NiSource (NI) 10-K risk factor changes: FY2018 vs FY2017

The impacts of climate change, natural disasters, acts of [removed: terrorism] [added: terrorism, accidents] or other catastrophic events may disrupt operations and reduce the ability to service customers.

A disruption or failure of natural gas distribution systems, or within electric generation, transmission or distribution systems, in the event of a major hurricane, tornado, terrorist [removed: attack] [added: attack, accident] or other catastrophic event could cause delays in completing sales, providing services, or performing other critical functions.

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

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

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

Although we attempt to maintain adequate defenses to these attacks and [removed: works] [added: work] through industry groups and trade associations to identify common threats and assess our countermeasures, a security breach of our information systems could (i) impact the reliability of our generation, transmission and distribution systems and potentially negatively impact our compliance with certain mandatory reliability standards, (ii) subject us to [added: reputational and other] harm associated with theft or inappropriate release of certain types of information such as system operating information or information, personal or otherwise, relating to our customers or employees, [removed: and/or] (iii) impact our ability to manage our [removed: businesses.][added: businesses, and/or (iv) subject us to legal and regulatory proceedings and claims from third parties, in addition to remediation costs, any of which, in turn, could have a material adverse effect on our businesses, cash flows, financial condition, results of operations and/or prospects.]

Our capital projects and programs subject us to construction risks and natural gas costs and supply [removed: risks.][added: risks, and require numerous permits, approvals and certificates from various governmental agencies.]

NIPSCO also is currently engaged in a number of capital projects, including environmental improvements to its electric generating stations, [removed: as well as] the construction of new transmission [removed: facilities.][added: facilities, and new projects related to renewable energy.]

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

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

If we are unable to successfully attract and retain an appropriately qualified workforce, [added: safety, service reliability, customer satisfaction and] our results of operations could be adversely affected.

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

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

The [removed: Separation] [added: Separation, which] was [added: completed in July 2015, was] conditioned on the receipt by us of a legal opinion to the effect that the distribution of CPG shares to our stockholders is expected to qualify as tax-free under Section 355 of the U.S. Internal Revenue [removed: Code.][added: Code (the "Internal Revenue Code").]

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

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

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

If any difficulties in the [removed: operation] [added: operations] of these [removed: systems] [added: third-party suppliers and service providers, including their systems,] were to occur, they could adversely affect our results of operations, or adversely affect our ability to work with regulators, unions, customers or employees.

Business operations throughout our service territories have been and may continue to be adversely affected by economic events at the national and local level where it operates.

In particular, sales to large industrial customers, such as those in the steel, oil refining, industrial gas and related industries, may be impacted by economic downturns.

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

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

On October 31, 2018, NIPSCO submitted its 2018 Integrated Resource Plan with the IURC setting forth its short- and long-term electric generation plans in an effort to maintain affordability while providing reliable, flexible and cleaner sources of power.

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 preferred option within the Integrated Resource Plan sets forth a schedule to retire R.M. Schahfer Generating Station (Units 14, 15, 17, and 18) by 2023 and Michigan City Generating Station (Unit 12) by 2028.

The current replacement plan includes renewable sources of energy, including wind, solar, and battery storage.

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

NIPSCO’s future success will depend, in part, on its ability to successfully implement its long-term electric generation plans, to offer services that meet customer demands and evolving industry standards, and to recover all, or a significant portion of, any unrecovered investment in obsolete assets.

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

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

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

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

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

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

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

In addition, we depend on electric transmission lines, natural gas pipelines, and other transportation facilities owned and operated by third parties to deliver the electricity and natural gas we sell to wholesale markets, supply natural gas to our gas storage and electric generation facilities, and provide retail energy services to customers.

If transportation is disrupted, or if capacity is inadequate, we may be unable to sell and deliver our gas and electric services to some or all of our customers.

As a result, we may be required to procure additional or alternative electricity and/or natural gas supplies at then-current market rates, which, if recovery of related costs is disallowed, could have a material adverse effect on our businesses, financial condition, cash flows, results of operations and/or prospects.

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

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

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

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

We have significant goodwill and definite-lived intangible assets.

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

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

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

We have tested and will continue to monitor the goodwill of Columbia of Massachusetts for impairment in connection with the Greater Lawrence Incident.

To date,

these tests do not indicate the need for an impairment of the goodwill balance.

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

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

We are subject to a financial covenant under our five-year revolving credit facility, which requires us to maintain a debt to capitalization ratio that does not exceed 70%.

A similar covenant in a 2005 private placement note purchase agreement requires us to maintain a debt to capitalization ratio that does not exceed 75%.

As of December 31, 2018, the ratio was 61.4%.

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

We are subject to taxation by the various taxing authorities at the federal, state and local levels where we do business.

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

For example, the TCJA includes numerous provisions that affect businesses, including changes to U.S. corporate tax rates, business-related exclusions, and deductions and credits.

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

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

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

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

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

[removed: NiSource's] [added: Our] operations are affected by the cost of sales.

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

[removed: ITEM 7.][added: Item 1A.]

For the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] operating income and a reconciliation of net revenues to the most directly comparable GAAP measure, operating income, was as follows:

| Year Ended December 31, (in [removed: millions] [added: millions)] | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2017] [added: 2018] vs. [removed: 2016] [added: 2017] | | | | [removed: 2016] [added: 2017] vs. [removed: 2015] [added: 2016] | | |

| Year Ended December 31, (in millions, except per share amounts) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2017] [added: 2018] vs. [removed: 2016] [added: 2017] | | | | [removed: 2016] [added: 2017] vs. [removed: 2015] [added: 2016] | | |

| Operating Revenues | $ | [removed: 4,874.6] [added: 5,114.5] | | | $ | [removed: 4,492.5] [added: 4,874.6] | | | $ | [removed: 4,651.8] [added: 4,492.5] | | | $ | [removed: 382.1] [added: 239.9] | | | $ | [removed: (159.3] [added: 382.1] | [removed: )] |

| Cost of [removed: Sales] [added: sales] (excluding depreciation and amortization) | [removed: 1,518.7] [added: 1,761.3] | | | | [removed: 1,390.2] [added: 1,518.7] | | | | [removed: 1,643.7] [added: 1,390.2] | | | | [removed: 128.5] [added: 242.6] | | | | [removed: (253.5] [added: 128.5] | | [removed: )] |

| Total Net Revenues | [removed: 3,355.9] [added: 3,353.2] | | | | [removed: 3,102.3] [added: 3,355.9] | | | | [removed: 3,008.1] [added: 3,102.3] | | | | [removed: 253.6] [added: (2.7] | | [added: )] | | [removed: 94.2] [added: 253.6] | | |

| Income Taxes | [removed: 314.5] [added: (180.0] | | [added: )] | | [removed: 182.1] [added: 314.5] | | | | [removed: 141.3] [added: 182.1] | | | | [removed: 132.4] [added: (494.5] | | [added: )] | | [removed: 40.8] [added: 132.4] | | |

| Basic Average Common Shares Outstanding | [removed: 329.4] [added: 356.5] | | | | [removed: 321.8] [added: 329.4] | | | | [removed: 317.7] [added: 321.8] | | | | [removed: 7.6] [added: 27.1] | | | | [removed: 4.1] [added: 7.6] | | |

On a consolidated basis, [removed: NiSource] [added: we] reported [removed: income from continuing operations] [added: a loss to common shareholders] of [removed: $128.6] [added: $65.6] million or [removed: $0.39] [added: $0.18] per basic share for the twelve months ended December 31, [removed: 2017] [added: 2018] compared to [removed: $328.1] [added: net income available to common shareholders of $128.5] million or [removed: $1.02] [added: $0.39] per basic share for the same period in [removed: 2016.][added: 2017.]

For the twelve months ended December 31, [removed: 2017, NiSource] [added: 2018, we] reported operating income of [removed: $910.6] [added: $124.7] million compared to [removed: $858.2] [added: $921.2] million for the same period in [removed: 2016.][added: 2017.]

Other [removed: Income (Deductions)][added: Deductions, Net]

Other [removed: income (deductions) in 2017] [added: deductions, net] reduced income [removed: $467.5] [added: by $355.3] million [added: in 2018] compared to a reduction [added: in income] of [removed: $348.0] [added: $478.2] million in [removed: 2016.][added: 2017.]

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

Refer to “Liquidity and Capital Resources” below and Note 10, "Income Taxes," in the Notes to Consolidated Financial Statements for additional information on income [removed: taxes.][added: taxes and the change in the effective tax rate.]

In [removed: 2017, NiSource] [added: 2018, we] invested approximately [removed: $1.7] [added: $1.8] billion in cash capital expenditures across [removed: its] [added: the] gas and electric utilities.

These expenditures were primarily aimed at furthering the safety and reliability of [removed: the Company's] [added: our] gas distribution system, [added: the Greater Lawrence Incident pipeline replacement,] construction of new electric transmission assets and maintaining [removed: NiSource’s] [added: our] existing electric generation fleet.

[removed: NiSource continues] [added: We continue] to execute on an estimated $30 billion in total projected long-term regulated utility infrastructure investments and [removed: expects] [added: expect] to invest approximately [removed: $1.7] [added: $1.6] to [removed: $1.8] [added: $1.7] billion in capital during [removed: 2018] [added: 2019] to continue to modernize and improve [removed: its] [added: our] system across all seven [removed: states.][added: states of our operating area.]

[removed: As discussed in further detail below in “Liquidity and Capital Resources,” the enactment of the TCJA will have an unfavorable impact on NiSource’s liquidity beginning in 2018; however, NiSource believes that through] [added: Through] income generated from operating activities, amounts available under [removed: its] [added: our] short-term revolving credit facility, commercial paper program, accounts receivable securitization facilities, long-term debt agreements and [removed: NiSource’s] [added: our] ability to access the capital markets, [added: we believe] there is adequate capital available to fund [removed: its] [added: our] operating activities and capital expenditures [added: and the effects of the Greater Lawrence Incident] in [removed: 2018] [added: 2019] and beyond.

At December 31, [removed: 2017] [added: 2018] and [removed: 2016, NiSource] [added: 2017, we] had approximately [removed: $998.9] [added: $974.6] million and [removed: $683.7] [added: $998.9] million, respectively, of net liquidity available, consisting of cash and available capacity under credit facilities.

In [removed: 2017, NiSource] [added: 2018, we] continued to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all seven states of [removed: its] [added: our] operating area.

Refer to Note 8, “Regulatory Matters” and Note 18\-E, "Other Matters," in the Notes to Consolidated Financial Statements for a complete discussion of key regulatory developments that transpired during [removed: 2017.][added: 2018.]

[removed: NiSource’s] [added: Our] operations are divided into two primary reportable segments: Gas Distribution Operations and Electric Operations.

