10-Q 1 ni-2015930x10q.htm 10-Q 10-Q

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 September 30, 2015
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. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
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: 318,671,280 shares outstanding at October 27, 2015.



NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED SEPTEMBER 30, 2015
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, Affiliates and Former Subsidiaries
Capital Markets
NiSource Capital Markets, Inc.
CGORC
Columbia Gas of Ohio Receivables Corporation
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 OpCo
CPG OpCo LP
Columbia of Pennsylvania
Columbia Gas of Pennsylvania, Inc.
Columbia of Virginia
Columbia Gas of Virginia, Inc.
CPG
Columbia Pipeline Group, Inc.
CPPL
Columbia Pipeline Partners LP
CPRC
Columbia Gas of Pennsylvania Receivables Corporation
NARC
NIPSCO Accounts Receivable Corporation
NDC Douglas Properties
NDC Douglas Properties, Inc.
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 Corp.
 
 
Abbreviations and Other
 
AFUDC
Allowance for funds used during construction
AOCI
Accumulated Other Comprehensive Income (Loss)
ASU
Accounting Standards Update
BNS
Bank of Nova Scotia
BTMU
The Bank of Tokyo-Mitsubishi UFJ, LTD.
CAA
Clean Air Act
CAMR
Clean Air Mercury Rule
CCRs
Coal Combustion Residuals
CERCLA
Comprehensive Environmental Response Compensation and Liability Act (also known as Superfund)
CO2
Carbon Dioxide
DPU
Department of Public Utilities
DSM
Demand Side Management
ECR
Environmental Cost Recovery
ECRM
Environmental Cost Recovery Mechanism
ECT
Environmental Cost Tracker
EERM
Environmental Expense Recovery Mechanism
EGUs
Electric Utility Generating Units
EPA
United States Environmental Protection Agency
EPS
Earnings per share
FAC
Fuel adjustment clause
FASB
Financial Accounting Standards Board

3


DEFINED TERMS (continued)

FERC
Federal Energy Regulatory Commission
FGD
Flue Gas Desulfurization
FIP
Federal Implementation Plan
FTRs
Financial Transmission Rights
GAAP
Generally Accepted Accounting Principles
GCR
Gas cost recovery
GHG
Greenhouse gases
gwh
Gigawatt hours
IDEM
Indiana Department of Environmental Management
IRP
Infrastructure Replacement Program
IURC
Indiana Utility Regulatory Commission
kV
Kilovolt
LDCs
Local distribution companies
LIFO
Last-in, first-out
MATS
Mercury and Air Toxics Standards
MGP
Manufactured Gas Plant
MISO
Midcontinent Independent System Operator
Mizuho
Mizuho Corporate Bank Ltd.
MMDth
Million dekatherms
NAAQS
National Ambient Air Quality Standards
NYMEX
New York Mercantile Exchange
OPEB
Other Postretirement Benefits
OUCC
Indiana Office of Utility Consumer Counselor
PNC
PNC Bank, N.A.
Pure Air
Pure Air on the Lake LP
Separation
The separation of NiSource's natural gas pipeline, midstream and storage business from NiSource's natural gas and electric utility business accomplished through the pro rata distribution by NiSource to holders of its outstanding common stock of all the outstanding shares of common stock of CPG. The Separation was completed on July 1, 2015.
ppb
Parts per billion
PUC
Public Utility Commission
PUCO
Public Utilities Commission of Ohio
RA
Resource Adequacy
RAAF
Residential Assistance Adjustment Factor
SEC
Securities and Exchange Commission
SO2
Sulfur dioxide
TDSIC
Transmission, Distribution and Storage System Improvement Charge
TSA
Transition Services Agreement
TUAs
Transmission Upgrade Agreements
VIE
Variable Interest Entities
VSCC
Virginia State Corporation Commission



4


PART I

ITEM 1. FINANCIAL STATEMENTS
NiSource Inc.
Condensed Statements of Consolidated (Loss) Income (unaudited)
  
Three Months Ended
September 30,
 
Nine Months Ended September 30,
(in millions, except per share amounts)
2015
 
2014
 
2015
 
2014
Net Revenues
 
 
 
 
 
 
Gas Distribution
$
208.9

 
$
240.3

 
$
1,595.5

 
$
1,878.8

Gas Transportation
172.1

 
170.5

 
739.9

 
710.5

Electric
428.4

 
424.6

 
1,198.7

 
1,279.4

Other
7.8

 
2.8

 
19.9

 
10.4

Gross Revenues
817.2

 
838.2

 
3,554.0

 
3,879.1

Cost of Sales (excluding depreciation and amortization)
209.1

 
262.4

 
1,307.3

 
1,769.6

Total Net Revenues
608.1

 
575.8

 
2,246.7

 
2,109.5

Operating Expenses
 
 
 
 
 
 
 
Operation and maintenance
311.1

 
327.4

 
1,076.9

 
990.5

Depreciation and amortization
132.5

 
123.8

 
391.0

 
363.1

Loss on sale of assets
1.1

 
0.1

 
1.2

 
1.5

Other taxes
53.7

 
53.4

 
197.2

 
192.2

Total Operating Expenses
498.4

 
504.7

 
1,666.3

 
1,547.3

Operating Income
109.7

 
71.1

 
580.4

 
562.2

Other Income (Deductions)
 
 
 
 
 
 
 
Interest expense, net
(94.9
)
 
(94.7
)
 
(285.9
)
 
(287.4
)
Other, net
5.8

 
5.7

 
11.6

 
13.4

Loss on early extinguishment of long-term debt

 

 
(97.2
)
 

Total Other Deductions
(89.1
)
 
(89.0
)
 
(371.5
)
 
(274.0
)
Income (Loss) from Continuing Operations before Income Taxes
20.6

 
(17.9
)
 
208.9

 
288.2

Income Taxes
5.8

 
(0.7
)
 
74.7

 
111.5

Income (Loss) from Continuing Operations
14.8

 
(17.2
)
 
134.2

 
176.7

(Loss) Income from Discontinued Operations - net of taxes
(19.7
)
 
48.6

 
108.5

 
199.1

Net (Loss) Income
(4.9
)
 
31.4

 
242.7

 
375.8

Less: Net income attributable to noncontrolling interest

 

