Item 6. SELECTED FINANCIAL DATA

NISOURCE INC.

The selected data presented below as of and for the five years ended December 31, 2017, are derived from the Consolidated Financial Statements of NiSource. The data should be read together with the Consolidated Financial Statements including the related notes thereto included in Item 8 of this Form 10-K.

Year Ended December 31, (dollars in millions except per share data)	2017				2016				2015				2014				2013
Statement of Income Data:
Operating Revenues
Gas Distribution	$	2,063.2			$	1,850.9			$	2,081.9			$	2,597.8			$	2,226.3
Gas Transportation	1,021.5				964.6				969.8				987.4				820.0
Electric	1,785.5				1,660.8				1,572.9				1,672.0				1,563.4
Other	4.4				16.2				27.2				15.2				15.7
Total Operating Revenues	4,874.6				4,492.5				4,651.8				5,272.4				4,625.4
Operating Income	910.6				858.2				799.9				789.1				698.1
Income from Continuing Operations	128.6				328.1				198.6				256.2				221.0
Balance Sheet Data:
Total Assets	19,961.7				18,691.9				17,492.5				24,589.8				22,473.6
Capitalization
Common stockholders’ equity	4,320.1				4,071.2				3,843.5				6,175.3				5,886.6
Long-term debt, excluding amounts due within one year	7,512.2				6,058.2				5,948.5				8,151.5				7,588.2
Total Capitalization	$	11,832.3			$	10,129.4			$	9,792.0			$	14,326.8			$	13,474.8
Per Share Data:
Basic Earnings Per Share from Continuing Operations ($)	$	0.39			$	1.02			$	0.63			$	0.81			$	0.71
Diluted Earnings Per Share from Continuing Operations ($)	$	0.39			$	1.01			$	0.63			$	0.81			$	0.71
Other Data:
Dividends declared per share ($)	$	0.70			$	0.64			$	0.83			$	1.02			$	0.98
Shares outstanding at the end of the year (in thousands)	337,016				323,160				319,110				316,037				313,676
Number of common stockholders	21,009				22,272				30,190				25,233				26,965
Capital expenditures	$	1,753.8			$	1,490.4			$	1,367.5			$	1,339.6			$	1,248.5
Number of employees	8,175				8,007				7,596				8,982				8,477

•	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.

•	On July 1, 2015, NiSource completed the Separation. The results of operations of the former Columbia Pipeline Group Operations segment have been classified as discontinued operations for all periods presented. See Note 3, "Discontinued Operations," in the Notes to the Consolidated Financial Statements for further information.

•

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

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NISOURCE INC.

Index	Page
Executive Summary	21
Summary of Consolidated Financial Results	21
Results and Discussion of Segment Operations	25
Gas Distribution Operations	26
Electric Operations	29
Liquidity and Capital Resources	33
Off Balance Sheet Arrangements	36
Market Risk Disclosures	37
Other Information	38

EXECUTIVE SUMMARY

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) analyzes the financial condition, results of operations and cash flows of NiSource and its subsidiaries. It also includes management’s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. See "Note regarding forward-looking statements" at the beginning of this report for a list of factors that may cause results to differ materially.

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

NiSource is an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are fully regulated natural gas and electric utility companies serving customers in seven states. NiSource generates substantially all of its operating income through these rate-regulated businesses which are summarized for financial reporting purposes into two primary reportable segments: Gas Distribution Operations and Electric Operations.

Refer to the “Business” section under Item 1 of this annual report and Note 22, "Segments of Business," in the Notes to the Consolidated Financial Statements for further discussion of 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 infrastructure investment programs. These strategies are intended to improve reliability and safety, enhance customer services and reduce emissions while generating sustainable returns. Additionally, NiSource continues to pursue regulatory and legislative initiatives that will allow residential customers not currently on NiSource's system to obtain gas service in a cost effective manner.

Summary of Consolidated Financial Results

NiSource's operations are affected by the cost of sales. Cost of sales for the Gas Distribution Operations segment is principally comprised of the cost of natural gas used while providing transportation and distribution services to customers. Cost of sales for the Electric Operations segment is comprised of the cost of coal, related handling costs, natural gas purchased for the internal generation of electricity at NIPSCO and the cost of power purchased from third-party generators of electricity.

The majority of the cost of sales are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in operating revenues. 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.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

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, (in millions	2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Operating Income	$	910.6			$	858.2			$	799.9			$	52.4			$	58.3

Year Ended December 31, (in millions, except per share amounts)	2017				2016				2015				2017 vs. 2016				2016 vs. 2015
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		)
Total Net Revenues	3,355.9				3,102.3				3,008.1				253.6				94.2
Other Operating Expenses	2,445.3				2,244.1				2,208.2				201.2				35.9
Operating Income	910.6				858.2				799.9				52.4				58.3
Total Other Deductions	(467.5		)		(348.0		)		(460.0		)		(119.5		)		112.0
Income Taxes	314.5				182.1				141.3				132.4				40.8
Income from Continuing Operations	128.6				328.1				198.6				(199.5		)		129.5
Basic Earnings Per Share from Continuing Operations	$	0.39			$	1.02			$	0.63			$	(0.63	)		$	0.39
Basic Average Common Shares Outstanding	329.4				321.8				317.7				7.6				4.1

On a consolidated basis, NiSource reported income from continuing operations of $128.6 million or $0.39 per basic share for the twelve months ended December 31, 2017 compared to $328.1 million or $1.02 per basic share for the same period in 2016. The decrease in income from continuing operations during 2017 was due primarily to a charge to tax expense of $161.1 million as a result of implementing the provisions of the TCJA and a loss on early extinguishment of long-term debt of $111.5 million, partially offset by increased operating income, as discussed below.

