Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Columbia of Ohio. On November 28, 2012, the PUCO approved Columbia of Ohio’s application to extend its IRP for an additional five years (2013-2017), allowing Columbia of Ohio to continue to invest and recover on its accelerated main replacements. Columbia of Ohio filed its most recent application to adjust rates associated with its IRP and DSM Riders on February 27, 2017, which requested authority to increase annual revenues by approximately $31.5 million that includes recovery of and return on approximately $235.9 million of incremental IRP capital investments in 2016. On March 23, 2017, the PUCO Staff filed comments which recommended approval of the application with only minor revisions. The PUCO issued an order on April 26, 2017, approving Columbia of Ohio's application. New rates went into effect on May 1, 2017.

On February 27, 2017, Columbia of Ohio also filed an application requesting authority to extend its IRP for an additional five years (2018-2022). On July 10, 2017, the PUCO Staff recommended approval of Columbia of Ohio's IRP for the additional five years, with modifications to Columbia of Ohio's proposed IRP rates for the five-year period. A joint stipulation and recommendation, outlining annual maximum IRP rates for the five-year period, was filed on August 18, 2017 and was supported or not opposed by all parties except the OCC. A hearing on the stipulation was held on October 2, 2017 and briefing was completed on November 7, 2017. On January 31, 2018, the PUCO issued an order that approved the stipulation.

On December 1, 2017, Columbia of Ohio filed an application that requested authority to implement a rider to begin recovering plant and associated deferrals related to the CEP. The application requested authority to increase annual revenues, through the requested rider, by approximately $29 million in 2018, with biennial increases up to approximately $98 million in 2022. The filing is pending at the PUCO and no procedural schedule has been established. The CEP was established in 2011 and allows for deferral of interest, depreciation and property taxes on certain plant investments not recovered through its IRP modernization tracker.

NIPSCO Gas. On September 27, 2017, NIPSCO filed a base rate case with the IURC, seeking an annual revenue increase of $143.5 million (inclusive of amounts being recovered through various tracker programs). As part of this filing and among other items, NIPSCO proposed to update base rates for ongoing infrastructure improvements, revised depreciation rates and ongoing level of expenses to reflect the current costs of providing natural gas service. An order is expected in the second half of 2018. A supplemental filing to the base rate case was submitted on January 26, 2018 to reflect the impact of the TCJA, seeking a revised annual revenue increase of $117.9 million.

On April 30, 2013, then Indiana Governor Pence signed Senate Enrolled Act 560, the TDSIC statute, into law. Among other provisions, this legislation provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization, or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a seven-year plan of eligible investments. Once the plan is approved by the IURC, eighty percent of eligible costs can be recovered using a periodic rate adjustment mechanism. The cost recovery mechanism is referred to as a TDSIC mechanism. Recoverable costs include a return on, and of, the investment, including AFUDC, post-in-service carrying charges, operation and maintenance expenses, depreciation and property taxes. The remaining twenty percent of recoverable costs are to be deferred for future recovery in the public utility’s next general rate case. The periodic rate adjustment mechanism is capped at an annual increase of no more than two percent of total retail revenues. On August 31, 2017, NIPSCO filed TDSIC-7 requesting to recover an incremental increase to revenue of $3.5 million associated with incremental capital investment of $59.0 million made in the first half of 2017. An order approving NIPSCO's filing was received from the IURC on December 28, 2017, and new rates went into effect on January 1, 2018.

On November 8, 2017, NIPSCO filed a petition with the IURC seeking approval of NIPSCO’s federally mandated pipeline safety compliance plan. The four year compliance plan includes a total estimated $91 million of capital costs and $23 million of expected operating and maintenance costs. NIPSCO is requesting all associated accounting and ratemaking relief, including establishment of a periodic rate adjustment mechanism.

Columbia of Massachusetts. On July 7, 2014, the Governor of Massachusetts signed into law Chapter 149 of the Acts of 2014, An Act Relative to Natural Gas Leaks (“the Act”). The Act authorizes natural gas distribution companies to file gas infrastructure replacement plans with the Massachusetts DPU to address the replacement of aging natural gas pipeline infrastructure. In addition, the Act provides that the Massachusetts DPU may, after review of the plans, allow the proposed estimated costs of the plan into rates as of May 1 of the subsequent year. On October 31, 2016, Columbia of Massachusetts filed its GSEP for the 2017 construction year. Columbia of Massachusetts proposed to recover incremental revenue of $8.1 million associated with incremental capital investment of $72.9 million made during calendar year 2017. An order was received from the Massachusetts DPU on April 28, 2017 approving the filing and rates went into effect on May 1, 2017. 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 associated with incremental capital investment of $83.9 million to be made during calendar year 2018. The filing included a request

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

for a waiver to allow collection of the $3.1 million revenue requirement that exceeds the GSEP cap provision as previously calculated. If the waiver is not approved, the incremental revenue 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.

Columbia of Virginia. On April 29, 2016, Columbia of Virginia filed a request with the VSCC, seeking an annual revenue increase of $37.0 million. On September 28, 2016, Columbia of Virginia implemented updated interim base rates subject to refund. On January 17, 2017, Columbia of Virginia presented a stipulation and proposed recommendation, representing a settlement by all parties to the proceeding that included a base revenue increase of $28.5 million. On March 17, 2017, by final order, the VSCC approved the settlement agreement without modification. In accordance with the terms of the final order, during 2017, Columbia of Virginia completed its refund of the difference between the interim customer rates implemented in 2016 and the rates approved by the final order.

Columbia Gas of Kentucky. On October 13, 2017, Columbia of Kentucky filed its application to adjust rates associated with its AMRP, requesting authority to increase annual revenues by $4.5 million associated with incremental capital investment of $24.0 million to be made during calendar year 2018. On December 22, 2017, the Kentucky PSC issued an order approving Columbia of Kentucky’s request as filed, with rates effective January 2, 2018.

Columbia of Maryland. On April 14, 2017, Columbia of Maryland filed a request with the MPSC to adjust base rates. On July 28, 2017, all parties filed a settlement agreement with the MPSC, under which Columbia of Maryland will receive an annual revenue increase of $2.4 million. The MPSC approved the settlement on September 19, 2017 and rates went into effect on October 27, 2017.

Electric Operations Regulatory Matters

Cost Recovery and Trackers. Comparability of Electric 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 Electric Operations are significant, recurring in nature, and generally outside the control of NIPSCO. The IURC allows for recovery of such costs through cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for NIPSCO to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include electric energy efficiency programs, MISO non-fuel costs and revenues, resource capacity charges, federally mandated costs and environmental related costs.

A portion of NIPSCO's revenue is related to the recovery of fuel costs to generate power and the fuel costs related to purchased power. These costs are recovered through a FAC, a quarterly regulatory proceeding in Indiana.

NIPSCO made a TDSIC-2 rate adjustment mechanism filing on June 30, 2017 requesting revenues of $12.8 million to be billed over eight months, associated with $133.6 million of incremental capital expenditures from May 2016 through April 2017. An order approving the request was received from the IURC on October 31, 2017 and new rates went into effect with the first billing cycle of November 2017.

NIPSCO made a TDSIC-3 rate adjustment mechanism filing on January 30, 2018 requesting a revenue decrease of $2.0 million to be billed over six months, associated with $75.0 million of incremental capital expenditures made from May 1, 2017 to November 30, 2017. This decreased revenue request reflects impacts of the TCJA. An order approving the request is expected in May 2018 with new rates expected to go into effect with the first billing cycle of June 2018.

On November 1, 2016, NIPSCO filed a petition with the IURC for relief regarding the construction of additional environmental projects required to comply with the final rules for regulation of CCRs and the ELG. On June 9, 2017, a settlement agreement was filed with the IURC regarding the CCR projects and treatment of associated costs. An order approving the settlement agreement was received on December 13, 2017. Given the current postponement of the ELG rule, NIPSCO has agreed, with the settling parties, that the ELG projects and related costs would be addressed in a later proceeding. Refer to Note 18-D, “Environmental Matters,” for more information.

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Regulatory Impacts of the TCJA

Since the passage of the TCJA, several of the public utility commissions in NiSource’s operating area have issued orders to examine the impact of the TCJA on rates charged by regulated utilities. The requirements in each jurisdiction vary but all will assess the appropriate pass back of excess deferred taxes and the need for reductions to current rates resulting from the decrease in the corporate tax rate. NiSource has implemented the requirements of these orders by, among other things, recognizing a regulatory liability for the expected impacts of the TCJA. See Note 10, “Income Taxes,” for additional information on the impacts of the implementation of the TCJA.

9.	Risk Management Activities

NiSource is exposed to certain risks relating to its ongoing business operations; namely commodity price risk and interest rate risk. NiSource recognizes that the prudent and selective use of derivatives may help to lower its cost of debt capital, manage its interest rate exposure and limit volatility in the price of natural gas.

Risk management assets and liabilities on NiSource’s derivatives are presented on the Consolidated Balance Sheets as shown below:

December 31, (in millions)	2017				2016
Risk Management Assets - Current(1)
Interest rate risk programs	$	14.0			$	17.0
Commodity price risk programs	0.5				7.4
Total	$	14.5			$	24.4
Risk Management Assets - Noncurrent(2)
Interest rate risk programs	$	5.6			$	17.1
Commodity price risk programs	1.0				7.5
Total	$	6.6			$	24.6
Risk Management Liabilities - Current
Interest rate risk programs	$	38.6			$	15.3
Commodity price risk programs	4.6				1.5
Total	$	43.2			$	16.8
Risk Management Liabilities - Noncurrent
Interest rate risk programs	$	—			$	24.5
Commodity price risk programs	28.5				20.0
Total	$	28.5			$	44.5

(1)Presented in "Prepayments and other" on the Consolidated Balance Sheets.

(2)Presented in "Deferred charges and other" on the Consolidated Balance Sheets.

Commodity Price Risk Management

NiSource and NiSource’s utility customers are exposed to variability in cash flows associated with natural gas purchases and volatility in natural gas prices. NiSource purchases natural gas for sale and delivery to its retail, commercial and industrial customers, and for most customers the variability in the market price of gas is passed through in their rates. Some of NiSource’s utility subsidiaries offer programs whereby variability in the market price of gas is assumed by the respective utility. The objective of NiSource’s commodity price risk programs is to mitigate the gas cost variability, for NiSource or on behalf of its customers, associated with natural gas purchases or sales by economically hedging the various gas cost components using a combination of futures, options, forwards or other derivative contracts.

NIPSCO received IURC approval to lock in a fixed price for its natural gas customers using long-term forward purchase instruments. In 2017 and 2016, the term of these instruments ranged from five to ten years and was limited to ten percent of NIPSCO’s average annual GCA purchase volume. During 2017, NIPSCO received IURC approval to increase the limit to twenty percent of NIPSCO's average annual GCA purchase volume in 2018 and 2019. Gains and losses on these derivative contracts are deferred as regulatory

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

liabilities or assets and are remitted to or collected from customers through NIPSCO’s quarterly GCA mechanism. These instruments are not designated as accounting hedges.

