Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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 was driven by Columbia of Pennsylvania’s ongoing capital investment program which exceeded

$197.0 million in 2015 and is projected to exceed $220.0 million in 2016, as well as operation and maintenance expenditures related to employee training and compliance with pipeline safety regulations. Columbia of Pennsylvania's request for rate relief included the recovery of costs that will 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. The Pennsylvania PUC approved the petition on December 3, 2015, and Columbia of Pennsylvania implemented new rates on December 18, 2015.

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.

On July 7, 2014, the Governor of Massachusetts signed into law Chapter 149 of the Acts of 2014, An Act Relative to Natural Gas Leaks (“the Act’). The Act authorizes natural gas distribution companies to file gas infrastructure replacement plans with the Massachusetts DPU to address the replacement of aging natural gas pipeline infrastructure. In addition, the Act provides that the Massachusetts DPU may, after review of the plans, allow the proposed estimated costs of the plan into rates as of May 1 of the subsequent year. Pursuant to the Act, Columbia of Massachusetts filed its first Gas System Enhancement Program (“GSEP”) plan on October 31, 2014, for the 2015 construction year (“2015 GSEP”) proposing to recover $2.6 million. After review, the Massachusetts DPU approved the Columbia of Massachusetts’s 2015 GSEP for effect May 1, 2015 and, in accordance with the Act, Columbia of Massachusetts will file the reconciliation of the 2015 GSEP on May 1, 2016. On October 30, 2015, Columbia of Massachusetts filed its GSEP for the 2016 construction year. Columbia of Massachusetts proposed to recover an increment of $6.4 million for the costs associated with the replacement of eligible leak-prone infrastructure during the 2016 construction year for a cumulative proposed revenue requirement recovery of $9.0 million effective May 1, 2016. The Massachusetts DPU is currently reviewing the plan and is expected to issue an order prior to May 1, 2016.

On October 30, 2009, the Massachusetts DPU approved Columbia of Massachusetts's revenue decoupling mechanism that was filed in its base rate case. This allows Columbia of Massachusetts to apply annual adjustments to its Peak and Off-peak rates. On March 16, 2015, Columbia of Massachusetts filed its Off-peak Period RDAF in the amount of $2.5 million for effect May 1, 2015. The Massachusetts DPU approved the rate for effect May 1, 2015, pending further review and investigation. On August 5, 2015, the Massachusetts DPU issued its final order approving the rate. On September 17, 2015, Columbia of Massachusetts filed its Peak Period RDAF in the amount of a credit to customers of $17.1 million for effect November 1, 2015. The Massachusetts DPU approved the rate for effect November 1, 2015, pending further review and investigation.

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's 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 Massachusetts 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.

Columbia of Massachusetts's LDAF allows for the recovery of costs related to pension and other postretirement expense, low income programs, environmental remediation programs, Attorney General expert witness costs and energy efficiency programs. This allows Columbia of Massachusetts to file semi-annually to recover the cost in Peak and Off-peak rates. On January 20, 2015, Columbia of Massachusetts filed its 2015 Off-Peak Period LDAF with a proposed effective date of May 1, 2015. The 2015 Off-Peak Period LDAF of $70 million was approved on April 30, 2015, for effect May 1, 2015. On July 30, 2015, Columbia of Massachusetts filed its 2015-2016 Peak Period LDAF and on September 17, 2015, Columbia of Massachusetts filed its 2015 PEF and 2015 RAAF, each with a proposed effective date of November 1, 2015. The 2015-2016 Peak Period LDAF of $49.7 million

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

effective November 1, 2015 was approved on October 30, 2015. The 2015 PEF and 2015 RAAF components of the LDAF were approved subject to further investigation and reconciliation.

On August 7, 2015, Columbia of Maryland filed a base rate proceeding with the Maryland PSC, seeking an annual revenue increase of approximately $0.7 million. The matter was fully litigated. On November 4, 2015, the Maryland PSC issued an Order granting Columbia of Maryland authority to adjust its rates to produce an annual revenue increase of $0.5 million. The new rates went into effect on November 5, 2015.

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.

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

As further discussed above, NIPSCO has approval from the IURC to recover certain costs for transmission, distribution and storage system improvements. On January 28, 2015, the IURC issued an order approving NIPSCO’s gas TDSIC-1. The Order approved $4.4 million of net capital expenditures for the period ended June 30, 2014 and granted ratemaking relief and accounting treatment. 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. As part of a multi-state effort to strengthen the electric transmission system serving the Midwest, NIPSCO is currently investing in two projects that were authorized by the MISO and are scheduled to be in service during the latter part of the decade. On July 19, 2012 and December 19, 2012, the FERC issued orders approving construction work in progress in rate base and abandoned plant cost recovery requested by NIPSCO for the 100-mile, 345 kV transmission project and its right to develop 50 percent of the 66-mile, 765 kV project. On December 19, 2012, the FERC issued an order authorizing NIPSCO's request to transition to forward looking rates, allowing more timely recovery of NIPSCO's investment in transmission assets. On August 22, 2012, the IURC issued an order authorizing NIPSCO to retain certain revenues under MISO Schedule 26-A. NIPSCO began recording revenue in the first quarter of 2013 using a forward looking rate. These projects involve an investment of approximately $450 million for NIPSCO and are anticipated to be in service by the end of 2018.

On November 12, 2013, several complainants filed in opposition at the FERC regarding the 12.38% base ROE used to set the MISO Transmission Owners' transmission rates and requested a reduction in the base ROE to 9.15%. The complaint requested that the FERC limit the capital structure of MISO Transmission Owners to no more than 50% common equity for ratemaking purposes and that the FERC eliminate incentive adders for membership in a RTO. On October 16, 2014, the FERC issued an Order that dismissed the portions of the complaint that challenged Transmission Owner capital structures and incentive adders; set the base ROE for hearing and suspended it to allow for settlement; set a refund effective date of November 12, 2013; and directed the parties to the new two-step discounted cash flow methodology established by the FERC. On December 22, 2015, the Administrative Law Judge issued an Initial Decision which authorized the MISO Transmission Owners to collect a base ROE of

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

10.32% for the period of November 12, 2013 through February 11, 2015. The Initial Decision is subject to approval by the full Commission and is not a final order. On January 5, 2015, the FERC approved a 50-basis point adder for the MISO Transmission Owners based on their continued participation in MISO. The FERC established an effective date for the adder of January 6, 2015 but suspended collection of the adder for billing purposes until the November 12, 2013 complaint is resolved. On February 12, 2015, a second group of complainants filed in opposition to the 12.38% base ROE, requesting a refund effective date of February 12, 2015 and recommended a base ROE of 8.67%. Hearings commenced on February 16, 2016 and the FERC anticipates that an initial decision will be issued on the second complaint by June 30, 2016. NIPSCO recorded a liability of $3.4 million related to the complaints and will continue to adjust the liability for ongoing activity.

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 December 16, 2015, the IURC issued an Order on Remand approving the settlement agreement and NIPSCO’s seven-year electric plan as set forth in the remand proceeding, subject to certain modifications.

On December 31, 2015, NIPSCO filed a new electric seven-year plan of eligible investments for a total of approximately $1.3 billion covering spend in years 2016 through 2022. NIPSCO expects to make a TDSIC rate adjustment mechanism filing later in 2016 to seek recovery and ratemaking relief of such investments. NIPSCO expects a final order in the seven-year plan filing in the third quarter of 2016.

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 final order is anticipated in the third quarter of 2016.

On November 12, 2014, the IURC issued an Order approving NIPSCO’s 2015 proposed electric energy efficiency programs along with the continued authority to defer and recover the related 2015 program costs estimated to be $18.6 million and associated lost margins. On December 30, 2015, the IURC approved, with modifications, NIPSCO’s electric energy efficiency programs and budgets through December 31, 2018, including authorization to use its energy efficiency recovery mechanism to recover program costs and lost margins, the latter capped at the lesser of four years or the life of the measure.

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 quarterly, 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.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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 and a revised MATS capital cost estimate of $48.6 million, a decrease from the previous IURC approved cost estimate of $59.3 million. On January 29, 2016, NIPSCO filed ECR-27 which included $800.7 million of net capital expenditures for the period ended December 31, 2015. An order is expected in the second quarter of 2016.

As further discussed above, NIPSCO has approval from the IURC to recover certain costs for transmission and distribution system improvements through the electric TDSIC. On November 25, 2014, the IURC approved, on an interim basis and subject to refund pending the outcome of appeals, NIPSCO’s requested TDSIC factors associated with the eligible investments, which included $19.4 million of net capital expenditures for the period ended June 30, 2014. As a result of the December 16, 2015 IURC Order on Remand described above, NIPSCO began refunding all monies that were collected through the electric TDSIC mechanism pursuant to the November 25, 2014 IURC order. NIPSCO was authorized to defer, as a regulatory asset, 100% of all TDSIC costs incurred since March 1, 2014 in connection with its 2014 and 2015 eligible TDSIC investments, as specified in the December 16, 2015 Order on Remand, until such deferral is recovered as part of a general rate case. As of December 31, 2015, there are no regulatory assets associated with deferred TDSIC incurred costs on the Consolidated Balance Sheet.

8.	Variable Interest Entities

In general, a VIE is an entity (1) that has an insufficient amount of at-risk equity to permit the entity to finance its activities without additional financial subordinated support provided by any other 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 would consolidate those VIEs for which it was 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 from such entity.

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. Services under this contract commenced on July 1, 1992 and expired on June 30, 2012. The agreement was renewed effective July 1, 2012 for ten years and NIPSCO will continue to pay for the services under a combination of fixed and variable charges. 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 $19.5 million and $23.0 million for the years ended December 31, 2015 and 2014, respectively. In accordance with GAAP, the renewed agreement was evaluated to determine whether the arrangement qualifies as a lease. Based on the terms of the agreement, the arrangement qualified for capital lease accounting. As the effective date of the new agreement was July 1, 2012, NiSource capitalized this lease beginning in the third quarter of 2012.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

9.	Income Taxes

The components of income tax expense were as follows:

Year Ended December 31, (in millions)	2015				2014				2013
Income Taxes
Current
Federal	$	—			$	—			$	(11.6	)
State	6.0				5.4				1.8
Total Current	6.0				5.4				(9.8		)
Deferred
Federal	124.1				129.5				125.6
State	13.6				35.4				(3.4		)
Total Deferred	137.7				164.9				122.2
Deferred Investment Credits	(2.4		)		(3.5		)		(3.8		)
Income Taxes from Continuing Operations	$	141.3			$	166.8			$	108.6

Total income taxes from continuing operations were different from the amount that would be computed by applying the statutory federal income tax rate to book income before income tax. The major reasons for this difference were as follows:

Year Ended December 31, (in millions)	2015							2014							2013
Book income from Continuing Operations before income taxes	$	339.9						$	423.0						$	329.6
Tax expense at statutory federal income tax rate	118.9				35.0	%		148.1				35.0	%		115.4				35.0	%
Increases (reductions) in taxes resulting from:
State income taxes, net of federal income tax benefit	14.8				4.4			15.7				3.7			2.3				0.7
Regulatory treatment of depreciation differences	4.3				1.3			0.7				0.2			(0.5		)		(0.2	)
Amortization of deferred investment tax credits	(2.4		)		(0.7	)		(3.5		)		(0.8	)		(3.8		)		(1.2	)
Nondeductible expenses	2.1				0.6			0.8				0.2			2.4				0.7
Employee stock ownership plan dividends	(2.9		)		(0.9	)		(3.8		)		(0.9	)		(3.6		)		(1.0	)
AFUDC equity	(3.5		)		(1.0	)		(3.5		)		(0.8	)		(3.4		)		(1.0	)
Charitable contribution carryover	17.8				5.2			—				—			—				—
Tax accrual adjustments and other, net	(7.8		)		(2.3	)		12.3				2.8			(0.2		)		(0.1	)
Income Taxes from Continuing Operations	$	141.3			41.6	%		$	166.8			39.4	%		$	108.6			32.9	%

The effective income tax rates were 41.6%, 39.4% and 32.9% in 2015, 2014 and 2013, respectively. The 2.2% increase in the overall effective tax rate in 2015 versus 2014 was primarily the result of a $17.8 million increase in federal income tax expense associated with write downs of charitable contribution carryovers discussed below, offset by a $10.5 million decrease in income tax expense related to state apportionment changes and permanent items as a result of remeasurement after the Separation. The 6.5% increase in the overall effective tax rate in 2014 versus 2013 was primarily a result of a $13.5 million increase in tax expense related to state apportionment changes and permanent items, a $7.1 million increase due to Indiana state taxes discussed below, a $5.4 million increase in tax expense due to Pennsylvania regulatory changes discussed below, and $4.1 million of additional state income tax expense related to corporate restructuring.

