1.7

 
$

Total
$
(1.7
)
 
$

 
$
(1.7
)
 
$
1.7

 
$

(1) Amounts in "Other" include fixed-to-variable interest rate swap agreements entered into by NiSource.
The effect of derivative instruments on the Condensed Statements of Consolidated Income (unaudited) was:
Derivatives in Cash Flow Hedging Relationships 
Three Months Ended (in millions)
 
 
 
 
 
 
 
 
 
Amount of Gain
Recognized in OCI on
Derivative (Effective
Portion)
 
Location of Loss
Reclassified from  AOCI
into Income (Effective
Portion)
 
Amount of (Loss) Gain
Reclassified from AOCI
into Income (Effective
Portion)
Derivatives in Cash Flow
Hedging Relationships
March 31,
2014
 
March 31, 2013
 
 
March 31,
2014
 
March 31, 2013
Commodity price risk programs
$
0.1

 
$
0.1

 
Cost of Sales
 
$
(0.1
)
 
$
0.1

Interest rate risk activities

 

 
Interest expense, net
 
(0.4
)
 
(0.4
)
Total
$
0.1

 
$
0.1

 
 
 
$
(0.5
)
 
$
(0.3
)
 
 
 
 
 
 
There was no income statement recognition of gains or losses for the ineffective portion and amounts excluded from effectiveness testing for derivatives in cash flow hedging relationships for the three months ended March 31, 2014 and 2013.
It is anticipated that during the next twelve months the expiration and settlement of cash flow hedge contracts will result in income statement recognition of amounts currently classified in AOCI of approximately $0.1 million of gain, net of taxes.

19

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


Derivatives in Fair Value Hedging Relationships
 
Three Months Ended (in millions)
 
 
 
 
 
Derivatives in Fair Value Hedging
Relationships
Location of Loss Recognized in
Income on Derivatives
 
Amount of Loss Recognized
in Income on Derivatives
March 31, 2014
 
March 31, 2013
Interest rate risk activities
Interest expense, net
 
$
(10.4
)
 
$
(9.7
)
Total
 
 
$
(10.4
)
 
$
(9.7
)
 
Three Months Ended (in millions)
 
 
 
 
 
Hedged Item in Fair Value Hedge
Relationships
Location of Gain Recognized in
Income on Related Hedged Item
 
Amount of Gain Recognized
in Income on Related Hedged Items
March 31, 2014
 
March 31, 2013
Fixed-rate debt
Interest expense, net
 
$
10.4

 
$
9.7

Total
 
 
$
10.4

 
$
9.7

Derivatives not designated as hedging instruments
 
Three Months Ended (in millions)
 
 
 
 
Derivatives Not Designated as Hedging
Instruments
Location of Gain (Loss)
Recognized in
Income on Derivatives
 
Amount of Realized/Unrealized Gain
(Loss) Recognized in Income on
Derivatives(1)
March 31, 2014
 
March 31, 2013
Commodity price risk programs
Gas Distribution revenues
 
$

 
$
0.1

Commodity price risk programs
Cost of Sales
 
6.9

 
(6.7
)
Commodity price risk programs
(Loss) Income from Discontinued Operations - net of taxes
 

 
0.2

Total
 
 
$
6.9

 
$
(6.4
)
(1) For the amounts of realized/unrealized gain (loss) recognized in income on derivatives disclosed in the table above, gains of $6.9 million and $6.6 million for the three months ended March 31, 2014 and 2013, respectively, were deferred as allowed per regulatory orders. These amounts will be amortized to income over future periods of up to twelve months as specified in a regulatory order.
 
 
 
 
 
 
NiSource’s derivative instruments measured at fair value as of March 31, 2014 and December 31, 2013 do not contain any credit-risk-related contingent features.
Certain NiSource affiliates have physical commodity purchase agreements that contain “ratings triggers” that require increases in collateral if the credit rating of NiSource or certain of its affiliates are rated below BBB- by Standard & Poor’s or below Baa3 by Moody’s. These agreements are primarily for the physical purchase or sale of natural gas and electricity. The collateral requirement from a downgrade below the ratings trigger levels would amount to approximately $0.9 million. In addition to agreements with ratings triggers, there are some agreements that contain “adequate assurance” or “material adverse change” provisions that could result in additional credit support such as letters of credit and cash collateral to transact business.
NiSource had $5.3 million and $5.9 million of cash on deposit with brokers and MISO for collateral requirements associated with open derivative positions reflected within “Restricted cash” on the Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2014 and December 31, 2013, respectively.
 

20

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

9.    Fair Value
 
A.    Fair Value Measurements
Recurring Fair Value Measurements. The following tables present financial assets and liabilities measured and recorded at fair value on NiSource’s Condensed Consolidated Balance Sheets (unaudited) on a recurring basis and their level within the fair value hierarchy as of March 31, 2014 and December 31, 2013:
 
Recurring Fair Value Measurements
March 31, 2014 (in millions)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance as of March 31, 2014
Assets
 
 
 
 
 
 
 
Commodity price risk management assets:
 
 
 
 
 
 
 
Financial price risk programs
$
3.7

 
$

 
$

 
$
3.7

Interest rate risk activities

 
10.7

 

 
10.7

Available-for-sale securities
24.2

 
95.9

 

 
120.1

Total
$
27.9

 
$
106.6

 
$

 
$
134.5

Liabilities
 
 
 
 
 
 
 
Commodity price risk management liabilities:
 
 
 
 
 
 
 
Financial price risk programs
$
0.1

 
$

 
$
0.3

 
$
0.4

Total
$
0.1

 
$

 
$
0.3

 
$
0.4


Recurring Fair Value Measurements
December 31, 2013
(in millions)
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance as of
December 31, 2013
Assets
 
 
 
 
 
 
 
Commodity price risk management assets:
 
 
 
 
 
 
 
Financial price risk programs
$
2.1

 
$

 
$

 
$
2.1

Interest rate risk activities

 
21.1

 

 
21.1

Available-for-sale securities
25.3

 
96.1

 

