Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

NIS****OURCE INC.

Quantitative and Qualitative Disclosures about Market Risk are reported in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk Disclosures.”

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NIS****OURCE INC.

Index	Page
Report of Independent Registered Public Accounting Firm	51
Statements of Consolidated Income (Loss)	54
Statements of Consolidated Comprehensive Income (Loss)	55
Consolidated Balance Sheets	56
Statements of Consolidated Cash Flows	58
Statements of Consolidated Stockholders' Equity	59
Notes to Consolidated Financial Statements	61
1. Nature of Operations and Summary of Significant Accounting Policies	61
2. Recent Accounting Pronouncements	64
3. Revenue Recognition	65
4. Earnings Per Share	68
5. Property, Plant and Equipment	69
6. Goodwill and Other Intangible Assets	69
7. Asset Retirement Obligations	71
8. Regulatory Matters	71
9. Risk Management Activities	79
10. Income Taxes	81
11. Pension and Other Postretirement Benefits	83
12. Equity	95
13. Share-Based Compensation	98
14. Long-Term Debt	101
15. Short-Term Borrowings	102
16. Leases	103
17. Fair Value	106
18. Transfers of Financial Assets	109
19. Other Commitments and Contingencies	110
20. Accumulated Other Comprehensive Loss	119
21. Other, Net	119
22. Interest Expense, Net	120
23. Segments of Business	120
24. Quarterly Financial Data (Unaudited)	122
25. Supplemental Cash Flow Information	122
26. Subsequent Event	123
Schedule II	124

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of NiSource Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NiSource Inc. and subsidiaries (the "Company") as of December 31, 2019 and 2018, the related statements of consolidated income (loss), comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 27, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impact of Rate Regulation on the Financial Statements - Refer to Notes 1, 8, 19, and 26 to the financial statements

Critical Audit Matter Description

Certain subsidiaries of NiSource Inc. are fully regulated natural gas and electric utility companies serving customers in seven states. These rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the manner in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged to and collected from customers. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the consolidated balance sheets and are later recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers.

Through December 31, 2019, the Company invested approximately $258 million of capital spend for the Greater Lawrence Incident pipeline replacement. As of December 31, 2019, the Company determined that a disallowance of the Greater Lawrence Incident pipeline replacement capital expenditures was not probable. On February 26, 2020, the Company and its wholly-owned subsidiary, Columbia of Massachusetts (CMA), agreed to sell substantially all of CMA's utility property, plant, and equipment (including the

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Greater Lawrence Incident pipeline replacement assets) with other specified assets and liabilities, to a third party. The Company estimates that the total pre-tax loss resulting from this sale will be approximately $360 million, based on December 31, 2019 asset and liability balances and estimated transaction costs.

We identified the accounting for rate-regulated subsidiaries as a critical audit matter due to the significant judgments made by management to support its assertions about impacted account balances and disclosures and the high degree of subjectivity involved in assessing the impact of future regulatory orders on the financial statements. Management judgments include assessing (1) the likelihood of recovery in future rates of incurred costs, (2) the likelihood of refund of amounts previously collected from customers, and (3) the probability of recovery of amounts capitalized related to the Greater Lawrence Incident pipeline replacement. Given that management’s accounting judgments are based on assumptions about the outcome of future decisions by regulatory commissions, auditing these judgments required specialized knowledge of accounting for rate regulation and the rate making process due its inherent complexities.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the uncertainty of future decisions by regulatory commissions included the following, among others:

•

We tested the effectiveness of management’s controls over the evaluation of the likelihood of (1) the recovery in future rates of costs incurred as property, plant, and equipment and deferred as regulatory assets, and (2) a refund or a future reduction in rates that should be reported as regulatory liabilities. We also tested the effectiveness of management’s controls over the initial recognition of amounts as property, plant, and equipment, including the Greater Lawrence Incident pipeline replacement; regulatory assets or liabilities; and the monitoring and evaluation of regulatory developments, that may affect the likelihood of recovering costs in future rates or of a future reduction in rates.

•	We evaluated the Company’s disclosures related to the impacts of rate regulation, including the balances recorded and regulatory developments.

•

We read relevant regulatory orders issued by regulatory commissions, regulatory statutes, interpretations, filings made by interveners, and other publicly available information to assess the likelihood of recovery in future rates or of a future reduction in rates based on precedence of regulatory commissions’ treatment of similar costs under similar circumstances. We evaluated the external information and compared it to management’s recorded regulatory asset and liability balances for completeness.

•	For regulatory matters in process, including those that could impact the Greater Lawrence Incident pipeline replacement, we inspected the Company’s filings with regulatory commissions and the filings with regulatory commissions by intervenors for any evidence that might contradict management’s assertions related to recoverability of recorded assets*.*

•	We inquired of management about property, plant, and equipment that may be abandoned. We inspected minutes of meetings of the board of directors and regulatory orders and other filings with regulatory commissions to identify evidence that may contradict management’s assertion regarding probability of an abandonment.

