NiSource (NI) 10-K risk factor changes: FY2017 vs FY2016

The occurrence of such events could adversely affect [removed: NiSource's] [added: our] financial position and results of operations.

In accordance with customary industry practice, [removed: NiSource maintains] [added: we maintain] insurance against some, but not all, of these risks and losses.

[removed: NiSource has] [added: We have] experienced disruptions in the past from hurricanes and tornadoes and other events of this nature.

Climate change and the costs that may be associated with its impacts have the potential to affect [removed: NiSource’s] [added: our] business in many ways, including increasing the cost [removed: NiSource incurs] [added: we incur] in providing [removed: its] [added: our] products and services, impacting the demand for and consumption of [removed: its] [added: our] products and services (due to change in both costs and weather patterns), and affecting the economic health of the regions in which [removed: NiSource operates.][added: we operate.]

A cyber-attack on any of [removed: NiSource's] [added: our] or certain third-party computer systems upon which [removed: NiSource relies] [added: we rely] may adversely affect [removed: its] [added: our] ability to operate.

[removed: NiSource is] [added: We are] reliant on technology to run [removed: its businesses,] [added: our business,] which [removed: are] [added: is] dependent upon financial and operational computer systems to process critical information necessary to conduct various elements of [removed: its] [added: our] business, including the generation, transmission and distribution of electricity, operation of [removed: its] [added: our] gas pipeline facilities and the recording and reporting of commercial and financial transactions to regulators, investors and other stakeholders.

Any failure of [removed: NiSource’s] [added: our] computer systems, or those of [removed: its] [added: our] customers, suppliers or others with whom [removed: it does] [added: we do] business, could materially disrupt [removed: NiSource’s] [added: our] ability to operate [removed: its] [added: our] business and could result in a financial loss and possibly do harm to [removed: NiSource’s] [added: our] reputation.

Additionally, [removed: NiSource's] [added: our] information systems experience ongoing, often sophisticated, cyber-attacks by a variety of sources with the apparent aim to breach [removed: NiSource's] [added: our] cyber-defenses.

Although [removed: NiSource attempts] [added: we attempt] to maintain adequate defenses to these attacks and works through industry groups and trade associations to identify common threats and assess [removed: NiSource's] [added: our] countermeasures, a security breach of [removed: NiSource's] [added: our] information systems could (i) impact the reliability of [removed: NiSource's] [added: our] generation, transmission and distribution systems and potentially negatively impact [removed: NiSource's] [added: our] compliance with certain mandatory reliability standards, (ii) subject [removed: NiSource] [added: us] to harm associated with theft or inappropriate release of certain types of information such as system operating information or information, personal or otherwise, relating to [removed: NiSource's] [added: our] customers or employees, and/or (iii) impact [removed: NiSource's] [added: our] ability to manage [removed: NiSource's] [added: our] businesses.

[removed: NiSource's] [added: Our] capital projects and programs subject [removed: the Company] [added: us] to construction risks and natural gas costs and supply risks.

[removed: NiSource is] [added: We are] engaged in intrastate natural gas pipeline modernization programs to maintain system integrity and enhance service reliability and flexibility.

As [removed: NiSource undertakes] [added: we undertake] these projects and programs, [removed: it] [added: we] may not be able to complete them on schedule or at the anticipated costs.

Additionally, [removed: NiSource] [added: we] may construct or purchase some of these projects and programs to capture anticipated future growth in natural gas production, which may not materialize, and may cause the construction to occur over an extended period of time.

[removed: NiSource] [added: We] also may not receive [removed: material] [added: the anticipated] increases in revenue and cash flows [removed: until after the completion of the] [added: resulting from such] projects and [removed: programs.][added: programs until after their completion.]

Sustained extreme weather conditions may negatively impact [removed: NiSource’s] [added: our] operations.

[removed: NiSource conducts its] [added: We conduct our] operations across a wide geographic area subject to varied and potentially extreme weather conditions, which may from time to time persist for sustained periods of time.

Despite preventative maintenance efforts, persistent weather related stress on [removed: NiSource’s] [added: our] infrastructure may reveal weaknesses in [removed: its] [added: our] systems not previously known to [removed: the Company] [added: us] or otherwise present various operational challenges across all business segments.

Further, adverse weather may affect [removed: NiSource’s] [added: our] ability to conduct operations in a manner that satisfies customer expectations or contractual obligations, including by causing service disruptions.

Failure to attract and retain an appropriately qualified workforce could harm [removed: NiSource’s] [added: our] results of operations.

[removed: NiSource operates] [added: We operate] in an industry that requires many of [removed: its] [added: our] employees to possess unique technical skill sets.

In addition, current and prospective employees may determine that they do not wish to work for [removed: NiSource] [added: us] due to market, economic, employment and other conditions.

Failure to hire and retain qualified employees, including the ability to transfer significant internal historical knowledge and expertise to the new employees, may adversely affect [removed: NiSource’s] [added: our] ability to manage and operate [removed: its] [added: our] business.

If [removed: NiSource is] [added: we are] unable to successfully attract and retain an appropriately qualified workforce, [removed: its] [added: our] results of operations could be adversely affected.

[removed: NiSource is] [added: We are] a holding company and [removed: is] [added: are] dependent on cash generated by [added: our] subsidiaries to meet [removed: its] [added: our] debt obligations and pay dividends on [removed: its] [added: our] common stock.

[removed: NiSource is] [added: We are] a holding company and [removed: conducts its] [added: conduct our] operations primarily through [removed: its] [added: our] subsidiaries.

Substantially all of [removed: NiSource’s] [added: our] consolidated assets are held by [removed: its] [added: our] subsidiaries.

Accordingly, [removed: NiSource’s] [added: our] ability to meet [removed: its] [added: our] debt obligations or pay dividends on [removed: its] [added: our] common stock is largely dependent upon cash generated by these subsidiaries.

In the event a major subsidiary is not able to pay dividends or transfer cash flows to [removed: NiSource, NiSource's] [added: us, our] ability to service [removed: its] [added: our] debt obligations or pay dividends could be negatively affected.

The Separation was conditioned on the receipt by [removed: NiSource] [added: us] of a legal opinion to the effect that the distribution of CPG shares to [removed: NiSource] [added: our] stockholders is expected to qualify as tax-free under Section 355 of the U.S. Internal Revenue Code.

Even though [removed: NiSource has] [added: we have] received such an opinion, the IRS could determine on audit that the distribution is taxable.

Both NiSource and [removed: its] [added: our] stockholders could incur significant U.S. Federal income tax liabilities if taxing authorities conclude the distribution is taxable.

In addition to general information and cyber risks that all large corporations face (e.g., malware, malicious intent by insiders and inadvertent disclosure of sensitive information), the utility industry faces evolving cybersecurity risks associated with protecting sensitive and confidential customer information, electric grid infrastructure, and natural gas infrastructure.

Increasing large-scale corporate attacks in conjunction with more sophisticated threats continue to challenge power and utility companies.

Our business requires substantial capital expenditures for investments in, among other things, capital improvements to our electric generating facilities, electric and natural gas distribution infrastructure, natural gas storage, and other projects, including projects for environmental compliance.

To the extent that delays occur, costs become unrecoverable, or we otherwise become unable to effectively manage and complete our capital projects, our results of operations, cash flows, and financial condition may be adversely affected.

If we cannot effectively manage new initiatives and organizational changes, we will be unable to address the opportunities and challenges presented by our strategy and the business and regulatory environment.

In order to execute on our sustainable growth strategy and enhance our culture of ongoing continuous improvement, we must effectively manage the complexity and frequency of new initiatives and organizational changes.

If we are unable to make decisions quickly, assess our opportunities and risks, and implement new governance, managerial and organizational processes as needed to execute our strategy in this increasingly dynamic and competitive business and regulatory environment, our financial condition, results of operations and relationships with our business partners, regulators, customers and shareholders may be negatively impacted.

We outsource certain business functions to third-party suppliers and service providers, and substandard performance by those third parties could harm our business, reputation and results of operations.

Utilities rely on extensive networks of business partners and suppliers to support critical enterprise capabilities across their organizations.

We outsource certain services to third parties in areas including construction services, information technology, materials, fleet, environmental, operational services and other areas.

Outsourcing of services to third parties could expose us to inferior service quality or substandard deliverables, which may result in non-compliance (including with applicable legal requirements and industry standards) or reputational harm, which could negatively impact our results of operations.

If any difficulties in the operation of these systems were to occur, they could adversely affect our results of operations, or adversely affect our ability to work with regulators, unions, customers or employees.

We may be unable to obtain insurance on acceptable terms or at all, and the insurance coverage we do obtain may not provide protection against all significant losses.

Our ability to obtain insurance, as well as the cost and coverage of such insurance, could be affected by developments affecting our business; international, national, state, or local events; and the financial condition of insurers.

Insurance coverage may not continue to be available at all or at rates or terms similar to those presently available to us.

In addition, our insurance may not be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject.

Any losses for which we are not fully insured or that are not covered by insurance at all could materially adversely affect our results of operations, cash flows, and financial position.

NISOURCE INC.

oil refining, industrial gas and related industries, may be impacted by economic downturns.

The U.S. manufacturing industry continues to adjust to changing market conditions including international competition, increasing costs, and fluctuating demand for its products.

The implementation of NIPSCO’s electric generation strategy, including the retirement of its coal generation units, may not achieve intended results.

On November 1, 2016, NIPSCO submitted its Integrated Resource Plan with the IURC setting forth its short- and long-term electric generation plans in an effort to maintain affordability while providing reliable, flexible and cleaner sources of power.

However, there are inherent risks and uncertainties, including changes in market conditions, environmental regulations, commodity costs and customer expectations, which may impede NIPSCO’s ability to achieve these intended results.

In addition, the Integrated Resource Plan included an intention to retire the Bailly coal generation units (Units 7 and 8) as soon as mid-2018 and two units (Units 17 and 18) at the R.M. Schahfer Generating Station by the end of 2023.

The MISO subsequently approved NIPSCO’s plan to retire the two Bailly coal generation units by May 31, 2018.

NIPSCO’s electric generation strategy could require significant future capital expenditures, operating costs and charges to earnings that may negatively impact NiSource’s financial position, financial results and cash flows.

Fluctuations in the price of energy commodities or their related transportation costs may have a negative impact on NiSource’s financial results.

NiSource’s electric generating fleet is dependent on coal and natural gas for fuel, and its gas distribution operations purchase and resell much of the natural gas they deliver.

These energy commodities are vulnerable to price fluctuations and fluctuations in associated transportation costs.

From time to time, NiSource has used hedging in order to offset fluctuations in commodity supply prices.

NiSource relies on regulatory recovery mechanisms in the various jurisdictions in order to fully recover the commodity costs incurred in operations.

However, while NiSource has historically been successful in recovery of costs related to such commodity prices, there can be no assurance that such costs will be fully recovered through rates in a timely manner.

NiSource is exposed to risk that customers will not remit payment for delivered energy or services, and that suppliers or counterparties will not perform under various financial or operating agreements.

NiSource’s extension of credit is governed by a Corporate Credit Risk Policy, involves considerable judgment and is based on an evaluation of a customer or counterparty’s financial condition, credit history and other factors.

NiSource monitors its credit risk exposure by obtaining credit reports and updated financial information for customers and suppliers, and by evaluating the financial status of its banking partners and other counterparties by reference to market-based metrics such as credit default swap pricing levels, and to traditional credit ratings provided by the major credit rating agencies.

Adverse economic conditions could result in an increase in defaults by customers, suppliers and counterparties.

NiSource has significant goodwill and definite-lived intangible assets.

An impairment of goodwill or definite-lived intangible assets could result in a significant charge to earnings and negatively impact NiSource's compliance with certain covenants under financing agreements.

In accordance with GAAP, NiSource tests goodwill for impairment at least annually and reviews its definite-lived intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Goodwill also is tested for impairment when factors, examples of which include reduced cash flow estimates, a sustained decline in stock price or market capitalization below book value, indicate that the carrying value may not be recoverable.

NiSource would be required to record a charge in its financial statements for the period in which any impairment of the goodwill or definite-lived intangible assets is determined, negatively impacting the results of operations.

A significant charge could impact the capitalization ratio covenant under certain financing agreements.

NiSource is subject to a financial covenant under its five-year 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, 2016, the ratio was 66%.

Changes in taxation and the ability to quantify such changes could adversely affect NiSource’s financial results.

NiSource is subject to taxation by the various taxing authorities at the Federal, state and local levels where it does business.

Legislation or regulation which could affect NiSource’s tax burden could be enacted by any of these governmental authorities.

For example, the Trump Administration has recently called for substantial change to fiscal and tax policies, which may include comprehensive tax reform.

NiSource cannot predict the timing or extent of such tax-related developments which could have a negative impact on the financial results.

Separately, a challenge by a taxing authority, NiSource’s ability to utilize tax benefits

ITEM 1A.

RISK FACTORS

such as carryforwards or tax credits, or a deviation from other tax-related assumptions may cause actual financial results to deviate from previous estimates.

Additionally, NiSource uses its best judgment in attempting to quantify and reserve for these tax obligations.

Changes in accounting principles may adversely affect NiSource’s financial results.

