filings.toolsItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NISOURCE INC.
Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NISOURCE INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of NiSource Inc.
Merrillville, Indiana
We have audited the accompanying consolidated balance sheets of NiSource Inc. and subsidiaries (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, common stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included the financial statement schedule listed in the Index at item 15. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of NiSource Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
As discussed in Note 3 to the consolidated financial statements, on July 1, 2015 the Company completed the spin-off of its subsidiary Columbia Pipeline Group, Inc.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on the criteria established in Internal Control -Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2017 expressed an unqualified opinion on the Company’s internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 22, 2017
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of NiSource Inc.
Merrillville, Indiana
We have audited the internal control over financial reporting of NiSource Inc. and subsidiaries (the "Company") as of December 31, 2016, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 22, 2017
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED INCOME
| Year Ended December 31, (in millions, except per share amounts) | 2016 | 2015 | 2014 | ||||||||
| Net Revenues | |||||||||||
| Gas Distribution | $ | 1,850.9 | $ | 2,081.9 | $ | 2,597.8 | |||||
| Gas Transportation | 964.6 | 969.8 | 987.4 | ||||||||
| Electric | 1,660.8 | 1,572.9 | 1,672.0 | ||||||||
| Other | 16.2 | 27.2 | 15.2 | ||||||||
| Gross Revenues | 4,492.5 | 4,651.8 | 5,272.4 | ||||||||
| Cost of Sales (excluding depreciation and amortization) | 1,390.2 | 1,643.7 | 2,372.9 | ||||||||
| Total Net Revenues | 3,102.3 | 3,008.1 | 2,899.5 | ||||||||
| Operating Expenses | |||||||||||
| Operation and maintenance | 1,453.7 | 1,426.1 | 1,367.3 | ||||||||
| Depreciation and amortization | 547.1 | 524.4 | 486.9 | ||||||||
| Gain (Loss) on sale of assets and impairments, net | (1.0 | ) | 1.6 | 3.0 | |||||||
| Other taxes | 244.3 | 256.1 | 253.2 | ||||||||
| Total Operating Expenses | 2,244.1 | 2,208.2 | 2,110.4 | ||||||||
| Operating Income | 858.2 | 799.9 | 789.1 | ||||||||
| Other Income (Deductions) | |||||||||||
| Interest expense, net | (349.5 | ) | (380.2 | ) | (379.5 | ) | |||||
| Other, net | 1.5 | 17.4 | 13.4 | ||||||||
| Loss on early extinguishment of long-term debt | — | (97.2 | ) | — | |||||||
| Total Other Deductions | (348.0 | ) | (460.0 | ) | (366.1 | ) | |||||
| Income from Continuing Operations before Income Taxes | 510.2 | 339.9 | 423.0 | ||||||||
| Income Taxes | 182.1 | 141.3 | 166.8 | ||||||||
| Income from Continuing Operations | 328.1 | 198.6 | 256.2 | ||||||||
| Income from Discontinued Operations - net of taxes | 3.4 | 103.5 | 273.8 | ||||||||
| Net Income | $ | 331.5 | $ | 302.1 | $ | 530.0 | |||||
| Less: Net income attributable to noncontrolling interest | — | 15.6 | — | ||||||||
| Net Income attributable to NiSource | $ | 331.5 | $ | 286.5 | $ | 530.0 | |||||
| Amounts attributable to NiSource: | |||||||||||
| Income from continuing operations | $ | 328.1 | $ | 198.6 | $ | 256.2 | |||||
| Income from discontinued operations | 3.4 | 87.9 | 273.8 | ||||||||
| Net Income attributable to NiSource | $ | 331.5 | $ | 286.5 | $ | 530.0 | |||||
| Basic Earnings Per Share | |||||||||||
| Continuing operations | $ | 1.02 | $ | 0.63 | $ | 0.81 | |||||
| Discontinued operations | 0.01 | 0.27 | 0.87 | ||||||||
| Basic Earnings Per Share | $ | 1.03 | $ | 0.90 | $ | 1.68 | |||||
| Diluted Earnings Per Share | |||||||||||
| Continuing operations | $ | 1.01 | $ | 0.63 | $ | 0.81 | |||||
| Discontinued operations | 0.01 | 0.27 | 0.86 | ||||||||
| Diluted Earnings Per Share | $ | 1.02 | $ | 0.90 | $ | 1.67 | |||||
| Basic Average Common Shares Outstanding | 321.8 | 317.7 | 315.1 | ||||||||
| Diluted Average Common Shares | 323.5 | 319.8 | 316.6 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
| Year Ended December 31, (in millions, net of taxes) | 2016 | 2015 | 2014 | ||||||||
| Net Income | $ | 331.5 | $ | 302.1 | $ | 530.0 | |||||
| Other comprehensive income (loss): | |||||||||||
| Net unrealized gain (loss) on available-for-sale securities(1) | (0.1 | ) | (0.8 | ) | 0.6 | ||||||
| Net unrealized gain (loss) on cash flow hedges(2) | 8.6 | (7.8 | ) | 2.2 | |||||||
| Unrecognized pension and OPEB benefit (costs)(3) | 1.5 | (2.4 | ) | (9.8 | ) | ||||||
| Total other comprehensive income (loss) | 10.0 | (11.0 | ) | (7.0 | ) | ||||||
| Total Comprehensive Income | $ | 341.5 | $ | 291.1 | $ | 523.0 | |||||
| Less: Comprehensive income attributable to noncontrolling interest | — | 15.6 | — | ||||||||
| Comprehensive Income attributable to NiSource | $ | 341.5 | $ | 275.5 | $ | 523.0 |
(1) Net unrealized gain (loss) on available-for-sale securities, net of $0.1 million tax benefit, $0.4 million tax benefit and $0.3 million tax expense in 2016, 2015 and 2014, respectively.
(2) Net unrealized gain (loss) on derivatives qualifying as cash flow hedges, net of $5.6 million tax expense, $4.8 million tax benefit and $1.5 million tax expense in 2016, 2015 and 2014, respectively.
