filings.toolsItem 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
NISOURCE INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of NiSource Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of NiSource Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related statements of consolidated income, comprehensive income, common stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and the schedule listed in the Index at item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 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 States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.
Emphasis of a Matter
As discussed in Note 3 to the consolidated financial statements, on July 1, 2015 the Company completed the spin-off of its subsidiary Columbia Pipeline Group, Inc.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. 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.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 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. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
February 20, 2018
We have served as the Company's auditor since 2002.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of NiSource Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of NiSource Inc. and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). 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
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We 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.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Columbus, Ohio
February 20, 2018
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED INCOME
| Year Ended December 31, (in millions, except per share amounts) | 2017 | 2016 | 2015 | ||||||||
| Operating Revenues | |||||||||||
| Gas Distribution | $ | 2,063.2 | $ | 1,850.9 | $ | 2,081.9 | |||||
| Gas Transportation | 1,021.5 | 964.6 | 969.8 | ||||||||
| Electric | 1,785.5 | 1,660.8 | 1,572.9 | ||||||||
| Other | 4.4 | 16.2 | 27.2 | ||||||||
| Total Operating Revenues | 4,874.6 | 4,492.5 | 4,651.8 | ||||||||
| Operating Expenses | |||||||||||
| Cost of Sales (excluding depreciation and amortization) | 1,518.7 | 1,390.2 | 1,643.7 | ||||||||
| Operation and maintenance | 1,612.3 | 1,453.7 | 1,426.1 | ||||||||
| Depreciation and amortization | 570.3 | 547.1 | 524.4 | ||||||||
| (Gain) Loss on sale of assets and impairments, net | 5.5 | (1.0 | ) | 1.6 | |||||||
| Other taxes | 257.2 | 244.3 | 256.1 | ||||||||
| Total Operating Expenses | 3,964.0 | 3,634.3 | 3,851.9 | ||||||||
| Operating Income | 910.6 | 858.2 | 799.9 | ||||||||
| Other Income (Deductions) | |||||||||||
| Interest expense, net | (353.2 | ) | (349.5 | ) | (380.2 | ) | |||||
| Other, net | (2.8 | ) | 1.5 | 17.4 | |||||||
| Loss on early extinguishment of long-term debt | (111.5 | ) | — | (97.2 | ) | ||||||
| Total Other Deductions | (467.5 | ) | (348.0 | ) | (460.0 | ) | |||||
| Income from Continuing Operations before Income Taxes | 443.1 | 510.2 | 339.9 | ||||||||
| Income Taxes | 314.5 | 182.1 | 141.3 | ||||||||
| Income from Continuing Operations | 128.6 | 328.1 | 198.6 | ||||||||
| Income (Loss) from Discontinued Operations - net of taxes | (0.1 | ) | 3.4 | 103.5 | |||||||
| Net Income | $ | 128.5 | $ | 331.5 | $ | 302.1 | |||||
| Less: Net income attributable to noncontrolling interest | — | — | 15.6 | ||||||||
| Net Income attributable to NiSource | $ | 128.5 | $ | 331.5 | $ | 286.5 | |||||
| Amounts attributable to NiSource: | |||||||||||
| Income from continuing operations | $ | 128.6 | $ | 328.1 | $ | 198.6 | |||||
| Income (Loss) from discontinued operations | (0.1 | ) | 3.4 | 87.9 | |||||||
| Net Income attributable to NiSource | $ | 128.5 | $ | 331.5 | $ | 286.5 | |||||
| Basic Earnings Per Share | |||||||||||
| Continuing operations | $ | 0.39 | $ | 1.02 | $ | 0.63 | |||||
| Discontinued operations | — | 0.01 | 0.27 | ||||||||
| Basic Earnings Per Share | $ | 0.39 | $ | 1.03 | $ | 0.90 | |||||
| Diluted Earnings Per Share | |||||||||||
| Continuing operations | $ | 0.39 | $ | 1.01 | $ | 0.63 | |||||
| Discontinued operations | — | 0.01 | 0.27 | ||||||||
| Diluted Earnings Per Share | $ | 0.39 | $ | 1.02 | $ | 0.90 | |||||
| Basic Average Common Shares Outstanding | 329.4 | 321.8 | 317.7 | ||||||||
| Diluted Average Common Shares | 330.8 | 323.5 | 319.8 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
| Year Ended December 31, (in millions, net of taxes) | 2017 | 2016 | 2015 | ||||||||
| Net Income | $ | 128.5 | $ | 331.5 | $ | 302.1 | |||||
| Other comprehensive income (loss): | |||||||||||
| Net unrealized gain (loss) on available-for-sale securities(1) | 0.8 | (0.1 | ) | (0.8 | ) | ||||||
| Net unrealized gain (loss) on cash flow hedges(2) | (22.5 | ) | 8.6 | (7.8 | ) | ||||||
| Unrecognized pension and OPEB benefit (costs)(3) | 3.4 | 1.5 | (2.4 | ) | |||||||
| Total other comprehensive income (loss) | (18.3 | ) | 10.0 | (11.0 | ) | ||||||
| Total Comprehensive Income | $ | 110.2 | $ | 341.5 | $ | 291.1 | |||||
| Less: Comprehensive income attributable to noncontrolling interest | — | — | 15.6 | ||||||||
| Comprehensive Income attributable to NiSource | $ | 110.2 | $ | 341.5 | $ | 275.5 |
(1) Net unrealized gain (loss) on available-for-sale securities, net of $0.4 million tax expense, $0.1 million tax benefit and $0.4 million tax benefit in 2017, 2016 and 2015, respectively.
(2) Net unrealized gain (loss) on derivatives qualifying as cash flow hedges, net of $13.9 million tax benefit, $5.6 million tax expense and $4.8 million tax benefit in 2017, 2016 and 2015, respectively.