 
121.4

Total
$
27.4

 
$
117.2

 
$

 
$
144.6

Liabilities
 
 
 
 
 
 
 
Commodity price risk management liabilities:
 
 
 
 
 
 
 
Financial price risk programs
$
1.6

 
$

 
$
0.1

 
$
1.7

Total
$
1.6

 
$

 
$
0.1

 
$
1.7

Price risk management assets and liabilities include commodity exchange-traded and non-exchange-based derivative contracts. Exchange-traded derivative contracts are based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, and options. In certain instances, these instruments may utilize models to measure fair value. NiSource uses a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable market data by correlation or other means. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement

21

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

of fair value, the instrument is categorized in Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures. As of March 31, 2014 and December 31, 2013, there were no material transfers between fair value hierarchies. Additionally, there were no changes in the method or significant assumptions used to estimate the fair value of NiSource’s financial instruments.
Price risk management assets also include fixed-to-floating interest-rate swaps, which are designated as fair value hedges, as a means to achieve NiSource’s targeted level of variable-rate debt as a percent of total debt. NiSource uses a calculation of future cash inflows and estimated future outflows related to the swap agreements, which are discounted and netted to determine the current fair value. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as current and projected interest rates and volatility. As they are based on observable data and valuations of similar instruments, the interest-rate swaps are categorized in Level 2 in the fair value hierarchy. Credit risk is considered in the fair value calculation of the interest rate swap.
Available-for-sale securities are investments pledged as collateral for trust accounts related to NiSource’s wholly-owned insurance company. Available-for-sale securities are included within “Other investments” in the Condensed Consolidated Balance Sheets (unaudited). Securities classified within Level 1 include U.S. Treasury debt securities which are highly liquid and are actively traded in over-the-counter markets. NiSource values corporate and mortgage-backed debt securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently and are classified within Level 2. Total gains and losses from available-for-sale securities are included in other comprehensive income (loss). The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale debt securities at March 31, 2014 and December 31, 2013 were:
 
March 31, 2014 (in millions)
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair
Value
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury
$
27.0

 
$
0.2

 
$
(0.4
)
 
$
26.8

Corporate/Other
93.0

 
1.2

 
(0.9
)
 
93.3

Total Available-for-sale debt securities
$
120.0

 
$
1.4

 
$
(1.3
)
 
$
120.1

December 31, 2013 (in millions)
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair
Value
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury
$
30.3

 
$
0.3

 
$
(0.5
)
 
$
30.1

Corporate/Other
91.5

 
1.1

 
(1.3
)
 
91.3

Total Available-for-sale debt securities
$
121.8

 
$
1.4

 
$
(1.8
)
 
$
121.4

For the three months ended March 31, 2014 and 2013, the net realized gain on the sale of available-for-sale U.S. Treasury debt securities was $0.1 million and $0.2 million, respectively. For the three months ended March 31, 2014 and 2013, the net realized gain on sale of available-for-sale Corporate/Other bond debt securities was $0.1 million and $0.2 million, respectively.
The cost of maturities sold is based upon specific identification. At March 31, 2014, approximately $2.6 million of U.S. Treasury debt securities have maturities of less than a year while the remaining securities have maturities of greater than one year. At March 31, 2014, approximately $4.4 million of Corporate/Other bonds have maturities of less than a year while the remaining securities have maturities of greater than one year.
There are no material items in the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2014 and 2013.
 
 
Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the three months ended March 31, 2014.

In January 2013, NiSource sold the service plan and leasing business lines of its Retail Services business. The disposed business lines were included in the Columbia Distribution Operations reporting unit and the NIPSCO Gas Distribution Operations reporting unit. Goodwill associated with the disposed business lines was included in the carrying amount of the business lines in determining the gain on disposal. The amount of the goodwill included in the carrying amount was based on the relative fair values of the

22

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

business lines disposed of and the portion of the reporting units that were retained. The fair value of the disposed business lines was determined by using the selling price of the business lines. The fair value of the reporting units that were retained was determined by a weighted average of income and market approaches. This approach was similar to the process undertaken to calculate the fair value of the reporting units for the goodwill impairment test conducted on May 1, 2012. These approaches are further discussed in NiSource’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and yield fair values considered to be at Level 3 of the fair value hierarchy. The respective fair value of the disposed business lines was divided by the fair value of the reporting units to which the disposed business lines belonged. These percentages were then applied to those goodwill balances to determine their allocations. As a result of these procedures, NiSource recorded a disposal of goodwill of approximately $11.0 million during the first quarter of 2013. This amount is included within the "Gain on Disposition of Discontinued Operations - net of taxes" on the Condensed Statements of Consolidated Income (unaudited).
B.    Other Fair Value Disclosures for Financial Instruments. The carrying amount of cash and cash equivalents, restricted cash, notes receivable, customer deposits and short-term borrowings is a reasonable estimate of fair value due to their liquid or short-term nature. NiSource’s long-term borrowings are recorded at historical amounts unless designated as a hedged item in a fair value hedge.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value.
Long-term Debt. The fair values of these securities are estimated based on the quoted market prices for the same or similar issues or on the rates offered for securities of the same remaining maturities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. These fair value measurements are classified as Level 2 within the fair value hierarchy. For the three months ended March 31, 2014 and 2013, there were no changes in the method or significant assumptions used to estimate the fair value of the financial instruments.