For the years ended December 31, [removed: 2017, 2016] [added: 2018, 2017] and [removed: 2015,] [added: 2016,] operating income and a reconciliation of net revenues to the most directly comparable GAAP measure, operating income, was as follows:

| Year Ended December 31, (in [removed: millions] [added: millions)] | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2017] [added: 2018] vs. [removed: 2016] [added: 2017] | | | | [removed: 2016] [added: 2017] vs. [removed: 2015] [added: 2016] | | |

| Year Ended December 31, (dollars in millions) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2017] [added: 2018] vs. [removed: 2016] [added: 2017] | | | | [removed: 2016] [added: 2017] vs. [removed: 2015] [added: 2016] | | |

| Operating revenues | $ | [removed: 3,102.1] [added: 3,419.5] | | | $ | [removed: 2,830.6] [added: 3,102.1] | | | $ | [removed: 3,069.1] [added: 2,830.6] | | | $ | [removed: 271.5] [added: 317.4] | | | $ | [removed: (238.5] [added: 271.5] | [removed: )] |

| Less: Cost of sales (excluding depreciation and amortization) | [removed: 1,005.0] [added: 1,259.3] | | | | [removed: 895.4] [added: 1,005.0] | | | | [removed: 1,155.5] [added: 895.4] | | | | [removed: 109.6] [added: 254.3] | | | | [removed: (260.1] [added: 109.6] | | [removed: )] |

| Net Revenues | [removed: 2,097.1] [added: 2,160.2] | | | | [removed: 1,935.2] [added: 2,097.1] | | | | [removed: 1,913.6] [added: 1,935.2] | | | | [removed: 161.9] [added: 63.1] | | | | [removed: 21.6] [added: 161.9] | | |

| Depreciation and amortization | [removed: 269.3] [added: 301.0] | | | | [removed: 252.9] [added: 269.3] | | | | [removed: 232.6] [added: 252.9] | | | | [removed: 16.4] [added: 31.7] | | | | [removed: 20.3] [added: 16.4] | | |

| Loss on sale of assets and impairments, net | [removed: 2.8] [added: 0.2] | | | | [removed: —] [added: 2.8] | | | | [removed: 0.8] [added: —] | | | | [removed: 2.8] [added: (2.6] | | [added: )] | | [removed: (0.8] [added: 2.8] | | [removed: )] |

| Other taxes | [removed: 184.1] [added: 205.0] | | | | [removed: 171.1] [added: 184.1] | | | | [removed: 179.1] [added: 171.1] | | | | [removed: 13.0] [added: 20.9] | | | | [removed: (8.0] [added: 13.0] | | [removed: )] |

| Residential | $ | [removed: 2,029.4] [added: 2,248.3] | | | $ | [removed: 1,823.4] [added: 2,029.4] | | | $ | [removed: 2,055.2] [added: 1,823.4] | | | $ | [removed: 206.0] [added: 218.9] | | | $ | [removed: (231.8] [added: 206.0] | [removed: )] |

| Commercial | [removed: 669.4] [added: 753.7] | | | | [removed: 588.1] [added: 669.4] | | | | [removed: 691.4] [added: 588.1] | | | | [removed: 81.3] [added: 84.3] | | | | [removed: (103.3] [added: 81.3] | | [removed: )] |

| Industrial | [removed: 217.5] [added: 228.6] | | | | [removed: 194.3] [added: 217.5] | | | | [removed: 217.6] [added: 194.3] | | | | [removed: 23.2] [added: 11.1] | | | | [removed: (23.3] [added: 23.2] | | [removed: )] |

| Off-System | [removed: 111.8] [added: 92.4] | | | | [removed: 94.4] [added: 111.8] | | | | [removed: 87.3] [added: 94.4] | | | | [removed: 17.4] [added: (19.4] | | [added: )] | | [removed: 7.1] [added: 17.4] | | |

| Other | [removed: 74.0] [added: 96.5] | | | | [removed: 130.4] [added: 74.0] | | | | [removed: 17.6] [added: 130.4] | | | | [removed: (56.4] [added: 22.5] | | [removed: )] | | [removed: 112.8] [added: (56.4] | | [added: )] |

| Total | $ | [removed: 3,102.1] [added: 3,419.5] | | | $ | [removed: 2,830.6] [added: 3,102.1] | | | $ | [removed: 3,069.1] [added: 2,830.6] | | | $ | [removed: 271.5] [added: 317.4] | | | $ | [removed: (238.5] [added: 271.5] | [removed: )] |

Columbia of Massachusetts paid approximately $167 million for the replacement of the entire affected 45-mile cast iron and bare steel pipeline system that delivers gas to those impacted in the Greater Lawrence Incident during 2018.

We estimate this replacement work will cost between $220 million and $230 million in total.

Columbia of Massachusetts has provided notice to its property insurer of the Greater Lawrence Incident and discussions around the claim and recovery have commenced.

The recovery of any capital investment not reimbursed through insurance will be addressed in a future regulatory proceeding.

The outcome of such a proceeding is uncertain.

If at any point Columbia of Massachusetts concludes it is probable that any portion of this capital investment is not recoverable through customer rates, that portion of the capital investment, if estimable, would be immediately charged to earnings.

As discussed in Note 8, "Regulatory Matters," in the Notes to Consolidated Financial Statements, Columbia of Massachusetts withdrew its petition for a base rate revenue increase, resulting in delayed increases in forecasted revenues and cash flows beginning the first quarter of 2019.

Additionally, as discussed in Note 6, "Goodwill and Other Intangible Assets," we concluded the Greater Lawrence Incident was a triggering event requiring a quantitative analysis of goodwill for the Columbia of Massachusetts reporting unit.

While no impairment of the goodwill balance was recorded in 2018, future unfavorable events that transpire at Columbia of Massachusetts could trigger the need for another quantitative analysis and a goodwill impairment loss would be required if it's determined Columbia of Massachusetts fair value is less than its book value.

Refer to Note 18\-C and E, "Legal Proceedings" and "Other Matters," in the Notes to Consolidated Financial Statements, "Summary of Consolidated Financial Results," "Results and Discussion of Segment Operation - Gas Distribution Operations," and "Liquidity and Capital Resources" in this Management's Discussion, and Part I.

"Risk Factors" for additional information related to the Greater Lawrence Incident.

| Operating Income | $ | 124.7 | | | $ | 921.2 | | | $ | 866.1 | | | $ | (796.5 | ) | | $ | 55.1 | |

| Other Operating Expenses | 3,228.5 | | | | 2,434.7 | | | | 2,236.2 | | | | 793.8 | | | | 198.5 | | |

| Operating Income | 124.7 | | | | 921.2 | | | | 866.1 | | | | (796.5 | | ) | | 55.1 | | |

| Total Other Deductions, Net | (355.3 | | ) | | (478.2 | | ) | | (352.5 | | ) | | 122.9 | | | | (125.7 | | ) |

| Net Income (Loss) | (50.6 | | ) | | 128.5 | | | | 331.5 | | | | (179.1 | | ) | | (203.0 | | ) |

| Preferred dividends | (15.0 | | ) | | — | | | | — | | | | (15.0 | | ) | | — | | |

| Net Income (Loss) Available to Common Shareholders | (65.6 | | ) | | 128.5 | | | | 331.5 | | | | (194.1 | | ) | | (203.0 | | ) |

| Basic Earnings (Loss) Per Share | $ | (0.18 | ) | | $ | 0.39 | | | $ | 1.03 | | | $ | (0.57 | ) | | $ | (0.64 | ) |

The decrease in net income during 2018 was primarily due to expenses related to the Greater Lawrence Incident restoration, dilution resulting from preferred stock dividend commitments and other changes in operating income, as discussed below, partially offset by the effects of implementing the TCJA and higher losses on early extinguishment of long-term debt expenses in 2017.

The decreased operating income was primarily due to increased operation and maintenance expenses related to the Greater Lawrence Incident, decreased net revenues resulting from TCJA impacts on revenue and increased depreciation due to capital expenditures placed in service.

These increases were partially offset by higher rates from infrastructure replacement programs and base-rate proceedings, decreased outside service costs and employee and administrative expenses, as well as net favorable effects of year-over-year weather variations, which increased revenue in 2018.

This change is primarily due to lower losses on early extinguishment of long-term debt in 2018 of $66.0 million, an interest rate swap settlement gain in 2018 of $46.2 million and higher actuarial investment returns resulting from pension contributions made in 2017.

These favorable variances were partially offset by charitable contributions of $20.7 million in 2018 related to the Greater Lawrence Incident.

The decrease in income tax expense from 2017 to 2018 is primarily attributable to the decrease in the federal corporate income tax rate, true-ups to tax expense in 2018 to reflect regulatory outcomes associated with excess deferred income taxes, the effect of amortizing the regulatory liability associated with excess deferred income taxes and lower pre-tax income resulting from expenses incurred for the Greater Lawrence Incident.

As discussed in further detail below in “Liquidity and Capital Resources,” the TCJA has and will continue to have an unfavorable impact on our liquidity.

Additionally, expenses paid for the Greater Lawrence Incident are expected to have a short term negative impact on liquidity as recoveries from insurance lag behind our cash outlay.

Liquidity will also be negatively impacted to the extent certain costs associated with the Greater Lawrence Incident are not recovered from insurance.

| Operating Income (Loss) | $ | (254.1 | ) | | $ | 550.1 | | | $ | 569.7 | | | $ | (804.2 | ) | | $ | (19.6 | ) |

| Operation and maintenance | 1,908.1 | | | | 1,090.8 | | | | 941.5 | | | | 817.3 | | | | 149.3 | | |

| Total Operating Expenses | 2,414.3 | | | | 1,547.0 | | | | 1,365.5 | | | | 867.3 | | | | 181.5 | | |

| Operating Income (Loss) | $ | (254.1 | ) | | $ | 550.1 | | | $ | 569.7 | | | $ | (804.2 | ) | | $ | (19.6 | ) |

| • | Higher revenues from the effects of colder weather in 2018 of $37.5 million. |

| • | A revenue reserve of $85.0 million in 2018 resulting from the probable future refund of certain collections from customers as a result of the lower income tax rate from the TCJA. |

| • | Decreased rates from implementation of regulatory outcomes related to the TCJA of $24.7 million. |

| • | Expenses related to third-party claims and other costs following the Greater Lawrence Incident of $864.4 million, net of insurance recoveries recorded. |

| • | Increased depreciation of $29.6 million due to regulatory outcomes of NIPSCO's gas rate case and higher capital expenditures placed in service. |

| • | Increased property taxes of $11.0 million due to higher capital expenditures placed in service and the impact of regulatory-driven property tax deferrals. |

| • | Decreased outside services of $33.2 million primarily due to IT service provider transition and other strategic initiative costs in 2017, lower ongoing IT costs and a temporary shift of resources to the Greater Lawrence Incident restoration. |

| • | Lower employee and administrative expenses of $30.2 million driven by reduced incentive compensation and a temporary shift of resources to the Greater Lawrence Incident restoration. |

NISOURCE INC.

| | |

| --- | --- |

| | |

| Index | Page |

| Executive Summary | [21](#sCD4020CA42175C58843B45FB81E17C37) |

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

| Results and Discussion of Segment Operations | [25](#s5D4595E51BD25F3B9CA5231053288690) |

| Gas Distribution Operations | [26](#s21DB8227736159EEA889869D74344181) |

| Electric Operations | [29](#sEE411FFB88FD5822ADB6C0348CF00C72) |

| [Liquidity and Capital Resources](#s4F9196947CC953BDAC3B4291FDDA7392) | [33](#s4F9196947CC953BDAC3B4291FDDA7392) |

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

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

| [Other Information](#sE99F9C2025A356A797F004B549D792F8) | [38](#sE99F9C2025A356A797F004B549D792F8) |

EXECUTIVE SUMMARY

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) analyzes the financial condition, results of operations and cash flows of NiSource and its subsidiaries.

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

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

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

NiSource is an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are fully regulated natural gas and electric utility companies serving customers in seven states.

NiSource generates substantially all of its operating income through these rate-regulated businesses which are summarized for financial reporting purposes into two primary reportable segments: Gas Distribution Operations and Electric Operations.