Future changes in accounting rules and associated changes in regulatory accounting may negatively impact the way NiSource records revenues, expenses, assets and liabilities.

Refer to Note [removed: 18-A, “Contractual Obligations,”] [added: 1\-I, “Revenue Recognition,”] in the Notes to Consolidated Financial [removed: Statements for further information.][added: Statements.]

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [added: (continued)]

The total amounts of regulatory assets and liabilities reflected on the Consolidated Balance Sheets were [removed: $1,885.4] [added: $1,801.2] million and [removed: $1,381.8] [added: $2,795.6] million at December 31, [removed: 2016,] [added: 2017,] and [removed: $1,806.7] [added: $1,885.4] million and [removed: $1,581.8] [added: $1,381.8] million at December 31, [removed: 2015,] [added: 2016,] respectively.

If transition cost recovery is approved by the appropriate regulatory bodies that would meet the requirements under GAAP for continued accounting [added: as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts.]

Regulatory assets requiring specific regulatory action amounted to [removed: $323.5] [added: $398.4] million at December 31, [removed: 2016.][added: 2017.]

The calculation of the net obligations and annual expense related to the plans requires a significant degree of judgment regarding the discount rates to be used in bringing the liabilities to present value, expected long-term [removed: returns] [added: rates of return] on plan assets, [removed: healthcare] [added: health care] trend rates, and mortality rates, among other assumptions.

These deferred gains or losses are then amortized into the income statement when the accumulated differences exceed 10% of the greater of the projected benefit obligation or the fair value of plan [removed: assets.][added: assets (known in GAAP as the “corridor” method) or when settlement accounting is triggered.]

NiSource’s discount rates for both pension and other postretirement benefits are determined using [added: spot rates along] an AA-rated above median yield curve with cash flows matching the expected duration of benefit payments to be made to plan participants.

The expected long-term rate of return on plan assets is a component utilized in calculating annual pension and other postretirement [removed: benefit plan costs.]

For measurement of [removed: 2017] [added: 2018] net periodic benefit cost, NiSource selected an expected pre-tax long-term rate of return of [removed: 7.25%] [added: 7.00% and 5.80%] for its pension and other postretirement benefit plan [removed: assets.][added: assets, respectively.]

NiSource estimates the assumed health care cost trend rate, which is used in determining [removed: our] [added: the Company's] other postretirement benefit net expense, based upon [removed: our] [added: its] actual health care cost experience, the effects of recently enacted legislation, third-party actuarial surveys and general economic conditions.

NiSource [removed: has historically utilized] [added: uses] the Society of Actuaries’ most recently published mortality data in developing a best estimate of mortality as part of the calculation of the pension and other postretirement benefit obligations.

| | Impact on December 31, [removed: 2016] [added: 2017] Projected Benefit Obligation Increase/(Decrease) | | | | | | |

| +50 basis points change in discount rate | $ | [removed: (95.9] [added: (94.8] | ) | | $ | [removed: (27.4] [added: (28.7] | ) |

| \-50 basis points change in discount rate | [removed: 105.3] [added: 103.0] | | | | [removed: 30.1] [added: 31.5] | | |

| +50 basis points change in health care trend rates | | | | | [removed: 13.6] [added: 14.9] | | |

| \-50 basis points change in health care trend rates | | | | | [removed: (11.9] [added: (12.9] | | ) |

| | Impact on [removed: 2016] [added: 2017] Expense [removed: Increase/(Decrease)] [added: Increase/(Decrease)(1)] | | | | | | |

| +50 basis points change in discount rate | $ | [removed: (3.5] [added: (2.3] | ) | | $ | [removed: (1.2] [added: (0.7] | ) |

| \-50 basis points change in discount rate | [removed: 4.0] [added: 2.5] | | | | [removed: 1.1] [added: 0.6] | | |

| +50 basis points change in expected long-term rate of return on plan assets | [removed: (8.3] [added: (8.5] | | ) | | (1.1 | | ) |

| \-50 basis points change in expected long-term rate of return on plan assets | [removed: 8.3] [added: 8.5] | | | | 1.1 | | |

| +50 basis points change in health care trend rates | | | | | [removed: 0.6] [added: 0.5] | | |

| \-50 basis points change in health care trend rates | | | | | [removed: (0.6] [added: (0.5] | | ) |

[removed: Beginning] [added: In] January [removed: 1,] 2017, NiSource [removed: will change] [added: changed] the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits.

This change, compared to the previous method, [removed: is expected to result] [added: resulted] in a decrease in the actuarially-determined service and interest cost components.

Historically, NiSource estimated service and interest [removed: costs] [added: cost] utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period.

For fiscal 2017 and beyond, NiSource [removed: elected to utilize] [added: now utilizes] a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

NiSource’s goodwill assets at December 31, [removed: 2016] [added: 2017] were $1,690.7 million, most of which resulted from the acquisition of Columbia on November 1, 2000.

NiSource’s annual goodwill test takes place in the second quarter of each year and was most recently finalized as of May 1, [removed: 2016.][added: 2017.]

[added: These approaches require significant judgments including appropriate long-term] growth rates and discount rates for the income approach and appropriate multiples of earnings for peer companies and control premiums for the market approach.

The passage of the TCJA into law necessitated the remeasurement of NiSource’s deferred income tax balances to reflect the new U.S. corporate income tax rate of 21%.

For NiSource’s regulated entities, substantially all of the impact of this remeasurement was recorded to a regulatory asset or regulatory liability, as appropriate, until such time that NiSource receives final regulatory orders prescribing the required accounting treatment and related impact on future customer rates.

To the extent final regulatory orders received prescribe accounting treatment different from what is currently reflected in NiSource’s financial statements, NiSource’s results of operations could be impacted.

benefit plan costs.

(1)Before labor capitalization and regulatory deferrals.

NiSource has seven goodwill reporting units, comprised of the seven state operating companies within the Gas Distribution Operations reportable segment.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

A qualitative ("step 0") test was completed on May 1, 2017.

NiSource assessed various assumptions, events and circumstances that would have affected the estimated fair value of the reporting units in its baseline May 1, 2016 test.

The results of this assessment indicated that it is not more likely than not that its reporting unit fair values are less than the reporting unit carrying values and no impairments are necessary.

NiSource adopted the provisions of ASC 606 beginning on January 1, 2018 using a modified retrospective method, which was applied to all contracts.

No material adjustments were made to January 1, 2018 opening balances as a result of the adoption and NiSource does not anticipate material changes in the amount or timing of future revenue recognition as a result of the adoption of ASC 606.

NISOURCE INC.

Contractual Obligations.

NiSource has certain contractual obligations requiring payments at specified periods.

The obligations include long-term debt, lease obligations, energy commodity contracts and obligations for various services including pipeline capacity and IBM outsourcing.

The total contractual obligations in existence at December 31, 2016 and their maturities were:

| | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| (in millions) | Total | | | | 2017 | | | | 2018 | | | | 2019 | | | | 2020 | | | | 2021 | | | | After | | |

| Long-term debt (1) | $ | 6,305.5 | | | $ | 349.9 | | | $ | 476.0 | | | $ | 1,041.0 | | | $ | 550.0 | | | $ | 63.6 | | | $ | 3,825.0 | |

| Capital leases (2) | 250.0 | | | | 22.7 | | | | 18.5 | | | | 14.2 | | | | 13.5 | | | | 13.4 | | | | 167.7 | | |

| Interest payments on long-term debt | 4,611.2 | | | | 337.9 | | | | 305.3 | | | | 265.2 | | | | 244.9 | | | | 214.9 | | | | 3,243.0 | | |

| Operating leases(3) | 54.6 | | | | 15.4 | | | | 9.4 | | | | 7.5 | | | | 4.8 | | | | 4.1 | | | | 13.4 | | |

| Energy commodity contracts(4) | 312.1 | | | | 108.5 | | | | 67.7 | | | | 67.3 | | | | 68.0 | | | | 0.6 | | | | — | | |

| Service obligations: | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Pipeline service obligations | 2,002.1 | | | | 532.7 | | | | 382.7 | | | | 293.1 | | | | 176.0 | | | | 139.2 | | | | 478.4 | | |

| IBM service obligations | 325.0 | | | | 84.1 | | | | 81.2 | | | | 80.0 | | | | 79.7 | | | | — | | | | — | | |

| Other service obligations | 77.7 | | | | 58.1 | | | | 17.4 | | | | 1.9 | | | | 0.3 | | | | — | | | | — | | |

| Other liabilities | 34.4 | | | | 34.4 | | | | — | | | | — | | | | — | | | | — | | | | — | | |

| Total contractual obligations | $ | 13,972.6 | | | $ | 1,543.7 | | | $ | 1,358.2 | | | $ | 1,770.2 | | | $ | 1,137.2 | | | $ | 435.8 | | | $ | 7,727.5 | |

(1) Long-term debt balance excludes unamortized issuance costs and discounts of $41.6 million.

(2) Capital lease payments shown above are inclusive of interest totaling $92.6 million.

(3) 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 $31.1 million in 2017, $32.9 million in 2018, $26.1 million in 2019, $17.5 million in 2020, $8.0 million in 2021 and $2.0 million thereafter.

(4)In January 2017, NIPSCO signed new coal contract commitments of $24.2 million and $10.1 million for 2017 and 2018, respectively.

These contracts are not included above.

NiSource calculated estimated interest payments for long-term debt as follows: for the fixed-rate debt, interest is calculated based on the stated coupon and payment dates; for variable-rate debt, interest rates used are those that are in place as of December 31, 2016.

For 2017, NiSource projects that it will be required to make interest payments of approximately $356 million, which includes $337.9 million of interest payments related to its long-term debt outstanding as of December 31, 2016.

At December 31, 2016, NiSource also had $1,488.0 million in short-term borrowings outstanding.

NiSource’s expected payments included within “Other liabilities” in the table of contractual commitments above contains employer contributions to pension and other postretirement benefits plans expected to be made in 2017.

Plan contributions beyond 2017 are dependent upon a number of factors, including actual returns on plan assets, which cannot be reliably estimated at this time.

In 2017, NiSource expects to make contributions of approximately $9.1 million to its pension plans and approximately $25.3 million to its postretirement medical and life plans.

Refer to Note 11, “Pension and Other Postretirement Benefits,” in the Notes to Consolidated Financial Statements for more information.

NiSource cannot reasonably estimate the settlement amounts or timing of cash flows related to long-term obligations classified as “Total Other Liabilities” on the Consolidated Balance Sheets, other than those described above.

NiSource also has obligations associated with income, property, gross receipts, franchise, payroll, sales and use, and various other taxes and expects to make tax payments of approximately $214.7 million in 2017, which are not included in the table above.

Off-Balance Sheet Arrangements

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.

Refer to Note 18, “Other Commitments and Contingencies,” in the Notes to Consolidated Financial Statements for additional information about NiSource’s off-balance sheet arrangements.

ITEM 7.

| [Report of Independent Registered Public Accounting [removed: Firm](#s5762BF656F7B57EE8544BA561CDD0B19)] [added: Firm](#sBD07FC839F285CBB99A19CF26E86B22B)] | [removed: [40](#s5762BF656F7B57EE8544BA561CDD0B19)] [added: [42](#sBD07FC839F285CBB99A19CF26E86B22B)] |

| [Statements of Consolidated [removed: Income](#sD5ECA4BF7A0D53A3865D4D83EBD27DBE)] [added: Income](#sE29AD64F2EE75AA3A308F8F178A58852)] | [removed: [42](#sD5ECA4BF7A0D53A3865D4D83EBD27DBE)] [added: [44](#sE29AD64F2EE75AA3A308F8F178A58852)] |

| [Statements of Consolidated Comprehensive [removed: Income](#sACCBBF48B2425BBE9E99769D5B3FC3F9)] [added: Income](#s91CFD9C629695955955F3C4A526BA2FC)] | [removed: [43](#sACCBBF48B2425BBE9E99769D5B3FC3F9)] [added: [45](#s91CFD9C629695955955F3C4A526BA2FC)] |

| [Consolidated Balance [removed: Sheets](#s2714E570953A5017B576523A2EE237D7)] [added: Sheets](#sF98381CA7ABD561798727FD89545B1E7)] | [removed: [44](#s2714E570953A5017B576523A2EE237D7)] [added: [46](#sF98381CA7ABD561798727FD89545B1E7)] |

| [Statements of Consolidated Cash [removed: Flows](#sE9C7D228A92C580FA54CE4F85A8ED87B)] [added: Flows](#s9CE9D5B7D3505063946A223DC63F97EF)] | [removed: [46](#sE9C7D228A92C580FA54CE4F85A8ED87B)] [added: [48](#s9CE9D5B7D3505063946A223DC63F97EF)] |

| [Statements of Consolidated Common Stockholders’ [removed: Equity](#s32C318DEBB7458CCBBB652E10A677691)] [added: Equity](#s0CB96031EB465234AA0CA0F3BC047126)] | [removed: [47](#s32C318DEBB7458CCBBB652E10A677691)] [added: [49](#s0CB96031EB465234AA0CA0F3BC047126)] |

| [Notes to Consolidated Financial [removed: Statements](#s5CDEAD72D8B350BAB774AF9509B840EB)] [added: Statements](#sA3350D4FA31856AC8947D3118EB6D71B)] | [removed: [49](#s5CDEAD72D8B350BAB774AF9509B840EB)] [added: [51](#sA3350D4FA31856AC8947D3118EB6D71B)] |