 
15.6

 

Net (Loss) Income attributable to NiSource
$
(4.9
)
 
$
31.4


$
227.1


$
375.8

 
 
 
 
 
 
 
 
Amounts attributable to NiSource:
 
 
 
 
 
 
 
Income (Loss) from continuing operations
$
14.8

 
$
(17.2
)
 
$
134.2

 
$
176.7

(Loss) Income from discontinued operations
(19.7
)
 
48.6

 
92.9

 
199.1

Net (Loss) Income attributable to NiSource
$
(4.9
)
 
$
31.4

 
$
227.1

 
$
375.8

Basic (Loss) Earnings Per Share
 
 
 
 
 
 
 
Continuing operations
$
0.05

 
$
(0.05
)
 
$
0.42

 
$
0.56

Discontinued operations
(0.07
)
 
0.15

 
0.30

 
0.63

Basic (Loss) Earnings Per Share
$
(0.02
)
 
$
0.10

 
$
0.72

 
$
1.19

Diluted (Loss) Earnings Per Share
 
 
 
 
 
 
 
Continuing operations
$
0.05

 
$
(0.05
)
 
$
0.42

 
$
0.56

Discontinued operations
(0.07
)
 
0.15

 
0.29

 
0.63

Diluted (Loss) Earnings Per Share
$
(0.02
)
 
$
0.10

 
$
0.71

 
$
1.19

Dividends Declared Per Common Share
$
0.31

 
$
0.26

 
$
0.83

 
$
1.02

Basic Average Common Shares Outstanding
318.1

 
315.4

 
317.4

 
314.9

Diluted Average Common Shares
321.5

 
315.4

 
320.7

 
316.0

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

5

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)


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

 
Three Months Ended
September 30,
 
Nine Months Ended September 30,
(in millions, net of taxes)
2015
 
2014
 
2015
 
2014
Net (Loss) Income
$
(4.9
)
 
$
31.4

 
$
242.7

 
$
375.8

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

 
(0.6
)
 

 
0.2

Net unrealized gain on cash flow hedges(2)
0.2

 
0.6

 
1.8

 
1.9

Unrecognized pension and OPEB benefit (cost)(3)
(0.2
)
 
(0.2
)
 
2.7

 
(0.1
)
Total other comprehensive income (loss)
0.3

 
(0.2
)
 
4.5

 
2.0

Comprehensive (Loss) Income
$
(4.6
)
 
$
31.2


$
247.2


$
377.8

Less: Comprehensive income attributable to noncontrolling interest

 

 
15.6

 

Comprehensive (Loss) Income attributable to NiSource
$
(4.6
)
 
$
31.2


$
231.6


$
377.8

(1) Net unrealized gain (loss) on available-for-sale securities, net of $0.2 million tax expense and $0.3 million tax benefit in the third quarter of 2015 and 2014, respectively, and zero and $0.1 million tax expense for the first nine months of 2015 and 2014, respectively.

(2) Net unrealized gains on derivatives qualifying as cash flow hedges, net of $0.2 million and $0.4 million tax expense in the third quarter of 2015 and 2014, respectively, and $1.1 million and $1.2 million tax expense for the first nine months of 2015 and 2014, respectively.

(3) Unrecognized pension and OPEB (cost) benefit net of $0.1 million and zero tax benefit in the third quarter of 2015 and 2014, respectively, and $2.1 million tax expense and $0.7 million tax benefit for the first nine months of 2015 and 2014, respectively.
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 Consolidated Balance Sheets (unaudited)
(in millions)
September 30,
2015
 
December 31,
2014
ASSETS
 
 
 
Property, Plant and Equipment
 
 
 
Utility plant
$
18,484.8

 
$
17,668.4

Accumulated depreciation and amortization
(6,811.5
)
 
(6,629.5
)
Net utility plant
11,673.3

 
11,038.9

Other property, at cost, less accumulated depreciation
17.4

 
18.5

Net Property, Plant and Equipment
11,690.7

 
11,057.4

Investments and Other Assets
 
 
 
Unconsolidated affiliates
6.7

 
8.3

Other investments
195.8

 
204.8

Total Investments and Other Assets
202.5

 
213.1

Current Assets
 
 
 
Cash and cash equivalents
31.7

 
24.9

Restricted cash
27.9

 
24.9

Accounts receivable (less reserve of $20.7 and $24.9, respectively)
500.5

 
920.8

Gas inventory
398.9

 
440.3

Underrecovered gas costs
7.1

 
32.0

Materials and supplies, at average cost
84.2

 
81.1

Electric production fuel, at average cost
81.1

 
64.8

Exchange gas receivable
19.7

 
28.3

Assets of discontinued operations

 
341.3

Regulatory assets
183.7

 
187.4

Deferred income taxes
227.1

 
214.2

Prepayments and other
75.9

 
106.5

Total Current Assets
1,637.8

 
2,466.5

Other Assets
 
 
 
Regulatory assets
1,507.5

 
1,544.5

Goodwill
1,690.7

 
1,690.7

Intangible assets
256.4

 
264.7

Assets of discontinued operations

 
7,546.0

Deferred charges and other
70.3

 
83.4

Total Other Assets
3,524.9

 
11,129.3

Total Assets
$
17,055.9

 
$
24,866.3

 
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) (continued)
(in millions, except share amounts)
September 30,
2015
 
December 31,
2014
CAPITALIZATION AND LIABILITIES
 
 
 
Capitalization
 
 
 
Common Stockholders’ Equity
 
 
 
Common stock - $0.01 par value, 400,000,000 shares authorized; 318,474,781 and 316,037,421 shares outstanding, respectively
$
3.2

 
$
3.2

Additional paid-in capital
5,078.6

 
4,787.6

Retained (deficit) earnings
(1,182.7
)
 
1,494.0

Accumulated other comprehensive loss
(19.6
)
 
(50.6
)
Treasury stock
(79.2
)
 
(58.9
)
Total Common Stockholders’ Equity
3,800.3

 
6,175.3

Long-term debt, excluding amounts due within one year
6,133.5

 
8,155.9

Total Capitalization
9,933.8


14,331.2

Current Liabilities
 
 
 