•	We obtained an analysis from management regarding probability of recovery for regulatory assets or refund or future reduction in rates for regulatory liabilities not yet addressed in a regulatory order to assess management’s assertion that amounts are probable of recovery or a future reduction in rates.

•	We evaluated the impact of the February 26, 2020 sale transaction on the carrying value of the Company’s utility property, plant, and equipment as of December 31, 2019.

Impairment of the Franchise Rights Intangible Asset & the Columbia of Massachusetts Reporting Unit Goodwill - Refer to Note 6 to the financial statements

Critical Audit Matter Description

The Company assessed the changes in circumstances that occurred during the fourth quarter to determine whether it was more likely than not that the fair values of the long-lived assets (including the franchise rights intangible asset) and goodwill of Columbia of Massachusetts (CMA), a wholly-owned subsidiary of the Company, were below their carrying amount. The totality of several factors led to the Company concluding that it was more likely than not that the fair value of the CMA reporting unit and the value of CMA’s long-lived assets were below their carrying values. These factors included: (1) increased Massachusetts Department of Public Utilities (DPU) regulatory enforcement activity related to CMA, including (i) an order imposing work restrictions on CMA, (ii) two orders opening public investigations into CMA related to the Greater Lawrence Incident and restoration efforts following the incident, and (iii) an order defining the scope of the DPU’s investigation into the preparation and response of CMA related to the incident; (2) increased uncertainty as to the ability of CMA to execute its growth strategy, including utility infrastructure

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

investments, and CMA’s ability to obtain timely regulatory outcomes with reasonable rates of return; (3) further damage to CMA’s reputation; and (4) the potential sale of the Company's business in Massachusetts.

The Company performed a long-lived asset impairment test as of December 31, 2019 in which it compared the book value of the CMA asset group to its undiscounted future cash flows and determined that the carrying value of the asset group was not recoverable. The Company estimated the fair value of the CMA asset group using a weighting of income and market approaches and determined that the fair value was less than the carrying value. The resulting impairment loss was allocated to reduce the recorded franchise rights intangible asset to its fair value of zero, which resulted in an impairment charge totaling $209.7 million for the year ended December 31, 2019. The Company also performed a goodwill impairment test for the CMA reporting unit as of December 31, 2019. As part of this test, the Company estimated CMA’s fair value based on a weighting of income and market approaches. This impairment analysis indicated that the fair value of the CMA reporting unit was below its carrying value and, as a result, the Company recognized a goodwill impairment charge totaling $204.8 million.

We identified the impairment of the franchise rights intangible asset and the CMA reporting unit goodwill as a critical audit matter as there was a high degree of auditor judgment and subjectivity in applying procedures relating to the allocation of impairment to CMA’s long-lived assets and the fair value measurement of the reporting unit. This was driven by significant management judgment when determining fair value, including (1) the weightings of the fair value approaches, (2) the future cash flows used in the impairment tests, and (3) other inputs used in the valuation including comparable company multiples, discount rates, and return on equity. In addition, the audit effort involved the use of fair value specialists to assist in performing audit procedures over these assumptions and evaluating the audit evidence obtained.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the impairment of CMA’s franchise rights intangible asset and CMA reporting unit goodwill included the following, among others:

•

We tested the effectiveness of management’s controls over the impairments, including (1) validation of the assumptions included in the impairment analysis for both the franchise rights intangible asset and goodwill, (2) the evaluation of the methodology used in determining the magnitude of impairment charges as of December 31, 2019, and (3) the verification of the completeness and accuracy of the journal entry made to record the impairments and the related disclosures.

•	We evaluated the inputs used in the franchise rights intangible asset and goodwill impairment tests, including cash flow projections, scenario analysis, discount rates, return on equity assumptions, and comparable company multiples.

•	We compared the undiscounted cash flows used in the franchise rights intangible asset impairment test to the carrying value of the asset group to evaluate whether an impairment existed at December 31, 2019.

•	With the assistance of our fair value specialists, we evaluated the reasonableness of the calculated amount of fair value of the franchise rights intangible asset.

•	We evaluated the allocation of impairment to the franchise rights intangible asset.

•	We evaluated the relative weightings of the income and market approaches used to estimate fair value for the purposes of the goodwill impairment test.

•	We evaluated the reasonableness of the fair value calculated under the combination of income and market approaches by comparing it to the fair value used in the May 1, 2019 goodwill impairment test.

•	We evaluated the Company’s disclosures related to the impairment charges.