On December 18, 2015, the President signed into law the Protecting Americans from Tax Hikes Act of 2015 (PATH). PATH, among other things, extends the research credit under U.S. Internal Revenue Code section 41 permanently and also extended and modified bonus depreciation through 2019. In general, 50% bonus depreciation is available for property placed in service before January 1, 2018, 40% bonus depreciation is available for property placed in service before January 1, 2019 and 30% bonus depreciation

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

is available for property placed in service before January 1, 2020. NiSource recorded the effects of PATH in the fourth quarter of 2015.

As a result of PATH and 50% bonus depreciation being extended, NiSource recorded tax expense of $5.8 million in 2015 for the expiration of unused charitable contribution carryforwards which expired due to the 5 year carryover limitation. NiSource also recorded a valuation allowance for an additional $12.0 million of charitable contribution carryforwards that are set to expire in 2016-2019 in the event that NiSource does not have sufficient taxable income to utilize the carryforward amounts.

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 ratemaking process. In addition, 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.

As a result of a Pennsylvania PUC Order dated December 3, 2015, Columbia of Pennsylvania adjusted the flow through in rates of tax benefits so that the unamortized balance of a change in accounting method for certain capitalized costs of approximately $2.0 million at December 31, 2014 would be amortized through December 2016. The amortization of excess tax benefits was $9.5 million in 2013, $4.1 million in 2014 and $1.4 million in 2015. On a prospective basis, Columbia of Pennsylvania will recognize deferred tax expense, rather than flow through in rates, the tax benefits resulting from the method change.

On May 22, 2015, NiSource received an acceptance letter from the IRS for its 2011-2013 audit examination. NiSource had recorded a receivable at the end of 2014 in the amount of $6.0 million related to those tax years and in the second quarter of 2015, NiSource recognized additional net operating loss carryforwards 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.

Deferred income taxes result from temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. The principal components of NiSource’s net deferred tax liability were as follows:

At December 31, (in millions)	2015				2014
Deferred tax liabilities
Accelerated depreciation and other property differences	$	3,510.8			$	2,964.6
Unrecovered gas and fuel costs	11.2				11.4
Other regulatory assets	403.3				610.6
Premiums and discounts associated with long-term debt	9.9				12.5
Total Deferred Tax Liabilities	3,935.2				3,599.1
Deferred tax assets
Other regulatory liabilities	(74.4		)		(79.3		)
Cost of removal	(519.4		)		(527.7		)
Pension and other postretirement/postemployment benefits	(243.8		)		(191.9		)
Environmental liabilities	(45.9		)		(52.1		)
Net operating loss carryforward and Alternative Minimum Tax credit carryforward	(437.4		)		(372.7		)
Other accrued liabilities	(89.0		)		(58.9		)
Other, net	(160.0		)		(150.7		)
Total Deferred Tax Assets	(1,569.9		)		(1,433.3		)
Net Deferred Tax Liabilities	$	2,365.3			$	2,165.8

NiSource adopted ASU 2015-17 as of December 31, 2015 and applied the provisions of the standard retrospectively. As a result, NiSource's balance sheet as of December 31, 2014 was adjusted to reclassify $272.1 million of deferred income taxes from current assets to noncurrent liabilities. Refer to Note 2, "Recent Accounting Pronouncements," for further information.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

State income tax net operating loss benefits are recorded at their realizable value. NiSource anticipates it is more likely than not that it will realize $34.7 million and $31.7 million of these tax benefits as of December 31, 2015 and 2014, respectively, prior to their expiration. These tax benefits are primarily related to Indiana and Pennsylvania. The carryforward periods for these tax benefits expire in various tax years from 2025 to 2035. The remaining net operating loss carryforward tax benefit represents a Federal carryforward of $395.4 million that will expire in 2030 and an Alternative Minimum Tax credit of $7.3 million that will carry forward indefinitely. In addition, for tax purposes, the $395.4 million discussed above is increased by $29.0 million for the effect of excess equity compensation deductions that will be realized upon the full utilization of the loss carryforward.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

Reconciliation of Unrecognized Tax Benefits (in millions)	2015				2014				2013
Unrecognized Tax Benefits - Opening Balance	$	24.4			$	23.7			$	28.4
Gross increases - tax positions in prior period	0.4				—				1.6
Gross decreases - tax positions in prior period	(23.9		)		(1.0		)		(21.4		)
Gross increases - current period tax positions	—				1.7				15.1
Unrecognized Tax Benefits - Ending Balance	$	0.9			$	24.4			$	23.7
Offset for net operating loss carryforwards	(0.9		)		(24.2		)		(23.0		)
Balance - Net of Net Operating Loss Carryforwards	$	—			$	0.2			$	0.7

The IRS issued Revenue Procedure 2013-24 on April 30, 2013, which provided guidance for repairs related to generation property. Among other things, the Revenue Procedure listed units of property and material components of units of property for purposes of analyzing repair versus capitalization issues. NiSource adopted this Revenue Procedure for income tax filings for 2014. NiSource evaluated and recorded the effect of this change in method enabled by this Revenue Procedure as of December 31, 2013. As a result of the findings received in 2015 for the 2011-2014 audit, NiSource reversed its previously recorded unrecognized tax benefits related to the requested change in tax accounting method. The reversal of the unrecognized tax benefits did not materially affect tax expense or net income.

Offsetting the liability for unrecognized tax benefits are $0.9 million of related outstanding tax receivables and net operating loss carryforwards resulting in a net balance of zero, including interest, related to the tax method change issues.

Except as discussed above, there have been no other material changes in 2015 to NiSource's uncertain tax positions recorded as of December 31, 2014.

The total amount of unrecognized tax benefits at December 31, 2015, 2014 and 2013 that, if recognized, would affect the effective tax rate is $0.9 million, $4.1 million and $4.0 million, respectively. As of December 31, 2015, it is reasonably possible that a $0.9 million decrease in unrecorded tax benefits could occur in 2016 due primarily to the conclusion of the federal audit for tax year 2014.

NiSource recognizes accrued interest on unrecognized tax benefits, accrued interest on other income tax liabilities and tax penalties in income tax expense. Interest expense recorded on unrecognized tax benefits and other income tax liabilities was immaterial for all periods presented. There were no accruals for penalties recorded in the Statements of Consolidated Income for the years ended December 31, 2015, 2014 and 2013 and there were no balances for accrued penalties recorded on the Consolidated Balance Sheets as of December 31, 2015 and December 31, 2014.

NiSource is subject to income taxation in the United States and various state jurisdictions, primarily Indiana, West Virginia, Pennsylvania, Kentucky, Massachusetts, Maryland and New York.

Because NiSource is part of the IRS’s Large and Mid-Size Business program, each year’s federal income tax return is typically audited by the IRS. As of December 31, 2015, tax years through 2013 have been audited and are effectively closed to further assessment. The audit of tax year 2014 under the CAP is expected to be completed in 2016. NiSource is also under the CAP for the audit of tax year 2015 and has been accepted into the program for the audit of tax year 2016.

The statute of limitations in each of the state jurisdictions in which NiSource operates remain open until the years are settled for federal income tax purposes, at which time amended state income tax returns reflecting all federal income tax adjustments are

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

filed. As of December 31, 2015, there were no state income tax audits in progress that would have a material impact on the consolidated financial statements.

10.	Pension and Other Postretirement Benefits

NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover certain of 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.

In connection with the Separation, NiSource entered into an Employees Matters Agreement with CPG, which provides that employees of CPG no longer participate in benefit plans sponsored by NiSource as of the Separation date. Upon the completion of the Separation, the NiSource pension and other postretirement benefit plans transferred assets and obligations to the CPG plans resulting in a net decrease in the pension plans underfunded status of $48.0 million and a net increase in the other postretirement benefit plans underfunded status of $115.9 million. The 2014 amounts included in the discussion below include balances related to CPG. Refer to Note 3, "Discontinued Operations," for additional information.

NiSource Pension and Other Postretirement Benefit Plans’ Asset Management. NiSource employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. Risk tolerance is established through careful consideration of plan liabilities, plan funded status, and asset class volatility. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks, as well as growth, value, small and large capitalizations. Other assets such as private equity funds are used judiciously to enhance long-term returns while improving portfolio diversification. Derivatives may be used to gain market exposure in an efficient and timely manner; however, derivatives may not be used to leverage the portfolio beyond the market value of the underlying assets. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews, annual liability measurements, and periodic asset/liability studies.

NiSource utilizes a building block approach with proper consideration of diversification and rebalancing in determining the long-term rate of return for plan assets. Historical markets are studied and long-term historical relationships between equities and fixed income are analyzed to ensure that they are consistent with the widely accepted capital market principle that assets with higher volatility generate greater return over the long run. Current market factors such as inflation and interest rates are evaluated before long-term capital market assumptions are determined. Peer data and historical returns are reviewed to check for reasonability and appropriateness.

The most important component of an investment strategy is the portfolio asset mix, or the allocation between the various classes of securities available to the pension and other postretirement benefit plans for investment purposes. The asset mix and acceptable minimum and maximum ranges established for the NiSource plan assets represents a long-term view and are listed in the table below.