Interest Rate Risk Management

As of December 31, 2017, NiSource has forward-starting interest rate swaps with an aggregate notional value totaling $1.0 billion to hedge the variability in cash flows attributable to changes in the benchmark interest rate during the periods from the effective dates of the swaps to the anticipated dates of forecasted debt issuances, which are expected to take place by the end of 2019. These interest rate swaps are designated as cash flow hedges. The effective portions of the gains and losses related to these swaps are recorded to AOCI and are recognized in earnings concurrently with the recognition of interest expense on the associated debt, once issued. If it becomes probable that a hedged forecasted transaction will no longer occur, the accumulated gains or losses on the derivative will be recognized currently in earnings.

On May 11, 2017, NiSource Finance settled $950.0 million of forward-starting interest rate swap agreements contemporaneously with the issuance of $2.0 billion of 3.49% and 4.375% senior notes, maturing in 2027 and 2047, respectively. These derivative contracts were accounted for as cash flow hedges. As part of the transaction, the associated net unrealized loss position of $6.9 million is being amortized from accumulated other comprehensive loss into interest expense over the term of the associated interest payments.

On September 5, 2017, NiSource Finance settled $750.0 million of treasury lock agreements contemporaneously with the issuance of $750.0 million of 3.95% senior notes, maturing in 2048. These derivative contracts were accounted for as cash flow hedges. As part of the transaction, the associated net unrealized loss position of $19.0 million is being amortized from accumulated other comprehensive loss into interest expense over the term of the associated interest payments.

On November 8, 2017, NiSource Finance settled $250.0 million of treasury lock agreements contemporaneously with the issuance of $500.0 million of 2.65% senior notes, maturing in 2022. These derivative contracts were accounted for as a cash flow hedges. NiSource Finance recognized an immaterial gain associated with this transaction.

Cash associated with payments to settle interest rate swaps and treasury lock agreements are reflected within operating activities within the Statements of Consolidated Cash Flows for the year ended December 31, 2017.

Realized gains and losses from NiSource’s interest rate cash flow hedges are presented in “Interest expense, net” on the Statements of Consolidated Income. There were no amounts excluded from effectiveness testing for derivatives in cash flow hedging relationships at December 31, 2017, 2016 and 2015.

NiSource’s derivative instruments measured at fair value as of December 31, 2017 and 2016 do not contain any credit-risk-related contingent features.

10.	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. These changes are effective January 1, 2018. Under GAAP, the effects of a change in tax law are recorded as a discrete item in the period of enactment.

Rates for NiSource’s regulated customers include provisions for the collection of U.S. federal income taxes. Accordingly, accounting effects related to changes in tax rates at NiSource that would normally be recognized as a component of income tax expense may instead be deferred as a regulatory asset or liability and reflected in future ratemaking. In December 2017, NiSource remeasured its deferred tax assets and liabilities to the new federal corporate income tax rate. The result of this remeasurement was a reduction in the net deferred tax liability of approximately $1.3 billion, including approximately $0.4 billion of regulatory "gross up" to account for over-collection of past taxes from customers. Offsetting the reduction in net deferred tax liabilities was an increase in regulatory liabilities of approximately $1.5 billion and an increase in income tax expense of $0.2 billion. These changes are discussed in further detail below.

On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (“SAB 118”), which provides guidance on accounting for tax effects of the TCJA. SAB 118 provides a measurement period that should not extend beyond one year from the TCJA enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the TCJA for which the accounting under ASC 740 is complete. To the extent that a company’s

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

accounting for certain income tax effects of the TCJA is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate to be included in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provision of the tax laws that were in effect immediately before the enactment of the TCJA. While NiSource was able to make reasonable estimates of the impact of the reduction in corporate rate on our net deferred income tax liability balances, the final impact of the TCJA may differ from these estimates, due to, among other things, changes in NiSource's interpretations and assumptions, additional guidance that may be issued by the IRS, and actions NiSource may take. NiSource is continuing to gather additional information to determine the final impact.

The components of income tax expense (benefit) were as follows:

Year Ended December 31, (in millions)	2017				2016				2015
Income Taxes
Current
Federal	$	—			$	—			$	—
State	7.8				(0.1		)		6.0
Total Current	7.8				(0.1		)		6.0
Deferred
Federal	302.7				165.6				124.1
State	5.0				18.0				13.6
Total Deferred	307.7				183.6				137.7
Deferred Investment Credits	(1.0		)		(1.4		)		(2.4		)
Income Taxes from Continuing Operations	$	314.5			$	182.1			$	141.3

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

Year Ended December 31, (in millions)	2017							2016							2015
Book income from Continuing Operations before income taxes	$	443.1						$	510.2						$	339.9
Tax expense at statutory Federal income tax rate	155.0				35.0	%		178.6				35.0	%		118.9				35.0	%
Increases (reductions) in taxes resulting from:
State income taxes, net of Federal income tax benefit	6.9				1.5			11.3				2.2			14.8				4.4
Property and plant (including accelerated depreciation)	(2.4		)		(0.5	)		(1.5		)		(0.3	)		(1.6		)		(0.4	)
Charitable contribution carryover	(1.2		)		(0.3	)		2.8				0.5			17.8				5.2
Remeasurement due to TCJA	161.1				36.4			—				—			—				—
Employee stock ownership plan dividends and other compensation	(6.5		)		(1.5	)		(9.5		)		(1.9	)		(2.9		)		(0.9	)
Tax accrual adjustments and other, net	1.6				0.4			0.4				0.2			(5.7		)		(1.7	)
Income Taxes from Continuing Operations	$	314.5			71.0	%		$	182.1			35.7	%		$	141.3			41.6	%

The effective income tax rates were 71.0%, 35.7% and 41.6% in 2017, 2016 and 2015, respectively. The 35.3% increase in the overall effective tax rate in 2017 versus 2016 was primarily the result of a $161.1 million increase in income taxes related to implementing the provisions of the TCJA. The charge to income tax expense resulting from implementation of the TCJA relates primarily to remeasurement of parent company deferred tax assets for NOL carryforwards.

The 5.9% decrease in the overall effective tax rate in 2016 versus 2015 was primarily the result of a $7.2 million decrease in income taxes related to Federal tax benefits on stock compensation and the absence of $15.0 million of lost Federal tax benefit primarily related to charitable contribution carryforward adjustments recorded in the prior year.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. Among other provisions, the standard requires that all income tax effects of awards are recognized in the income statement when the awards vest and are distributed.

On December 18, 2015, the President signed into law the PATH. PATH, among other provisions, extended and modified bonus depreciation through 2019. As a result of PATH and 50% bonus depreciation being extended, NiSource recorded tax expense of $5.8 million in 2015 for the expiration of unused charitable contribution carryforwards which expired due to the 5 year carryover limitation. NiSource also recorded a valuation allowance for an additional $12.0 million of charitable contribution carryforwards that are set to expire in 2016-2019 in the event that NiSource does not have sufficient taxable income to utilize the carryforward amounts.

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

At December 31, (in millions)	2017				2016
Deferred tax liabilities
Accelerated depreciation and other property-related differences	$	2,260.7			$	3,323.5
Unrecovered gas and fuel costs	—				25.9
Other regulatory assets	309.5				449.2
Total Deferred Tax Liabilities	2,570.2				3,798.6
Deferred tax assets
Other regulatory liabilities including impact of TCJA	406.0				93.1
Pension and other postretirement/postemployment benefits	136.7				261.7
Net operating loss carryforward and Alternative Minimum Tax credit carryforward	576.0				646.2
Environmental liabilities	24.0				47.0
Other accrued liabilities	37.2				45.5
Other, net	97.4				177.1
Total Deferred Tax Assets	1,277.3				1,270.6
Net Deferred Tax Liabilities	$	1,292.9			$	2,528.0

State income tax net operating loss benefits are recorded at their realizable value. NiSource anticipates it is more likely than not that it will realize $65.8 million and $43.6 million of these tax benefits as of December 31, 2017 and 2016, respectively, prior to their expiration. These tax benefits are primarily related to Indiana and Pennsylvania. The carryforward periods for these tax benefits expire in various tax years from 2028 to 2037. The remaining net operating loss carryforward tax benefit represents a Federal carryforward of $508.5 million that will expire in 2037 and an Alternative Minimum Tax credit of $1.7 million that will carry forward indefinitely.

Unrecognized tax benefits for the periods reported are immaterial. NiSource recognizes accrued interest on unrecognized tax benefits, accrued interest on other income tax liabilities and tax penalties in income tax expense. Interest expense recorded on unrecognized tax benefits and other income tax liabilities was immaterial for all periods presented. There were no accruals for penalties recorded in the Statements of Consolidated Income for the years ended December 31, 2017, 2016 and 2015, and there were no balances for accrued penalties recorded on the Consolidated Balance Sheets as of December 31, 2017 and 2016.

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

Because NiSource is part of the IRS’s Large and Mid-Size Business program, each year’s federal income tax return is typically audited by the IRS. As of December 31, 2017, tax years through 2016 have been audited and are effectively closed to further assessment. The audit of tax year 2017 under the CAP program is expected to be completed in 2018. NiSource has been accepted into the CAP maintenance program for the audit of tax year 2018.

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

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

filed. As of December 31, 2017, there were no state income tax audits in progress that would have a material impact on the consolidated financial statements.

11.	Pension and Other Postretirement Benefits

NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover certain of its employees. Benefits under the defined benefit retirement plans reflect the employees’ compensation, years of service and age at retirement. Additionally, NiSource provides health care and life insurance benefits for certain retired employees. The majority of employees may become eligible for these benefits if they reach retirement age while working for NiSource. The expected cost of such benefits is accrued during the employees’ years of service. Current rates of rate-regulated companies include postretirement benefit costs, including amortization of the regulatory assets that arose prior to inclusion of these costs in rates. For most plans, cash contributions are remitted to grantor trusts.

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

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

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

In 2012, a dynamic asset allocation policy for the pension fund was approved. This policy calls for a gradual reduction in the allocation of return-seeking assets (equities, real estate and private equity) and a corresponding increase in the allocation of liability-hedging assets (fixed income) as the funded status of the plans increase above 90% (as measured by the market value of qualified pension plan assets divided by the projected benefit obligations of the qualified pension plans). In 2016, a study was conducted and approved resulting in the addition of new asset classes in the return-seeking portfolio allocation (core real estate, diversified credit) and a shift in the hedging allocation (fixed income). Planned implementation of the new asset classes began in 2017. During 2017, a $277 million discretionary contribution was made and further implementation of new asset classes is under review while a new asset-liability study is completed.