The carrying amount and estimated fair values of financial instruments were as follows:
 
(in millions)
Carrying
Amount as of
March 31, 2014
 
Estimated Fair
Value as of
March 31, 2014
 
Carrying
Amount as of
Dec. 31, 2013
 
Estimated Fair
Value as of
Dec. 31, 2013
Long-term debt (including current portion)
$
8,169.0

 
$
8,944.1

 
$
8,135.3

 
$
8,697.3


10.    Transfers of Financial Assets
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term borrowings on the Condensed Consolidated Balance Sheets (unaudited). The maximum amount of debt that can be recognized related to NiSource’s accounts receivable programs is $515 million.
All accounts receivables sold to the commercial paper conduits are valued at face value, which approximates fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables sold is determined in part by required loss reserves under the agreements. Below is information about the accounts receivable securitization agreements entered into by NiSource’s subsidiaries.
Columbia of Ohio is under an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to CGORC, a wholly-owned subsidiary of Columbia of Ohio. CGORC, in turn, is party to an agreement with BTMU and BNS under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to commercial paper conduits sponsored by BTMU and BNS. This agreement was last renewed on October 18, 2013. The maximum seasonal program limit under the terms of the new agreement remains at $240 million. The current agreement expires on October 17, 2014, and can be further renewed if mutually agreed to by all parties. As of March 31, 2014, $240.0 million of accounts receivable had been transferred by CGORC. CGORC is a separate corporate entity from NiSource and Columbia of Ohio, with its own separate obligations, and upon a liquidation of CGORC, CGORC’s obligations must be satisfied out of CGORC’s assets prior to any value becoming available to CGORC’s stockholder.
NIPSCO is under an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to NARC, a wholly-owned subsidiary of NIPSCO. NARC, in turn, is party to an agreement with PNC and Mizuho under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to commercial paper conduits sponsored by PNC and

23

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Mizuho. This agreement was last renewed on August 28, 2013. The maximum seasonal program limit under the terms of the new agreement remains at $200 million. The current agreement expires on August 27, 2014, and can be further renewed if mutually agreed to by all parties. As of March 31, 2014, $200.0 million of accounts receivable had been transferred by NARC. NARC is a separate corporate entity from NiSource and NIPSCO, with its own separate obligations, and upon a liquidation of NARC, NARC’s obligations must be satisfied out of NARC’s assets prior to any value becoming available to NARC’s stockholder.
Columbia of Pennsylvania is under an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to CPRC, a wholly-owned subsidiary of Columbia of Pennsylvania. CPRC, in turn, is party to an agreement with BTMU under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to a commercial paper conduit sponsored by BTMU. The maximum seasonal program limit under the terms of the agreement is $75 million. The agreement with BTMU was renewed on March 11, 2014, having a current scheduled termination date of March 10, 2015, and can be further renewed if mutually agreed to by both parties. As of March 31, 2014, $75.0 million of accounts receivable had been transferred by CPRC. CPRC is a separate corporate entity from NiSource and Columbia of Pennsylvania, with its own separate obligations, and upon a liquidation of CPRC, CPRC’s obligations must be satisfied out of CPRC’s assets prior to any value becoming available to CPRC’s stockholder.
The following table reflects the gross and net receivables transferred as well as short-term borrowings related to the securitization transactions as of March 31, 2014 and December 31, 2013 for Columbia of Ohio, NIPSCO and Columbia of Pennsylvania:
 
(in millions)
March 31, 2014
 
December 31, 2013
Gross Receivables
$
811.7

 
$
610.9

Less: Receivables not transferred
296.7

 
345.8

Net receivables transferred
$
515.0

 
$
265.1

Short-term debt due to asset securitization
$
515.0

 
$
265.1

Columbia of Ohio, NIPSCO and Columbia of Pennsylvania remain responsible for collecting on the receivables securitized and the receivables cannot be sold to another party.
 
11.    Goodwill

NiSource considered whether there were any events or changes in circumstances subsequent to the annual test that would reduce the fair value of any of the reporting units below their carrying amounts and necessitate another goodwill impairment test. No such indicators were noted that would require a subsequent goodwill impairment testing during the first quarter of 2014.

During the first quarter of 2013, as part of the sale of the service plan and leasing business lines of its Retail Services business, NiSource allocated $10.0 million of goodwill from Columbia Distribution Operations to the sale and allocated $1.0 million of goodwill from NIPSCO Gas Distribution Operations to the sale. Refer to Note 5 "Discontinued Operations and Assets and Liabilities Held for Sale" for more information.
 
12.    Income Taxes
NiSource’s interim effective tax rates reflect the estimated annual effective tax rates for 2014 and 2013, adjusted for tax expense associated with certain discrete items. The effective tax rates for the three months ended March 31, 2014 and 2013 were 37.9% and 35.4%, respectively. These effective tax rates differ from the Federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility rate-making, and other permanent book-to-tax differences. The 2.5% increase from 2013 to 2014 is primarily due to the impact of the Indiana rate change, see below for further information.

On March 25, 2014, the governor of Indiana signed into law Senate Bill 1, which among other things, lowers the corporate income tax rate from 6.5% to 4.9% over six years beginning on July 1, 2015. The reduction in the tax rate will impact deferred income taxes and tax related regulatory assets and liabilities recoverable in the rate-making process. In addition, other deferred tax assets and liabilities, primarily deferred tax assets related to the Indiana net operating loss carry forward, will be reduced to reflect the lower rate at which these temporary differences and tax benefits will be realized. In the first quarter of 2014, NiSource recorded tax expense of $7.1 million to reflect the effect of this rate change. This expense is largely attributable to the remeasurement of the Indiana net operating loss at the 4.9% rate. The majority of NiSource's tax temporary differences are related to NIPSCO's utility plant. The remeasurement of these temporary differences at 4.9% was recorded as a reduction of a regulatory asset.

24

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)


On March 7, 2013, the Congressional Joint Committee on Taxation took no exception to the conclusions reached by the IRS in its 2008-2010 audit examination. Therefore, in the first quarter of 2013, NiSource recognized a federal income tax receivable of $15.9 million that was related to the 2008 and 2009 tax years and increases in net operating loss carryforwards of $0.6 million that was related to uncertain tax positions in the 2010-2012 tax years. NiSource received payments of $75.1 million in March 2013 and $70.6 million in April 2013 of principal and interest from the IRS related to the audit examination. The recognition of the receivables and net operating loss carryforwards did not materially affect tax expense or net income.