| [1. Nature of Operations and Summary of Significant Accounting [removed: Policies](#sCA425D021A635B69B61F58B4E686C49E)] [added: Policies](#sAE28F5BEFED754BEAECF91B67EFCBFE5)] | [removed: [49](#sCA425D021A635B69B61F58B4E686C49E)] [added: [51](#sAE28F5BEFED754BEAECF91B67EFCBFE5)] |

| [2. Recent Accounting [removed: Pronouncements](#sEF58B85B1E755D24846A7AA6D7B06F63)] [added: Pronouncements](#s9C61429DB2375090A39970D1F2E134A4)] | [removed: [52](#sEF58B85B1E755D24846A7AA6D7B06F63)] [added: [54](#s9C61429DB2375090A39970D1F2E134A4)] |

| [4. Earnings Per [removed: Share](#s9c9dfc67528f45798c5d1deb52f61101)] [added: Share](#sC2C1E1C7404A50C3890FC76892A0B6DC)] | [removed: [57](#s9c9dfc67528f45798c5d1deb52f61101)] [added: [58](#sC2C1E1C7404A50C3890FC76892A0B6DC)] |

| [removed: [5.] Property, Plant and [removed: Equipment](#sDF19D21200925A1A835CA72B908A055D)] [added: Equipment] | [removed: [57](#sDF19D21200925A1A835CA72B908A055D)] | [added: | | | | | |]

| [6. Goodwill and Other Intangible [removed: Assets](#s1AB9A0D2418C5506BFA72482BC437529)] [added: Assets](#s5346F149B5545972A45B47CC1952EDA8)] | [removed: [58](#s1AB9A0D2418C5506BFA72482BC437529)] [added: [59](#s5346F149B5545972A45B47CC1952EDA8)] |

| [7. Asset Retirement [removed: Obligations](#sBD0AB7EF537E5502AFBB51D3606EFA67)] [added: Obligations](#s19A60CC606655B2FA9F32BC35CA3A694)] | [removed: [58](#sBD0AB7EF537E5502AFBB51D3606EFA67)] [added: [60](#s19A60CC606655B2FA9F32BC35CA3A694)] |

| [8. Regulatory [removed: Matters](#sA8F75D90F2BB5C57A54086D2726251F3)] [added: Matters](#s4BCB7FE55EF8572299CF7203D67DD8F2)] | [removed: [59](#sA8F75D90F2BB5C57A54086D2726251F3)] [added: [61](#s4BCB7FE55EF8572299CF7203D67DD8F2)] |

| [9. Risk Management [removed: Activities](#s7B616A3DAD6B5441AADE54FD72566C2C)] [added: Activities](#s519C8CAD5ED859A6AABF8B1E736D41A8)] | [removed: [65](#s7B616A3DAD6B5441AADE54FD72566C2C)] [added: [66](#s519C8CAD5ED859A6AABF8B1E736D41A8)] |

| [10. Income [removed: Taxes](#s881650D384495B5C85B9BA12670DFB0B)] [added: Taxes](#s9F4B4FF52B6F55BE90623785ADDD1285)] | [removed: [67](#s881650D384495B5C85B9BA12670DFB0B)] [added: [67](#s9F4B4FF52B6F55BE90623785ADDD1285)] |

| [11. Pension and Other Postretirement [removed: Benefits](#s7581C5AAF4D75FB897649EF2587A3719)] [added: Benefits](#s680C91E60B2E5EEF93F3EC72412E5745)] | [removed: [70](#s7581C5AAF4D75FB897649EF2587A3719)] [added: [70](#s680C91E60B2E5EEF93F3EC72412E5745)] |

| [12. Common [removed: Stock](#s40E3EC8E926C5042BC2CDA0FBA8585AF)] [added: Stock](#s221E78D827DD5B42B3895CEA12025421)] | [removed: [80](#s40E3EC8E926C5042BC2CDA0FBA8585AF)] [added: [82](#s221E78D827DD5B42B3895CEA12025421)] |

| [13. Share-Based [removed: Compensation](#sEE2A1F2A7AA2524081047BB268131468)] [added: Compensation](#sD92273208DAE5E7F8E9B257C3DF8F431)] | [removed: [81](#sEE2A1F2A7AA2524081047BB268131468)] [added: [83](#sD92273208DAE5E7F8E9B257C3DF8F431)] |

| [14. Long-Term [removed: Debt](#s1AC4748B84055C9585EE1DDFB7C83583)] [added: Debt](#s51DBA9102DC15A34A73487CD0B7DD647)] | [removed: [84](#s1AC4748B84055C9585EE1DDFB7C83583)] [added: [86](#s51DBA9102DC15A34A73487CD0B7DD647)] |

| [15. Short-Term [removed: Borrowings](#s72CB9BB049A65E1497DA48AED5C689C9)] [added: Borrowings](#s7E9198B2E36E5BD3BC254A41C4321C86)] | [removed: [86](#s72CB9BB049A65E1497DA48AED5C689C9)] [added: [88](#s7E9198B2E36E5BD3BC254A41C4321C86)] |

| [16. Fair [removed: Value Disclosures](#s5C4A52FBE1165D04985CA1D5D4EBE303)] [added: Value](#sE20B869743DA5E839AAF4328F8E0B89E)] | [removed: [87](#s5C4A52FBE1165D04985CA1D5D4EBE303)] [added: [89](#sE20B869743DA5E839AAF4328F8E0B89E)] |

| [17. Transfers of Financial [removed: Assets](#s814D3F01640A5C1DA6FA9A4C26132038)] [added: Assets](#s54561DB13537522B91E20445DE48F781)] | [removed: [89](#s814D3F01640A5C1DA6FA9A4C26132038)] [added: [91](#s54561DB13537522B91E20445DE48F781)] |

| [18. Other Commitments and [removed: Contingencies](#s51E943176D425DC29B1DBC1CB4564369)] [added: Contingencies](#s3B05D0BCF7DD5CF0908A72B819BD7E12)] | [removed: [90](#s51E943176D425DC29B1DBC1CB4564369)] [added: [92](#s3B05D0BCF7DD5CF0908A72B819BD7E12)] |

| [19. Accumulated Other Comprehensive [removed: Loss](#s993D1794B9AA592A964E71C9D3783D76)] [added: Loss](#sFACF73E1CFEF55108D9EBC900E36B5B6)] | [removed: [95](#s993D1794B9AA592A964E71C9D3783D76)] [added: [96](#sFACF73E1CFEF55108D9EBC900E36B5B6)] |

| [20. Other, [removed: Net](#s08813B88BB3B5385BF7B03FC60B6CFBE)] [added: Net](#s80E5A800AFA2550C8ADB54BA52146EC1)] | [removed: [95](#s08813B88BB3B5385BF7B03FC60B6CFBE)] [added: [97](#s80E5A800AFA2550C8ADB54BA52146EC1)] |

| [21. Interest Expense, [removed: Net](#sDDB0EBB6F85958E58B46C9E7DB3D701E)] [added: Net](#sACBB498BA2735B828B0683FC01C83740)] | [removed: [96](#sDDB0EBB6F85958E58B46C9E7DB3D701E)] [added: [97](#sACBB498BA2735B828B0683FC01C83740)] |

| [22. Segments of [removed: Business](#s71F9AFEBC91E512C9A30400E4C60DEAD)] [added: Business](#s50558698316851119F3921494F5F5439)] | [removed: [96](#s71F9AFEBC91E512C9A30400E4C60DEAD)] [added: [97](#s50558698316851119F3921494F5F5439)] |

| [23. Quarterly Financial Data [removed: (Unaudited)](#s62F23AB57C1E5E3683DE3D3C9920AEB7)] [added: (Unaudited)](#s362C1D78D1265E0A9AE7B0D68A319B91)] | [removed: [98](#s62F23AB57C1E5E3683DE3D3C9920AEB7)] [added: [99](#s362C1D78D1265E0A9AE7B0D68A319B91)] |

| [24. Supplemental Cash Flow [removed: Information](#s3277EF7BC6CB56DABAD329FEA2A22D64)] [added: Information](#s8BF2361F8EC15AC9A8FE07722138699E)] | [removed: [99](#s3277EF7BC6CB56DABAD329FEA2A22D64)] [added: [100](#s8BF2361F8EC15AC9A8FE07722138699E)] |

To the [added: stockholders and the] Board of Directors [removed: and Stockholders] of NiSource Inc.

We have audited the accompanying consolidated balance sheets of NiSource Inc. and subsidiaries (the [removed: “Company”)] [added: "Company")] as of December 31, [removed: 2016 and 2015,] [added: 2017] and [added: 2016,] the related [removed: consolidated] statements of [added: consolidated] income, comprehensive income, common [removed: stockholders’] [added: stockholders'] equity, and cash flows for each of the three years in the period ended December 31, [removed: 2016.][added: 2017, and the related notes and the schedule listed in the Index at item 15 (collectively referred to as the "financial statements").]

These financial statements [removed: and financial statement schedule] are the responsibility of the [removed: Company’s] [added: Company's] management.

Our responsibility is to express an opinion on the [added: Company's] financial statements [removed: and financial statement schedule] based on our audits.

We conducted our audits in accordance with the standards of the [removed: Public Company Accounting Oversight Board (United States).][added: PCAOB.]

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material [removed: misstatement.][added: misstatement, whether due to error or fraud.]

[removed: An audit includes] [added: Such procedures included] examining, on a test basis, evidence [removed: supporting] [added: regarding] the amounts and disclosures in the financial statements.

[removed: An audit] [added: Our audits] also [removed: includes assessing] [added: included evaluating] the accounting principles used and significant estimates made by management, as well as evaluating the overall [added: presentation of the] financial [removed: statement presentation.][added: statements.]

In our opinion, [removed: such consolidated] [added: the] financial statements present fairly, in all material respects, the financial position of [removed: NiSource Inc. and subsidiaries] [added: the Company] as of December 31, [removed: 2016] [added: 2017] and [removed: 2015,] [added: 2016,] and the results of [removed: their] [added: its] operations and [removed: their] [added: its] cash flows for each of the three years in the period ended December 31, [removed: 2016,] [added: 2017,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United [removed: States),] [added: States) (PCAOB),] the [removed: Company’s] [added: Company's] internal control over financial reporting as of December 31, [removed: 2016,] [added: 2017,] based on [removed: the] criteria established in Internal Control [removed: -Integrated] [added: - Integrated] Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February [removed: 22, 2017] [added: 20, 2018,] expressed an unqualified opinion on the [removed: Company’s] [added: Company's] internal control over financial reporting.

| [3. Discontinued Operations](#s42561376D93751668F4CBBA0C5702EA1) | [57](#s42561376D93751668F4CBBA0C5702EA1) |

| [25. Subsequent Event](#sAFEDDBF3E4D158B48F87BB37022595B6) | [100](#sAFEDDBF3E4D158B48F87BB37022595B6) |

| [Schedule II](#s9C9A841289BB5DA6B4B7271087E102E0) | [101](#s9C9A841289BB5DA6B4B7271087E102E0) |

Opinion on the Financial Statements

Emphasis of a Matter

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Columbus, Ohio

February 20, 2018

We have served as the Company's auditor since 2002.

To the stockholders and the Board of Directors of NiSource Inc.

Opinion on Internal Control over Financial Reporting

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for year ended December 31, 2017, of the Company and our report dated February 20, 2018, expressed an unqualified opinion on those financial statements and included an explanatory paragraph related to the Company's spin-off of its subsidiary Columbia Pipeline Group, Inc. on July 1, 2015.

Basis for Opinion

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control over Financial Reporting

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Columbus, Ohio

February 20, 2018

| Operating Revenues | | | | | | | | | | | |

| Total Operating Revenues | 4,874.6 | | | | 4,492.5 | | | | 4,651.8 | | |

| Net Income attributable to NiSource | $ | 128.5 | | | $ | 331.5 | | | $ | 286.5 | |

| Net Income | $ | 128.5 | | | $ | 331.5 | | | $ | 302.1 | |

| Risk management liabilities | 43.2 | | | | 16.8 | | |

| Other accruals | 90.8 | | | | 65.9 | | |

| Net Income | $ | 128.5 | | | $ | 331.5 | | | $ | 302.1 | |

| Purchases of available-for-sale securities | (168.4 | | ) | | (38.3 | | ) | | (54.9 | | ) |

| Sales of available-for-sale securities | 163.1 | | | | 33.0 | | | | 58.4 | | |

| Other investing activities | 1.6 | | | | (12.4 | | ) | | 18.0 | | |

| Balance as of December 31, 2016 | $ | 3.3 | | | $ | (88.7 | ) | | $ | 5,153.9 | | | $ | (972.2 | ) | | $ | (25.1 | ) | | $ | 4,071.2 | |

| ATM program | 0.1 | | | | — | | | | 314.6 | | | | — | | | | — | | | | 314.7 | | |

| Balance as of December 31, 2017 | $ | 3.4 | | | $ | (95.9 | ) | | $ | 5,529.1 | | | $ | (1,073.1 | ) | | $ | (43.4 | ) | | $ | 4,320.1 | |

| 401(k) and profit sharing plan | 1,644 | | | — | | | 1,644 | |

| 401(k) and profit sharing plan | 1,793 | | | — | | | 1,793 | |

| 401(k) and profit sharing plan | 1,396 | | | — | | | 1,396 | |

| ATM program | 11,931 | | | — | | | 11,931 | |

| Balance as of December 31, 2017 | 340,813 | | | (3,797 | ) | | 337,016 | |

Exchange gas is valued based on individual regulatory jurisdiction requirements (for example, historical spot rate, spot at the beginning of the month).