In 2012, a dynamic asset allocation policy for the pension fund was approved. This policy calls for a gradual reduction in the allocation to return-seeking assets (equities, real estate, private equity and hedge funds) and a corresponding increase in the allocation to liability-hedging assets (fixed income) as the funded status of the plans increase above 90% (as measured by the market value of qualified pension plan assets divided by the projected benefit obligations of the qualified pension plans). The asset mix and acceptable minimum and maximum ranges established by the policy for the pension and other postretirement benefit plans are as follows:

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Asset Mix Policy of Funds:

	Defined Benefit Pension Plan				Postretirement Benefit Plan
Asset Category	Minimum		Maximum		Minimum		Maximum
Domestic Equities	25%		45%		35%		55%
International Equities	15%		25%		15%		25%
Fixed Income	23%		37%		20%		50%
Real Estate/Private Equity/Hedge Funds	0%		15%		0%		0%
Short-Term Investments	0%		10%		0%		10%

Pension Plan and Postretirement Plan Asset Mix at December 31, 2015 and December 31, 2014:

(in millions)	Defined Benefit Pension Assets				December 31, 2015			Postretirement Benefit Plan Assets				December 31, 2015
Asset Class	Asset Value				% of Total Assets			Asset Value				% of Total Assets
Domestic Equities	$	686.3			39.3	%		$	105.0			46.5	%
International Equities	323.2				18.5	%		39.6				17.5	%
Fixed Income	619.3				35.5	%		79.1				35.0	%
Real Estate/Private Equity/Hedge Funds	96.7				5.5	%		—				—
Cash/Other	21.6				1.2	%		2.2				1.0	%
Total	$	1,747.1			100.0	%		$	225.9			100.0	%
(in millions)	Defined Benefit Pension Assets				December 31, 2014			Postretirement Benefit Plan Assets				December 31, 2014
Asset Class	Asset Value				% of Total Assets			Asset Value				% of Total Assets
Domestic Equities	$	957.2			41.1	%		$	219.6			47.2	%
International Equities	420.5				18.1	%		85.6				18.4	%
Fixed Income	802.4				34.4	%		158.6				34.1	%
Real Estate/Private Equity/Hedge Funds	117.6				5.0	%		—				—
Cash/Other	32.6				1.4	%		1.2				0.3	%
Total	$	2,330.3			100.0	%		$	465.0			100.0	%

The categorization of investments into the asset classes in the table above are based on definitions established by the NiSource Benefits Committee.

Fair Value Measurements. The following table sets forth, by level within the fair value hierarchy, the Master Trust and other postretirement benefits investment assets at fair value as of December 31, 2015 and 2014. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Total Master Trust and other postretirement benefits investment assets at fair value classified within Level 3 were $95.3 million and $117.0 million as of December 31, 2015 and December 31, 2014, respectively. Such amounts were approximately 5% and 4% of the Master Trust and other postretirement benefits’ total investments as reported on the statement of net assets available for benefits at fair value as of December 31, 2015 and 2014, respectively.

Valuation Techniques Used to Determine Fair Value:

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Level 1 Measurements

Most common and preferred stocks are traded in active markets on national and international securities exchanges and are valued at closing prices on the last business day of each period presented. Cash is stated at cost which approximates their fair value, with the exception of cash held in foreign currencies which fluctuates with changes in the exchange rates. Short-term bills and notes are priced based on quoted market values.

Level 2 Measurements

Most U.S. Government Agency obligations, mortgage/asset-backed securities, and corporate fixed income securities are generally valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. To the extent that quoted prices are not available, fair value is determined based on a valuation model that includes inputs such as interest rate yield curves and credit spreads. Securities traded in markets that are not considered active are valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Other fixed income includes futures and options which are priced on bid valuation or settlement pricing.

Commingled funds that hold underlying investments that have prices which are derived from the quoted prices in active markets are classified as Level 2. The funds' underlying assets are principally marketable equity and fixed income securities. Units held in commingled funds are valued at the unit value as reported by the investment managers. The fair value of the investments in commingled funds has been estimated using the net asset value per share of the investments.

Level 3 Measurements

Commingled funds that hold underlying investments that have prices which are not derived from the quoted prices in active markets are classified as Level 3. The respective fair values of these investments are determined by reference to the funds' underlying assets, which are principally marketable equity and fixed income securities. Units held in commingled funds are valued at the unit value as reported by the investment managers. These investments are often valued by investment managers on a periodic basis using pricing models that use market, income, and cost valuation methods.

Private equity investment strategies include buy-out, venture capital, growth equity, distressed debt, and mezzanine debt. Private equity investments are held through limited partnerships.

Limited partnerships are valued at estimated fair market value based on their proportionate share of the partnership's fair value as recorded in the partnerships' audited financial statements. Partnership interests represent ownership interests in private equity funds and real estate funds. Real estate partnerships invest in natural resources, commercial real estate and distressed real estate. The fair value of these investments is determined by reference to the funds' underlying assets, which are principally securities, private businesses, and real estate properties. The value of interests held in limited partnerships, other than securities, is determined by the general partner, based upon third-party appraisals of the underlying assets, which include inputs such as cost, operating results, discounted cash flows and market based comparable data. Private equity and real estate limited partnerships typically call capital over a three to five year period and pay out distributions as the underlying investments are liquidated. The typical expected life of these limited partnerships is 10-15 years and these investments typically cannot be redeemed prior to liquidation.

For the year ended December 31, 2015, there were no significant changes to valuation techniques to determine the fair value of NiSource's pension and other postretirement benefits' assets.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Fair Value Measurements at December 31, 2015:

(in millions)	December 31, 2015				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Pension plan assets:
Cash	$	7.0			$	7.0			$	—			$	—
Equity securities
International equities	45.3				45.3				—				—
Fixed income securities
Government	64.6				—				64.6				—
Corporate	95.8				—				95.8				—
Other fixed income	0.1				—				—				0.1
Mutual Funds
U.S. multi-strategy	257.1				257.1				—				—
International equities	64.9				64.9				—				—
Fixed income	150.5				150.5				—				—
Private equity limited partnerships
U.S. multi-strategy (1)	46.4				—				—				46.4
International multi-strategy (2)	29.3				—				—				29.3
Distressed opportunities	5.9				—				—				5.9
Real estate	13.6				—				—				13.6
Commingled funds
Short-term money markets(3)	22.9
U.S. equities(3)	429.2
International equities(3)	210.1
Fixed income(3)	302.5
Pension plan assets subtotal	1,745.2				524.8				160.4				95.3
Other postretirement benefit plan assets:
Mutual funds
U.S. equities	89.8				89.8				—				—
International equities	41.4				41.4				—				—
Fixed income	78.0				78.0				—				—
Commingled funds
Short-term money markets(3)	2.4
U.S. equities(3)	14.3
Other postretirement benefit plan assets subtotal	225.9				209.2				—				—
Due to brokers, net (4)	(0.2		)
Receivables/payables	2.1
Total pension and other post-retirement benefit plan assets	$	1,973.0			$	734.0			$	160.4			$	95.3

(1) This class includes limited partnerships/fund of funds that invest in a diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily inside the United States.

(2) This class includes limited partnerships/fund of funds that invest in diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily outside the United States.

(3)This class of investments is measured at fair value using the net asset value per share and has not been classified in the fair value hierarchy.

(4) This class represents pending trades with brokers.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The table below sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the year ended December 31, 2015:

	Balance at January 1, 2015				Total gains or losses (unrealized / realized)				Purchases				(Sales)				Transfers into/(out of) level 3				Balance at December 31, 2015
Fixed income securities
Other fixed income	$	0.6			$	—			$	—			$	(0.5	)		$	—			$	0.1
Private equity limited partnerships
U.S. multi-strategy	56.2				(3.5		)		1.1				(7.4		)		—				46.4
International multi-strategy	35.3				(2.3		)		0.1				(3.8		)		—				29.3
Distressed opportunities	7.6				(0.5		)		—				(1.2		)		—				5.9
Real estate	17.3				(0.5		)		0.1				(3.3		)		—				13.6
Total	$	117.0			$	(6.8	)		$	1.3			$	(16.2	)		$	—			$	95.3

The table below sets forth a summary of unfunded commitments, redemption frequency and redemption notice periods for certain investments that are measured at fair value using the net asset value per share for the year ended December 31, 2015:

(in millions)	Fair Value				Unfunded Commitments				Redemption Frequency		Redemption Notice Period
Commingled Funds
Short-term money markets	$	25.3			$	—			Daily		1 day
U.S. equities	443.5				—				Monthly		3 days
International equities	210.1				—				Monthly		14-30 days
Fixed income	302.5				—				Monthly		3 days
Total	$	981.4			$	—

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Fair Value Measurements at December 31, 2014:

(in millions)	December 31, 2014				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Pension plan assets:
Cash	$	17.1			$	17.1			$	—			$	—
Equity securities
U.S. equities	0.4				0.4				—				—
International equities	134.5				133.9				0.6				—
Fixed income securities
Government	118.4				104.6				13.8				—
Corporate	257.0				—				257.0				—
Mortgages/Asset backed securities	2.7				—				2.7				—
Other fixed income	0.6				—				—				0.6
Private equity limited partnerships
U.S. multi-strategy (1)	56.2				—				—				56.2
International multi-strategy (2)	35.3				—				—				35.3
Distressed opportunities	7.6				—				—				7.6
Real Estate	17.3				—				—				17.3
Commingled funds
Short-term money markets(3)	32.6
U.S. equities(3)	957.2
International equities(3)	279.9
Fixed income(3)	409.0
Pension plan assets subtotal	2,325.8				256.0				274.1				117.0
Other postretirement benefit plan assets:
Mutual funds
U.S. equities	189.8				189.8				—				—
International equities	85.6				85.6				—				—
Fixed income	158.2				158.2				—				—
Commingled funds
Short-term money markets(3)	1.6
U.S. equities(3)	29.8
Other postretirement benefit plan assets subtotal	465.0				433.6				—				—
Due to brokers, net (4)	(0.6		)
Accrued investment income/dividends	4.6
Receivables/payables	0.5
Total pension and other post-retirement benefit plan assets	$	2,795.3			$	689.6			$	274.1			$	117.0

(1) This class includes limited partnerships/fund of funds that invest in a diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily in the United States.

(2) This class includes limited partnerships/fund of funds that invest in a diverse portfolio of private equity strategies, including buy-outs, venture capital, growth capital, special situations and secondary markets, primarily outside the United States.

(3) This class of investments is measured at fair value using the net asset value per share and has not been classified in the fair value hierarchy.