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

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

These strategies are intended to improve reliability and safety, enhance customer services and reduce emissions while generating sustainable returns.

Additionally, NiSource continues to pursue regulatory and legislative initiatives that will allow residential customers not currently on NiSource's system to obtain gas service in a cost effective manner.

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

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

| Other Operating Expenses | 2,445.3 | | | | 2,244.1 | | | | 2,208.2 | | | | 201.2 | | | | 35.9 | | |

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

| Total Other Deductions | (467.5 | | ) | | (348.0 | | ) | | (460.0 | | ) | | (119.5 | | ) | | 112.0 | | |

| Income from Continuing Operations | 128.6 | | | | 328.1 | | | | 198.6 | | | | (199.5 | | ) | | 129.5 | | |

| Basic Earnings Per Share from Continuing Operations | $ | 0.39 | | | $ | 1.02 | | | $ | 0.63 | | | $ | (0.63 | ) | | $ | 0.39 | |

The decrease in income from continuing operations during 2017 was due primarily to a charge to tax expense of $161.1 million as a result of implementing the provisions of the TCJA and a loss on early extinguishment of long-term debt of $111.5 million, partially offset by increased operating income, as discussed below.

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

Additionally, operating expenses increased due to higher outside service costs, increased employee and administrative expenses, higher depreciation expense, increased property and payroll taxes and higher environmental expenses.

This change is primarily due to a loss on early extinguishment of long-term debt in 2017.

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

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

The discussion below summarizes significant regulatory developments that transpired during 2017:

Gas Distribution Operations.

The regulatory frameworks applicable to [removed: NiSource’s] [added: our] operations, at both the state and federal levels, continue to evolve.

These changes have had and will continue to have an impact on [removed: NiSource’s] [added: our] operations, structure and profitability.

The on-system services are offered by [removed: NiSource] [added: us] to customers and include products such as the transportation and balancing of gas on the Gas Distribution Operations company system.

Residential usage for the year ended December 31, [removed: 2017 decreased] [added: 2018 increased] primarily due to [removed: warmer] [added: colder] weather in [removed: the Company's] [added: our] operating area compared to the prior year.

[removed: NiSource’s] [added: Our] Gas Distribution Operations’ subsidiaries are involved in programs that provide customers the opportunity to purchase their natural gas requirements from third parties and use [removed: the NiSource] [added: our] Gas Distribution Operations’ subsidiaries for transportation services.

Gas Distribution Operations competes with investor-owned, municipal, and cooperative electric utilities throughout its service areas as well as other regulated and unregulated natural gas intra and interstate pipelines and other alternate fuels, such as propane [removed: and fuel oil.]

A significant portion of [removed: NiSource's] [added: our] operations [removed: is] [added: are] subject to seasonal fluctuations in sales.

[removed: NiSource’s] [added: Our] customer base is broadly diversified, with no single customer accounting for a significant portion of revenues.

As of December 31, [removed: 2017, NiSource] [added: 2018, we] had [removed: 8,175] [added: 8,087] employees of whom [removed: 3,199] [added: 3,154] were subject to collective bargaining agreements.

Collective bargaining agreements for [removed: 189] [added: 1,918] employees are set to expire within one year.

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

[removed: NiSource makes] [added: Additionally, we make] all SEC filings available without charge to the public on [removed: its] [added: our] web site at http://www.nisource.com.

We had total consolidated indebtedness of [removed: $9,002.2] [added: $9,132.6] million outstanding as of December 31, [removed: 2017.][added: 2018.]

The credit rating agencies periodically review our ratings, taking into account factors such as our capital [removed: structure and] [added: structure,] earnings [removed: profile.][added: profile, and, in 2018, the impacts of the TCJA and the Greater Lawrence Incident.]

In [removed: 2017,] [added: March 2018,] Moody’s affirmed [removed: the NiSource] [added: our] senior unsecured rating of Baa2 and [removed: its] [added: our] commercial paper rating of P-2, with stable outlooks.

In [removed: 2017,] [added: June 2018,] Fitch affirmed [removed: the] [added: our and NIPSCO's] long-term issuer default ratings of [removed: NiSource and NIPSCO to] BBB and [removed: affirmed] [added: upgraded] the commercial paper rating [removed: of] [added: to F2 from] F3, with stable outlooks.

A negative rating action could also adversely impact our business relationships with suppliers and operating [removed: partners.][added: partners, who may be less willing to extend credit or offer us similarly favorable terms as secured in the past under such circumstances.]

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

As of December 31, [removed: 2017,] [added: 2018,] the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately [removed: $46.1] [added: $53.8] million.

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

Certain groups may [added: continue to] oppose natural gas delivery and infrastructure investments because of perceived environmental impacts associated with the natural gas supply chain and end use.

Energy conservation, energy efficiency, distributed generation, energy [removed: storage] [added: storage, policies favoring electric heat over gas heat] and other factors may reduce energy demand.

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

We have historically relied on long-term debt [added: and on the issuance of equity securities] to fund a portion of our capital expenditures and repay outstanding debt, and on short-term borrowings to fund a portion of day-to-day business operations.

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

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

[removed: Research] [added: We continue to research, plan for,] and [removed: development activities are ongoing for] [added: implement] new technologies that produce power or reduce power consumption.

Advances in technology [removed: or] [added: and] changes in laws or regulations [removed: could reduce] [added: are reducing] the cost of these or other alternative methods of producing power to a level that is competitive with that of most central station power electric production or result in smaller-scale, more fuel efficient, and/or more cost effective distributed generation.

[removed: In addition, a] [added: A] failure by us to effectively adapt to changes in technology [added: and manage the related costs] could harm our ability to remain competitive in the marketplace for our products, services and [removed: processes.][added: processes and could have a material adverse impact on our results of operations and financial condition.]

As a utility company, we are subject to adverse publicity focused on the reliability of our services, the speed with which we are able to respond effectively to electric outages, natural gas leaks [added: or events] and [added: related accidents and] similar interruptions caused by storm damage or other unanticipated events, as well as our own or third parties' actions or failure to act.

The [removed: imposition of any of the] foregoing [removed: could] [added: may] have [removed: a material] [added: continuing] adverse [removed: effect] [added: effects] on our business, results of operations, cash flow and financial condition.

While we continue to reduce GHG emissions through [removed: electric generation with lower carbon intensity,] priority pipeline replacement, energy efficiency, leak detection, and other programs, [added: and expect to further reduce] GHG emissions [added: through increased use of renewable energy, GHG emissions] are [added: currently] an expected aspect of the electric and natural gas business.

Revised or additional future GHG legislation and/or regulation related to the generation of electricity or the extraction, production, [removed: distribution] [added: distribution, transmission, storage] and end use of natural gas could materially impact our financial position, financial results and cash flows.

Even in instances where legal and regulatory requirements are already known or anticipated, the original cost estimates for environmental capital projects, remediation of past [added: environmental] harm, or [removed: the costs of operating] pollution reduction strategies [removed: or] [added: and] equipment can differ materially from the amount ultimately expended.

Therefore, prevailing economic conditions [added: affecting the demand of our customers] may [added: in turn] affect our financial results.

Our gas distribution activities, as well as generation, transmission, and distribution of electricity, involve a variety of inherent hazards and operating risks, [removed: such as] [added: including, but not limited to,] gas [removed: leaks,] [added: leaks and over-pressurization,] downed power lines, [removed: other incidents, third-party damages, large scale] [added: damage to our infrastructure by third parties,] outages, [removed: and] [added: environmental spills,] mechanical [removed: problems,] [added: problems and other incidents,] which could cause substantial financial [removed: losses.][added: losses, as demonstrated in part by the Greater Lawrence Incident.]

In addition, these [added: hazards and] risks [removed: could] [added: have resulted and may in the future] result in serious injury or loss of life to employees [removed: and] [added: and/or] the general public, significant damage to property, environmental pollution, impairment of our operations, adverse regulatory rulings and reputational harm, which in turn could lead to substantial losses for us.

The location of pipeline facilities, or generation, transmission, substation and distribution facilities near populated areas, including residential areas, commercial business centers and industrial sites, could increase the level of damages resulting from such [removed: events.][added: incidents.]

[removed: These activities] [added: As with the Greater Lawrence Incident, certain incidents have subjected and] may [added: in the future] subject us to litigation or administrative [added: or other legal] proceedings from time to time, [added: both civil and criminal,] which could result in substantial monetary judgments, fines, or penalties against us, [removed: or] be resolved on unfavorable [removed: terms.][added: terms, and require us to incur significant operational expenses.]

The occurrence of [removed: such events] [added: incidents has in certain instances adversely affected and] could [added: in the future] adversely affect our [added: reputation, cash flows,] financial position [removed: and] [added: and/or] results of operations.

Business Strategy

We focus our business strategy on our core, rate-regulated asset-based businesses with most of our operating income generated from the rate-regulated businesses.

Our utilities continue to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all seven states in which we operate.

Our goal is to develop strategies that benefit all stakeholders as we address changing customer conservation patterns, develop more contemporary pricing structures, and embark on long-term investment programs.

These strategies are intended to improve reliability and safety, enhance customer services and reduce emissions while generating sustainable returns.

In its 2018 Integrated Resource Plan submission to the IURC, NIPSCO laid out a plan to retire the R.M. Schahfer Generating Station (Units 14, 15, 17, and 18) by 2023 and Michigan City Generating Station (Unit 12) by 2028.

These units represent 2,080 MW of generating capacity, equal to 72% of NIPSCO’s remaining capacity after the retirement of Bailly Units 7 and 8 in May of 2018.

The current replacement plan includes renewable sources of energy, including wind, solar, and battery storage to be obtained through a combination of NIPSCO ownership and PPAs.

Refer to Note 18-E, "Other Matters," in the Notes to Consolidated Financial Statements for further discussion of these plans.

and fuel oil.

In May 2018, Standard & Poor’s affirmed our BBB+ senior unsecured ratings and affirmed our commercial paper rating of A-2, but changed the outlook on each rating from stable to negative in September 2018 as a result of potential impacts of the Greater Lawrence Incident.

Losing investment grade credit ratings may also result in more restrictive covenants

and reduced flexibility on repayment terms in debt issuances, lower share price and greater stockholder dilution from common equity issuances, in addition to reputational damage within the investment community.

In addition, a rising interest rate environment may lead to higher borrowing costs, which may adversely impact reported earnings, cost of capital and capital holdings.

Rising interest rates and negative market or company events may also result in a decrease in the price of our shares of common stock.

In addition, lower asset returns result in increased expenses.

In addition to our ongoing regulatory proceedings, the recovery of the Greater Lawrence pipeline replacement capital investment will be addressed in a future regulatory proceeding as discussed in Note 18, "Other Commitments and Contingencies - E.

Other Matters” in the Notes to Consolidated Financial Statements.

The outcomes of these proceedings are uncertain.

Failure to adapt to advances in technology and manage the related costs could make us less competitive and negatively impact our results of operations and financial condition.

In addition, customers are increasingly expecting enhanced communications regarding their electric and natural gas services, which, in some cases, may involve additional investments in technology.

New technologies may require us to make significant expenditures to remain competitive and may result in the obsolescence of certain of our operating assets.

Our future success will depend, in part, on our ability to anticipate and successfully adapt to technological changes, to offer services that meet customer demands and evolving industry standards, and to recover all, or a significant portion of, any unrecovered investment in obsolete assets.