NISOURCE INC.

ITEM 8.

| [3. Discontinued Operations and Assets and Liabilities Held for Sale](#s4821B2B8C3515D3B8850658F09FF07F4) | [55](#s4821B2B8C3515D3B8850658F09FF07F4) |

| [Schedule II](#s03EBB5CA26C65BBD9A17DA8B04EA780D) | [100](#s03EBB5CA26C65BBD9A17DA8B04EA780D) |

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Merrillville, Indiana

Our audits also included the financial statement schedule listed in the Index at item 15.

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.

Chicago, Illinois

February 22, 2017

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.

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Net Revenues | | | | | | | | | | | |

| Gross Revenues | 4,492.5 | | | | 4,651.8 | | | | 5,272.4 | | |

| Total Net Revenues | 3,102.3 | | | | 3,008.1 | | | | 2,899.5 | | |

| Total Operating Expenses | 2,244.1 | | | | 2,208.2 | | | | 2,110.4 | | |

| Other Income (Deductions) | | | | | | | | | | | |

| Other accruals | 82.7 | | | | 121.6 | | |

| Restricted cash withdrawals (deposits) | 20.1 | | | | (4.8 | | ) | | (17.1 | | ) |

| Other investing activities | (17.7 | | ) | | 21.5 | | | | 32.6 | | |

| Balance as of January 1, 2014 | $ | 3.2 | | | $ | (48.6 | ) | | $ | 4,690.1 | | | $ | 1,285.5 | | | $ | (43.6 | ) | | $ | 5,886.6 | |

| Balance as of December 31, 2015 | $ | 3.2 | | | $ | (79.3 | ) | | $ | 5,078.0 | | | $ | (1,123.3 | ) | | $ | (35.1 | ) | | $ | 3,843.5 | |

| Balance January 1, 2014 | 315,983 | | | (2,307 | ) | | 313,676 | |

| Retirement savings plan | 1,209 | | | — | | | 1,209 | |

| Retirement savings plan | 1,644 | | | — | | | 1,644 | |

| Retirement savings plan | 1,793 | | | — | | | 1,793 | |

Notes to Consolidated Financial Statements

Electric production fuel balances were $112.8 million at December 31, 2016 and $106.3 million at December 31, 2015.

Materials and supplies balances were $101.7 million at December 31, 2016 and $86.8 million at December 31, 2015.

| 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 2016-01, 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. |

The table below includes ASUs NiSource adopted during 2016:

| 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. |

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.

| | Year Ended | | | | | | | | | | |

| (in millions) | Columbia Pipeline Group Operations | | | | Corporate and Other | | | | Total | | |

| Net Revenues | 655.5 | | | | — | | | | 655.5 | | |

[removed: Usage] [added: Residential usage] for the year ended December 31, [removed: 2016] [added: 2017] decreased [removed: from the same period last year] primarily due to warmer weather in the Company's operating area compared to the prior year.

Columbia of Maryland and Columbia of Virginia have [removed: received] regulatory approval [removed: to implement] [added: for] a revenue normalization adjustment for certain customer classes, a decoupling mechanism whereby monthly revenues that exceed or fall short of approved levels are reconciled in subsequent months.

Columbia of [added: Maryland, Columbia of Virginia and Columbia of] Kentucky [removed: has] [added: have] had approval for a weather normalization adjustment for many years.

During the heating season, which is primarily from November through March, [removed: net] revenues from gas sales are more significant, and during the cooling season, which is primarily June through September, [removed: net] revenues from electric sales are more significant, than in other months.

As of December 31, [removed: 2016,] [added: 2017,] NiSource had [removed: 8,007] [added: 8,175] employees of whom [removed: 3,175] [added: 3,199] were subject to collective bargaining agreements.

NiSource electronically files various reports with the Securities and Exchange Commission (SEC), including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, as well as [removed: our] [added: NiSource's] proxy statements for [removed: our] [added: the Company's] annual meetings of stockholders.

[removed: NiSource’s] [added: Our] operations and financial results are subject to various risks and uncertainties, including those described below, that could adversely affect [removed: the Company’s] [added: our] business, financial condition, results of operations, cash flows, and the trading price of [removed: the Company’s] [added: our] common stock.

[removed: NiSource has] [added: We have] substantial indebtedness which could adversely affect [removed: its] [added: our] financial condition.

[removed: NiSource] [added: We] had total consolidated indebtedness of [removed: $7,909.3] [added: $9,002.2] million outstanding as of December 31, [removed: 2016.][added: 2017.]

[removed: The Company’s] [added: Our] substantial indebtedness could have important consequences.

| • | limit [removed: the Company’s] [added: our] ability to borrow additional funds or increase the cost of borrowing additional funds; |

| • | limit [removed: the Company’s] [added: our] flexibility in planning for, or reacting to, changes in the business and the industries in which [removed: it operates;] [added: we operate;] |

| • | lead parties with whom [removed: NiSource does] [added: we do] business to require additional credit support, such as letters of credit, in order for [removed: NiSource] [added: us] to transact such business; |

| • | place [removed: NiSource] [added: us] at a competitive disadvantage compared to competitors that are less leveraged; |

| • | limit [removed: the] [added: our] ability [removed: of the Company] to execute on [removed: its] [added: our] growth strategy, which is dependent upon access to capital to fund [removed: its] [added: our] substantial [added: infrastructure] investment program. |

Some of [removed: NiSource’s] [added: our] debt obligations contain financial covenants related to debt-to-capital ratios and cross-default provisions.

[removed: NiSource’s] [added: Our] failure to comply with any of these covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of outstanding debt obligations.

The credit rating agencies periodically review [removed: the Company’s] [added: our] ratings, taking into account factors such as our capital structure and earnings profile.

In [removed: 2016,] [added: 2017,] Moody’s affirmed the NiSource senior unsecured rating of Baa2 and its commercial paper rating of P-2, with stable outlooks.

In [removed: 2016,] [added: 2017,] Standard & Poor’s affirmed the BBB+ senior unsecured ratings of NiSource and its subsidiaries and affirmed NiSource’s commercial paper rating of A-2, with stable outlooks.

In [removed: 2016,] [added: 2017,] Fitch [removed: upgraded] [added: affirmed] the long-term issuer default ratings of NiSource and NIPSCO to BBB and affirmed the commercial paper rating of F3, with stable outlooks.

[removed: The Company is] [added: We are] committed to maintaining investment grade credit ratings, however, there is no assurance we will be able to do so in the future.

[removed: The Company’s] [added: Our] credit ratings could be lowered or withdrawn entirely by a rating agency if, in its judgment, the circumstances warrant.

Certain NiSource subsidiaries have agreements that contain “ratings triggers” that require increased collateral [added: in the form of cash, a letter of credit or other forms of security for new and existing transactions] if the credit ratings of NiSource or certain of its subsidiaries are [added: dropped] below investment grade.

These agreements are primarily for insurance purposes and for the physical purchase or sale of [added: gas or] power.

As of December 31, [removed: 2016,] [added: 2017,] the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately [removed: $35.4] [added: $46.1] million.

[removed: NiSource] [added: We] may not be able to execute [removed: its] [added: our] business plan or growth strategy, including utility infrastructure investments.

Business or regulatory conditions may result in [removed: NiSource] [added: us] not being able to execute [removed: its] [added: our] business plan or growth strategy, including identified, planned and other utility infrastructure investments.

[removed: NiSource’s] [added: Our] customer and regulatory initiatives may not achieve planned results.

Natural gas may cease to be viewed as an economically and [removed: ecologically] [added: environmentally] attractive fuel.

While the national economy is experiencing modest growth, [removed: NiSource] [added: we] cannot predict how robust future growth will be or whether or not it will be sustained.

Deteriorating or sluggish economic conditions in [removed: NiSource’s] [added: our] operating jurisdictions could adversely impact [removed: NiSource’s] [added: our] ability to [added: maintain or] grow [removed: its] [added: our] customer base and collect revenues from customers, which could reduce [removed: net] revenue growth and increase operating costs.

[removed: NiSource has] [added: We have] significant obligations in these areas and [removed: holds] [added: hold] significant assets in these trusts.

These assets are subject to market fluctuations and may yield uncertain returns, which fall below [removed: NiSource’s] [added: our] projected rates of return.

Ultimately, significant funding requirements and increased pension or other postretirement benefit plan expense could negatively impact [removed: NiSource’s] [added: our] results of operations and financial position.

The majority of [removed: NiSource’s net] [added: our] revenues are subject to economic regulation and are exposed to the impact of regulatory rate reviews and proceedings.

Most of [removed: NiSource’s net] [added: our] revenues are subject to economic regulation at either the federal or state level.

As such, the [removed: net] revenues generated by [removed: those regulated companies] [added: us] are subject to regulatory review by the applicable federal or state authority.

[removed: NiSource’s] [added: Our] financial results are dependent on frequent regulatory proceedings in order to ensure timely recovery of costs.

Additionally, the costs of complying with future changes in environmental [added: and federal pipeline safety] laws and regulations are expected to be significant, and their recovery through rates will be contingent on regulatory approval.

Competition and Changes in the Regulatory Environment

The regulatory frameworks applicable to NiSource’s operations, at both the state and federal levels, continue to evolve.

These changes have had and will continue to have an impact on NiSource’s operations, structure and profitability.

Management continually seeks new ways to be more competitive and profitable in this environment.

The Gas Distribution Operations companies have pursued non-traditional revenue sources within the evolving natural gas marketplace.

These efforts include the sale of products and services upstream of the companies’ service territory, the sale of products and services in the companies’ service territories, and gas supply cost incentive mechanisms for service to their core markets.

Collective bargaining agreements for 189 employees are set to expire within one year.

Our businesses are capital intensive and we rely significantly on long-term debt to fund a portion of our capital expenditures and repay outstanding debt, and on short-term borrowings to fund a portion of day-to-day business operations.

A drop in our credit ratings could adversely impact our cash flows, results of operation, financial condition and liquidity.

The availability and cost of credit for our businesses may be greatly affected by credit ratings.

A credit rating is not a recommendation to buy, sell or hold securities, and may be subject to revision or withdrawal at any time by the assigning rating organization.

If the credit ratings of NiSource or certain of its subsidiaries were downgraded, especially below investment grade, financing costs and the principal amount of borrowings would likely increase due to the additional risk of our debt and because certain counterparties may require additional credit support as described above.

Such amounts may be material and could adversely affect our cash flows, results of operations and financial condition.

Certain groups may oppose natural gas delivery and infrastructure investments because of perceived environmental impacts associated with the natural gas supply chain and end use.

Energy conservation, energy efficiency, distributed generation, energy storage and other factors may reduce energy demand.

Adverse economic and market conditions or increases in interest rates could materially and adversely affect our results of operations, cash flows, financial condition and liquidity.

We rely on access to the capital markets to finance our liquidity and long-term capital requirements, including expenditures for our utility infrastructure and to comply with future regulatory requirements, to the extent not satisfied by the cash flow generated by our operations.

We have historically relied on long-term debt to fund a portion of our capital expenditures and repay outstanding debt, and on short-term borrowings to fund a portion of day-to-day business operations.

Successful implementation of our long-term business strategies, including capital investment, is dependent upon our ability to access the capital and credit markets, including the banking and commercial paper markets, on competitive terms and rates.

An economic downturn or uncertainty, market turmoil, changes in tax policy, challenges faced by financial institutions, changes in our credit ratings, or a change in investor sentiment toward us or the utilities industry generally could adversely affect our ability to raise additional capital or refinance debt.

In addition, if any of these risks or uncertainties limit our access to the credit and capital markets or significantly increase our cost of capital, it could limit our ability to implement, or increase the costs of implementing, our business plan, which, in turn, could materially and adversely affect our results of operations, cash flows, financial condition and liquidity.

We are also subject to adverse publicity related to perceived environmental impacts.

While we continue to reduce GHG emissions through electric generation with lower carbon intensity, priority pipeline replacement, energy efficiency, leak detection, and other programs, GHG emissions are an expected aspect of the electric and natural gas business.

ITEM 1A.

RISK FACTORS

NISOURCE INC.

The U.S. manufacturing industry continues to adjust to changing market conditions including international competition, increasing costs, and fluctuating demand for its products.

The implementation of NIPSCO’s electric generation strategy, including the retirement of its coal generation units, may not achieve intended results.

On November 1, 2016, NIPSCO submitted its Integrated Resource Plan with the IURC setting forth its short- and long-term electric generation plans in an effort to maintain affordability while providing reliable, flexible and cleaner sources of power.

However, there are inherent risks and uncertainties, including changes in market conditions, environmental regulations, commodity costs and customer expectations, which may impede NIPSCO’s ability to achieve these intended results.