Current portion of long-term debt
442.6

 
266.6

Short-term borrowings
107.2

 
1,576.9

Accounts payable
349.2

 
610.1

Dividends payable
49.3

 

Customer deposits and credits
255.4

 
280.9

Taxes accrued
137.0

 
169.2

Interest accrued
77.5

 
140.7

Overrecovered gas and fuel costs
169.2

 
45.6

Exchange gas payable
66.8

 
101.5

Deferred revenue
9.3

 
3.4

Regulatory liabilities
120.2

 
61.1

Accrued liability for postretirement and postemployment benefits
5.2

 
5.3

Liabilities of discontinued operations

 
369.0

Legal and environmental
36.8

 
22.7

Accrued compensation and employee benefits
125.9

 
166.8

Other accruals
121.7

 
144.5

Total Current Liabilities
2,073.3

 
3,964.3

Other Liabilities and Deferred Credits
 
 
 
Deferred income taxes
2,513.9

 
2,380.0

Deferred investment tax credits
15.4

 
17.1

Deferred credits
99.4

 
100.9

Accrued liability for postretirement and postemployment benefits
665.2

 
733.9

Liabilities of discontinued operations

 
1,616.3

Regulatory liabilities
1,387.1

 
1,379.6

Asset retirement obligations
181.2

 
136.2

Other noncurrent liabilities
186.6

 
206.8

Total Other Liabilities and Deferred Credits
5,048.8

 
6,570.8

Commitments and Contingencies (Refer to Note 16, "Other Commitments and Contingencies")

 

Total Capitalization and Liabilities
$
17,055.9

 
$
24,866.3

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 Statements of Consolidated Cash Flows (unaudited)

Nine Months Ended September 30, (in millions)
2015
 
2014
Operating Activities
 
 
 
Net Income
$
242.7

 
$
375.8

Adjustments to Reconcile Net Income to Net Cash from Continuing Operations:
 
 
 
Loss on early extinguishment of debt
97.2

 

Depreciation and amortization
391.0

 
363.1

Net changes in price risk management assets and liabilities
2.0

 
1.9

Deferred income taxes and investment tax credits
60.1

 
110.1

Deferred revenue
7.3

 
(0.4
)
Stock compensation expense and 401(k) profit sharing contribution
38.6

 
50.2

Loss on sale of assets
1.2

 
1.5

Income from unconsolidated affiliates
0.8

 
0.6

Income from discontinued operations - net of taxes
(108.5
)
 
(199.1
)
Amortization of debt related costs
6.8

 
7.5

AFUDC equity
(7.7
)
 
(7.4
)
Changes in Assets and Liabilities
 
 
 
Accounts receivable
420.3

 
360.3

Inventories
19.8

 
(170.5
)
Accounts payable
(287.5
)
 
(228.7
)
Customer deposits and credits
(25.5
)
 
(5.0
)
Taxes accrued
(30.6
)
 
(31.1
)
Interest accrued
(63.1
)
 
(54.7
)
Over (Under) recovered gas and fuel costs
148.5

 
(19.2
)
Exchange gas receivable/payable
(26.1
)
 
(57.2
)
Other accruals
(57.1
)
 
(29.5
)
Prepayments and other current assets
30.1

 
33.9

Regulatory assets/liabilities
111.1

 
(18.1
)
Postretirement and postemployment benefits
(61.0
)
 
(86.7
)
Deferred credits
(1.3
)
 
10.7

Deferred charges and other noncurrent assets
10.8

 
5.5

Other noncurrent liabilities
(13.6
)
 
5.3

Net Operating Activities from Continuing Operations
906.3

 
418.8

Net Operating Activities from Discontinued Operations
287.6

 
467.7

Net Cash Flows from Operating Activities
1,193.9

 
886.5

Investing Activities
 
 
 
Capital expenditures
(923.4
)
 
(914.3
)
Proceeds from disposition of assets
4.3

 
1.6

Restricted cash deposits
(3.0
)
 
(8.1
)
Cash contributions from CPG
3,798.2

 

Other investing activities
(39.9
)
 
(7.4
)
Net Investing Activities from (used for) Continuing Operations
2,836.2

 
(928.2
)
Net Investing Activities used for Discontinued Operations
(430.0
)
 
(584.0
)
Net Cash Flows from (used for) Investing Activities
2,406.2

 
(1,512.2
)
Financing Activities
 
 
 
Cash of CPG at Separation
(136.8
)
 

Issuance of long-term debt

 
748.4

Repayments of long-term debt and capital lease obligations
(1,859.1
)
 
(517.1
)
Premiums and other debt related costs
(93.5
)
 

Change in short-term borrowings, net
(1,396.6
)
 
612.3

Issuance of common stock
17.9

 
22.4

Acquisition of treasury stock
(20.3
)
 
(10.2
)
Dividends paid - common stock
(214.0
)
 
(239.2
)
Net Financing Activities (used for) from Continuing Operations
(3,702.4
)
 
616.6

Net Financing Activities from Discontinued Operations
108.6

 

Net Cash Flows (used for) from Financing Activities
(3,593.8
)
 
616.6

Change in cash and cash equivalents from continuing operations
40.1

 
107.2

Change in cash and cash equivalents used for discontinued operations

(33.8
)
 
(116.3
)
Change in cash included in discontinued operations
0.5

 
(0.1
)
Cash and cash equivalents at beginning of period
24.9

 
26.5

Cash and Cash Equivalents at End of Period
$
31.7

 
$
17.3


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 Statement of Consolidated Equity (unaudited)
(in millions)
Common
Stock
 
Treasury
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings (Deficit)
 
Accumulated
Other
Comprehensive
Income/(Loss)
 
Total
Balance as of January 1, 2015
$
3.2

 
$
(58.9
)
 
$
4,787.6

 
$
1,494.0

 
$
(50.6
)
 
$
6,175.3

Comprehensive Income:
 
 
 
 
 
 
 
 
 
 
 
Net Income attributable to NiSource

 

 

 
227.1

 

 
227.1

Other comprehensive income, net of tax

 

 

 

 
4.5

 
4.5

Allocation of AOCI to noncontrolling interest(2)

 

 

 

 
2.0

 
2.0

Common stock dividends ($0.83 per share)

 

 

 
(263.5
)
 