/s/ DELOITTE & TOUCHE LLP

Columbus, Ohio

February 27, 2020

We have served as the Company's auditor since 2002.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

STATEMENTS OF CONSOLIDATED INCOME (LOSS)

Year Ended December 31*, (in millions, except per share amounts)*	2019				2018				2017
Operating Revenues
Customer revenues	$	5,053.4			$	4,991.1			$	4,730.2
Other revenues	155.5				123.4				144.4
Total Operating Revenues	5,208.9				5,114.5				4,874.6
Operating Expenses
Cost of sales (excluding depreciation and amortization)	1,534.8				1,761.3				1,518.7
Operation and maintenance	1,354.7				2,352.9				1,601.7
Depreciation and amortization	717.4				599.6				570.3
Impairment of goodwill and other intangible assets	414.5				—				—
Loss on sale of fixed assets and impairments, net	—				1.2				5.5
Other taxes	296.8				274.8				257.2
Total Operating Expenses	4,318.2				4,989.8				3,953.4
Operating Income	890.7				124.7				921.2
Other Income (Deductions)
Interest expense, net	(378.9		)		(353.3		)		(353.2		)
Other, net	(5.2		)		43.5				(13.5		)
Loss on early extinguishment of long-term debt	—				(45.5		)		(111.5		)
Total Other Deductions, Net	(384.1		)		(355.3		)		(478.2		)
Income (Loss) before Income Taxes	506.6				(230.6		)		443.0
Income Taxes	123.5				(180.0		)		314.5
Net Income (Loss)	383.1				(50.6		)		128.5
Preferred dividends	(55.1		)		(15.0		)		—
Net Income (Loss) Available to Common Shareholders	328.0				(65.6		)		128.5
Earnings (Loss) Per Share
Basic Earnings (Loss) Per Share	$	0.88			$	(0.18	)		$	0.39
Diluted Earnings (Loss) Per Share	$	0.87			$	(0.18	)		$	0.39
Basic Average Common Shares Outstanding	374.6				356.5				329.4
Diluted Average Common Shares	376.0				356.5				330.8

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (LOSS)

Year Ended December 31, (in millions, net of taxes)	2019				2018				2017
Net Income (Loss)	$	383.1			$	(50.6	)		$	128.5
Other comprehensive income (loss):
Net unrealized gain (loss) on available-for-sale securities(1)	5.7				(2.6		)		0.8
Net unrealized gain (loss) on cash flow hedges(2)	(64.2		)		22.7				(22.5		)
Unrecognized pension and OPEB benefit (costs)(3)	3.1				(4.4		)		3.4
Total other comprehensive income (loss)	(55.4		)		15.7				(18.3		)
Total Comprehensive Income (Loss)	$	327.7			$	(34.9	)		$	110.2

(1) Net unrealized gain (loss) on available-for-sale securities, net of $1.5 million tax expense, $0.6 million tax benefit and $0.4 million tax expense in 2019, 2018 and 2017, respectively.

(2) Net unrealized gain (loss) on derivatives qualifying as cash flow hedges, net of $21.2 million tax benefit, $7.5 million tax expense and $13.9 million tax benefit in 2019, 2018 and 2017, respectively.

(3) Unrecognized pension and OPEB benefit (costs), net of $1.6 million tax expense, $1.5 million tax benefit and $2.1 million tax expense in 2019, 2018 and 2017, respectively.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

CONSOLIDATED BALANCE SHEETS

(in millions)	December 31, 2019				December 31, 2018
ASSETS
Property, Plant and Equipment
Utility plant	$	24,502.6			$	22,780.8
Accumulated depreciation and amortization	(7,609.3		)		(7,257.9		)
Net utility plant	16,893.3				15,522.9
Other property, at cost, less accumulated depreciation	18.9				19.6
Net Property, Plant and Equipment	16,912.2				15,542.5
Investments and Other Assets
Unconsolidated affiliates	1.3				2.1
Other investments	228.9				204.0
Total Investments and Other Assets	230.2				206.1
Current Assets
Cash and cash equivalents	139.3				112.8
Restricted cash	9.1				8.3
Accounts receivable (less reserve of $19.2 and $21.1, respectively)	856.9				1,058.5
Gas inventory	250.9				286.8
Materials and supplies, at average cost	120.2				101.0
Electric production fuel, at average cost	53.6				34.7
Exchange gas receivable	48.5				88.4
Regulatory assets	225.7				235.4
Prepayments and other	149.7				129.5
Total Current Assets	1,853.9				2,055.4
Other Assets
Regulatory assets	2,013.9				2,002.1
Goodwill	1,485.9				1,690.7
Intangible assets, net	—				220.7
Deferred charges and other	163.7				86.5
Total Other Assets	3,663.5				4,000.0
Total Assets	$	22,659.8			$	21,804.0