(3) Unrecognized pension and OPEB benefit (costs), net of $0.1 million tax expense, $4.6 million tax benefit and $2.5 million tax benefit in 2016, 2015 and 2014, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions) | December 31, 2016 | December 31, 2015 | |||||
| ASSETS | |||||||
| Property, Plant and Equipment | |||||||
| Utility plant | $ | 19,368.0 | $ | 18,946.9 | |||
| Accumulated depreciation and amortization | (6,613.7 | ) | (6,853.4 | ) | |||
| Net utility plant | 12,754.3 | 12,093.5 | |||||
| Other property, at cost, less accumulated depreciation | 313.7 | 18.0 | |||||
| Net Property, Plant and Equipment | 13,068.0 | 12,111.5 | |||||
| Investments and Other Assets | |||||||
| Unconsolidated affiliates | 6.6 | 6.9 | |||||
| Other investments | 193.3 | 187.7 | |||||
| Total Investments and Other Assets | 199.9 | 194.6 | |||||
| Current Assets | |||||||
| Cash and cash equivalents | 26.4 | 15.5 | |||||
| Restricted cash | 9.6 | 29.7 | |||||
| Accounts receivable (less reserve of $23.3 and $20.3, respectively) | 847.0 | 660.0 | |||||
| Gas inventory | 279.9 | 343.5 | |||||
| Materials and supplies, at average cost | 101.7 | 86.8 | |||||
| Electric production fuel, at average cost | 112.8 | 106.3 | |||||
| Exchange gas receivable | 5.4 | 21.0 | |||||
| Regulatory assets | 248.7 | 206.9 | |||||
| Prepayments and other | 130.6 | 107.5 | |||||
| Total Current Assets | 1,762.1 | 1,577.2 | |||||
| Other Assets | |||||||
| Regulatory assets | 1,636.7 | 1,599.8 | |||||
| Goodwill | 1,690.7 | 1,690.7 | |||||
| Intangible assets | 242.7 | 253.7 | |||||
| Deferred charges and other | 91.8 | 65.0 | |||||
| Total Other Assets | 3,661.9 | 3,609.2 | |||||
| Total Assets | $ | 18,691.9 | $ | 17,492.5 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions, except share amounts) | December 31, 2016 | December 31, 2015 | |||||
| CAPITALIZATION AND LIABILITIES | |||||||
| Capitalization | |||||||
| Common Stockholders’ Equity | |||||||
| Common stock - $0.01 par value, 400,000,000 shares authorized; 323,159,672 and 319,110,083 shares outstanding, respectively | $ | 3.3 | $ | 3.2 | |||
| Treasury stock | (88.7 | ) | (79.3 | ) | |||
| Additional paid-in capital | 5,153.9 | 5,078.0 | |||||
| Retained deficit | (972.2 | ) | (1,123.3 | ) | |||
| Accumulated other comprehensive loss | (25.1 | ) | (35.1 | ) | |||
| Total Common Stockholders’ Equity | 4,071.2 | 3,843.5 | |||||
| Long-term debt, excluding amounts due within one year | 6,058.2 | 5,948.5 | |||||
| Total Capitalization | 10,129.4 | 9,792.0 | |||||
| Current Liabilities | |||||||
| Current portion of long-term debt | 363.1 | 433.7 | |||||
| Short-term borrowings | 1,488.0 | 567.4 | |||||
| Accounts payable | 539.4 | 433.4 | |||||
| Customer deposits and credits | 264.1 | 316.3 | |||||
| Taxes accrued | 195.4 | 183.5 | |||||
| Interest accrued | 120.3 | 129.0 | |||||
| Exchange gas payable | 83.7 | 62.3 | |||||
| Regulatory liabilities | 116.7 | 231.4 | |||||
| Legal and environmental | 37.4 | 37.6 | |||||
| Accrued compensation and employee benefits | 161.4 | 141.3 | |||||
| Other accruals | 82.7 | 121.6 | |||||
| Total Current Liabilities | 3,452.2 | 2,657.5 | |||||
| Other Liabilities | |||||||
| Risk management liabilities | 44.5 | 22.6 | |||||
| Deferred income taxes | 2,528.0 | 2,365.3 | |||||
| Deferred investment tax credits | 13.4 | 14.8 | |||||
| Accrued insurance liabilities | 82.8 | 87.2 | |||||
| Accrued liability for postretirement and postemployment benefits | 713.4 | 759.7 | |||||
| Regulatory liabilities | 1,265.1 | 1,350.4 | |||||
| Asset retirement obligations | 262.6 | 254.0 | |||||
| Other noncurrent liabilities | 200.5 | 189.0 | |||||
| Total Other Liabilities | 5,110.3 | 5,043.0 | |||||
| Commitments and Contingencies (Refer to Note 18, "Other Commitments and Contingencies") | — | — | |||||
| Total Capitalization and Liabilities | $ | 18,691.9 | $ | 17,492.5 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
| Year Ended December 31, (in millions) | 2016 | 2015 | 2014 | ||||||||
| Operating Activities | |||||||||||
| Net Income | $ | 331.5 | $ | 302.1 | $ | 530.0 | |||||
| Adjustments to Reconcile Net Income to Net Cash from Continuing Operations: | |||||||||||
| Loss on early extinguishment of debt | — | 97.2 | — | ||||||||
| Depreciation and amortization | 547.1 | 524.4 | 486.9 | ||||||||
| Deferred income taxes and investment tax credits | 182.3 | 135.3 | 161.4 | ||||||||
| Stock compensation expense and 401(k) profit sharing contribution | 46.5 | 50.7 | 66.0 | ||||||||
| Income from discontinued operations - net of taxes | (3.4 | ) | (103.5 | ) | (273.8 | ) | |||||
| Amortization of discount/premium on debt | 7.6 | 8.7 | 10.0 | ||||||||
| AFUDC equity | (11.6 | ) | (11.5 | ) | (10.7 | ) | |||||
| Other adjustments | (3.8 | ) | 13.1 | 6.3 | |||||||
| Changes in Assets and Liabilities: | |||||||||||
| Accounts receivable | (188.0 | ) | 262.2 | (42.8 | ) | ||||||
| Inventories | 38.9 | 46.9 | (115.9 | ) | |||||||
| Accounts payable | 108.8 | (190.5 | ) | 29.9 | |||||||
| Customer deposits and credits | (52.3 | ) | 35.5 | 29.8 | |||||||
| Taxes accrued | 12.1 | 8.7 | 4.5 | ||||||||
| Interest accrued | (8.7 | ) | (11.6 | ) | 4.3 | ||||||
| Exchange gas receivable/payable | 36.9 | (31.7 | ) | (43.9 | ) | ||||||
| Other accruals | (6.0 | ) | (55.1 | ) | 4.4 | ||||||
| Prepayments and other current assets | (0.4 | ) | 0.1 | (2.2 | ) | ||||||
| Regulatory assets/liabilities | (187.9 | ) | 82.0 | (227.7 | ) | ||||||
| Postretirement and postemployment benefits | (44.8 | ) | 25.6 | 136.0 | |||||||
| Deferred charges and other noncurrent assets | (1.2 | ) | 5.2 | 3.9 | |||||||
| Other noncurrent liabilities | 0.5 | (30.4 | ) | 4.8 | |||||||
| Net Operating Activities from Continuing Operations | 804.1 | 1,163.4 | 761.2 | ||||||||
| Net Operating Activities from (used for) Discontinued Operations | (0.8 | ) | 293.4 | 558.4 | |||||||
| Net Cash Flows from Operating Activities | 803.3 | 1,456.8 | 1,319.6 | ||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (1,475.2 | ) | (1,360.7 | ) | (1,282.5 | ) | |||||
| Restricted cash withdrawals (deposits) | 20.1 | (4.8 | ) | (17.1 | ) | ||||||
| Cash contributions from CPG | — | 3,798.2 | — | ||||||||
| Cost of removal | (110.1 | ) | (79.2 | ) | (46.5 | ) | |||||
| Other investing activities | (17.7 | ) | 21.5 | 32.6 | |||||||
| Net Investing Activities from (used for) Continuing Operations | (1,582.9 | ) | 2,375.0 | (1,313.5 | ) | ||||||
| Net Investing Activities used for Discontinued Operations | — | (430.1 | ) | (803.1 | ) | ||||||
| Net Cash Flows from (used for) Investing Activities | (1,582.9 | ) | 1,944.9 | (2,116.6 | ) | ||||||
| Financing Activities | |||||||||||
| Cash of CPG at Separation | — | (136.8 | ) | — | |||||||
| Issuance of long-term debt | 500.0 | — | 748.4 | ||||||||
| Repayments of long-term debt and capital lease obligations | (434.6 | ) | (2,092.2 | ) | (521.0 | ) | |||||
| Premiums and other debt related costs | (3.7 | ) | (93.5 | ) | (8.7 | ) | |||||
| Change in short-term borrowings, net | 920.6 | (936.4 | ) | 878.1 | |||||||
| Issuance of common stock | 23.1 | 22.5 | 30.3 | ||||||||
| Acquisition of treasury stock | (9.4 | ) | (20.4 | ) | (10.2 | ) | |||||
| Dividends paid - common stock | (205.5 | ) | (263.4 | ) | (321.3 | ) | |||||
| Net Financing Activities from (used for) Continuing Operations | 790.5 | (3,520.2 | ) | 795.6 | |||||||
| Net Financing Activities from Discontinued Operations | — | 108.6 | — | ||||||||
| Net Cash Flows from (used for) Financing Activities | 790.5 | (3,411.6 | ) | 795.6 | |||||||
| Change in cash and cash equivalents from continuing operations | 11.7 | 18.2 | 243.3 | ||||||||
| Change in cash and cash equivalents used for discontinued operations | (0.8 | ) | (28.1 | ) | (244.7 | ) | |||||
| Change in cash included in discontinued operations | — | 0.5 | (0.2 | ) | |||||||
| Cash and cash equivalents at beginning of period | 15.5 | 24.9 | 26.5 | ||||||||
| Cash and Cash Equivalents at End of Period | $ | 26.4 | $ | 15.5 | $ | 24.9 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS’ EQUITY
| (in millions) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings/(Deficit) | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||