The Greater Lawrence Incident has had and may have an additional material adverse impact on our financial condition, results of operations and cash flows.

In connection with the Greater Lawrence Incident, we have incurred and will incur various costs and expenses as set forth

in Note 18 "Other Commitments and Contingencies - C.

Legal Proceedings," and " - E.

Other Matters" in the Notes to Consolidated Financial Statements.

As more information becomes known, including information resulting from the NTSB investigation, management's estimates and assumptions regarding the costs and expenses to be incurred and the financial impact of the Greater Lawrence Incident may change.

A change in management’s estimates or assumptions could result in an adjustment that would have a material impact on our financial condition, results of operations and cash flows during the period in which such change occurred.

In addition, we are unable to predict the timing and amount of insurance recoveries.

Total expenses related to the incident have exceeded the total amount of liability insurance coverage available under our policies.

In addition, there may be certain types of damages, expenses or claimed costs, such as fines or penalties, that may be excluded under the policies.

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

We may also incur additional costs associated with the Greater Lawrence Incident, beyond the amount currently anticipated, in connection with investigations by regulators, including the NTSB and Massachusetts DPU, as well as civil litigations.

Further, state or federal legislation may be enacted that would require us to incur additional costs by mandating various changes, including changes to our operating practice standards for natural gas distribution operations and safety.

If we are unable to recover the capital cost of the gas pipeline replacement in the impacted area or we incur a material amount of other costs that we are unable to recover through rates or offset through operational or other cost savings, our

financial condition, results of operations, and cash flows could be materially and adversely affected.

Further, if it is determined that we did not comply with applicable statutes, regulations, rules, tariffs, or orders in connection with the Greater Lawrence Incident or in connection with the operations or maintenance of our natural gas system, and we are ordered to pay a material amount in customer refunds, penalties, or other amounts, our financial condition, results of operations, and cash flows could be materially and adversely affected.

Our gas distribution activities, as well as generation, transmission and distribution of electricity, involve a variety of inherent hazards and operating risks.

The public may read and copy any materials that NiSource files with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.

The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

The SEC also maintains an Internet site that contains reports and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

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

Failure to adapt to advances in technology could make us less competitive.

Business operations throughout our service territories have been and may continue to be adversely affected by economic events at the national and local level where it operates.

In particular, sales to large industrial customers, such as those in the steel, oil refining, industrial gas and related industries, may be impacted by economic downturns.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In addition, we depend on electric transmission lines, natural gas pipelines, and other transportation facilities owned and operated by third parties to deliver the electricity and natural gas we sell to wholesale markets, supply natural gas to our gas storage and electric generation facilities, and provide retail energy services to customers.

If transportation is disrupted, or if capacity is inadequate, we may be unable to sell and deliver our gas and electric services to some or all of our customers.

As a result, we may be required to procure additional or alternative electricity and/or natural gas supplies at then-current market rates, which, if disallowed, could have a material adverse effect on our businesses, financial condition, cash flows, results of operations and/or prospects.

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

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

We monitor our credit risk exposure by obtaining credit reports and updated financial information for customers and suppliers, and by evaluating the financial status of our banking partners and other counterparties by reference to market-based metrics such as credit default swap pricing levels, and to traditional

credit ratings provided by the major credit rating agencies.

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

We have significant goodwill and definite-lived intangible assets.

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

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

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

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

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

We are subject to a financial covenant under our five-year revolving credit facility, which requires us to maintain a debt to capitalization ratio that does not exceed 70%.

A similar covenant in a 2005 private placement note purchase agreement requires us to maintain a debt to capitalization ratio that does not exceed 75%.

As of December 31, 2017, the ratio was 67.6%.

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

For a description of our legal proceedings, see Note 18\-C "Legal Proceedings" in the Notes to Consolidated Financial Statements.

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.

For the fiscal year ended December 31, [removed: 2017][added: 2018]

Indicate by check mark whether the registrant has submitted electronically [removed: and posted on its corporate Website, if any,] every Interactive Data File required to be submitted [removed: and posted] pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit [removed: and post] such files).

The aggregate market value of the registrant's common stock, par value $0.01 per share (the "Common Stock") held by non-affiliates was approximately [removed: $8,237,384,461] [added: $9,506,346,286] based upon the June [removed: 30, 2017,] [added: 29, 2018,] closing price of [removed: $25.36] [added: $26.28] on the New York Stock Exchange.

There were [removed: 337,410,827] [added: 372,494,365] shares of Common Stock outstanding as of February 12, [removed: 2018.][added: 2019.]

Part III of this report incorporates by reference specific portions of the Registrant’s Notice of Annual Meeting and Proxy Statement relating to the Annual Meeting of Stockholders to be held on May [removed: 8, 2018.][added: 7, 2019.]

| [Defined [removed: Terms](#s5BC5E41710E857C4BB251CA3A86D742C)] [added: Terms](#sC5F1E3B8F50554F5833DA4B1BB75E545)] | | [removed: [3](#s5BC5E41710E857C4BB251CA3A86D742C)] [added: [3](#sC5F1E3B8F50554F5833DA4B1BB75E545)] |

| Item 1. | [removed: [Business](#sDB130529E74557B18DD490F2732F6CDC)] [added: [Business](#sE68DA678B8B85115928C6A966B656BC9)] | [removed: [6](#sDB130529E74557B18DD490F2732F6CDC)] [added: [6](#sE68DA678B8B85115928C6A966B656BC9)] |

| Item 1A. | [Risk [removed: Factors](#sF094BF3577AD5A778DC508EA10174A18)] [added: Factors](#sDAC25B8F9B6B56FCA89FF16331A46827)] | [removed: [9](#sF094BF3577AD5A778DC508EA10174A18)] [added: [9](#sDAC25B8F9B6B56FCA89FF16331A46827)] |

| Item 1B. | [Unresolved Staff [removed: Comments](#s328C2EFC70425C6B8748F5EE57F03230)] [added: Comments](#s078237C30CFA597BAD60E08F82EC2EF6)] | [removed: [16](#s328C2EFC70425C6B8748F5EE57F03230)] [added: [19](#s078237C30CFA597BAD60E08F82EC2EF6)] |

| Item 2. | [removed: [Properties](#s81207651C88356B7A9423ABD72C6E867)] [added: [Properties](#s26D3DAED71965AE6BACD26CE6A796C65)] | [removed: [16](#s81207651C88356B7A9423ABD72C6E867)] [added: [19](#s26D3DAED71965AE6BACD26CE6A796C65)] |

| Item 3. | [Legal [removed: Proceedings](#s5AD586608EE6561891CFB9E38DDEC436)] [added: Proceedings](#s69E5A556450A5AF1842982157BDAA82D)] | [removed: [16](#s5AD586608EE6561891CFB9E38DDEC436)] [added: [19](#s69E5A556450A5AF1842982157BDAA82D)] |

| Item 4. | [Mine Safety [removed: Disclosures](#s5AD586608EE6561891CFB9E38DDEC436)] [added: Disclosures](#s69E5A556450A5AF1842982157BDAA82D)] | [removed: [16](#s5AD586608EE6561891CFB9E38DDEC436)] [added: [19](#s69E5A556450A5AF1842982157BDAA82D)] |

| [Supplemental Item. Executive Officers of the [removed: Registrant](#s7C4928140E5050619C6D94828D0681D8)] [added: Registrant](#s70E700A6A6305A4A9FCDA452CE1177CE)] | | [removed: [17](#s7C4928140E5050619C6D94828D0681D8)] [added: [20](#s70E700A6A6305A4A9FCDA452CE1177CE)] |

| Item 5. | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s3D90D7E3230151E494DF1310C1F93879)] [added: Securities](#s6E01A250BA7152D9B35DDE10107B0A55)] | [removed: [18](#s3D90D7E3230151E494DF1310C1F93879)] [added: [21](#s6E01A250BA7152D9B35DDE10107B0A55)] |

| Item 6. | [Selected Financial [removed: Data](#s5C1906F50A6552BCB45293AB9C79601C)] [added: Data](#sD110E0EFAE505463AC50E1BCD38AED7C)] | [removed: [20](#s5C1906F50A6552BCB45293AB9C79601C)] [added: [23](#sD110E0EFAE505463AC50E1BCD38AED7C)] |

| Item 7. | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sDC8FC4A94BB9542AA7FF168A98AC7B1F)] [added: Operations](#sFF20F4F441B5511D8B7B07200029DB82)] | [removed: [21](#sDC8FC4A94BB9542AA7FF168A98AC7B1F)] [added: [25](#sFF20F4F441B5511D8B7B07200029DB82)] |

| Item 7A. | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#s49D98822FE8359CAB8EBFA6B0129AC6A)] [added: Risk](#s2BFF6A43162F566C9BAA4D704A849C7D)] | [removed: [40](#s49D98822FE8359CAB8EBFA6B0129AC6A)] [added: [44](#s2BFF6A43162F566C9BAA4D704A849C7D)] |

| Item 8. | [Financial Statements and Supplementary [removed: Data](#s3C02F9C73FAE517987405E12BC44A6DF)] [added: Data](#s68048D51042A59D0AA0118B2DE771087)] | [removed: [41](#s3C02F9C73FAE517987405E12BC44A6DF)] [added: [45](#s68048D51042A59D0AA0118B2DE771087)] |

| Item 9. | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#sC93AB2EF8F5F542B910B45505C352C31)] [added: Disclosure](#sF8C58F986E5C52398A6E53E9559DEF6F)] | [removed: [102](#sC93AB2EF8F5F542B910B45505C352C31)] [added: [115](#sF8C58F986E5C52398A6E53E9559DEF6F)] |

| Item 9A. | [Controls and [removed: Procedures](#sD5E214C30D80577782B35EB55A1C50D8)] [added: Procedures](#s72A8E78043505B34A8106C8EF9E6FC36)] | [removed: [102](#sD5E214C30D80577782B35EB55A1C50D8)] [added: [115](#s72A8E78043505B34A8106C8EF9E6FC36)] |

| Item 9B. | [Other [removed: Information](#sEAF586E5FD3B5EBD83A178024DDFFEBE)] [added: Information](#s28200F5B367A5D7A95C1B37992EAEFB0)] | [removed: [102](#sEAF586E5FD3B5EBD83A178024DDFFEBE)] [added: [115](#s28200F5B367A5D7A95C1B37992EAEFB0)] |

| [Part [removed: III](#s5101147348C250CFB7EF8154A9B04820)] [added: III](#s7F224E1F9AC156328F39B72EC1B3E0D6)] | | |

| Item 10. | [Directors, Executive Officers and Corporate [removed: Governance](#s5101147348C250CFB7EF8154A9B04820)] [added: Governance](#s7F224E1F9AC156328F39B72EC1B3E0D6)] | [removed: [103](#s5101147348C250CFB7EF8154A9B04820)] [added: [116](#s7F224E1F9AC156328F39B72EC1B3E0D6)] |

| Item 11. | [Executive [removed: Compensation](#sB23D3B5B61B5598993E2C1B42A7A6BF9)] [added: Compensation](#s2F9AD443C8AB5ABFA32B1B7D817DC806)] | [removed: [103](#sB23D3B5B61B5598993E2C1B42A7A6BF9)] [added: [116](#s2F9AD443C8AB5ABFA32B1B7D817DC806)] |