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)	December 31, 2019				December 31, 2018
CAPITALIZATION AND LIABILITIES
Capitalization
Stockholders’ Equity
Common stock - $0.01 par value, 600,000,000 shares authorized; 382,135,680 and 372,363,656 shares outstanding, respectively	$	3.8			$	3.8
Preferred stock - $0.01 par value, 20,000,000 shares authorized; 440,000 and 420,000 shares outstanding, respectively	880.0				880.0
Treasury stock	(99.9		)		(99.9		)
Additional paid-in capital	6,666.2				6,403.5
Retained deficit	(1,370.8		)		(1,399.3		)
Accumulated other comprehensive loss	(92.6		)		(37.2		)
Total Stockholders’ Equity	5,986.7				5,750.9
Long-term debt, excluding amounts due within one year	7,856.2				7,105.4
Total Capitalization	13,842.9				12,856.3
Current Liabilities
Current portion of long-term debt	13.4				50.0
Short-term borrowings	1,773.2				1,977.2
Accounts payable	666.0				883.8
Customer deposits and credits	256.4				238.9
Taxes accrued	231.6				222.7
Interest accrued	99.4				90.7
Exchange gas payable	59.7				85.5
Regulatory liabilities	160.2				140.9
Legal and environmental	20.1				18.9
Accrued compensation and employee benefits	156.3				149.7
Claims accrued	165.4				114.7
Other accruals	144.1				63.8
Total Current Liabilities	3,745.8				4,036.8
Other Liabilities
Risk management liabilities	134.0				46.7
Deferred income taxes	1,485.3				1,330.5
Deferred investment tax credits	9.7				11.2
Accrued insurance liabilities	81.5				84.4
Accrued liability for postretirement and postemployment benefits	373.2				389.1
Regulatory liabilities	2,352.0				2,519.1
Asset retirement obligations	416.9				352.0
Other noncurrent liabilities	218.5				177.9
Total Other Liabilities	5,071.1				4,910.9
Commitments and Contingencies (Refer to Note 19, "Other Commitments and Contingencies")	—				—
Total Capitalization and Liabilities	$	22,659.8			$	21,804.0

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

Year Ended December 31, (in millions)	2019				2018				2017
Operating Activities
Net Income (Loss)	$	383.1			$	(50.6	)		$	128.5
Adjustments to Reconcile Net Income (Loss) to Net Cash from Operating Activities:
Loss on early extinguishment of debt	—				45.5				111.5
Depreciation and amortization	717.4				599.6				570.3
Deferred income taxes and investment tax credits	118.2				(188.2		)		306.7
Stock compensation expense and 401(k) profit sharing contribution	25.9				28.6				40.1
Impairment of goodwill and other intangible assets	414.5				—				—
Amortization of discount/premium on debt	8.2				7.5				7.4
AFUDC equity	(8.0		)		(14.2		)		(12.6		)
Other adjustments	(0.9		)		1.7				6.6
Changes in Assets and Liabilities:
Accounts receivable	187.8				(186.2		)		(52.3		)
Inventories	(2.0		)		41.4				19.0
Accounts payable	(299.9		)		268.4				49.0
Customer deposits and credits	16.9				(25.4		)		(2.5		)
Taxes accrued	7.3				20.2				10.2
Interest accrued	8.8				(21.7		)		(33.9		)
Exchange gas receivable/payable	55.5				(21.5		)		(64.5		)
Other accruals	105.3				43.5				31.8
Prepayments and other current assets	(33.6		)		(14.5		)		(13.3		)
Regulatory assets/liabilities	(85.6		)		(53.2		)		57.5
Postretirement and postemployment benefits	(21.1		)		58.2				(380.9		)
Deferred charges and other noncurrent assets	(76.1		)		3.8				(2.0		)
Other noncurrent liabilities	61.6				(2.8		)		(34.4		)
Net Cash Flows from Operating Activities	1,583.3				540.1				742.2
Investing Activities
Capital expenditures	(1,802.4		)		(1,818.2		)		(1,695.8		)
Cost of removal	(113.2		)		(104.3		)		(109.0		)
Purchases of available-for-sale securities	(140.4		)		(90.0		)		(168.4		)
Sales of available-for-sale securities	132.1				82.3				163.1
Other investing activities	1.5				4.1				1.6
Net Cash Flows used for Investing Activities	(1,922.4		)		(1,926.1		)		(1,808.5		)
Financing Activities
Issuance of long-term debt	750.0				350.0				3,250.0
Repayments of long-term debt and finance lease obligations	(51.6		)		(1,046.1		)		(1,855.0		)
Issuance of short-term debt (maturity > 90 days)	600.0				950.0				—
Repayment of short-term debt (maturity > 90 days)	(700.0		)		—				—
Change in short-term borrowings, net (maturity ≤ 90 days)	(104.0		)		(178.5		)		(282.4		)
Issuance of common stock, net of issuance costs	244.4				848.2				336.7
Issuance of preferred stock, net of issuance costs	—				880.0				—
Equity costs, premiums and other debt related costs	(17.8		)		(46.0		)		(144.3		)
Acquisition of treasury stock	—				(4.0		)		(7.2		)
Dividends paid - common stock	(298.5		)		(273.3		)		(229.1		)
Dividends paid - preferred stock	(56.1		)		(11.6		)		—
Net Cash Flows from Financing Activities	366.4				1,468.7				1,068.7
Change in cash, cash equivalents and restricted cash	27.3				82.7				2.4
Cash, cash equivalents and restricted cash at beginning of period	121.1				38.4				36.0
Cash, Cash Equivalents and Restricted Cash at End of Period	$	148.4			$	121.1			$	38.4