Operating Income

For the twelve months ended December 31, 2017, NiSource reported operating income of $910.6 million compared to $858.2 million for the same period in 2016. The higher operating income was primarily due to increased net revenues, attributable to new rates from base rate proceedings, increased rates from incremental capital spend on electric transmission projects at NIPSCO and the effects of increased customer growth, partially offset by warmer weather which reduced revenue in 2017 compared to 2016. Additionally, operating expenses increased due to higher outside service costs, increased employee and administrative expenses, higher depreciation expense, increased property and payroll taxes and higher environmental expenses.

Other Income (Deductions)

Other income (deductions) in 2017 reduced income $467.5 million compared to a reduction of $348.0 million in 2016. This change is primarily due to a loss on early extinguishment of long-term debt in 2017.

Income Taxes

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.

Refer to “Liquidity and Capital Resources” below and Note 10, "Income Taxes," in the Notes to Consolidated Financial Statements for additional information on income taxes.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Capital Investment

In 2017, NiSource invested approximately $1.7 billion in cash capital expenditures across its gas and electric utilities. These expenditures were primarily aimed at furthering the safety and reliability of the Company's gas distribution system, construction of new electric transmission assets and maintaining NiSource’s existing electric generation fleet. NiSource continues to execute on an estimated $30 billion in total projected long-term regulated utility infrastructure investments and expects to invest approximately $1.7 to $1.8 billion in capital during 2018 to continue to modernize and improve its system across all seven states.

Liquidity

As discussed in further detail below in “Liquidity and Capital Resources,” the enactment of the TCJA will have an unfavorable impact on NiSource’s liquidity beginning in 2018; however, NiSource believes that through income generated from operating activities, amounts available under its short-term revolving credit facility, commercial paper program, accounts receivable securitization facilities, long-term debt agreements and NiSource’s ability to access the capital markets, there is adequate capital available to fund its operating activities and capital expenditures in 2018 and beyond. At December 31, 2017 and 2016, NiSource had approximately $998.9 million and $683.7 million, respectively, of net liquidity available, consisting of cash and available capacity under credit facilities.

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

Regulatory Developments

In 2017, NiSource continued to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all seven states of its operating area. The discussion below summarizes significant regulatory developments that transpired during 2017:

Gas Distribution Operations.

•

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.

•	NIPSCO continues to execute on its seven-year, $850 million gas infrastructure modernization program to further improve system reliability and safety. On December 28, 2017 the IURC approved the latest tracker update request, covering $59.0 million of investments made in the first half of 2017.

•	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.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

•	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.

Electric Operations.

•

NIPSCO continues to execute on its seven-year electric infrastructure modernization program, which includes enhancements to its electric transmission and distribution system designed to further improve system safety and reliability. The IURC-approved program represents approximately $1.25 billion of electric infrastructure investments expected to be made through 2022. On October 31, 2017 the IURC approved NIPSCO's latest tracker update request, covering $133.6 million in investments from May 2016 through April 2017.

•	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.

Refer to Note 8, “Regulatory Matters” and Note 18-E, "Other Matters," in the Notes to Consolidated Financial Statements for a complete discussion of key regulatory developments that transpired during 2017.

RESULTS AND DISCUSSION OF SEGMENT OPERATIONS

Presentation of Segment Information

NiSource’s operations are divided into two primary reportable segments: Gas Distribution Operations and Electric Operations.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Gas Distribution Operations

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, (in millions	2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Operating Income	$	545.6			$	574.0			$	555.8			$	(28.4	)		$	18.2

Year Ended December 31, (dollars in millions)	2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Net Revenues
Operating revenues	$	3,102.1			$	2,830.6			$	3,069.1			$	271.5			$	(238.5	)
Less: Cost of sales (excluding depreciation and amortization)	1,005.0				895.4				1,155.5				109.6				(260.1		)
Net Revenues	2,097.1				1,935.2				1,913.6				161.9				21.6
Operating Expenses
Operation and maintenance	1,095.3				937.2				945.3				158.1				(8.1		)
Depreciation and amortization	269.3				252.9				232.6				16.4				20.3
Loss on sale of assets and impairments, net	2.8				—				0.8				2.8				(0.8		)
Other taxes	184.1				171.1				179.1				13.0				(8.0		)
Total Operating Expenses	1,551.5				1,361.2				1,357.8				190.3				3.4
Operating Income	$	545.6			$	574.0			$	555.8			$	(28.4	)		$	18.2
Revenues
Residential	$	2,029.4			$	1,823.4			$	2,055.2			$	206.0			$	(231.8	)
Commercial	669.4				588.1				691.4				81.3				(103.3		)
Industrial	217.5				194.3				217.6				23.2				(23.3		)
Off-System	111.8				94.4				87.3				17.4				7.1
Other	74.0				130.4				17.6				(56.4		)		112.8
Total	$	3,102.1			$	2,830.6			$	3,069.1			$	271.5			$	(238.5	)
Sales and Transportation (MMDth)
Residential	247.1				248.9				262.0				(1.8		)		(13.1		)
Commercial	169.3				165.6				171.5				3.7				(5.9		)
Industrial	517.5				517.7				522.7				(0.2		)		(5.0		)
Off-System	39.0				39.6				32.7				(0.6		)		6.9
Other	0.3				(0.1		)		(0.2		)		0.4				0.1
Total	973.2				971.7				988.7				1.5				(17.0		)
Heating Degree Days	4,927				5,148				5,459				(221		)		(311		)
Normal Heating Degree Days	5,610				5,642				5,610				(32		)		32
% Warmer than Normal	(12		)%		(9		)%		(3		)%
Gas Distribution Customers
Residential	3,168,516				3,141,736				3,113,337				26,780				28,399
Commercial	280,362				279,556				277,239				806				2,317
Industrial	6,228				6,240				6,465				(12		)		(225		)
Other	4				—				—				4				—
Total	3,455,110				3,427,532				3,397,041				27,578				30,491