(3) Unrecognized pension and OPEB benefit (costs), net of $2.1 million tax expense, $0.1 million tax expense and $4.6 million tax benefit in 2017, 2016 and 2015, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions) | December 31, 2017 | December 31, 2016 | |||||
| ASSETS | |||||||
| Property, Plant and Equipment | |||||||
| Utility plant | $ | 21,026.6 | $ | 19,368.0 | |||
| Accumulated depreciation and amortization | (6,953.6 | ) | (6,613.7 | ) | |||
| Net utility plant | 14,073.0 | 12,754.3 | |||||
| Other property, at cost, less accumulated depreciation | 286.5 | 313.7 | |||||
| Net Property, Plant and Equipment | 14,359.5 | 13,068.0 | |||||
| Investments and Other Assets | |||||||
| Unconsolidated affiliates | 5.5 | 6.6 | |||||
| Other investments | 204.1 | 193.3 | |||||
| Total Investments and Other Assets | 209.6 | 199.9 | |||||
| Current Assets | |||||||
| Cash and cash equivalents | 29.0 | 26.4 | |||||
| Restricted cash | 9.4 | 9.6 | |||||
| Accounts receivable (less reserve of $18.3 and $23.3, respectively) | 898.9 | 847.0 | |||||
| Gas inventory | 285.1 | 279.9 | |||||
| Materials and supplies, at average cost | 105.9 | 101.7 | |||||
| Electric production fuel, at average cost | 80.1 | 112.8 | |||||
| Exchange gas receivable | 45.8 | 5.4 | |||||
| Regulatory assets | 176.3 | 248.7 | |||||
| Prepayments and other | 132.8 | 130.6 | |||||
| Total Current Assets | 1,763.3 | 1,762.1 | |||||
| Other Assets | |||||||
| Regulatory assets | 1,624.9 | 1,636.7 | |||||
| Goodwill | 1,690.7 | 1,690.7 | |||||
| Intangible assets | 231.7 | 242.7 | |||||
| Deferred charges and other | 82.0 | 91.8 | |||||
| Total Other Assets | 3,629.3 | 3,661.9 | |||||
| Total Assets | $ | 19,961.7 | $ | 18,691.9 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
CONSOLIDATED BALANCE SHEETS
| (in millions, except share amounts) | December 31, 2017 | December 31, 2016 | |||||
| CAPITALIZATION AND LIABILITIES | |||||||
| Capitalization | |||||||
| Common Stockholders’ Equity | |||||||
| Common stock - $0.01 par value, 400,000,000 shares authorized; 337,015,806 and 323,159,672 shares outstanding, respectively | $ | 3.4 | $ | 3.3 | |||
| Treasury stock | (95.9 | ) | (88.7 | ) | |||
| Additional paid-in capital | 5,529.1 | 5,153.9 | |||||
| Retained deficit | (1,073.1 | ) | (972.2 | ) | |||
| Accumulated other comprehensive loss | (43.4 | ) | (25.1 | ) | |||
| Total Common Stockholders’ Equity | 4,320.1 | 4,071.2 | |||||
| Long-term debt, excluding amounts due within one year | 7,512.2 | 6,058.2 | |||||
| Total Capitalization | 11,832.3 | 10,129.4 | |||||
| Current Liabilities | |||||||
| Current portion of long-term debt | 284.3 | 363.1 | |||||
| Short-term borrowings | 1,205.7 | 1,488.0 | |||||
| Accounts payable | 625.6 | 539.4 | |||||
| Customer deposits and credits | 262.6 | 264.1 | |||||
| Taxes accrued | 208.1 | 195.4 | |||||
| Interest accrued | 112.3 | 120.3 | |||||
| Risk management liabilities | 43.2 | 16.8 | |||||
| Exchange gas payable | 59.6 | 83.7 | |||||
| Regulatory liabilities | 58.7 | 116.7 | |||||
| Legal and environmental | 32.1 | 37.4 | |||||
| Accrued compensation and employee benefits | 195.4 | 161.4 | |||||
| Other accruals | 90.8 | 65.9 | |||||
| Total Current Liabilities | 3,178.4 | 3,452.2 | |||||
| Other Liabilities | |||||||
| Risk management liabilities | 28.5 | 44.5 | |||||
| Deferred income taxes | 1,292.9 | 2,528.0 | |||||
| Deferred investment tax credits | 12.4 | 13.4 | |||||
| Accrued insurance liabilities | 80.1 | 82.8 | |||||
| Accrued liability for postretirement and postemployment benefits | 337.1 | 713.4 | |||||
| Regulatory liabilities | 2,736.9 | 1,265.1 | |||||
| Asset retirement obligations | 268.7 | 262.6 | |||||
| Other noncurrent liabilities | 194.4 | 200.5 | |||||
| Total Other Liabilities | 4,951.0 | 5,110.3 | |||||
| Commitments and Contingencies (Refer to Note 18, "Other Commitments and Contingencies") | — | — | |||||
| Total Capitalization and Liabilities | $ | 19,961.7 | $ | 18,691.9 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
| Year Ended December 31, (in millions) | 2017 | 2016 | 2015 | ||||||||
| Operating Activities | |||||||||||
| Net Income | $ | 128.5 | $ | 331.5 | $ | 302.1 | |||||
| Adjustments to Reconcile Net Income to Net Cash from Continuing Operations: | |||||||||||
| Loss on early extinguishment of debt | 111.5 | — | 97.2 | ||||||||
| Depreciation and amortization | 570.3 | 547.1 | 524.4 | ||||||||
| Deferred income taxes and investment tax credits | 306.7 | 182.3 | 135.3 | ||||||||
| Stock compensation expense and 401(k) profit sharing contribution | 40.1 | 46.5 | 50.7 | ||||||||
| (Income) loss from discontinued operations - net of taxes | 0.1 | (3.4 | ) | (103.5 | ) | ||||||
| Amortization of discount/premium on debt | 7.4 | 7.6 | 8.7 | ||||||||
| AFUDC equity | (12.6 | ) | (11.6 | ) | (11.5 | ) | |||||
| Other adjustments | 6.5 | (3.8 | ) | 13.1 | |||||||
| Changes in Assets and Liabilities: | |||||||||||
| Accounts receivable | (52.3 | ) | (188.0 | ) | 262.2 | ||||||
| Inventories | 19.0 | 38.9 | 46.9 | ||||||||
| Accounts payable | 49.0 | 108.8 | (190.5 | ) | |||||||
| Customer deposits and credits | (2.5 | ) | (52.3 | ) | 35.5 | ||||||
| Taxes accrued | 10.2 | 12.1 | 8.7 | ||||||||
| Interest accrued | (33.9 | ) | (8.7 | ) | (11.6 | ) | |||||
| Exchange gas receivable/payable | (64.5 | ) | 36.9 | (31.7 | ) | ||||||
| Other accruals | 31.8 | (6.0 | ) | (55.1 | ) | ||||||
| Prepayments and other current assets | (13.3 | ) | (0.4 | ) | 0.1 | ||||||
| Regulatory assets/liabilities | 57.5 | (187.9 | ) | 82.0 | |||||||
| Postretirement and postemployment benefits | (380.9 | ) | (44.8 | ) | 25.6 | ||||||
| Deferred charges and other noncurrent assets | (2.0 | ) | (1.2 | ) | 5.2 | ||||||
| Other noncurrent liabilities | (34.5 | ) | 0.5 | (30.4 | ) | ||||||
| Net Operating Activities from Continuing Operations | 742.1 | 804.1 | 1,163.4 | ||||||||
| Net Operating Activities from (used for) Discontinued Operations | 0.1 | (0.8 | ) | 293.4 | |||||||
| Net Cash Flows from Operating Activities | 742.2 | 803.3 | 1,456.8 | ||||||||
| Investing Activities | |||||||||||
| Capital expenditures | (1,695.8 | ) | (1,475.2 | ) | (1,360.7 | ) | |||||
| Cash contributions from CPG | — | — | 3,798.2 | ||||||||
| Cost of removal | (109.0 | ) | (110.1 | ) | (79.2 | ) | |||||
| 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 | |||||||
| Net Investing Activities from (used for) Continuing Operations | (1,808.5 | ) | (1,603.0 | ) | 2,379.8 | ||||||
| Net Investing Activities used for Discontinued Operations | — | — | (430.1 | ) | |||||||
| Net Cash Flows from (used for) Investing Activities | (1,808.5 | ) | (1,603.0 | ) | 1,949.7 | ||||||
| Financing Activities | |||||||||||
| Cash of CPG at Separation | — | — | (136.8 | ) | |||||||
| Issuance of long-term debt | 3,250.0 | 500.0 | — | ||||||||
| Repayments of long-term debt and capital lease obligations | (1,855.0 | ) | (434.6 | ) | (2,092.2 | ) | |||||
| Premiums and other debt related costs | (144.3 | ) | (3.7 | ) | (93.5 | ) | |||||
| Change in short-term borrowings, net | (282.4 | ) | 920.6 | (936.4 | ) | ||||||
| Issuance of common stock | 336.7 | 23.1 | 22.5 | ||||||||
| Acquisition of treasury stock | (7.2 | ) | (9.4 | ) | (20.4 | ) | |||||
| Dividends paid - common stock | (229.1 | ) | (205.5 | ) | (263.4 | ) | |||||
| Net Financing Activities from (used for) Continuing Operations | 1,068.7 | 790.5 | (3,520.2 | ) | |||||||
| Net Financing Activities from Discontinued Operations | — | — | 108.6 | ||||||||