| Balance as of January 1, 2014 | $ | 3.2 | $ | (48.6 | ) | $ | 4,690.1 | $ | 1,285.5 | $ | (43.6 | ) | $ | 5,886.6 | |||||||||
| Comprehensive Income (Loss): | |||||||||||||||||||||||
| Net Income | — | — | — | 530.0 | — | 530.0 | |||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (7.0 | ) | (7.0 | ) | |||||||||||||||
| Common stock dividends ($1.02 per share) | — | — | — | (321.5 | ) | — | (321.5 | ) | |||||||||||||||
| Treasury stock acquired | — | (10.3 | ) | — | — | — | (10.3 | ) | |||||||||||||||
| Stock issuances: | |||||||||||||||||||||||
| Employee stock purchase plan | — | — | 4.2 | — | — | 4.2 | |||||||||||||||||
| Long-term incentive plan | — | — | 40.2 | — | — | 40.2 | |||||||||||||||||
| 401(k) and profit sharing | — | — | 45.3 | — | — | 45.3 | |||||||||||||||||
| Dividend reinvestment plan | — | — | 7.8 | — | — | 7.8 | |||||||||||||||||
| Balance as of December 31, 2014 | $ | 3.2 | $ | (58.9 | ) | $ | 4,787.6 | $ | 1,494.0 | $ | (50.6 | ) | $ | 6,175.3 | |||||||||
| Comprehensive Income (Loss): | |||||||||||||||||||||||
| Net Income | — | — | — | 286.5 | — | 286.5 | |||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (11.0 | ) | (11.0 | ) | |||||||||||||||
| Allocation of AOCI to noncontrolling interest(1) | — | — | — | — | 2.0 | 2.0 | |||||||||||||||||
| Sale of interest in Columbia OpCo to CPPL(1)(2) | — | — | 227.1 | — | — | 227.1 | |||||||||||||||||
| Dividends: | |||||||||||||||||||||||
| Common stock ($0.83 per share) | — | — | — | (263.5 | ) | — | (263.5 | ) | |||||||||||||||
| Distribution of CPG stock to shareholders (Note 3) | — | — | — | (2,640.3 | ) | 24.5 | (2,615.8 | ) | |||||||||||||||
| Treasury stock acquired | — | (20.4 | ) | — | — | — | (20.4 | ) | |||||||||||||||
| Stock issuances: | |||||||||||||||||||||||
| Employee stock purchase plan | — | — | 5.1 | — | — | 5.1 | |||||||||||||||||
| Long-term incentive plan | — | — | 4.2 | — | — | 4.2 | |||||||||||||||||
| 401(k) and profit sharing | — | — | 46.7 | — | — | 46.7 | |||||||||||||||||
| Dividend reinvestment plan | — | — | 7.3 | — | — | 7.3 | |||||||||||||||||
| Balance as of December 31, 2015 | $ | 3.2 | $ | (79.3 | ) | $ | 5,078.0 | $ | (1,123.3 | ) | $ | (35.1 | ) | $ | 3,843.5 |
(1)This transaction, which occurred prior to the Separation, was distributed through retained earnings as part of the Separation on July 1, 2015.
(2)Represents the purchase of an additional 8.4% limited partner interest in Columbia OpCo by an affiliate of CPG, recorded at the historical carrying value of Columbia OpCo's net assets after giving effect to the $1,168.4 million equity contribution from CPPL's IPO completed on February 11, 2015.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS’ EQUITY
| (in millions) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||
| Balance as of December 31, 2015 | $ | 3.2 | $ | (79.3 | ) | $ | 5,078.0 | $ | (1,123.3 | ) | $ | (35.1 | ) | $ | 3,843.5 | ||||||||
| Comprehensive Income (Loss): | |||||||||||||||||||||||
| Net Income | — | — | — | 331.5 | — | 331.5 | |||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 10.0 | 10.0 | |||||||||||||||||
| Common stock dividends ($0.64 per share) | — | — | — | (205.7 | ) | — | (205.7 | ) | |||||||||||||||
| Treasury stock acquired | — | (9.4 | ) | — | — | — | (9.4 | ) | |||||||||||||||
| Cumulative effect of change in accounting principle | — | — | — | 25.3 | — | 25.3 | |||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||
| Common stock | 0.1 | — | — | — | — | 0.1 | |||||||||||||||||
| Employee stock purchase plan | — | — | 4.7 | — | — | 4.7 | |||||||||||||||||
| Long-term incentive plan | — | — | 20.9 | — | — | 20.9 | |||||||||||||||||
| 401(k) and profit sharing | — | — | 41.4 | — | — | 41.4 | |||||||||||||||||
| Dividend reinvestment plan | — | — | 8.9 | — | — | 8.9 | |||||||||||||||||
| Balance as of December 31, 2016 | $ | 3.3 | $ | (88.7 | ) | $ | 5,153.9 | $ | (972.2 | ) | $ | (25.1 | ) | $ | 4,071.2 |
| Shares (in thousands) | Common Shares | Treasury Shares | Outstanding Shares | |||||
| Balance January 1, 2014 | 315,983 | (2,307 | ) | 313,676 | ||||
| Treasury stock acquired | (292 | ) | (292 | ) | ||||
| Issued: | ||||||||
| Employee stock purchase plan | 113 | — | 113 | |||||
| Long-term incentive plan | 1,125 | — | 1,125 | |||||
| Dividend reinvestment | 206 | — | 206 | |||||
| Retirement savings plan | 1,209 | — | 1,209 | |||||
| Balance December 31, 2014 | 318,636 | (2,599 | ) | 316,037 | ||||
| Treasury stock acquired | (472 | ) | (472 | ) | ||||
| Issued: | ||||||||
| Employee stock purchase plan | 203 | — | 203 | |||||
| Long-term incentive plan | 1,423 | — | 1,423 | |||||
| Dividend reinvestment | 275 | — | 275 | |||||
| Retirement savings plan | 1,644 | — | 1,644 | |||||
| Balance December 31, 2015 | 322,181 | (3,071 | ) | 319,110 | ||||
| Treasury stock acquired | (433 | ) | (433 | ) | ||||
| Issued: | ||||||||
| Employee stock purchase plan | 201 | — | 201 | |||||
| Long-term incentive plan | 2,103 | — | 2,103 | |||||
| Dividend reinvestment | 386 | — | 386 | |||||
| Retirement savings plan | 1,793 | — | 1,793 | |||||
| Balance December 31, 2016 | 326,664 | (3,504 | ) | 323,160 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| 1. | Nature of Operations and Summary of Significant Accounting Policies |
A. Company Structure and Principles of Consolidation. NiSource, a Delaware corporation headquartered in Merrillville, Indiana, is an energy holding company whose subsidiaries are fully regulated natural gas and electric utility companies serving approximately 3.9 million customers in seven states. NiSource generates substantially all of its operating income through these rate-regulated businesses. The consolidated financial statements include the accounts of NiSource and its majority-owned subsidiaries after the elimination of all intercompany accounts and transactions.
B. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
C. Cash, Cash Equivalents and Restricted Cash. NiSource considers all highly liquid investments with original maturities of three months or less to be cash equivalents. NiSource reports amounts deposited in brokerage accounts for margin requirements as restricted cash. In addition, NiSource has amounts deposited in trust to satisfy requirements for the provision of various property, liability, workers compensation, and long-term disability insurance, which is classified as restricted cash and disclosed as an investing cash flow on the Statements of Consolidated Cash Flows.
D. Accounts Receivable and Unbilled Revenue. Accounts receivable on the Consolidated Balance Sheets includes both billed and unbilled amounts. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the date of the last cycle billing date through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates and weather. Accounts receivable fluctuates from year to year depending in large part on weather impacts and price volatility. NiSource's accounts receivable on the Consolidated Balance Sheets include unbilled revenue, less reserves, in the amounts of $329.7 million and $237.1 million as of December 31, 2016 and 2015, respectively. The reserve for uncollectible receivables is the Company’s best estimate of the amount of probable credit losses in the existing accounts receivable. The Company determined the reserve based on historical experience and in consideration of current market conditions. Account balances are charged against the allowance when it is anticipated the receivable will not be recovered.
E. Investments in Debt Securities. NiSource’s investments in debt securities are carried at fair value and are designated as available-for-sale. These investments are included within “Other investments” on the Consolidated Balance Sheets. Unrealized gains and losses, net of deferred income taxes, are reflected as accumulated other comprehensive income (loss). These investments are monitored for other than temporary declines in market value. Realized gains and losses and permanent impairments are reflected in the Statements of Consolidated Income. No material impairment charges were recorded for the years ended December 31, 2016, 2015 or 2014. Refer to Note 16, "Fair Value," for additional information.