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Gas Distribution Operations (continued)

Comparability of line item operating results may be impacted by regulatory, tax and depreciation trackers (other than those for cost of sales) that allow for the recovery in rates of certain costs. Therefore, increases in these tracked operating expenses are offset by increases in net revenues and have essentially no impact on income from continuing operations.

2017 vs. 2016 Operating Income

For 2017, Gas Distribution Operations reported operating income of $545.6 million, a decrease of $28.4 million from the comparable 2016 period.

Net revenues for 2017 were $2,097.1 million, an increase of $161.9 million from the same period in 2016. The change in net revenues was primarily driven by:

•	New rates from base-rate proceedings and infrastructure replacement programs of $124.2 million.

•	Higher regulatory, tax and depreciation trackers, which are offset in expense, of $26.9 million.

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

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

Operating expenses were $190.3 million higher in 2017 compared to 2016. This change was primarily driven by:

•	Increased employee and administrative expenses of $62.2 million.

•	Higher outside service costs of $52.8 million due to IT service provider transition costs, increased spend on strategic initiatives to enhance safety, reliability and customer value and higher pipeline maintenance expenses.

•	Increased regulatory, tax and depreciation trackers, which are offset in net revenues, of $26.9 million.

•	Higher depreciation of $15.2 million due to increased capital expenditures placed in service.

•	Increased property taxes of $8.1 million due to higher capital expenditures placed in service and an accrual adjustment recorded in 2016.

•	Higher environmental costs of $4.7 million.

•	Increased materials and supplies expenses of $3.4 million from maintenance-related activities.

2016 vs. 2015 Operating Income

For 2016, Gas Distribution Operations reported operating income of $574.0 million, an increase of $18.2 million from the comparable 2015 period.

Net revenues for 2016 were $1,935.2 million, an increase of $21.6 million from the same period in 2015. The change in net revenues was primarily driven by:

•	New rates from base-rate proceedings and infrastructure replacement programs of $95.1 million.

•	The effects of increased customer count of $9.6 million.

Partially offset by:

•	Lower regulatory, tax and depreciation trackers, which are offset in expense, of $52.8 million.

•	The effects of warmer weather of $12.4 million.

•	Decreased commercial, industrial and residential usage of $8.8 million.

•	Lower forfeited discount and late payment collections of $3.9 million.

Operating expenses were $3.4 million higher in 2016 compared to 2015. This change was primarily driven by:

•	Increased employee and administrative expenses of $26.1 million.

•	Higher depreciation of $19.8 million due to increased capital expenditures placed in service.

•	Increased outside service costs of $13.4 million.

•	Higher rental expense of $2.6 million.

Partially offset by:

•	Lower regulatory, tax and depreciation trackers, which are offset in net revenues, of $52.8 million.

•	Decreased gross receipts taxes of $2.8 million.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Gas Distribution Operations (continued)

Weather

In general, NiSource calculates the weather-related revenue variance based on changing customer demand driven by weather variance from normal heating degree days. NiSource's composite heating degree days reported do not directly correlate to the weather-related dollar impact on the results of Gas Distribution Operations. Heating degree days experienced during different times of the year or in different operating locations may have more or less impact on volume and dollars depending on when and where they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in the aggregated NiSource composite heating degree day comparison.

Weather in the Gas Distribution Operations service territories for 2017 was about 12% warmer than normal and about 4% warmer than 2016, decreasing net revenues $1.7 million for the year ended December 31, 2017 compared to 2016.

Weather in the Gas Distribution Operations service territories for 2016 was about 9% warmer than normal and about 6% warmer than 2015, decreasing net revenues $12.4 million for the year ended December 31, 2016 compared to 2015.

Throughput

Total volumes sold and transported for the year ended December 31, 2017 were 973.2 MMDth, compared to 971.7 MMDth for 2016.

Total volumes sold and transported for the year ended December 31, 2016 were 971.7 MMDth, compared to 988.7 MMDth for 2015. This decrease is primarily attributable to warmer weather experienced in 2016 compared to 2015.