| Net Cash Flows from (used for) Financing Activities | 1,068.7 | 790.5 | (3,411.6 | ) | |||||||
| Change in cash, cash equivalents and restricted cash from (used for) continuing operations | 2.3 | (8.4 | ) | 23.0 | |||||||
| Change in cash, cash equivalents and restricted cash from (used for) discontinued operations | 0.1 | (0.8 | ) | (28.1 | ) | ||||||
| Change in cash included in discontinued operations | — | — | 0.5 | ||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 36.0 | 45.2 | 49.8 | ||||||||
| Cash, Cash Equivalents and Restricted Cash at End of Period | $ | 38.4 | $ | 36.0 | $ | 45.2 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS’ EQUITY
| (in millions) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Earnings/(Deficit) | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||
| Balance as of January 1, 2015 | $ | 3.2 | $ | (58.9 | ) | $ | 4,787.6 | $ | 1,494.0 | $ | (50.6 | ) | $ | 6,175.3 | |||||||||
| Comprehensive Income (Loss): | |||||||||||||||||||||||
| Net Income | — | — | — | 286.5 | — | 286.5 | |||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (11.0 | ) | (11.0 | ) | |||||||||||||||
| Allocation of AOCI to noncontrolling interest(1) | — | — | — | — | 2.0 | 2.0 | |||||||||||||||||
| Sale of interest in Columbia OpCo to CPPL(1)(2) | — | — | 227.1 | — | — | 227.1 | |||||||||||||||||
| Dividends: | |||||||||||||||||||||||
| Common stock ($0.83 per share) | — | — | — | (263.5 | ) | — | (263.5 | ) | |||||||||||||||
| Distribution of CPG stock to shareholders (Note 3) | — | — | — | (2,640.3 | ) | 24.5 | (2,615.8 | ) | |||||||||||||||
| Treasury stock acquired | — | (20.4 | ) | — | — | — | (20.4 | ) | |||||||||||||||
| Stock issuances: | |||||||||||||||||||||||
| Employee stock purchase plan | — | — | 5.1 | — | — | 5.1 | |||||||||||||||||
| Long-term incentive plan | — | — | 4.2 | — | — | 4.2 | |||||||||||||||||
| 401(k) and profit sharing | — | — | 46.7 | — | — | 46.7 | |||||||||||||||||
| Dividend reinvestment plan | — | — | 7.3 | — | — | 7.3 | |||||||||||||||||
| Balance as of December 31, 2015 | $ | 3.2 | $ | (79.3 | ) | $ | 5,078.0 | $ | (1,123.3 | ) | $ | (35.1 | ) | $ | 3,843.5 | ||||||||
| Comprehensive Income (Loss): | |||||||||||||||||||||||
| Net Income | — | — | — | 331.5 | — | 331.5 | |||||||||||||||||
| Other comprehensive income, net of tax | — | — | — | — | 10.0 | 10.0 | |||||||||||||||||
| Common stock dividends ($0.64 per share) | — | — | — | (205.7 | ) | — | (205.7 | ) | |||||||||||||||
| Treasury stock acquired | — | (9.4 | ) | — | — | — | (9.4 | ) | |||||||||||||||
| Cumulative effect of change in accounting principle | — | — | — | 25.3 | — | 25.3 | |||||||||||||||||
| Stock issuances: | |||||||||||||||||||||||
| Common stock | 0.1 | — | — | — | — | 0.1 | |||||||||||||||||
| Employee stock purchase plan | — | — | 4.7 | — | — | 4.7 | |||||||||||||||||
| Long-term incentive plan | — | — | 20.9 | — | — | 20.9 | |||||||||||||||||
| 401(k) and profit sharing | — | — | 41.4 | — | — | 41.4 | |||||||||||||||||
| Dividend reinvestment plan | — | — | 8.9 | — | — | 8.9 | |||||||||||||||||
| Balance as of December 31, 2016 | $ | 3.3 | $ | (88.7 | ) | $ | 5,153.9 | $ | (972.2 | ) | $ | (25.1 | ) | $ | 4,071.2 |
(1)This transaction, which occurred prior to the Separation, was distributed through retained earnings as part of the Separation on July 1, 2015.
(2)Represents the purchase of an additional 8.4% limited partner interest in Columbia OpCo by an affiliate of CPG, recorded at the historical carrying value of Columbia OpCo's net assets after giving effect to the $1,168.4 million equity contribution from CPPL's IPO completed on February 11, 2015.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
NISOURCE INC.
STATEMENTS OF CONSOLIDATED COMMON STOCKHOLDERS’ EQUITY
| (in millions) | Common Stock | Treasury Stock | Additional Paid-In Capital | Retained Deficit | Accumulated Other Comprehensive Loss | Total | |||||||||||||||||
| Balance as of December 31, 2016 | $ | 3.3 | $ | (88.7 | ) | $ | 5,153.9 | $ | (972.2 | ) | $ | (25.1 | ) | $ | 4,071.2 | ||||||||
| Comprehensive Income (Loss): | |||||||||||||||||||||||
| Net Income | — | — | — | 128.5 | — | 128.5 | |||||||||||||||||
| Other comprehensive loss, net of tax | — | — | — | — | (18.3 | ) | (18.3 | ) | |||||||||||||||
| Common stock dividends ($0.70 per share) | — | — | — | (229.4 | ) | — | (229.4 | ) | |||||||||||||||
| Treasury stock acquired | — | (7.2 | ) | — | — | — | (7.2 | ) | |||||||||||||||
| Stock issuances: | |||||||||||||||||||||||
| Employee stock purchase plan | — | — | 5.0 | — | — | 5.0 | |||||||||||||||||
| Long-term incentive plan | — | — | 14.9 | — | — | 14.9 | |||||||||||||||||
| 401(k) and profit sharing | — | — | 34.3 | — | — | 34.3 | |||||||||||||||||
| Dividend reinvestment plan | — | — | 6.4 | — | — | 6.4 | |||||||||||||||||
| 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 |
| Shares (in thousands) | Common Shares | Treasury Shares | Outstanding Shares | |||||
| Balance as of January 1, 2015 | 318,636 | (2,599 | ) | 316,037 | ||||
| Treasury stock acquired | (472 | ) | (472 | ) | ||||
| Issued: | ||||||||
| Employee stock purchase plan | 203 | — | 203 | |||||
| Long-term incentive plan | 1,423 | — | 1,423 | |||||
| 401(k) and profit sharing plan | 1,644 | — | 1,644 | |||||
| Dividend reinvestment plan | 275 | — | 275 | |||||
| Balance as of December 31, 2015 | 322,181 | (3,071 | ) | 319,110 | ||||
| Treasury stock acquired | (433 | ) | (433 | ) | ||||
| Issued: | ||||||||
| Employee stock purchase plan | 201 | — | 201 | |||||
| Long-term incentive plan | 2,103 | — | 2,103 | |||||
| 401(k) and profit sharing plan | 1,793 | — | 1,793 | |||||
| Dividend reinvestment plan | 386 | — | 386 | |||||
| Balance as of December 31, 2016 | 326,664 | (3,504 | ) | 323,160 | ||||
| Treasury stock acquired | (293 | ) | (293 | ) | ||||
| Issued: | ||||||||
| Employee stock purchase plan | 207 | — | 207 | |||||
| Long-term incentive plan | 351 | — | 351 | |||||
| 401(k) and profit sharing plan | 1,396 | — | 1,396 | |||||
| Dividend reinvestment plan | 264 | — | 264 | |||||
| ATM program | 11,931 | — | 11,931 | |||||
| Balance as of December 31, 2017 | 340,813 | (3,797 | ) | 337,016 |
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| 1. | Nature of Operations and Summary of Significant Accounting Policies |
A. Company Structure and Principles of Consolidation. NiSource, a Delaware corporation headquartered in Merrillville, Indiana, is an energy holding company whose subsidiaries are fully regulated natural gas and electric utility companies serving approximately 3.9 million customers in seven states. NiSource generates substantially all of its operating income through these rate-regulated businesses. The consolidated financial statements include the accounts of NiSource and its majority-owned subsidiaries after the elimination of all intercompany accounts and transactions.
B. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
C. Cash, Cash Equivalents and Restricted Cash. NiSource considers all highly liquid investments with original maturities of three months or less to be cash equivalents. NiSource reports amounts deposited in brokerage accounts for margin requirements as restricted cash. In addition, NiSource has amounts deposited in trust to satisfy requirements for the provision of various property, liability, workers compensation, and long-term disability insurance, which is classified as restricted cash and disclosed as cash and cash equivalents on the Statements of Consolidated Cash Flows.