On January 2, 2013, the President signed into law the American Taxpayer Relief Act of 2012 ("ATRA"). ATRA, among other things, extended retroactively the research credit under Internal Revenue Code section 41 until December 31, 2013, and also extended and modified 50% bonus depreciation for 2013. In general, 50% bonus depreciation will be available for property placed in service before January 1, 2014, or in the case of certain property having longer production periods, before January 1, 2015. NiSource recorded the effects of ATRA in the first quarter of 2013. The retroactive extension of the research credit did not have a significant effect on net income.

There were no material changes recorded in the first quarter of 2014 to NiSource's uncertain tax positions as of December 31, 2013.

13.    Pension and Other Postretirement Benefits

NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover its employees. Benefits under the defined benefit retirement plans reflect the employees’ compensation, years of service and age at retirement. Additionally, NiSource provides health care and life insurance benefits for certain retired employees. The majority of employees may become eligible for these benefits if they reach retirement age while working for NiSource. The expected cost of such benefits is accrued during the employees’ years of service. Current rates of rate-regulated companies include postretirement benefit costs, including amortization of the regulatory assets that arose prior to inclusion of these costs in rates. For most plans, cash contributions are remitted to grantor trusts.

For the three months ended March 31, 2014, NiSource has contributed $0.7 million to its pension plans and $9.2 million to its other postretirement benefit plans.

The following table provides the components of the plans’ net periodic benefits cost for the three months ended March 31, 2014 and 2013:
 

Pension Benefits
 
Other Postretirement
Benefits
Three Months Ended March 31, (in millions)
2014
 
2013
 
2014
 
2013
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
8.7

 
$
9.4

 
$
2.3

 
$
3.0

Interest cost
27.3

 
24.3

 
8.2

 
8.1

Expected return on assets
(45.3
)
 
(42.4
)
 
(9.1
)
 
(7.6
)
Amortization of transition obligation

 

 

 
0.1

Amortization of prior service cost (credit)

 
0.1

 
(0.6
)
 
(0.2
)
Recognized actuarial loss
11.9

 
20.7

 

 
2.8

Settlement loss

 
20.7

 

 

Total Net Periodic Benefit Costs
$
2.6

 
$
32.8

 
$
0.8

 
$
6.2

 
 
 
 
 
 
 
 
In 2013, NiSource pension plans had lump sum payouts exceeding the plan's 2013 service cost plus interest cost and, therefore, settlement accounting was required.


25

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

14.    Variable Interests and Variable Interest Entities
In general, a VIE is an entity that (1) has an insufficient amount of at-risk equity to permit the entity to finance its activities without additional financial subordinated support provided by any parties, (2) whose at-risk equity owners, as a group, do not have power, through voting rights or similar rights, to direct activities of the entity that most significantly impact the entity’s economic performance or (3) whose at-risk owners do not absorb the entity’s losses or receive the entity’s residual return. A VIE is required to be consolidated by a company if that company is determined to be the primary beneficiary of the VIE.
NiSource consolidates those VIEs for which it is the primary beneficiary. NiSource considers quantitative and qualitative elements in determining the primary beneficiary. Qualitative measures include the ability to control an entity and the obligation to absorb losses or the right to receive benefits.
NiSource’s analysis includes an assessment of guarantees, operating leases, purchase agreements, and other contracts, as well as its investments and joint ventures. For items that have been identified as variable interests, or where there is involvement with an identified VIE, an in-depth review of the relationship between the relevant entities and NiSource is made to evaluate qualitative and quantitative factors to determine the primary beneficiary, if any, and whether additional disclosures would be required under the current standard.
NIPSCO has a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and First Air Partners LP, under which Pure Air provides scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at the Bailly Generating Station. NiSource has made an exhaustive effort to obtain information needed from Pure Air to determine the status of Pure Air as a VIE. However, NIPSCO has not been able to obtain this information and as a result, it is unclear whether Pure Air is a VIE and if NIPSCO is the primary beneficiary. NIPSCO will continue to request the information required to determine whether Pure Air is a VIE. NIPSCO has no exposure to loss related to the service agreement with Pure Air and payments under this agreement were $5.4 million and $5.6 million for the three months ended March 31, 2014 and 2013, respectively.
 
15.    Short-Term Borrowings
On September 30, 2013, NiSource Finance amended its existing revolving credit facility with a syndicate of banks led by Barclays Capital to expand capacity to $2.0 billion and extend the termination date to September 28, 2018. The purpose of the facility is to fund ongoing working capital requirements including the provision of liquidity support for NiSource’s $1.5 billion commercial paper program, provide for issuance of letters of credit, and also for general corporate purposes. At March 31, 2014, NiSource had no outstanding borrowings under this facility.
NiSource Finance's commercial paper program has a program limit of up to $1.5 billion with a dealer group comprised of Barclays, Citigroup, Credit Suisse, RBS and Wells Fargo. Commercial paper issuances are supported by available capacity under NiSource’s $2.0 billion unsecured revolving credit facility. At March 31, 2014, NiSource had $297.5 million of commercial paper outstanding.
As of March 31, 2014, NiSource had $30.5 million of stand-by letters of credit outstanding of which $14.3 million were under the revolving credit facility. At December 31, 2013, NiSource had $31.6 million of stand-by letters of credit outstanding of which $14.3 million were under the revolving credit facility.
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term debt on the Condensed Consolidated Balance Sheets (unaudited) in the amount of $515.0 million and $265.1 million as of March 31, 2014 and December 31, 2013, respectively. Refer to Note 10, “Transfers of Financial Assets,” for additional information.
 
(in millions)
March 31,
2014
 
December 31,
2013
Commercial Paper weighted average interest rate of 0.55% and 0.70% at March 31, 2014 and December 31, 2013, respectively.
$
297.5

 
$
433.6

Accounts receivable securitization facility borrowings
515.0

 
265.1

Total short-term borrowings
$
812.5

 
$
698.7

Given their turnover is less than 90 days, cash flows related to the borrowings and repayments of the items listed above are presented net in the Condensed Statements of Consolidated Cash Flows (unaudited).
 