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY

(in millions)	Common Stock				Preferred Stock**(1)**				Treasury Stock				Additional Paid-In Capital				Retained Deficit				Accumulated Other Comprehensive Loss				Total
Balance as of January 1, 2017	$	3.3			$	—			$	(88.7	)		$	5,153.9			$	(972.2	)		$	(25.1	)		$	4,071.2
Comprehensive Income:
Net Income	—				—				—				—				128.5				—				128.5
Other comprehensive loss, net of tax	—				—				—				—				—				(18.3		)		(18.3		)
Common stock dividends ($0.70 per share)	—				—				—				—				(229.4		)		—				(229.4		)
Treasury stock acquired	—				—				(7.2		)		—				—				—				(7.2		)
Stock issuances:
Employee stock purchase plan	—				—				—				5.0				—				—				5.0
Long-term incentive plan	—				—				—				14.9				—				—				14.9
401(k) and profit sharing	—				—				—				34.3				—				—				34.3
Dividend reinvestment plan	—				—				—				6.4				—				—				6.4
ATM Program	0.1				—				—				314.6				—				—				314.7
Balance as of December 31, 2017	$	3.4			$	—			$	(95.9	)		$	5,529.1			$	(1,073.1	)		$	(43.4	)		$	4,320.1
Comprehensive Loss:
Net Loss	—				—				—				—				(50.6		)		—				(50.6		)
Other comprehensive income, net of tax	—				—				—				—				—				15.7				15.7
Dividends
Common stock ($0.78 per share)	—				—				—				—				(273.5		)		—				(273.5		)
Preferred stock ($28.88 per share)	—				—				—				—				(11.6		)		—				(11.6		)
Treasury stock acquired	—				—				(4.0		)		—				—				—				(4.0		)
Cumulative effect of change in accounting principle	—				—				—				—				9.5				(9.5		)		—
Stock issuances:
Common stock - private placement	0.3				—				—				599.3				—				—				599.6
Preferred stock	—				880.0				—				—				—				—				880.0
Employee stock purchase plan	—				—				—				5.5				—				—				5.5
Long-term incentive plan	—				—				—				15.4				—				—				15.4
401(k) and profit sharing	—				—				—				21.8				—				—				21.8
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
Comprehensive Income:
Net Income	—				—				—				—				383.1				—				383.1
Other comprehensive loss, net of tax	—				—				—				—				—				(55.4		)		(55.4		)
Dividends:
Common stock ($0.80 per share)	—				—				—				—				(298.5		)		—				(298.5		)
Preferred stock (See Note 12)	—				—				—				—				(56.1		)		—				(56.1		)
Stock issuances:
Employee stock purchase plan	—				—				—				5.6				—				—				5.6
Long-term incentive plan	—				—				—				10.4				—				—				10.4
401(k) and profit sharing	—				—				—				17.6				—				—				17.6
ATM program	—				—				—				229.1				—				—				229.1
Balance as of December 31, 2019	$	3.8			$	880.0			$	(99.9	)		$	6,666.2			$	(1,370.8	)		$	(92.6	)		$	5,986.7

(1)Series A and Series B shares have an aggregate liquidation preference of $400M and $500M, respectively. See Note 12, "Equity" for additional information.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

NIS****OURCE INC.

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY

	Preferred			Common
(in thousands)	Shares			Shares			Treasury			Outstanding
Balance as of January 1, 2017	—			326,664			(3,504	)		323,160
Treasury stock acquired	—			—			(293	)		(293	)
Issued:
Employee stock purchase plan	—			207			—			207
Long-term incentive plan	—			351			—			351
401(k) and profit sharing plan	—			1,396			—			1,396
Dividend reinvestment plan	—			264			—			264
ATM program	—			11,931			—			11,931
Balance as of December 31, 2017	—			340,813			(3,797	)		337,016
Treasury stock acquired	—			—			(166	)		(166	)
Issued:
Common stock - private placement	—			24,964			—			24,964
Preferred stock	420			—			—			—
Employee stock purchase plan	—			223			—			223
Long-term incentive plan	—			561			—			561
401(k) and profit sharing plan	—			882			—			882
ATM Program	—			8,883			—			8,883
Balance as of December 31, 2018	420			376,326			(3,963	)		372,363
Issued:
Preferred stock(1)	20			—			—			—
Employee stock purchase plan	—			201			—			201
Long-term incentive plan	—			518			—			518
401(k) and profit sharing plan	—			631			—			631
ATM program	—			8,423			—			8,423
Balance as of December 31, 2019	440			386,099			(3,963	)		382,136

(1)See Note 12, "Equity," for additional information.

Accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

NIS****OURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

1**. Nature of Operations and Summary of Significant Accounting Policies**

A. Company Structure and Principles of Consolidation. We are an energy holding company incorporated in Delaware and headquartered in Merrillville, Indiana. Our subsidiaries are fully regulated natural gas and electric utility companies serving approximately 4.0 million customers in seven states. We generate substantially all of our operating income through these rate-regulated businesses. The consolidated financial statements include the accounts of us and our majority-owned subsidiaries after the elimination of all intercompany accounts and transactions.