D. Accounts Receivable and Unbilled Revenue. Accounts receivable on the Consolidated Balance Sheets includes both billed and unbilled amounts. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the date of the last cycle billing date through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates and weather. Accounts receivable fluctuates from year to year depending in large part on weather impacts and price volatility. NiSource's accounts receivable on the Consolidated Balance Sheets include unbilled revenue, less reserves, in the amounts of $359.4 million and $329.7 million as of December 31, 2017 and 2016, respectively. The reserve for uncollectible receivables is NiSource’s best estimate of the amount of probable credit losses in the existing accounts receivable. NiSource determined the reserve based on historical experience and in consideration of current market conditions. Account balances are charged against the allowance when it is anticipated the receivable will not be recovered.
E. Investments in Debt Securities. NiSource’s investments in debt securities are carried at fair value and are designated as available-for-sale. These investments are included within “Other investments” on the Consolidated Balance Sheets. Unrealized gains and losses, net of deferred income taxes, are reflected as accumulated other comprehensive income. These investments are monitored for other than temporary declines in market value. Realized gains and losses and permanent impairments are reflected in the Statements of Consolidated Income. No material impairment charges were recorded for the years ended December 31, 2017, 2016 or 2015. Refer to Note 16, "Fair Value," for additional information.
F. Basis of Accounting for Rate-Regulated Subsidiaries. Rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged and collected. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the Consolidated Balance Sheets and are later recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers.
In the event that regulation significantly changes the opportunity for NiSource to recover its costs in the future, all or a portion of NiSource’s regulated operations may no longer meet the criteria for regulatory accounting. In such an event, a write-down of all or a portion of NiSource’s existing regulatory assets and liabilities could result. If transition cost recovery was approved by the appropriate regulatory bodies that would meet the requirements under GAAP for continued accounting as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts. If unable to continue to apply the provisions of regulatory accounting, NiSource would be required to apply the provisions of ASC 980-20, Discontinuation of Rate-Regulated Accounting. In management’s opinion, NiSource’s regulated subsidiaries will be subject to regulatory accounting for the foreseeable future. Refer to Note 8, "Regulatory Matters," for additional information.
G. Plant and Other Property and Related Depreciation and Maintenance. Property, plant and equipment (principally utility plant) is stated at cost. The rate-regulated subsidiaries record depreciation using composite rates on a straight-line basis over the remaining service lives of the electric, gas and common properties as approved by the appropriate regulators.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Non-utility property is generally depreciated on a straight-line basis over the life of the associated asset. Refer to Note 5, "Property, Plant and Equipment," for additional information related to depreciation expense at Units 7 and 8 at Bailly Generating Station.
For rate-regulated companies, AFUDC is capitalized on all classes of property except organization costs, land, autos, office equipment, tools and other general property purchases. The allowance is applied to construction costs for that period of time between the date of the expenditure and the date on which such project is placed in service. The pre-tax rate for AFUDC was 4.0% in 2017, 4.5% in 2016 and 4.7% in 2015.
Generally, NiSource’s subsidiaries follow the practice of charging maintenance and repairs, including the cost of removal of minor items of property, to expense as incurred. When NiSource’s subsidiaries retire regulated property, plant and equipment, original cost plus the cost of retirement, less salvage value, is charged to accumulated depreciation. However, when it becomes probable a regulated asset will be retired substantially in advance of its original expected useful life or is abandoned, the cost of the asset and the corresponding accumulated depreciation is recognized as a separate asset. If the asset is still in operation, the net amount is classified as "Other property, at cost, less accumulated depreciation" on the Consolidated Balance Sheets. If the asset is no longer operating, the net amount is classified in "Regulatory assets" on the Consolidated Balance Sheets. If NiSource is able to recover a full return of and on investment, the carrying value of the asset is based on historical cost. If NiSource is not able to recover a full return on investment, a loss on impairment is recognized to the extent the net book value of the asset exceeds the present value of future revenues discounted at the incremental borrowing rate.
When NiSource’s subsidiaries sell entire regulated operating units, or retire or sell nonregulated properties, the original cost and accumulated depreciation and amortization balances are removed from "Property, Plant and Equipment" on the Consolidated Balance Sheets. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body. Refer to Note 5, "Property, Plant and Equipment," for further information.
External and internal costs associated with computer software developed for internal use are capitalized. Capitalization of such costs commences upon the completion of the preliminary stage of each project. Once the installed software is ready for its intended use, such capitalized costs are amortized on a straight-line basis generally over a period of five years, except for certain significant enterprise-wide technology investments which are amortized over a ten-year period.
H. Goodwill and Other Intangible Assets. Substantially all of NiSource's goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. NiSource tests its goodwill for impairment annually as of May 1, or more frequently if events and circumstances indicate that goodwill might be impaired. Fair value of NiSource's reporting units is determined using a combination of income and market approaches.
NiSource has other intangible assets consisting primarily of franchise rights apart from goodwill that were identified as part of the purchase price allocations associated with the acquisition of Columbia of Massachusetts which is being amortized on a straight-line basis over forty years from the date of acquisition. See Note 6, "Goodwill and Other Intangible Assets," for additional information.
I. Revenue Recognition. Revenue is recorded as products and services are delivered. Utility revenues are billed to customers monthly on a cycle basis. Revenues are recorded on the accrual basis and also include estimates for electricity and gas delivered but not billed. The accruals for unbilled revenues are reversed in the subsequent accounting period when meters are actually read and customers are billed.
On occasion, NiSource's regulated subsidiaries are permitted to implement new rates that have not been formally approved by their state regulatory commissions, which are subject to refund. As permitted by accounting principles generally accepted in the United States, each regulated subsidiary recognizes this revenue and establishes a reserve for amounts that could be refunded based on its experience for the jurisdiction in which the rates were implemented. In connection with such revenues, estimated rate refund liabilities are recorded which reflect management’s current judgment of the ultimate outcomes of the proceedings. No provisions are made when, in the opinion of management, the facts and circumstances preclude a reasonable estimate of the outcome.
J. Accounts Receivable Transfer Program. Certain of NiSource’s subsidiaries have agreements with third parties to sell certain accounts receivable without recourse. These transfers of accounts receivable are accounted for as secured borrowings. The entire gross receivables balance remains on the December 31, 2017 and 2016 Consolidated Balance Sheets and short-term debt is recorded in the amount of proceeds received from the purchasers involved in the transactions. Refer to Note 17, "Transfers of Financial Assets," for further information.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
K. Gas Cost and Fuel Adjustment Clause. NiSource’s regulated subsidiaries defer most differences between gas and fuel purchase costs and the recovery of such costs in revenues, and adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. These deferred balances are recorded as "Regulatory assets" or "Regulatory liabilities," as appropriate, on the Consolidated Balance Sheets. Refer to Note 8, "Regulatory Matters," for additional information.
L. Inventory. Both the LIFO inventory methodology and the weighted average cost methodology are used to value natural gas in storage, as approved by regulators for all of NiSource’s regulated subsidiaries. Inventory valued using LIFO was $45.5 million and $46.1 million at December 31, 2017 and 2016, respectively. Based on the average cost of gas using the LIFO method, the estimated replacement cost of gas in storage was less than the stated LIFO cost by $17.4 million and $9.4 million at December 31, 2017 and 2016, respectively. Gas inventory valued using the weighted average cost methodology was $239.6 million at December 31, 2017 and $233.8 million at December 31, 2016.
Electric production fuel is valued using the weighted average cost inventory methodology, as approved by NIPSCO's regulator.
Materials and supplies are valued using the weighted average cost inventory methodology.
