Item 6. SELECTED FINANCIAL DATA

NISOURCE INC.

The selected data presented below as of and for the five years ended December 31, 2018, are derived from our Consolidated Financial Statements. The data should be read together with the Consolidated Financial Statements including the related notes thereto included in Item 8 of this Form 10-K.

Year Ended December 31, (dollars in millions except per share data)	2018				2017				2016				2015				2014
Statement of Income Data:
Total Operating Revenues	$	5,114.5			$	4,874.6			$	4,492.5			$	4,651.8			$	5,272.4
Net Income (Loss) Available to Common Shareholders	(65.6		)		128.5				331.5				198.6				256.2
Balance Sheet Data:
Total Assets	21,804.0				19,961.7				18,691.9				17,492.5				24,589.8
Capitalization
Stockholders’ equity	5,750.9				4,320.1				4,071.2				3,843.5				6,175.3
Long-term debt, excluding amounts due within one year	7,105.4				7,512.2				6,058.2				5,948.5				8,151.5
Total Capitalization	$	12,856.3			$	11,832.3			$	10,129.4			$	9,792.0			$	14,326.8
Per Share Data:
Basic Earnings (Loss) Per Share ($)	$	(0.18	)		$	0.39			$	1.02			$	0.63			$	0.81
Diluted Earnings (Loss) Per Share ($)	$	(0.18	)		$	0.39			$	1.01			$	0.63			$	0.81
Other Data:
Dividends declared per common share ($)	$	0.78			$	0.70			$	0.64			$	0.83			$	1.02
Common shares outstanding at the end of the year (in thousands)	372,363				337,016				323,160				319,110				316,037
Number of common stockholders	19,889				21,009				22,272				30,190				25,233
Dividends declared per Series A preferred share ($)	$	28.88			$	—			$	—			$	—			$	—
Capital expenditures	$	1,814.6			$	1,753.8			$	1,490.4			$	1,367.5			$	1,339.6
Number of employees	8,087				8,175				8,007				7,596				8,982

•

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.

•	The decrease in net income 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, we executed a tender offer for $990.7 million of outstanding notes consisting of a combination of 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, 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 the placement of $2,750.0 million in aggregate principal amount of senior notes. Using the proceeds from this offering, CPG made cash payments to 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, we settled 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

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
Summary of Consolidated Financial Results	26
Results and Discussion of Segment Operations	29
Gas Distribution Operations	30
Electric Operations	33
Liquidity and Capital Resources	37
Off Balance Sheet Arrangements	40
Market Risk Disclosures	41
Other Information	42

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. Refer also to the discussion of Electric Supply within our Electric Operations Segment discussion for additional information on our long term electric generation strategy.

Greater Lawrence Incident: The Greater Lawrence Incident occurred on September 13, 2018. During the year ended December 31, 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. The amounts set forth above do not include the estimated capital cost of the pipeline replacement described below and as set forth in " - E. Other Matters - Greater Lawrence Pipeline Replacement."

We estimate that total costs related to third-party claims as set forth in Note 18, "Other Commitments and Contingencies - C. Legal Proceedings," will range from $757 million to $790 million, depending on the final outcome of ongoing reviews and the number, nature, and value of third-party claims. We expect to incur a total of $330 million to $345 million in other incident-related costs.

We also expect to incur expenses for which we cannot estimate the amounts of or the timing at this time, including expenses associated with government investigations and fines, penalties or settlements with governmental authorities in connection with the Greater Lawrence Incident.

Columbia of Massachusetts recorded $135 million for insurance recoveries during 2018. Of this amount, $5 million was collected during 2018. We are currently unable to predict the amount and timing of future insurance recoveries. To the extent that we are not successful in collecting reimbursement in the amount recorded for such recoveries as of December 31, 2018, it could result in a charge to earnings.

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

NISOURCE INC.

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. Item 1A. "Risk Factors" for additional information related to the Greater Lawrence Incident.

Summary of Consolidated Financial Results

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

The majority of the cost of sales are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in operating revenues. As a result, 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. The presentation of net revenues herein is intended to provide supplemental information for investors regarding operating performance. Net revenues do not intend to represent operating income, the most comparable GAAP measure, as an indicator of operating performance and is not necessarily comparable to similarly titled measures reported by other companies.