26

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

16.    Share-Based Compensation
The stockholders approved and adopted the NiSource Inc. 2010 Omnibus Incentive Plan (the “Omnibus Plan”), at the Annual Meeting of Stockholders held on May 11, 2010. The Omnibus Plan provides for awards to employees and non-employee directors of incentive and nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. The Omnibus Plan provides that the number of shares of common stock of NiSource available for awards is 8,000,000 plus the number of shares subject to outstanding awards granted under either the 1994 Plan or the Director Plan (described below) that expire or terminate for any reason. No further awards are permitted to be granted under the 1994 Plan or the Director Plan. At March 31, 2014, there were 6,162,981 shares reserved for future awards under the Omnibus Plan.
Prior to May 11, 2010, NiSource issued long-term equity incentive grants to key management employees under a long-term incentive plan approved by stockholders on April 13, 1994 (“1994 Plan”). The types of equity awards previously authorized under the 1994 Plan did not significantly differ from those permitted under the Omnibus Plan.
NiSource recognized stock-based employee compensation expense of $5.3 million and $4.2 million for the three months ended March 31, 2014 and 2013, respectively, as well as related tax benefits of $2.0 million and $1.5 million, respectively.
As of March 31, 2014, the total remaining unrecognized compensation cost related to nonvested awards amounted to $31.8 million, which will be amortized over the weighted-average remaining requisite service period of 2.3 years.
Stock Options. As of March 31, 2014, approximately 0.2 million options were outstanding and exercisable with a weighted average strike price of $22.62. No options were granted during the three months ended March 31, 2014 and 2013. As of March 31, 2014, the aggregate intrinsic value for the options outstanding and exercisable was $3.1 million. During the three months ended March 31, 2014 and 2013, cash received from the exercise of options was $3.9 million and $13.1 million, respectively.
Restricted Stock Units and Restricted Stock. During the three months ended March 31, 2014, NiSource granted 67,594 restricted stock units and shares of restricted stock, subject to service conditions. The total grant date fair value of restricted stock units and shares of restricted stock was $2.1 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of any dividends not received during the vesting period, which will be expensed, net of forfeitures, over the vesting period which is generally three years. If the employee terminates employment before the service conditions lapse due to (1) Retirement or Disability (as defined in the award agreement), or (2) death, the employment conditions will lapse with respect to a pro rata portion of the shares of restricted stock and restricted stock units on the date of termination. In the event of a Change-in-Control (as defined in the award agreement), all unvested shares of restricted stock and restricted stock units granted during the three months ended March 31, 2014 will vest upon termination of employment in connection with a Change-in-Control. Termination due to any other reason will result in all unvested shares of restricted stock and restricted stock units awarded being forfeited effective on the employee’s date of termination. As of March 31, 2014, 324,585 nonvested (all of which are expected to vest) restricted stock units and shares of restricted stock were granted and outstanding.
Performance Shares. During the three months ended March 31, 2014, NiSource granted 525,173 performance shares subject to service and performance conditions. The grant date fair value of the awards was $16.3 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed, net of forfeitures, over the three year requisite service period. The performance conditions are based on achievement of cumulative net operating earnings per share, a non-GAAP financial measure that NiSource defines as income from continuing operations adjusted for certain items; and relative total shareholder return, a non-GAAP market measure that NiSource defines as the annualized growth in the dividends and share price of a share of NiSource’s common stock (calculated using a 20 trading day average of NiSource’s closing price, over a period beginning December 31, 2013 and ending on December 31, 2016) compared to the total shareholder return performance of a predetermined peer group of companies. The service conditions lapse on February 28, 2017 when the shares vest provided the performance criteria are satisfied. In general, if the employee terminates employment before February 28, 2017 due to (1) Retirement or Disability (as defined in the award agreement), or (2) death, the employment conditions will lapse with respect to a pro rata portion of the performance shares payable at target on the date of termination provided the performance criteria are met. In the event of a Change-in-Control (as defined in the award agreement), all unvested performance shares will immediately vest. Termination due to any other reason will result in all performance shares awarded being forfeited effective on the employee’s date of termination. As of March 31, 2014, 1,878,558 nonvested performance shares were granted and outstanding.

27

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Non-employee Director Awards. As of May 11, 2010, awards to non-employee directors may be made only under the Omnibus Plan. Currently, restricted stock units are granted annually to non-employee directors, subject to a non-employee director’s election to defer receipt of such restricted stock unit award. The non-employee director’s restricted stock units vest on the last day of the non-employee director’s annual term corresponding to the year the restricted stock units were awarded subject to special pro-rata vesting rules in the event of Retirement or Disability (as defined in the award agreement), or death. The vested restricted stock units are payable as soon as practicable following vesting except as otherwise provided pursuant to the non-employee director’s election to defer. As of March 31, 2014, 144,578 restricted stock units were outstanding to non-employee directors under the Omnibus Plan.
Only restricted stock units remain outstanding under the prior plan for non-employee directors, the Amended and Restated Non-employee Director Stock Incentive Plan (the “Director Plan”). All such awards are fully vested and shall be distributed to the directors upon their separation from the Board. As of March 31, 2014, 147,845 restricted stock units remained outstanding under the Director Plan and as noted above no further shares may be awarded under the Director Plan.
401(k) Match, Profit Sharing and Company Contribution. NiSource has a voluntary 401(k) savings plan covering eligible employees that allows for periodic discretionary matches as a percentage of each participant’s contributions payable in shares of common stock. NiSource also has a retirement savings plan that provides for discretionary profit sharing contributions payable in shares of common stock to eligible employees based on earnings results; and eligible exempt employees hired after January 1, 2010, receive a non-elective company contribution of three percent of eligible pay payable in shares of common stock. For the quarters ended March 31, 2014 and 2013, NiSource recognized 401(k) match, profit sharing and non-elective contribution expense of $8.5 million and $6.4 million, respectively.
 