(4) This class represents pending trades with brokers.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The table below sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the year ended December 31, 2014:

	Balance at January 1, 2014				Total gains or losses (unrealized / realized)				Purchases				(Sales)				Transfers into/(out of) level 3				Balance at December 31, 2014
Fixed income securities
Mortgages/Asset backed securities	$	0.1			$	—			$	—			$	(0.1	)		$	—			$	—
Other fixed income	—				0.3				0.3				—				—				0.6
Private equity limited partnerships
U.S. multi-strategy	57.9				2.7				2.5				(6.9		)		—				56.2
International multi-strategy	38.2				(0.4		)		0.5				(3.0		)		—				35.3
Distress opportunities	8.9				0.5				0.1				(1.9		)		—				7.6
Real estate	19.6				2.3				0.1				(4.7		)		—				17.3
Total	$	124.7			$	5.4			$	3.5			$	(16.6	)		$	—			$	117.0

The table below sets forth a summary of unfunded commitments, redemption frequency and redemption notice periods for certain investments that are measured at fair value using the net asset value per share for the year ended December 31, 2014:

(in millions)	Fair Value				Unfunded Commitments				Redemption Frequency		Redemption Notice Period
Commingled Funds
Short-term money markets	$	34.2			$	—			Daily		1 day
U.S. equities	987.0				—				Monthly		3 days
International equities	279.9				—				Monthly		14-30 days
Fixed income	409.0				—				Monthly		3 days
Total	$	1,710.1			$	—

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NiSource Pension and Other Postretirement Benefit Plans’ Funded Status and Related Disclosure. The following table provides a reconciliation of the plans’ funded status and amounts reflected in NiSource’s Consolidated Balance Sheets at December 31 based on a December 31 measurement date:

	Pension Benefits								Other Postretirement Benefits
(in millions)	2015				2014				2015				2014
Change in projected benefit obligation (1)
Benefit obligation at beginning of year	$	2,751.4			$	2,528.2			$	716.0			$	714.2
Service cost	34.8				34.8				6.4				8.5
Interest cost	95.9				109.0				24.9				30.1
Plan participants’ contributions	—				—				7.3				9.1
Plan amendments	—				0.6				0.1				(41.5		)
Actuarial loss (gain)	(91.7		)		272.1				(71.5		)		47.6
Settlement loss	0.5				—				—				—
Benefits paid	(171.8		)		(193.3		)		(43.7		)		(53.7		)
Estimated benefits paid by incurred subsidy	—				—				0.8				1.7
Separation of CPG (Note 3)	(412.4		)		—				(114.5		)		—
Projected benefit obligation at end of year	$	2,206.7			$	2,751.4			$	525.8			$	716.0
Change in plan assets
Fair value of plan assets at beginning of year	$	2,330.3			$	2,267.3			$	465.0			$	454.2
Actual return on plan assets	(49.7		)		200.4				1.9				20.3
Employer contributions	2.7				55.9				25.8				35.1
Plan participants’ contributions	—				—				7.3				9.1
Benefits paid	(171.8		)		(193.3		)		(43.7		)		(53.7		)
Separation of CPG (Note 3)	(364.4		)		—				(230.4		)		—
Fair value of plan assets at end of year	$	1,747.1			$	2,330.3			$	225.9			$	465.0
Funded Status at end of year	$	(459.6	)		$	(421.1	)		$	(299.9	)		$	(251.0	)
Amounts recognized in the statement of financial position consist of:
Current liabilities	(3.0		)		(3.5		)		(0.6		)		(0.6		)
Noncurrent liabilities	(456.6		)		(417.6		)		(299.3		)		(250.4		)
Net amount recognized at end of year (2)	$	(459.6	)		$	(421.1	)		$	(299.9	)		$	(251.0	)
Amounts recognized in accumulated other comprehensive income or regulatory asset/liability (3)
Unrecognized prior service credit	$	0.7			$	(3.5	)		$	(41.6	)		$	(49.2	)
Unrecognized actuarial loss	925.6				1,009.8				66.1				95.5
	$	926.3			$	1,006.3			$	24.5			$	46.3

(1) The change in benefit obligation for Pension Benefits represents the change in Projected Benefit Obligation while the change in benefit obligation for Other Postretirement Benefits represents the change in Accumulated Postretirement Benefit Obligation.

(2) NiSource recognizes in its Consolidated Balance Sheets the underfunded and overfunded status of its various defined benefit postretirement plans, measured as the difference between the fair value of the plan assets and the benefit obligation.

(3) NiSource determined that for certain rate-regulated subsidiaries the future recovery of pension and other postretirement benefits costs is probable. These rate-regulated subsidiaries recorded regulatory assets and liabilities of $928.7 million and $8.1 million, respectively, as of December 31, 2015, and $910.3 million and $10.1 million, respectively, as of December 31, 2014 that would otherwise have been recorded to accumulated other comprehensive loss.

NiSource’s accumulated benefit obligation for its pension plans was $2,190.5 million and $2,732.3 million as of December 31, 2015 and 2014, respectively. The accumulated benefit obligation as of a date is the actuarial present value of benefits attributed by the pension benefit formula to employee service rendered prior to that date and based on current and past compensation levels. The accumulated benefit obligation differs from the projected benefit obligation disclosed in the table above in that it includes no assumptions about future compensation levels.

NiSource pension plans were underfunded by $459.6 million at December 31, 2015 compared to being underfunded at December 31, 2014 by $421.1 million. The decline in the funded status was due primarily to unfavorable asset returns offset by the adoption of

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

new mortality improvement assumptions released by the Society of Actuaries in 2015 and the separation of CPG's net liability position in the plans. NiSource contributed $2.7 million and $55.9 million to its pension plans in 2015 and 2014, respectively.

NiSource’s funded status for its other postretirement benefit plans decreased by $48.9 million to an underfunded status of $299.9 million primarily due to unfavorable asset returns and the separation of CPG's net asset position in the plans offset by the adoption of new mortality improvement assumptions released by the Society of Actuaries in 2015. NiSource contributed approximately $25.8 million and $35.1 million to its other postretirement benefit plans in 2015 and 2014, respectively. No amounts of NiSource’s pension or other postretirement benefit plans’ assets are expected to be returned to NiSource or any of its subsidiaries in 2016.

The following table provides the key assumptions that were used to calculate the pension and other postretirement benefits obligations for NiSource’s various plans as of December 31:

	Pension Benefits						Other Postretirement Benefits
	2015			2014			2015			2014
Weighted-average assumptions to Determine Benefit Obligation
Discount Rate	4.24	%		3.81	%		4.33	%		3.94	%
Rate of Compensation Increases	4.00	%		4.00	%		—			—
Health Care Trend Rates
Trend for Next Year	—			—			8.41	%		6.90	%
Ultimate Trend	—			—			4.50	%		4.50	%
Year Ultimate Trend Reached	—			—			2022			2021

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects:

(in millions)	1% point increase				1% point decrease
Effect on service and interest components of net periodic cost	$	1.7			$	(1.5	)
Effect on accumulated postretirement benefit obligation	32.4				(28.0		)

NiSource expects to make contributions of approximately $3.0 million to its pension plans and approximately $22.2 million to its postretirement medical and life plans in 2016.

The following table provides benefits expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter. The expected benefits are estimated based on the same assumptions used to measure NiSource’s benefit obligation at the end of the year and includes benefits attributable to the estimated future service of employees:

(in millions)	Pension Benefits				Other Postretirement Benefits				Federal Subsidy Receipts
Year(s)
2016	$	174.1			$	34.7			$	0.9
2017	175.8				35.4				0.9
2018	177.1				36.0				0.9
2019	176.1				36.7				0.9
2020	174.5				37.0				0.9
2021-2025	837.8				181.5				3.6

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The following table provides the components of the plans’ net periodic benefits cost for each of the three years ended December 31, 2015, 2014 and 2013:

	Pension Benefits												Other Postretirement Benefits
(in millions)	2015				2014				2013				2015				2014				2013
Components of Net Periodic Benefit Cost (Income)
Service cost	$	34.8			$	34.8			$	36.4			$	6.4			$	8.5			$	12.1
Interest cost	95.9				109.0				98.9				24.9				30.1				32.2
Expected return on assets	(167.2		)		(181.1		)		(168.1		)		(28.2		)		(36.8		)		(30.3		)
Amortization of transitional obligation	—				—				—				—				—				0.5
Amortization of prior service cost (credit)	0.1				0.2				0.3				(5.2		)		(4.3		)		(0.7		)
Recognized actuarial loss	59.3				47.5				77.8				3.4				0.4				11.0
Net Periodic Benefit Costs (Income)	22.9				10.4				45.3				1.3				(2.1		)		24.8
Additional loss recognized due to:
Settlement loss	2.5				—				33.4				—				—				—
Total Net Periodic Benefits Cost (Income)	$	25.4			$	10.4			$	78.7			$	1.3			$	(2.1	)		$	24.8

The following table provides the key assumptions that were used to calculate the net periodic benefits cost for NiSource’s various plans:

	Pension Benefits									Other Postretirement Benefits
	2015			2014			2013			2015			2014			2013
Weighted-average Assumptions to Determine Net Periodic Benefit Cost
Discount Rate	3.81	%		4.50	%		3.63	%		3.94	%		4.75	%		3.95	%
Expected Long-Term Rate of Return on Plan Assets	8.30	%		8.30	%		8.30	%		8.15	%		8.14	%		8.14	%
Rate of Compensation Increases	4.00	%		4.00	%		4.00	%		—			—			—

NiSource believes it is appropriate to assume an 8.30% and 8.15% rate of return on pension and other postretirement plan assets, respectively, for its calculation of 2015 pension benefits cost. This is primarily based on asset mix and historical rates of return.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The following table provides other changes in plan assets and projected benefit obligations recognized in other comprehensive income or regulatory asset or liability:

	Pension Benefits								Other Postretirement Benefits
(in millions)	2015				2014				2015				2014
Other Changes in Plan Assets and Projected Benefit Obligations Recognized in Other Comprehensive Income or Regulatory Asset or Liability
Net prior service cost (credit)	$	—			$	0.6			$	0.1			$	(41.5	)
Net actuarial loss (gain)	125.7				252.8				(45.2		)		64.0
Settlements	(2.5		)		—				—				—
Less: amortization of prior service cost (credit)	(0.1		)		(0.2		)		5.2				4.3
Less: amortization of net actuarial loss (gain)	(59.3		)		(47.5		)		(3.4		)		(0.4		)
Less: Separation of CPG (Note 3)	(143.8		)		—				21.5				—
Total Recognized in Other Comprehensive Income or Regulatory Asset or Liability	$	(80.0	)		$	205.7			$	(21.8	)		$	26.4
Amount Recognized in Net Periodic Benefits Cost and Other Comprehensive Income or Regulatory Asset or Liability	$	(54.6	)		$	216.1			$	(20.5	)		$	24.3

Based on a December 31 measurement date, the net unrecognized actuarial loss, unrecognized prior service cost (credit), and unrecognized transition obligation that will be amortized into net periodic benefit cost during 2016 for the pension plans are $61.2 million, $(0.2) million and zero, respectively, and for other postretirement benefit plans are $3.1 million, $(4.9) million and zero, respectively.

11.	Authorized Classes of Cumulative Preferred and Preference Stocks

NiSource has 20,000,000 authorized shares of Preferred Stock with a $0.01 par value, of which 4,000,000 shares are designated Series A Junior Participating Preferred Shares.

The authorized classes of par value and no par value cumulative preferred and preference stocks of NIPSCO are as follows: 2,400,000 shares of Cumulative Preferred with a $100 par value; 3,000,000 shares of Cumulative Preferred with no par value; 2,000,000 shares of Cumulative Preference with a $50 par value; and 3,000,000 shares of Cumulative Preference with no par value.

As of December 31, 2015, NiSource and NIPSCO had no preferred shares outstanding.

12.	Common Stock

As of December 31, 2015, NiSource had 400,000,000 authorized shares of common stock with a $0.01 par value.

Common Stock Dividend. Holders of shares of NiSource’s common stock are entitled to receive dividends when, as and if declared by the Board out of funds legally available. The policy of the Board has been to declare cash dividends on a quarterly basis payable on or about the 20th day of February, May, August and November. NiSource has paid quarterly common dividends totaling $0.830, $1.02 and $0.98 per share for the years ended December 31, 2015, 2014 and 2013, respectively. At its January 27, 2016 meeting, the Board declared a quarterly common dividend of $0.155 per share, payable on February 19, 2016 to holders of record on February 8, 2016. NiSource has certain debt covenants which could potentially limit the amount of dividends the Company could pay in order to maintain compliance with these covenants. Refer to Note 14, "Long-Term Debt," for more information. As of December 31, 2015, these covenants did not restrict the amount of dividends that were available to be paid.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Dividend Reinvestment and Stock Purchase Plan. NiSource offers a Dividend Reinvestment and Stock Purchase Plan which allows participants to reinvest dividends and make voluntary cash payments to purchase additional shares of common stock on the open market.