In addition, the Integrated Resource Plan included an intention to retire the Bailly coal generation units (Units 7 and 8) as soon as mid-2018 and two units (Units 17 and 18) at the R.M. Schahfer Generating Station by the end of 2023.

The MISO subsequently approved NIPSCO’s plan to retire the two Bailly coal generation units by May 31, 2018.

On February 1, 2018, NIPSCO commenced a four-month outage of Bailly Generating Station Unit 8 to begin work on converting the unit to a synchronous condenser (a piece of equipment designed to maintain voltage to ensure continued reliability on the transmission system).

NIPSCO expects to complete the retirement of Units 7 and 8 by May 31, 2018.

NIPSCO’s electric generation strategy could require significant future capital expenditures, operating costs and charges to earnings that may negatively impact our financial position, financial results and cash flows.

Fluctuations in the price of energy commodities or their related transportation costs or an inability to obtain an adequate, reliable and cost-effective fuel supply to meet customer demands may have a negative impact on our financial results.

Our electric generating fleet is dependent on coal and natural gas for fuel, and our gas distribution operations purchase and resell much of the natural gas we deliver.

These energy commodities are vulnerable to price fluctuations and fluctuations in associated transportation costs.

From time to time, we have used hedging in order to offset fluctuations in commodity supply prices.

We rely on regulatory recovery mechanisms in the various jurisdictions in order to fully recover the commodity costs incurred in operations.

markets.

Financing Subsidiary

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.

A drop in NiSource’s credit rating could adversely impact NiSource’s liquidity.

Adverse economic and market conditions or increases in interest rates could reduce net revenue growth, increase costs, decrease future net income and cash flows and impact capital resources and liquidity needs.

The Company relies on access to the capital markets to finance its liquidity and long-term capital requirements.

Market turmoil could adversely affect our ability to raise additional capital or refinance debt.

Because NiSource operates fossil fuel facilities, emissions of GHGs are an expected and unavoidable aspect of the business.

While NiSource continues to reduce GHG emissions through efficiency programs, leak detection, and other programs, GHG emissions cannot be eliminated.

For the fiscal year ended December 31, [removed: 2016][added: 2017]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, [removed: or] a smaller reporting [added: company, or an emerging growth] company.

See the definition of “large accelerated filer,” “accelerated [removed: filer” and] [added: filer,”] “smaller reporting [removed: company”] [added: company,” and "emerging growth company"] in Rule 12-b-2 of the Exchange Act.

| Large accelerated filer þ | | Accelerated filer ¨ | [added: | Emerging growth company ¨ |]

| Non-accelerated filer ¨ | | Smaller reporting company ¨ | [added: | |]

The aggregate market value of the registrant's common stock, par value $0.01 per share (the "Common Stock") held by non-affiliates was approximately [removed: $8,497,589,485] [added: $8,237,384,461] based upon the June 30, [removed: 2016,] [added: 2017,] closing price of [removed: $26.52] [added: $25.36] on the New York Stock Exchange.

There were [removed: 323,445,821] [added: 337,410,827] shares of Common Stock outstanding as of February [removed: 14, 2017.][added: 12, 2018.]

Part III of this report incorporates by reference specific portions of the Registrant’s Notice of Annual Meeting and Proxy Statement relating to the Annual Meeting of Stockholders to be held on May [removed: 9, 2017.][added: 8, 2018.]

| [Defined [removed: Terms](#sDFE9071C1A68558CB4DB40A0F71E1447)] [added: Terms](#s5BC5E41710E857C4BB251CA3A86D742C)] | | [removed: [3](#sDFE9071C1A68558CB4DB40A0F71E1447)] [added: [3](#s5BC5E41710E857C4BB251CA3A86D742C)] |

| Item 1. | [removed: [Business](#s8A2D33CFE4FB555B8A4CA359E7EBE37A)] [added: [Business](#sDB130529E74557B18DD490F2732F6CDC)] | [removed: [6](#s8A2D33CFE4FB555B8A4CA359E7EBE37A)] [added: [6](#sDB130529E74557B18DD490F2732F6CDC)] |

| Item 1A. | [Risk [removed: Factors](#s941C808FE2C4558DB5A062B738D8A1F3)] [added: Factors](#sF094BF3577AD5A778DC508EA10174A18)] | [removed: [9](#s941C808FE2C4558DB5A062B738D8A1F3)] [added: [9](#sF094BF3577AD5A778DC508EA10174A18)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s5BB7BBFCFE025B32B09E4619C3CF88A7)] [added: Comments](#s328C2EFC70425C6B8748F5EE57F03230)] | [removed: [15](#s5BB7BBFCFE025B32B09E4619C3CF88A7)] [added: [16](#s328C2EFC70425C6B8748F5EE57F03230)] |

| Item 2. | [removed: [Properties](#s8416DE428B095FEAA5699A08EFF9B62B)] [added: [Properties](#s81207651C88356B7A9423ABD72C6E867)] | [removed: [15](#s8416DE428B095FEAA5699A08EFF9B62B)] [added: [16](#s81207651C88356B7A9423ABD72C6E867)] |

| Item 3. | [Legal [removed: Proceedings](#s7F6A21AF33D05029B005ECECDA652AEB)] [added: Proceedings](#s5AD586608EE6561891CFB9E38DDEC436)] | [removed: [15](#s7F6A21AF33D05029B005ECECDA652AEB)] [added: [16](#s5AD586608EE6561891CFB9E38DDEC436)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s7F6A21AF33D05029B005ECECDA652AEB)] [added: Disclosures](#s5AD586608EE6561891CFB9E38DDEC436)] | [removed: [15](#s7F6A21AF33D05029B005ECECDA652AEB)] [added: [16](#s5AD586608EE6561891CFB9E38DDEC436)] |

| [Supplemental Item. Executive Officers of the [removed: Registrant](#s1300269B42C5599DABE90206B23525D6)] [added: Registrant](#s7C4928140E5050619C6D94828D0681D8)] | | [removed: [16](#s1300269B42C5599DABE90206B23525D6)] [added: [17](#s7C4928140E5050619C6D94828D0681D8)] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#sE9CE01192E2255A3812EE0F7385BC8C8)] [added: Securities](#s3D90D7E3230151E494DF1310C1F93879)] | [removed: [17](#sE9CE01192E2255A3812EE0F7385BC8C8)] [added: [18](#s3D90D7E3230151E494DF1310C1F93879)] |

| Item 6. | [Selected Financial [removed: Data](#s724914CCC18B586CB151C672179DBA8E)] [added: Data](#s5C1906F50A6552BCB45293AB9C79601C)] | [removed: [19](#s724914CCC18B586CB151C672179DBA8E)] [added: [20](#s5C1906F50A6552BCB45293AB9C79601C)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#s6CC28CCED4715C2597524D86A1ABFE97)] [added: Operations](#sDC8FC4A94BB9542AA7FF168A98AC7B1F)] | [removed: [20](#s6CC28CCED4715C2597524D86A1ABFE97)] [added: [21](#sDC8FC4A94BB9542AA7FF168A98AC7B1F)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sB67764A49ABC57CD9FF2E6319F9D1E57)] [added: Risk](#s49D98822FE8359CAB8EBFA6B0129AC6A)] | [removed: [38](#sB67764A49ABC57CD9FF2E6319F9D1E57)] [added: [40](#s49D98822FE8359CAB8EBFA6B0129AC6A)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#sDC3BCBF527C555B2AD419C5895CD371B)] [added: Data](#s3C02F9C73FAE517987405E12BC44A6DF)] | [removed: [39](#sDC3BCBF527C555B2AD419C5895CD371B)] [added: [41](#s3C02F9C73FAE517987405E12BC44A6DF)] |

| Item 9. | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#s84960AB5E63D5BF68225D1FA68BC9CEA)] [added: Disclosure](#sC93AB2EF8F5F542B910B45505C352C31)] | [removed: [101](#s84960AB5E63D5BF68225D1FA68BC9CEA)] [added: [102](#sC93AB2EF8F5F542B910B45505C352C31)] |

| Item 9A. | [Controls and [removed: Procedures](#s750B5C9A8C1A57FF9B101ABA73D44031)] [added: Procedures](#sD5E214C30D80577782B35EB55A1C50D8)] | [removed: [101](#s750B5C9A8C1A57FF9B101ABA73D44031)] [added: [102](#sD5E214C30D80577782B35EB55A1C50D8)] |

| Item 9B. | [Other [removed: Information](#sC07F2F297E185DB0A778B640CEA380DC)] [added: Information](#sEAF586E5FD3B5EBD83A178024DDFFEBE)] | [removed: [101](#sC07F2F297E185DB0A778B640CEA380DC)] [added: [102](#sEAF586E5FD3B5EBD83A178024DDFFEBE)] |

| [Part [removed: III](#sA124F1E244CD53A28E02B22C1C5852D3)] [added: III](#s5101147348C250CFB7EF8154A9B04820)] | | |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#sA124F1E244CD53A28E02B22C1C5852D3)] [added: Governance](#s5101147348C250CFB7EF8154A9B04820)] | [removed: [102](#sA124F1E244CD53A28E02B22C1C5852D3)] [added: [103](#s5101147348C250CFB7EF8154A9B04820)] |

| Item 11. | [Executive [removed: Compensation](#s789F6B032B505DEC8D7F58F8C3A73C2C)] [added: Compensation](#sB23D3B5B61B5598993E2C1B42A7A6BF9)] | [removed: [102](#s789F6B032B505DEC8D7F58F8C3A73C2C)] [added: [103](#sB23D3B5B61B5598993E2C1B42A7A6BF9)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#sA0B53311508A5E529A4BF21578691C56)] [added: Matters](#s8F68BC4E5DD3538B8BEEA4191EE874C6)] | [removed: [102](#sA0B53311508A5E529A4BF21578691C56)] [added: [103](#s8F68BC4E5DD3538B8BEEA4191EE874C6)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#sA8EE19980610570EB81A22E01158C80B)] [added: Independence](#s7B81CFC225755D1EA2EFF03333C51595)] | [removed: [102](#sA8EE19980610570EB81A22E01158C80B)] [added: [103](#s7B81CFC225755D1EA2EFF03333C51595)] |

| Item 14. | [Principal Accounting Fees and [removed: Services](#sAB7BD9C604E3510BBC98CC50EF64CC01)] [added: Services](#sAA79D9CB4EA2579199BD21443840C11E)] | [removed: [102](#sAB7BD9C604E3510BBC98CC50EF64CC01)] [added: [103](#sAA79D9CB4EA2579199BD21443840C11E)] |

| Item 15. | [Exhibits, Financial Statement [removed: Schedules](#s4CEC37F04D845C4281750A7552BF0F97)] [added: Schedules](#sC2C9862E5BDF59CB9A9B63E9D3DB9553)] | [removed: [103](#s4CEC37F04D845C4281750A7552BF0F97)] [added: [104](#sC2C9862E5BDF59CB9A9B63E9D3DB9553)] |

| NIPSCO | | Northern Indiana Public Service Company [added: LLC] |

Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Annual Report on Form 10-K include, among other things, NiSource’s debt obligations; any changes [removed: in NiSource’s] [added: to the] credit [removed: rating;] [added: rating of NiSource or certain of its subsidiaries;] NiSource’s ability to execute its growth strategy; changes in general economic, capital and commodity market conditions; pension funding obligations; economic regulation and the impact of regulatory rate reviews; NiSource's ability to obtain expected financial or regulatory outcomes; any damage to NiSource's reputation; compliance with environmental laws and the costs of associated liabilities; fluctuations in demand from residential and commercial customers; economic conditions of certain industries; the success of NIPSCO's electric generation strategy; the price of energy commodities and related transportation costs; the reliability of customers and suppliers to fulfill their payment and contractual obligations; potential impairments of goodwill or definite-lived intangible assets; changes in taxation and accounting principles; potential incidents and other operating risks associated with [removed: our] [added: NiSource's] business; the impact of an aging infrastructure; the impact of climate change; potential cyber-attacks; construction risks and natural gas costs and supply risks; extreme weather conditions; the attraction and retention of a qualified workforce; advances in technology; the ability of NiSource's subsidiaries to generate cash; uncertainties related to the expected benefits of the [removed: Separation] [added: Separation; the ability of NiSource to manage new initiatives] and [added: organizational changes; the performance of certain third-party suppliers upon which NiSource relies; NiSource's ability to obtain sufficient insurance coverage; and] other matters set forth in Item 1A, “Risk Factors” of this report, many of which risks are beyond the control of NiSource.

NiSource’s natural gas distribution operations serve approximately [removed: 3.4] [added: 3.5] million customers in seven states and operate approximately [removed: 59,000] [added: 60,000] miles of [removed: pipeline.][added: pipeline located in our service areas described below.]

Additionally, NiSource also distributes natural gas to approximately [removed: 820,000] [added: 830,000] customers in northern Indiana through its wholly-owned subsidiary NIPSCO.

NiSource generates, transmits and distributes electricity through its subsidiary NIPSCO to approximately [removed: 466,000] [added: 469,000] customers in 20 counties in the northern part of Indiana and engages in wholesale and transmission transactions.