Economic Conditions

All NiSource Gas Distribution Operations companies have state-approved recovery mechanisms that provide a means for full recovery of prudently incurred gas costs. As noted above, gas costs are treated as pass-through costs and have no impact on the net revenues recorded in the period. The gas costs included in revenues are matched with the gas cost expense recorded in the period and the difference is recorded on the Consolidated Balance Sheets as under-recovered or over-recovered gas cost to be included in future customer billings.

At NIPSCO, sales revenues and customer billings are adjusted for amounts related to under and over-recovered purchased gas costs from prior periods per regulatory order. These amounts are primarily reflected in the “Other” operating revenues statistic provided at the beginning of this segment discussion. The adjustments to other operating revenues for the twelve months ended December 31, 2017, 2016 and 2015 were a revenue decrease of $4.8 million, a revenue increase of $43.3 million and a revenue decrease of $68.0 million, respectively.

Certain Gas Distribution Operations companies continue to offer choice opportunities, where customers can choose to purchase gas from a third-party supplier, through regulatory initiatives in their respective jurisdictions. These programs serve to further reduce NiSource's exposure to gas prices.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Electric Operations

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, (in millions	2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Operating Income	$	364.8			$	291.4			$	264.4			$	73.4			$	27.0

Year Ended December 31, (dollars in millions)	2017				2016				2015				2017 vs. 2016				2016 vs. 2015
Net Revenues
Operating revenues	$	1,786.5			$	1,661.6			$	1,574.4			$	124.9			$	87.2
Less: Cost of sales (excluding depreciation and amortization)	513.9				495.0				488.4				18.9				6.6
Net Revenues	1,272.6				1,166.6				1,086.0				106.0				80.6
Operating Expenses
Operation and maintenance	568.2				538.8				490.1				29.4				48.7
Depreciation and amortization	277.8				274.5				267.7				3.3				6.8
Loss on sale of assets and impairments, net	1.9				—				—				1.9				—
Other taxes	59.9				61.9				63.8				(2.0		)		(1.9		)
Total Operating Expenses	907.8				875.2				821.6				32.6				53.6
Operating Income	$	364.8			$	291.4			$	264.4			$	73.4			$	27.0
Revenues
Residential	$	476.9			$	457.4			$	427.1			$	19.5			$	30.3
Commercial	501.2				456.6				445.4				44.6				11.2
Industrial	698.1				631.6				646.3				66.5				(14.7		)
Wholesale	11.6				11.6				16.4				—				(4.8		)
Other	98.7				104.4				39.2				(5.7		)		65.2
Total	$	1,786.5			$	1,661.6			$	1,574.4			$	124.9			$	87.2
Sales (Gigawatt Hours)
Residential	3,301.7				3,514.8				3,309.9				(213.1		)		204.9
Commercial	3,793.5				3,878.7				3,866.8				(85.2		)		11.9
Industrial	9,469.7				9,281.8				9,249.1				187.9				32.7
Wholesale	32.5				19.0				194.8				13.5				(175.8		)
Other	128.2				136.9				137.7				(8.7		)		(0.8		)
Total	16,725.6				16,831.2				16,758.3				(105.6		)		72.9
Cooling Degree Days	837				988				762				(151		)		226
Normal Cooling Degree Days	806				806				806				—				—
% Warmer (Cooler) than Normal	4		%		23		%		(5		)%
Electric Customers
Residential	409,401				407,268				404,889				2,133				2,379
Commercial	56,134				55,605				55,053				529				552
Industrial	2,305				2,313				2,343				(8		)		(30		)
Wholesale	739				744				743				(5		)		1
Other	2				2				6				—				(4		)
Total	468,581				465,932				463,034				2,649				2,898

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Electric Operations (continued)

Comparability of line item operating results may be impacted by regulatory and depreciation trackers (other than those for cost of sales) that allow for the recovery in rates of certain costs. Therefore, increases in these tracked operating expenses are offset by increases in net revenues and have essentially no impact on income from continuing operations.

2017 vs. 2016 Operating Income

For 2017, Electric Operations reported operating income of $364.8 million, an increase of $73.4 million from the comparable 2016 period.

Net revenues for 2017 were $1,272.6 million, an increase of $106.0 million from the same period in 2016. The change in net revenues was primarily driven by:

•	New rates from base-rate proceedings of $63.6 million.

•	Increased rates from incremental capital spend on electric transmission projects of $24.2 million.

•	Higher regulatory and depreciation trackers, which are offset in expense, of $18.0 million.

•	New rates from infrastructure replacement programs of $6.0 million.

•	The effects of increased customer count of $3.4 million.

Partially offset by:

•	The effects of cooler weather of $16.1 million.

Operating expenses were $32.6 million higher in 2017 than 2016. This change was primarily driven by:

•	Higher outside service costs of $20.1 million, primarily due to increased spend on strategic initiatives to enhance safety, reliability and customer value, generation-related maintenance, IT service provider transition costs and vegetation management activities.

•	Increased regulatory and depreciation trackers, which are offset in net revenues, of $18.0 million.

•	Higher employee and administrative expenses of $11.9 million.

•	Increased depreciation of $5.6 million due to higher capital expenditures placed in service.

•	Higher materials and supplies expenses of $4.5 million driven by generation-related maintenance.

Partially offset by:

•	Plant retirement costs of $22.1 million in 2016.