| Item 12. | [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder [removed: Matters](#s8F68BC4E5DD3538B8BEEA4191EE874C6)] [added: Matters](#s34A81B1730C6579E8AC06B7C761FDED3)] | [removed: [103](#s8F68BC4E5DD3538B8BEEA4191EE874C6)] [added: [116](#s34A81B1730C6579E8AC06B7C761FDED3)] |

| Item 13. | [Certain Relationships and Related Transactions, and Director [removed: Independence](#s7B81CFC225755D1EA2EFF03333C51595)] [added: Independence](#s17FC278A66FB512B9BB9CB35BC4B2297)] | [removed: [103](#s7B81CFC225755D1EA2EFF03333C51595)] [added: [116](#s17FC278A66FB512B9BB9CB35BC4B2297)] |

| Item 14. | [Principal Accounting Fees and [removed: Services](#sAA79D9CB4EA2579199BD21443840C11E)] [added: Services](#s20A431861CEB5D1FAC92C23A3A8EA3F5)] | [removed: [103](#sAA79D9CB4EA2579199BD21443840C11E)] [added: [116](#s20A431861CEB5D1FAC92C23A3A8EA3F5)] |

| Item 15. | [Exhibits, Financial Statement [removed: Schedules](#sC2C9862E5BDF59CB9A9B63E9D3DB9553)] [added: Schedules](#sB8646D2E6706566AA5B47877E8A6C7E4)] | [removed: [104](#sC2C9862E5BDF59CB9A9B63E9D3DB9553)] [added: [117](#sB8646D2E6706566AA5B47877E8A6C7E4)] |

| Capital Markets [added: (former subsidiary)] | | NiSource Capital Markets, Inc. |

| Columbia [added: (former subsidiary)] | | Columbia Energy Group |

| CPG [added: (former subsidiary)] | | Columbia Pipeline Group, Inc. |

| NiSource [added: ("we," "us" or "our")] | | NiSource Inc. |

| NiSource Finance [added: (former subsidiary)] | | NiSource Finance Corporation |

| EGUs | | Electric [removed: utility steam generating unit] [added: Utility Steam Generating Units] |

| GHG | | Greenhouse [removed: gases] [added: gas] |

| Separation | | The separation of [removed: NiSource's] [added: our] natural gas pipeline, midstream and storage business from [removed: NiSource's] [added: our] natural gas and electric utility business accomplished through [removed: the] [added: a] pro rata distribution [removed: by NiSource] to holders of [removed: its] [added: our] outstanding common stock of all the outstanding shares of common stock of CPG. The separation was completed on July 1, 2015. |

These forward-looking statements include, but are not limited to, statements concerning [removed: NiSource’s] [added: our] plans, strategies, objectives, expected performance, expenditures, recovery of expenditures through rates, stated on either a consolidated or segment basis, and any and all underlying assumptions and other statements that are other than statements of historical fact.

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

[removed: NiSource undertakes] [added: We undertake] no obligation to, and expressly disclaims any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to the future results over time or otherwise, except as required by law.

NiSource Inc. is an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are fully regulated natural gas and electric utility companies serving approximately [removed: 3.9] [added: 4.0] million customers in seven states.

10-K 1 ni-20181231x10k.htm 10-K

| [Part I](#sBFAFB13BB2805861A06BCF0C963F9453) | | |

| [Part II](#s6E01A250BA7152D9B35DDE10107B0A55) | | |

| [Part IV](#sB8646D2E6706566AA5B47877E8A6C7E4) | | |

| [Signatures](#s1E51FA8E9A4550E1BED1E65B1DB664E7) | | [122](#s1E51FA8E9A4550E1BED1E65B1DB664E7) |

| ACE | | Affordable clean energy |

| AMR | | Automatic meter reading |

| BTA | | Build-transfer agreement |

| CAP | | Compliance Assurance Process |

| DSIC | | Distribution System Investment Charge |

| FMCA | | Federally Mandated Cost Adjustment |

| IRIS | | Infrastructure Replacement and Improvement Surcharge |

| LIBOR | | London inter-bank offered rate |

| NTSB | | National Transportation Safety Board |

| PPA | | Purchase plan agreement |

| PTC | | Production Tax Credits |

| ROU | | Right of use |

| SAB | | Staff accounting bulletin |

| SAVE | | Steps to Advance Virginia's Energy Plan |

| STRIDE | | Strategic Infrastructure Development and Enhancement |

| WCE | | Whiting Clean Energy |

On September 13, 2018, a series of fires and explosions occurred in Lawrence, Andover and North Andover, Massachusetts related to the delivery of natural gas by Columbia of Massachusetts (referred to herein as the “Greater Lawrence Incident”).

The Greater Lawrence Incident resulted in one fatality and a number of injuries, damaged multiple homes and businesses, and caused the temporary evacuation of significant portions of each municipality.

The Massachusetts Governor’s Office declared a state of emergency, authorizing the Massachusetts DPU to order another utility company to coordinate the restoration of utility services in Lawrence, Andover and North Andover.

The incident resulted in the interruption of gas for approximately 7,500 gas meters, the majority of which serve residences and of which approximately 700 serve businesses, and the interruption of other utility service more broadly in the area.

Columbia of Massachusetts has replaced the cast iron and bare steel gas pipeline system in the affected area and restored service to nearly all of the gas meters.

Refer to Note 18\-C.

"Legal Proceedings," and E.

"Other Matters," in the Notes to Consolidated Financial Statements for more information.

The two operating facilities have a generating capacity of 2,080 MW.

In May 2018, NIPSCO completed the retirement of two coal-burning units (Units 7 and 8) at Bailly Generating Station, located in Chesterton, IN.

These units had a generating capacity of approximately 460 MW.

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

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

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

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

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

| CPPL | | Columbia Pipeline Partners LP |

| CPRC | | Columbia Gas of Pennsylvania Receivables Corporation |

| Columbia OpCo | | CPG OpCo LP |

| ECR | | Environmental Cost Recovery |

| IBM | | International Business Machines Corp. |

| IPO | | Initial Public Offering |

| MPSC | | Maryland Public Service Commission |

| NAAQS | | National Ambient Air Quality Standards |

| OCC | | Ohio Consumers' Counsel |

| PATH | | Protecting Americans from Tax Hikes Act of 2015 |

| PNC | | PNC Bank N.A. |

| ppb | | Parts per billion |

| RDAF | | Revenue decoupling adjustment factor |

| TUAs | | Transmission Upgrade Agreements |

On July 1, 2015, NiSource completed the Separation of CPG from NiSource.

CPG's operations consisted of all of NiSource's Columbia Pipeline Group Operations segment prior to the Separation.

Following the Separation, NiSource retained no ownership interest in CPG.

The three operating facilities have a net capability of 2,540 mw.

Business Strategy

NiSource focuses its business strategy on its core, rate-regulated asset-based businesses with most of its operating income generated from the rate-regulated businesses.

NiSource’s utilities continue to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all seven states in which it operates.

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

These strategies are intended to improve reliability and safety, enhance customer services and reduce emissions while generating sustainable returns.

Discussed below are the principal properties held by [removed: NiSource] [added: us] and [removed: its] [added: our] subsidiaries as of December 31, [removed: 2017.][added: 2018.]

[removed: NiSource owns] [added: We own] the Southlake Complex, [removed: its] [added: our] 325,000 square foot headquarters building located in Merrillville, Indiana.

[removed: The] [added: Our] principal properties [removed: of NiSource] and [removed: its] [added: our] subsidiaries [added: principal properties] are owned free from encumbrances, subject to minor exceptions, none of which are of such a nature as to impair substantially the usefulness of such properties.

Many of [removed: NiSource's] [added: our] subsidiary offices in various communities served are occupied under leases.

It is [removed: NiSource’s] [added: our] practice to regularly pay such amounts, as and when due, unless contested in good faith.

In general, the electric lines, gas pipelines and related facilities are located on land not owned by [removed: NiSource and its] [added: us or our] subsidiaries, but are covered by necessary consents of various governmental authorities or by appropriate rights obtained from owners of private property.

[removed: NiSource does] [added: We do] not, however, generally have specific easements from the owners of the property adjacent to public highways over, upon or under which [removed: its] [added: our] electric lines and gas distribution pipelines are located.

At the time each of the principal properties [removed: was] [added: were] purchased a title search was made.

The following is a list of the Executive Officers of the Registrant, including their names, ages, offices held and other recent business experience, as of February 1, [removed: 2018.][added: 2019.]

| Joseph Hamrock | | [removed: 54] [added: 55] | | | President and Chief Executive Officer of NiSource since July 1, 2015. |

| | | | | | President and Chief Operating Officer of American Electric Power [removed: Company -] Ohio [removed: (electric utility company)] [added: Company] from [removed: 2008] [added: May 2012] to May [removed: 2012.] [added: 2016.] |

| Donald E. Brown | | [removed: 46] [added: 47] | | | Executive Vice President and Chief Financial Officer of NiSource since June 2016. |

| Peter T. Disser | | [removed: 49] [added: 50] | | | Vice President, [added: Internal] Audit of NiSource since [removed: November 2017.] [added: January 2019.] |

| | | | | | [removed: Senior] Vice President, [removed: Capital Execution] [added: Audit] of NiSource from July 2015 to [removed: May] [added: November] 2017. |

| Carrie J. Hightman | | [removed: 60] [added: 61] | | | Executive Vice President and Chief Legal Officer of NiSource since 2007. |

| | | | | | Executive [removed: Vice President] [added: President, Gas Segment] and Chief [removed: Regulatory] [added: Customer] Officer of NiSource from [removed: July 2015 to] May [removed: 2016.] [added: 2017 to September 2018.] |

| Violet G. Sistovaris | | [removed: 56] [added: 57] | | | Executive Vice President and President, NIPSCO since October 2016. |

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

| | | | | | Chief Operating Officer of NiSource Corporate Services from September 2018 through December 2018. |

| | | | | | Vice President, Audit of NiSource from November 2017 to September 2018. |

| Suzanne K. Surface | | 54 | | | Chief Services Officer of NiSource since January 2019. |

| | | | | | Vice President, Audit of NiSource from September 2018 through December 2018. |

| | | | | | Vice President, Transformation Office of NiSource from August 2018 to September 2018. |

| | | | | | Vice President, Corporate Services Customer Value of NiSource Corporate Services from November 2017 to August 2018. |

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

| Pablo A. Vegas | | 45 | | | Executive Vice President and President, Gas Utilities since January 2019. |

| | | | | | Executive Vice President and Chief Restoration Officer of NiSource Corporate Services since September 2018 through December 2018. |

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

| | | | | | Senior Vice President and Chief Operating Officer of NIPSCO from 2010 to July 2015. |

| Carl W. Levander | | 56 | | | Executive Vice President, Regulatory Policy and Corporate Affairs of NiSource since May 2016. |

| | | | | | President of Columbia of Virginia from 2006 to July 2015. |

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

| | | | | | President and Chief Operating Officer of American Electric Power Company from May 2012 to May 2016. |

| Teresa M. Smith | | 54 | | | Vice President of Human Resources for NiSource Corporate Services Company since 2010. |

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

At its [removed: January 26, 2018,] [added: February 1, 2019] meeting, the Board declared a quarterly common dividend of [removed: $0.195] [added: $0.20] per share, payable on February 20, [removed: 2018] [added: 2019] to holders of record on February [removed: 9, 2018.][added: 11, 2019.]

As of February 12, [removed: 2018,] [added: 2019,] NiSource had [removed: 21,177] [added: 20,064] common stockholders of record and [removed: 337,410,827] [added: 372,494,365] shares outstanding.