On February 26, 2020, NiSource and Columbia of Massachusetts entered into the Asset Purchase Agreement with Eversource, a Massachusetts voluntary association. Upon the terms and subject to the conditions set forth in the Asset Purchase Agreement, NiSource and Columbia of Massachusetts agreed to sell to Eversource, with certain additions and exceptions, (1) substantially all of the assets of Columbia of Massachusetts and (2) all of the assets held by any of Columbia of Massachusetts’ affiliates that primarily relate to the business of storing, distributing or transporting natural gas to residential, commercial and industrial customers in Massachusetts, as conducted by Columbia of Massachusetts, and Eversource agreed to assume certain liabilities of Columbia of Massachusetts and its affiliates. For additional information, see Note 26, “Subsequent Event.”

B. Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

C. Cash, Cash Equivalents and Restricted Cash. We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. We report amounts deposited in brokerage accounts for margin requirements as restricted cash. In addition, we have amounts deposited in trust to satisfy requirements for the provision of various property, liability, workers compensation, and long-term disability insurance, which is classified as restricted cash on the Consolidated Balance Sheets and disclosed with cash and cash equivalents on the Statements of Consolidated Cash Flows.

D. Accounts Receivable and Unbilled Revenue. Accounts receivable on the Consolidated Balance Sheets includes both billed and unbilled amounts. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the last cycle billing date through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates and weather. Accounts receivable fluctuates from year to year depending in large part on weather impacts and price volatility. Our accounts receivable on the Consolidated Balance Sheets include unbilled revenue, less reserves, in the amounts of $350.5 million and $324.2 million as of December 31, 2019 and 2018, respectively. The reserve for uncollectible receivables is our best estimate of the amount of probable credit losses in the existing accounts receivable. We determined the reserve based on historical experience and in consideration of current market conditions. Account balances are charged against the allowance when it is anticipated the receivable will not be recovered. Refer to Note 3, "Revenue Recognition," for additional information on customer-related accounts receivable.

E. Investments in Debt Securities. Our investments in debt securities are carried at fair value and are designated as available-for-sale. These investments are included within “Other investments” on the Consolidated Balance Sheets. Unrealized gains and losses, net of deferred income taxes, are recorded to accumulated other comprehensive income or loss. These investments are monitored for other than temporary declines in market value. Realized gains and losses and permanent impairments are reflected in the Statements of Consolidated Income (Loss). No material impairment charges were recorded for the years ended December 31, 2019, 2018 or 2017. Refer to Note 17, "Fair Value," for additional information.

F. Basis of Accounting for Rate-Regulated Subsidiaries. Rate-regulated subsidiaries account for and report assets and liabilities consistent with the economic effect of the way in which regulators establish rates, if the rates established are designed to recover the costs of providing the regulated service and it is probable that such rates can be charged and collected. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income are deferred on the Consolidated Balance Sheets and are later recognized in income as the related amounts are included in customer rates and recovered from or refunded to customers.

In the event that regulation significantly changes the opportunity for us to recover our costs in the future, all or a portion of our regulated operations may no longer meet the criteria for regulatory accounting. In such an event, a write-down of all or a portion of our existing regulatory assets and liabilities could result. If transition cost recovery was approved by the appropriate regulatory bodies that would meet the requirements under GAAP for continued accounting as regulatory assets and liabilities during such recovery period, the regulatory assets and liabilities would be reported at the recoverable amounts. If unable to continue to apply

NIS****OURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

the provisions of regulatory accounting, we would be required to apply the provisions of ASC 980-20, Discontinuation of Rate-Regulated Accounting. In management’s opinion, our regulated subsidiaries will be subject to regulatory accounting for the foreseeable future. Refer to Note 8, "Regulatory Matters," for additional information.

G. Plant and Other Property and Related Depreciation and Maintenance. Property, plant and equipment (principally utility plant) is stated at cost. The rate-regulated subsidiaries record depreciation using composite rates on a straight-line basis over the remaining service lives of the electric, gas and common properties as approved by the appropriate regulators.

Non-utility property is generally depreciated on a straight-line basis over the life of the associated asset. Refer to Note 5, "Property, Plant and Equipment," for additional information related to depreciation expense.

For rate-regulated companies, AFUDC is capitalized on all classes of property except organization costs, land, autos, office equipment, tools and other general property purchases. The allowance is applied to construction costs for that period of time between the date of the expenditure and the date on which such project is placed in service. Our pre-tax rate for AFUDC was 3.0% in 2019, 3.5% in 2018 and 4.0% in 2017.

Generally, our subsidiaries follow the practice of charging maintenance and repairs, including the cost of removal of minor items of property, to expense as incurred. When our subsidiaries retire regulated property, plant and equipment, original cost plus the cost of retirement, less salvage value, is charged to accumulated depreciation. However, when it becomes probable a regulated asset will be retired substantially in advance of its original expected useful life or is abandoned, the cost of the asset and the corresponding accumulated depreciation is recognized as a separate asset. If the asset is still in operation, the net amount is classified as "Other property, at cost, less accumulated depreciation" on the Consolidated Balance Sheets. If the asset is no longer operating, the net amount is classified in "Regulatory assets" on the Consolidated Balance Sheets. If we are able to recover a full return of and on investment, the carrying value of the asset is based on historical cost. If we are not able to recover a full return on investment, a loss on impairment is recognized to the extent the net book value of the asset exceeds the present value of future revenues discounted at the incremental borrowing rate.