•	Decreased amortization of regulatory assets of $10.8 million.

2016 vs. 2015 Operating Income

For 2016, Electric Operations reported operating income of $291.4 million, an increase of $27.0 million from the comparable 2015 period.

Net revenues for 2016 were $1,166.6 million, an increase of $80.6 million from the same period in 2015. The change in net revenues was primarily driven by:

•	New rates from base-rate proceedings of $36.3 million.

•	Increased regulatory and depreciation trackers, which are offset in expense, of $30.2 million.

•	Increased rates from incremental capital spend on electric transmission projects of $17.8 million.

•	The effects of warmer weather of $15.6 million.

Partially offset by:

•	The absence of regulatory-deferred MISO cost amortization of $10.2 million.

•	Increased fuel handling costs of $7.8 million.

Operating expenses were $53.6 million higher in 2016 compared to 2015. This change was primarily driven by:

•	Increased regulatory and depreciation trackers, which are offset in net revenues, of $30.2 million.

•	Higher outside service costs of $24.4 million, primarily due to generation-related maintenance.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Electric Operations (continued)

•	Plant retirement costs of $22.1 million.

Partially offset by:

•	Lower environmental costs of $10.7 million.

•	Decreased amortization expense of $9.6 million.

Weather

In general, NiSource calculates the weather-related revenue variance based on changing customer demand driven by weather variance from normal heating or cooling degree days. NiSource's composite heating or cooling degree days reported do not directly correlate to the weather-related dollar impact on the results of Electric Operations. Heating or cooling degree days experienced during different times of the year may have more or less impact on volume and dollars depending on when they occur. When the detailed results are combined for reporting, there may be weather-related dollar impacts on operations when there is not an apparent or significant change in the aggregated NiSource composite heating or cooling degree day comparison.

Weather in the Electric Operations’ territories for the twelve months ended December 31, 2017 was 4% warmer than normal and 15% cooler than the same period in 2016, leading to a decrease in net revenues of approximately $16.1 million for the twelve months ended December 31, 2017 compared to 2016.

Weather in the Electric Operations’ territories for the twelve months ended December 31, 2016 was 23% warmer than normal and 30% warmer than the same period in 2015, leading to an increase in net revenues of approximately $15.6 million for the twelve months ended December 31, 2016 compared to 2015.

Sales

Electric Operations sales were 16,725.6 gwh for 2017, a decrease of 105.6 gwh, or 0.6% compared to 2016.

Electric Operations sales were 16,831.2 gwh for 2016, a increase of 72.9 gwh, or 0.4% compared to 2015.

Economic Conditions

NIPSCO has a state-approved recovery mechanism that provides a means for full recovery of prudently incurred fuel costs. As noted above, fuel costs are treated as pass-through costs and have no impact on the net revenues recorded in the period. The fuel costs included in revenues are matched with the fuel cost expense recorded in the period and the difference is recorded on the Consolidated Balance Sheets as under-recovered or over-recovered fuel cost to be included in future customer billings.

At NIPSCO, sales revenues and customer billings are adjusted for amounts related to under and over-recovered purchased fuel costs from prior periods per regulatory order. These amounts are primarily reflected in the “Other” operating revenues statistic provided at the beginning of this segment discussion. The adjustments to other operating revenues for the twelve months ended December 31, 2017, 2016 and 2015 were a revenue decrease of $5.2 million, a revenue increase of $33.1 million and a revenue decrease of $11.6 million, respectively.

NIPSCO's performance remains closely linked to the performance of the steel industry. NIPSCO’s mwh sales to steel-related industries accounted for approximately 54.5% and 52.3% of the total industrial mwh sales for the years ended December 31, 2017 and 2016, respectively.

Electric Supply

NIPSCO 2016 Integrated Resource Plan. Environmental, regulatory and economic factors, including low natural gas prices and aging coal-fired units, have led NIPSCO to pursue modification of its current electric generation supply mix to include less coal-fired generation. Due to enacted CCR and ELG (subsequently postponed) regulations, NIPSCO would expect to have incurred over $1 billion in operating, maintenance, environmental and other costs if the current fleet of coal-fired generating units were to remain operational.

On November 1, 2016, NIPSCO submitted its 2016 Integrated Resource Plan with the IURC. The plan evaluated demand-side and supply-side resource alternatives to reliably and cost effectively meet NIPSCO customers' future energy requirements over the ensuing 20 years. The 2016 Integrated Resource Plan indicates that the most viable option for customers and NIPSCO involves the retirement of Bailly Generating Station (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. It is projected over the long term that the cost to customers to retire these units at these dates will be lower than maintaining and upgrading them for continuing generation.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Electric Operations (continued)

NiSource and NIPSCO committed to the retirement of the Bailly Generating Station units in connection with the filing of the 2016 Integrated Resource Plan, pending approval by the MISO. In the fourth quarter of 2016, the MISO approved NIPSCO's plan to retire the Bailly Generating Station units by May 31, 2018. In accordance with ASC 980-360, the remaining net book value of the Bailly Generating Station units was reclassified from "Net utility plant" to "Other property, at cost, less accumulated depreciation" on the Consolidated Balance Sheets.