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

NISOURCE INC.

For the years ended December 31, 2018, 2017 and 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 millions)	2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Operating Income	$	124.7			$	921.2			$	866.1			$	(796.5	)		$	55.1

Year Ended December 31, (in millions, except per share amounts)	2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Operating Revenues	$	5,114.5			$	4,874.6			$	4,492.5			$	239.9			$	382.1
Cost of sales (excluding depreciation and amortization)	1,761.3				1,518.7				1,390.2				242.6				128.5
Total Net Revenues	3,353.2				3,355.9				3,102.3				(2.7		)		253.6
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		)
Income Taxes	(180.0		)		314.5				182.1				(494.5		)		132.4
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	)
Basic Average Common Shares Outstanding	356.5				329.4				321.8				27.1				7.6

On a consolidated basis, we reported a loss to common shareholders of $65.6 million or $0.18 per basic share for the twelve months ended December 31, 2018 compared to net income available to common shareholders of $128.5 million or $0.39 per basic share for the same period in 2017. 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.

Operating Income

For the twelve months ended December 31, 2018, we reported operating income of $124.7 million compared to $921.2 million for the same period 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.

Other Deductions, Net

Other deductions, net reduced income by $355.3 million in 2018 compared to a reduction in income of $478.2 million in 2017. 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.

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

NISOURCE INC.

Income Taxes

On December 22, 2017, the President signed into law the TCJA, which, among other things, enacted significant changes to the Internal Revenue Code, as amended, including a reduction in the maximum U.S. federal corporate income tax rate from 35% to 21%, and certain other provisions related specifically to the public utility industry, including the continuation of certain interest expense deductibility and excluding 100% expensing of capital investments. These changes are effective January 1, 2018. GAAP requires the effect of a change in tax law to be recorded in the period of enactment. As a result, in December 2017, NiSource recorded a $161.1 million net increase in tax expense related primarily to the remeasurement of deferred tax assets for NOL carryforwards.

The 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.

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

Capital Investment

In 2018, we invested approximately $1.8 billion in cash capital expenditures across the gas and electric utilities. These expenditures were primarily aimed at furthering the safety and reliability of our gas distribution system, the Greater Lawrence Incident pipeline replacement, construction of new electric transmission assets and maintaining our existing electric generation fleet.

We continue to execute on an estimated $30 billion in total projected long-term regulated utility infrastructure investments and expect to invest approximately $1.6 to $1.7 billion in capital during 2019 to continue to modernize and improve our system across all seven states of our operating area.

Liquidity

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. Through income generated from operating activities, amounts available under our short-term revolving credit facility, commercial paper program, accounts receivable securitization facilities, long-term debt agreements and our ability to access the capital markets, we believe there is adequate capital available to fund our operating activities and capital expenditures and the effects of the Greater Lawrence Incident in 2019 and beyond. At December 31, 2018 and 2017, we had approximately $974.6 million and $998.9 million, respectively, of net liquidity available, consisting of cash and available capacity under credit facilities.

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

Regulatory Developments

In 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 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 2018.

RESULTS AND DISCUSSION OF SEGMENT OPERATIONS

Presentation of Segment Information

Our operations are divided into two primary reportable segments: Gas Distribution Operations and Electric Operations.

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

NISOURCE INC.

Gas Distribution Operations

For the years ended December 31, 2018, 2017 and 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 millions)	2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Operating Income (Loss)	$	(254.1	)		$	550.1			$	569.7			$	(804.2	)		$	(19.6	)