17.    Other Commitments and Contingencies
A.    Guarantees and Indemnities. As a part of normal business, NiSource and certain subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended commercial purposes. The total guarantees and indemnities in existence at March 31, 2014 and the years in which they expire were:
 
(in millions)
Total
 
2014
 
2015
 
2016
 
2017
 
2018
 
After
Guarantees of subsidiaries debt
$
7,710.5

 
$
500.0

 
$
230.0

 
$
616.5

 
$
507.0

 
$
800.0

 
$
5,057.0

Accounts receivable securitization
515.0

 
515.0

 

 

 

 

 

Lines of credit
297.5

 
297.5

 

 

 

 

 

Letters of credit
30.5

 
12.6

 
17.9

 

 

 

 

Other guarantees
142.4

 
45.4

 
35.3

 

 

 

 
61.7

Total commercial commitments
$
8,695.9

 
$
1,370.5

 
$
283.2

 
$
616.5

 
$
507.0

 
$
800.0

 
$
5,118.7

 
Guarantees of Subsidiaries Debt. NiSource has guaranteed the payment of $7.7 billion of debt for various wholly-owned subsidiaries including NiSource Finance and Columbia of Massachusetts, and through a support agreement, Capital Markets, which is reflected on NiSource’s Condensed Consolidated Balance Sheets (unaudited). The subsidiaries are required to comply with certain covenants under the debt indenture and in the event of default, NiSource would be obligated to pay the debt’s principal and related interest. NiSource does not anticipate its subsidiaries will have any difficulty maintaining compliance. On October 3, 2011, NiSource executed a Second Supplemental Indenture to the original Columbia of Massachusetts Indenture dated April 1, 1991, for the specific purpose of guaranteeing Columbia of Massachusetts’ outstanding medium-term notes.
Lines and Letters of Credit and Accounts Receivable Advances. On September 30, 2013, NiSource Finance amended its existing revolving credit facility with a syndicate of banks led by Barclays Capital to expand capacity to $2.0 billion and extend the termination date to September 28, 2018. The purpose of the facility is to fund ongoing working capital requirements including the provision of liquidity support for NiSource’s $1.5 billion commercial paper program, provide for the issuance of letters of credit, and also for general corporate purposes. At March 31, 2014, NiSource had no borrowings under its five-year revolving credit facility, $297.5 million in commercial paper outstanding and $515.0 million outstanding under its accounts receivable securitization

28

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

agreements. At March 31, 2014, NiSource issued stand-by letters of credit of approximately $30.5 million for the benefit of third parties. See Note 15, “Short-Term Borrowings,” for additional information.
Other Guarantees or Obligations. NiSource has additional purchase and sales agreement guarantees totaling $73.5 million, which guarantee performance of the seller’s covenants, agreements, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited). Management believes that the likelihood NiSource would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote.
NiSource has on deposit a letter of credit with Union Bank, N.A., Collateral Agent, in a debt service reserve account in association with Millennium's notes as required under the Deposit and Disbursement Agreement that governs the Millennium notes. This account is to be drawn upon by the note holders in the event that Millennium is delinquent on its principal and interest payments. The value of NiSource’s letter of credit represents 47.5% (NiSource’s ownership percentage in Millennium) of the debt service reserve account requirement, or $16.2 million. The total exposure for NiSource is $16.2 million. NiSource has an accrued liability of $1.5 million related to the inception date fair value of this guarantee as of March 31, 2014.
NiSource has issued other guarantees supporting derivative related payments associated with interest rate swap agreements issued by NiSource Finance, operating leases for many of its subsidiaries and for other agreements entered into by its current and former subsidiaries.
B.    Other Legal Proceedings. In the normal course of its business, NiSource and its subsidiaries have been named as defendants in various legal proceedings. In the opinion of management, the ultimate disposition of these currently asserted claims will not have a material impact on NiSource’s consolidated financial statements.
C.    Environmental Matters. NiSource operations are subject to environmental statutes and regulations related to air quality, water quality, hazardous waste and solid waste. NiSource believes that it is in substantial compliance with those environmental regulations currently applicable to its operations and believes that it has all necessary permits to conduct its operations.
It is management’s continued intent to address environmental issues in cooperation with regulatory authorities in such a manner as to achieve mutually acceptable compliance plans. However, there can be no assurance that fines and penalties will not be incurred. Management expects a significant portion of environmental assessment and remediation costs to be recoverable through rates for certain NiSource companies.
As of March 31, 2014 and December 31, 2013, NiSource had recorded an accrual of approximately $135.1 million and $143.9 million, respectively, to cover environmental remediation at various sites. The current portion of this accrual is included in "Legal and environmental" in the Condensed Consolidated Balance Sheets (unaudited). The noncurrent portion is included in "Other noncurrent liabilities" in the Condensed Consolidated Balance Sheets (unaudited). NiSource accrues for costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated. The original estimates for cleanup can differ materially from the amount ultimately expended. The actual future expenditures depend on many factors, including currently enacted laws and regulations, the nature and extent of contamination, the method of cleanup, and the availability of cost recovery from customers. These expenditures are not currently estimable at some sites. NiSource periodically adjusts its accrual as information is collected and estimates become more refined.
Air
The actions listed below could require further reductions in emissions from various emission sources. NiSource will continue to closely monitor developments in these matters.
Climate Change. Future legislative and regulatory programs could significantly restrict emissions of GHGs or could impose a cost or tax on GHG emissions.
In the first quarter of 2012, the EPA proposed an output-based carbon standard for new power plants. On September 20, 2013, the EPA announced withdrawal of the proposed standard and released a new proposal. The newly proposed standard would, for the first time, set national limits on the amount of carbon emissions allowed from new power plants. Compliance for new coal-fired plants may need to include capture and sequestration of carbon dioxide at coal-fired power plants. In addition, the EPA stated that it intends to regulate existing sources with a proposed rule in 2014.
If the EPA develops a GHG new source performance standard for existing units or if a federal or state comprehensive climate change bill were to be enacted into law, the impact on NiSource's financial performance would depend on a number of factors,