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

As of December 31, 2017, the asset mix and acceptable minimum and maximum ranges established by the policy for the pension and other postretirement benefit plans are as follows:

Asset Mix Policy of Funds:

	Defined Benefit Pension Plan				Postretirement Benefit Plan
Asset Category	Minimum		Maximum		Minimum		Maximum
Domestic Equities	16%		36%		0%		55%
International Equities	8%		18%		0%		25%
Fixed Income	39%		51%		20%		100%
Diversified Credit	0%		13%		0%		0%
Real Estate	0%		13%		0%		0%
Short-Term Investments	0%		10%		0%		10%

As of December 31, 2016, the asset mix and acceptable minimum and maximum ranges established by the policy for the pension and other postretirement benefit plans were as follows:

Asset Mix Policy of Funds:

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

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Pension Plan and Postretirement Plan Asset Mix at December 31, 2017 and December 31, 2016:

	Defined Benefit Pension Assets				December 31, 2017			Postretirement Benefit Plan Assets				December 31, 2017
Asset Class (in millions)	Asset Value				% of Total Assets			Asset Value				% of Total Assets
Domestic Equities	$	698.2			32.3	%		$	96.0			36.6	%
International Equities	351.0				16.2	%		39.8				15.2	%
Fixed Income	977.6				45.3	%		117.5				44.8	%
Real Estate	49.9				2.3	%		—				—
Cash/Other	83.3				3.9	%		9.2				3.4	%
Total	$	2,160.0			100.0	%		$	262.5			100.0	%
	Defined Benefit Pension Assets				December 31, 2016			Postretirement Benefit Plan Assets				December 31, 2016
Asset Class (in millions)	Asset Value				% of Total Assets			Asset Value				% of Total Assets
Domestic Equities	$	755.2			43.1	%		$	97.9			42.3	%
International Equities	339.9				19.4	%		41.8				18.0	%
Fixed Income	565.8				32.3	%		87.0				37.6	%
Real Estate/Private Equity/Hedge Funds	74.8				4.3	%		—				—
Cash/Other	15.2				0.9	%		4.7				2.1	%
Total	$	1,750.9			100.0	%		$	231.4			100.0	%

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

Fair Value Measurements. The following table sets forth, by level within the fair value hierarchy, the Master Trust and other postretirement benefits investment assets at fair value as of December 31, 2017 and 2016. Assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Total Master Trust and other postretirement benefits investment assets at fair value classified within Level 3 were $98.9 million and $73.1 million as of December 31, 2017 and December 31, 2016, respectively. Such amounts were approximately 4% of the Master Trust and other postretirement benefits’ total investments as reported on the statement of net assets available for benefits at fair value as of December 31, 2017 and 2016.

Valuation Techniques Used to Determine Fair Value:

Level 1 Measurements

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

Level 2 Measurements

Most U.S. Government Agency obligations, mortgage/asset-backed securities, and corporate fixed income securities are generally valued by benchmarking model-derived prices to quoted market prices and trade data for identical or comparable securities. To the extent that quoted prices are not available, fair value is determined based on a valuation model that includes inputs such as interest rate yield curves and credit spreads. Securities traded in markets that are not considered active are

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

valued based on quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. Other fixed income includes futures and options which are priced on bid valuation or settlement pricing.

Level 3 Measurements

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

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

Not Classified

Commingled funds that hold underlying investments that have prices which are derived from the quoted prices in active markets are not classified within the fair value hierarchy. Instead, these assets are measured at estimated fair value using the net asset value per share of the investments. The funds' underlying assets are principally marketable equity and fixed income securities. Units held in commingled funds are valued at the unit value as reported by the investment managers.

For the year ended December 31, 2017, there were no significant changes to valuation techniques to determine the fair value of NiSource's pension and other postretirement benefits' assets.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Fair Value Measurements at December 31, 2017:

(in millions)	December 31, 2017				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Pension plan assets:
Cash	$	9.7			$	9.7			$	—			$	—
Equity securities
U.S. equities	0.3				0.3				—				—
Fixed income securities
Government	143.4				—				143.4				—
Corporate	332.6				—				332.6				—
Mutual Funds
U.S. multi-strategy	231.5				231.5				—				—
International equities	85.8				85.8				—				—
Fixed income	242.3				242.3				—				—
Private equity limited partnerships
U.S. multi-strategy (1)	26.7				—				—				26.7
International multi-strategy (2)	19.1				—				—				19.1
Distressed opportunities	3.2				—				—				3.2
Real estate	49.9				—				—				49.9
Commingled funds(3)
Short-term money markets	34.1
U.S. equities	466.6
International equities	265.1
Fixed income	244.9
Pension plan assets subtotal	2,155.2				569.6				476.0				98.9
Other postretirement benefit plan assets:
Mutual funds
U.S. equities	83.8				83.8				—				—
International equities	39.8				39.8				—				—
Fixed income	117.3				117.3				—				—
Commingled funds(3)
Short-term money markets	9.4
U.S. equities	12.2
Other postretirement benefit plan assets subtotal	262.5				240.9				—				—
Due to brokers, net (4)	(2.5		)
Accrued income/dividends	7.3
Total pension and other postretirement benefit plan assets	$	2,422.5			$	810.5			$	476.0			$	98.9

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

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

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

(4) This class represents pending trades with brokers.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The table below sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the year ended December 31, 2017:

	Balance at January 1, 2017				Total gains or losses (unrealized / realized)				Purchases				(Sales)				Balance at December 31, 2017
Fixed income securities
Other fixed income	$	0.1			$	(0.1	)		$	—			$	—			$	—
Private equity limited partnerships
U.S. multi-strategy	34.8				2.1				0.9				(11.1		)		26.7
International multi-strategy	24.9				1.1				0.1				(7.0		)		19.1
Distressed opportunities	4.1				0.4				—				(1.3		)		3.2
Real estate	9.2				(0.6		)		42.1				(0.8		)		49.9
Total	$	73.1			$	2.9			$	43.1			$	(20.2	)		$	98.9

The table below sets forth a summary of unfunded commitments, redemption frequency and redemption notice periods for certain investments that are measured at fair value using the net asset value per share for the year ended December 31, 2017:

(in millions)	Fair Value				Redemption Frequency		Redemption Notice Period
Commingled Funds
Short-term money markets	$	43.5			Daily		1 day
U.S. equities	478.8				Monthly		3 days
International equities	265.1				Monthly		10-30 days
Fixed income	244.9				Monthly		3 days
Total	$	1,032.3

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Fair Value Measurements at December 31, 2016:

(in millions)	December 31, 2016				Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
Pension plan assets:
Cash	$	1.9			$	1.9			$	—			$	—
Fixed income securities
Government	42.2				—				42.2				—
Corporate	104.1				—				104.1				—
Other fixed income	0.1				—				—				0.1
Mutual Funds
U.S. multi-strategy	283.2				283.2				—				—
International equities	116.6				116.6				—				—
Fixed income	135.6				135.6				—				—
Private equity limited partnerships
U.S. multi-strategy (1)	34.8				—				—				34.8
International multi-strategy (2)	24.9				—				—				24.9
Distressed opportunities	4.1				—				—				4.1
Real Estate	9.2				—				—				9.2
Commingled funds(3)
Short-term money markets	16.6
U.S. equities	472.0
International equities	223.2
Fixed income	280.7
Pension plan assets subtotal	1,749.2				537.3				146.3				73.1
Other postretirement benefit plan assets:
Mutual funds
U.S. equities	85.4				85.4				—				—
International equities	41.8				41.8				—				—
Fixed income	86.8				86.8				—				—
Commingled funds(3)
Short-term money markets	9.5
U.S. equities	12.5
Other postretirement benefit plan assets subtotal	236.0				214.0				—				—
Due to brokers, net (4)	(5.0		)
Receivables/payables	2.1
Total pension and other postretirement benefit plan assets	$	1,982.3			$	751.3			$	146.3			$	73.1

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

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

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

(4) This class represents pending trades with brokers.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The table below sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the year ended December 31, 2016:

	Balance at January 1, 2016				Total gains or losses (unrealized / realized)				Purchases				(Sales)				Balance at December 31, 2016
Fixed income securities
Other fixed income	$	0.1			$	—			$	—			$	—			$	0.1
Private equity limited partnerships
U.S. multi-strategy	46.4				2.1				0.8				(14.5		)		34.8
International multi-strategy	29.3				2.0				1.0				(7.4		)		24.9
Distress opportunities	5.9				(0.4		)		0.1				(1.5		)		4.1
Real estate	13.6				0.1				0.1				(4.6		)		9.2
Total	$	95.3			$	3.8			$	2.0			$	(28.0	)		$	73.1

The table below sets forth a summary of unfunded commitments, redemption frequency and redemption notice periods for certain investments that are measured at fair value using the net asset value per share for the year ended December 31, 2016:

(in millions)	Fair Value				Redemption Frequency		Redemption Notice Period
Commingled Funds
Short-term money markets	$	26.1			Daily		1 day
U.S. equities	484.5				Monthly		3 days
International equities	223.2				Monthly		14-30 days
Fixed income	280.7				Monthly		3 days
Total	$	1,014.5

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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

	Pension Benefits								Other Postretirement Benefits
(in millions)	2017				2016				2017				2016
Change in projected benefit obligation (1)
Benefit obligation at beginning of year	$	2,165.8			$	2,206.7			$	529.0			$	525.8
Service cost	30.0				30.7				4.8				5.0
Interest cost	68.3				89.7				17.8				22.0
Plan participants’ contributions	—				—				5.7				5.9
Plan amendments	0.9				—				1.6				7.5
Actuarial (gain) loss	98.3				(2.7		)		36.2				1.0
Settlement loss	1.6				—				—				—
Benefits paid	(172.3		)		(158.6		)		(39.3		)		(38.9		)
Estimated benefits paid by incurred subsidy	—				—				0.5				0.7
Projected benefit obligation at end of year	$	2,192.6			$	2,165.8			$	556.3			$	529.0
Change in plan assets
Fair value of plan assets at beginning of year	$	1,750.9			$	1,747.1			$	231.4			$	225.9
Actual return on plan assets	299.1				159.1				33.1				13.0
Employer contributions	282.3				3.3				31.6				25.5
Plan participants’ contributions	—				—				5.7				5.9
Benefits paid	(172.3		)		(158.6		)		(39.3		)		(38.9		)
Fair value of plan assets at end of year	$	2,160.0			$	1,750.9			$	262.5			$	231.4
Funded Status at end of year	$	(32.6	)		$	(414.9	)		$	(293.8	)		$	(297.6	)
Amounts recognized in the statement of financial position consist of:
Noncurrent assets	9.8				—				—				—
Current liabilities	(2.8		)		(2.9		)		(0.7		)		(0.7		)
Noncurrent liabilities	(39.6		)		(412.0		)		(293.1		)		(296.9		)
Net amount recognized at end of year (2)	$	(32.6	)		$	(414.9	)		$	(293.8	)		$	(297.6	)
Amounts recognized in accumulated other comprehensive income or regulatory asset/liability (3)
Unrecognized prior service credit	$	2.5			$	1.0			$	(23.1	)		$	(29.2	)
Unrecognized actuarial loss	692.9				835.5				84.2				68.3
Net amount recognized at end of year	$	695.4			$	836.5			$	61.1			$	39.1

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

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

(3) NiSource determined that for certain rate-regulated subsidiaries the future recovery of pension and other postretirement benefits costs is probable. These rate-regulated subsidiaries recorded regulatory assets and liabilities of $733.5 million and $0.1 million, respectively, as of December 31, 2017, and $847.5 million and $0.3 million, respectively, as of December 31, 2016 that would otherwise have been recorded to accumulated other comprehensive loss.