M. Accounting for Exchange and Balancing Arrangements of Natural Gas. NiSource’s Gas Distribution Operations segment enters into balancing and exchange arrangements of natural gas as part of its operations and off-system sales programs. NiSource records a receivable or payable for any of its respective cumulative gas imbalances, as well as for any gas inventory borrowed or lent under a Gas Distribution Operations exchange agreement. Exchange gas is valued based on individual regulatory jurisdiction requirements (for example, historical spot rate, spot at the beginning of the month). These receivables and payables are recorded as “Exchange gas receivable” or “Exchange gas payable” on NiSource’s Consolidated Balance Sheets, as appropriate.
N. Accounting for Risk Management Activities. NiSource accounts for its derivatives and hedging activities in accordance with ASC 815. NiSource recognizes all derivatives as either assets or liabilities on the Consolidated Balance Sheets at fair value, unless such contracts are exempted as a normal purchase normal sale under the provisions of the standard. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation.
NiSource has elected not to net fair value amounts for any of its derivative instruments or the fair value amounts recognized for its right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. See Note 9, "Risk Management Activities," for additional information.
O. Income Taxes and Investment Tax Credits. NiSource records income taxes to recognize full interperiod tax allocations. Under the asset and liability method, deferred income taxes are provided for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amount and the tax basis of existing assets and liabilities. Previously recorded investment tax credits of the regulated subsidiaries were deferred on the balance sheet and are being amortized to book income over the regulatory life of the related properties to conform to regulatory policy.
To the extent certain deferred income taxes of the regulated companies are recoverable or payable through future rates, regulatory assets and liabilities have been established. Regulatory assets for income taxes are primarily attributable to property-related tax timing differences for which deferred taxes had not been provided in the past, when regulators did not recognize such taxes as costs in the ratemaking process. Regulatory liabilities for income taxes are primarily attributable to the regulated companies’ obligation to refund to ratepayers deferred income taxes provided at rates higher than the current Federal income tax rate. Such property-related amounts are credited to ratepayers using either the average rate assumption method or the reverse South Georgia method. Non property-related amounts are credited to ratepayers consistent with state utility commission direction.
Pursuant to the U.S. Internal Revenue Code and relevant state taxing authorities, NiSource and its subsidiaries file consolidated income tax returns for Federal and certain state jurisdictions. NiSource and its subsidiaries are parties to an agreement (the “Intercompany Income Tax Allocation Agreement”) that provides for the allocation of consolidated tax liabilities. The Intercompany Income Tax Allocation Agreement generally provides that each party is allocated an amount of tax similar to that which would be owed had the party been separately subject to tax.
P. Environmental Expenditures. NiSource accrues for costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated, regardless of when the expenditures are actually made. The undiscounted estimated future expenditures are based on currently enacted laws and regulations, existing
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
technology and estimated site-specific costs where assumptions may be made about the nature and extent of site contamination, the extent of cleanup efforts, costs of alternative cleanup methods and other variables. The liability is adjusted as further information is discovered or circumstances change. The reserves for estimated environmental expenditures are recorded on the Consolidated Balance Sheets in “Legal and environmental” for short-term portions of these liabilities and “Other noncurrent liabilities” for the respective long-term portions of these liabilities. Rate-regulated subsidiaries applying regulatory accounting establish regulatory assets on the Consolidated Balance Sheets to the extent that future recovery of environmental remediation costs is probable through the regulatory process. Refer to Note 18, "Other Commitments and Contingencies," for further information.
Q. Excise Taxes. NiSource accounts for excise taxes that are customer liabilities by separately stating on its invoices the tax to its customers and recording amounts invoiced as liabilities payable to the applicable taxing jurisdiction. Such balances are presented within "Other accruals" on the Consolidated Balance Sheets. These types of taxes collected from customers, comprised largely of sales taxes, are presented on a net basis affecting neither revenues nor cost of sales. NiSource accounts for excise taxes for which it is liable by recording a liability for the expected tax with a corresponding charge to “Other taxes” expense on the Statements of Consolidated Income.
R. Accrued Insurance Liabilities. NiSource accrues for insurance costs related to workers compensation, automobile, property, general and employment practices liabilities based on the most probable value of each claim. Claim values are determined by professional, licensed loss adjusters who consider the facts of the claim, anticipated indemnification and legal expenses, and respective state rules. Claims are reviewed by NiSource at least quarterly and an adjustment is made to the accrual based on the most current information. NiSource’s actual exposure to liability is minimal due to coverage from its wholly-owned captive insurer who then transfers risk to third party insurance providers for the majority of costs paid to claimants above NiSource's deductible.
| 2. | Recent Accounting Pronouncements |
Recently Issued Accounting Pronouncements
NiSource is currently evaluating the impact of certain ASUs on its Consolidated Financial Statements or Notes to Consolidated Financial Statements, which are described below:
| Standard | Description | Effective Date | Effect on the financial statements or other significant matters |
| ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) | The pronouncement changes the impairment model for most financial assets, replacing the current "incurred loss" model. ASU 2016-13 will require the use of an "expected loss" model for instruments measured at amortized cost and will also require entities to record allowances for available-for-sale debt securities rather than reduce the carrying amount. | Annual periods beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for annual or interim periods beginning after December 15, 2018. | NiSource is currently evaluating the impact of adoption, if any, on the Consolidated Financial Statements and Notes to Consolidated Financial Statements. |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| Standard | Description | Effective Date | Effect on the financial statements or other significant matters |
| ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842 | The pronouncement offers a practical expedient for accounting for land easements under ASU 2016-02. This practical expedient allows an entity the option of not evaluating existing land easements under ASC 842. New or modified land easements will still require evaluation under ASC 842 on a prospective basis beginning on the date of adoption. | Annual periods beginning after December 15, 2018, including interim periods therein. Early adoption is permitted. | NiSource has formed an internal stakeholder group that meets periodically to share information and gather data related to leasing activity at NiSource. This includes compiling a list of all contracts that could meet the definition of a lease under the new standard and evaluating the accounting for these contracts under the new standard to determine the ultimate impact the new standard will have on NiSource’s financial statements. Also, this procedure has identified process improvements to ensure data from newly initiated leases is captured to comply with the new standard. This work included the assistance of a third-party advisory firm. NiSource maintains a substantial number of easements and expects ASU 2018-01 will ease the process of implementation of ASC 842. NiSource plans to adopt these standards effective January 1, 2019. |
| ASU 2016-02, Leases (Topic 842) | The pronouncement introduces a lessee model that brings most leases on the balance sheet. The standard requires that lessees recognize the following for all leases (with the exception of short-term leases, as that term is defined in the standard) at the lease commencement date: (1) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. | ||
| ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income | The pronouncement permits entities the option to reclassify tax effects that are stranded in accumulated other comprehensive income as a result of the implementation of the TCJA to retained earnings. | Annual periods beginning after December 15, 2018, including interim periods therein. Early adoption is permitted for interim periods beginning after December 15, 2017. | NiSource is currently evaluating the impact of adoption on the Consolidated Financial Statements and Notes to Consolidated Financial Statements. |
Recently Adopted Accounting Pronouncements
| Standard | Adoption |
| ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to accounting for Hedging Activities | NiSource elected to adopt this ASU effective September 30, 2017. As a result, NiSource is no longer required to separately measure and report hedge ineffectiveness. The guidance also eases the requirements related to ongoing hedge effectiveness assessments at NiSource. The adoption of this standard did not have a material impact on the Consolidated Financial Statements or Notes to Consolidated Financial Statements. |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| Standard | Adoption |
| ASU 2017-09, Compensation-Stock Compensation (Topic 718): Scope of Modification Accounting | NiSource elected to adopt this ASU effective July 1, 2017. The adoption of this standard did not have a material impact on the Consolidated Financial Statements or Notes to Consolidated Financial Statements. |
| ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost | NiSource adopted this ASU effective January 1, 2018. Beginning with NiSource's Form 10-Q for the first quarter of 2018, NiSource will continue to present the service cost component of net periodic benefit cost within "Operation and maintenance"; however, other components of the net periodic benefit cost (including regulatory deferrals) will be presented separately within "Other, net" in the Statement of Consolidated Income. This change in income statement presentation will be implemented on a retrospective basis. Beginning prospectively on the date of adoption, only the service cost component of NiSource's net periodic benefit cost is eligible for capitalization as "Property, Plant and Equipment" on the Consolidated Balance Sheets. NiSource's regulated subsidiaries have adopted this ASU for regulatory reporting purposes. |
| ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment | NiSource elected to adopt this ASU effective January 1, 2017. The adoption of this standard did not have a material impact on the Consolidated Financial Statements or Notes to Consolidated Financial Statements. |
| ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force) | NiSource elected to adopt this ASU effective October 1, 2017. Restricted cash on the Statements of Consolidated Cash Flows is no longer presented as an investing activity and is instead included as a component of beginning and ending cash balances. The adoption of this standard is reflected in the Statements of Consolidated Cash Flows beginning with NiSource's Annual Report on Form 10-K for the year ended December 31, 2017 (including all prior periods presented). |
| ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force) | NiSource adopted this ASU effective January 1, 2018. The adoption of this standard did not have a material impact on the Consolidated Financial Statements or Notes to Consolidated Financial Statements. |
| ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients | 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. During the process of implementation, NiSource first separated its various revenue streams into high-level categories, which served as the basis for accounting analysis and documentation as it related to the pronouncement's impact on NiSource's revenues. Substantially all of NiSource’s revenues are tariff based, which NiSource concluded are in the scope of ASC 606. NiSource has identified its performance obligations created under tariff-based sales as the commodity (natural gas or electric, which includes generation and capacity) and delivery. Under ASC 606, NiSource's revenue from such tariff based sales continues to be equivalent to the natural gas or electricity supplied and billed each period (including unbilled revenues), and the adoption of the standards did not result in a material shift in the amount or timing of revenue recognition for such sales. In addition, the pattern and amount of revenue recognized for the remaining NiSource revenue streams were not materially affected as a result of the adoption of ASC 606. NiSource has outlined footnote disclosures intended to satisfy ASC 606's disclosure requirements, which will enhance its disclosures on revenue recognition policies and elections. Beginning prospectively upon date of adoption, NiSource will include revenue disaggregated by customer class and by operating segment in its footnote disclosures. In addition, NiSource will separately disclose those revenues that are not in scope of ASC 606, such as revenue earned under ASC 980 Alternative Revenue Programs. As required under the modified retrospective method of adoption, results for reporting periods beginning after January 1, 2018 will be presented under ASC 606, while prior period amounts will not be adjusted and will continue to be reported in accordance with historic accounting guidance. |
| ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations | |
| ASU 2014-09, Revenue from Contracts with Customers (Topic 606) |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
- Discontinued Operations
On July 1, 2015, NiSource completed the Separation through a special pro rata stock dividend, distributing one share of CPG common stock for every one share of NiSource common stock held by any NiSource stockholder on June 19, 2015, the record date. The Separation resulted in two stand-alone energy infrastructure companies: NiSource, a fully regulated natural gas and electric utilities company, and CPG, a natural gas pipeline, midstream and storage company. As a stand-alone company, on the date of the Separation, CPG's operations consisted of NiSource's Columbia Pipeline Group Operations segment prior to the Separation. Following the Separation, NiSource retained no ownership interest in CPG. On the date of the Separation, CPG consisted of approximately $9.2 billion of assets, $5.6 billion of liabilities and $3.6 billion of equity.
The results of operations and cash flows for the former Columbia Pipeline Group Operations segment have been reported as discontinued operations for all periods presented.
Income (loss) from discontinued operations were immaterial for 2017. During 2016, NiSource recorded a $3.6 million tax benefit resulting from favorable estimate-to-actual adjustments related to non-deductible costs from the Separation. There were no other material results from discontinued operations during 2016.
Results from discontinued operations for 2015 are provided in the following table. These results are primarily from NiSource's former Columbia Pipeline Group Operations segment.
| Year Ended | |||||||||||
| December 31, 2015 | |||||||||||
| (in millions) | Columbia Pipeline Group Operations | Corporate and Other | Total | ||||||||
| Operating Revenues | |||||||||||
| Transportation and storage | $ | 561.4 | $ | — | $ | 561.4 | |||||
| Other | 94.3 | — | 94.3 | ||||||||
| Total Operating Revenues | 655.7 | — | 655.7 | ||||||||
| Operating Expenses | |||||||||||
| Cost of sales (excluding depreciation and amortization) | 0.2 | — | 0.2 | ||||||||
| Operation and maintenance | 375.8 | (1) | — | 375.8 | |||||||
| Depreciation and amortization | 66.4 | — | 66.4 | ||||||||
| Gain on sale of assets | (13.6 | ) | — | (13.6 | ) | ||||||
| Other taxes | 38.0 | — | 38.0 | ||||||||
| Total Operating Expenses | 466.8 | — | 466.8 | ||||||||
| Equity Earnings in Unconsolidated Affiliates | 29.1 | — | 29.1 | ||||||||
| Operating Income from Discontinued Operations | 218.0 | — | 218.0 | ||||||||
| Other Income (Deductions) | |||||||||||
| Interest expense, net | (37.1 | ) | — | (37.1 | ) | ||||||
| Other, net | 7.8 | 0.4 | 8.2 | ||||||||
| Total Other Income (Deductions) | (29.3 | ) | 0.4 | (28.9 | ) | ||||||
| Income from Discontinued Operations before Income Taxes | 188.7 | 0.4 | 189.1 | ||||||||
| Income Taxes | 84.7 | 0.9 | 85.6 | ||||||||
| Income (Loss) from Discontinued Operations - net of taxes | $ | 104.0 | $ | (0.5 | ) | $ | 103.5 |
(1) Includes approximately $55.4 million of transaction costs related to the Separation.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
CPG’s financing requirements prior to the private placement of senior notes on May 22, 2015 were satisfied through borrowings from NiSource Finance. Interest expense from discontinued operations primarily represents net interest charged to CPG from NiSource Finance, less AFUDC. Subsequent to May 22, 2015, interest expense from discontinued operations also includes interest incurred on CPG’s private placement of $2,750.0 million of senior notes.
Continuing Involvement
Natural gas transportation and storage services provided to NiSource by CPG were $151.6 million, $150.5 million and $147.6 million for the years ended December 31, 2017, 2016 and 2015, respectively. Prior to July 1, 2015, these costs were eliminated in consolidation. Beginning July 1, 2015, these costs and associated cash flows represent third-party transactions with CPG and are not eliminated in consolidation, as such services have continued subsequent to the Separation and are expected to continue for the foreseeable future.
There were no material assets and liabilities of discontinued operations on the Consolidated Balance Sheets at December 31, 2017 and 2016.
- Earnings Per Share
Basic EPS is computed by dividing net income attributable to NiSource by the weighted-average number of shares of common stock outstanding for the period. The weighted-average shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans. The calculation of diluted earnings per share excludes the impact of forward agreements (see Note 12, "Common Stock") which had an anti-dilutive effect for the periods indicated. The computation of diluted average common shares is as follows:
| Year Ended December 31, (in thousands) | 2017 | 2016 | 2015 | |||||
| Denominator | ||||||||
| Basic average common shares outstanding | 329,388 | 321,805 | 317,746 | |||||
| Dilutive potential common shares: | ||||||||
| Shares contingently issuable under employee stock plans | 547 | 165 | — | |||||
| Shares restricted under stock plans | 821 | 1,554 | 2,090 | |||||
| Diluted Average Common Shares | 330,756 | 323,524 | 319,836 |
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
- Property, Plant and Equipment
NiSource’s property, plant and equipment on the Consolidated Balance Sheets are classified as follows:
| At December 31, (in millions) | 2017 | 2016 | |||||
| Property, Plant and Equipment | |||||||
| Gas Distribution Utility(1) | $ | 12,531.0 | $ | 11,556.6 | |||
| Electric Utility(1) | 7,403.8 | 7,043.3 | |||||
| Corporate | 141.3 | 105.0 | |||||
| Construction Work in Process | 950.5 | 663.1 | |||||
| Non-Utility and Other(2) | 623.3 | 681.7 | |||||
| Total Property, Plant and Equipment | $ | 21,649.9 | $ | 20,049.7 | |||
| Accumulated Depreciation and Amortization | |||||||
| Gas Distribution Utility(1) | $ | (3,227.8 | ) | $ | (3,119.2 | ) | |
| Electric Utility(1) | (3,673.2 | ) | (3,442.0 | ) | |||
| Corporate | (52.6 | ) | (52.5 | ) | |||
| Non-Utility and Other(2) | (336.8 | ) | (368.0 | ) | |||
| Total Accumulated Depreciation and Amortization | $ | (7,290.4 | ) | $ | (6,981.7 | ) | |
| Net Property, Plant and Equipment | $ | 14,359.5 | $ | 13,068.0 |
(1) NIPSCO’s common utility plant and associated accumulated depreciation and amortization are allocated between Gas Distribution Utility and Electric Utility Property, Plant and Equipment.