Year Ended December 31, (dollars in millions)	2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Net Revenues
Operating revenues	$	3,419.5			$	3,102.1			$	2,830.6			$	317.4			$	271.5
Less: Cost of sales (excluding depreciation and amortization)	1,259.3				1,005.0				895.4				254.3				109.6
Net Revenues	2,160.2				2,097.1				1,935.2				63.1				161.9
Operating Expenses
Operation and maintenance	1,908.1				1,090.8				941.5				817.3				149.3
Depreciation and amortization	301.0				269.3				252.9				31.7				16.4
Loss on sale of assets and impairments, net	0.2				2.8				—				(2.6		)		2.8
Other taxes	205.0				184.1				171.1				20.9				13.0
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	)
Revenues
Residential	$	2,248.3			$	2,029.4			$	1,823.4			$	218.9			$	206.0
Commercial	753.7				669.4				588.1				84.3				81.3
Industrial	228.6				217.5				194.3				11.1				23.2
Off-System	92.4				111.8				94.4				(19.4		)		17.4
Other	96.5				74.0				130.4				22.5				(56.4		)
Total	$	3,419.5			$	3,102.1			$	2,830.6			$	317.4			$	271.5
Sales and Transportation (MMDth)
Residential	280.3				247.1				248.9				33.2				(1.8		)
Commercial	187.6				169.3				165.6				18.3				3.7
Industrial	555.7				517.5				517.7				38.2				(0.2		)
Off-System	30.0				39.0				39.6				(9.0		)		(0.6		)
Other	—				0.3				(0.1		)		(0.3		)		0.4
Total	1,053.6				973.2				971.7				80.4				1.5
Heating Degree Days	5,562				4,927				5,148				635				(221		)
Normal Heating Degree Days	5,610				5,610				5,642				—				(32		)
% Warmer than Normal	(1		)%		(12		)%		(9		)%
Gas Distribution Customers
Residential	3,194,662				3,168,516				3,141,736				26,146				26,780
Commercial	281,563				280,362				279,556				1,201				806
Industrial	6,038				6,228				6,240				(190		)		(12		)
Other	3				4				—				(1		)		4
Total	3,482,266				3,455,110				3,427,532				27,156				27,578

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

NISOURCE INC.

Gas Distribution Operations (continued)

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

2018 vs. 2017 Operating Income

For 2018, Gas Distribution Operations reported an operating loss of $254.1 million, a decrease in income of $804.2 million from the comparable 2017 period.

Net revenues for 2018 were $2,160.2 million, an increase of $63.1 million from the same period in 2017. The change in net revenues was primarily driven by:

•	New rates from infrastructure replacement programs and base rate proceedings of $99.6 million.

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

•	The effects of customer growth and increased usage of $17.4 million.

•	Higher regulatory, tax and depreciation trackers, which are offset in operating expense, of $16.0 million.

Partially offset by:

•	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.

Operating expenses were $867.3 million higher in 2018 compared to 2017. This change was primarily driven by:

•	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.

•	Higher regulatory, tax and depreciation trackers, which are offset in net revenues, of $16.0 million.

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

Partially offset by:

•	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.

2017 vs. 2016 Operating Income

For 2017, Gas Distribution Operations reported operating income of $550.1 million, a decrease of $19.6 million from the comparable 2016 period.

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

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

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

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

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

Operating expenses were $181.5 million higher in 2017 compared to 2016. This change was primarily driven by:

•	Increased employee and administrative expenses of $53.4 million.

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

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

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

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

NISOURCE INC.

Gas Distribution Operations (continued)

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

•	Higher environmental costs of $4.7 million.

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

Weather

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

Weather in the Gas Distribution Operations service territories for 2018 was about 1% warmer than normal and about 13% colder than 2017, increasing net revenues $37.5 million for the year ended December 31, 2018 compared to 2017.

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

Throughput

Total volumes sold and transported for the year ended December 31, 2018 were 1,053.6 MMDth, compared to 973.2 MMDth for 2017. This increase is primarily attributable to colder weather experienced in 2018 compared to 2017.

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

Economic Conditions

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

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

Greater Lawrence Incident

Refer to Note 18-C. "Legal Proceedings," and E. "Other Matters," in the Notes to Consolidated Financial Statements, "Summary of Consolidated Financial Results,""Liquidity and Capital Resources" in this Management's Discussion, and Part I. Item 1A. "Risk Factors" for additional information related to the Greater Lawrence Incident.

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

NISOURCE INC.