NiSource’s accumulated benefit obligation for its pension plans was $2,170.4 million and $2,148.9 million as of December 31, 2017 and 2016, respectively. The accumulated benefit obligation as of a date is the actuarial present value of benefits attributed by the pension benefit formula to employee service rendered prior to that date and based on current and past compensation levels. The accumulated benefit obligation differs from the projected benefit obligation disclosed in the table above in that it includes no assumptions about future compensation levels.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NiSource is required to reflect the funded status of the pension and postretirement benefit plans on the Consolidated Balance Sheet. The funded status of the plans is measured as the difference between the plan assets' fair value and the projected benefit obligation. NiSource has presented the noncurrent aggregate of all underfunded plans within "Accrued liability for postretirement and postemployment benefits." The portion of the amount by which the actuarial present value of benefits included in the projected benefit obligation exceeds the fair value of plan assets, payable in the next 12 months, is reflected in "Accrued compensation and other benefits." NiSource has presented the aggregate of all overfunded plans within "Deferred charges and other."

Information for pension plans with an accumulated benefit obligation in excess of plan assets:

	December 31,
	2017				2016
Accumulated Benefit Obligation	$	1,502.5			$	2,148.9
Funded Status
Projected Benefit Obligation	1,524.7				2,165.8
Fair Value of Plan Assets	1,482.3				1,750.9
Funded Status of Underfunded Pension Plans at End of Year	$	(42.4	)		$	(414.9	)

Information for pension plans with plan assets in excess of the accumulated benefit obligation:

	December 31,
	2017				2016
Accumulated Benefit Obligation	$	667.9			$	—
Funded Status
Projected Benefit Obligation	667.9				—
Fair Value of Plan Assets	677.7				—
Funded Status of Overfunded Pension Plans at End of Year	$	9.8			$	—

In aggregate, NiSource pension plans were underfunded by $32.6 million at December 31, 2017 compared to being underfunded at December 31, 2016 by $414.9 million. The improvement in the funded status was due primarily to employer contributions and favorable asset returns offset by a decrease in discount rates. NiSource contributed $282.3 million and $3.3 million to its pension plans in 2017 and 2016, respectively.

NiSource’s other postretirement benefit plans were underfunded by $293.8 million at December 31, 2017 compared to being underfunded at December 31, 2016 by $297.6 million. The improvement in funded status was primarily due to employer contributions and favorable asset returns slightly offset by a decrease in discount rates. NiSource contributed $31.6 million and $25.5 million to its other postretirement benefit plans in 2017 and 2016, respectively.

No amounts of NiSource’s pension or other postretirement benefit plans’ assets are expected to be returned to NiSource or any of its subsidiaries in 2017.

In 2017, one of NiSource's qualified pension plans paid lump sum payouts in excess of the plan's 2017 service cost plus interest cost and, therefore, settlement accounting was required. A settlement charge of $13.7 million was recorded in 2017. Net periodic pension benefit cost for 2017 was decreased by $3.2 million as a result of the interim remeasurement.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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

	Pension Benefits						Other Postretirement Benefits
	2017			2016			2017			2016
Weighted-average assumptions to Determine Benefit Obligation
Discount Rate	3.58	%		4.03	%		3.67	%		4.12	%
Rate of Compensation Increases	4.00	%		4.00	%		—			—
Health Care Trend Rates
Trend for Next Year	—			—			8.52	%		8.43	%
Ultimate Trend	—			—			4.50	%		4.50	%
Year Ultimate Trend Reached	—			—			2025			2024

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

(in millions)	1% point increase				1% point decrease
Effect on service and interest components of net periodic cost	$	1.1			$	(0.9	)
Effect on accumulated postretirement benefit obligation	29.7				(25.9		)

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 in 2018.

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

(in millions)	Pension Benefits				Other Postretirement Benefits				Federal Subsidy Receipts
Year(s)
2018	$	176.2			$	34.3			$	0.5
2019	173.7				35.3				0.5
2020	172.1				36.3				0.5
2021	172.0				36.9				0.5
2022	171.3				36.9				0.5
2023-2027	784.7				178.9				1.9

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The following table provides the components of the plans’ actuarially determined net periodic benefits cost for each of the three years ended December 31, 2017, 2016 and 2015:

	Pension Benefits												Other Postretirement Benefits
(in millions)	2017				2016				2015				2017				2016				2015
Components of Net Periodic Benefit Cost
Service cost	$	30.0			$	30.7			$	34.8			$	4.8			$	5.0			$	6.4
Interest cost	68.3				89.7				95.9				17.8				22.0				24.9
Expected return on assets	(123.1		)		(132.9		)		(167.2		)		(15.9		)		(17.2		)		(28.2		)
Amortization of prior service cost (credit)	(0.7		)		(0.2		)		0.1				(4.4		)		(4.9		)		(5.2		)
Recognized actuarial loss	52.9				61.2				59.3				3.0				3.1				3.4
Net Periodic Benefit Costs	27.4				48.5				22.9				5.3				8.0				1.3
Additional loss recognized due to:
Settlement loss	13.7				—				2.5				—				—				—
Total Net Periodic Benefits Cost	$	41.1			$	48.5			$	25.4			$	5.3			$	8.0			$	1.3

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

	Pension Benefits									Other Postretirement Benefits
	2017			2016			2015			2017			2016			2015
Weighted-average Assumptions to Determine Net Periodic Benefit Cost
Discount rate - service cost(1)	4.40	%		4.24	%		3.81	%		4.58	%		4.33	%		3.94	%
Discount rate - interest cost(1)	3.31	%		4.24	%		3.81	%		3.48	%		4.33	%		3.94	%
Expected Long-Term Rate of Return on Plan Assets	7.25	%		8.00	%		8.30	%		6.99	%		7.85	%		8.15	%
Rate of Compensation Increases	4.00	%		4.00	%		4.00	%		—			—			—

(1) In January 2017, NiSource changed the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits. This change, compared to the previous method, resulted in a decrease in the actuarially-determined service and interest cost components. Historically, NiSource estimated service and interest cost utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. For fiscal 2017 and beyond, NiSource now utilizes a full yield curve approach to estimate these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows.

NiSource believes it is appropriate to assume a 7.25% and 6.99% rate of return on pension and other postretirement plan assets, respectively, for its calculation of 2017 pension benefits cost. These rates are primarily based on asset mix and historical rates of return and were adjusted in the current year due to anticipated changes in asset allocation and projected market returns.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

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

	Pension Benefits								Other Postretirement Benefits
(in millions)	2017				2016				2017				2016
Other Changes in Plan Assets and Projected Benefit Obligations Recognized in Other Comprehensive Income or Regulatory Asset or Liability
Net prior service cost	$	0.9			$	—			$	1.6			$	7.5
Net actuarial loss (gain)	(76.1		)		(28.9		)		18.9				5.3
Settlements	(13.7		)		—				—				—
Less: amortization of prior service cost	0.7				0.2				4.4				4.9
Less: amortization of net actuarial loss	(52.9		)		(61.2		)		(3.0		)		(3.1		)
Total Recognized in Other Comprehensive Income or Regulatory Asset or Liability	$	(141.1	)		$	(89.9	)		$	21.9			$	14.6
Amount Recognized in Net Periodic Benefits Cost and Other Comprehensive Income or Regulatory Asset or Liability	$	(100.0	)		$	(41.4	)		$	27.2			$	22.6

Based on a December 31 measurement date, the net unrecognized actuarial loss, unrecognized prior service cost (credit), and unrecognized transition obligation that will be amortized into net periodic benefit cost during 2018 for the pension plans are $40.9 million, $(0.4) million and zero, respectively, and for other postretirement benefit plans are $3.8 million, $(4.0) million and zero, respectively.

12.	Common Stock

As of December 31, 2017, NiSource had 400,000,000 authorized shares of common stock with a $0.01 par value.

ATM Program and Forward Sale Agreement. On May 3, 2017, NiSource entered into four separate equity distribution agreements, pursuant to which NiSource may sell, from time to time, up to an aggregate of $500.0 million of its common stock. As of December 31, 2017, the ATM program (including the impacts of forward sales agreements discussed below) had approximately $10.0 million of equity available for issuance. The program expires on December 31, 2018. The following table summarizes NiSource's activity under the ATM program:

Year Ending December 31,	2017				2016			2015
Number of shares issued	11,931,376				—			—
Average price per share	$	26.58			—			—
Proceeds, net of fees (in millions)	$	314.7			—			—

On November 13, 2017, under the ATM program, NiSource executed a forward agreement, which allows NiSource to issue a fixed number of shares at a price to be settled in the future. From November 13, 2017 to December 8, 2017, 6,345,860 shares were borrowed from third parties and sold by the dealer at a weighted average price of $27.24 per share. NiSource may settle this agreement in shares, cash, or net shares by November 12, 2018.

NiSource has classified the forward agreement as an equity transaction in accordance with relevant GAAP. As a result of this classification, no amounts have been recorded in the financial statements as of and for the period ended December 31, 2017. Delivery of shares will eventually result in dilution to basic EPS upon settlement. In periods prior to the settlement date, a dilutive effect of the forward agreement on NiSource's EPS could occur during periods when the average market price per share of NiSource common stock is above the share price adjusted forward sale price. See Note 4, "Earnings Per Share," for additional information.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Had NiSource settled all 6,345,860 shares under the forward agreement at December 31, 2017, NiSource would have received approximately $171.2 million, based on a net price of $26.98 per share.

Common Stock Dividend. Holders of shares of NiSource’s common stock are entitled to receive dividends when, as and if declared by the Board out of funds legally available. The policy of the Board has been to declare cash dividends on a quarterly basis payable on or about the 20th day of February, May, August and November. NiSource has paid quarterly common dividends totaling $0.70, $0.64 and $0.83 per share for the years ended December 31, 2017, 2016 and 2015, respectively. At its January 26, 2018 meeting, the Board declared a quarterly common dividend of $0.195 per share, payable on February 20, 2018 to holders of record on February 9, 2018. NiSource has certain debt covenants which could potentially limit the amount of dividends the Company could pay in order to maintain compliance with these covenants. Refer to Note 14, "Long-Term Debt," for more information. As of December 31, 2017, these covenants did not restrict the amount of dividends that were available to be paid.

Dividend Reinvestment and Stock Purchase Plan. NiSource offered a Dividend Reinvestment and Stock Purchase Plan which allowed participants to reinvest dividends and make voluntary cash payments to purchase additional shares of common stock. This plan was terminated effective December 31, 2017 in favor of an independent plan sponsored by NiSource’s transfer agent, Computershare Trust Company, N.A.

13.	Share-Based Compensation

The NiSource stockholders originally approved and adopted the NiSource Inc. 2010 Omnibus Incentive Plan (“Omnibus Plan”) at the Annual Meeting of Stockholders held on May 11, 2010. Stockholders re-approved the Omnibus Plan as amended at the Annual Meeting of Stockholders held on May 12, 2015. The Omnibus Plan provides for awards to employees and non-employee directors of incentive and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards and supersedes the long-term incentive plan approved by stockholders on April 13, 1994 (“1994 Plan”) and the Director Stock Incentive Plan (“Director Plan”). The Omnibus Plan provides that the number of shares of common stock of NiSource available for awards is 8,000,000 plus the number of shares subject to outstanding awards that expire or terminate for any reason that were granted under either the 1994 Plan or the Director Plan, plus the number of shares that were awarded as a result of the Separation-related adjustments (discussed below). At December 31, 2017, there were 4,455,389 shares reserved for future awards under the Omnibus Plan.