13.	Share-Based Compensation

The NiSource stockholders originally approved and adopted the NiSource Inc. 2010 Omnibus Incentive Plan (“Omnibus Plan”) at the Annual Meeting of Stockholders held on May 11, 2010. Stockholders re-approved the Omnibus Plan as amended at the Annual Meeting of Stockholders held on May 12, 2015. The Omnibus Plan provides for awards to employees and non-employee directors of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards and supersedes the long-term incentive plan approved by stockholders on April 13, 1994 (“1994 Plan”) and the Director Stock Incentive Plan (“Director Plan”). 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 that expire or terminate for any reason that were granted under either the 1994 Plan or the Director Plan, plus the number of shares that were awarded as a result of the Separation-related adjustments described below. At December 31, 2015, there were 5,704,139 shares reserved for future awards under the Omnibus Plan.

NiSource recognized stock-based employee compensation expense of $18.8 million, $29.8 million and $19.6 million, during 2015, 2014 and 2013, respectively, as well as related tax benefits of $7.2 million, $11.8 million and $7.8 million, respectively.

As of December 31, 2015, the total remaining unrecognized compensation cost related to nonvested awards amounted to $14.9 million, which will be amortized over the weighted-average remaining requisite service period of 1.7 years.

Separation-related Adjustments. In connection with the Separation, NiSource and CPG entered into an Employee Matters Agreement, effective July 1, 2015. Under the terms of the Employee Matters Agreement, and pursuant to the terms of the Omnibus Plan, the Compensation Committee of the Board of NiSource approved an adjustment to outstanding awards granted under the Omnibus Plan in order to preserve the intrinsic aggregate value of such awards before the Separation (the “Valuation Adjustment”). The Separation-related adjustments did not have a material impact on either compensation expense or the potentially dilutive securities to be considered in the calculation of diluted earnings per share of common stock. Former NiSource employees transferred to CPG as a result of the Separation surrendered their outstanding unvested NiSource awards effective July 1, 2015.

Restricted Stock Units and Restricted Stock. In 2015, NiSource granted restricted stock units and shares of restricted stock of 660,230, subject to service conditions. The total grant date fair value of the shares of restricted stock units and shares of restricted stock was $23.9 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. Including the effect of the Valuation Adjustment, 808,928 of the unvested restricted stock units and shares of restricted stock granted in 2015 remained outstanding as of December 31, 2015.

In 2014, NiSource granted restricted stock units and shares of restricted stock of 158,633, subject to service conditions. The total grant date fair value of the restricted stock units and shares of restricted stock was $5.2 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. Including the effect of the Valuation Adjustment, 46,810 of the unvested restricted stock units and shares of restricted stock granted in 2014 remained outstanding as of December 31, 2015.

In 2013, NiSource granted restricted stock units and shares of restricted stock of 69,651, subject to service conditions. The total grant date fair value of the restricted stock units and shares of restricted stock was $1.8 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. Including the effect of the Valuation Adjustment, 83,415 of the unvested restricted stock units and shares of restricted stock granted in 2013 remained outstanding as of December 31, 2015.

If an employee terminates employment before the service conditions lapse under the 2013, 2014 and 2015 awards due to (1) Retirement or Disability (as defined in the award agreement), or (2) death, the service conditions will lapse on the date of such termination with respect to a pro rata portion of the restricted stock units and shares of restricted stock based upon the percentage of the service period satisfied between the grant date and the date of the termination of employment. In the event of a Change-in-

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Control (as defined in the award agreement), all unvested shares of restricted stock and restricted stock units awarded prior to 2014 will immediately vest and all unvested shares of restricted stock and restricted stock units awarded in 2014 and 2015 will immediately vest upon termination of employment occurring 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 a result of the Separation, restricted stock units were substituted for outstanding performance shares awarded in 2013 and 2014 (discussed below), as adjusted based on a modified performance period and modified performance goals, and were subject to the same service based vesting conditions as the performance share awards they replaced. These converted restricted stock unit awards were also subject to the Valuation Adjustment. As of December 31, 2015, 2,190,129 of these restricted stock units remained outstanding.

Under these new restricted stock unit agreements, if the employee terminates employment before the service conditions lapse under the 2013 and 2014 awards 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 new restricted stock units based upon the percentage of the service period satisfied between the grant date and the date of the termination of employment. In the event of a Change-in-Control (as defined in the award agreement), all new restricted stock units will immediately vest upon termination of employment occurring in connection with a change-in-control. Termination due to any other reason will result in all of the new restricted stock units awarded being forfeited effective on the employee’s date of termination.

	Restricted Stock Units			Weighted Average Grant Date Fair Value ($)(1)
Nonvested at December 31, 2014	307,329			27.92
Granted	660,230			36.23
Forfeited	(22,860	)		16.98
Vested	(94,380	)		20.61
Awards surrendered as a result of the Separation	(445,123	)
Awards granted in conversion as a result of the Separation	547,148
Nonvested and Expected to Vest	952,344			14.38
Performance Shares Converted to Restricted Stock Units as a result of the Separation	2,190,129			6.01
Nonvested and Expected to Vest at December 31, 2015	3,142,473			8.55

(1)The reduction in weighted average grant date fair value during 2015 primarily resulted from the significant number of incremental units issued as a result of the Separation. As discussed above in "Separation-related Adjustments," these incremental units were issued to preserve the intrinsic value of such awards immediately before the Separation.

Performance Shares. In 2015, NiSource did not grant any performance shares subject to performance and service conditions.

In 2014, NiSource granted 535,037 performance shares subject to performance and service conditions. The grant date fair-value of the awards was $16.6 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 were 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, for the three-year period ending December 31, 2016; 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 for these awards lapse on February 28, 2017.

In 2013, NiSource granted 664,776 performance shares subject to performance and service conditions. The grant date fair-value of the awards was $15.7 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 certain non-GAAP financial measures:

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

cumulative net operating earnings, which NiSource defines as income from continuing operations adjusted for certain items; and cumulative funds from operations, which NiSource defines as net operating cash flows provided by continuing operations, in each case for the three-year period ending December 31, 2015; 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 beginning December 31, 2012 and ending on December 31, 2015) compared to the total shareholder return performance of a predetermined peer group of companies. The service conditions for these awards lapse on February 29, 2016.

	Performance Awards			Weighted Average Grant Date Fair Value ($)
Nonvested at December 31, 2014	1,727,855			24.80
Granted	—			—
Forfeited	(110,013	)		9.24
Vested	(649,896	)		20.29
Awards surrendered as a result of the Separation	(573,486	)
Awards granted in conversion as a result of the Separation	1,795,669
Performance Shares at July 1, 2015	2,190,129			6.01
Awards Converted to Restricted Stock Units as a result of the Separation	(2,190,129	)
Nonvested and Expected to Vest at December 31, 2015	—			—

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. Certain restricted stock units remain outstanding from the Director Plan. All such awards are fully vested and shall be distributed to the directors upon their separation from the Board.

In connection with the Separation, non-employee directors holding vested restricted stock units received one CPG restricted stock unit (settled in common stock of CPG) for each vested NiSource restricted stock unit. Restricted stock units granted to directors in 2015, however, were not yet vested as of the Separation. Accordingly, these restricted stock unit awards were subject to the Valuation Adjustment described in the “Separation-related Adjustments” section above.

As of December 31, 2015, 198,996 restricted stock units are outstanding to non-employee directors under either the Omnibus Plan or the Director Plan. Of this amount, 50,092 restricted stock units are nonvested and expected to vest.

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 NiSource common stock. NiSource also has a retirement savings plan that provides for discretionary profit sharing contributions payable in shares of NiSource 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 3% of eligible pay payable in shares of NiSource common stock. For the years ended December 31, 2015, 2014 and 2013, NiSource recognized 401(k) match, profit sharing and non-elective contribution expense of $27.4 million, $28.1 million and $21.6 million, respectively. In connection with the Separation, employees participating in the 401(k) plan who were invested in the NiSource common stock investment option received a stock dividend of one share of CPG common stock for each share of NiSource common stock owned by them through the 401(k) plan.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

14.	Long-Term Debt

NiSource Finance is a 100% owned, consolidated finance subsidiary of NiSource that engages in financing activities to raise funds for the business operations of NiSource and its subsidiaries. NiSource Finance was incorporated in March 2000 under the laws of the state of Indiana. Prior to 2000, the function of NiSource Finance was performed by Capital Markets. NiSource Finance obligations are fully and unconditionally guaranteed by NiSource. Consequently, no separate financial statements for NiSource Finance are required to be reported. No NiSource subsidiaries guarantee debt.

During 2015, NiSource Finance executed a $750.0 million tender offer on fixed-rate long-term debt, redeemed $230.0 million fixed-rate long-term debt at maturity, settled $1,075.0 million term loans, and entered into two forward starting swap-lock transactions with notional values totaling $1,000.0 million. These transactions are detailed as follows:

•

Prior to the Separation, CPG closed its placement of $2,750.0 million in aggregate principal amount of its senior notes. Using the proceeds from this offering, CPG made cash payments to NiSource representing the settlement of inter-company borrowings and the payment of a one-time special dividend. In May 2015, using proceeds from the cash payments from CPG, NiSource Finance settled its two bank term loans in the amount of $1,075.0 million and executed a tender offer for $750.0 million consisting of a combination of its 5.25% notes due 2017, 6.40% notes due 2018 and 4.45% notes due 2021. In conjunction with the debt retired, NiSource Finance recorded a $97.2 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums.

•	On November 28, 2015, NiSource Finance redeemed $230.0 million of 5.36% senior unsecured notes at maturity.

•

On December 3, 2015, NiSource Finance entered into a forward starting interest rate swap, with a notional amount of $500.0 million, to hedge the variability in cash flows attributable to changes in the benchmark interest rate during the period from the effective date of the swap to the anticipated date of a forecasted debt issuance in 2017. The forward starting interest rate swap was designated as a cash flow hedge at the time the agreements were executed, whereby any gain or loss recognized from the effective date of the swap to the date the associated debt is issued for the effective portion of the hedge is recorded net of tax in AOCI and amortized as a component of interest expense over the life of the designated debt. If some portion of the hedge becomes ineffective, the associated gain or loss will be recognized in earnings. As of December 31, 2015, no ineffectiveness has been recorded.

•

On December 4, 2015, NiSource Finance entered into a forward starting interest rate swap, with a notional amount of $500.0 million, to hedge the variability in cash flows attributable to changes in the benchmark interest rate during the period from the effective date of the swap to the anticipated date of a forecasted debt issuance in 2018. The forward starting interest rate swap was designated as a cash flow hedge at the time the agreements were executed, whereby any gain or loss recognized from the effective date of the swap to the date the associated debt is issued for the effective portion of the hedge is recorded net of tax in AOCI and amortized as a component of interest expense over the life of the designated debt. If some portion of the hedge becomes ineffective, the associated gain or loss will be recognized in earnings. As of December 31, 2015, no ineffectiveness has been recorded.