[removed: ][added: ]

Holders of shares of NiSource’s common stock are entitled to receive dividends if and when declared by NiSource’s Board out of funds legally available, subject to the prior dividend rights of holders of our preferred stock or the depositary shares representing such preferred stock outstanding, and if full dividends have not been declared and paid on all outstanding shares of preferred stock in any dividend period, no dividend may be declared or paid or set aside for payment on our common stock.

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

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

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

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

| | High | | | | Low | | | | Dividend Per Share | | | | High | | | | Low | | | | Dividend Per Share | | |

| First Quarter | $ | 24.29 | | | $ | 21.65 | | | $ | 0.175 | | | $ | 23.74 | | | $ | 19.05 | | | $ | 0.155 | |

| Second Quarter | 26.56 | | | | 23.53 | | | | 0.175 | | | | 26.53 | | | | 21.97 | | | | 0.155 | | |

| Third Quarter | 27.29 | | | | 24.96 | | | | 0.175 | | | | 26.94 | | | | 23.20 | | | | 0.165 | | |

| Fourth Quarter | 27.76 | | | | 24.63 | | | | 0.175 | | | | 24.06 | | | | 21.17 | | | | 0.165 | | |

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

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

The selected data presented below as of and for the five years ended December 31, [removed: 2017,] [added: 2018,] are derived from [removed: the] [added: our] Consolidated Financial [removed: Statements of NiSource.][added: Statements.]

| Year Ended December 31, (dollars in millions except per share data) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Total Operating Revenues | [removed: 4,874.6] [added: $] | [added: 5,114.5] | | | [removed: 4,492.5] [added: $] | [added: 4,874.6] | | | [removed: 4,651.8] [added: $] | [added: 4,492.5] | | | [removed: 5,272.4] [added: $] | [added: 4,651.8] | | | [removed: 4,625.4] [added: $] | [added: 5,272.4] | |

| Total Assets | [removed: 19,961.7] [added: 21,804.0] | | | | [removed: 18,691.9] [added: 19,961.7] | | | | [removed: 17,492.5] [added: 18,691.9] | | | | [removed: 24,589.8] [added: 17,492.5] | | | | [removed: 22,473.6] [added: 24,589.8] | | |

| [removed: Common stockholders’] [added: Stockholders’] equity | [removed: 4,320.1] [added: 5,750.9] | | | | [removed: 4,071.2] [added: 4,320.1] | | | | [removed: 3,843.5] [added: 4,071.2] | | | | [removed: 6,175.3] [added: 3,843.5] | | | | [removed: 5,886.6] [added: 6,175.3] | | |

| Long-term debt, excluding amounts due within one year | [removed: 7,512.2] [added: 7,105.4] | | | | [removed: 6,058.2] [added: 7,512.2] | | | | [removed: 5,948.5] [added: 6,058.2] | | | | [removed: 8,151.5] [added: 5,948.5] | | | | [removed: 7,588.2] [added: 8,151.5] | | |

| Total Capitalization | $ | [removed: 11,832.3] [added: 12,856.3] | | | $ | [removed: 10,129.4] [added: 11,832.3] | | | $ | [removed: 9,792.0] [added: 10,129.4] | | | $ | [removed: 14,326.8] [added: 9,792.0] | | | $ | [removed: 13,474.8] [added: 14,326.8] | |

| Basic Earnings [added: (Loss)] Per Share [removed: from Continuing Operations] ($) | $ | [removed: 0.39] [added: (0.18] | [added: )] | | $ | [removed: 1.02] [added: 0.39] | | | $ | [removed: 0.63] [added: 1.02] | | | $ | [removed: 0.81] [added: 0.63] | | | $ | [removed: 0.71] [added: 0.81] | |

| Diluted Earnings [added: (Loss)] Per Share [removed: from Continuing Operations] ($) | $ | [removed: 0.39] [added: (0.18] | [added: )] | | $ | [removed: 1.01] [added: 0.39] | | | $ | [removed: 0.63] [added: 1.01] | | | $ | [removed: 0.81] [added: 0.63] | | | $ | [removed: 0.71] [added: 0.81] | |

| Dividends declared per [added: common] share ($) | $ | [removed: 0.70] [added: 0.78] | | | $ | [removed: 0.64] [added: 0.70] | | | $ | [removed: 0.83] [added: 0.64] | | | $ | [removed: 1.02] [added: 0.83] | | | $ | [removed: 0.98] [added: 1.02] | |

| [removed: Shares] [added: Common shares] outstanding at the end of the year (in thousands) | [removed: 337,016] [added: 372,363] | | | | [removed: 323,160] [added: 337,016] | | | | [removed: 319,110] [added: 323,160] | | | | [removed: 316,037] [added: 319,110] | | | | [removed: 313,676] [added: 316,037] | | |

| Number of common stockholders | [removed: 21,009] [added: 19,889] | | | | [removed: 22,272] [added: 21,009] | | | | [removed: 30,190] [added: 22,272] | | | | [removed: 25,233] [added: 30,190] | | | | [removed: 26,965] [added: 25,233] | | |

| Capital expenditures | $ | [removed: 1,753.8] [added: 1,814.6] | | | $ | [removed: 1,490.4] [added: 1,753.8] | | | $ | [removed: 1,367.5] [added: 1,490.4] | | | $ | [removed: 1,339.6] [added: 1,367.5] | | | $ | [removed: 1,248.5] [added: 1,339.6] | |

| Number of employees | [removed: 8,175] [added: 8,087] | | | | [removed: 8,007] [added: 8,175] | | | | [removed: 7,596] [added: 8,007] | | | | [removed: 8,982] [added: 7,596] | | | | [removed: 8,477] [added: 8,982] | | |

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

| • | During the second quarter of 2017, [removed: NiSource Finance] [added: we] executed a tender offer for $990.7 million of outstanding notes consisting of a combination of [removed: its] [added: our] 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, [removed: NiSource Finance] [added: we] recorded a $111.5 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums. |

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

| Net Income (Loss) Available to Common Shareholders | (65.6 | | ) | | 128.5 | | | | 331.5 | | | | 198.6 | | | | 256.2 | | |

| Dividends declared per Series A preferred share ($) | $ | 28.88 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |

| • | In the second quarter of 2018, we completed the sale of 24,964,163 shares of $0.01 par value common stock at a price of $24.28 per share in a private placement to selected institutional and accredited investors and issued 400,000 shares of Series A preferred stock resulting in $400.0 million of gross proceeds or $393.9 million of net proceeds, after deducting commissions and sales expenses. Additionally, in the fourth quarter of 2018 we issued 20,000 shares of Series B preferred stock resulting in $500.0 million of gross proceeds or $486.1 million of net proceeds, after deducting commissions and sales expenses. |

| • | During 2018 we recorded a loss of approximately $757 million for third-party claims and approximately $266 million for other incident-related expenses in connection with the Greater Lawrence Incident. Columbia of Massachusetts recorded $135 million for insurance recoveries through December 31, 2018. The amounts set forth above do not include the estimated capital cost of the pipeline replacement, which is set forth in " - E. Other Matters - Greater Lawrence Pipeline Replacement." |

| • | During the second quarter of 2018 we executed a tender offer for $209.0 million of outstanding notes consisting of a combination of our 6.80% notes due 2019, 5.45% notes due 2020 and 6.125% notes due 2022. During the third quarter of 2018, we redeemed $551.1 million of outstanding notes representing the remainder of our 6.80% notes due 2019, 5.45% notes due 2020 and 6.125% notes due 2022. In conjunction with our debt retired, we recorded a $45.5 million loss on early extinguishment of long-term debt primarily attributable to early redemption premiums. |

| | |

| --- | --- |

| | |

| --- | --- |

ITEM 6.

SELECTED FINANCIAL DATA

NISOURCE INC.

retired, we recorded a $97.2 million loss on early extinguishment of long-term debt, primarily attributable to early redemption premiums.

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NISOURCE INC.

| | |

| --- | --- |

| | |

| Index | Page |

| Executive Summary | [25](#s7B1A912E3621506B85032588D16F9901) |

| Summary of Consolidated Financial Results | [26](#s5D7C3A256E7C522B9D38508ABBED5C04) |

| Results and Discussion of Segment Operations | [29](#s1F77E68208C85A4FBDA3D7276C531EF3) |

| Gas Distribution Operations | [30](#sEBEA0E489ADD5FCBB737A11F54446116) |

| Electric Operations | [33](#s1FCC0C49A9EC5B508A879D7722BE134E) |

| [Liquidity and Capital Resources](#sEDE5F046EDD95ECF98D9D13E570C9909) | [37](#sEDE5F046EDD95ECF98D9D13E570C9909) |

| [Off Balance Sheet](#s5D7ACE4B3E955F2BBDB442F0FC6C4690) Arrangements | [40](#s5D7ACE4B3E955F2BBDB442F0FC6C4690) |

| [Market Risk Disclosures](#s0D937876E36A5234A30E2D5F0C40DE76) | [41](#s0D937876E36A5234A30E2D5F0C40DE76) |

| [Other Information](#s47CADB26F3285C35B526EB0EDB6E86B0) | [42](#s47CADB26F3285C35B526EB0EDB6E86B0) |

EXECUTIVE SUMMARY

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) analyzes our financial condition, results of operations and cash flows and those of our subsidiaries.

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

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

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

We are an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are fully regulated natural gas and electric utility companies serving customers in seven states.

We generate substantially all of our operating income through these rate-regulated businesses which are summarized for financial reporting purposes into two primary reportable segments: Gas Distribution Operations and Electric Operations.

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

Our goal is to develop strategies that benefit all stakeholders as we address changing customer conservation patterns, develops more contemporary pricing structures and embarks on long-term infrastructure investment programs.

These strategies are intended to improve reliability and safety, enhance customer services and reduce emissions while generating sustainable returns.

Additionally, we continue to pursue regulatory and legislative initiatives that will allow residential customers not currently on our system to obtain gas service in a cost effective manner.