NiSource recognized stock-based employee compensation expense of $15.3 million, $15.1 million and $18.8 million, during 2017, 2016 and 2015, respectively, as well as related tax benefits of $5.9 million, $5.8 million and $7.2 million, respectively. Additionally, NiSource adopted ASU 2016-09 in the third quarter of 2016 and recognized excess tax benefits from the distribution of vested share-based employee compensation in 2017 and 2016. For the twelve months ended December 31, 2017 and December 31, 2016, $4.4 million and $7.2 million of such benefits were recorded, respectively.

As of December 31, 2017, the total remaining unrecognized compensation cost related to non-vested awards amounted to $19.4 million, which will be amortized over the weighted-average remaining requisite service period of 1.8 years.

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

Restricted Stock Units and Restricted Stock. Restricted stock units and shares of restricted stock granted to employees in 2017 and 2016 were immaterial.

In 2015, NiSource granted 660,230 restricted stock units and shares of restricted stock to employees, subject to service conditions. The total grant date fair value of the restricted stock units and shares of restricted stock was $23.9 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of any dividends not received during the vesting period, which will be expensed over the vesting period which is generally three years. Including the effect of the Valuation Adjustment, 635,795 non-vested restricted stock units and shares of restricted stock granted in 2015 were outstanding as of December 31, 2017.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

If an employee terminates employment before the service conditions lapse under the 2015, 2016 or 2017 awards due to (1) Retirement or Disability (as defined in the award agreement), or (2) death, the service conditions will lapse on the date of such termination with respect to a pro rata portion of the restricted stock units and shares of restricted stock based upon the percentage of the service period satisfied between the grant date and the date of the termination of employment. In the event of a change in control (as defined in the award agreement), all unvested shares of restricted stock and restricted stock units awarded prior to 2015 will immediately vest and all unvested shares of restricted stock and restricted stock units awarded in 2015, 2016 and 2017 will immediately vest upon termination of employment occurring in connection with a change in control. Termination due to any other reason will result in all unvested shares of restricted stock and restricted stock units awarded being forfeited effective on the employee’s date of termination.

(shares)	Restricted Stock Units			Weighted Average Grant Date Fair Value Per Unit ($)
Nonvested at December 31, 2016	1,642,030			12.05
Granted	10,983			22.87
Forfeited	(85,436	)		14.64
Vested	(869,451	)		9.33
Nonvested at December 31, 2017	698,126			15.09

Performance Shares. In 2017, NiSource granted 660,750 performance shares subject to service, performance and market conditions. The grant date fair value of the awards was $12.9 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed over the three year requisite service period. The performance conditions are based on achievement of certain non-GAAP financial measures: cumulative net operating earnings per share, a non-GAAP financial measure that NiSource defines as income from continuing operations adjusted for certain items, for the three-year period ending December 31, 2019; and relative total shareholder return, a market measure that NiSource defines as the annualized growth in dividends and share price of a share of NiSource's common stock (calculated using a 20 trading day average of NiSource's closing price beginning on December 31, 2016 and ending on December 31, 2019) compared to the total shareholder return performance of a predetermined peer group of companies. A Monte Carlo analysis was used to value the portion of these awards dependent on market conditions. As of December 31, 2017, 604,944 non-vested performance shares granted were outstanding. The service conditions for these awards lapse on February 28, 2020.

In 2016, NiSource granted 647,305 performance shares subject to service, performance and market conditions. The grant date fair value of the awards was $12.6 million, based on the average market price of NiSource’s common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed over the three year requisite service period. The performance conditions are based on achievement of certain non-GAAP financial measures: cumulative net operating earnings per share, a non-GAAP financial measure that NiSource defines as income from continuing operations adjusted for certain items, for the three-year period ending December 31, 2018; and relative total shareholder return, a market measure that NiSource defines as the annualized growth in dividends and share price of a share of NiSource's common stock (calculated using a 20 trading day average of NiSource's closing price beginning on December 31, 2015 and ending on December 31, 2018) compared to the total shareholder return performance of a predetermined peer group of companies. A Monte Carlo analysis was used to value the portion of these awards dependent on market conditions. As of December 31, 2017, 579,829 non-vested performance shares granted were outstanding. The service conditions for these awards lapse on February 28, 2019.

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

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

(shares)	Performance Awards			Weighted Average Grant Date Fair Value Per Unit ($)
Nonvested at December 31, 2016	647,305			19.50
Granted	660,750			19.50
Forfeited	(123,282	)		19.45
Vested	—			—
Nonvested at December 31, 2017	1,184,773			19.52

Non-employee Director Awards. As of May 11, 2010, awards to non-employee directors may be made only under the Omnibus Plan. Currently, restricted stock units are granted annually to non-employee directors, subject to a non-employee director’s election to defer receipt of such restricted stock unit award. The non-employee director’s annual award of restricted stock units vest on the last day of the non-employee director’s annual term corresponding to the year the restricted stock units were awarded subject to special pro-rata vesting rules in the event of Retirement or Disability (as defined in the award agreement), or death. The vested restricted stock units are payable as soon as practicable following vesting except as otherwise provided pursuant to the non-employee director’s election to defer. Certain restricted stock units remain outstanding from the Director Plan. All such awards are fully vested and shall be distributed to the directors upon their separation from the Board.

As of December 31, 2017, 225,613 restricted stock units are outstanding to non-employee directors under either the Omnibus Plan or the Director Plan. Of this amount, 54,964 restricted stock units are unvested and expected to vest.

401(k) Match, Profit Sharing and Company Contribution. NiSource has a voluntary 401(k) savings plan covering eligible employees that allows for periodic discretionary matches as a percentage of each participant’s contributions payable in cash for nonunion employees and generally payable in shares of NiSource common stock for union employees, subject to collective bargaining. NiSource also has a retirement savings plan that provides for discretionary profit sharing contributions similarly payable in cash or shares of NiSource common stock to eligible employees based on earnings results; and eligible employees hired after January 1, 2010 receive a non-elective company contribution of 3% of eligible pay similarly payable in cash or shares of NiSource common stock. For the years ended December 31, 2017, 2016 and 2015, NiSource recognized 401(k) match, profit sharing and non-elective contribution expense of $37.6 million, $32.3 million and $27.4 million, respectively.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

14.	Long-Term Debt

NiSource long-term debt as of December 31, 2017 and 2016 is as follows:

Long-term debt type	Maturity as of December 31, 2017	Weighted average interest rate (%)			Outstanding balance as of December 31, (in millions)
	2017				2016
Senior notes:
NiSource	September 2017	5.25	%		$	—			$	210.4
NiSource	March 2018	6.40	%		275.1				476.0
NiSource	January 2019	6.80	%		255.1				500.0
NiSource	March 2019	Variable		(1)	—				500.0
NiSource	September 2020	5.45	%		325.1				550.0
NiSource	December 2021	4.45	%		63.6				63.6
NiSource	March 2022	6.13	%		180.0				500.0
NiSource	November 2022	2.65	%		500.0				—
NiSource	February 2023	3.85	%		250.0				250.0
NiSource	November 2025	5.89	%		265.0				265.0
NiSource	May 2027	3.49	%		1,000.0				—
NiSource	December 2027	6.78	%		3.0				3.0
NiSource	December 2040	6.25	%		250.0				250.0
NiSource	June 2041	5.95	%		400.0				400.0
NiSource	February 2042	5.80	%		250.0				250.0
NiSource	February 2043	5.25	%		500.0				500.0
NiSource	February 2044	4.80	%		750.0				750.0
NiSource	February 2045	5.65	%		500.0				500.0
NiSource	May 2047	4.38	%		1,000.0				—
NiSource	March 2048	3.95	%		750.0				—
Total senior notes					$	7,516.9			$	5,968.0
Medium term notes:
NiSource	April 2022 to May 2027	7.99	%		$	49.0			$	106.0
NIPSCO	August 2022 to August 2027	7.61	%		68.0				95.5
Columbia of Massachusetts	December 2025 to February 2028	6.30	%		40.0				40.0
Total medium term notes					$	157.0			$	241.5
Capital leases:
NIPSCO	May 2018	3.95	%		$	3.8			$	12.7
NiSource Corporate Services	October 2019	3.26	%		1.4				3.5
Columbia of Ohio	October 2021 to June 2038	6.41	%		88.5				80.1
Columbia of Virginia	August 2024 to July 2029	12.21	%		5.2				5.5
Columbia of Kentucky	May 2027	3.79	%		0.4				—
Columbia of Pennsylvania	August 2027 to June 2036	5.45	%		31.0				31.9
Columbia of Massachusetts	December 2033 to July 2036	4.37	%		22.8				23.7
Total capital leases					153.1				157.4
Pollution control bonds - NIPSCO	April 2019	5.85	%		41.0				96.0
Unamortized issuance costs and discounts					(71.5		)		$	(41.6	)
Total Long-Term Debt					$	7,796.5			$	6,421.3

(1)Rate of one month Libor plus 95 basis points.

On November 30, 2017, NiSource Finance and Capital Markets merged with and into NiSource and NiSource became the primary obligor of NiSource Finance's and Capital Market's outstanding obligations. The merger does not have any impact on NiSource's consolidated financial statements or the credit rating of outstanding debt securities. None of NiSource's subsidiaries guarantee any third party debt.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Details of NiSource's other 2017 long-term debt related activity are summarized below:

•	On March 27, 2017, Capital Markets redeemed $30.0 million of 7.86% and $2.0 million of 7.85% medium-term notes at maturity.

•	On April 3, 2017, Capital Markets redeemed $12.0 million of 7.82%, $10.0 million of 7.92%, $2.0 million of 7.93% and $1.0 million of 7.94% medium-term notes at maturity.

•

On May 22, 2017, NiSource Finance closed its placement of $2.0 billion in aggregate principal amount of its senior notes, comprised of $1.0 billion of 3.49% senior notes due 2027 and $1.0 billion of 4.375% senior notes due 2047. Related to this placement, NiSource settled $950.0 million of aggregate notional value forward-starting interest rate swaps, originally entered into to mitigate interest risk associated with the planned issuance of these notes. Refer to Note 9, "Risk Management Activities," for additional information.

•

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 June 12, 2017, NIPSCO redeemed $22.5 million of 7.59% medium-term notes at maturity.

•	On July 1, 2017, NIPSCO redeemed $55.0 million of 5.70% pollution control bonds at maturity.

•	On August 4, 2017, NIPSCO redeemed $5.0 million of 7.02% medium-term notes at maturity.

•

On September 14, 2017, NiSource Finance closed its placement of $750.0 million of 3.95% senior notes due 2048. Related to this placement, NiSource settled $750.0 million of aggregate notional value treasury lock agreements, originally entered into to mitigate the interest risk associated with the planned issuance of these notes. Refer to Note 9, "Risk Management Activities," for additional information.