Electric Operations

For the years ended December 31, 2018, 2017 and 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 millions)	2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Operating Income	$	386.1			$	367.4			$	301.3			$	18.7			$	66.1

Year Ended December 31, (dollars in millions)	2018				2017				2016				2018 vs. 2017				2017 vs. 2016
Net Revenues
Operating revenues	$	1,708.2			$	1,786.5			$	1,661.6			$	(78.3	)		$	124.9
Less: Cost of sales (excluding depreciation and amortization)	502.1				513.9				495.0				(11.8		)		18.9
Net Revenues	1,206.1				1,272.6				1,166.6				(66.5		)		106.0
Operating Expenses
Operation and maintenance	500.0				565.6				528.9				(65.6		)		36.7
Depreciation and amortization	262.9				277.8				274.5				(14.9		)		3.3
Loss on sale of assets	—				1.9				—				(1.9		)		1.9
Other taxes	57.1				59.9				61.9				(2.8		)		(2.0		)
Total Operating Expenses	820.0				905.2				865.3				(85.2		)		39.9
Operating Income	$	386.1			$	367.4			$	301.3			$	18.7			$	66.1
Revenues
Residential	$	494.7			$	476.9			$	457.4			$	17.8			$	19.5
Commercial	492.6				501.2				456.6				(8.6		)		44.6
Industrial	614.4				698.1				631.6				(83.7		)		66.5
Wholesale	15.7				11.6				11.6				4.1				—
Other	90.8				98.7				104.4				(7.9		)		(5.7		)
Total	$	1,708.2			$	1,786.5			$	1,661.6			$	(78.3	)		$	124.9
Sales (Gigawatt Hours)
Residential	3,535.2				3,301.7				3,514.8				233.5				(213.1		)
Commercial	3,844.6				3,793.5				3,878.7				51.1				(85.2		)
Industrial	8,829.5				9,469.7				9,281.8				(640.2		)		187.9
Wholesale	114.3				32.5				19.0				81.8				13.5
Other	124.4				128.2				136.9				(3.8		)		(8.7		)
Total	16,448.0				16,725.6				16,831.2				(277.6		)		(105.6		)
Cooling Degree Days	1,180				837				988				343				(151		)
Normal Cooling Degree Days	806				806				806				—				—
% Warmer than Normal	46		%		4		%		23		%
Electric Customers
Residential	412,267				409,401				407,268				2,866				2,133
Commercial	56,605				56,134				55,605				471				529
Industrial	2,284				2,305				2,313				(21		)		(8		)
Wholesale	735				739				744				(4		)		(5		)
Other	2				2				2				—				—
Total	471,893				468,581				465,932				3,312				2,649

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

NISOURCE INC.

Electric Operations (continued)

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

2018 vs. 2017 Operating Income

For 2018, Electric Operations reported operating income of $386.1 million, an increase of $18.7 million from the comparable 2017 period.

Net revenues for 2018 were $1,206.1 million, a decrease of $66.5 million from the same period in 2017. The change in net revenues was primarily driven by:

•	Lower regulatory and depreciation trackers, which are offset in operating expense, of $35.6 million.

•	Decreased rates from implementation of regulatory outcomes related to the TCJA of $32.9 million.

•	Decreased industrial usage of $17.1 million.

•	A revenue reserve of $16.2 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 .

•	Increased fuel handling costs of $7.3 million.

Partially offset by:

•	The effects of warmer weather of $25.2 million.

•	Increased rates from infrastructure replacement programs of $18.6 million.

Operating expenses were $85.2 million lower in 2018 than 2017. This change was primarily driven by:

•	Lower regulatory and depreciation trackers, which are offset in net revenues, of $35.6 million.

•	Lower outside service costs of $32.1 million and lower material and supplies costs of $10.2 million primarily related to the retirement of Bailly Generating Station Units 7 and 8 on May 31, 2018.

•	Decreased employee and administrative costs of $18.4 million.

Partially offset by:

•	Increased depreciation of $10.0 million due to higher capital expenditures placed in service.

2017 vs. 2016 Operating Income

For 2017, Electric Operations reported operating income of $367.4 million, an increase of $66.1 million from the comparable 2016 period.

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

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

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

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

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

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

Partially offset by:

•	The effects of cooler weather of $16.1 million.

Operating expenses were $39.9 million higher in 2017 than 2016. This change was primarily driven by:

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

•	Higher employee and administrative costs of $19.2 million.