NIPSCO also owns and operates Sugar Creek, a CCGT plant [added: located in West Terre Haute, IN] with net capability of 535 mw, three gas-fired generating units located at NIPSCO’s coal-fired electric generating stations with a net capability of 196 mw and two hydroelectric generating plants with a net capability of 10 [removed: mw.][added: mw: Oakdale located at Lake Freeman in Carroll County, IN and Norway located at Lake Schahfer in White County, IN.]

NIPSCO’s transmission system, with voltages from 69,000 to 345,000 volts, consists of [removed: 2,805] [added: 2,843] circuit miles.

During the year ended December 31, [removed: 2016,] [added: 2017,] NIPSCO generated [removed: 66.4%] [added: 65.2%] and purchased [removed: 33.6%] [added: 34.8%] of its electric requirements.

10-K 1 ni-20171231x10k.htm 10-K

| | | | | |

| --- | --- | --- | --- | --- |

| | | | | |

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

| [Part I](#s930010EE7D975B2781C094C3FB7C0C0E) | | |

| [Part II](#s3D90D7E3230151E494DF1310C1F93879) | | |

| [Part IV](#sC2C9862E5BDF59CB9A9B63E9D3DB9553) | | |

| [Signatures](#s7793AB4443F45408825C84392F40E8A4) | | [108](#s7793AB4443F45408825C84392F40E8A4) |

| AMRP | | Accelerated Main Replacement Program |

| ATM | | At-the-market |

| CEP | | Capital Expenditure Program |

| OCC | | Ohio Consumers' Counsel |

| PISCC | | Post-in-service carrying charges |

| TCJA | | Tax Cuts and Jobs Act of 2017 |

NIPSCO owns and operates three coal-fired electric generating stations: four units at R.M. Schahfer located in Wheatfield, IN, two units at Bailly located in Chesterton, IN and one unit at Michigan City located in Michigan City, IN.

Refer to Note 18, "Other Commitments and Contingencies," and Note 25, "Subsequent Event," in the Notes to Consolidated Financial Statements for additional information on NIPSCO's long-term generation strategy.

10-K 1 ni-20161231x10k.htm 10-K

| | | |

| --- | --- | --- |

| [Part I](#sCC70F23AB75054C98431E86717D2EF4D) | | |

| [Part II](#sE9CE01192E2255A3812EE0F7385BC8C8) | | |

| [Part IV](#s4CEC37F04D845C4281750A7552BF0F97) | | |

| [Signatures](#sB56E38AEB5345E7E9A3ABD517782D1CF) | | [104](#sB56E38AEB5345E7E9A3ABD517782D1CF) |

| [Exhibit Index](#sFFB8705F4B3B5A2FA5297C9E04170A6A) | | [105](#sFFB8705F4B3B5A2FA5297C9E04170A6A) |

| CGORC | | Columbia Gas of Ohio Receivables Corporation |

| NARC | | NIPSCO Accounts Receivable Corporation |

| NiSource Development Company | | NiSource Development Company, Inc. |

| BNS | | Bank of Nova Scotia |

| BTMU | | The Bank of Tokyo-Mitsubishi UFJ, LTD. |

| CAP | | Compliance Assurance Process |

| Dth | | Dekatherm |

| EFV | | Excess flow valve |

| ROE | | Return on Equity |

| RTO | | Regional Transmission Organization |

NIPSCO owns and operates three coal-fired electric generating stations.

Competition and Changes in the Regulatory Environment

The regulatory frameworks applicable to NiSource’s operations, at both the state and federal levels, continue to evolve.

These changes have had and will continue to have an impact on NiSource’s operations, structure and profitability.

Management continually seeks new ways to be more competitive and profitable in this environment.

The Gas Distribution Operations companies have pursued non-traditional revenue sources within the evolving natural gas marketplace.

These efforts include the sale of products and services upstream of the companies’ service territory, the sale of products and services in the companies’ service territories, and gas supply cost incentive mechanisms for service to their core

Discussed below are the principal properties held by NiSource and its subsidiaries as of December 31, [removed: 2016.][added: 2017.]

NiSource owns the Southlake Complex, its 325,000 square foot headquarters building located in Merrillville, [removed: Indiana, and other residential and development property.][added: Indiana.]

The following is a list of the Executive Officers of the Registrant, including their names, ages, offices held and other recent business experience, as of February 1, [removed: 2017.][added: 2018.]

| Joseph Hamrock | | [removed: 53] [added: 54] | | | President and Chief Executive Officer of NiSource since July 1, 2015. |

| | | | | | President and Chief Operating Officer of American Electric Power Company [added: - Ohio] (electric utility company) [removed: - Ohio] from [removed: January] 2008 to May 2012. |

| [removed: Donald E. Brown] | | [removed: 45] | | | Executive Vice [removed: President and] [added: President,] Chief Financial Officer [added: and Treasurer] of NiSource [removed: since July 2015 (also Treasurer] from July 2015 to June [removed: 2016).] [added: 2016.] |

| Carrie J. Hightman | | [removed: 59] [added: 60] | | | Executive Vice President and Chief Legal Officer of NiSource since [removed: December] 2007. |

| Carl W. Levander | | [removed: 55] [added: 56] | | | Executive Vice President, Regulatory Policy and Corporate Affairs of NiSource since May [removed: 11,] 2016. |

| | | | | | President of Columbia of Virginia from [removed: January] 2006 to July 2015. |

| Violet G. Sistovaris | | [removed: 55] [added: 56] | | | Executive Vice President and President, NIPSCO since October [removed: 3,] 2016. |

| | | | | | Executive Vice President, NIPSCO from [removed: July] [added: June] 2015 to October 2016. |

| | | | | | Senior Vice President and Chief Information Officer of NiSource Corporate Services Company from [removed: August] 2008 to [removed: June 2015.] [added: May 2014.] |

| [removed: Jim L. Stanley] | | [removed: 61] | | | [removed: Executive] [added: Senior] Vice President and Chief Operating Officer of [removed: NiSource since] [added: NIPSCO from 2010 to] July [removed: 1,] 2015. |

| [removed: Pablo A. Vegas] | | [removed: 43] | | | Executive Vice President and President, Columbia Gas Group [removed: since] [added: from] May [removed: 3, 2016.] [added: 2016 to May 2017.] |

| Teresa M. Smith | | [removed: 53] [added: 54] | | | Vice President of Human Resources for NiSource Corporate Services Company since [removed: January] 2010. |

| Donald E. Brown | | 46 | | | Executive Vice President and Chief Financial Officer of NiSource since June 2016. |

| Peter T. Disser | | 49 | | | Vice President, Audit of NiSource since November 2017. |

| | | | | | Vice President of Planning and Analysis of NiSource from June 2016 to November 2017. |

| | | | | | Chief Financial Officer of NIPSCO from 2012 to June 2016. |

| Michael J. Finissi | | 56 | | | Executive Vice President, Safety, Capital Execution and Technical Services of NiSource since May 2017. |

| | | | | | Senior Vice President, Capital Execution of NiSource from July 2015 to May 2017. |

| Pablo A. Vegas | | 44 | | | Executive President, Gas Segment and Chief Customer Officer of NiSource since May 2017. |

| | | | | | Executive Vice President & Group Chief Executive Officer of NiSource from October 2012 to July 2015. |

| | | | | | Senior Vice President, Duke Energy (electric power holding company) from June 2010 to September 2012. |

| | | | | | Vice President and Chief Information Officer of American Electric Power Company from July 2010 to May 2012. |

| Joseph W. Mulpas | | 45 | | | Vice President and Chief Accounting Officer of NiSource since May 2014. |

| | | | | | Assistant Controller, FirstEnergy Corp. (diversified energy corporation) from November 2012 to March 2014. |

| | | | | | Vice President, Controller and Chief Accounting Officer, Maxum Petroleum Inc. (energy logistics company) from August 2012 to October 2012. |

| | | | | | Vice President, Controller and Chief Accounting Officer of DPL Inc. and its subsidiary, The Dayton Power and Light Company (electric utility company) from May 2009 to June 2012. |

| Suzanne K. Surface | | 52 | | | Vice President, Audit of NiSource since July 1, 2015. |

| | | | | | Vice President of Regulatory Strategy and Support of NiSource from July 2009 to June 2015. |

NiSource’s common stock is listed and traded on the New York Stock Exchange under the symbol “NI.” The table below indicates the high and low sales prices of NiSource’s common stock, and dividends per [removed: share declared,] [added: share,] during the periods indicated.

| First Quarter | $ | [removed: 23.74] [added: 24.29] | | | $ | [removed: 19.05] [added: 21.65] | | | $ | [removed: 0.155] [added: 0.175] | | | $ | [removed: 45.10] [added: 23.74] | | | $ | [removed: 40.89] [added: 19.05] | | | $ | [removed: 0.260] [added: 0.155] | |

| Second Quarter | [removed: 26.53] [added: 26.56] | | | | [removed: 21.97] [added: 23.53] | | | | [removed: 0.155] [added: 0.175] | | | | [removed: 49.16] [added: 26.53] | | | | [removed: 42.25] [added: 21.97] | | | | [removed: 0.260] [added: 0.155] | | |

| Third Quarter | [removed: 26.94] [added: 27.29] | | | | [removed: 23.20] [added: 24.96] | | | | [removed: 0.165] [added: 0.175] | | | | [removed: 45.71(1)] [added: 26.94] | | | | [removed: 16.04(1)] [added: 23.20] | | | | [removed: 0.155(2)] [added: 0.165] | | |

| Fourth Quarter | [removed: 24.06] [added: 27.76] | | | | [removed: 21.17] [added: 24.63] | | | | [removed: 0.165] [added: 0.175] | | | | [removed: 20.13(1)] [added: 24.06] | | | | [removed: 18.33(1)] [added: 21.17] | | | | [removed: 0.155(2)] [added: 0.165] | | |

Holders of shares of NiSource’s common stock are entitled to receive dividends [removed: if,] [added: if] and when declared by NiSource’s Board out of funds legally available.

At its January [removed: 27, 2017,] [added: 26, 2018,] meeting, the Board declared a quarterly common dividend of [removed: $0.175] [added: $0.195] per share, payable on February [removed: 17, 2017] [added: 20, 2018] to holders of record on February [removed: 10, 2017.][added: 9, 2018.]

There can be no assurance that [removed: we] [added: NiSource] will continue to pay such dividends or the amount of such dividends.

As of February [removed: 14, 2017,] [added: 12, 2018,] NiSource had [removed: 22,485] [added: 21,177] common stockholders of record and [removed: 323,445,821] [added: 337,410,827] shares outstanding.

[removed: ][added: ]

The foregoing performance graph is being furnished as part of this annual report solely in accordance with the requirement under Rule 14a-3(b)(9) to furnish [removed: our] stockholders with such information, and therefore, shall not be deemed to be filed or incorporated by reference into any filings by NiSource under the Securities Act or the Exchange Act.

The [removed: weighted average] total [added: shareholder] return for NiSource common stock and the two indices is calculated from an assumed initial investment of $100 and assumes dividend reinvestment, including the impact of the distribution of CPG common stock in the Separation.

| | 2017 | | | | | | | | | | | | 2016 | | | | | | | | | | |

| | | | | | | | | | $ | 0.700 | | | | | | | | | | | $ | 0.640 | |

| | 2016 | | | | | | | | | | | | 2015 | | | | | | | | | | |

| | | | | | | | | | $ | 0.640 | | | | | | | | | | | $ | 0.830 | |

(1) 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.

On July 1, 2015, the last trading day before the Separation became effective, the closing price of our common stock trading “regular way” (with an entitlement to CPG shares distributed in the Separation) was $45.45.

On July 2, 2015, the first day of trading after the Separation, the opening price of our common stock was $17.61 per share.

(2)On July 2, 2015, following the Separation, NiSource’s Board declared a dividend of $0.155 per share of common stock and CPG’s Board declared a dividend of $0.125 per share of CPG common stock.

The amount of dividends paid by NiSource in the third and fourth quarter of 2015 is that of NiSource only, and does not include the dividend declared by CPG during the same period.