In connection with the MISO's approval of NIPSCO's planned retirement of the Bailly Generating Station units, NiSource recorded $22.1 million of plant retirement-related charges in the fourth quarter of 2016. These charges were comprised of contract termination charges related to NIPSCO's capital lease with Pure Air, voluntary employee severance benefits, and write downs of certain materials and supplies inventory balances. These charges are presented within "Operation and maintenance" on the Statements of Consolidated Income.

On February 1, 2018, as previously approved by the MISO, NIPSCO commenced a four-month outage of Bailly Generating Station Unit 8 in order 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). Approximately $15 million of net book value of Unit 8 remained in “Net Utility Plant” as it is expected to remain used and useful upon completion of the synchronous condenser, while the remaining net book value of approximately $143 million was reclassified to “Regulatory assets (noncurrent)” on the Consolidated Balance Sheets. These amounts continue to be amortized at a rate consistent with their inclusion in customer rates. NIPSCO expects to complete the retirement of Units 7 and 8 by May 31, 2018. Refer to Note 18-E, "Other Matters," in the Notes to Consolidated Financial Statements for information.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Liquidity and Capital Resources

Operating Activities

Net cash from operating activities from continuing operations for the year ended December 31, 2017 was $742.1 million, a decrease of $62.0 million from 2016. This decrease was driven by $282.3 million of pension plan contributions in 2017, partially offset by a combination of changes in weather, gas prices and the related approved rates for recovery, which significantly impacted regulatory assets and regulatory liabilities between the two periods as discussed further below.

Net cash from operating activities from continuing operations for the year ended December 31, 2016 was $804.1 million, a decrease of $359.3 million from 2015. This decrease was driven by a combination of changes in weather, gas prices and the related approved rates for recovery, which significantly impacted regulatory assets, regulatory liabilities and working capital between the two periods. During 2015, natural gas prices were declining faster than the gas cost adjustments being collected from customers, resulting in an associated source of cash from working capital. During 2016, these over-collected gas costs from 2015 were returned to customers, resulting in a use of working capital.

Regulatory Assets and Liabilities. During the year ended December 31, 2016, over-collected gas costs from 2015 were returned to customers resulting in a use of cash. In 2017, less cash was required to be returned to customers because the balance of over-collected gas costs from 2016 was smaller than in 2015.

Pension and Other Postretirement Plan Funding. In 2017, NiSource contributed $282.3 million to its pension plans (including a $277 million discretionary contribution made during the third quarter of 2017) and $31.6 million to its other postretirement benefit plans. The return on assets related to the discretionary pension contribution is expected to result in a decrease to net periodic benefit costs beginning in 2018. However, due to increasing workforce retirements, certain NiSource pension plans are expected to trigger settlement accounting annually for the foreseeable future. The resulting charges from settlement accounting, if realized, are expected to partially offset this decrease in periodic benefits costs.

In 2018, NiSource expects to make contributions of $2.9 million to its pension plans and $25.0 million to its postretirement medical and life plans. Given the current funded status of the pension plans, and barring unforeseen market volatility that may negatively impact the valuation of its plan assets, NiSource does not believe additional material contributions to its pension plans will be required for the foreseeable future.

Income Taxes. Rates for NiSource’s regulated customers include provisions for the collection of U.S. federal income taxes. The reduction in the U.S. federal corporate income tax rate as a result of the TCJA is expected to lead to a decrease in the amount billed to customers through rates, ultimately resulting in lower cash collections from operating activities. NiSource is currently working to estimate the impact of this revenue reduction.

In addition, NiSource will be required to pass back to customers “excess deferred taxes” which represent amounts collected from customers in the past to cover deferred tax liabilities which, as a result of the passage of the TCJA, are now expected to be less than the originally billed amounts. Approximately $1.5 billion of excess deferred taxes related to implementation of the TCJA are presented within "Regulatory liabilities (noncurrent)" on the Consolidated Balance Sheets as of December 31, 2017. The majority of this balance relates to temporary book-to-tax differences on utility property protected by IRS normalization rules. NiSource expects this portion of the balance will be passed back to customers over the remaining average useful life of the associated property. The pass back period for the remainder of this balance will be determined by NiSource's state utility commissions in future proceedings. NiSource’s estimate of the amount and pass-back period of excess deferred taxes is subject to change pending final review by the utility commissions of the states in which NiSource operates.

As of December 31, 2017, NiSource has a recorded deferred tax asset of $508.5 million related to a Federal NOL carryforward. As a result of being in an NOL position, NiSource was not required to make any cash payments for Federal income tax purposes during the years ended December 31, 2017, 2016 or 2015. For NiSource NOLs generated before December 31, 2017, the NOL carryforward expires in 2037, however, NiSource expects to fully utilize the carryforward benefit prior to its expiration.

Per the TCJA, utilization of NOL carryforwards generated after December 31, 2017 is limited to 80% of current year taxable income. Accordingly, NiSource may be required to make cash payments for Federal income taxes in future years despite having NOL carryforwards in excess of current taxes payable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

Investing Activities

NiSource's cash used for investing activities varies year over year primarily as a result of changes in the level of annual capital expenditures. The table below reflects capital expenditures and certain other investing activities by segment for 2017, 2016 and 2015.