During 2014, NiSource Finance negotiated a $750.0 million term loan and redeemed $500.0 million of long-term debt securities. These transactions are detailed as follows:

•	On August 20, 2014, NiSource Finance negotiated a $750.0 million three-year bank term loan with a syndicate of banks which carries a floating interest rate of BBA LIBOR plus 100 basis points.

•	On July 15, 2014, NiSource Finance redeemed $500.0 million of 5.40% senior unsecured notes at maturity. Contemporaneous with this redemption, $500.0 million of associated fixed-to-floating interest rate swaps expired.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

In the following table are the outstanding long-term debt maturities at December 31, 2015. The long-term debt maturities shown below include capital lease obligations and the debt of certain low-income housing real estate investments. NiSource does not guarantee the long-term debt obligations of the low-income housing real estate investments.

Year Ending December 31, (in millions)
2016	$	433.7
2017	362.2
2018	488.9
2019	554.7
2020	563.8
After	4,024.4
Total (1)	$	6,427.7

(1) This amount excludes $45.5 million of unamortized discount, premium and expenses.

Unamortized debt expense, premium and discount on long-term debt applicable to outstanding bonds are being amortized over the life of such bonds.

Of NiSource’s long-term debt outstanding at December 31, 2015, $109.0 million was issued by NiSource’s subsidiary, Capital Markets. The financial obligations of Capital Markets are subject to a Support Agreement between NiSource and Capital Markets, under which NiSource has committed to make payments of interest and principal on Capital Markets’ obligations in the event of a failure to pay by Capital Markets. Under the terms of the Support Agreement, in addition to the cash flow from cash dividends paid to NiSource by any of its consolidated subsidiaries, the assets of NiSource, other than the stock and assets of NIPSCO, are available as recourse for the benefit of Capital Markets’ creditors. The carrying value of the NiSource assets, excluding the assets of NIPSCO, was $10.4 billion at December 31, 2015.

NiSource is subject to a financial covenant under its revolving credit facility which requires NiSource to maintain a debt to capitalization ratio that does not exceed 70%. A similar covenant in a 2005 private placement note purchase agreement requires NiSource to maintain a debt to capitalization ratio that does not exceed 75%. As of December 31, 2015, the ratio was 64%.

NiSource is also subject to certain other non-financial covenants under the revolving credit facility. Such covenants include a limitation on the creation or existence of new liens on NiSource’s assets, generally exempting liens on utility assets, purchase money security interests, preexisting security interests and an additional subset of assets equal to $150 million. An asset sale covenant generally restricts the sale, lease and/or transfer of NiSource’s assets to no more than 10% of its consolidated total assets and dispositions for a price not materially less than the fair market value of the assets disposed of that do not impair the ability of

NiSource and NiSource Finance to perform obligations under the revolving credit facility, and that, together with all other such dispositions, would not have a material adverse effect. The revolving credit facility also includes a cross-default provision, which triggers an event of default under the credit facility in the event of an uncured payment default relating to any indebtedness of NiSource or any of its subsidiaries in a principal amount of $50 million or more.

NiSource’s indentures generally do not contain any financial maintenance covenants. However, NiSource’s indentures are generally subject to cross-default provisions ranging from uncured payment defaults of $5 million to $50 million, and limitations on the incurrence of liens on NiSource’s assets, generally exempting liens on utility assets, purchase money security interests, preexisting security interests and an additional subset of assets capped at 10% of NiSource’s consolidated net tangible assets.

15.	Short-Term Borrowings

NiSource Finance currently maintains a $1.5 billion revolving credit facility with a syndicate of banks led by Barclays Capital with a termination date of July 1, 2020. The purpose of the facility is to fund ongoing working capital requirements including the provision of liquidity support for NiSource Finance's $1.5 billion commercial paper program, provide for issuance of letters of credit and also for general corporate purposes. At December 31, 2015, NiSource had no outstanding borrowings under this facility. At December 31, 2014, NiSource had $500.0 million outstanding under this facility.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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 and Wells Fargo. At December 31, 2015, NiSource had $321.4 million of commercial paper outstanding. At December 31, 2014, NiSource had $792.6 million of commercial paper outstanding.

As of December 31, 2015, NiSource had $14.7 million of stand-by letters of credit outstanding all of which were under the revolving credit facility. At December 31, 2014, NiSource had $30.9 million of stand-by letters of credit outstanding, of which $14.7 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 Consolidated Balance Sheets in the amount of $246.0 million and $284.3 million as of December 31, 2015 and 2014, respectively. Refer to Note 17, "Transfers of Financial Assets," for additional information.

Short-term borrowings were as follows:

At December 31, (in millions)	2015				2014
Commercial Paper weighted average interest rate of 1.00% and 0.82% at December 31, 2015 and 2014, respectively.	$	321.4			$	792.6
Credit facilities borrowings weighted average interest rate of 1.44% at December 31, 2014.	—				500.0
Accounts receivable securitization facility borrowings	246.0				284.3
Total Short-Term Borrowings	$	567.4			$	1,576.9

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 Statements of Consolidated Cash Flows.

16.	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 Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2015 and December 31, 2014:

Recurring Fair Value Measurements December 31, 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 December 31, 2015
Assets
Price risk management assets:
Commodity financial price risk programs	$	0.1			$	—			$	—			$	0.1
Available-for-sale securities	—				128.7				—				128.7
Total	$	0.1			$	128.7			$	—			$	128.8
Liabilities
Price risk management liabilities:
Commodity financial price risk programs	$	14.3			$	—			$	0.2			$	14.5
Interest rate risk activities	—				17.4				—				17.4
Total	$	14.3			$	17.4			$	0.2			$	31.9

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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 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 December 31, 2015 and 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.

In December 2015, NiSource Finance entered into two forward starting interest-rate swaps, each hedging the interest rate risk on coupon payments arising from $500.0 million of forecasted issuances of long-term debt in each of 2017 and 2018. The 2017 swap was executed with four counterparties, and the 2018 swap with five counterparties. These swaps have been recorded as price risk management liabilities, and are designated as cash flow hedges. Each period the swap instruments will be measured assuming a hypothetical settlement at that point in time. Upon termination of the swap instruments, NiSource will pay or receive a settlement based on the current market value. Credit risk is considered in the fair value calculation of each interest rate swap. 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. There was no exchange of premium at the initial date of the swaps, and NiSource can settle the swaps at any time.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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 Consolidated Balance Sheets. 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 December 31, 2015 and December 31, 2014 were:

December 31, 2015 (in millions)	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available-for-sale debt securities
U.S. Treasury securities	$	33.7			$	0.1			$	(0.3	)		$	33.5
Corporate/Other bonds	95.7				0.3				(0.8		)		95.2
Total	$	129.4			$	0.4			$	(1.1	)		$	128.7
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	$	131.4			$	1.3			$	(0.8	)		$	131.9

For the years ended December 31, 2015, 2014, and 2013, the realized gain on sale of available for sale U.S. Treasury debt securities was $0.2 million, $0.1 million and $0.5 million, respectively. For the years ended December 31, 2015, 2014, and 2013, the realized gain on sale of available for sale Corporate/Other bond debt securities was $0.2 million, $0.4 million, and $0.4 million, respectively.

The cost of maturities sold is based upon specific identification. At December 31, 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 December 31, 2015, approximately $6.2 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 years ended December 31, 2015 and 2014.

Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the twelve months ended December 31, 2015.

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 years ended December 31, 2015 and 2014, there were no changes in the method or significant assumptions used to estimate the fair value of the financial instruments.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The carrying amount and estimated fair values of financial instruments were as follows:

At December 31, (in millions)	Carrying Amount 2015				Estimated Fair Value 2015				Carrying Amount 2014				Estimated Fair Value 2014
Long-term debt (including current portion)	$	6,382.2			$	6,975.7			$	8,418.1			$	9,505.7

17.	Transfers of Financial Assets

Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term borrowings on the Consolidated Balance Sheets. 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.

Throughout 2015 and 2014, Columbia of Ohio has been 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 December 31, 2015, $99.4 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.

Throughout 2015 and 2014, NIPSCO has been 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 December 31, 2015, $111.6 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.

Throughout 2015 and 2014, Columbia of Pennsylvania has been 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 under the terms of the agreement is $75 million. As of December 31, 2015, $35.0 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.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The following table reflects the gross and net receivables transferred as well as short-term borrowings related to the securitization transactions as of December 31, 2015 and 2014 for Columbia of Ohio, NIPSCO and Columbia of Pennsylvania:

(in millions)	December 31, 2015				December 31, 2014
Gross Receivables	$	450.8			$	611.7
Less: Receivables not transferred	204.8				327.4
Net receivables transferred	$	246.0			$	284.3
Short-term debt due to asset securitization	$	246.0			$	284.3

During 2015 and 2014, $38.3 million and $19.2 million was recorded as cash flows from financing activities related to the change in short-term borrowings due to the securitization transactions, respectively. For the years ended December 31, 2015 and 2014, fees of $2.5 million and $2.9 million associated with the securitization transactions were recorded as interest expense, respectively. 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.

18. 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. At December 31, 2015, NiSource had issued stand-by letters of credit of approximately $14.7 million for the benefit of third parties.

B. Other Legal Proceedings. The Company is party to certain claims and legal proceedings arising in the ordinary course of business, none of which is deemed to be individually material at this time. Due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s results of operations, financial position or liquidity. If one or more of such matters were decided against the Company, the effects could be material to the Company’s results of operations in the period in which the Company would be required to record or adjust the related liability and could also be material to the Company’s cash flows in the periods the Company would be required to pay such liability.

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 the environmental regulations currently applicable to 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 December 31, 2015 and 2014, NiSource had recorded an accrual of approximately $123.2 million and $126.6 million, respectively, to cover environmental remediation at various sites. The current portion of this accrual is included in "Legal and environmental" in the Consolidated Balance Sheets. The noncurrent portion is included in "Other noncurrent liabilities" in the Consolidated Balance Sheets. 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 may 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. 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.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Climate Change. Future legislative and regulatory programs, including implementation of the recently promulgated EPA CPP, could significantly restrict GHG emissions or impose a cost or tax on GHG emissions. Additionally, certain rules that increase methane leak detection and permitting requirements for natural gas facilities could restrict GHG emissions or impose additional costs. The CPP and other federally enacted or proposed GHG reduction measures are subject to numerous legal challenges that could change the way the programs are implemented, and NiSource will carefully monitor all GHG reduction proposals and regulations. In addition to the federal programs, the United States and 194 other countries agreed by consensus to limit GHGs to Nationally Determined Contributions (NDCs) beginning after 2020 in the 2015 United Nations Framework Convention on Climate Change Paris Agreement. The United States has proposed a NDC of a 26% reduction from 2005 levels by 2025, a figure that cannot be met with the CPP alone.

National Ambient Air Quality Standards. The CAA requires the EPA to set 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 or contribute significantly to nonattainment of downwind states may be required to take steps to achieve and maintain compliance with the standards. These steps could include additional pollution controls on boilers, engines, turbines and other facilities owned by electric generation and gas distribution operations.

The following NAAQS were recently added or modified:

Ozone: On October 26, 2015, the EPA issued a final rule to lower the 8-hour ozone standard from 75 ppb to 70 ppb. After the EPA proceeds with designations, areas where NiSource operates that are currently designated in attainment with the standards may be re-classified as nonattainment. NiSource will continue to monitor this matter and cannot estimate its impact 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, NiSource affiliates have retained environmental liabilities, including cleanup liabilities, associated with certain former operations.