 
(263.5
)
Distribution of CPG stock to shareholders (Note 4)

 

 

 
(2,640.3
)
 
24.5

 
(2,615.8
)
Treasury stock acquired

 
(20.3
)
 

 

 

 
(20.3
)
Issued:
 
 
 
 
 
 
 
 
 
 
 
Employee stock purchase plan

 

 
4.0

 

 

 
4.0

Long-term incentive plan

 

 
17.0

 

 

 
17.0

401(k) and profit sharing issuance

 

 
36.7

 

 

 
36.7

Dividend reinvestment plan

 

 
6.2

 

 

 
6.2

Sale of interest in Columbia OpCo to CPPL(1)(2)

 

 
227.1

 

 

 
227.1

Balance as of September 30, 2015
$
3.2

 
$
(79.2
)
 
$
5,078.6

 
$
(1,182.7
)
 
$
(19.6
)
 
$
3,800.3

(1) Represents the purchase of an additional 8.4% limited partner interest in Columbia OpCo by an affiliate of CPG, recorded at the historical carrying value of Columbia OpCo's net assets after giving effect to the $1,168.4 million equity contribution from CPPL's IPO completed on February 11, 2015.
(2)This transaction, which occurred prior to the Separation, was distributed through retained earnings as part of the Separation on July 1, 2015.

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.
Notes to Condensed Consolidated Financial Statements (unaudited)

 
1.    Basis of Accounting Presentation

The accompanying Condensed Consolidated Financial Statements (unaudited) for NiSource Inc. ("NiSource" or 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 contain the accounts of the Company and its majority-owned or controlled subsidiaries. The results of operations of the former Columbia Pipeline Group Operations segment have been classified as discontinued operations for all periods presented. See Note 4, "Discontinued Operations," for further information.

Unless otherwise indicated, the information in the Notes to the Condensed Consolidated Financial Statements (unaudited) relates to NiSource's continuing operations.
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, 2014. 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 in this quarterly report on Form 10-Q are adequate to make the information herein not misleading.
2.    Recent Accounting Pronouncements

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 replaces the current lower of cost or market test with a lower of cost or net realizable value test. The new standard applies only to inventories for which cost is determined by methods other than LIFO and the retail inventory method (RIM). NiSource is required to adopt ASU 2015-11 for periods beginning after December 15, 2016, including interim periods, with early adoption permitted. NiSource is currently evaluating the impact the adoption of ASU 2015-11 will have on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date for ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim periods. Companies are permitted to adopt ASU 2014-09 on the original effective date of the ASU. NiSource is currently evaluating the impact the adoption of ASU 2014-09 will have on its Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).

In April 2015, the FASB issued ASU 2015-05, Intangibles - Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement. ASU 2015-05 clarifies guidance on determining whether a cloud computing arrangement contains a software license that should be accounted for as internal-use software. NiSource is required to adopt ASU 2015-05 for periods beginning after December 15, 2015, including interim periods, and the guidance is permitted to be applied either (1) prospectively to all agreements entered into or materially modified after the effective date or (2) retrospectively, with early adoption permitted. NiSource is currently evaluating the impact the adoption of ASU 2015-05 will have on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).

In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-03 changes the way entities present debt issuance costs in financial statements by presenting issuance costs on the balance sheet as a direct deduction from the related debt liability rather than as a deferred charge. Amortization of these costs will continue to be reported as interest expense. NiSource is required to adopt ASU 2015-03 for periods beginning after December 15, 2015, including interim periods, and the guidance is to be applied retrospectively with early adoption permitted. NiSource is currently evaluating the impact the adoption of ASU 2015-03 will have on the Condensed Consolidated Financial Statements (unaudited) or Notes to Condensed Consolidated Financial Statements (unaudited).

11

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


3.    Earnings Per Share

Basic EPS is computed by dividing net income attributable to NiSource 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 attributable to NiSource. The computation of diluted average common shares for the three months ended September 30, 2014 is not presented since NiSource had a loss from continuing operations on the Condensed Statements of Consolidated (Loss) Income (unaudited) during the period and any incremental shares would have an antidilutive effect on EPS. The computation of diluted average common shares is as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2015
 
2015
 
2014
Denominator
 
 
 
 
 
Basic average common shares outstanding
318,090

 
317,390

 
314,889

Dilutive potential common shares:
 
 
 
 
 
Stock options

 

 
30

Shares contingently issuable under employee stock plans

 

 
649

Shares restricted under stock plans(1)
3,375

 
3,328

 
438

Diluted Average Common Shares
321,465

 
320,718

 
316,006

(1)Change due to Separation-related adjustments, see Note 15, "Share-Based Compensation."
 

4.    Discontinued Operations

On July 1, 2015, NiSource completed the Separation of CPG from NiSource through a special pro rata stock dividend, distributing one share of CPG common stock for every one share of NiSource common stock held by any NiSource stockholder on June 19, 2015, the record date. The Separation resulted in two stand-alone energy infrastructure companies: NiSource, a fully regulated natural gas and electric utilities company, and CPG, a natural gas pipeline, midstream and storage company. As a stand-alone company, CPG's operations consist of substantially all of NiSource's Columbia Pipeline Group Operations segment prior to the Separation. NiSource retained no ownership interest in CPG. On the date of the Separation, CPG consisted of approximately $9.2 billion of assets, $5.6 billion of liabilities and $3.6 billion of equity.

The results of operations and cash flows for the former Columbia Pipeline Group Operations segment have been reported as discontinued operations for all periods presented. Additionally, the assets and liabilities of the former Columbia Pipeline Group Operations segment were reclassified as assets and liabilities of discontinued operations for all prior periods.


12

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

Results from discontinued operations are provided in the following table. These results are primarily from NiSource's former Columbia Pipeline Group Operations segment.
 