(in millions)	2017				2016				2015
Gas Distribution Operations
System Growth and Tracker	$	909.2			$	835.0			$	729.6
Maintenance	216.4				219.4				187.4
Total Gas Distribution Operations	1,125.6				1,054.4				917.0
Electric Operations
System Growth and Tracker	435.3				314.1				274.8
Maintenance	157.1				106.5				125.5
Total Electric Operations	592.4				420.6				400.3
Corporate and Other Operations - Maintenance	35.8				15.4				50.2
Total(1)	$	1,753.8			$	1,490.4			$	1,367.5

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

For 2017, capital expenditures and certain other investing activities were $1,753.8 million, which was $263.4 million higher than the 2016 capital program. This increased spending is mainly due to electric transmission projects, environmental investments and system modernization projects.

For 2016, capital expenditures and certain other investing activities were $1,490.4 million, which was $122.9 million higher than the 2015 capital program. This increased spending is mainly due to modernization projects and segment growth at the Gas Distribution Operations segment.

For 2018, NiSource projects to invest approximately $1.7 to $1.8 billion in its capital program. This projected level of spend is consistent with 2017 spend levels and is expected to focus primarily on the continuation of the modernization projects, segment growth across the Gas Distribution Operations segment, and TDSIC spend.

Financing Activities

Short-term Debt. Refer to Note 15, “Short-Term Borrowings,” in the Notes to Consolidated Financial Statements for information on short-term debt.

Long-term Debt. Refer to Note 14, “Long-Term Debt,” in the Notes to Consolidated Financial Statements for information on long-term debt.

Net Available Liquidity. As of December 31, 2017, an aggregate of $998.9 million of net liquidity was available. Net available liquidity includes cash and credit available under the revolving credit facility and accounts receivable securitization programs.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NISOURCE INC.

The following table displays NiSource's liquidity position as of December 31, 2017 and 2016:

Year Ended December 31, (in millions)	2017			2016
Current Liquidity
Revolving Credit Facility	$	1,850.0		$	1,850.0
Accounts Receivable Program(1)	336.7			310.0
Less:
Drawn on Revolving Credit Facility	—			—
Commercial Paper	869.0			1,178.0
Accounts Receivable Program Utilized	336.7			310.0
Letters of Credit Outstanding Under Credit Facility	11.1			14.7
Add:
Cash and Cash Equivalents	29.0			26.4
Net Available Liquidity	$	998.9		$	683.7

(1)Represents the lesser of the seasonal limit or maximum borrowings supportable by the underlying receivables.

The change in net available liquidity between 2017 and 2016 was driven by lower utilization of short-term debt in the current year as a result of cash proceeds from other forms of financing.

Debt Covenants. NiSource is subject to a financial covenant under its revolving credit facility which requires NiSource to maintain a debt to capitalization ratio that does not exceed 70%. A similar covenant in a 2005 private placement note purchase agreement requires NiSource to maintain a debt to capitalization ratio that does not exceed 75%. As of December 31, 2017, the ratio was 67.6%.

Sale of Trade Accounts Receivables. Refer to Note 17, “Transfers of Financial Assets,” in the Notes to Consolidated Financial Statements for information on the sale of trade accounts receivable.

Credit Ratings. The credit rating agencies periodically review the Company’s ratings, taking into account factors such as its capital structure and earnings profile. The following table includes NiSource's and certain subsidiaries' credit ratings and ratings outlook as of December 31, 2017. There were no changes to credit ratings or outlooks since December 31, 2016. 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.

	S&P		Moody's		Fitch
	Rating	Outlook	Rating	Outlook	Rating	Outlook
NiSource	BBB+	Stable	Baa2	Stable	BBB	Stable
NIPSCO	BBB+	Stable	Baa1	Stable	BBB	Stable
Columbia of Massachusetts	BBB+	Stable	Baa2	Stable	Not rated	Not rated
Commercial Paper	A-2	Stable	P-2	Stable	F3	Stable

Certain NiSource subsidiaries have agreements that contain “ratings triggers” that require increased collateral if the credit ratings of NiSource or certain of its subsidiaries are below investment grade. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. As of December 31, 2017, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $46.1 million. In addition to agreements with ratings triggers, there are other agreements that contain “adequate assurance” or “material adverse change” provisions that could necessitate additional credit support such as letters of credit and cash collateral to transact business.

Equity. The authorized capital stock of NiSource consists of 420,000,000 shares, $0.01 par value, of which 400,000,000 are common stock and 20,000,000 are preferred stock. As of December 31, 2017, 337,015,806 shares of common stock were outstanding. NiSource has no preferred stock outstanding as of December 31, 2017.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

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 outsourcing of IT services. The total contractual obligations in existence at December 31, 2017 and their maturities were:

(in millions)	Total				2018				2019				2020				2021				2022				After
Long-term debt (1)	$	7,714.9			$	275.1			$	296.1			$	325.1			$	63.6			$	710.0			$	6,045.0
Capital leases (2)	254.4				18.1				15.7				15.4				15.5				15.5				174.2
Interest payments on long-term debt	6,701.2				364.4				344.4				334.6				316.8				307.7				5,033.3
Operating leases(3)	57.2				13.8				10.2				7.3				6.2				4.4				15.3
Energy commodity contracts	216.7				102.5				57.3				56.9				—				—				—
Service obligations:
Pipeline service obligations	2,649.9				538.9				520.5				390.7				344.7				331.0				524.1
IT service obligations	311.5				88.3				71.5				63.5				50.7				37.5				—
Other service obligations	178.2				48.3				43.3				43.3				43.3				—				—
Other liabilities	28.7				28.7				—				—				—				—				—
Total contractual obligations	$	18,112.7			$	1,478.1			$	1,359.0			$	1,236.8			$	840.8			$	1,406.1			$	11,791.9

(1) Long-term debt balance excludes unamortized issuance costs and discounts of $71.5 million.