•	On September 15, 2017, NiSource Finance redeemed $210.4 million of 5.25% senior unsecured notes at maturity.

•

On November 17, 2017, NiSource Finance closed its placement of $500.0 million of 2.65% senior notes due 2022 to repay a $500.0 million variable-rate term loan due March 29, 2019. Related to this placement, NiSource settled $250.0 million of aggregate notional value treasury lock agreements originally entered into to mitigate the interest risk associated with the planned issuance of these notes. Refer to Note 9, “Risk Management Activities,” for additional information.

Details of NiSource's 2016 long-term debt related activity are summarized below:

•	On March 15, 2016, NiSource Finance redeemed $201.5 million of 10.75% senior unsecured notes at maturity.

•

On March 31, 2016, NiSource Finance entered into a $500 million term loan agreement with a syndicate of banks. The term loan matures March 29, 2019, at which point any and all outstanding borrowings under the agreement are due. Interest charged on borrowings depends on the variable rate structure elected by NiSource Finance at the time of each borrowing. The available variable rate structures from which NiSource Finance may choose are defined in the term loan agreement. As of December 31, 2016, NiSource Finance had $500.0 million of outstanding borrowings under the term loan agreement.

•

In June 2016, NiSource Finance entered into forward-starting interest rate swaps with an aggregate notional amount of $500.0 million to hedge the variability in cash flows attributable to changes in the benchmark interest rate during the period from the effective date of the swaps to the anticipated date of forecasted debt issuances, expected to take place by the end of 2018. The forward-starting interest rate swaps were designated as cash flow hedges at the time the agreements were executed, whereby any gain or loss recognized from the effective date of the swaps to the date the associated debt is issued for the effective portion of the hedge is recorded net of tax in AOCI and amortized as a component of interest expense over the life of the designated debt. If some portion of the hedges becomes ineffective, the associated gain or loss will be recognized in earnings.

•	On November 1, 2016, NIPSCO redeemed $130.0 million of 5.60% pollution control bonds at maturity.

•	On November 28, 2016, NiSource Finance redeemed $90.0 million of 5.41% senior unsecured notes at maturity.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

See Note 18-A, "Contractual Obligations," for the outstanding long-term debt maturities at December 31, 2017.

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

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%.

NiSource is also subject to certain other non-financial covenants under the revolving credit facility. Such covenants include a limitation on the creation or existence of new liens on NiSource’s assets, generally exempting liens on utility assets, purchase money security interests, preexisting security interests and an additional subset of assets equal to $150 million. An asset sale covenant generally restricts the sale, conveyance, lease, transfer or other disposition of NiSource’s assets to those dispositions that are for a price not materially less than fair market of such assets, that would not materially impair the ability of NiSource to perform obligations under the revolving credit facility, and that together with all other such dispositions, would not have a material adverse effect. The covenant also restricts dispositions to no more than 10% of NiSource's consolidated total assets on December 31, 2015. The revolving credit facility also includes a cross-default provision, which triggers an event of default under the credit facility in the event of an uncured payment default relating to any indebtedness of NiSource or any of its subsidiaries in a principal amount of $50.0 million or more.

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

15.	Short-Term Borrowings

NiSource generates short-term borrowings from its revolving credit facility, commercial paper program, letter of credit issuances and accounts receivable transfer programs. Each of these borrowing sources is described further below.

NiSource maintains a revolving credit facility to fund ongoing working capital requirements, including the provision of liquidity support for its commercial paper program, provide for issuance of letters of credit and also for general corporate purposes. NiSource's revolving credit facility has a program limit of $1.85 billion and is comprised of a syndicate of banks led by Barclays. At December 31, 2017 and 2016, NiSource had no outstanding borrowings under this facility.

NiSource's commercial paper program has a program limit of up to $1.5 billion with a dealer group comprised of Barclays, Citigroup, Credit Suisse and Wells Fargo. At December 31, 2017 and 2016, NiSource had $869.0 million and $1,178.0 million, respectively, of commercial paper outstanding.

As of December 31, 2017 and 2016, NiSource had $11.1 million and $14.7 million, respectively, of stand-by letters of credit outstanding all of which were under the revolving credit facility.

Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term debt on the Consolidated Balance Sheets in the amount of $336.7 million and $310.0 million as of December 31, 2017 and 2016, respectively. Refer to Note 17, "Transfers of Financial Assets," for additional information.

Short-term borrowings were as follows:

At December 31, (in millions)	2017				2016
Commercial Paper weighted average interest rate of 1.97% and 1.24% at December 31, 2017 and 2016, respectively.	$	869.0			$	1,178.0
Accounts receivable securitization facility borrowings	336.7				310.0
Total Short-Term Borrowings	$	1,205.7			$	1,488.0

Given their maturities are less than 90 days, cash flows related to the borrowings and repayments of the items listed above are presented net in the Statements of Consolidated Cash Flows.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

16.	Fair Value

A.Fair Value Measurements

Recurring Fair Value Measurements. The following tables present financial assets and liabilities measured and recorded at fair value on NiSource’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy as of December 31, 2017 and December 31, 2016:

Recurring Fair Value Measurements December 31, 2017 (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Balance as of December 31, 2017
Assets
Risk management assets	$	—			$	21.1			$	—			$	21.1
Available-for-sale securities	—				133.9				—				133.9
Total	$	—			$	155.0			$	—			$	155.0
Liabilities
Risk management liabilities	$	—			$	71.4			$	0.3			$	71.7
Total	$	—			$	71.4			$	0.3			$	71.7

Recurring Fair Value Measurements December 31, 2016 (in millions)	Quoted Prices in Active Markets for Identical Assets (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)				Balance as of December 31, 2016
Assets
Risk management assets	$	5.4			$	43.6			$	—			$	49.0
Available-for-sale securities	—				131.5				—				131.5
Total	$	5.4			$	175.1			$	—			$	180.5
Liabilities
Risk management liabilities	$	1.2			$	58.9			$	1.2			$	61.3
Total	$	1.2			$	58.9			$	1.2			$	61.3

Risk management assets and liabilities include interest rate swaps, exchange-traded NYMEX futures and NYMEX options and non-exchange-based forward purchase contracts. Exchange-traded derivative contracts are based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore, nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, options and treasury lock agreements. In certain instances, these instruments may utilize models to measure fair value. NiSource uses a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability and market-corroborated inputs, (i.e., inputs derived principally from or corroborated by observable market data by correlation or other means). Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized within Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized within Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures. As of

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

December 31, 2017 and 2016, there were no material transfers between fair value hierarchies. Additionally, there were no changes in the method or significant assumptions used to estimate the fair value of NiSource’s financial instruments.

NiSource has entered into forward-starting interest rate swaps to hedge the interest rate risk on coupon payments of forecasted issuances of long-term debt. These derivatives are designated as cash flow hedges. Credit risk is considered in the fair value calculation of each agreement. As they are based on observable data and valuations of similar instruments, the hedges are categorized within Level 2 of the fair value hierarchy. There was no exchange of premium at the initial date of the swaps and treasury lock agreements, and NiSource can settle the contracts at any time. For additional information see Note 9, "Risk Management Activities."

NIPSCO has entered into long-term forward natural gas purchase instruments that range from five to ten years to lock in a fixed price for its natural gas customers. NiSource values these contracts using a pricing model that incorporates market-based information when available, as these instruments trade less frequently and are classified within Level 2 of the fair value hierarchy. For additional information see Note 9, “Risk Management Activities.”

Available-for-sale securities are investments pledged as collateral for trust accounts related to NiSource’s wholly-owned insurance company. Available-for-sale securities are included within “Other investments” in the Consolidated Balance Sheets. NiSource values U.S. Treasury, corporate and mortgage-backed securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently and are classified within Level 2. Total unrealized gains and losses from available-for-sale securities are included in other comprehensive income. The amortized cost, gross unrealized gains and losses and fair value of available-for-sale securities at December 31, 2017 and 2016 were:

December 31, 2017 (in millions)	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available-for-sale securities
U.S. Treasury debt securities	$	26.9			$	—			$	(0.1	)		$	26.8
Corporate/Other debt securities	106.8				0.9				(0.6		)		107.1
Total	$	133.7			$	0.9			$	(0.7	)		$	133.9
December 31, 2016 (in millions)	Amortized Cost				Gross Unrealized Gains				Gross Unrealized Losses				Fair Value
Available-for-sale securities
U.S. Treasury debt securities	$	35.0			$	0.1			$	(0.6	)		$	34.5
Corporate/Other debt securities	98.7				0.3				(2.0		)		97.0
Total	$	133.7			$	0.4			$	(2.6	)		$	131.5

Realized gains and losses on available-for-sale securities were immaterial for the year-ended December 31, 2017 and 2016.

The cost of maturities sold is based upon specific identification. At December 31, 2017, approximately $13.7 million of U.S. Treasury debt securities and approximately $2.9 million of Corporate/Other debt securities have maturities of less than a year.

There are no material items in the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the years ended December 31, 2017 and 2016.

Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the twelve months ended December 31, 2017.

B. Other Fair Value Disclosures for Financial Instruments. The carrying amount of cash and cash equivalents, restricted cash, notes receivable, customer deposits and short-term borrowings is a reasonable estimate of fair value due to their liquid or short-term nature. NiSource’s long-term borrowings are recorded at historical amounts.

The following method and assumptions were used to estimate the fair value of each class of financial instruments.

Long-term debt. The fair values of outstanding long-term debt is estimated based on the quoted market prices for the same or similar securities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

in determining fair value. These fair value measurements are classified within Level 2 of the fair value hierarchy. For the years ended December 31, 2017 and 2016, there was no change in the method or significant assumptions used to estimate the fair value of long-term debt.

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

At December 31, (in millions)	Carrying Amount 2017				Estimated Fair Value 2017				Carrying Amount 2016				Estimated Fair Value 2016
Long-term debt (including current portion)	$	7,796.5			$	8,603.4			$	6,421.3			$	7,064.1

17.	Transfers of Financial Assets

Columbia of Ohio, NIPSCO and Columbia of Pennsylvania each maintain a receivables agreement whereby they transfer their customer accounts receivables to third party financial institutions through wholly-owned and consolidated special purpose entities. The three agreements expire between March 2018 and October 2018 and may be further extended if mutually agreed to by the parties thereto.

All receivables transferred to third parties are valued at face value, which approximates fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables transferred is determined in part by required loss reserves under the agreements.

Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term borrowings on the Consolidated Balance Sheets. As of December 31, 2017, the maximum amount of debt that could be recognized related to NiSource’s accounts receivable programs is $375.0 million.