Three Months Ended
 
Nine Months Ended
 
September 30, 2015
 
September 30, 2015
(in millions)
Columbia Pipeline Group Operations
 
Corporate and Other
 
Total
 
Columbia Pipeline Group Operations
 
Corporate and Other
 
Total
Net Revenues
 
 
 
 
 
 
 
 
 
 
 
Transportation and storage revenues
$

 
$

 
$

 
$
561.4

 
$

 
$
561.4

Other revenues

 

 

 
94.3

 

 
94.3

Total Sales Revenues

 

 

 
655.7

 

 
655.7

Less: Cost of sales (excluding depreciation and amortization)

 

 

 
0.2

 

 
0.2

Net Revenues

 

 

 
655.5

 

 
655.5

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Operation and maintenance
5.5

(1) 

 
5.5

 
374.8

(1) 

 
374.8

Depreciation and amortization

 

 

 
66.4

 

 
66.4

Gain on sale of assets

 

 

 
(13.6
)
 

 
(13.6
)
Other taxes

 

 

 
38.0

 

 
38.0

Total Operating Expenses
5.5

 

 
5.5

 
465.6

 

 
465.6

Equity Earnings in Unconsolidated Affiliates

 

 

 
29.1

 

 
29.1

Operating (Loss) Income from discontinued operations
(5.5
)
 

 
(5.5
)
 
219.0

 

 
219.0

Other Income (Deductions)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net

 

 

 
(37.1
)
 

 
(37.1
)
Other, net

 

 

 
7.8

 
(0.6
)
 
7.2

Total Other Deductions

 

 

 
(29.3
)
 
(0.6
)
 
(29.9
)
(Loss) Income from Discontinued Operations before Income Taxes
(5.5
)
 

 
(5.5
)
 
189.7

 
(0.6
)
 
189.1

Income Taxes
14.2

(2) 

 
14.2

 
80.9

 
(0.3
)
 
80.6

(Loss) Income from Discontinued Operations - net of taxes
$
(19.7
)
 
$

 
$
(19.7
)
 
$
108.8

 
$
(0.3
)
 
$
108.5

(1) Includes approximately $5.5 million and $54.4 million for the three and nine months ended September 30, 2015, of transaction costs related to the Separation.
(2) Primarily attributable to the write-off of consolidated state income tax benefits resulting from the Separation.

13

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

 
Three Months Ended
 
Nine Months Ended
 
September 30, 2014
 
September 30, 2014
(in millions)
Columbia Pipeline Group Operations
 
Corporate and Other
 
Total
 
Columbia Pipeline Group Operations
 
Corporate and Other
 
Total
Net Revenues
 
 
 
 
 
 
 
 
 
 
 
Transportation and storage revenues
$
243.1

 
$

 
$
243.1

 
$
746.1

 
$

 
$
746.1

Other revenues
74.5

 

 
74.5

 
260.6

 

 
260.6

Total Sales Revenues
317.6

 

 
317.6

 
1,006.7

 

 
1,006.7

Less: Cost of sales (excluding depreciation and amortization)

 

 

 
0.2

 

 
0.2

Net Revenues
317.6

 

 
317.6

 
1,006.5

 

 
1,006.5

Operating Expenses
 
 
 
 
 
 
 
 
 
 
 
Operation and maintenance
202.1

(1) 

 
202.1

 
573.3

(1) 

 
573.3

Depreciation and amortization
29.2

 

 
29.2

 
87.7

 

 
87.7

Gain on sale of assets
(3.0
)
 

 
(3.0
)
 
(20.8
)
 

 
(20.8
)
Other taxes
14.6

 

 
14.6

 
50.3

 

 
50.3

Total Operating Expenses
242.9

 

 
242.9

 
690.5

 

 
690.5

Equity Earnings in Unconsolidated Affiliates
12.0

 

 
12.0

 
32.9

 

 
32.9

Operating Income from discontinued operations
86.7

 

 
86.7

 
348.9

 

 
348.9

Other Income (Deductions)
 
 
 
 
 
 
 
 
 
 
 
Interest expense, net
(14.9
)
 

 
(14.9
)
 
(40.4
)
 

 
(40.4
)
Other, net
3.5

 
(0.2
)
 
3.3

 
7.8

 
(1.0
)
 
6.8

Total Other Deductions
(11.4
)
 
(0.2
)
 
(11.6
)
 
(32.6
)
 
(1.0
)
 
(33.6
)
Income (Loss) from Discontinued Operations before Income Taxes
75.3

 
(0.2
)
 
75.1

 
316.3

 
(1.0
)
 
315.3

Income Taxes
26.6

 
(0.1
)
 
26.5

 
116.6

 
(0.4
)
 
116.2

Income (Loss) from Discontinued Operations - net of taxes
$
48.7

 
$
(0.1
)
 
$
48.6

 
$
199.7

 
$
(0.6
)
 
$
199.1

(1) Includes approximately $9.3 million and $12.8 million for the three and nine months ended September 30, 2014, of transaction costs related to the Separation.

CPG’s financing requirements prior to the private placement of senior notes on May 22, 2015 were satisfied through borrowings from NiSource Finance. Interest expense from discontinued operations primarily represents net interest charged to CPG from NiSource Finance, less AFUDC. Subsequent to May 22, 2015, interest expense from discontinued operations also includes interest incurred on CPG’s private placement of $2,750.0 million of senior notes.

Continuing Involvement
Natural gas transportation and storage services provided to NiSource by CPG were $31.6 million and $105.4 million for the three and nine months ended September 30, 2015 and $31.9 million and $106.3 million for the three and nine months ended September 30, 2014. Prior to July 1, 2015, these costs were eliminated in consolidation. Beginning July 1, 2015, these costs and associated cash flows represent third-party transactions with CPG and are not eliminated in consolidation, as such services have continued subsequent to the Separation and are expected to continue for the foreseeable future.

As a result of the Separation, NiSource and CPG entered into a Transition Services Agreement (TSA). NiSource expects the TSA to terminate within 18 months from the date of the Separation. The TSA sets forth the terms and conditions for NiSource and CPG to provide certain transition services to one another. NiSource will provide CPG certain information technology, financial and accounting, human resource and other specified services. For the period July 1, 2015 to September 30, 2015, the amounts NiSource billed CPG for these services were not significant.

14

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


There were no assets and liabilities of discontinued operations on the Condensed Consolidated Balance Sheet (unaudited) at September 30, 2015.