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 64 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 future remediation costs were noted as a result of the refresh completed as of June 30, 2015. The total estimated liability at NiSource related to the facilities subject to remediation was $110.4 million and $121.5 million at December 31, 2015 and 2014, 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 individual business segments for which NiSource has retained a liability.

Electric Operations.

Air

NIPSCO is subject to a number of air-quality mandates in the next several years. The mandates, which include the NSR Consent Decree, the Utility Mercury and Air Toxics Standards Rule (MATS), and the CPP, require or may require NIPSCO to make capital improvements to its electric generating stations. The cost of capital improvements associated with the NSR Consent Decree and MATS is estimated to be $860 million, of which approximately $28.8 million remains to be spent. The cost to comply with the CPP cannot be estimated at this time. NIPSCO believes that the capital costs associated with these air quality mandates are likely recoverable through rates.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Utility Mercury and Air Toxics Standards Rule: On February 16, 2012, the EPA issued the MATS rule establishing new emissions limits for mercury and other air toxics. Certain affected NIPSCO units have completed projects to meet the April 2015 compliance deadline. For NIPSCO’s remaining affected units, a one-year compliance extension granted by IDEM delays the compliance date until April 2016. NIPSCO continues to implement an IURC-approved plan for the installation of additional environmental controls needed to comply with the MATS extension. On June 29, 2015, the United States Supreme Court remanded the MATS rule back to the United States Court of Appeals for the District of Columbia Circuit for further proceedings. On December 15, 2015, the United States Court of Appeals for the District of Columbia Circuit issued an order remanding the MATS rule to the EPA without vacating the rule. The MATS rule remains in effect while the EPA addresses the issues raised by the United State Supreme Court. The EPA indicates that these issues will be fully addressed by April 15, 2016. NIPSCO will continue to monitor developments in this matter.

Clean Power Plan: On October 23, 2015, the EPA issued a final rule to regulate CO2 emissions from existing fossil-fuel EGUs under section 111(d) of the CAA. The final rule establishes national CO2 emission-rate standards that are applied to each state’s mix of affected EGUs to establish state-specific emission-rate and mass-emission limits. The final rule requires each state to submit a plan indicating how the state will meet the EPA's emission-rate or mass-emission limit, including possibly imposing reduction obligations on specific units. If a state does not submit a satisfactory plan, the EPA will impose a federal plan on that state. On February 9, 2016, the U.S. Supreme Court stayed implementation of the CPP until litigation is decided on its merits. The cost to comply with this rule will depend on a number of factors, including the outcome of CPP litigation, the requirements of the state plan or final federal plan, and the level of NIPSCO's required CO2 emission reductions. It is possible that this new rule, comprehensive federal or state GHG legislation, or other GHG regulation could result in additional expense or compliance costs that could materially impact NiSource's financial results. NIPSCO will continue to monitor this matter and cannot estimate its impact at this time.

Cross State Air Pollution Rule: On December 3, 2015, the EPA issued a proposed rule to address interstate air quality impacts associated with the 2008 ozone NAAQS and also in response to a court mandate requiring the recalculation of downwind contributions of NOx to states’ abilities to meet the ozone NAAQS. Under the proposed recalculation, NIPSCO may be required to meet a more stringent NOx emission allocation associated with its already well-controlled units. NIPSCO will continue to monitor this matter and cannot estimate its impact at this time.

Water

On August 15, 2014, the EPA issued the final 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. Under this rule, stations will have to either 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. The cost to comply will depend on a number of factors, including evaluation of the various compliance options available under the regulation and permitting-related determinations by IDEM. NIPSCO estimates that the cost of compliance is between $4 million and $35 million, dependent upon study results, agency requirements and technology ultimately required to achieve compliance.

On November 3, 2015, the EPA issued a final rule to amend the effluent limitations guidelines and standards for the Steam Electric Power Generating category. The final rule became effective January 4, 2016. The rule imposes new water treatment and discharge requirements on NIPSCO's electric generating facilities to be applied between 2018-2023. NIPSCO is currently reviewing the rule and cannot estimate the cost of compliance at this time.

Waste

On April 17, 2015, the EPA issued a final rule for regulation of CCRs. The rule regulates CCRs under the Resource Conservation and Recovery Act Subtitle D, which determines them to be nonhazardous. The rule will require increased groundwater monitoring, reporting, record keeping and posting of related information to the Internet. The rule also establishes requirements related to CCR management, impoundments, landfills and storage. The rule will allow NIPSCO to continue its byproduct beneficial use program.

The publication of the CCR rule resulted in revisions to previously recorded legal obligations associated with the retirement of certain NIPSCO facilities. The actual asset retirement costs related to the CCR rule may vary substantially from the estimates used to record the increased asset retirement obligation due to the uncertainty about the compliance strategies that will be used and the preliminary nature of available data used to estimate costs. Refer to Note 6, "Asset Retirement Obligations," for further information. In addition, to comply with the rule, NIPSCO will be required to incur future capital expenditures to modify its infrastructure and

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

manage CCRs. Based upon a preliminary engineering study, capital compliance costs are currently expected to be in the $100 million to $220 million range. As allowed by the EPA, NIPSCO will continue to collect data over time to determine the specific compliance solutions and associated costs and, as a result, the actual costs may vary. NIPSCO believes that the costs associated with CCR compliance are likely recoverable through rates.

D. Operating and Capital Lease Commitments. NiSource leases assets in several areas of its operations. Payments made in connection with operating leases were $47.5 million in 2015, $59.8 million in 2014 and $47.2 million in 2013, and are primarily charged to operation and maintenance expense as incurred. Capital lease assets and related accumulated depreciation included in the Consolidated Balance Sheets were $236.2 million and $44.0 million at December 31, 2015, and $286.8 million and $86.0 million at December 31, 2014, respectively.

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. Services under this contract commenced on July 1, 1992 and expired on June 30, 2012. The agreement was renewed effective July 1, 2012 for ten years and NIPSCO will continue to pay for the services under a combination of fixed and variable charges. In accordance with GAAP, the renewed agreement was evaluated to determine whether the arrangement qualified as a lease. Based on the terms of the agreement, the arrangement qualified for capital lease accounting. As the effective date of the new agreement was July 1, 2012, NiSource capitalized this lease beginning in the third quarter of 2012.

Future minimum rental payments required under operating and capital leases that have initial or remaining non-cancelable lease terms in excess of one year are:

(in millions)	Operating Leases (1)				Capital Leases (2)
2016	$	18.4			$	23.5
2017	11.1				23.0
2018	8.8				23.3
2019	7.0				23.7
2020	3.5				23.5
After	13.3				196.3
Total future minimum payments	$	62.1			$	313.3

(1) Operating lease balances do not include amounts for fleet leases that can be renewed beyond the initial lease term. The Company anticipates renewing the leases beyond the initial term, but the anticipated payments associated with the renewals do not meet the definition of expected minimum lease payments and therefore are not included above. Expected payments are $30.5 million in 2016, $30.9 million in 2017, $26.7 million in 2018, $20.3 million in 2019, $12.5 million in 2020 and $7.5 million thereafter.

(2) Capital lease payments shown above are inclusive of interest totaling $114.7 million.

E. Purchase and Service Obligations. NiSource has entered into various purchase and service agreements whereby NiSource is contractually obligated to make certain minimum payments in future periods. NiSource’s purchase obligations are for the purchase of physical quantities of natural gas, electricity and coal. NiSource’s service agreements encompass a broad range of business support and maintenance functions which are generally described below.

NiSource’s subsidiaries have entered into various energy commodity contracts to purchase physical quantities of natural gas, electricity and coal. These amounts represent minimum quantities of these commodities NiSource is obligated to purchase at both fixed and variable prices.

In July 2008, the IURC issued an order approving NIPSCO’s purchase power agreements with subsidiaries of Iberdrola Renewables, Buffalo Ridge I LLC and Barton Windpower LLC. These agreements provide NIPSCO the opportunity and obligation to purchase up to 100 mw of wind power generated commencing in early 2009. The contracts extend 15 and 20 years, representing 50 mw of wind power each. No minimum quantities are specified within these agreements due to the variability of electricity generation from wind, so no amounts related to these contracts are included in the table below. Upon any termination of the agreements by NIPSCO for any reason (other than material breach by Buffalo Ridge I LLC or Barton Windpower LLC), NIPSCO may be required to pay a termination charge that could be material depending on the events giving rise to termination and the timing of the termination. NIPSCO began purchasing wind power in April 2009.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NiSource has pipeline service agreements that provide for pipeline capacity, transportation and storage services. These agreements, which have expiration dates ranging from 2016 to 2045, require NiSource to pay fixed monthly charges. The amounts in the table below include agreements with CPG. Beginning July 1, 2015, these agreements represent third-party transactions and are not eliminated in consolidation.

On December 31, 2013, NiSource Corporate Services signed a seven year agreement with IBM to continue to provide business process and support functions to NiSource under a combination of fixed or variable charges, with the variable charges fluctuating based on the actual need for such services. The agreement was effective January 1, 2014 with a commencement date of April 1, 2014 and includes some targeted service enhancements as well as continued existing information technology support services and a few additional support services. On June 15, 2015, NiSource Corporate Services signed an Amendment to this agreement to incorporate changes in services related to the Separation. Refer to Note 3, "Discontinued Operations," in the notes to the Consolidated Financial Statements for additional information on the Separation. Under the amended agreement, at December 31, 2015, NiSource Corporate Services expects to pay approximately $410.1 million to IBM in service and project fees as shown in the table below. Upon any termination of the agreement by NiSource for any reason (other than material breach by IBM), NiSource may be required to pay IBM a termination charge that could include a breakage fee, repayment of IBM's capital investments not yet recovered and IBM's wind-down expense. This termination fee could be material depending on the events giving rise to the termination and the timing of the termination.

NIPSCO has contracts with three major rail operators providing for coal transportation services for which there are certain minimum payments. These service contracts extend for various periods through 2018.

The estimated aggregate amounts of minimum fixed payments at December 31, 2015, were:

(in millions)	Energy Commodity Agreements				Pipeline Service Agreements				IBM Service Agreement				Other Service Agreements				Total
2016	$	169.3			$	512.7			$	90.9			$	72.0			$	844.9
2017	74.8				496.0				82.8				67.2				720.8
2018	67.5				341.0				80.1				19.7				508.3
2019	70.6				245.4				78.6				4.6				399.2
2020	72.6				139.3				77.7				2.3				291.9
After	0.4				429.9				—				—				430.3
Total purchase and service obligations	$	455.2			$	2,164.3			$	410.1			$	165.8			$	3,195.4

F. Other Matters.

Transmission Upgrade Agreements.On February 11, 2014, NIPSCO entered into TUAs with upgrade sponsors to complete upgrades on NIPSCO’s transmission system on behalf of those sponsors. The upgrade sponsors agreed to reimburse NIPSCO for the total cost to construct transmission upgrades and place them into service, multiplied by a rate of 1.71 ("the multiplier").