(2)Non-Utility and Other as of December 31, 2017 includes net book value of $247.8 million related to Bailly Generating Station (Units 7 and 8) which was reclassified from Electric Utility in the fourth quarter of 2016. Depreciation expense for the remaining net book value will continue to be recorded at the composite depreciation rate most recently approved by the IURC. See Note 18-E, "Other Matters," and Note 25, "Subsequent Event," for additional information.
The weighted average depreciation provisions for utility plant, as a percentage of the original cost, for the periods ended December 31, 2017, 2016 and 2015 were as follows:
| 2017 | 2016 | 2015 | ||||||
| Electric Operations | 3.4 | % | 3.3 | % | 3.1 | % | ||
| Gas Distribution Operations | 2.1 | % | 2.1 | % | 2.0 | % |
NiSource recognized depreciation expense of $501.5 million, $475.1 million and $449.0 million for the years ended 2017, 2016 and 2015, respectively.
Amortization of Software Costs. NiSource amortized $44.0 million in 2017, $41.4 million in 2016 and $41.1 million in 2015 related to software costs. NiSource’s unamortized software balance was $189.0 million and $156.4 million at December 31, 2017 and 2016, respectively.
| 6. | Goodwill and Other Intangible Assets |
Goodwill. Substantially all of NiSource's goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. The following presents NiSource's goodwill balance allocated by segment as of December 31, 2017:
| (in millions) | Gas Distribution Operations | Electric Operations | Corporate and Other | Total | ||||||||||||
| Goodwill | $ | 1,690.7 | $ | — | $ | — | $ | 1,690.7 |
NiSource applied the qualitative "step 0" analysis to its reporting units for the annual impairment test performed as of May 1, 2017. For this test, NiSource assessed various assumptions, events and circumstances that would have affected the estimated fair
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Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
value of the reporting units as compared to its base line May 1, 2016 "step 1" fair value measurement. The results of this assessment indicated that it was not more likely than not that its reporting unit fair values were less than the reporting unit carrying values, accordingly, no "step 1" analysis was required.
Intangible Assets. NiSource's intangible assets, apart from goodwill, consist of franchise rights. Franchise rights were identified as part of the purchase price allocations associated with the acquisition in February 1999 of Columbia of Massachusetts. These amounts were $231.7 million and $242.7 million, net of accumulated amortization of $210.5 million and $199.5 million, at December 31, 2017 and 2016, respectively, and are being amortized on a straight-line basis over forty years from the date of acquisition through 2039. NiSource recorded amortization expense of $11.0 million in 2017, 2016, and 2015 related to its franchise right intangible asset.
| 7. | Asset Retirement Obligations |
NiSource has recognized asset retirement obligations associated with various legal obligations including costs to remove and dispose of certain construction materials located within many of NiSource’s facilities, certain costs to retire pipeline, removal costs for certain underground storage tanks, removal of certain pipelines known to contain PCB contamination, closure costs for certain sites including ash ponds, solid waste management units and a landfill, as well as some other nominal asset retirement obligations. NiSource also has a significant obligation associated with the decommissioning of its two hydro facilities located in Indiana. These hydro facilities have an indeterminate life, and as such, no asset retirement obligation has been recorded.
Changes in NiSource’s liability for asset retirement obligations for the years 2017 and 2016 are presented in the table below:
| (in millions) | 2017 | 2016 | ||||||
| Beginning Balance | $ | 262.6 | $ | 254.0 | ||||
| Accretion recorded as a regulatory asset/liability | 10.3 | 9.2 | ||||||
| Additions | 2.4 | — | ||||||
| Settlements | (15.6 | ) | (7.5 | ) | ||||
| Change in estimated cash flows | 9.0 | (1) | 6.9 | (2) | ||||
| Ending Balance | $ | 268.7 | $ | 262.6 |
(1)The change in estimated cash flows for 2017 is primarily attributed to changes in estimated costs and settlement timing for electric generating stations and the changes in estimated costs for retirement of gas mains.
(2)The change in estimated cash flows for 2016 is primarily attributed to the changes in estimated costs for retirement of gas mains partially offset by revisions to estimated costs associated with the EPA's final rule for regulation of CCRs and changes to cost estimates for certain solid waste management units. See Note 18-D, "Environmental Matters," for additional information on CCRs.
Certain non-legal costs of removal that have been, and continue to be, included in depreciation rates and collected in the customer rates of the rate-regulated subsidiaries are classified as "Regulatory liabilities" on the Consolidated Balance Sheets.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| 8. | Regulatory Matters |
Regulatory Assets and Liabilities
NiSource follows the accounting and reporting requirements of ASC Topic 980, which provides that regulated entities account for and report assets and liabilities consistent with the economic effect of regulatory rate-making procedures if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged and collected from customers. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income or expense are deferred on the balance sheet and are recognized in the income statement as the related amounts are included in customer rates and recovered from or refunded to customers.
Regulatory assets were comprised of the following items:
| At December 31, (in millions) | 2017 | 2016 | |||||
| Regulatory Assets | |||||||
| Unrecognized pension and other postretirement benefit costs (see Note 11) | $ | 733.5 | $ | 847.5 | |||
| Deferred pension and other postretirement benefit costs (see Note 11) | 70.7 | 59.6 | |||||
| Environmental costs (see Note 18-D) | 63.4 | 62.6 | |||||
| Regulatory effects of accounting for income taxes (see Note 1-O and Note 10) | 238.8 | 238.4 | |||||
| Underrecovered gas and fuel costs (see Note 1-K) | 25.5 | 73.5 | |||||
| Depreciation | 181.0 | 187.1 | |||||
| Post-in-service carrying charges | 173.3 | 142.0 | |||||
| Safety activity costs | 66.5 | 41.5 | |||||
| DSM programs | 40.0 | 48.4 | |||||
| Other | 208.5 | 184.8 | |||||
| Total Regulatory Assets | $ | 1,801.2 | $ | 1,885.4 |
Regulatory liabilities were comprised of the following items:
| At December 31, (in millions) | 2017 | 2016 | |||||
| Regulatory Liabilities | |||||||
| Overrecovered gas and fuel costs (see Note 1-K) | $ | 27.6 | $ | 54.8 | |||
| Cost of removal (see Note 7) | 1,096.8 | 1,174.5 | |||||
| Regulatory effects of accounting for income taxes (see Note 1-O and Note 10) | 1,563.4 | 30.0 | |||||
| Deferred pension and other postretirement benefit costs (see Note 11) | 59.0 | 41.2 | |||||
| Other | 48.8 | 81.3 | |||||
| Total Regulatory Liabilities | $ | 2,795.6 | $ | 1,381.8 |
Regulatory assets, including underrecovered gas and fuel cost, of approximately $1,558.4 million as of December 31, 2017 are not earning a return on investment. Regulatory assets of approximately $1,402.8 million include expenses that are recovered as components of the cost of service and are covered by regulatory orders. These costs are recovered over a remaining life of up to 41 years. Regulatory assets of approximately $398.4 million at December 31, 2017, require specific rate action.