The assets and liabilities of discontinued operations on the Condensed Consolidated Balance Sheet (unaudited) at December 31, 2014 were:

 
December 31, 2014
(in millions)
Columbia Pipeline Group Operations
Current Assets
 
Cash and cash equivalents
$
0.5

Accounts receivable, net
149.3

Gas inventory
4.8

Materials and supplies, at average cost
24.9

Exchange gas receivable
34.8

Regulatory assets
6.1

Deferred income taxes
57.9

Prepayments and other
63.0

Total current assets
$
341.3

Noncurrent Assets
 
Net property, plant and equipment
$
4,959.7

Goodwill
1,975.5

Unconsolidated affiliates
444.3

Other investments
5.6

Regulatory assets
151.9

Deferred charges and other
9.0

Total noncurrent assets
$
7,546.0



15

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

 
December 31, 2014
(in millions)
Columbia Pipeline Group Operations
Current Liabilities
 
Accounts payable
$
60.5

Customer deposits and credits
13.4

Taxes accrued
106.9

Exchange gas payable
34.7

Deferred revenue
22.2

Regulatory liabilities
1.3

Accrued liability for postretirement and postemployment benefits
0.6

Legal and environmental
1.5

Accrued capital expenditures
61.1

Other accruals
66.8

Total current liabilities
$
369.0

Noncurrent Liabilities
 
Deferred income taxes
$
1,272.2

Deferred investment tax credits
0.2

Deferred credits
0.2

Accrued liability for postretirement and postemployment benefits(1)
(58.0
)
Regulatory liabilities
294.2

Asset retirement obligations
23.2

Other noncurrent liabilities
84.3

Total noncurrent liabilities
$
1,616.3

(1) Represents Columbia Pipeline Group segment's overfunded position in NiSource's net underfunded other postretirement plan.

5.    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 nine months ended September 30, 2015 and 2014 are presented in the table below:
 
(in millions)
2015
 
2014
Balance as of January 1,
$
136.2

 
$
148.1

Accretion recorded as a regulatory asset/liability
5.9

 
6.3

Additions
6.4

 
0.3

Settlements
(4.3
)
 
(1.3
)
Change in estimated cash flows(1)
37.0

 
(7.4
)
Balance as of September 30,
$
181.2

 
$
146.0

(1) The current year change in estimated cash flows is primarily attributable to estimated costs associated with the EPA's final rule for regulation of CCRs and changes to cost estimates for certain solid waste management units. See Note 16, "Other Commitments and Contingencies," for additional information on CCRs.
 

16

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

6.    Regulatory Matters
Gas Distribution Operations Regulatory Matters

Significant Rate Developments. On November 25, 2014, 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 27, 2015, and requested authority to increase revenues by $24.7 million. On March 26, 2015, PUCO Staff filed Comments recommending that the PUCO approve Columbia of Ohio’s application in full. On April 22, 2015, the PUCO issued an Order that approved Columbia of Ohio's application. New rates went into effect on May 1, 2015.

On March 19, 2015, Columbia of Pennsylvania filed a base rate case with the Pennsylvania PUC, seeking a revenue increase of $46.2 million annually. The case is driven by Columbia of Pennsylvania’s capital investment program which exceeds $197.0 million in 2015 and $211.0 million in 2016 as well as costs to train and comply with pipeline safety-related operation and maintenance expenditures. Columbia of Pennsylvania's request for rate relief includes the recovery of costs that are projected to be incurred after the implementation of new rates, as authorized by the Pennsylvania General Assembly with the passage of Act 11 of 2012. On August 27, 2015, the parties to the case filed a joint petition for approval of a settlement that features an annual revenue increase of $28.0 million. New rates are expected to go into effect during the fourth quarter of 2015.

On April 16, 2015, Columbia of Massachusetts filed a base rate case with the Massachusetts DPU. The case, which sought increased annual revenues of approximately $49.0 million, was designed to support Columbia of Massachusetts' continued focus on providing safe and reliable service in compliance with increasing state and federal regulations and oversight, and recovery of associated increased operations and maintenance costs. Columbia of Massachusetts arrived at a settlement agreement with the Massachsuetts Attorney General in the case which was filed for approval with the Massachusetts DPU on August 19, 2015 and approved on October 7, 2015. The settlement agreement provides for increased annual revenues of $32.8 million beginning November 1, 2015, with an additional $3.6 million annual increase in revenues starting November 1, 2016. The settlement also provides that Columbia of Massachusetts cannot increase base distribution rates to become effective prior to November 1, 2018.

On April 30, 2014, Columbia of Virginia filed a base rate case with the VSCC seeking an annual revenue increase of $31.8 million. New rates went into effect in October 2014, subject to refund. On December 10, 2014, Columbia of Virginia presented at hearing a Stipulation and Proposed Recommendation (“Stipulation”) executed by certain parties to the rate proceeding that included a base revenue increase of $25.2 million including recovery of costs related to the implementation of pipeline safety programs. On March 30, 2015, the VSCC issued an Order Remanding for Further Action approving the revenue increase of $25.2 million contained in the Stipulation, but remanding for further proceedings the single issue of the manner in which fixed costs were to be assigned to the fixed customer charges of each rate class. Following a hearing, the VSCC on August 21, 2015 issued a Final Order resolving the fixed customer charge and allowing Columbia of Virginia to implement new rates.

Cost Recovery and Trackers. A significant portion of the NiSource distribution companies' revenue is related to the recovery of gas costs, the review and recovery of which occur 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.

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 tracking mechanisms include GCR adjustment mechanisms, tax riders, 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 expense. Increases in the expenses that are the subject of 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

17

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

useful lives. Each LDC's approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.

NIPSCO has approval from the IURC to recover certain costs for gas transmission, distribution and storage system improvements. On February 27, 2015, NIPSCO filed gas TDSIC-2 which included $43.3 million of net capital expenditures for the period ended December 31, 2014. Given the Indiana Court of Appeals decision in NIPSCO's electric TDSIC filing (for further information, see "Electric Operations Regulatory Matters" below), NIPSCO elected to dismiss its TDSIC-2 filing in favor of supplying further detailed plan updates in the next proceeding, TDSIC-3. On August 31, 2015, NIPSCO filed TDSIC-3 which included $75.2 million of net capital expenditures for the period ended June 30, 2015. An order is expected in the first quarter of 2016.