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

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

NISOURCE INC.

Electric Operations (continued)

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

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

Partially offset by:

•	Plant retirement costs of $22.1 million in 2016.

•	Decreased amortization of regulatory assets of $10.8 million.

Weather

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

Weather in the Electric Operations’ territories for 2018 was 46% warmer than normal and 41% warmer than the same period in 2017, increasing net revenues $25.2 million for the year ended December 31, 2018 compared to 2017.

Weather in the Electric Operations’ territories for 2017 was 4% warmer than normal and 15% cooler than the same period in 2016, decreasing net revenues $16.1 million for the year ended December 31, 2017 compared to 2016.

Sales

Electric Operations sales were 16,448.0 GWh for 2018, a decrease of 277.6 GWh, or 1.7% compared to 2017. This decrease was primarily attributable to higher internal generation from large industrial customers in 2018, partially offset by increased volumes for residential and commercial customers resulting from warmer weather.

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

BP Products North America. On March 29, 2018, WCE, which is currently owned by BP p.l.c ("BP") and BP Products North America, which operates the BP Refinery, filed a petition at the IURC asking that the combined operations of WCE and BP be treated as a single premise, and the WCE generation be dedicated primarily to BP Refinery operations beginning in May 2019 as WCE has self-certified as a qualifying facility at FERC. BP Refinery plans to continue to purchase electric service from NIPSCO at a reduced demand level beginning May 2019. Refer to Note 8, "Regulatory Matters," in the Notes to Consolidated Financial Statements for additional information.

Economic Conditions

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

NIPSCO's performance remains closely linked to the performance of the steel industry. NIPSCO’s MWh sales to steel-related industries accounted for approximately 49.67% and 54.5% of the total industrial MWh sales for the years ended December 31, 2018 and 2017, respectively.

Electric Supply

Bailly Generating Station. NIPSCO completed the retirement of Units 7 and 8 at Bailly Generating Station on May 31, 2018. These units had a generating capacity of approximately 460 MW. The remaining net book value of the retired units is presented in "Regulatory assets (noncurrent)" on the Consolidated Balance Sheets. This balance continues to be amortized at a rate consistent with its inclusion in customer rates. The ongoing recovery of our remaining investment in these units will be addressed in NIPSCO's rate case filed on October 31, 2018. Refer to Note 8, "Regulatory Matters," and Note 18-E, "Other Matters," in the Notes to Consolidated Financial Statements for additional information.

NIPSCO 2018 Integrated Resource Plan. Multiple factors, but primarily economic ones, including low natural gas prices, advancing cost effective renewable technology and increasing capital and operating costs associated with existing coal plants, have led

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

NISOURCE INC.

Electric Operations (continued)

NIPSCO to conclude in its October 2018 Integrated Resource Plan submission that NIPSCO’s current fleet of coal generation facilities will be retired earlier than previous Integrated Resource Plan’s had indicated.

The Integrated Resource 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 retires 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.

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

NISOURCE INC.

Liquidity and Capital Resources

Greater Lawrence Incident: As discussed in the "Executive Summary" and Note 18, “Other Commitments and Contingencies,” we have recorded losses associated with the Greater Lawrence Incident and have invested capital to replace the entire affected 45-mile cast iron and bare steel pipeline system that delivers gas to the impacted area. As discussed in the Executive Summary and Note 18 referenced earlier in this paragraph, and Part I, Item 1A “Risk Factors,” in this report, we may incur additional expenses and liabilities in excess of our recorded liabilities and estimated additional costs associated with the Greater Lawrence Incident. The timing and amount of future financing needs arising from the Greater Lawrence Incident, if any, will depend on the ultimate timing and amount of payments made in connection with the Greater Lawrence Incident and the timing and amount of associated insurance recoveries. Through income generated from operating activities, amounts available under our short-term revolving credit facility, commercial paper program, accounts receivable securitization facilities, term loan borrowings, long-term debt agreements and our ability to access the capital markets, we believe there is adequate capital available to fund these expenditures.