On June 10, 2014, certain upgrade sponsors for both TUAs filed a complaint at the FERC against NIPSCO regarding the multiplier stated in the TUAs. On June 30, 2014, NIPSCO filed an answer defending the terms of the TUAs and the just and reasonable nature of the multiplier charged therein and moved for dismissal of the complaint. On December 8, 2014, the FERC issued an order in response to the complaint finding that it is appropriate for NIPSCO to recover, through the multiplier, substantiated costs of ownership related to the TUAs. The FERC set for hearing the issue of what constitutes the incremental costs NIPSCO will incur, but is holding that hearing in abeyance to allow for settlement. NIPSCO will continue to monitor developments in this matter and does not believe the impact is material to the Consolidated Financial Statements.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Springfield, Massachusetts. 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 fully cooperated with both the Massachusetts DPU and the Occupational Safety & Health Administration in their investigations of this incident, which have been concluded. 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 Consolidated Balance Sheets.

19.Accumulated Other Comprehensive Loss

The following table displays the activity of Accumulated Other Comprehensive Loss, net of tax:

(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	(2.4		)		0.1				17.8				15.5
Amounts reclassified from accumulated other comprehensive income	(0.5		)		2.7				4.2				6.4
Net current-period other comprehensive income (loss)	(2.9		)		2.8				22.0				21.9
Balance as of December 31, 2013	$	(0.3	)		$	(25.8	)		$	(17.5	)		$	(43.6	)
Other comprehensive income before reclassifications	0.9				(0.3		)		(10.2		)		(9.6		)
Amounts reclassified from accumulated other comprehensive income	(0.3		)		2.5				0.4				2.6
Net current-period other comprehensive income (loss)	0.6				2.2				(9.8		)		(7.0		)
Balance as of December 31, 2014	$	0.3			$	(23.6	)		$	(27.3	)		$	(50.6	)
Other comprehensive income before reclassifications	(0.5		)		(11.0		)		(5.0		)		(16.5		)
Amounts reclassified from accumulated other comprehensive income	(0.3		)		3.2				2.6				5.5
Net current-period other comprehensive income (loss)	(0.8		)		(7.8		)		(2.4		)		(11.0		)
Allocation of AOCI to noncontrolling interest	—				2.0				—				2.0
Distribution of CPG to shareholders (Note 3)	—				13.9				10.6				24.5
Balance as of December 31, 2015	$	(0.5	)		$	(15.5	)		$	(19.1	)		$	(35.1	)

(1)All amounts are net of tax. Amounts in parentheses indicate debits.

20.	Other, Net

Year Ended December 31, (in millions)	2015				2014				2013
Interest Income	$	0.8			$	3.8			$	3.5
AFUDC Equity	11.5				10.7				11.7
Charitable Contributions	(4.8		)		(11.1		)		(8.2		)
Miscellaneous(1)	9.9				10.0				(0.2		)
Total Other, net	$	17.4			$	13.4			$	6.8

(1) Miscellaneous primarily consists of transmission upgrade agreement income in 2015 and 2014.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

21.	Interest Expense, Net

Year Ended December 31, (in millions)	2015				2014				2013
Interest on long-term debt	$	377.5			$	368.6			$	364.4
Interest on short-term borrowings (1)	2.2				5.2				2.7
Debt discount/cost amortization	8.7				8.0				7.5
Accounts receivable securitization	2.5				2.9				2.7
Allowance for borrowed funds used and interest capitalized during construction	(5.4		)		(5.3		)		(6.1		)
Other	(5.3		)		0.1				4.1
Total Interest Expense, net	$	380.2			$	379.5			$	375.3

(1) Refer to Note 15, "Short-Term Borrowings," for additional information.

22.	Segments of Business

At December 31, 2015, NiSource’s operations are divided into two primary reportable 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 Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.

On July 1, 2015, NiSource completed the Separation. CPG's operations consisted of all of NiSource's former Columbia Pipeline Group Operations segment prior to the Separation. Results of the Columbia Pipeline Group Operations segment are included in discontinued operations.

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.

Year Ended December 31, (in millions)	2015				2014				2013
REVENUES
Gas Distribution Operations
Unaffiliated	$	3,068.7			$	3,593.6			$	3,053.5
Intersegment	0.4				0.3				0.3
Total	3,069.1				3,593.9				3,053.8
Electric Operations
Unaffiliated	1,573.6				1,672.6				1,564.2
Intersegment	0.8				0.8				0.7
Total	1,574.4				1,673.4				1,564.9
Corporate and Other
Unaffiliated	9.5				6.2				7.7
Intersegment	396.4				412.5				370.2
Total	405.9				418.7				377.9
Eliminations	(397.6		)		(413.6		)		(371.2		)
Consolidated Revenues	$	4,651.8			$	5,272.4			$	4,625.4

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Year Ended December 31, (in millions)	2015				2014				2013
Operating Income (Loss)
Gas Distribution Operations	$	555.8			$	537.0			$	445.4
Electric Operations	264.4				282.7				265.5
Corporate and Other	(20.3		)		(30.6		)		(12.8		)
Consolidated	$	799.9			$	789.1			$	698.1
Depreciation and Amortization
Gas Distribution Operations	$	232.6			$	217.6			$	201.4
Electric Operations	267.7				244.4				244.4
Corporate and Other	24.1				24.9				24.6
Consolidated	$	524.4			$	486.9			$	470.4
Assets
Gas Distribution Operations	$	10,094.5			$	9,443.7
Electric Operations	5,265.3				5,009.9
Corporate and Other(1)	2,132.7				10,136.2
Consolidated	$	17,492.5			$	24,589.8
Capital Expenditures(2)
Gas Distribution Operations	$	917.0			$	860.3			$	790.8
Electric Operations	400.3				438.8				426.3
Corporate and Other	50.2				40.5				31.4
Consolidated	$	1,367.5			$	1,339.6			$	1,248.5

(1)The 2014 balances for Corporate and Other includes assets of Discontinued Operations refer to Note 3 "Discontinued Operations," for additional information.

(2) Amounts differ from those presented on the Statements of Consolidated Cash Flows primarily due to the inclusion of capital expenditures included in current liabilities and AFUDC Equity.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

23.	Quarterly Financial Data (Unaudited)

Quarterly financial data does not always reveal the trend of NiSource’s business operations due to nonrecurring items and seasonal weather patterns, which affect earnings, and related components of net revenues and operating income.

(in millions, except per share data)	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
2015
Gross revenues	$	1,852.2			$	884.6			$	817.2			$	1,097.8
Operating Income	386.3				84.4				109.7				219.5
Income (Loss) from Continuing Operations	192.5				(73.1		)		14.8				64.4
Results from Discontinued Operations - net of taxes(1)	82.8				45.4				(19.7		)		(5.0		)
Net Income (Loss)	275.3				(27.7		)		(4.9		)		59.4
Net Income (Loss) attributable to NiSource	268.4				(36.4		)		(4.9		)		59.4
Basic Earnings (Loss) Per Share
Continuing Operations	0.61				(0.23		)		0.05				0.20
Discontinued Operations	0.24				0.12				(0.07		)		(0.01		)
Basic Earnings (Loss) Per Share	$	0.85			$	(0.11	)		$	(0.02	)		$	0.19
Diluted Earnings (Loss) Per Share
Continuing Operations	0.61				(0.23		)		0.05				0.20
Discontinued Operations	0.24				0.12				(0.07		)		(0.01		)
Diluted Earnings (Loss) Per Share	$	0.85			$	(0.11	)		$	(0.02	)		$	0.19
2014
Gross revenues	$	2,017.2			$	1,023.7			$	838.2			$	1,393.3
Operating Income	373.3				117.8				71.1				226.9
Income (Loss) from Continuing Operations	173.1				20.8				(17.2		)		79.5
Results from Discontinued Operations - net of taxes(1)	93.1				57.4				48.6				74.7
Net Income	266.2				78.2				31.4				154.2
Net Income attributable to NiSource	266.2				78.2				31.4				154.2
Basic Earnings Per Share
Continuing Operations	0.55				0.07				(0.05		)		0.25
Discontinued Operations	0.30				0.18				0.15				0.24
Basic Earnings Per Share	$	0.85			$	0.25			$	0.10			$	0.49
Diluted Earnings Per Share
Continuing Operations	0.55				0.07				(0.05		)		0.25
Discontinued Operations	0.30				0.18				0.15				0.24
Diluted Earnings Per Share	$	0.85			$	0.25			$	0.10			$	0.49

(1)Includes the results of the former Columbia Pipeline Group segment.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

On July 1, 2015, NiSource completed the Separation. The results of operations of the former Columbia Pipeline Group Operations segment have been classified as discontinued operations for all periods. As a result, certain quarterly financial data presented in the table above is different from the corresponding data originally filed on Form 10-Q or in Quarterly Financial Data (Unaudited) for those periods. The affected quarterly financial data originally filed for these periods is presented in the table below:

(in millions)	First Quarter				Second Quarter				Third Quarter				Fourth Quarter
2015
Gross revenues	$	2,149.7			$	1,169.0
Operating Income	530.1				165.1
Income (Loss) from Continuing Operations	275.3				(27.4		)
Results from Discontinued Operations - net of taxes	$	—			$	(0.3	)
2014
Gross revenues	$	2,320.5			$	1,335.1			$	1,123.9			$	1,691.1
Operating Income	533.7				219.6				157.8				351.3
Income from Continuing Operations	266.4				78.5				31.5				154.3
Results from Discontinued Operations - net of taxes	$	(0.2	)		$	(0.3	)		$	(0.1	)		$	(0.1	)

24.Supplemental Cash Flow Information

The following tables provide additional information regarding NiSource’s Consolidated Statements of Cash Flows for the years ended December 31, 2015, 2014 and 2013:

Year Ended December 31, (in millions)	2015				2014				2013
Supplemental Disclosures of Cash Flow Information
Non-cash transactions:
Capital expenditures included in current liabilities	$	121.6			$	127.4			$	96.7
Assets acquired under a capital lease	47.5				76.7				28.4
Schedule of interest and income taxes paid:
Cash paid for interest, net of interest capitalized amounts	$	390.4			$	429.3			$	402.7
Cash paid for income taxes	21.3				19.4				10.4

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NISOURCE INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Twelve months ended December 31, 2015
					Additions
($ in millions)	Balance Jan. 1, 2015				Charged to Costs and Expenses				Charged to Other Account (1)					Deductions for Purposes for which Reserves were Created				Balance Dec. 31, 2015
Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply:
Reserve for accounts receivable	$	24.9			$	22.5			$	56.7				$	83.8			$	20.3
Reserve for other investments	3.0				—				—					—				3.0
Twelve months ended December 31, 2014
					Additions
($ in millions)	Balance Jan. 1, 2014				Charged to Costs and Expenses				Charged to Other Account (1)					Deductions for Purposes for which Reserves were Created				Balance Dec. 31, 2014
Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply:
Reserve for accounts receivable	$	23.4			$	21.8			$	69.9				$	90.2			$	24.9
Reserve for other investments	3.0				—				—					—				3.0
Twelve months ended December 31, 2013
					Additions
($ in millions)	Balance Jan. 1, 2013				Charged to Costs and Expenses				Charged to Other Account (1)					Deductions for Purposes for which Reserves were Created				Balance Dec. 31, 2013
Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply:
Reserve for accounts receivable	$	23.8			$	13.8			$	55.3				$	69.5			$	23.4
Reserve for other investments	3.0				—				—					—				3.0

(1) Charged to Other Accounts reflects the deferral of bad debt expense to a regulatory asset.

NISOURCE INC.