Electric Operations Regulatory Matters

Significant Rate Developments. On July 19, 2013, NIPSCO filed its electric TDSIC 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. The NIPSCO Industrial Group and the OUCC filed Notices of Appeal with the Indiana Court of Appeals in response to the IURC's ruling. On November 25, 2014, NIPSCO’s requested TDSIC factors were approved on an interim basis and subject to refund, pending the outcome of the appeals of the IURC’s February 17, 2014 Orders. On April 8, 2015, the Court of Appeals issued an order concluding that the IURC erred in approving NIPSCO’s seven-year plan given its lack of detail regarding the projects for years two through seven. The court then remanded the decision to the IURC. On May 26, 2015, NIPSCO filed a settlement on remand which, among other things, requires NIPSCO to file an electric base rate case proceeding by December 31, 2015 and a new seven-year electric TDSIC plan following the filing of its next general rate case proceeding. The settlement agreement was rejected by the IURC on September 23, 2015. The settling parties filed a Petition for Rehearing on September 29, 2015 and were granted a rehearing which was held on October 28, 2015.

On October 1, 2015, NIPSCO filed an electric base rate case with the IURC, seeking a revenue increase of approximately $148.0 million. As part of this filing, NIPSCO is proposing to update base rates for previously incurred infrastructure improvements, revised depreciation rates, and the inclusion of previously approved environmental and federally mandated compliance costs. A prehearing conference was held on October 29, 2015 and a final order is anticipated in the second half of 2016.

Cost Recovery and Trackers. A significant portion of NIPSCO's revenue is related to the recovery of fuel costs to generate power and the fuel costs related to 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 October 21, 2015, the IURC issued an order on ECR-26 approving NIPSCO’s request to begin earning a return on $776.5 million of net capital expenditures for the period ended June 30, 2015. The order also approved a revised capital cost estimate of $255.3 million for its Phase III multi-pollutant compliance plan projects related to the Michigan City Unit 12 FGD, a decrease from the previous IURC approved cost estimate of $264.8 million.



18

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

7.    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 September 30, 2015 and December 31, 2014:
 
Recurring Fair Value Measurements
September 30, 2015 (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 September 30, 2015
Assets
 
 
 
 
 
 
 
Price risk management assets:
 
 
 
 
 
 
 
Commodity financial price risk programs
$
0.1

 
$

 
$

 
$
0.1

Available-for-sale securities
34.0

 
101.4

 

 
135.4

Total
$
34.1

 
$
101.4

 
$

 
$
135.5

Liabilities
 
 
 
 
 
 
 
Price risk management liabilities:
 
 
 
 
 
 
 
Commodity financial price risk programs
$
16.3

 
$

 
$
0.6

 
$
16.9

Total
$
16.3

 
$

 
$
0.6

 
$
16.9


Recurring Fair Value Measurements
December 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
December 31, 2014
Assets
 
 
 
 
 
 
 
Price risk management assets:
 
 
 
 
 
 
 
Commodity financial price risk programs
$
0.1

 
$

 
$

 
$
0.1

Available-for-sale securities
28.4

 
103.5

 

 
131.9

Total
$
28.5

 
$
103.5

 
$

 
$
132.0

Liabilities
 
 
 
 
 
 
 
Price risk management liabilities:
 
 
 
 
 
 
 
Commodity financial price risk programs
$
14.2

 
$

 
$
0.1

 
$
14.3

Total
$
14.2

 
$

 
$
0.1

 
$
14.3

Price risk management assets and liabilities primarily include NYMEX futures and NYMEX options which are 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 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 September 30, 2015

19

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

and December 31, 2014, 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.
Commodity price risk resulting from derivative activities at NiSource’s rate-regulated subsidiaries is limited, since regulations allow recovery of prudently incurred purchased power, fuel and gas costs through the ratemaking process, including gains or losses on these derivative instruments. If states should explore additional regulatory reform, these subsidiaries may begin providing services without the benefit of the traditional ratemaking process and may be more exposed to commodity price risk. Some of NiSource’s rate-regulated utility subsidiaries offer commodity price risk products to its customers for which derivatives are used to hedge forecasted customer usage under such products. These subsidiaries do not have regulatory recovery orders for these products and are subject to gains and losses recognized in earnings due to hedge ineffectiveness.
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 unrealized 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 September 30, 2015 and December 31, 2014 were: 
September 30, 2015 (in millions)
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair
Value
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury securities
$
33.8

 
$
0.3

 
$

 
$
34.1

Corporate/Other bonds
101.0

 
0.7

 
(0.4
)
 
101.3

Total Available-for-sale debt securities
$
134.8

 
$
1.0

 
$
(0.4
)
 
$
135.4

December 31, 2014 (in millions)
Amortized
Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair
Value
Available-for-sale debt securities
 
 
 
 
 
 
 
U.S. Treasury securities
$
30.8

 
$
0.3

 
$
(0.2
)
 
$
30.9

Corporate/Other bonds
100.6

 
1.0

 
(0.6
)
 
101.0

Total Available-for-sale debt securities
$
131.4

 
$
1.3

 
$
(0.8
)
 
$
131.9

For the three months ended September 30, 2015 and 2014, the net realized gain on the sale of available-for-sale U.S. Treasury debt securities was $0.1 million and zero, respectively. For the three months ended September 30, 2015 and 2014, the net realized gain on the sale of available-for-sale Corporate/Other bond debt securities was $0.2 million and $0.1 million, respectively.
For the nine months ended September 30, 2015 and 2014, the net realized gain on sale of available-for-sale U.S. Treasury debt securities was $0.2 million and $0.1 million, respectively. For the nine months ended September 30, 2015 and 2014, the net realized gain on the sale of available-for-sale Corporate/Other bond debt securities was $0.3 million for each period.
The cost of maturities sold is based upon specific identification. At September 30, 2015, approximately $2.2 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 September 30, 2015, approximately $8.7 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 and nine months ended September 30, 2015 and 2014.
 
 
Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the nine months ended September 30, 2015.