29

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

including the overall level of required GHG reductions, the degree to which offsets may be used for compliance, and the amount of recovery allowed from customers. Comprehensive federal or state GHG regulation could result in additional expense or compliance costs that may not be fully recoverable from customers and could materially impact NiSource's financial results.
National Ambient Air Quality Standards. The CAA requires the EPA to set national air quality standards (the NAAQS) for particulate matter and five other pollutants considered harmful to public health and the environment. Periodically the EPA imposes new or modifies existing NAAQS. States that contain areas that do not meet the new or revised standards must take steps to maintain or achieve compliance with the standards. These steps could include additional pollution controls on boilers, engines, turbines, and other facilities owned by electric generation, gas distribution, and gas transmission operations.
The following NAAQS were recently added or modified:
Particulate Matter: In December 2009, the EPA issued area designations for the 2006 24-hour PM2.5 standard, and several counties in which NiSource operates were designated as non-attainment. In addition, a final rule was promulgated in December 2012 that lowered the annual PM2.5 standard from 15 to 12 µg/m3. NiSource will continue to monitor these matters and cannot estimate their impact at this time.
Ozone (eight hour): On September 2, 2011, the EPA announced it would implement its 2008 eight-hour ozone NAAQS rather than tightening the standard in 2012. The EPA will review, and possibly propose a new standard in 2014. In addition, the EPA has designated the Chicago metropolitan area, including the area in which NIPSCO operates one of its electric generation facilities, as non-attainment for ozone. NiSource will continue to monitor this matter and cannot estimate the impact of any new rules at this time.
Nitrogen Dioxide (NO2): The EPA revised the NO2 NAAQS by adding a one-hour standard while retaining the annual standard. The new standard could impact some NiSource combustion sources. The EPA designated all areas of the country as unclassifiable/attainment in January 2012. After the establishment of a new monitoring network and possible modeling implementation, areas will potentially be re-designated sometime in 2016. States with areas that do not meet the standard will be required to develop rules to bring areas into compliance within five years of designation. Additionally, under certain permitting circumstances emissions from some existing NiSource combustion sources may need to be assessed and mitigated. NiSource will continue to monitor this matter and cannot estimate the impact of these rules at this time.
Waste
NiSource subsidiaries are potentially responsible parties at waste disposal sites under the CERCLA (commonly known as Superfund) and similar state laws. Additionally, a program has been instituted to identify and investigate former MGP sites where Gas Distribution Operations subsidiaries or predecessors may have liability. The program has identified 67 such sites where liability is probable. Remedial actions at many of these sites are being overseen by state or federal environmental agencies through consent agreements or voluntary remediation agreements.
NiSource utilizes a probabilistic model to estimate its future remediation costs related to its MGP sites. The model was prepared with the assistance of a third party and incorporates NiSource and general industry experience with remediating MGP sites. NiSource completes an annual refresh of the model in the second quarter of each fiscal year. No material changes to the estimated liability were noted as a result of the refresh completed as of June 30, 2013. The total estimated liability at NiSource related to the facilities subject to remediation was $123.2 million and $129.5 million at March 31, 2014 and December 31, 2013, respectively. The liability represents NiSource’s best estimate of the probable cost to remediate the facilities. NiSource believes that it is reasonably possible that remediation costs could vary by as much as $25 million in addition to the costs noted above. Remediation costs are estimated based on the best available information, applicable remediation standards at the balance sheet date, and experience with similar facilities.
Additional Issues Related to Individual Business Segments
The sections below describe various regulatory actions that affect Columbia Pipeline Group Operations and Electric Operations.

30

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

Columbia Pipeline Group Operations.
Waste
Columbia Transmission continues to conduct characterization and remediation activities at specific sites under a 1995 AOC (subsequently modified in 1996 and 2007). NiSource utilizes a probabilistic model to estimate its future remediation costs related to the 1995 AOC. The model was prepared with the assistance of a third party and incorporates NiSource and general industry experience with remediating sites. NiSource completes an annual refresh of the model in the second quarter of each fiscal year. No material changes to the liability were noted as a result of the refresh completed as of June 30, 2013. The total remaining liability at Columbia Transmission related to the facilities subject to remediation was $6.4 million and $8.7 million at March 31, 2014 and December 31, 2013, respectively. The liability represents Columbia Transmission’s best estimate of the cost to remediate the facilities or manage the sites. Remediation costs are estimated based on the information available, applicable remediation standards, and experience with similar facilities. Columbia Transmission expects that the remediation for these facilities will be substantially completed in 2015.
Electric Operations.
Air
NIPSCO is subject to a number of new air-quality mandates in the next several years. These mandates require NIPSCO to make capital improvements to its electric generating stations. The cost of capital improvements is estimated to be $860 million, of which approximately $240.0 million remains to be spent. This figure includes additional capital improvements associated with the New Source Review Consent Decree and the Utility Mercury and Air Toxics Standards Rule. NIPSCO believes that the capital costs will likely be recoverable from ratepayers.

EPA Cross-State Air Pollution Rule / Clean Air Interstate Rule (CAIR) / Transport Rule: On July 6, 2011, the EPA announced its replacement for the 2005 CAIR to reduce the interstate transport of fine particulate matter and ozone. The CSAPR reduces overall emissions of SO2 and NOx by setting state-wide caps on power plant emissions. The CSAPR limits emissions, including NIPSCO's, and restricted emission allowance trading programs were scheduled to begin in 2012. In a decision issued on August 21, 2012 the D.C. Circuit Court vacated the CSAPR leaving the CAIR trading program provisions and requirements in place. The EPA subsequently petitioned for a writ of certiorari, and the United States Supreme Court granted this writ. Oral arguments were held on December 10, 2013, and a decision is expected in 2014. These developments do not significantly impact NIPSCO's current emissions control plans. NIPSCO utilizes the inventory model in accounting for emission allowances issued under the CAIR program whereby these allowances were recognized at zero cost upon receipt from the EPA. NIPSCO believes its current multi-pollutant compliance plan and New Source Review Consent Decree capital investments will allow NIPSCO to meet the emission requirements of CAIR, while a replacement for CSAPR is developed to address the court's decision.
 