F. Basis of Accounting for Rate-Regulated Subsidiaries. Rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged and collected. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the Consolidated Balance Sheets and are recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers.
In the event that regulation significantly changes the opportunity for NiSource to recover its costs in the future, all or a portion of NiSource’s regulated operations may no longer meet the criteria for regulatory accounting. In such an event, a write-down of all or a portion of NiSource’s existing regulatory assets and liabilities could result. If transition cost recovery was approved by the appropriate regulatory bodies that would meet the requirements under GAAP for continued accounting as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts. If unable to continue to apply the provisions of regulatory accounting, NiSource would be required to apply the provisions of ASC 980-20, Discontinuation of Rate-Regulated Accounting. In management’s opinion, NiSource’s regulated subsidiaries will be subject to regulatory accounting for the foreseeable future. Refer to Note 8, "Regulatory Matters," for additional information.
G. Plant and Other Property and Related Depreciation and Maintenance. Property, plant and equipment (principally utility plant) is stated at cost. The rate-regulated subsidiaries record depreciation using composite rates on a straight-line basis over the remaining service lives of the electric, gas and common properties as approved by the appropriate regulators.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Non-utility property is generally depreciated on a straight-line basis over the life of the associated asset. Refer to Note 5, "Property, Plant and Equipment," for additional information related to depreciation expense at Units 7 and 8 at Bailly Generating Station.
For rate-regulated companies, AFUDC is capitalized on all classes of property except organization costs, land, autos, office equipment, tools and other general property purchases. The allowance is applied to construction costs for that period of time between the date of the expenditure and the date on which such project is placed in service. The pre-tax rate for AFUDC was 4.5% in 2016, 4.7% in 2015 and 4.5% in 2014.
Generally, NiSource’s subsidiaries follow the practice of charging maintenance and repairs, including the cost of removal of minor items of property, to expense as incurred. When NiSource’s subsidiaries retire regulated property, plant and equipment, original cost plus the cost of retirement, less salvage value, is charged to accumulated depreciation. However, when it becomes probable a regulated asset will be retired substantially in advance of its original expected useful life or is abandoned, the cost of the asset and the corresponding accumulated depreciation is recognized as a separate asset. If the asset is still in operation, the net amount is classified as "Other property, at cost, less accumulated depreciation" on the Consolidated Balance Sheets. If the asset is no longer operating, the net amount is classified in "Regulatory assets" on the Consolidated Balance Sheets. If NiSource is able to recover a full return on investment, the carrying value of the asset is based on historical cost. If NiSource is not able to recover a full return on investment, a loss on impairment is recognized to the extent the net book value of the asset exceeds the present value of future revenues discounted at the incremental borrowing rate.
When NiSource’s subsidiaries sell entire regulated operating units, or retire or sell nonregulated properties, the original cost and accumulated depreciation and amortization balances are removed from "Property, Plant and Equipment" on the Consolidated Balance Sheets. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body. Refer to Note 5, "Property, Plant and Equipment," for further information.
External and internal costs associated with computer software developed for internal use are capitalized. Capitalization of such costs commences upon the completion of the preliminary stage of each project. Once the installed software is ready for its intended use, such capitalized costs are amortized on a straight-line basis generally over a period of five years, except for certain significant enterprise-wide technology investments which are amortized over a ten-year period.
H. Goodwill and Other Intangible Assets. Substantially all of NiSource's goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. NiSource tests its goodwill for impairment annually as of May 1st, or more frequently if events and circumstances indicate that goodwill might be impaired. Fair value of NiSource's reporting units is determined using a combination of income and market approaches.
NiSource has other intangible assets consisting primarily of franchise rights apart from goodwill that were identified as part of the purchase price allocations associated with the acquisition of Columbia of Massachusetts which is being amortized on a straight-line basis over forty years from the date of acquisition. See Note 6, "Goodwill and Other Intangible Assets," for additional information.
I. Revenue Recognition. Revenue is recorded as products and services are delivered. Utility revenues are billed to customers monthly on a cycle basis. Revenues are recorded on the accrual basis and also include estimates for electricity and gas delivered but not billed. The accruals for unbilled revenues are reversed in the subsequent accounting period when meters are actually read and customers are billed.
On occasion, NiSource's regulated subsidiaries are permitted to implement new rates that have not been formally approved by their state regulatory commissions, which are subject to refund. As permitted by accounting principles generally accepted in the United States, each regulated subsidiary recognizes this revenue and establishes a reserve for amounts that could be refunded based on its experience for the jurisdiction in which the rates were implemented. In connection with such revenues, estimated rate refund liabilities are recorded which reflect management’s current judgment of the ultimate outcomes of the proceedings. No provisions are made when, in the opinion of management, the facts and circumstances preclude a reasonable estimate of the outcome.
J. Accounts Receivable Transfer Program. Certain of NiSource’s subsidiaries have agreements with third parties to sell certain accounts receivable without recourse. These transfers of accounts receivable are accounted for as secured borrowings. The entire gross receivables balance remains on the December 31, 2016 and 2015 Consolidated Balance Sheets and short-term debt is recorded in the amount of proceeds received from the purchasers involved in the transactions. Refer to Note 17, "Transfers of Financial Assets," for further information.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
K. Gas Cost and Fuel Adjustment Clause. NiSource’s regulated subsidiaries defer most differences between gas and fuel purchase costs and the recovery of such costs in revenues, and adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. These deferred balances are recorded as regulatory assets or regulatory liabilities, as appropriate, on the Consolidated Balance Sheets. Refer to Note 8, "Regulatory Matters," for additional information.
L. Inventory. Both the LIFO inventory methodology and the weighted average cost methodology are used to value natural gas in storage, as approved by regulators for all of NiSource’s regulated subsidiaries. Inventory valued using LIFO was $46.1 million and $50.2 million at December 31, 2016 and 2015, respectively. Based on the average cost of gas using the LIFO method, the estimated replacement cost of gas in storage was less than the stated LIFO cost by $9.4 million and $27.2 million at December 31, 2016 and 2015, respectively. Gas inventory valued using the weighted average cost methodology was $233.8 million at December 31, 2016 and $293.3 million at December 31, 2015.
Electric production fuel is valued using the weighted average cost inventory methodology, as approved by NIPSCO's regulator. Electric production fuel balances were $112.8 million at December 31, 2016 and $106.3 million at December 31, 2015.
Materials and supplies are valued using the weighted average cost inventory methodology. Materials and supplies balances were $101.7 million at December 31, 2016 and $86.8 million at December 31, 2015.
M. Accounting for Exchange and Balancing Arrangements of Natural Gas. NiSource’s Gas Distribution Operations segment enters into balancing and exchange arrangements of natural gas as part of its operations and off-system sales programs. NiSource records a receivable or payable for any of its respective cumulative gas imbalances, as well as for any gas inventory borrowed or lent under a Gas Distributions Operations exchange agreement. These receivables and payables are recorded as “Exchange gas receivable” or “Exchange gas payable” on NiSource’s Consolidated Balance Sheets, as appropriate.
N. Accounting for Risk Management Activities. NiSource accounts for its derivatives and hedging activities in accordance with ASC 815. NiSource recognizes all derivatives as either assets or liabilities on the Consolidated Balance Sheets at fair value, unless such contracts are exempted as a normal purchase normal sale under the provisions of the standard. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation.
NiSource has elected not to net fair value amounts for any of its derivative instruments or the fair value amounts recognized for its right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. See Note 9, "Risk Management Activities," for additional information.
O. Income Taxes and Investment Tax Credits. NiSource records income taxes to recognize full interperiod tax allocations. Under the asset and liability method, deferred income taxes are provided for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amount and the tax basis of existing assets and liabilities. Previously recorded investment tax credits of the regulated subsidiaries were deferred on the balance sheet and are being amortized to book income over the regulatory life of the related properties to conform to regulatory policy.
To the extent certain deferred income taxes of the regulated companies are recoverable or payable through future rates, regulatory assets and liabilities have been established. Regulatory assets for income taxes are primarily attributable to property-related tax timing differences for which deferred taxes had not been provided in the past, when regulators did not recognize such taxes as costs in the ratemaking process. Regulatory liabilities for income taxes are primarily attributable to the regulated companies’ obligation to refund to ratepayers deferred income taxes provided at rates higher than the current Federal income tax rate. Such amounts are credited to ratepayers using either the average rate assumption method or the reverse South Georgia method.