When our subsidiaries sell entire regulated operating units, or retire or sell nonregulated properties, the original cost and accumulated depreciation and amortization balances are removed from "Property, Plant and Equipment" on the Consolidated Balance Sheets. Any gain or loss is recorded in earnings, unless otherwise required by the applicable regulatory body. Refer to Note 5, "Property, Plant and Equipment," for further information.

External and internal costs associated with computer software developed for internal use are capitalized. Capitalization of such costs commences upon the completion of the preliminary stage of each project. Once the installed software is ready for its intended use, such capitalized costs are amortized on a straight-line basis generally over a period of five years, except for certain significant enterprise-wide technology investments which are amortized over a ten-year period.

External and internal up-front implementation costs associated with cloud computing arrangements that are service contracts are deferred on the Consolidated Balance Sheets. Once the installed software is ready for its intended use, such deferred costs are amortized on a straight-line basis to "Operation and maintenance," over the minimum term of the contract plus contractually-provided renewal periods that are reasonable expected to be exercised -- generally up to a maximum of five years.

H. Goodwill and Other Intangible Assets. Substantially all of our goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. We test our goodwill for impairment annually as of May 1, or more frequently if events and circumstances indicate that goodwill might be impaired. Fair value of our reporting units is determined using a combination of income and market approaches.

We had other intangible assets consisting primarily of franchise rights apart from goodwill that were identified as part of the purchase price allocations associated with the acquisition of Columbia of Massachusetts, which were being amortized on a straight-line basis over forty years from the date of acquisition.

During the fourth quarter of 2019, we impaired goodwill and intangible assets related to Columbia of Massachusetts. See Note 6, "Goodwill and Other Intangible Assets," for additional information.

I. Accounts Receivable Transfer Program. Certain of our subsidiaries have agreements with third parties to transfer certain accounts receivable without recourse. These transfers of accounts receivable are accounted for as secured borrowings. The entire gross receivables balance remains on the December 31, 2019 and 2018 Consolidated Balance Sheets and short-term debt is recorded

NIS****OURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

in the amount of proceeds received from the transferees involved in the transactions. Refer to Note 18, "Transfers of Financial Assets," for further information.

J. Gas Cost and Fuel Adjustment Clause. Our regulated subsidiaries defer most differences between gas and fuel purchase costs and the recovery of such costs in revenues, and adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. These deferred balances are recorded as "Regulatory assets" or "Regulatory liabilities," as appropriate, on the Consolidated Balance Sheets. Refer to Note 8, "Regulatory Matters," for additional information.

K. Inventory. Both the LIFO inventory methodology and the weighted average cost methodology are used to value natural gas in storage, as approved by regulators for all of our regulated subsidiaries. Inventory valued using LIFO was $47.2 million and $47.5 million at December 31, 2019 and 2018, respectively. Based on the average cost of gas using the LIFO method, the estimated replacement cost of gas in storage was less than the stated LIFO cost by $25.5 million and $12.2 million at December 31, 2019 and 2018, respectively. Gas inventory valued using the weighted average cost methodology was $203.7 million at December 31, 2019 and $239.3 million at December 31, 2018.

Electric production fuel is valued using the weighted average cost inventory methodology, as approved by NIPSCO's regulator.

Materials and supplies are valued using the weighted average cost inventory methodology.

L. Accounting for Exchange and Balancing Arrangements of Natural Gas. Our Gas Distribution Operations segment enters into balancing and exchange arrangements of natural gas as part of its operations and off-system sales programs. We record a receivable or payable for any of our respective cumulative gas imbalances, as well as for any gas inventory borrowed or lent under a Gas Distribution Operations exchange agreement. Exchange gas is valued based on individual regulatory jurisdiction requirements (for example, historical spot rate, spot at the beginning of the month). These receivables and payables are recorded as “Exchange gas receivable” or “Exchange gas payable” on our Consolidated Balance Sheets, as appropriate.

M. Accounting for Risk Management Activities. We account for our derivatives and hedging activities in accordance with ASC 815. We recognize all derivatives as either assets or liabilities on the Consolidated Balance Sheets at fair value, unless such contracts are exempted as a normal purchase normal sale under the provisions of the standard. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation.

We have elected not to net fair value amounts for any of our derivative instruments or the fair value amounts recognized for the right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. See Note 9, "Risk Management Activities," for additional information.

N. Income Taxes and Investment Tax Credits. We record income taxes to recognize full interperiod tax allocations. Under the asset and liability method, deferred income taxes are provided for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amount and the tax basis of existing assets and liabilities. Investment tax credits associated with regulated operations are deferred and amortized as a reduction to income tax expense over the estimated useful lives of the related properties.