20

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

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.
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 securities. 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 nine months ended September 30, 2015 and 2014, 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
September 30, 2015
 
Estimated Fair
Value as of
September 30, 2015
 
Carrying
Amount as of
Dec. 31, 2014
 
Estimated Fair
Value as of
Dec. 31, 2014
Long-term debt (including current portion)
$
6,576.1

 
$
7,286.7

 
$
8,422.5

 
$
9,505.7


8.    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 purchasers 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 16, 2015; the current agreement expires on October 15, 2016 and can be further renewed if mutually agreed to by all parties. The maximum seasonal program limit under the terms of the current agreement is $240 million. As of September 30, 2015, $60.0 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 PNC and a commercial paper conduit sponsored by Mizuho. This agreement was last renewed on August 26, 2015; the current agreement expires on August 24, 2016 and can be further renewed if mutually agreed to by all parties. The maximum seasonal program limit under the terms of the current agreement is $200 million. As of September 30, 2015, $37.2 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 agreement with BTMU was last renewed on March 10, 2015, having a current scheduled termination date of March 9, 2016 and can be further renewed if mutually agreed to by both parties. The maximum seasonal program limit

21

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

under the terms of the agreement is $75 million. As of September 30, 2015, $10.0 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 September 30, 2015 and December 31, 2014 for Columbia of Ohio, NIPSCO and Columbia of Pennsylvania:
 
(in millions)
September 30, 2015
 
December 31, 2014
Gross Receivables
$
347.9

 
$
611.7

Less: Receivables not transferred
240.7

 
327.4

Net receivables transferred
$
107.2

 
$
284.3

Short-term debt due to asset securitization
$
107.2

 
$
284.3

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.
 
9.    Goodwill
 
The following presents NiSource’s goodwill balance allocated by segment as of September 30, 2015:
(in millions)
 
Gas Distribution Operations
 
Electric Operations
 
Corporate and Other
 
Total
Goodwill
 
$
1,690.7

 
$

 
$

 
$
1,690.7


Goodwill previously allocated to the Columbia Pipeline Group Operations segment was disposed of in conjunction with the Separation. For prior periods, such balances are presented within "Assets of discontinued operations" on the Condensed Consolidated Balance Sheets (unaudited). There were no other changes to the goodwill balance during 2015.  

10.    Income Taxes

The effective tax rates for the three months ended September 30, 2015 and 2014 were 28.2% and 3.9%, respectively. The effective tax rates for the nine months ended September 30, 2015 and 2014 were 35.8% and 38.7%, 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 ratemaking, and other permanent book-to-tax differences.

NiSource’s interim effective tax rates reflect the estimated annual effective tax rates for 2015 and 2014, adjusted for tax expense associated with certain discrete items. The increase in the three month effective tax rate of 24.3% in 2015 versus 2014 is primarily due to the cumulative effect of an estimated annual effective tax rate adjustment resulting from estimated state apportionment changes and other permanent items. The tax rate adjustment in 2015 resulted in a $1.9 million reduction of income tax expense while the 2014 tax rate adjustment resulted in an increase of $4.5 million of income tax expense.

The decrease in the year-to-date effective tax rate of 2.9% is primarily due to the impact of the Indiana tax rate change recorded in 2014.
There were no material changes recorded in the third quarter of 2015 to NiSource's uncertain tax positions as of December 31, 2014.



22

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


11.    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 nine months ended September 30, 2015, NiSource contributed $2.0 million to its pension plans and $18.3 million to its other postretirement benefit plans.

The following tables provide the components of the plans’ net periodic benefits cost for the three and nine months ended September 30, 2015 and 2014:

Pension Benefits
 
Other Postretirement
Benefits
Three Months Ended September 30, (in millions)
2015
 
2014
 
2015
 
2014
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
7.9

 
$
7.5

 
$
1.4

 
$
1.7

Interest cost
22.8

 
23.8

 
6.2

 
5.9

Expected return on assets
(37.3
)
 
(39.3
)
 
(5.6
)
 
(5.1
)
Amortization of prior service cost (credit)
0.1

 
0.3

 
(1.1
)
 
(1.4
)
Recognized actuarial loss
13.8

 
10.2

 
0.7

 
0.2

Total Net Periodic Benefit Cost
$
7.3

 
$
2.5

 
$
1.6

 
$
1.3

 
Pension Benefits
 
Other Postretirement
Benefits
Nine Months Ended September 30, (in millions)
2015
 
2014
 
2015
 
2014
Components of Net Periodic Benefit Cost
 
 
 
 
 
 
 
Service cost
$
24.3

 
$
22.5

 
$
4.5

 
$
5.7

Interest cost
67.0

 
71.4

 
17.8

 
19.5

Expected return on assets
(117.7
)
 
(117.9
)
 
(15.6
)
 
(15.1
)
Amortization of prior service cost (credit)
0.3

 
0.9

 
(3.9
)
 
(2.9
)
Recognized actuarial loss
41.6

 
30.6

 
2.8

 
0.2

Total Net Periodic Benefit Cost
$
15.5

 
$
7.5

 
$
5.6

 
$
7.4


23

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


As of July 1, 2015, certain NiSource pension and other postretirement benefit plans were remeasured to account for the Separation of CPG. The remeasurement resulted in an increase to the pension benefit obligation, net of plan assets, of $22.2 million, and net increases to regulatory assets and accumulated other comprehensive loss of $21.1 million and $1.1 million, respectively. Net periodic pension benefit cost for the remainder of 2015 increased by $6.4 million as a result of the remeasurement.

The other postretirement benefits obligation, net of plan assets, decreased by $43.6 million as a result of the remeasurement. Additionally, the remeasurement resulted in a decrease to regulatory assets of $34.8 million, an increase to regulatory liabilities of $8.1 million and a decrease to accumulated other comprehensive loss of $0.7 million. Net periodic other postretirement benefit cost for the remainder of 2015 decreased by $0.8 million as a result of the remeasurement.

The following table provides the key assumptions that were used to calculate the pension and other postretirement benefits obligation and the net periodic benefit cost at the measurement dates of July 1, 2015 and December 31, 2014.
 
Pension Benefits
 
Other Postretirement Benefits
 
July 1, 2015
 
December 31, 2014
 
July 1, 2015
 
December 31, 2014
Actuarial Assumptions
 
 
 
 
 
 
 
Discount Rate
4.19
%
 
3.81
%
 
4.31
%
 
3.94
%
Expected return on assets
8.30
%
 
8.30
%
 
8.15
%
 
8.14
%
Health Care Trend Rates
 
 
 
 
 
 
 
Trend for 2015
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