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

| Gas Distribution | $ | 2,063.2 | | | $ | 1,850.9 | | | $ | 2,081.9 | | | $ | 2,597.8 | | | $ | 2,226.3 | |

| Gas Transportation | 1,021.5 | | | | 964.6 | | | | 969.8 | | | | 987.4 | | | | 820.0 | | |

| Electric | 1,785.5 | | | | 1,660.8 | | | | 1,572.9 | | | | 1,672.0 | | | | 1,563.4 | | |

| Other | 4.4 | | | | 16.2 | | | | 27.2 | | | | 15.2 | | | | 15.7 | | |

| Operating Income | 910.6 | | | | 858.2 | | | | 799.9 | | | | 789.1 | | | | 698.1 | | |

| Income from Continuing Operations | 128.6 | | | | 328.1 | | | | 198.6 | | | | 256.2 | | | | 221.0 | | |

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

| [Report of Independent Registered Public Accounting [removed: Firm](#sBD07FC839F285CBB99A19CF26E86B22B)] [added: Firm](#s8629591AB0C058EB9871736383571EAE)] | [removed: [42](#sBD07FC839F285CBB99A19CF26E86B22B)] [added: [46](#s8629591AB0C058EB9871736383571EAE)] |

[removed: | [Statements of Consolidated Income](#sE29AD64F2EE75AA3A308F8F178A58852) | [44](#sE29AD64F2EE75AA3A308F8F178A58852) |][added: STATEMENTS OF CONSOLIDATED INCOME (LOSS)]

[removed: | [Statements of Consolidated Comprehensive Income](#s91CFD9C629695955955F3C4A526BA2FC) | [45](#s91CFD9C629695955955F3C4A526BA2FC) |][added: STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)]

| [Consolidated Balance [removed: Sheets](#sF98381CA7ABD561798727FD89545B1E7)] [added: Sheets](#sE86D98CD8EB55BC5BEB251A1936CC25D)] | [removed: [46](#sF98381CA7ABD561798727FD89545B1E7)] [added: [50](#sE86D98CD8EB55BC5BEB251A1936CC25D)] |

| [Statements of Consolidated Cash [removed: Flows](#s9CE9D5B7D3505063946A223DC63F97EF)] [added: Flows](#s5422A694303D5175B8CBE8DF4814D30E)] | [removed: [48](#s9CE9D5B7D3505063946A223DC63F97EF)] [added: [52](#s5422A694303D5175B8CBE8DF4814D30E)] |

[removed: | [Statements of Consolidated Common Stockholders’ Equity](#s0CB96031EB465234AA0CA0F3BC047126) | [49](#s0CB96031EB465234AA0CA0F3BC047126) |][added: STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY]

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

| [1. Nature of Operations and Summary of Significant Accounting [removed: Policies](#sAE28F5BEFED754BEAECF91B67EFCBFE5)] [added: Policies](#sD2045C71B2D558A1BBF081DFF9BF76F6)] | [removed: [51](#sAE28F5BEFED754BEAECF91B67EFCBFE5)] [added: [56](#sD2045C71B2D558A1BBF081DFF9BF76F6)] |

| [2. Recent Accounting [removed: Pronouncements](#s9C61429DB2375090A39970D1F2E134A4)] [added: Pronouncements](#sD4379B2657E453E0ACA3169AABA94BFE)] | [removed: [54](#s9C61429DB2375090A39970D1F2E134A4)] [added: [59](#sD4379B2657E453E0ACA3169AABA94BFE)] |

| [4. Earnings Per [removed: Share](#sC2C1E1C7404A50C3890FC76892A0B6DC)] [added: Share](#s9465232638F55749B89F43C373F186FF)] | [removed: [58](#sC2C1E1C7404A50C3890FC76892A0B6DC)] [added: [64](#s9465232638F55749B89F43C373F186FF)] |

| [5. Property, Plant and [removed: Equipment](#sF92A25C1D40F52C8AD5DF690F13F66B3)] [added: Equipment](#s29BE452FB6165AB3B01C58C34D3889B3)] | [removed: [59](#sF92A25C1D40F52C8AD5DF690F13F66B3)] [added: [65](#s29BE452FB6165AB3B01C58C34D3889B3)] |

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

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

| [8. Regulatory [removed: Matters](#s4BCB7FE55EF8572299CF7203D67DD8F2)] [added: Matters](#s3CC9D8776F415207ABA118A2FE730F40)] | [removed: [61](#s4BCB7FE55EF8572299CF7203D67DD8F2)] [added: [67](#s3CC9D8776F415207ABA118A2FE730F40)] |

| [9. Risk Management [removed: Activities](#s519C8CAD5ED859A6AABF8B1E736D41A8)] [added: Activities](#sE2211DACE40E5248A111DCF65D700F97)] | [removed: [66](#s519C8CAD5ED859A6AABF8B1E736D41A8)] [added: [75](#sE2211DACE40E5248A111DCF65D700F97)] |

| [10. Income [removed: Taxes](#s9F4B4FF52B6F55BE90623785ADDD1285)] [added: Taxes](#s9868084F475C5644B6AC7CEE0D4B4E86)] | [removed: [67](#s9F4B4FF52B6F55BE90623785ADDD1285)] [added: [76](#s9868084F475C5644B6AC7CEE0D4B4E86)] |

| [11. Pension and Other Postretirement [removed: Benefits](#s680C91E60B2E5EEF93F3EC72412E5745)] [added: Benefits](#s39FC46FCDDE9532F87A631133D21B2E3)] | [removed: [70](#s680C91E60B2E5EEF93F3EC72412E5745)] [added: [79](#s39FC46FCDDE9532F87A631133D21B2E3)] |

| [13. Share-Based [removed: Compensation](#sD92273208DAE5E7F8E9B257C3DF8F431)] [added: Compensation](#s04A04245424A5456B4A6FD5607BE9C79)] | [removed: [83](#sD92273208DAE5E7F8E9B257C3DF8F431)] [added: [91](#s04A04245424A5456B4A6FD5607BE9C79)] |

| [14. Long-Term [removed: Debt](#s51DBA9102DC15A34A73487CD0B7DD647)] [added: Debt](#s7F2DB7A5E3FB55DC80B13834391459D0)] | [removed: [86](#s51DBA9102DC15A34A73487CD0B7DD647)] [added: [95](#s7F2DB7A5E3FB55DC80B13834391459D0)] |

| [15. Short-Term [removed: Borrowings](#s7E9198B2E36E5BD3BC254A41C4321C86)] [added: Borrowings](#s5C4E5BD4B99F5B5A9DC3DC1EFAB47AB4)] | [removed: [88](#s7E9198B2E36E5BD3BC254A41C4321C86)] [added: [97](#s5C4E5BD4B99F5B5A9DC3DC1EFAB47AB4)] |

| [16. Fair [removed: Value](#sE20B869743DA5E839AAF4328F8E0B89E)] [added: Value](#sD71C717F9B375DF3B5BF67D7AFF664F9)] | [removed: [89](#sE20B869743DA5E839AAF4328F8E0B89E)] [added: [98](#sD71C717F9B375DF3B5BF67D7AFF664F9)] |

| [17. Transfers of Financial [removed: Assets](#s54561DB13537522B91E20445DE48F781)] [added: Assets](#s40BF68E945015C74B0EF01E73A515263)] | [removed: [91](#s54561DB13537522B91E20445DE48F781)] [added: [100](#s40BF68E945015C74B0EF01E73A515263)] |

| [18. Other Commitments and [removed: Contingencies](#s3B05D0BCF7DD5CF0908A72B819BD7E12)] [added: Contingencies](#s2A000624FCD25324A4C4DD3396367BA4)] | [removed: [92](#s3B05D0BCF7DD5CF0908A72B819BD7E12)] [added: [101](#s2A000624FCD25324A4C4DD3396367BA4)] |

| [19. Accumulated Other Comprehensive [removed: Loss](#sFACF73E1CFEF55108D9EBC900E36B5B6)] [added: Loss](#s6B725FC311CE52A49215FC300C6FB91D)] | [removed: [96](#sFACF73E1CFEF55108D9EBC900E36B5B6)] [added: [109](#s6B725FC311CE52A49215FC300C6FB91D)] |

| [20. Other, [removed: Net](#s80E5A800AFA2550C8ADB54BA52146EC1)] [added: Net](#s26949B64588D5EA896C8BB295F5D2B77)] | [removed: [97](#s80E5A800AFA2550C8ADB54BA52146EC1)] [added: [109](#s26949B64588D5EA896C8BB295F5D2B77)] |

| [21. Interest Expense, [removed: Net](#sACBB498BA2735B828B0683FC01C83740)] [added: Net](#sB4297233669C5619B744F93AC3B2BE8C)] | [removed: [97](#sACBB498BA2735B828B0683FC01C83740)] [added: [110](#sB4297233669C5619B744F93AC3B2BE8C)] |

| [22. Segments of [removed: Business](#s50558698316851119F3921494F5F5439)] [added: Business](#s28B0F6B4B44553E0A1631A41F46C30A2)] | [removed: [97](#s50558698316851119F3921494F5F5439)] [added: [110](#s28B0F6B4B44553E0A1631A41F46C30A2)] |

| [23. Quarterly Financial Data [removed: (Unaudited)](#s362C1D78D1265E0A9AE7B0D68A319B91)] [added: (Unaudited)](#sE9B7A185C4FE5434B55A73ED5C8F42FC)] | [removed: [99](#s362C1D78D1265E0A9AE7B0D68A319B91)] [added: [112](#sE9B7A185C4FE5434B55A73ED5C8F42FC)] |

| [24. Supplemental Cash Flow [removed: Information](#s8BF2361F8EC15AC9A8FE07722138699E)] [added: Information](#s3D43CCADCFA05C6C8ED94418B404740B)] | [removed: [100](#s8BF2361F8EC15AC9A8FE07722138699E)] [added: [113](#s3D43CCADCFA05C6C8ED94418B404740B)] |

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

We have audited the accompanying consolidated balance sheets of NiSource Inc. and subsidiaries (the "Company") as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] the related statements of consolidated [removed: income,] [added: income (loss),] comprehensive [removed: income, common] [added: income (loss),] stockholders' equity, and cash flows for each of the three years in the period ended December 31, [removed: 2017,] [added: 2018,] and the related notes and the schedule listed in the Index at item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2017,] [added: 2018,] in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, [removed: 2018,] [added: 2019,] expressed an unqualified opinion on the Company's internal control over financial reporting.

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

We have audited the internal control over financial reporting of NiSource Inc. and subsidiaries (the “Company”) as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2017,] [added: 2018,] based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for year ended December 31, [removed: 2017,] [added: 2018,] of the Company and our report dated February 20, [removed: 2018,] [added: 2019,] expressed an unqualified opinion on those financial [removed: statements and included an explanatory paragraph related to the Company's spin-off of its subsidiary Columbia Pipeline Group, Inc. on July 1, 2015.][added: statements.]

[removed: STATEMENTS OF CONSOLIDATED INCOME][added: | [Statements of Consolidated Income (Loss)](#s3214D3090C7155D0985C9190BD40C581) | [48](#s3214D3090C7155D0985C9190BD40C581) |]

| Year Ended December 31, (in millions, except per share amounts) | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | |

| Operating Revenues | | | | | | | | | | | | [added: |]

| [Statements of Consolidated Stockholders' Equity](#s94293891B5895F099841FA1AB8E5D6F5) | [53](#s94293891B5895F099841FA1AB8E5D6F5) |

| [Notes to Consolidated Financial Statements](#sB3DF3303194D5025BDB0C4033B436AA9) | [56](#sB3DF3303194D5025BDB0C4033B436AA9) |

| [3. Revenue Recognition](#s796665D25BD955E8997ACDAD37DC3C25) | [62](#s796665D25BD955E8997ACDAD37DC3C25) |

| [12. Equity](#s47B3B46C14245C4292704D79966B87A4) | [89](#s47B3B46C14245C4292704D79966B87A4) |

| [Schedule II](#sC1539D7689845727AACB3EDD9DA79D24) | [114](#sC1539D7689845727AACB3EDD9DA79D24) |

February 20, 2019

February 20, 2019

| Customer revenues | $ | 4,991.1 | | | $ | 4,730.2 | | | $ | 4,392.5 | |

| Other revenues | 123.4 | | | | 144.4 | | | | 100.0 | | |

| Operating Income | 124.7 | | | | 921.2 | | | | 866.1 | | |

| Other, net | 43.5 | | | | (13.5 | | ) | | (3.0 | | ) |

| Total Other Deductions, Net | (355.3 | | ) | | (478.2 | | ) | | (352.5 | | ) |

| Income (Loss) before Income Taxes | (230.6 | | ) | | 443.0 | | | | 513.6 | | |

| Preferred dividends | (15.0 | | ) | | — | | | | — | | |

| Preferred stock - $0.01 par value, 20,000,000 shares authorized; 420,000 shares outstanding | 880.0 | | | | — | | |

| Claims accrued | 114.7 | | | | 12.5 | | |

| Other accruals | 58.8 | | | | 78.3 | | |

| Other adjustments | 1.7 | | | | 6.6 | | | | (7.2 | | ) |

| Other noncurrent liabilities | (2.8 | | ) | | (34.4 | | ) | | (0.3 | | ) |

| Issuance of short-term debt (maturity > 90 days) | 950.0 | | | | — | | | | — | | |

| Issuance of preferred stock, net of issuance costs | 880.0 | | | | — | | | | — | | |

| Dividends paid - preferred stock | (11.6 | | ) | | — | | | | — | | |

| Change in cash, cash equivalents and restricted cash | 82.7 | | | | 2.4 | | | | (9.2 | | ) |

(1)See Note 2, "Recent Accounting Pronouncements," for additional information.