Utility Mercury and Air Toxics Standards Rule: On December 16, 2011, the EPA finalized the MATS rule establishing new emissions limits for mercury and other air toxics. Compliance for NIPSCO’s affected units is required by April 2016. NIPSCO is implementing an IURC-approved plan for environmental controls to comply with MATS.
New Source Review:   On September 29, 2004, the EPA issued an NOV to NIPSCO for alleged violations of the CAA and the Indiana SIP. The NOV alleged that modifications were made to certain boiler units at three of NIPSCO's generating stations between the years 1985 and 1995 without obtaining appropriate air permits for the modifications. NIPSCO, the EPA, the Department of Justice, and IDEM have settled the matter through a consent decree, entered on July 22, 2011.

Water
The Phase II Rule of the Clean Water Act Section 316(b), which requires all large existing steam electric generating stations to meet certain performance standards to reduce the effects on aquatic organisms at their cooling water intake structures, became effective on September 7, 2004. Under this rule, stations will either have to demonstrate that the performance of their existing fish protection systems meet the new standards or develop new systems, such as a closed-cycle cooling tower. Various court challenges and EPA responses ensued. A final rule is expected to be issued in May 2014. NIPSCO will continue to monitor this matter but cannot estimate the cost of compliance at this time.

31

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

On June 7, 2013, the EPA published a proposed rule to amend the effluent limitations guidelines and standards for the Steam Electric Power Generating category. These proposed regulations could impose new water treatment requirements on NIPSCO’s electric generating facilities. NIPSCO will continue to monitor developments in this matter and cannot estimate the cost of compliance at this time.
Waste
On June 21, 2010, the EPA published a proposed rule for regulation of CCRs. The proposal outlines multiple regulatory approaches that the EPA is considering. These proposed regulations could negatively affect NIPSCO’s ongoing byproduct reuse programs and would impose additional requirements on its management of coal combustion residuals. NIPSCO will continue to monitor developments in this matter and cannot estimate the cost of compliance at this time.

D.     Other Matters. On November 23, 2012, while Columbia of Massachusetts was investigating the source of an odor of gas at a service location in Springfield, Massachusetts, a gas service line was pierced and an explosion occurred. While this explosion impacted multiple buildings and resulted in several injuries, no life threatening injuries or fatalities have been reported. Columbia of Massachusetts is fully cooperating with both the Massachusetts DPU and the Occupational Safety & Health Administration in their investigations of this incident. Columbia of Massachusetts believes any costs associated with damages, injuries, and other losses related to this incident are substantially covered by insurance. Any amounts not covered by insurance are not expected to have a material impact on NiSource's consolidated financial statements. In accordance with GAAP, NiSource recorded any accruals and the related insurance recoveries resulting from this incident on a gross basis within the Condensed Consolidated Balance Sheets (unaudited).  

18.    Accumulated Other Comprehensive Loss
The following tables display the components of Accumulated Other Comprehensive Loss for the three months ended March 31, 2014 and 2013:
Three Months Ended March 31, 2014 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss(1)
Balance as of January 1, 2014
$
(0.3
)
 
$
(25.8
)
 
$
(17.5
)
 
$
(43.6
)
Other comprehensive income before reclassifications
0.5

 
0.1

 

 
0.6

Amounts reclassified from accumulated other comprehensive income
(0.2
)
 
0.5

 
0.2

 
0.5

Net current-period other comprehensive income
0.3

 
0.6

 
0.2

 
1.1

Balance as of March 31, 2014
$

 
$
(25.2
)
 
$
(17.3
)
 
$
(42.5
)
Three Months Ended March 31, 2013 (in millions)
Gains and Losses on Securities(1)
 
Gains and Losses on Cash Flow Hedges(1)
 
Pension and OPEB Items(1)
 
Accumulated
Other
Comprehensive
Loss
(1)
Balance as of January 1, 2013
$
2.6

 
$
(28.6
)
 
$
(39.5
)
 
$
(65.5
)
Other comprehensive income before reclassifications
(0.1
)
 
0.1

 
1.3

 
1.3

Amounts reclassified from accumulated other comprehensive income
(0.3
)
 
0.8

 
1.4

 
1.9

Net current-period other comprehensive income
(0.4
)
 
0.9

 
2.7

 
3.2

Balance as of March 31, 2013
$
2.2

 
$
(27.7
)
 
$
(36.8
)
 
$
(62.3
)
(1)All amounts are net of tax. Amounts in parentheses indicate debits.

Equity Investment
As Millennium is an equity method investment, NiSource is required to recognize a proportional share of Millennium’s OCI. The remaining unrecognized loss at March 31, 2014 of $17.4 million, net of tax, related to terminated interest rate swaps is being amortized over the period ending June 2025 into earnings using the effective interest method through interest expense as interest payments are made by Millennium. The unrecognized loss of $17.4 million and $17.7 million at March 31, 2014 and December 31, 2013, respectively, is included in gains and losses on cash flow hedges above.
 

32

Table of Contents
ITEM 1. FINANCIAL STATEMENTS (continued)
NiSource Inc.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)

19.    Business Segment Information
Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. NiSource's Chief Executive Officer is the chief operating decision maker.
At March 31, 2014, NiSource’s operations are divided into three primary business segments. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts. The Columbia Pipeline Group Operations segment offers gas transportation and storage services for LDCs, marketers and industrial and commercial customers located in northeastern, mid-Atlantic, midwestern and southern states along with unregulated businesses that include midstream services and development of mineral rights positions. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.
The following table provides information about business segments. NiSource uses operating income as its primary measurement for each of the reported segments and makes decisions on finance, dividends and taxes at the corporate level on a consolidated basis. Segment revenues include intersegment sales to affiliated subsidiaries, which are eliminated in consolidation. Affiliated sales are recognized on the basis of prevailing market, regulated prices or at levels provided for under contractual agreements. Operating income is derived from revenues and expenses directly associated with each segment.