The selected data presented below as of and for the five years ended December 31, [removed: 2016,] [added: 2017,] are derived from the Consolidated Financial Statements of NiSource.

| Year Ended December 31, (dollars in millions except per share data) | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | |

| Gas Distribution | $ | [removed: 1,850.9] [added: 2,063.2] | | | $ | [removed: 2,081.9] [added: 1,850.9] | | | $ | [removed: 2,597.8] [added: 2,081.9] | | | $ | [removed: 2,226.3] [added: 2,597.8] | | | $ | [removed: 1,959.8] [added: 2,226.3] | |

| Gas Transportation | [removed: 964.6] [added: 1,021.5] | | | | [removed: 969.8] [added: 964.6] | | | | [removed: 987.4] [added: 969.8] | | | | [removed: 820.0] [added: 987.4] | | | | [removed: 692.4] [added: 820.0] | | |

| Electric | [removed: 1,660.8] [added: 1,785.5] | | | | [removed: 1,572.9] [added: 1,660.8] | | | | [removed: 1,672.0] [added: 1,572.9] | | | | [removed: 1,563.4] [added: 1,672.0] | | | | [removed: 1,507.7] [added: 1,563.4] | | |

| Other | [removed: 16.2] [added: 4.4] | | | | [removed: 27.2] [added: 16.2] | | | | [removed: 15.2] [added: 27.2] | | | | [removed: 15.7] [added: 15.2] | | | | [removed: 18.1] [added: 15.7] | | |

| Total [removed: Gross] [added: Operating] Revenues | [removed: 4,492.5] [added: 4,874.6] | | | | [removed: 4,651.8] [added: 4,492.5] | | | | [removed: 5,272.4] [added: 4,651.8] | | | | [removed: 4,625.4] [added: 5,272.4] | | | | [removed: 4,178.0] [added: 4,625.4] | | |

| [removed: Net Revenues (Gross Revenues less] [added: Less:] Cost of [removed: Sales, excluding] [added: sales (excluding] depreciation and amortization) | [removed: 3,102.3] [added: 513.9] | | | | [removed: 3,008.1] [added: 495.0] | | | | [removed: 2,899.5] [added: 488.4] | | | | [removed: 2,662.4] [added: 18.9] | | | | [removed: 2,513.9] [added: 6.6] | | |

| Operating Income | [removed: 858.2] [added: 910.6] | | | | [removed: 799.9] [added: 858.2] | | | | [removed: 789.1] [added: 799.9] | | | | [removed: 698.1] [added: 789.1] | | | | [removed: 638.6] [added: 698.1] | | |

| Income from Continuing Operations | [removed: 328.1] [added: 128.6] | | | | [removed: 198.6] [added: 328.1] | | | | [removed: 256.2] [added: 198.6] | | | | [removed: 221.0] [added: 256.2] | | | | [removed: 171.0] [added: 221.0] | | |

| Total Assets | [removed: 18,691.9] [added: 19,961.7] | | | | [removed: 17,492.5] [added: 18,691.9] | | | | [removed: 24,589.8] [added: 17,492.5] | | | | [removed: 22,473.6] [added: 24,589.8] | | | | [removed: 21,620.2] [added: 22,473.6] | | |

| Common stockholders’ equity | [removed: 4,071.2] [added: 4,320.1] | | | | [removed: 3,843.5] [added: 4,071.2] | | | | [removed: 6,175.3] [added: 3,843.5] | | | | [removed: 5,886.6] [added: 6,175.3] | | | | [removed: 5,554.3] [added: 5,886.6] | | |

| Long-term debt, excluding amounts due within one year | [removed: 6,058.2] [added: 7,512.2] | | | | [removed: 5,948.5] [added: 6,058.2] | | | | [removed: 8,151.5] [added: 5,948.5] | | | | [removed: 7,588.2] [added: 8,151.5] | | | | [removed: 6,813.7] [added: 7,588.2] | | |

| Total Capitalization | $ | [removed: 10,129.4] [added: 11,832.3] | | | $ | [removed: 9,792.0] [added: 10,129.4] | | | $ | [removed: 14,326.8] [added: 9,792.0] | | | $ | [removed: 13,474.8] [added: 14,326.8] | | | $ | [removed: 12,368.0] [added: 13,474.8] | |

| Basic Earnings Per Share from Continuing Operations ($) | $ | [removed: 1.02] [added: 0.39] | | | $ | [removed: 0.63] [added: 1.02] | | | $ | [removed: 0.81] [added: 0.63] | | | $ | [removed: 0.71] [added: 0.81] | | | $ | [removed: 0.59] [added: 0.71] | |

| Diluted Earnings Per Share from Continuing Operations ($) | $ | [removed: 1.01] [added: 0.39] | | | $ | [removed: 0.63] [added: 1.01] | | | $ | [removed: 0.81] [added: 0.63] | | | $ | [removed: 0.71] [added: 0.81] | | | $ | [removed: 0.57] [added: 0.71] | |

| Dividends declared per share ($) | $ | [removed: 0.64] [added: 0.70] | | | $ | [removed: 0.83] [added: 0.64] | | | $ | [removed: 1.02] [added: 0.83] | | | $ | [removed: 0.98] [added: 1.02] | | | $ | [removed: 0.94] [added: 0.98] | |

| Shares outstanding at the end of the year (in thousands) | [removed: 323,160] [added: 337,016] | | | | [removed: 319,110] [added: 323,160] | | | | [removed: 316,037] [added: 319,110] | | | | [removed: 313,676] [added: 316,037] | | | | [removed: 310,281] [added: 313,676] | | |

| Number of common stockholders | [removed: 22,272] [added: 21,009] | | | | [removed: 30,190] [added: 22,272] | | | | [removed: 25,233] [added: 30,190] | | | | [removed: 26,965] [added: 25,233] | | | | [removed: 28,823] [added: 26,965] | | |

| Capital expenditures | $ | [removed: 1,490.4] [added: 1,753.8] | | | $ | [removed: 1,367.5] [added: 1,490.4] | | | $ | [removed: 1,339.6] [added: 1,367.5] | | | $ | [removed: 1,248.5] [added: 1,339.6] | | | $ | [removed: 1,095.5] [added: 1,248.5] | |

| Number of employees | [removed: 8,007] [added: 8,175] | | | | [removed: 7,596] [added: 8,007] | | | | [removed: 8,982] [added: 7,596] | | | | [removed: 8,477] [added: 8,982] | | | | [removed: 8,286] [added: 8,477] | | |

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS [added: (continued)]

| [removed: [Executive Summary](#sB247629AE2AB5AC988E0D4D80B451C57)] [added: Executive Summary] | [removed: [20](#sB247629AE2AB5AC988E0D4D80B451C57)] [added: [21](#sCD4020CA42175C58843B45FB81E17C37)] |

| Results and Discussion of Segment Operations | [removed: [22](#s224E8FC8CC5A5690910E928AAB32CF6B)] [added: [25](#s5D4595E51BD25F3B9CA5231053288690)] |

| Gas Distribution Operations | [removed: [23](#s561A589DAFEF5D4F85AAF9C6B097F495)] [added: [26](#s21DB8227736159EEA889869D74344181)] |

| Electric Operations | [removed: [26](#s326BB73450D750C7A7EFB17DF3AE270C)] [added: [29](#sEE411FFB88FD5822ADB6C0348CF00C72)] |

| [Liquidity and Capital [removed: Resources](#sEFB7DFE632D550EBB02746627BB6347E)] [added: Resources](#s4F9196947CC953BDAC3B4291FDDA7392)] | [removed: [30](#sEFB7DFE632D550EBB02746627BB6347E)] [added: [33](#s4F9196947CC953BDAC3B4291FDDA7392)] |

[removed: | [Off Balance Sheet](#s8ADF015EE5005C7F9E351FFB99CF6A5E)] [added: Off-Balance Sheet] Arrangements [removed: | [32](#s8ADF015EE5005C7F9E351FFB99CF6A5E) |]

[removed: | [Market] [added: Market] Risk [removed: Disclosures](#s18FE3696D56A5EAE8C5F2FE68701B402) | [33](#s18FE3696D56A5EAE8C5F2FE68701B402) |][added: Disclosures]

| [Other [removed: Information](#s723E95555F5755ACBB262A1DB897F069)] [added: Information](#sE99F9C2025A356A797F004B549D792F8)] | [removed: [34](#s723E95555F5755ACBB262A1DB897F069)] [added: [38](#sE99F9C2025A356A797F004B549D792F8)] |

It also includes management’s analysis of past financial results and [added: certain] potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks.

Management’s Discussion is designed to provide an understanding of [removed: our] [added: NiSource's] operations and financial performance and should be read in conjunction with the Company's Consolidated Financial Statements and [removed: the] related Notes to Consolidated Financial Statements in this annual report.

Refer to the [removed: Business] [added: “Business”] section under Item 1 of this [added: annual] report and Note 22, "Segments of Business," in the Notes to [added: the] Consolidated Financial Statements for further discussion of [removed: our] [added: NiSource's] regulated utility business segments.

NiSource’s goal is to develop strategies that benefit all stakeholders as it addresses changing customer conservation patterns, develops more contemporary pricing structures and embarks on long-term [added: infrastructure] investment programs.

On a consolidated basis, NiSource reported [removed: higher] income from continuing operations of [removed: $328.1] [added: $128.6] million or [removed: $1.02] [added: $0.39] per basic share for the twelve months ended December 31, [removed: 2016] [added: 2017] compared to [removed: $198.6] [added: $328.1] million or [removed: $0.63] [added: $1.02] per basic share for the same period in [removed: 2015.][added: 2016.]

The [removed: increase] [added: decrease] in income from continuing operations during [removed: 2016] [added: 2017] was due primarily to [removed: increased operating income, as discussed below, along with] a [removed: $97.2] [added: charge to tax expense of $161.1] million [added: as a result of implementing the provisions of the TCJA and a] loss on early extinguishment of long-term debt [removed: recorded as a result] of [removed: the debt restructuring that occurred in 2015] [added: $111.5 million, partially offset by increased operating income,] as [removed: part of the Separation.][added: discussed below.]

For the twelve months ended December 31, [removed: 2016,] [added: 2017,] NiSource reported operating income of [removed: $858.2] [added: $910.6] million compared to [removed: $799.9] [added: $858.2] million for the same period in [removed: 2015.][added: 2016.]

The higher operating income was primarily due to increased net [removed: revenues] [added: revenues, attributable to new rates] from [removed: regulatory and service programs and] [added: base rate proceedings,] increased rates from incremental capital spend on electric transmission projects at [removed: NIPSCO,] [added: NIPSCO and the effects of increased customer growth,] partially offset by [removed: lower net revenues due to] warmer [removed: than normal weather.][added: weather which reduced revenue in 2017 compared to 2016.]

[removed: Operating] [added: Additionally, operating] expenses increased due to higher outside service costs, [removed: primarily due to generation-related maintenance,] increased [removed: depreciation expense, plant retirement costs and higher] employee and administrative expenses, [removed: partially offset by decreased] [added: higher depreciation expense, increased] property [added: and payroll] taxes and [removed: lower] [added: higher] environmental expenses.

These factors and other impacts to the financial results are discussed in more detail within the following discussions of “Results [removed: of Operations,” “Results] and Discussion of Segment Operations” and “Liquidity and Capital Resources.”

| Operating Revenues | | | | | | | | | | | | | | | | | | | |

| • | The decrease in income from continuing operations during 2017 was due primarily to increased tax expense as a result of the impact of adopting the provisions of the TCJA and a loss on early extinguishment of long-term debt, as discussed below. |

| • | During the second quarter of 2017, NiSource Finance executed a tender offer for $990.7 million of outstanding notes consisting of a combination of its 6.40% notes due 2018, 6.80% notes due 2019, 5.45% notes due 2020, and 6.125% notes due 2022. In conjunction with the debt retired, NiSource Finance recorded a $111.5 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums. |

| Summary of Consolidated Financial Results | [21](#s41E8B4967250536C913C074D50CF9B7E) |

| [Off Balance Sheet](#s604D5D1F9E3F5EC991232037E3A3F822) Arrangements | [36](#s604D5D1F9E3F5EC991232037E3A3F822) |

| [Market Risk Disclosures](#s725FA4980D0B5C7F880E732A047B3DA0) | [37](#s725FA4980D0B5C7F880E732A047B3DA0) |

See "Note regarding forward-looking statements" at the beginning of this report for a list of factors that may cause results to differ materially.

NiSource's operations are affected by the cost of sales.

As a result, NiSource believes net revenues, a non-GAAP financial measure defined as operating revenues less cost of sales (excluding depreciation and amortization), provides management and investors a useful measure to analyze profitability.

The presentation of net revenues herein is intended to provide supplemental information for investors regarding operating performance.

Net revenues do not intend to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

For the years ended December 31, 2017, 2016 and 2015, operating income and a reconciliation of net revenues to the most directly comparable GAAP measure, operating income, was as follows:

| Operating Revenues | $ | 4,874.6 | | | $ | 4,492.5 | | | $ | 4,651.8 | | | $ | 382.1 | | | $ | (159.3 | ) |

| Cost of Sales (excluding depreciation and amortization) | 1,518.7 | | | | 1,390.2 | | | | 1,643.7 | | | | 128.5 | | | | (253.5 | | ) |

| Operating Income | 910.6 | | | | 858.2 | | | | 799.9 | | | | 52.4 | | | | 58.3 | | |

On December 22, 2017, the President signed into law the TCJA, which, among other things, enacted significant changes to the Internal Revenue Code of 1986, as amended, including a reduction in the maximum U.S. federal corporate income tax rate from 35% to 21%, and certain other provisions related specifically to the public utility industry, including the continuation of certain interest expense deductibility and excluding 100% expensing of capital investments.

These changes are effective January 1, 2018.

GAAP requires the effect of a change in tax law to be recorded in the period of enactment.

As a result, in December 2017, NiSource recorded a $161.1 million net increase in tax expense related primarily to the remeasurement of deferred tax assets for NOL carryforwards.

The reduction in the statutory U.S. federal corporate income tax rate in 2018 is expected to lead to a decrease in NiSource’s annual effective tax rate.

NiSource is still evaluating the full impact of the TCJA’s provisions on its future effective tax rate and cannot reasonably estimate its impact at this time.