The following table reflects the gross receivables balance and net receivables transferred as well as short-term borrowings related to the securitization transactions as of December 31, 2017 and 2016:

(in millions)	December 31, 2017				December 31, 2016
Gross Receivables	$	635.3			$	618.3
Less: Receivables not transferred	298.6				308.3
Net receivables transferred	$	336.7			$	310.0
Short-term debt due to asset securitization	$	336.7			$	310.0

During 2017 and 2016, $26.7 million and $64.0 million, respectively, was recorded as cash flows from financing activities related to the change in short-term borrowings due to securitization transactions. Fees associated with the securitization transactions were $2.5 million, $2.3 million and $2.5 million for the years ended December 31, 2017, 2016 and 2015, respectively. NiSource remains responsible for collecting on the receivables securitized and the receivables cannot be transferred to another party.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

18. Other Commitments and Contingencies

A. 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		$	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.

Operating and Capital Lease Commitments. NiSource leases assets in several areas of its operations including fleet vehicles and equipment, rail cars for coal delivery and certain operations centers. Payments made in connection with operating leases were $49.5 million in 2017, $52.0 million in 2016 and $47.5 million in 2015, and are primarily charged to operation and maintenance expense as incurred. Capital lease assets and related accumulated depreciation included in the Consolidated Balance Sheets were $171.2 million and $32.4 million at December 31, 2017, and $167.0 million and $20.6 million at December 31, 2016, respectively.

Included in capital leases are the adjusted payments for the NIPSCO service agreement with Pure Air. Refer to section E, "Other Matters," below for additional information.

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

NiSource’s subsidiaries have entered into various energy commodity contracts to purchase physical quantities of natural gas, electricity and coal. These amounts represent minimum quantities of these commodities NiSource is obligated to purchase at both fixed and variable prices. To the extent contractual purchase prices are variable, obligations disclosed in the table above are valued at market prices as of December 31, 2017.

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

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NiSource has pipeline service agreements that provide for pipeline capacity, transportation and storage services. These agreements, which have expiration dates ranging from 2018 to 2045, require NiSource to pay fixed monthly charges.

NIPSCO has contracts with three major rail operators providing for coal transportation services for which there are certain minimum payments. These service contracts extend for various periods through 2021.

On December 31, 2013, NiSource Corporate Services Company signed a seven-year agreement with IBM to continue to provide business process and support functions to NiSource under a combination of fixed and variable charges, with the variable charges fluctuating based on the actual need for such services. The agreement was effective January 1, 2014 with a commencement date of April 1, 2014.

In April 2017, NiSource initiated a process to terminate its agreement with IBM and began negotiating contracts with IT service providers other than IBM. NiSource reached an agreement with IBM resolving all termination issues under the service agreement in the fourth quarter of 2017. Liabilities recorded related to termination charges as of December 31, 2017 are not material to the Consolidated Financial Statements.

In May and June 2017, NiSource executed agreements with new IT service providers. The new agreements have terms ending at various dates throughout 2022. Transition of responsibilities from IBM to the new service providers was substantially complete as of the end of 2017. Costs associated with transition activities, including legal and consulting fees, were expensed as incurred.

B. Guarantees and Indemnities. As a part of normal business, NiSource and certain subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries’ intended commercial purposes. At December 31, 2017 and 2016, NiSource had issued stand-by letters of credit of $11.1 million and $14.7 million, respectively, for the benefit of third parties.

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

D. Environmental Matters. NiSource operations are subject to environmental statutes and regulations related to air quality, water quality, hazardous waste and solid waste. NiSource believes that it is in substantial compliance with the environmental regulations currently applicable to its operations.

It is management's continued intent to address environmental issues in cooperation with regulatory authorities in such a manner as to achieve mutually acceptable compliance plans. However, there can be no assurance that fines and penalties will not be incurred. Management expects a significant portion of environmental assessment and remediation costs to be recoverable through rates for certain NiSource companies.

As of December 31, 2017 and 2016, NiSource had recorded a liability of $111.4 million to cover environmental remediation at various sites. The current portion of this liability is included in "Legal and environmental" in the Consolidated Balance Sheets. The noncurrent portion is included in "Other noncurrent liabilities" in the Consolidated Balance Sheets. NiSource recognizes costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated. The original estimates for remediation activities may differ materially from the amount ultimately expended. The actual future expenditures depend on many factors, including currently enacted laws and regulations, the nature and extent of impact, the method of remediation and the availability of cost recovery. These expenditures are not currently estimable at some sites. NiSource periodically adjusts its liability as information is collected and estimates become more refined.

Electric Operations' compliance estimates disclosed below are reflective of NIPSCO's Integrated Resource Plan submitted to the IURC on November 1, 2016. See section E, "Other Matters," below for additional information.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Air

The actions listed below could require further reductions in emissions from various emission sources. NiSource will continue to closely monitor developments in these matters.

Future legislative and regulatory programs could significantly limit allowed GHG emissions or impose a cost or tax on GHG emissions. Additionally, rules that increase methane leak detection, require emission reductions or impose additional requirements for natural gas facilities could restrict GHG emissions and impose additional costs. NiSource will carefully monitor all GHG reduction proposals and regulations.

Clean Power Plan. On October 23, 2015, the EPA issued a final rule to regulate CO2 emissions from existing fossil-fuel EGUs under section 111(d) of the CAA. The final rule establishes national CO2 emission-rate standards that are applied to each state’s mix of affected EGUs to establish state-specific emission-rate and mass-emission limits. The final rule requires each state to submit a plan indicating how the state will meet the EPA's emission-rate or mass-emission limit, including possibly imposing reduction obligations on specific units. If a state does not submit a satisfactory plan, the EPA will impose a federal plan on that state.

On February 9, 2016, the U.S. Supreme Court stayed implementation of the CPP until litigation is decided on its merits. On October 16, 2017, the EPA published in the Federal Register a Notice of Proposed Rulemaking that would repeal the CPP. The public will have until April 26, 2018 to comment on this proposal, after which time the proposal may become final. On December 28, 2017, in a separate but related action, the EPA published an Advanced Notice of Proposed Rulemaking in the Federal Register to solicit information from the public about a potential future rulemaking to limit greenhouse gas emissions from existing fossil-fuel EGUs. The public will have until February 26, 2018 to comment on the proposal. NIPSCO will continue to monitor this matter and cannot estimate its impact at this time. Should costs be incurred to comply with the CPP, NIPSCO believes such costs will be eligible for recovery through customer rates.

Waste

CERCLA. NiSource subsidiaries are potentially responsible parties at waste disposal sites under the CERCLA (commonly known as Superfund) and similar state laws. Under CERCLA, each potentially responsible party can be held jointly, severally and strictly liable for the remediation costs as the EPA, or state, can allow the parties to pay for remedial action or perform remedial action themselves and request reimbursement from the potentially responsible parties. NiSource’s affiliates have retained CERCLA environmental liabilities, including remediation liabilities, associated with certain current and former operations. These liabilities are not material to the Consolidated Financial Statements.

MGP. A program has been instituted to identify and investigate former MGP sites where Gas Distribution Operations subsidiaries or predecessors may have liability. The program has identified sixty-four such sites where liability is probable. Remedial actions at many of these sites are being overseen by state or federal environmental agencies through consent agreements or voluntary remediation agreements.

NiSource utilizes a probabilistic model to estimate its future remediation costs related to its MGP sites. The model was prepared with the assistance of a third party and incorporates NiSource and general industry experience with remediating MGP sites. NiSource completes an annual refresh of the model in the second quarter of each fiscal year. No material changes to the estimated future remediation costs were noted as a result of the refresh completed as of June 30, 2017. The total estimated liability at NiSource related to the facilities subject to remediation was $106.9 million and $105.5 million at December 31, 2017 and 2016, respectively. The liability represents NiSource’s best estimate of the probable cost to remediate the facilities. NiSource believes that it is reasonably possible that remediation costs could vary by as much as $25 million in addition to the costs noted above. Remediation costs are estimated based on the best available information, applicable remediation standards at the balance sheet date, and experience with similar facilities.

CCRs. On April 17, 2015, the EPA issued a final rule for regulation of CCRs. The rule regulates CCRs under the RCRA Subtitle D, which determines them to be nonhazardous. The rule is implemented in phases and requires increased groundwater monitoring, reporting, recordkeeping and posting of related information to the Internet. The rule also establishes requirements related to CCR management and disposal. The rule will allow NIPSCO to continue its byproduct beneficial use program.

The publication of the CCR rule resulted in revisions to previously recorded legal obligations associated with the retirement of certain NIPSCO facilities. The actual asset retirement costs related to the CCR rule may vary substantially from the estimates used to record the increased asset retirement obligation due to the uncertainty about the compliance strategies that will be used and the preliminary nature of available data used to estimate costs. In addition, to comply with the rule, NIPSCO will be required to incur future capital expenditures to modify its infrastructure and manage CCRs. Capital compliance costs are currently expected to total

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

approximately $193 million. As allowed by the EPA, NIPSCO will continue to collect data over time to determine the specific compliance solutions and associated costs and, as a result, the actual costs may vary.

NIPSCO filed a petition on November 1, 2016 with the IURC seeking approval of the projects and recovery of the costs associated with CCR compliance. On June 9, 2017, NIPSCO filed with the IURC a settlement reached with certain parties regarding the CCR projects and treatment of associated costs. The IURC approved the settlement in an order on December 13, 2017.

Water

ELG. On November 3, 2015, the EPA issued a final rule to amend the ELG and standards for the Steam Electric Power Generating category. The final rule became effective January 4, 2016. The rule imposes new water treatment and discharge requirements on NIPSCO's electric generating facilities to be applied between 2018 and 2023. On April 25, 2017, the EPA published notice in the Federal Register that the EPA is reconsidering the ELG in response to several petitions for reconsideration. On September 18, 2017, the EPA published notice in the Federal Register their intention to postpone the earliest compliance dates for flue gas desulfurization wastewater and bottom ash transport water requirements to potentially consider revisions to technology and numeric limits achievable. NIPSCO is unable to estimate the impact of the postponement of these compliance dates at this time. Based upon a preliminary engineering study, capital compliance costs are currently expected to cost approximately $170 million. On November 1, 2016, NIPSCO filed a petition with the IURC seeking approval of the projects and recovery of the costs associated with ELG compliance. Given the current postponement of certain compliance dates under the ELG rule, NIPSCO has agreed with the settling parties as part of the settlement agreement discussed in the "CCRs" subsection above, that these ELG projects and related costs would be addressed in a later proceeding.

E. Other Matters.

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.

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 (discussed further below), 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). Refer to Note 25, "Subsequent Event," for additional information.

NIPSCO Pure Air. NIPSCO has a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and First Air Partners LP, under which Pure Air provides scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at the Bailly Generating Station. Services under this contract commenced on July 1, 1992 and expired on June 30, 2012. The agreement was renewed effective July 1, 2012 for ten years requiring NIPSCO to pay for the services under a combination of fixed and variable charges. NiSource has made an exhaustive effort to obtain information needed from Pure Air to determine the status of Pure Air as a VIE. However, NIPSCO has not been able to obtain this information and, as a result, it is unclear whether

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Pure Air is a VIE and if NIPSCO is the primary beneficiary. NIPSCO will continue to request the information required to determine whether Pure Air is a VIE. NIPSCO has no exposure to loss related to the service agreement with Pure Air and payments under this agreement were $22.0 million and $21.7 million for the years ended December 31, 2017 and 2016, respectively. In accordance with GAAP, the renewed agreement was evaluated to determine whether the arrangement qualifies as a lease. Based on the terms of the agreement, the arrangement qualified for capital lease accounting. As the effective date of the new agreement was July 1, 2012, NiSource capitalized this lease beginning in the third quarter of 2012.