Operating Activities

Net cash from operating activities for the year ended December 31, 2018 was $540.1 million, a decrease of $202.1 million from 2017. This decrease was driven by cash spend for the Greater Lawrence Incident in 2018 offset by decreased pension plan contributions as discussed below as well as decreased operation and maintenance expenses (excluding expenses related to the Greater Lawrence Incident). The decrease in cash from operations was further offset by higher sales due to colder weather during the 2018 winter heating season compared to 2017 and increased rates from infrastructure replacement programs and rate case outcomes.

Greater Lawrence Incident. During 2018, we paid approximately $731 million in operating cash flow related to the Greater Lawrence Incident. Refer to Note 18-E "Other Matters" for further information.

Pension and Other Postretirement Plan Funding. In 2017, we contributed $282.3 million to our pension plans (including a $277 million discretionary contribution made during the third quarter of 2017) and $31.6 million to our other postretirement benefit plans.

In 2018, we contributed $2.9 million to our pension plans and $21.0 million to our other postretirement benefit plans. Given the current funded status of the pension plans, and barring unforeseen market volatility that may negatively impact the valuation of our plan assets, we do not believe additional material contributions to our pension plans will be required for the foreseeable future.

Income Taxes. Rates for our regulated customers include provisions for the collection of U.S. federal income taxes. The reduction in the U.S. federal corporate income tax rate as a result of the TCJA has led to a decrease in the amount billed to customers through rates, ultimately resulting in lower cash collections from operating activities. As discussed in further detail in Note 7, "Regulatory Matters," in the Notes to the Consolidated Financial Statements, our regulated subsidiaries are engaged with the relevant state utility commissions to address the impacts of the TCJA on future customer rates. During 2018, billings to customers decreased approximately $57.6 million compared to the same period in 2017 as a result of adjustments to certain rates in our Kentucky, Ohio, Maryland, Pennsylvania, Massachusetts and Indiana jurisdictions. Additionally, during 2018, we recorded additional TCJA-related regulatory liabilities related to 2018 collections from customers, which are being refunded back to customers once new customer rates are approved by our regulators.

In addition, we will be required to pass back to customers “excess deferred taxes” which represent amounts collected from customers in the past to cover deferred tax liabilities which, as a result of the passage of the TCJA, are now less than the originally billed amounts. Approximately $1.5 billion of excess deferred taxes was recorded to "Regulatory liabilities (noncurrent)" on the Consolidated Balance Sheets as of December 31, 2017 as a result of implementing the TCJA. The majority of this balance related to temporary book-to-tax differences on utility property protected by IRS normalization rules. As modified rates are approved by each of our regulators, we expect this portion of the balance will be passed back to customers over the remaining average useful life of the associated property as required by the TCJA. The pass back period for the remainder of this balance will be determined by our state utility commissions in future proceedings. Our estimate of the amount and pass-back period of excess deferred taxes is subject to change pending final review by the utility commissions of the states in which we operate. As noted above, this pass back of excess deferred taxes has already begun in certain of our jurisdictions. As of December 31, 2018 we have approximately $1.4 billion of remaining regulatory liabilities associated with excess deferred taxes. See Note 8, "Regulatory Matters," for additional information.

As of December 31, 2018, we had a recorded deferred tax asset of $759.6 million related to a federal NOL carryforward, of which $508.5 million relates to years prior to the implementation of the TCJA. As a result of being in an NOL position, we were not

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

NISOURCE INC.

required to make any cash payments for federal income tax purposes during the three years ended December 31, 2018. The carryforward periods for pre-TCJA tax benefits expire in various tax years from 2028 to 2037, however, we expect to fully utilize the carryforward benefit prior to its expiration. Per the TCJA, utilization of NOL carryforwards generated after December 31, 2017 do not expire, but are limited to 80% of current year taxable income. Accordingly, we may be required to make cash payments for federal income taxes in future years despite having NOL carryforwards in excess of current taxes payable.

Investing Activities

Our cash used for investing activities varies year over year primarily as a result of changes in the level of annual capital expenditures. The table below reflects capital expenditures and certain other investing activities by segment for 2018, 2017 and 2016.