Pursuant to the U.S. Internal Revenue Code and relevant state taxing authorities, NiSource and its subsidiaries file consolidated income tax returns for Federal and certain state jurisdictions. NiSource and its subsidiaries are parties to an agreement (the “Intercompany Income Tax Allocation Agreement”) that provides for the allocation of consolidated tax liabilities. The Intercompany Income Tax Allocation Agreement generally provides that each party is allocated an amount of tax similar to that which would be owed had the party been separately subject to tax.
P. Environmental Expenditures. NiSource accrues for costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated, regardless of when the expenditures are actually made. The undiscounted estimated future expenditures are based on currently enacted laws and regulations, existing
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
technology and estimated site-specific costs where assumptions may be made about the nature and extent of site contamination, the extent of cleanup efforts, costs of alternative cleanup methods and other variables. The liability is adjusted as further information is discovered or circumstances change. The reserves for estimated environmental expenditures are recorded on the Consolidated Balance Sheets in “Legal and environmental” for short-term portions of these liabilities and “Other noncurrent liabilities” for the respective long-term portions of these liabilities. Rate-regulated subsidiaries applying regulatory accounting establish regulatory assets on the Consolidated Balance Sheets to the extent that future recovery of environmental remediation costs is probable through the regulatory process. Refer to Note 18, "Other Commitments and Contingencies," for further information.
Q. Excise Taxes. NiSource accounts for excise taxes that are customer liabilities by separately stating on its invoices the tax to its customers and recording amounts invoiced as liabilities payable to the applicable taxing jurisdiction. Such balances are presented within "Other accruals" on the Consolidated Balance Sheets. These types of taxes collected from customers, comprised largely of sales taxes, are presented on a net basis affecting neither revenues nor cost of sales. NiSource accounts for excise taxes for which it is liable by recording a liability for the expected tax with a corresponding charge to “Other taxes” expense on the Statements of Consolidated Income.
R. Accrued Insurance Liabilities. NiSource accrues for insurance costs related to workers compensation, automobile, property, general and employment practices liabilities based on the most probable value of each claim. Claim values are determined by professional, licensed loss adjusters who consider the facts of the claim, anticipated indemnification and legal expenses, and respective state rules. Claims are reviewed by NiSource at least quarterly and an adjustment is made to the accrual based on the most current information. NiSource’s actual exposure to liability is minimal due to coverage from its wholly-owned captive insurer who then re-insures risk to third party insurance providers for the majority of costs paid to claimants above NiSource's deductible.
| 2. | Recent Accounting Pronouncements |
Recently Issued Accounting Pronouncements
NiSource is currently evaluating the impact of certain ASUs on its Consolidated Financial Statements or Notes to Consolidated Financial Statements, which are described below:
| Standard | Description | Effective date | Effect on the financial statements or other significant matters |
| ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | The pronouncement simplifies the calculation of goodwill impairment charges by eliminating the the requirement to perform the "Step 2" analysis when the "Step 1" test is failed. | Annual periods beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for annual or interim periods beginning after January 1, 2017. | NiSource elected to adopt this ASU effective January 1, 2017. The adoption of this standard did not have a material impact on the Consolidated Financial Statements or Notes to Consolidated Financial Statements. |
| ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) | The pronouncement provides clarification on the classification and presentation of restricted cash in the Statements of Consolidated Cash Flows. | Annual periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. | Upon adoption, restricted cash on the Statements of Consolidated Cash Flows will no longer be presented as an investing activity and will instead be included as a component of beginning and ending cash. NiSource expects to adopt this ASU effective January 1, 2018. |
| ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) | The pronouncement provides specific guidance on eight cash flow classification issues to reduce the diversity in practice. | Annual periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. | NiSource does not anticipate the adoption of this standard will have a material impact on the Consolidated Financial Statements or Notes to Consolidated Financial Statements. NiSource expects to adopt this ASU effective January 1, 2018. |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| Standard | Description | Effective date | Effect on the financial statements or other significant matters |
| ASU 2016-13, Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments | The pronouncement changes the impairment model for most financial assets, replacing the current "incurred loss" model. ASU 2016-13 will require the use of an "expected loss" model for instruments measured at amortized cost and will also require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount. | Annual periods beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for annual or interim periods beginning after December 15, 2018. | NiSource is currently evaluating the impact of adoption, if any, on the Consolidated Financial Statements and Notes to Consolidated Financial Statements. |
| ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients | The pronouncement clarifies implementation guidance in ASU 2014-09 on assessing collectability, noncash consideration and the presentation of sales and other similar taxes collected from customers. | Annual periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted for annual or interim periods beginning after December 15, 2016. | NiSource has formed an internal stakeholder group to promote information sharing and communication of the new requirements. Additionally, NiSource participates in an informal forum of industry peers where questions can be asked and interpretations of the new standard can be shared. NiSource has separated its various revenue streams into high-level categories, which will serve as the basis for accounting analysis and documentation as it relates to the pronouncement's impact on NiSource's revenues. Substantially all of NiSource’s revenues are tariff based, which NiSource believes will be in scope of ASC 606. NiSource expects to adopt this ASU effective January 1, 2018. As of December 31, 2016, NiSource has not concluded on a method of adoption. |
| ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations | The pronouncement clarifies the principal versus agent guidance in ASU 2014-09. The amendment clarifies how an entity should identify the unit of accounting for the principal versus agent evaluation, and how it should apply the control principle to certain types of arrangements. | ||
| ASU 2014-09, Revenue from Contracts with Customers (Topic 606) | The pronouncement outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. | ||
| ASU 2016-02, Leases (Topic 842) | The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. | Annual periods beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. | NiSource has formed an internal stakeholder group that meets periodically to share information and gather data related to leasing activity at NiSource. This includes compiling a list of all contracts that could meet the definition of a lease under the new standard and evaluating the accounting for these contracts under the new standard to determine the ultimate impact the new standard will have on NiSource’s financial statements. Also this procedure has identified process improvements to ensure data from newly initiated leases is captured to comply with the new standard. This work is ongoing with the assistance of a third-party advisory firm. As of December 31, 2016, no conclusion has been reached as to when NiSource will adopt this standard. |
| ASU 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Financial Liabilities | The pronouncement makes limited amendments to the guidance in GAAP on the classification and measurement of financial instruments. The standard requires entities to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicability exception. | Annual periods beginning after December 15, 2017, including interim periods therein. Early adoption is permitted. | NiSource is currently evaluating the impact of adoption, if any, on the Consolidated Financial Statements and Notes to Consolidated Financial Statements. |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Recently Adopted Accounting Pronouncements
The table below includes ASUs NiSource adopted during 2016:
| Standard | Adoption |
| ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting | NiSource elected to adopt this pronouncement during the third quarter of 2016. Upon adoption, NiSource elected to begin accounting for forfeitures of share-based awards as they occur. The impact of this change was not material. Additionally, NiSource recorded a $25.3 million credit to beginning retained deficit. This adjustment represents excess tax benefits generated in years prior to 2016 that were previously not recognized in stockholders' equity due to NOLs in those years. Both of these adjustments were adopted on a modified retrospective basis. Lastly, NiSource recorded income tax benefits of $7.2 million related to excess tax benefits generated in 2016. This provision was adopted on a prospective basis. However, because NiSource adopted the standard during an interim period, the standard required this $7.2 million benefit be reflected as though it was adopted as of January 1, 2016. |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
- Discontinued Operations
On July 1, 2015, NiSource completed the Separation through a special pro rata stock dividend, distributing one share of CPG common stock for every one share of NiSource common stock held by any NiSource stockholder on June 19, 2015, the record date. The Separation resulted in two stand-alone energy infrastructure companies: NiSource, a fully regulated natural gas and electric utilities company, and CPG, a natural gas pipeline, midstream and storage company. As a stand-alone company, on the date of the Separation, CPG's operations consisted of NiSource's Columbia Pipeline Group Operations segment prior to the Separation. Following the Separation, NiSource retained no ownership interest in CPG. On the date of the Separation, CPG consisted of approximately $9.2 billion of assets, $5.6 billion of liabilities and $3.6 billion of equity.