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

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

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

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

| Net Loss | — | | | | — | | | | — | | | | — | | | | (50.6 | | ) | | — | | | | (50.6 | | ) |

| Preferred stock ($28.88 per share) | — | | | | — | | | | — | | | | — | | | | (11.6 | | ) | | — | | | | (11.6 | | ) |

| Cumulative effect of change in accounting principle(1) | — | | | | — | | | | — | | | | — | | | | 9.5 | | | | (9.5 | | ) | | — | | |

| Common stock - private placement | 0.3 | | | | — | | | | — | | | | 599.3 | | | | — | | | | — | | | | 599.6 | | |

| Preferred stock | — | | | | 880.0 | | | | — | | | | — | | | | — | | | | — | | | | 880.0 | | |

| ATM program | 0.1 | | | | — | | | | — | | | | 232.4 | | | | — | | | | — | | | | 232.5 | | |

| Balance as of December 31, 2018 | $ | 3.8 | | | $ | 880.0 | | | $ | (99.9 | ) | | $ | 6,403.5 | | | $ | (1,399.3 | ) | | $ | (37.2 | ) | | $ | 5,750.9 | |

(1)See Note 2, "Recent Accounting Pronouncements," for additional information.

| | Preferred | | | Common | | | | | | | |

| Common stock - private placement(1) | — | | | 24,964 | | | — | | | 24,964 | |

| Preferred stock(1) | 420 | | | | | | | | | | |

| ATM program | — | | | 8,883 | | | — | | | 8,883 | |

| | |

| --- | --- |

| | |

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

| [12. Common Stock](#s221E78D827DD5B42B3895CEA12025421) | [82](#s221E78D827DD5B42B3895CEA12025421) |

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

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

Emphasis of a Matter

As discussed in Note 3 to the consolidated financial statements, on July 1, 2015 the Company completed the spin-off of its subsidiary Columbia Pipeline Group, Inc.

February 20, 2018

February 20, 2018

| Operating Expenses | | | | | | | | | | | |

| Income from Continuing Operations before Income Taxes | 443.1 | | | | 510.2 | | | | 339.9 | | |

| Income from Continuing Operations | 128.6 | | | | 328.1 | | | | 198.6 | | |

| Income (Loss) from Discontinued Operations - net of taxes | (0.1 | | ) | | 3.4 | | | | 103.5 | | |

| Less: Net income attributable to noncontrolling interest | — | | | | — | | | | 15.6 | | |

| Amounts attributable to NiSource: | | | | | | | | | | | |

| Income from continuing operations | $ | 128.6 | | | $ | 328.1 | | | $ | 198.6 | |

| Income (Loss) from discontinued operations | (0.1 | | ) | | 3.4 | | | | 87.9 | | |

| Continuing operations | $ | 0.39 | | | $ | 1.02 | | | $ | 0.63 | |

| Discontinued operations | — | | | | 0.01 | | | | 0.27 | | |

| Continuing operations | $ | 0.39 | | | $ | 1.01 | | | $ | 0.63 | |

| Discontinued operations | — | | | | 0.01 | | | | 0.27 | | |

| Less: Comprehensive income attributable to noncontrolling interest | — | | | | — | | | | 15.6 | | |

| Comprehensive Income attributable to NiSource | $ | 110.2 | | | $ | 341.5 | | | $ | 275.5 | |

| | | | | | | | |

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

| | | | | | | | |

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

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

| (Income) loss from discontinued operations - net of taxes | 0.1 | | | | (3.4 | | ) | | (103.5 | | ) |

| Other adjustments | 6.5 | | | | (3.8 | | ) | | 13.1 | | |

| Other noncurrent liabilities | (34.5 | | ) | | 0.5 | | | | (30.4 | | ) |

| Net Operating Activities from Continuing Operations | 742.1 | | | | 804.1 | | | | 1,163.4 | | |

| Net Operating Activities from (used for) Discontinued Operations | 0.1 | | | | (0.8 | | ) | | 293.4 | | |

| Cash contributions from CPG | — | | | | — | | | | 3,798.2 | | |

| Net Investing Activities used for Discontinued Operations | — | | | | — | | | | (430.1 | | ) |

| Net Cash Flows from (used for) Investing Activities | (1,808.5 | | ) | | (1,603.0 | | ) | | 1,949.7 | | |

| Cash of CPG at Separation | — | | | | — | | | | (136.8 | | ) |

| Net Financing Activities from Discontinued Operations | — | | | | — | | | | 108.6 | | |

[removed: NiSource’s] [added: Our] chief executive officer and [removed: its] chief financial officer are responsible for evaluating the effectiveness of [removed: the Company's] disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)).

[removed: NiSource's] [added: Our] disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that are filed or submitted under the Exchange Act are accumulated and communicated to management, including [removed: NiSource's] [added: our] chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC.

Based upon that evaluation, [removed: NiSource's] [added: our] chief executive officer and chief financial officer concluded that, as of the end of the period covered by this report, disclosure controls and procedures were effective to provide reasonable assurance that financial information was processed, recorded and reported accurately.

[removed: NiSource] [added: Our] management, including [removed: NiSource’s] [added: our] chief executive officer and chief financial officer, are responsible for establishing and maintaining [removed: NiSource’s] internal control over financial reporting, as such term is defined under Rule 13a-15(f) or Rule 15d-15(f) promulgated under the Exchange Act.

[removed: NiSource’s] [added: Our] management has adopted the 2013 framework set forth in the Committee of Sponsoring Organizations of the Treadway Commission report, Internal Control - Integrated Framework, the most commonly used and understood framework for evaluating internal control over financial reporting, as its framework for evaluating the reliability and effectiveness of internal control over financial reporting.

During [removed: 2017, NiSource] [added: 2018, we] conducted an evaluation of [removed: its] [added: our] internal control over financial reporting.

Based on this evaluation, [removed: NiSource] management concluded that [removed: NiSource’s] [added: our] internal control over financial reporting was effective as of the end of the period covered by this annual report.

Deloitte & Touche LLP, [removed: NiSource’s] [added: our] independent registered public accounting firm, issued an attestation report on [removed: NiSource’s] [added: our] internal controls over financial reporting which is contained in Item 8, “Financial Statements and Supplementary Data.”

There have been no changes in [removed: NiSource’s] [added: our] internal control over financial reporting during the most recently completed quarter covered by this report that has materially affected, or is reasonably likely to materially affect, [removed: NiSource’s] [added: our] internal control over financial reporting.

Except for the information required by this item with respect to [removed: NiSource's] [added: our] executive officers included at the end of Part I of this report on Form 10-K, the information required by this Item 10 is incorporated herein by reference to the discussion in "Proposal 1 Election of Directors," "Corporate Governance," and "Section 16(a) Beneficial Ownership Reporting Compliance," of the Proxy Statement for the Annual Meeting of Stockholders to be held on May [removed: 8, 2018.][added: 7, 2019.]

The information required by this Item 11 is incorporated herein by reference to the discussion in "Corporate Governance - Compensation Committee Interlocks and Insider Participation," "Director Compensation," "Executive Compensation," and "Executive Compensation - Compensation Committee Report," of the Proxy Statement for the Annual Meeting of Stockholders to be held on May [removed: 8, 2018.][added: 7, 2019.]

The information required by this Item 12 is incorporated herein by reference to the discussion in "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May [removed: 8, 2018.][added: 7, 2019.]

The information required by this Item 13 is incorporated herein by reference to the discussion in "Corporate Governance - Policies and Procedures with Respect to Transactions with Related Persons" and "Corporate Governance - Director Independence" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May [removed: 8, 2018.][added: 7, 2019.]

The information required by this Item 14 is incorporated herein by reference to the discussion in "Independent Auditor Fees" of the Proxy Statement for the Annual Meeting of Stockholders to be held on May [removed: 8, 2018.][added: 7, 2019.]

| [Report of Independent Registered Public Accounting [removed: Firm](#sBD07FC839F285CBB99A19CF26E86B22B)] [added: Firm](#s8629591AB0C058EB9871736383571EAE)] | [removed: [42](#sBD07FC839F285CBB99A19CF26E86B22B)] [added: [46](#s8629591AB0C058EB9871736383571EAE)] |

| [Statements of Consolidated [removed: Income](#sE29AD64F2EE75AA3A308F8F178A58852)] [added: Income (Loss)](#s3214D3090C7155D0985C9190BD40C581)] | [removed: [44](#sE29AD64F2EE75AA3A308F8F178A58852)] [added: [48](#s3214D3090C7155D0985C9190BD40C581)] |

| [Statements of Consolidated Comprehensive [removed: Income](#s91CFD9C629695955955F3C4A526BA2FC)] [added: Income (Loss)](#s22E3364D843B57A1B86C5F3819609F7A)] | [removed: [45](#s91CFD9C629695955955F3C4A526BA2FC)] [added: [49](#s22E3364D843B57A1B86C5F3819609F7A)] |

| [Consolidated Balance [removed: Sheets](#sF98381CA7ABD561798727FD89545B1E7)] [added: Sheets](#sE86D98CD8EB55BC5BEB251A1936CC25D)] | [removed: [46](#sF98381CA7ABD561798727FD89545B1E7)] [added: [50](#sE86D98CD8EB55BC5BEB251A1936CC25D)] |

| [Statements of Consolidated Cash [removed: Flows](#s9CE9D5B7D3505063946A223DC63F97EF)] [added: Flows](#s5422A694303D5175B8CBE8DF4814D30E)] | [removed: [48](#s9CE9D5B7D3505063946A223DC63F97EF)] [added: [52](#s5422A694303D5175B8CBE8DF4814D30E)] |

| [Statements of Consolidated [removed: Common] Stockholders’ [removed: Equity](#s0CB96031EB465234AA0CA0F3BC047126)] [added: Equity](#s94293891B5895F099841FA1AB8E5D6F5)] | [removed: [49](#s0CB96031EB465234AA0CA0F3BC047126)] [added: [53](#s94293891B5895F099841FA1AB8E5D6F5)] |

| [Notes to Consolidated Financial [removed: Statements](#sA3350D4FA31856AC8947D3118EB6D71B)] [added: Statements](#sB3DF3303194D5025BDB0C4033B436AA9)] | [removed: [51](#sA3350D4FA31856AC8947D3118EB6D71B)] [added: [56](#sB3DF3303194D5025BDB0C4033B436AA9)] |

Each management contract or compensatory plan or arrangement of [removed: NiSource,] [added: ours,] listed on the Exhibit Index, is separately identified by an asterisk.