As further discussed above in this Note 18 under the heading "NIPSCO 2016 Integrated Resource Plan," NIPSCO plans to retire the generation station units serviced by Pure Air by May 31, 2018. In December 2016, as allowed by the provisions of the service agreement, NIPSCO provided Pure Air formal notice of intent to terminate the service agreement, effective May 31, 2018. Providing this notice to Pure Air triggered a contract termination liability of $16 million which was recorded in fourth quarter of 2016. This expense was included as part of the plant retirement-related charges discussed above. Payment of this liability is not due until NIPSCO ceases use of the scrubber services. The liability is presented in "Other accruals" on the Consolidated Balance Sheets. In addition, NIPSCO remeasured the remaining capital lease asset and obligation to reflect the change in estimated remaining minimum lease payments. This remeasurement was a non-cash transaction that had no impact on the Statements of Consolidated Income.

19.Accumulated Other Comprehensive Loss

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

(in millions)	Gains and Losses on Securities(1)				Gains and Losses on Cash Flow Hedges(1)				Pension and OPEB Items(1)				Accumulated Other Comprehensive Loss(1)
Balance as of January 1, 2015	$	0.3			$	(23.6	)		$	(27.3	)		$	(50.6	)
Other comprehensive loss before reclassifications	(0.5		)		(11.0		)		(5.0		)		(16.5		)
Amounts reclassified from accumulated other comprehensive loss	(0.3		)		3.2				2.6				5.5
Net current-period other comprehensive loss	(0.8		)		(7.8		)		(2.4		)		(11.0		)
Allocation of AOCI to noncontrolling interest	—				2.0				—				2.0
Distribution of CPG to shareholders (Refer to Note 3, "Discontinued Operations")	—				13.9				10.6				24.5
Balance as of December 31, 2015	$	(0.5	)		$	(15.5	)		$	(19.1	)		$	(35.1	)
Other comprehensive income before reclassifications	—				7.1				0.5				7.6
Amounts reclassified from accumulated other comprehensive loss	(0.1		)		1.5				1.0				2.4
Net current-period other comprehensive income (loss)	(0.1		)		8.6				1.5				10.0
Balance as of December 31, 2016	$	(0.6	)		$	(6.9	)		$	(17.6	)		$	(25.1	)
Other comprehensive income (loss) before reclassifications	0.6				(24.2		)		1.9				(21.7		)
Amounts reclassified from accumulated other comprehensive loss	0.2				1.7				1.5				3.4
Net current-period other comprehensive income (loss)	0.8				(22.5		)		3.4				(18.3		)
Balance as of December 31, 2017	$	0.2			$	(29.4	)		$	(14.2	)		$	(43.4	)

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

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

20.	Other, Net

Year Ended December 31, (in millions)	2017				2016				2015
Interest Income	$	4.6			$	3.4			$	0.8
AFUDC Equity	12.6				11.6				11.5
Charitable Contributions	(19.9		)		(4.5		)		(4.8		)
Miscellaneous(1)	(0.1		)		(9.0		)		9.9
Total Other, net	$	(2.8	)		$	1.5			$	17.4

(1) Miscellaneous in 2016 primarily consists of a TUA-related charge of $8.6 million to reflect the estimated amount owed to the upgrade sponsors for the portion of the multiplier previously collected for taxes. In 2015, Miscellaneous primarily consisted of TUA income.

21.	Interest Expense, Net

Year Ended December 31, (in millions)	2017				2016				2015
Interest on long-term debt	$	354.8			$	352.3			$	377.5
Interest on short-term borrowings	14.9				9.2				2.2
Debt discount/cost amortization	7.2				7.6				8.7
Accounts receivable securitization fees	2.5				2.3				2.5
Allowance for borrowed funds used and interest capitalized during construction	(6.2		)		(5.6		)		(5.4		)
Debt-based post-in-service carrying charges	(36.4		)		(35.1		)		(21.4		)
Other	16.4				18.8				16.1
Total Interest Expense, net	$	353.2			$	349.5			$	380.2

22.	Segments of Business

At December 31, 2017, NiSource’s operations are divided into two primary reportable segments. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The following table provides information about business segments. NiSource uses operating income as its primary measurement for each of the reported segments and makes decisions on finance, dividends and taxes at the corporate level on a consolidated basis. Segment revenues include intersegment sales to affiliated subsidiaries, which are eliminated in consolidation. Affiliated sales are recognized on the basis of prevailing market, regulated prices or at levels provided for under contractual agreements. Operating income is derived from revenues and expenses directly associated with each segment.

Year Ended December 31, (in millions)	2017				2016				2015
Operating Revenues
Gas Distribution Operations
Unaffiliated	$	3,087.9			$	2,818.2			$	3,068.7
Intersegment	14.2				12.4				0.4
Total	3,102.1				2,830.6				3,069.1
Electric Operations
Unaffiliated	1,785.7				1,660.8				1,573.6
Intersegment	0.8				0.8				0.8
Total	1,786.5				1,661.6				1,574.4
Corporate and Other
Unaffiliated	1.0				13.5				9.5
Intersegment	510.8				413.3				396.4
Total	511.8				426.8				405.9
Eliminations	(525.8		)		(426.5		)		(397.6		)
Consolidated Operating Revenues	$	4,874.6			$	4,492.5			$	4,651.8

Year Ended December 31, (in millions)	2017				2016				2015
Operating Income (Loss)
Gas Distribution Operations	$	545.6			$	574.0			$	555.8
Electric Operations	364.8				291.4				264.4
Corporate and Other	0.2				(7.2		)		(20.3		)
Consolidated Operating Income	$	910.6			$	858.2			$	799.9
Depreciation and Amortization
Gas Distribution Operations	$	269.3			$	252.9			$	232.6
Electric Operations	277.8				274.5				267.7
Corporate and Other	23.2				19.7				24.1
Consolidated Depreciation and Amortization	$	570.3			$	547.1			$	524.4
Assets
Gas Distribution Operations	$	12,048.8			$	11,096.4			$	10,094.5
Electric Operations	5,478.6				5,233.3				5,265.3
Corporate and Other	2,434.3				2,362.2				2,132.7
Consolidated Assets	$	19,961.7			$	18,691.9			$	17,492.5
Capital Expenditures(1)
Gas Distribution Operations	$	1,125.6			$	1,054.4			$	917.0
Electric Operations	592.4				420.6				400.3
Corporate and Other	35.8				15.4				50.2
Consolidated Capital Expenditures	$	1,753.8			$	1,490.4			$	1,367.5

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

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

23.	Quarterly Financial Data (Unaudited)

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

(in millions, except per share data)	First Quarter				Second Quarter(1)				Third Quarter				Fourth Quarter(2)
2017
Operating Revenues	$	1,598.6			$	990.7			$	917.0			$	1,368.3
Operating Income	416.5				124.5				99.6				270.0
Income (Loss) from Continuing Operations	211.3				(44.3		)		14.0				(52.4		)
Loss from Discontinued Operations - net of taxes	—				(0.1		)		—				—
Net Income (Loss)	211.3				(44.4		)		14.0				(52.4		)
Basic Earnings (Loss) Per Share
Continuing Operations	0.65				(0.14		)		0.04				(0.16		)
Discontinued Operations	—				—				—				—
Basic Earnings (Loss) Per Share	$	0.65			$	(0.14	)		$	0.04			$	(0.16	)
Diluted Earnings (Loss) Per Share
Continuing Operations	0.65				(0.14		)		0.04				(0.16		)
Discontinued Operations	—				—				—				—
Diluted Earnings (Loss) Per Share	$	0.65			$	(0.14	)		$	0.04			$	(0.16	)
2016
Operating Revenues	$	1,436.6			$	897.6			$	861.3			$	1,297.0
Operating Income	381.4				138.2				113.7				224.9
Income from Continuing Operations	186.6				29.0				23.7				88.8
Results from Discontinued Operations - net of taxes	—				(0.1		)		3.5				—
Net Income	186.6				28.9				27.2				88.8
Basic Earnings Per Share
Continuing Operations	0.58				0.09				0.07				0.28
Discontinued Operations	—				—				0.01				—
Basic Earnings Per Share	$	0.58			$	0.09			$	0.08			$	0.28
Diluted Earnings Per Share
Continuing Operations	0.58				0.09				0.07				0.27
Discontinued Operations	—				—				0.01				—
Diluted Earnings Per Share	$	0.58			$	0.09			$	0.08			$	0.27

(1)The decrease in income from continuing operations during the second quarter of 2017 relates primarily to a $111.5 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums. See Note 14, "Long-Term Debt," for additional information.

(2)The decrease in income from continuing operations during the fourth quarter of 2017 was due primarily to increased tax expense as a result of the impact of implementing the provisions of the TCJA. See Note 10, "Income Taxes," for additional information.

NISOURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

24.Supplemental Cash Flow Information

The following table provides additional information regarding NiSource’s Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015:

Year Ended December 31, (in millions)	2017				2016				2015
Supplemental Disclosures of Cash Flow Information
Non-cash transactions:
Capital expenditures included in current liabilities	$	173.0			$	125.3			$	121.6
Assets acquired under a capital lease	11.5				4.0				47.5
Schedule of interest and income taxes paid:
Cash paid for interest, net of interest capitalized amounts	$	339.9			$	337.8			$	390.4
Cash paid for income taxes, net of refunds	5.5				8.0				21.3

25. Subsequent Event

Unit 8 Outage at Bailly Generating Station. 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,” for additional information on the planned retirement of Units 7 and 8 at Bailly Generation Station.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NISOURCE INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

Twelve months ended December 31, 2017
					Additions
($ in millions)	Balance Jan. 1, 2017				Charged to Costs and Expenses				Charged to Other Account (1)					Deductions for Purposes for which Reserves were Created				Balance Dec. 31, 2017
Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply:
Reserve for accounts receivable	$	23.3			$	14.8			$	39.1				$	58.9			$	18.3
Reserve for other investments	3.0				—				—					—				3.0
Twelve months ended December 31, 2016
					Additions
($ in millions)	Balance Jan. 1, 2016				Charged to Costs and Expenses				Charged to Other Account (1)					Deductions for Purposes for which Reserves were Created				Balance Dec. 31, 2016
Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply:
Reserve for accounts receivable	$	20.3			$	19.7			$	48.5				$	65.2			$	23.3
Reserve for other investments	3.0				—				—					—				3.0
Twelve months ended December 31, 2015
					Additions
($ in millions)	Balance Jan. 1, 2015				Charged to Costs and Expenses				Charged to Other Account (1)					Deductions for Purposes for which Reserves were Created				Balance Dec. 31, 2015
Reserves Deducted in Consolidated Balance Sheet from Assets to Which They Apply:
Reserve for accounts receivable	$	24.9			$	22.5			$	56.7				$	83.8			$	20.3
Reserve for other investments	3.0				—				—					—				3.0

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

NISOURCE INC.