(in millions)	2018				2017				2016
Gas Distribution Operations
System Growth and Tracker	$	1,073.7			$	909.2			$	835.0
Maintenance	241.6				216.4				219.4
Total Gas Distribution Operations	1,315.3				1,125.6				1,054.4
Electric Operations
System Growth and Tracker	346.0				435.3				314.1
Maintenance	153.3				157.1				106.5
Total Electric Operations	499.3				592.4				420.6
Corporate and Other Operations - Maintenance(1)	—				35.8				15.4
Total(2)	$	1,814.6			$	1,753.8			$	1,490.4

(1)Zero Corporate and Other capital expenditures in 2018 driven by the leasing of IT assets beginning in Q1 2018 versus historical practice of purchasing.

(2)Amounts differ from those presented on the Statements of Consolidated Cash Flows primarily due to the capitalized portion of the Corporate Incentive Plan payout, inclusion of capital expenditures included in current liabilities and AFUDC Equity.

For 2018, capital expenditures and certain other investing activities were $1,814.6 million, which was $60.8 million higher than the 2017 capital program. This increased spending is due in part to costs associated with the Greater Lawrence Incident pipeline replacement, gas transmission projects, environmental investments and system modernization projects.

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

For 2019, we project to invest approximately $1.6 to $1.7 billion in our capital program. This projected level of spend is consistent with 2018 spend levels and is expected to focus primarily on the continuation of the modernization projects, segment growth across the Gas Distribution Operations segment, and TDSIC spend.

Financing Activities

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

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

Net Available Liquidity. As of December 31, 2018, an aggregate of $974.6 million of net liquidity was available, including cash and credit available under the revolving credit facility and accounts receivable securitization programs.

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

NISOURCE INC.

The following table displays NiSource's liquidity position as of December 31, 2018 and 2017:

Year Ended December 31, (in millions)	2018			2017
Current Liquidity
Revolving Credit Facility	$	1,850.0		$	1,850.0
Accounts Receivable Program(1)	399.2			336.7
Less:
Commercial Paper	978.0			869.0
Accounts Receivable Program Utilized	399.2			336.7
Letters of Credit Outstanding Under Credit Facility	10.2			11.1
Add:
Cash and Cash Equivalents	112.8			29.0
Net Available Liquidity	$	974.6		$	998.9

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

Debt Covenants. We are subject to a financial covenant under our revolving credit facility and term loan agreement, 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%.

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

Credit Ratings. The credit rating agencies periodically review our ratings, taking into account factors such as our capital structure and earnings profile. The following table includes our and certain of our subsidiaries' credit ratings and ratings outlook as of December 31, 2018.

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

	S&P		Moody's		Fitch
	Rating	Outlook	Rating	Outlook	Rating	Outlook
NiSource	BBB+	Negative	Baa2	Stable	BBB	Stable
NIPSCO	BBB+	Negative	Baa1	Stable	BBB	Stable
Columbia of Massachusetts	BBB+	Negative	Baa2	Stable	Not rated	Not rated
Commercial Paper	A-2	Negative	P-2	Stable	F2	Stable

Certain of our subsidiaries have agreements that contain “ratings triggers” that require increased collateral if our credit ratings or the credit ratings of certain of our subsidiaries are below investment grade. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. As of December 31, 2018, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $53.8 million. In addition to agreements with ratings triggers, there are other agreements that contain “adequate assurance” or “material adverse change” provisions that could necessitate additional credit support such as letters of credit and cash collateral to transact business.

Equity. Our authorized capital stock consists of 420,000,000 shares, $0.01 par value, of which 400,000,000 are common stock and 20,000,000 are preferred stock. As of December 31, 2018, 372,363,656 shares of common stock and 420,000 shares of preferred stock were outstanding. For more information regarding our common and preferred stock, see Note 12, "Equity," in the Notes to Consolidated Financial Statements.

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

NISOURCE INC.