Assets:
Unrecognized pension and other postretirement benefit costs. In 2007, NiSource adopted certain updates of ASC 715 which required, among other things, the recognition in other comprehensive income or loss of the actuarial gains or losses and the prior service costs or credits that arise during the period but that are not immediately recognized as components of net periodic benefit costs. Certain subsidiaries defer these gains or losses as a regulatory asset in accordance with regulatory orders or as a result of regulatory precedent, to be recovered through base rates.
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
Deferred pension and other postretirement benefit costs. Primarily relates to the difference between postretirement expense recorded by certain subsidiaries due to regulatory orders and the postretirement expense recorded in accordance with GAAP. These costs are expected to be collected through future base rates, revenue riders or tracking mechanisms.
Environmental costs. Includes certain recoverable costs of investigating, testing, remediating and other costs related to gas plant sites, disposal sites or other sites onto which material may have migrated. Certain companies defer the costs as a regulatory asset in accordance with regulatory orders, to be recovered in future base rates, billing riders or tracking mechanisms.
Regulatory effects of accounting for income taxes. Represents the deferral and under collection of deferred taxes in the rate making process. In prior years, NiSource has lowered customer rates in certain jurisdictions for the benefits of accelerated tax deductions. Amounts are expensed for financial reporting purposes as NiSource recovers deferred taxes in the rate making process.
Underrecovered gas and fuel costs. Represents the difference between the costs of gas and fuel and the recovery of such costs in revenue and is used to adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. Recovery of these costs is achieved through tracking mechanisms.
Depreciation. Represents differences between depreciation expense incurred on a GAAP basis and that prescribed through regulatory order. Significant components of this balance include:
| • | Columbia of Ohio depreciation rates. Prior to 2005, the PUCO-approved depreciation rates for ratemaking had been lower than those which would have been utilized if Columbia of Ohio were not subject to regulation resulting in the creation of a regulatory asset. In 2005, the PUCO authorized Columbia of Ohio to revise its depreciation accrual rates for the period beginning January 1, 2005. The revised depreciation rates are now higher than those which would have been utilized if Columbia of Ohio were not subject to regulation allowing for amortization of the previously created regulatory asset. The amount of depreciation that would have been recorded from 2005 through 2017 had Columbia of Ohio not been subject to rate regulation is a cumulative $719.7 million, $82.3 million less than that reflected in rates. The resulting regulatory asset balance was $49.3 million and $57.6 million as of December 31, 2017 and 2016, respectively. |
| • | Columbia of Ohio IRP and CEP. Columbia of Ohio also has PUCO approval to defer depreciation and debt-based post-in-service carrying charges (see "Post-in-service carrying charges" below) associated with its IRP and CEP. As of December 31, 2017, depreciation of $26.5 million and $49.8 million was deferred for the respective programs. Depreciation deferral balances for the respective programs as of December 31, 2016 were $23.4 million and $31.8 million. Recovery of the IRP depreciation is approved annually through the IRP rider. The equivalent of annual depreciation expense, based on the average life of the related assets, is included in the calculation of the IRP rider approved by the PUCO and billed to customers. Deferred depreciation expense is recognized as the IRP rider is billed to customers. The recovery mechanism for depreciation associated with the CEP will be addressed in a separate rate proceeding as discussed below. |
| • | NIPSCO EERM. NIPSCO obtained approval from the IURC to recover certain environmental related costs including operation and maintenance and depreciation expense once the environmental facilities become operational. Recovery of these costs will continue until such assets are included in rate base through an electric base rate case. The EERM deferred charges represent expenses that will be recovered from customers through an annual EERM Cost Tracker (ECT) which authorizes the collection of deferred balances over a six month period. Depreciation of $13.9 million and $40.7 million was deferred to a regulatory asset as of December 31, 2017 and 2016, respectively. |
| • | NIPSCO TDSIC. NIPSCO obtained approval from the IURC to recover costs for certain system modernization projects outside of a base rate proceeding. Eighty percent of the related costs, including depreciation, property taxes, and debt and equity based carrying charges (see Post-in-service carrying charges below) are recovered through a semi-annual recovery mechanism. Recovery of these costs will continue until such assets are included in rate base through a gas or electric base rate case, respectively. The remaining twenty percent of the costs are deferred until the next base rate case. As of December 31, 2017 and 2016, depreciation of $10.3 million and $5.5 million, respectively, was deferred as a regulatory asset. |
Post-in-service carrying charges. Represents deferred debt-based carrying charges incurred on certain assets placed into service but not yet included in customer rates. This balance includes:
NISOURCE INC.
Notes to Consolidated Financial Statements
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)
| • | Columbia of Ohio IRP and CEP. See description of IRP and CEP programs above under the heading "Depreciation." As of December 31, 2017 and 2016, Columbia of Ohio had deferred PISCC of $164.6 million and $134.9 million, respectively. |
| • | NIPSCO TDSIC. See description of TDSIC program above under the heading "Depreciation." Deferral of equity-based carrying charges for the TDSIC program is allowed, however such amounts are not reflected in regulatory asset balances for financial reporting as equity-based returns do not meet the definition of incurred costs under ASC 980. As of December 31, 2017 and 2016, NIPSCO had deferred PISCC of $8.7 million and $7.1 million, respectively. |
Safety activity costs. Represents the difference between costs incurred in eligible safety programs in excess of those being recovered in rates. The eligible cost deferrals represent necessary business expenses incurred in compliance with PHMSA regulations and are targeted to enhance the safety of the pipeline systems. Certain subsidiaries defer the excess costs as a regulatory asset in accordance with regulatory orders and recovery of these costs will be address in future base rate proceedings.
DSM programs. Represents costs associated with Gas Distribution Operations and Electric Operations segments' energy efficiency and conservation programs. Costs are recovered through tracking mechanisms.
Liabilities:
Overrecovered gas and fuel costs. Represents the difference between the cost of gas and fuel and the recovery of such costs in revenues, and is the basis to adjust future billings for such refunds on a basis consistent with applicable state-approved tariff provisions. Refunding of these revenues is achieved through tracking mechanisms.
Cost of removal. Represents anticipated costs of removal that have been, and continue to be, included in depreciation rates and collected in customer rates of the rate-regulated subsidiaries for future costs to be incurred.
Regulatory effects of accounting for income taxes. Represents amounts owed to customers for deferred taxes collected at a higher rate than the current statutory rates and liabilities associated with accelerated tax deductions owed to customers that are established during the rate making process. Balance includes excess deferred taxes recorded upon implementation of the TCJA in December 2017.
Deferred pension and other postretirement benefit costs. Primarily represents cash contributions in excess of postretirement benefit expense that is deferred as a regulatory liability by certain subsidiaries in accordance with regulatory orders.
Gas Distribution Operations Regulatory Matters
Cost Recovery and Trackers. Comparability of Gas Distribution Operations line item operating results is impacted by regulatory trackers that allow for the recovery in rates of certain costs such as those described below. Increases in the expenses that are the subject of trackers result in a corresponding increase in operating revenues and therefore have essentially no impact on total operating income results.
Certain operating costs of the NiSource distribution companies are significant, recurring in nature, and generally outside the control of the distribution companies. Some states allow the recovery of such costs through cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the distribution companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include GCR adjustment mechanisms, tax riders, and bad debt recovery mechanisms.
A portion of the distribution companies' revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in NiSource's operating area require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. NiSource distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.
Certain of the NiSource distribution companies have completed rate proceedings involving infrastructure replacement or are embarking upon regulatory initiatives to replace significant portions of their operating systems that are nearing the end of their useful lives. Each LDC's approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.
NISOURCE INC.
Notes to Consolidated Financial Statements
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