The results of operations and cash flows for the former Columbia Pipeline Group Operations segment have been reported as discontinued operations for all periods presented. Additionally, the assets and liabilities of the former Columbia Pipeline Group Operations segment were reclassified as assets and liabilities of discontinued operations for all prior periods.
During 2016, NiSource recorded a $3.6 million tax benefit resulting from favorable estimate-to-actual adjustments related to non-deductible costs from the Separation. There were no other material results from discontinued operations during 2016.
Results from discontinued operations are provided in the following table. These results are primarily from NiSource's former Columbia Pipeline Group Operations segment.
| Year Ended | |||||||||||
| December 31, 2015 | |||||||||||
| (in millions) | Columbia Pipeline Group Operations | Corporate and Other | Total | ||||||||
| Net Revenues | |||||||||||
| Transportation and storage revenues | $ | 561.4 | $ | — | $ | 561.4 | |||||
| Other revenues | 94.3 | — | 94.3 | ||||||||
| Total Sales Revenues | 655.7 | — | 655.7 | ||||||||
| Less: Cost of sales (excluding depreciation and amortization) | 0.2 | — | 0.2 | ||||||||
| Net Revenues | 655.5 | — | 655.5 | ||||||||
| Operating Expenses | |||||||||||
| Operation and maintenance | 375.8 | (1) | — | 375.8 | |||||||
| Depreciation and amortization | 66.4 | — | 66.4 | ||||||||
| Gain on sale of assets | (13.6 | ) | — | (13.6 | ) | ||||||
| Other taxes | 38.0 | — | 38.0 | ||||||||
| Total Operating Expenses | 466.6 | — | 466.6 | ||||||||
| Equity Earnings in Unconsolidated Affiliates | 29.1 | — | 29.1 | ||||||||
| Operating Income from Discontinued Operations | 218.0 | — | 218.0 | ||||||||
| Other Income (Deductions) | |||||||||||
| Interest expense, net | (37.1 | ) | — | (37.1 | ) | ||||||
| Other, net | 7.8 | 0.4 | 8.2 | ||||||||
| Total Other Income (Deductions) | (29.3 | ) | 0.4 | (28.9 | ) | ||||||
| Income from Discontinued Operations before Income Taxes | 188.7 | 0.4 | 189.1 | ||||||||
| Income Taxes | 84.7 | 0.9 | 85.6 | ||||||||
| Income (Loss) from Discontinued Operations - net of taxes | $ | 104.0 | $ | (0.5 | ) | $ | 103.5 |
(1) Includes approximately $55.4 million of transaction costs related to the Separation.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| Year Ended | |||||||||||
| December 31, 2014 | |||||||||||
| (in millions) | Columbia Pipeline Group Operations | Corporate and Other | Total | ||||||||
| Net Revenues | |||||||||||
| Transportation and storage revenues | $ | 1,034.3 | $ | — | $ | 1,034.3 | |||||
| Other revenues | 312.9 | — | 312.9 | ||||||||
| Total Sales Revenues | 1,347.2 | — | 1,347.2 | ||||||||
| Less: Cost of sales (excluding depreciation and amortization) | 0.3 | — | 0.3 | ||||||||
| Net Revenues | 1,346.9 | — | 1,346.9 | ||||||||
| Operating Expenses | |||||||||||
| Operation and maintenance | 769.1 | (1) | — | 769.1 | |||||||
| Depreciation and amortization | 118.6 | — | 118.6 | ||||||||
| Gain on sale of assets | (34.5 | ) | — | (34.5 | ) | ||||||
| Other taxes | 67.1 | — | 67.1 | ||||||||
| Total Operating Expenses | 920.3 | — | 920.3 | ||||||||
| Equity Earnings in Unconsolidated Affiliates | 46.6 | — | 46.6 | ||||||||
| Operating Income from Discontinued Operations | 473.2 | — | 473.2 | ||||||||
| Other Income (Deductions) | |||||||||||
| Interest expense, net | (64.1 | ) | — | (64.1 | ) | ||||||
| Other, net | 8.9 | (1.0 | ) | 7.9 | |||||||
| Total Other Income (Deductions) | (55.2 | ) | (1.0 | ) | (56.2 | ) | |||||
| Income (Loss) from Discontinued Operations before Income Taxes | 418.0 | (1.0 | ) | 417.0 | |||||||
| Income Taxes | 143.5 | (0.3 | ) | 143.2 | |||||||
| Income (Loss) from Discontinued Operations - net of taxes | $ | 274.5 | $ | (0.7 | ) | $ | 273.8 |
(1) Includes approximately $23.7 million of transaction costs related to the Separation.
CPG’s financing requirements prior to the private placement of senior notes on May 22, 2015 were satisfied through borrowings from NiSource Finance. Interest expense from discontinued operations primarily represents net interest charged to CPG from NiSource Finance, less AFUDC. Subsequent to May 22, 2015, interest expense from discontinued operations also includes interest incurred on CPG’s private placement of $2,750.0 million of senior notes.
Continuing Involvement
Natural gas transportation and storage services provided to NiSource by CPG were $150.5 million, $147.6 million and $146.2 million for the years ended December 31, 2016, 2015 and 2014, respectively. Prior to July 1, 2015, these costs were eliminated in consolidation. Beginning July 1, 2015, these costs and associated cash flows represent third-party transactions with CPG and are not eliminated in consolidation, as such services have continued subsequent to the Separation and are expected to continue for the foreseeable future.
As a result of the Separation, NiSource and CPG entered into Transition Services Agreements ("TSAs"). NiSource expects the TSAs to terminate within 24 months from the date of the Separation. The TSAs set forth the terms and conditions for NiSource and CPG to provide certain transition services to one another. Under the TSAs, NiSource provides CPG certain information technology, financial and accounting, human resource and other specified services. For the period July 1, 2015 to December 31, 2015 and for the year ended December 31, 2016, the amounts NiSource billed CPG for these services were immaterial.
There were no material assets and liabilities of discontinued operations on the Consolidated Balance Sheets at December 31, 2016 and 2015.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
- Earnings Per Share
Basic EPS is computed by dividing net income attributable to NiSource by the weighted-average number of shares of common stock outstanding for the period. The weighted-average shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans. The computation of diluted average common shares is as follows:
| Year Ended December 31, (in thousands) | 2016 | 2015 | 2014 | |||||
| Denominator | ||||||||
| Basic average common shares outstanding | 321,805 | 317,746 | 315,120 | |||||
| Dilutive potential common shares: | ||||||||
| Nonqualified stock options | — | — | 6 | |||||
| Shares contingently issuable under employee stock plans | 165 | — | 1,066 | |||||
| Shares restricted under stock plans | 1,554 | 2,090 | 444 | |||||
| Diluted Average Common Shares | 323,524 | 319,836 | 316,636 |
- Property, Plant and Equipment
NiSource’s property, plant and equipment on the Consolidated Balance Sheets are classified as follows:
| At December 31, (in millions) | 2016 | 2015 | |||||
| Property Plant and Equipment | |||||||
| Gas Distribution Utility(1) | $ | 11,556.6 | $ | 10,620.4 | |||
| Electric Utility(1)(2) | 7,043.3 | 7,765.7 | |||||
| Corporate | 105.0 | 107.2 | |||||
| Construction Work in Process | 663.1 | 453.6 | |||||
| Non-Utility and Other(2) | 681.7 | 41.2 | |||||
| Total Property, Plant and Equipment | $ | 20,049.7 | $ | 18,988.1 | |||
| Accumulated Depreciation and Amortization | |||||||
| Gas Distribution Utility(1) | $ | (3,119.2 | ) | $ | (3,029.0 | ) | |
| Electric Utility(1)(2) | (3,442.0 | ) | (3,767.7 | ) | |||
| Corporate | (52.5 | ) | (56.7 | ) | |||
| Non-Utility and Other(2) | (368.0 | ) | (23.2 | ) | |||
| Total Accumulated Depreciation and Amortization | $ | (6,981.7 | ) | $ | (6,876.6 | ) | |
| Net Property, Plant and Equipment | $ | 13,068.0 | $ | 12,111.5 |
(1) NIPSCO’s common utility plant and associated accumulated depreciation and amortization are allocated between Gas Distribution Utility and Electric Utility Property, Plant and Equipment.