Contractual Obligations. We have certain contractual obligations requiring payments at specified periods. The obligations include long-term debt, lease obligations, energy commodity contracts and obligations for various services including pipeline capacity and outsourcing of IT services. The total contractual obligations in existence at December 31, 2018 and their maturities were:

(in millions)	Total				2019				2020				2021				2022				2023				After
Long-term debt (1)	$	7,029.6			$	41.0			$	—			$	63.6			$	530.0			$	600.0			$	5,795.0
Capital leases(2)	322.4				23.0				22.5				22.6				22.1				19.8				212.4
Interest payments on long-term debt	6,311.7				319.8				318.6				318.6				315.0				289.0				4,750.7
Operating leases(3)	45.9				11.0				7.3				6.1				4.2				2.8				14.5
Energy commodity contracts	154.3				99.2				55.1				—				—				—				—
Service obligations:
Pipeline service obligations	3,566.7				592.3				487.7				450.5				437.5				260.8				1,337.9
IT service obligations	211.0				68.3				60.0				47.1				35.6				—				—
Other service obligations	86.7				33.5				43.6				9.6				—				—				—
Other liabilities	24.2				24.2				—				—				—				—				—
Total contractual obligations	$	17,752.5			$	1,212.3			$	994.8			$	918.1			$	1,344.4			$	1,172.4			$	12,110.5

(1) Long-term debt balance excludes unamortized issuance costs and discounts of $68.5 million.

(2) Capital lease payments shown above are inclusive of interest totaling $114.6 million.

(3) Operating lease balances do not include amounts for fleet leases that can be renewed beyond the initial lease term. The Company anticipates renewing the leases beyond the initial term, but the anticipated payments associated with the renewals do not meet the definition of expected minimum lease payments and therefore are not included above. Expected payments are $26.7 million in 2019, $22.4 million in 2020, $16.6 million in 2021, $12.3 million in 2022, $9.3 million in 2023 and $8.8 million thereafter.

Our calculated estimated interest payments for long-term debt is based on the stated coupon and payment dates. For 2019, we project that we will be required to make interest payments of approximately $363.1 million, which includes $319.8 million of interest payments related to our long-term debt outstanding as of December 31, 2018. At December 31, 2018, we had $1,977.2 million in short-term borrowings outstanding.

Our expected payments included within “Other liabilities” in the table of contractual commitments above contains employer contributions to pension and other postretirement benefits plans expected to be made in 2019. Plan contributions beyond 2019 are dependent upon a number of factors, including actual returns on plan assets, which cannot be reliably estimated at this time. In 2019, we expect to make contributions of approximately $3.0 million to our pension plans and approximately $20.6 million to our postretirement medical and life plans. Refer to Note 11, “Pension and Other Postretirement Benefits,” in the Notes to Consolidated Financial Statements for more information.

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

We also have obligations associated with income, property, gross receipts, franchise, payroll, sales and use, and various other taxes and expect to make tax payments of approximately $240.6 million in 2019, which are not included in the table above.

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

In January 2019, NIPSCO executed two 20 year PPAs to purchase 100% of the output from renewable generation facilities at a fixed price per mwh and a BTA with a developer to construct a renewable generation facility. Payments under these agreement are not included in the table above as these agreements were executed in 2019 and remain subject to approval by the relevant regulatory authorities before the deals would commence. See 18-E. "Other Matters - NIPSCO 2018 Integrated Resource Plan," for additional information.

Off-Balance Sheet Arrangements

We, along with certain of our subsidiaries, enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit.

Refer to Note 18, “Other Commitments and Contingencies,” in the Notes to Consolidated Financial Statements for additional information about such arrangements.

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

NISOURCE INC.

Market Risk Disclosures

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

Commodity Price Risk

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

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

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

Refer to Note 9, "Risk Management Activities," in the Notes to the Consolidated Financial Statements for further information on our commodity price risk assets and liabilities as of December 31, 2018 and 2017.

Interest Rate Risk

We are exposed to interest rate risk as a result of changes in interest rates on borrowings under our revolving credit agreement, commercial paper program, term loan borrowings and accounts receivable programs, which have interest rates that are indexed to short-term market interest rates. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $13.3 million and $15.8 million for 2018 and 2017, respectively. We are also exposed to interest rate risk as a result of changes in benchmark rates that can influence the interest rates of future debt issuances.

Refer to Note 9, "Risk Management Activities," in the Notes to Consolidated Financial Statements for further information on our interest rate risk assets and liabilities as of December 31, 2018 and 2017.

Credit Risk

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

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