(2) Capital lease payments shown above are inclusive of interest totaling $91.9 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 $29.3 million in 2018, $27.5 million in 2019, $19.7 million in 2020, $13.9 million in 2021, $9.6 million in 2022 and $7.4 million thereafter.

NiSource calculated estimated interest payments for long-term debt based on the stated coupon and payment dates. For 2018, NiSource projects that it will be required to make interest payments of approximately $388.1 million, which includes $364.4 million of interest payments related to its long-term debt outstanding as of December 31, 2017. At December 31, 2017, NiSource had $1,205.7 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 2018. Plan contributions beyond 2018 are dependent upon a number of factors, including actual returns on plan assets, which cannot be reliably estimated at this time. In 2018, NiSource expects to make contributions of approximately $2.9 million to its pension plans and approximately $25.0 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 $222.1 million in 2018, which are not included in the table above.

Refer to Note 18-A, “Contractual Obligations,” in the Notes to Consolidated Financial Statements for further information.

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

NISOURCE INC.

Market Risk Disclosures

Risk is an inherent part of NiSource’s businesses. The extent to which NiSource properly and effectively identifies, assesses, monitors and manages each of the various types of risk involved in its businesses is critical to its profitability. NiSource seeks to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following principal market risks that are involved in NiSource’s businesses: commodity price risk, interest rate risk and credit risk. Risk management at NiSource is a multi-faceted process with oversight by the Risk Management Committee that requires constant communication, judgment and knowledge of specialized products and markets. NiSource’s senior management takes an active role in the risk management process and has developed policies and procedures that require specific administrative and business functions to assist in the identification, assessment and control of various risks. These may include but are not limited to market, operational, financial, compliance and strategic risk types. In recognition of the increasingly varied and complex nature of the energy business, NiSource’s risk management process, policies and procedures continue to evolve and are subject to ongoing review and modification.

Commodity Price Risk

NiSource is exposed to commodity price risk as a result of its subsidiaries’ operations involving natural gas and power. To manage this market risk, NiSource’s subsidiaries use derivatives, including commodity futures contracts, swaps, forwards and options. NiSource does not participate in speculative energy trading activity.

Commodity price risk resulting from derivative activities at NiSource’s rate-regulated subsidiaries is limited, since regulations allow recovery of prudently incurred purchased power, fuel and gas costs through the ratemaking process, including gains or losses on these derivative instruments. If states should explore additional regulatory reform, these subsidiaries may begin providing services without the benefit of the traditional ratemaking process and may be more exposed to commodity price risk.

NiSource subsidiaries are required to make cash margin deposits with their brokers to cover actual and potential losses in the value of outstanding exchange traded derivative contracts. The amount of these deposits, which are reflected in NiSource’s restricted cash balance, may fluctuate significantly during periods of high volatility in the energy commodity markets.

Refer to Note 9, "Risk Management Activities," in the Notes to the Consolidated Financial Statements for further information on NiSource's commodity price risk assets and liabilities as of December 31, 2017 and 2016.

Interest Rate Risk

NiSource is exposed to interest rate risk as a result of changes in interest rates on borrowings under its revolving credit agreement, commercial paper program and accounts receivable programs, which have interest rates that are indexed to short-term market interest rates. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $15.8 million and $11.7 million for 2017 and 2016, respectively. NiSource is also exposed to interest rate risk as a result of changes in benchmark rates that can influence the interest rates of future debt issuances. NiSource and its subsidiaries manage interest rate risk on long-term debt through forward starting interest rate swaps that hedge the interest rate risk related to forecasted issuances.

Refer to Note 9, "Risk Management Activities," in the Notes to Consolidated Financial Statements for further information on NiSource's interest rate risk assets and liabilities as of December 31, 2017 and 2016.

Credit Risk

Due to the nature of the industry, credit risk is embedded in many of NiSource’s business activities. NiSource’s extension of credit is governed by a Corporate Credit Risk Policy. In addition, Risk Management Committee guidelines are in place which document management approval levels for credit limits, evaluation of creditworthiness, and credit risk mitigation efforts. Exposures to credit risks are monitored by the risk management function which is independent of commercial operations. Credit risk arises due to the possibility that a customer, supplier or counterparty will not be able or willing to fulfill its obligations on a transaction on or before the settlement date. For derivative-related contracts, credit risk arises when counterparties are obligated to deliver or purchase defined commodity units of gas or power to NiSource at a future date per execution of contractual terms and conditions. Exposure to credit risk is measured in terms of both current obligations and the market value of forward positions net of any posted collateral such as cash and letters of credit.

NiSource closely monitors the financial status of its banking credit providers. NiSource evaluates the financial status of its banking partners through the use of market-based metrics such as credit default swap pricing levels, and also through traditional credit ratings provided by major credit rating agencies.