(2)Non-Utility and Other in 2016 primarily consists of Bailly Generating Station (Units 7 and 8) which were reclassified from Electric Utility in the fourth quarter of 2016. Depreciation expense for the remaining net book value will continue to be recorded at the composite depreciation rate most recently approved by the IURC. See Note 18-E, "Other Matters," for additional information.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
The weighted average depreciation provisions for utility plant, as a percentage of the original cost, for the periods ended December 31, 2016, 2015 and 2014 were as follows:
| 2016 | 2015 | 2014 | ||||||
| Electric Operations | 3.3 | % | 3.1 | % | 3.0 | % | ||
| Gas Distribution Operations | 2.1 | % | 2.0 | % | 2.1 | % |
Amortization of Software Costs. NiSource amortized $41.4 million in 2016, $41.1 million in 2015 and $33.7 million in 2014 related to software costs. NiSource’s unamortized software balance was $156.4 million and $167.1 million at December 31, 2016 and 2015, respectively.
| 6. | Goodwill and Other Intangible Assets |
Goodwill. Substantially all of NiSource's goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. The following presents NiSource's goodwill balance allocated by segment as of December 31, 2016:
| (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | ||||||||||||
| Goodwill | $ | 1,690.7 | $ | — | $ | — | $ | 1,690.7 |
NiSource completed a quantitative ("step 1") fair value measurement of its reporting units during the May 1, 2016 goodwill test. The test indicated that the fair value of each of the reporting units that are allocated goodwill exceeded their carrying values, indicating that no impairment was necessary.
Intangible Assets. NiSource's intangible assets, apart from goodwill, consist of franchise rights. Franchise rights were identified as part of the purchase price allocations associated with the acquisition in February 1999 of Columbia of Massachusetts. These amounts were $242.7 million and $253.7 million, net of accumulated amortization of $199.5 million and $188.5 million, at December 31, 2016 and 2015, respectively, and are being amortized on a straight-line basis over forty years from the date of acquisition through 2039. NiSource recorded amortization expense of $11.0 million in 2016, 2015, and 2014 related to its franchise right intangible asset.
| 7. | Asset Retirement Obligations |
NiSource has recognized asset retirement obligations associated with various legal obligations including costs to remove and dispose of certain construction materials located within many of NiSource’s facilities, certain costs to retire pipeline, removal costs for certain underground storage tanks, removal of certain pipelines known to contain PCB contamination, closure costs for certain sites including ash ponds, solid waste management units and a landfill, as well as some other nominal asset retirement obligations. NiSource has a significant obligation associated with the decommissioning of its two hydro facilities located in Indiana. These hydro facilities have an indeterminate life, and as such, no asset retirement obligation has been recorded.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Changes in NiSource’s liability for asset retirement obligations for the years 2016 and 2015 are presented in the table below:
| (in millions) | 2016 | 2015 | ||||||
| Beginning Balance | $ | 254.0 | $ | 136.2 | ||||
| Accretion recorded as a regulatory asset/liability | 9.2 | 8.6 | ||||||
| Additions | — | 6.5 | ||||||
| Settlements | (7.5 | ) | (7.0 | ) | ||||
| Change in estimated cash flows | 6.9 | (1) | 109.7 | (2) | ||||
| Ending Balance | $ | 262.6 | $ | 254.0 |
(1)The change in estimated cash flows for 2016 is primarily attributed to the changes in estimated costs for retirement of gas mains partially offset by revisions to estimated costs associated with the EPA's final rule for regulation of CCRs and changes to cost estimates for certain solid waste management units. See Note 18-D, "Environmental Matters," for additional information on CCRs.
(2)The change in estimated cash flows for 2015 primarily represents estimated costs associated with the EPA's final rule for regulation of CCRs and changes to cost estimates for certain solid waste management units. See Note 18-D, "Environmental Matters," for additional information on CCRs.
Certain non-legal costs of removal that have been, and continue to be, included in depreciation rates and collected in the customer rates of the rate-regulated subsidiaries are classified as "Regulatory liabilities" on the Consolidated Balance Sheets.
| 8. | Regulatory Matters |
Regulatory Assets and Liabilities
NiSource follows the accounting and reporting requirements of ASC Topic 980, which provides that regulated entities account for and report assets and liabilities consistent with the economic effect of regulatory rate-making procedures if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged and collected. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income or expense are deferred on the balance sheet and are recognized in the income statement as the related amounts are included in customer rates and recovered from or refunded to customers.
Regulatory assets were comprised of the following items:
| At December 31, (in millions) | 2016 | 2015 | |||||
| Regulatory Assets | |||||||
| Unrecognized pension benefit and other postretirement benefit costs (see Note 11) | $ | 847.5 | $ | 928.7 | |||
| Other postretirement costs (see Note 11) | 59.6 | 47.0 | |||||
| Environmental costs (see Note 18-D) | 62.6 | 62.2 | |||||
| Regulatory effects of accounting for income taxes (see Note 1-O and Note 10) | 238.4 | 234.1 | |||||
| Underrecovered gas and fuel costs (see Note 1-K) | 73.5 | 34.8 | |||||
| Depreciation | 136.8 | 124.5 | |||||
| Uncollectible accounts receivable deferred for future recovery | 7.3 | 17.0 | |||||
| Post-in-service carrying charges | 134.9 | 107.2 | |||||
| EERM operation and maintenance and depreciation deferral | 54.1 | 48.1 | |||||
| Sugar Creek carrying charges and deferred depreciation | 16.8 | 28.2 | |||||
| TDSIC | 15.9 | 6.7 | |||||
| Safety Activity Costs | 41.5 | 19.6 | |||||
| DSM Program | 48.4 | 35.6 | |||||
| Other | 148.1 | 113.0 | |||||
| Total Regulatory Assets | $ | 1,885.4 | $ | 1,806.7 |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Regulatory liabilities were comprised of the following items:
| At December 31, (in millions) | 2016 | 2015 | |||||
| Regulatory Liabilities | |||||||
| Overrecovered gas and fuel costs (see Note 1-K) | $ | 54.8 | $ | 148.1 | |||
| Cost of removal (see Note 7) | 1,174.5 | 1,261.5 | |||||
| Regulatory effects of accounting for income taxes (see Note 1-O and Note 10) | 30.0 | 34.2 | |||||
| Other postretirement costs (see Note 11) | 41.2 | 38.8 | |||||
| Other | 81.3 | 99.2 | |||||
| Total Regulatory Liabilities | $ | 1,381.8 | $ | 1,581.8 |
Regulatory assets, including underrecovered gas and fuel cost, of approximately $1,708.2 million as of December 31, 2016 are not earning a return on investment. Regulatory assets of approximately $1,561.9 million include expenses that are recovered as components of the cost of service and are covered by regulatory orders. These costs are recovered over a remaining life of up to 41 years. Regulatory assets of approximately $323.5 million at December 31, 2016, require specific rate action.
As noted below, regulatory assets for which costs have been incurred are included (or expected to be included, for costs incurred subsequent to the most recently approved rate case) in certain companies’ rate base, thereby providing a return on invested costs. Certain regulatory assets do not result from cash expenditures and therefore do not represent investments included in rate base or have offsetting liabilities that reduce rate base.
Assets:
Unrecognized pension benefit and other postretirement benefit costs – In 2007, NiSource adopted certain updates of ASC 715 which required, among other things, the recognition in other comprehensive income or loss of the actuarial gains or losses and the prior service costs or credits that arise during the period but that are not immediately recognized as components of net periodic benefit costs. Certain subsidiaries defer these gains or losses as a regulatory asset in accordance with regulatory orders or as a result of regulatory precedent, to be recovered through base rates.
Other postretirement costs – Primarily relates to the difference between postretirement expense recorded by certain subsidiaries due to regulatory orders and the postretirement expense recorded in accordance with GAAP. These costs are expected to be collected through future base rates, revenue riders or tracking mechanisms.
Environmental costs – Includes certain recoverable costs of investigating, testing, remediating and other costs related to gas plant sites, disposal sites or other sites onto which material may have migrated. Certain companies defer the costs as a regulatory asset in accordance with regulatory orders, to be recovered in future base rates, billing riders or tracking mechanisms.