Capital Investment

Liquidity

| • | NIPSCO's base rate case remains pending before the IURC. The request, which seeks NIPSCO's first natural gas base rate increase in more than 25 years, supports continued investment in system upgrades, technology improvements and other measures to increase pipeline safety and system reliability. Inclusive of various tracker programs, the case seeks an annual revenue increase of $117.9 million, which includes the impact of federal tax reform. An order is expected in the second half of 2018. |

| • | Columbia of Ohio's pending settlement agreement to continue its IRP for a five-year extension was approved by the PUCO on January 31, 2018. This well-established pipeline replacement program covers replacement of priority mainline pipe and targeted customer service lines. |

| • | New rates went into effect on October 27, 2017 following approval of Columbia of Maryland's base rate case settlement by the MPSC. The settlement supports continued accelerated replacement of aging pipe as well as adoption of additional pipeline safety upgrades and increases annual revenue by $2.4 million. |

| • | On October 31, 2017, Columbia of Massachusetts filed its GSEP for the 2018 construction year. Columbia of Massachusetts is proposing to recover incremental revenue of $9.7 million including a waiver to collect the $3.1 million revenue requirement in excess of the GSEP cap provision. If the waiver is not approved, the revenue requirement will be $6.6 million. An order is expected from the Massachusetts DPU in the second quarter of 2018, with new rates effective May 1, 2018. |

| • | On March 17, 2017 the VSCC, by final order, approved a settlement agreement without modification in Columbia of Virginia's 2016 base rate case. The settlement allows for a $28.5 million annual revenue increase and for Columbia of Virginia to recover investments that improve the overall safety and reliability of its distribution system. The case also supported the growth of Columbia of Virginia's system driven by increased customer demand for service. Columbia of Virginia implemented interim base rates, subject to refund, on September 28, 2016. Under the terms of the final order, during 2017 Columbia of Virginia refunded the difference between the interim customer rates implemented in 2016 and the rates approved by the final order. |

| • | On April 26, 2017 the PUCO approved Columbia of Ohio's annual IRP rider adjustment. This order supports the continuation of significant infrastructure investment and allows for $31.5 million in increased annual revenues on $235.9 million of investment. |

| • | On December 13, 2017, the IURC approved a settlement in NIPSCO's November 2016 request to invest in environmental upgrades at its Michigan City Unit 12 and R.M. Schahfer Units 14 and 15 generating facilities. The settlement included authority and cost recovery for the Company's approximately $193 million of CCR projects. |

| • | As part of its 2016 IRP, NIPSCO remains on schedule with its planned May 2018 retirement of Bailly Generating Station units 7 and 8. The retirement is part of NIPSCO’s plan to retire 50 percent of its coal-fired generating fleet by the end of 2023. |

For the years ended December 31, 2017, 2016 and 2015, operating income and a reconciliation of net revenues to the most directly comparable GAAP measure, operating income, was as follows:

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | | | | | | |

| Year Ended December 31, (dollars in millions) | 2017 | | | | 2016 | | | | 2015 | | | | 2017 vs. 2016 | | | | 2016 vs. 2015 | | |

| Operating Income | $ | 545.6 | | | $ | 574.0 | | | $ | 555.8 | | | $ | (28.4 | ) | | $ | 18.2 | |

| Residential | 3,168,516 | | | | 3,141,736 | | | | 3,113,337 | | | | 26,780 | | | | 28,399 | | |

| • | The effects of increased customer growth of $10.3 million. |

| • | Higher revenues from increased industrial usage of $5.8 million. |

| Gross Revenues | | | | | | | | | | | | | | | | | | | |

| [Consolidated Review](#s898485404FAA5E588E54F5C08B88C88A) | [20](#s898485404FAA5E588E54F5C08B88C88A) |

| [Results of Operations](#sE12CACB512945384B5450429AA1CD6E8) | [22](#sE12CACB512945384B5450429AA1CD6E8) |

CONSOLIDATED REVIEW

Capital Investment.

Liquidity.

| • | On April 20, 2016, the PUCO approved Columbia of Ohio's annual IRP rider. The rider provides for continued support of Columbia of Ohio's well-established pipeline replacement program. This order authorized approximately $21 million in increased annual revenue related to 2015 infrastructure investments of approximately $185 million. |

| • | On September 28, 2016, Columbia of Virginia implemented updated interim base rates subject to refund. The new rates are part of its base rate case which remains pending before the VSCC. On January 17, 2017, Columbia of Virginia presented to the VSCC a stipulation and proposed recommendation representing a settlement by all parties to the proceeding that included a base revenue increase of $28.5 million. On February 8, 2017, the Hearing Examiner in the case filed a report recommending approval of the stipulation and proposed recommendation. A VSCC decision is expected in the first half of 2017. |

| • | On October 27, 2016, the Pennsylvania PUC approved a joint settlement agreement in Columbia of Pennsylvania's base rate case. The settlement includes an annual revenue increase of $35.0 million and incentives to expand gas service to commercial customers. New rates went into effect on December 19, 2016. |

| • | On October 20, 2016, a settlement was reached with the Kentucky PSC on Columbia of Kentucky's base rate case. The settlement includes a revenue increase of $13.4 million and will allow for continued system modernization and pipeline safety investments to improve overall system safety and reliability. On December 22, 2016, the Kentucky PSC issued an order modifying the stipulation resulting in an annual revenue increase of $13.1 million. Columbia of Kentucky accepted this modification, and rates went into effect on December 27, 2016. |

| • | New rates became effective October 1, 2016 under NIPSCO's electric base rate case settlement, which was approved by the IURC on July 18, 2016. The settlement provides a platform for NIPSCO’s continued electric infrastructure investments and service improvements for customers, and increases NIPSCO’s annual base rate revenues by $72.5 million. |

| • | In December 2016, NIPSCO announced plans to retire two coal-fired units at its Bailly Generation station earlier than previously estimated. This decision was based on an analysis of current economic and legislative conditions including the decreasing cost of natural gas relative to coal and the increased cost of compliance with current and future environmental regulations. |

Results of Operations

Substantially all of NiSource's operating income is generated by the Gas Distribution Operations and Electric Operations segments, the results of which are discussed in further detail within "Results and Discussion of Segment Operations."

These changes were partially offset by a 2016 charge resulting from a tax notice impacting NIPSCO's TUAs.

Other income (deductions) in 2015 reduced income $460.0 million compared to a reduction of $366.1 million in 2014.

The increase in deductions is primarily due to a loss on early extinguishment of long-term debt of $97.2 million.

| Residential | 3,141,722 | | | | 3,113,324 | | | | 3,098,052 | | | | 28,398 | | | | 15,272 | | |

NiSource analyzes its operating results using net revenues.

Net revenues are calculated as gross revenues less the associated cost of sales (excluding depreciation and amortization).

| • | Increased rent billed to affiliates, offset in expense, of $8.4 million. |

| • | Higher outside service costs of $7.7 million. |

This decrease is primarily attributable to warmer weather and lower off-system sales opportunities experienced in 2015 compared to 2014.

| Less: Cost of sales (excluding depreciation and amortization) | 495.0 | | | | 488.4 | | | | 609.7 | | | | 6.6 | | | | (121.3 | | ) |

| • | Lower industrial usage of $13.8 million. |

Operating expenses were $40.6 million higher in 2015 compared to 2014.

| • | Increased depreciation of $10.6 million. |

The 7.9% decrease is primarily attributable to a decrease in industrial usage, which was caused by a reduction in steel production due to the high levels of imports that have impacted the domestic steel market since the start of 2015.

However, retirement of these units is subject to the approval of the MISO, which is responsible for coordinating, controlling and monitoring the use of the electric transmission system by utilities, generators and marketers across parts of 15 U.S. states and the Canadian province of Manitoba.

The increase in net cash from operating activities from continuing operations was primarily due to the change in regulatory assets/liabilities, as well as the change in inventories as a result of lower gas prices and warmer weather in 2015 compared to 2014.

At December 31, 2016, NiSource’s pension and other postretirement benefit plans were underfunded by $414.9 million and $297.6 million, respectively.

This projected increase over 2016 spend is driven by generation maintenance at the Electric Operations segment and additional system growth and tracker opportunities at the Gas Distribution Operations and Electric Operations segments.

This increased spending is mainly due to increased TDSIC spend in the Gas Distribution Operations segment, partially offset by lower tracker program spend at the Electric Operations segment.

In June 2016, Moody’s affirmed the NiSource senior unsecured rating of Baa2 and its commercial paper rating of P-2, with stable outlooks.

Moody’s also affirmed NIPSCO’s Baa1 rating and Columbia of Massachusetts’s Baa2 rating, with stable outlooks.

In August 2016, Standard & Poor’s affirmed the BBB+ senior unsecured rating of NiSource and its subsidiaries and its commercial paper rating of A-2, with stable outlooks.

In June 2016, Fitch upgraded the long-term issuer default ratings of NiSource and NIPSCO to BBB and affirmed the commercial paper rating of F3, with stable outlooks.

NiSource has a shelf registration statement on file with the SEC that authorizes NiSource to issue an indeterminate amount of common stock and preferred stock, as well as other securities.

New rates went into effect on [removed: January] [added: May] 1, 2017.

[removed: Pursuant to the Act, on] [added: On] October [removed: 30, 2015,] [added: 31, 2017,] Columbia of Massachusetts filed its GSEP for the [removed: 2016] [added: 2018] construction [removed: year (“2016 GSEP”).][added: year.]

An order is expected from the Massachusetts DPU in [removed: early 2017,] [added: the second quarter of 2018,] with new rates effective May 1, [removed: 2017.][added: 2018.]

On January 17, 2017, Columbia of Virginia presented a stipulation and proposed recommendation, representing a settlement by all parties to the [removed: proceeding,] [added: proceeding] that included a base revenue increase of $28.5 million.

Columbia [added: Gas] of Kentucky.

[removed: As such, it became the order of] [added: The MPSC approved] the [removed: MPSC,] [added: settlement on September 19, 2017] and rates went into effect on October 27, [removed: 2016.][added: 2017.]

Increases in the expenses that are the subject of trackers result in a corresponding increase in [removed: net] [added: operating] revenues and therefore have essentially no impact on total operating income results.

Examples of such mechanisms include electric energy efficiency programs, MISO non-fuel costs and revenues, resource capacity charges, [added: federally mandated costs] and environmental related costs.

These costs are recovered through a FAC, a [removed: quarterly,] [added: quarterly] regulatory proceeding in Indiana.

An order is expected in the second [removed: quarter] [added: half] of [removed: 2017.][added: 2018.]

As part of this [removed: filing,] [added: filing and among other items,] NIPSCO proposed to update base rates for [removed: previously incurred] [added: ongoing] infrastructure improvements, revised depreciation rates and [added: ongoing level of expenses to reflect] the [removed: inclusion] [added: current costs] of [removed: previously approved environmental and federally mandated compliance costs.][added: providing natural gas service.]

An [removed: IURC] order approving NIPSCO's filing was received [added: from the IURC] on [added: December 28, 2017, and new rates went into effect on] January [removed: 25, 2017.][added: 1, 2018.]

[removed: New] [added: An order approving the request was received from the IURC on October 31, 2017 and new] rates went into effect with the first billing cycle of [removed: February] [added: November] 2017.

| (in millions) | [added: 2017 | | | |] 2016 | | | | 2015 | | | [added: | 2017 | | | | 2016 | | | | 2015 | | |]

| Interest rate risk programs | $ | [removed: 17.0] [added: 14.0] | | | $ | [removed: —] [added: 17.0] | |

| Commodity price risk programs | [removed: 7.4] [added: 0.5] | | | | [removed: 0.1] [added: 7.4] | | |

| Total | $ | [removed: 24.4] [added: 14.5] | | | $ | [removed: 0.1] [added: 24.4] | |

| Interest rate risk programs | $ | [removed: 17.1] [added: 5.6] | | | $ | [removed: —] [added: 17.1] | |

| Commodity price risk programs | [removed: 7.5] [added: 1.0] | | | | [removed: —] [added: 7.5] | | |

| Total | $ | [removed: 24.6] [added: 6.6] | | | $ | [removed: —] [added: 24.6] | |

| Risk Management Liabilities - [removed: Current(3)] [added: Current] | | | | | | | |

| Interest rate risk programs | $ | [removed: 15.3] [added: 38.6] | | | $ | [removed: —] [added: 15.3] | |

| Commodity price risk programs | [removed: 1.5] [added: 4.6] | | | | [removed: 9.3] [added: 1.5] | | |

| Total | $ | [removed: 16.8] [added: 43.2] | | | $ | [removed: 9.3] [added: 16.8] | |

| Interest rate risk programs | $ | [removed: 24.5] [added: —] | | | $ | [removed: 17.4] [added: 24.5] | |

| Commodity price risk programs | [removed: 20.0] [added: 28.5] | | | | [removed: 5.2] [added: 20.0] | | |

| Total | $ | [removed: 44.5] [added: 28.5] | | | $ | [removed: 22.6] [added: 44.5] | |

[removed: (3)Presented] [added: The liability is presented] in "Other accruals" on the Consolidated Balance Sheets.

Some of NiSource’s utility subsidiaries offer programs [removed: where] [added: whereby] variability in the market price of gas is assumed by the respective utility.

[removed: In September 2016,] NIPSCO received IURC approval to lock in a fixed price for its natural gas customers using long-term forward purchase instruments.