Regulatory effects of accounting for income taxes – Represents the deferral and under collection of deferred taxes in the rate making process. In prior years, NiSource has lowered customer rates in certain jurisdictions for the benefits of accelerated tax deductions. Amounts are expensed for financial reporting purposes as NiSource recovers deferred taxes in the rate making process.
Underrecovered gas and fuel costs – Represents the difference between the costs of gas and fuel and the recovery of such costs in revenue and is used to adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. Recovery of these costs is achieved through tracking mechanisms.
Depreciation – Primarily relates to the difference between the depreciation expense recorded by Columbia of Ohio due to a regulatory order and the depreciation expense recorded in accordance with GAAP. The regulatory asset is currently being amortized over the life of the assets. Also included is depreciation associated with the Columbia of Ohio IRP and capital expenditure program. Recovery of these costs is achieved through base rates and rider mechanisms.
In 2005, the PUCO authorized Columbia of Ohio to revise its depreciation accrual rates for the period beginning January 1, 2005. The revised depreciation rates are now higher than those which would have been utilized if Columbia of Ohio were not subject to regulation. The amount of depreciation that would have been recorded for 2005 through 2016 had Columbia of Ohio not been subject to rate regulation is a combined $638.0 million, $74.1 million less than the $712.1 million reflected in rates. The regulatory asset was $57.6 million and $65.3 million as of December 31, 2016 and 2015, respectively. The amount of depreciation that would
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
have been recorded for 2016 had Columbia of Ohio not been subject to rate regulation is $78.2 million, $7.7 million less than the $85.9 million reflected in rates.
Columbia of Ohio also has PUCO approval to defer depreciation associated with its IRP and capital expenditure program. As of December 31, 2016, depreciation of $23.4 million and $31.8 million was deferred for the respective programs. Recovery of the IRP depreciation is approved annually through the IRP rider. The equivalent of annual depreciation expense, based on the average life of the related assets, is included in the calculation of the IRP rider approved by the PUCO and billed to customers. Deferred depreciation expense is recognized as the IRP rider is billed to customers. The recovery mechanism for depreciation associated with the capital expenditure program will be addressed in a separate rate proceeding.
Uncollectible accounts receivable deferred for future recovery – Represents the difference between certain uncollectible expenses and the recovery of such costs to be collected through cost tracking mechanisms in accordance with regulatory orders.
Post-in-service carrying charges – Columbia of Ohio has approval from the PUCO by regulatory order to defer debt-based carrying charges as a regulatory asset for future recovery. Columbia of Ohio defers this carrying charge on eligible property, plant and equipment from the time it is placed into utility service until recovery of the property, plant and equipment is included in customer rates in base rates or through a rider mechanism. Inclusion in customer rates generally occurs when Columbia of Ohio files its next rate proceeding following the in-service date of the property, plant and equipment.
EERM operation and maintenance and depreciation deferral – NIPSCO obtained approval from the IURC to recover certain environmental related costs including operation and maintenance and depreciation expense once the environmental facilities become operational. Recovery of these costs will continue until such assets are included in rate base through an electric base rate case. The EERM deferred charges represent expenses that will be recovered from customers through an annual EERM Cost Tracker which authorizes the collection of deferred balances over a six month period.
Sugar Creek carrying charges and deferred depreciation – The IURC approved the deferral of debt-based carrying charges and the deferral of depreciation expense for the Sugar Creek assets. Balances are being amortized over seven years with new rates implemented on October 1, 2016.
TDSIC - NIPSCO obtained approval from the IURC to recover costs for certain system modernization projects outside of a base rate proceeding. Eighty percent of the related costs, including depreciation, property taxes, and debt and equity based carrying charges are recovered through a semi-annual recovery mechanism. Recovery of these costs will continue until such assets are included in rate base through a gas or electric rate case, respectively. The remaining twenty percent of the costs are deferred until the next rate case which includes a twenty percent deferral of the return on capital. Equity based carrying charges and the equity component of return on capital are not reflected in the regulatory asset balance at December 31, 2016.
Safety Activity Costs - Represents the difference between costs incurred in eligible safety programs in excess of those being recovered in rates. The eligible cost deferrals represent necessary business expenses incurred in compliance with PHMSA regulations and are targeted to enhance the safety of the pipeline systems. Certain subsidiaries defer the excess costs as a regulatory asset in accordance with regulatory orders and recovery of these costs will be address in future base rate proceedings.
DSM Program - Represents costs associated with Gas Distribution Operations and Electric Operations companies' energy efficiency and conservation programs. Costs are recovered through tracking mechanisms.
Liabilities:
Overrecovered gas and fuel costs – Represents the difference between the cost of gas and fuel and the recovery of such costs in revenues, and is the basis to adjust future billings for such refunds on a basis consistent with applicable state-approved tariff provisions. Refunding of these revenues is achieved through tracking mechanisms.
Cost of removal – Represents anticipated costs of removal that have been, and continue to be, included in depreciation rates and collected in customer rates of the rate-regulated subsidiaries for future costs to be incurred.
Regulatory effects of accounting for income taxes – Represents amounts owed to customers for deferred taxes collected at a higher rate than the current statutory rates and liabilities associated with accelerated tax deductions owed to customers that are established during the rate making process.
Other postretirement costs – Primarily represents cash contributions in excess of postretirement benefit expense that is deferred as a regulatory liability by certain subsidiaries in accordance with regulatory orders.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Gas Distribution Operations Regulatory Matters
Cost Recovery and Trackers. 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 those described below. 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 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 through 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.
A portion of the distribution companies' revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in NiSource's operating area 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 of the NiSource distribution companies have completed rate proceedings involving infrastructure replacement or are embarking upon regulatory initiatives to replace significant portions of their operating systems that are nearing the end of their useful lives. Each LDC's approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.
Columbia of Ohio. On November 28, 2012, the PUCO approved Columbia of Ohio’s application to extend its Infrastructure Replacement Program for an additional five years (2013-2017), allowing Columbia of Ohio to continue to invest and recover on its accelerated main replacements. Columbia of Ohio last filed its application to adjust rates associated with its IRP and DSM Riders on February 26, 2016, which requested authority to increase revenues by $25.9 million. On April 20, 2016, the PUCO issued an order approving Columbia of Ohio’s application with rates going into effect April 30, 2016. On November 28, 2016, Columbia of Ohio filed its notice of intent to file an application to adjust rates associated with its IRP and DSM riders. The notice of intent states that Columbia of Ohio will file an application by February 28, 2017, in which it will request authority to increase revenues by up to $33.5 million.
On December 27, 2016, Columbia of Ohio filed its Notice of Intent to file an application that will request authority for Columbia of Ohio to extend its IRP for an additional five years (2018-2022). Columbia of Ohio’s application will be filed in late February 2017.
On December 17, 2014, the PUCO approved Columbia of Ohio’s application to establish a regulatory asset and defer the expenditures to be incurred in implementing Columbia of Ohio’s Pipeline Safety Program. Columbia of Ohio requested authority to defer Pipeline Safety Program costs of up to $15 million annually. On March 11, 2016, Columbia of Ohio filed an application to increase the annual deferral authority from $15 million to $25 million. On June 24, 2016, Columbia of Ohio and PUCO staff filed a stipulation that recommended approval of the application in all material respects. On August 26, 2016, the PUCO approved the stipulation to increase the deferral authority to $25 million per year through January 1, 2024.
Columbia of Pennsylvania. On March 18, 2016, Columbia of Pennsylvania filed a base rate case with the Pennsylvania PUC, seeking a revenue increase of $55.3 million annually. The case was driven by Columbia of Pennsylvania’s ongoing capital investment program which exceeded $232.0 million in 2016, and is projected to exceed $267.0 million in 2017. This case was also driven by 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 September 2, 2016, the parties to the case filed a joint petition for settlement which provides for an annual revenue increase of $35.0 million. On September 28, 2016, the assigned administrative law judge issued a recommended decision to approve the proposed settlement, without modification. An order approving the settlement was issued from the Pennsylvania PUC on October 27, 2016, and new rates went into effect on December 19, 2016.
NIPSCO Gas. On April 30, 2013, then Indiana Governor Pence signed Senate Enrolled Act 560, the TDSIC statute, into law. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system
NISOURCE INC.
Notes to Consolidated Financial Statements
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