To the extent certain deferred income taxes of the regulated companies are recoverable or payable through future rates, regulatory assets and liabilities have been established. Regulatory assets for income taxes are primarily attributable to property-related tax timing differences for which deferred taxes had not been provided in the past, when regulators did not recognize such taxes as costs in the rate-making process. Regulatory liabilities for income taxes are primarily attributable to the regulated companies’ obligation to refund to ratepayers deferred income taxes provided at rates higher than the current Federal income tax rate. Such property-related amounts are credited to ratepayers using either the average rate assumption method or the reverse South Georgia method. Non property-related amounts are credited to ratepayers consistent with state utility commission direction.

Pursuant to the Internal Revenue Code and relevant state taxing authorities, we and our subsidiaries file consolidated income tax returns for federal and certain state jurisdictions. We and our subsidiaries are parties to a tax sharing agreement. Income taxes recorded by each party represent amounts that would be owed had the party been separately subject to tax.

O. Environmental Expenditures. We accrue for costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated, regardless of when the expenditures are actually made. The undiscounted estimated future expenditures are based on currently enacted laws and regulations, existing technology and estimated site-specific costs where assumptions may be made about the nature and extent of site contamination, the extent of

NIS****OURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

cleanup efforts, costs of alternative cleanup methods and other variables. The liability is adjusted as further information is discovered or circumstances change. The accruals for estimated environmental expenditures are recorded on the Consolidated Balance Sheets in “Legal and environmental” for short-term portions of these liabilities and “Other noncurrent liabilities” for the respective long-term portions of these liabilities. Rate-regulated subsidiaries applying regulatory accounting establish regulatory assets on the Consolidated Balance Sheets to the extent that future recovery of environmental remediation costs is probable through the regulatory process. Refer to Note 19, "Other Commitments and Contingencies," for further information.

P. Excise Taxes. As an agent for some state and local governments, we invoice and collect certain excise taxes levied by state and local governments on customers and record these amounts as liabilities payable to the applicable taxing jurisdiction. Such balances are presented within "Other accruals" on the Consolidated Balance Sheets. These types of taxes collected from customers, comprised largely of sales taxes, are presented on a net basis affecting neither revenues nor cost of sales. We account for excise taxes for which we are liable by recording a liability for the expected tax with a corresponding charge to “Other taxes” expense on the Statements of Consolidated Income (Loss).

Q. Accrued Insurance Liabilities. We accrue for insurance costs related to workers compensation, automobile, property, general and employment practices liabilities based on the most probable value of each claim. In general, claim values are determined by professional, licensed loss adjusters who consider the facts of the claim, anticipated indemnification and legal expenses, and respective state rules. Claims are reviewed by us at least quarterly and an adjustment is made to the accrual based on the most current information. Refer to Note 19-E "Other Matters" for further information on accrued insurance liabilities related to the Greater Lawrence Incident.

2**. Recent Accounting Pronouncements**

Recently Issued Accounting Pronouncements

We are currently evaluating the impact of certain ASUs on our Consolidated Financial Statements or Notes to Consolidated Financial Statements, which are described below:

Standard	Description	Effective Date	Effect on the financial statements or other significant matters
ASU 2018-14, Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans	The pronouncement modifies the disclosure requirements for defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial, clarifies the specific requirements of disclosures and adds disclosure requirements identified as relevant. The modifications affect annual period disclosures and must be applied on a retrospective basis to all periods presented.	Annual periods ending after December 15, 2020. Early adoption is permitted.	We are currently evaluating the effects of this pronouncement on our Notes to Consolidated Financial Statements. We expect to adopt this ASU on its effective date.
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes	This pronouncement simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in ASC 740, income taxes. It also improves consistency of application for other areas of the guidance by clarifying and amending existing guidance.	Annual periods beginning after December 15, 2020. Early adoption is permitted.	We are currently evaluating the effects of this pronouncement on our Consolidated Financial Statements and Notes to Consolidated Financial Statements. We tentatively expect to adopt this ASU on its effective date.

NIS****OURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Recently Adopted Accounting Pronouncements

Standard	Adoption
ASU 2019-01, Leases (Topic 842): Codification Improvements	See Note 16, "Leases," for our discussion of the effects of implementing these standards.
ASU 2018-11, Leases (Topic 842): Targeted Improvements
ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842
ASU 2016-02, Leases (Topic 842)
ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments	In June 2016, the FASB issued ASU 2016-13 that revised the guidance on the impairment of most financial assets and certain other instruments that are not measured at fair value through net income. This ASU replaces the current "incurred loss" model with an "expected loss" model for instruments measured at amortized cost. It also requires entities to record allowances for available-for-sale securities rather than impair the carrying amount of the securities. Subsequent improvements to the estimated credit losses of available-for-sale securities will be recognized immediately in earnings instead of over time as they are under historic guidance. We adopted this ASU effective January 1, 2020, using a modified retrospective method. Adoption of this standard did not have a material impact on our Consolidated Financial Statements. No material adjustments were made to January 1, 2020 opening balances as a result of adoption. For our investments that are classified as available for sale debt securities, we will recognize impairment using an allowance approach instead of an 'other than temporary' impairment (OTTI) model. Since we do not have amounts previously recognized in other comprehensive income related to previous OTTI charges, provisions of this ASU are adopted prospectively. In regards to our recorded balances of trade receivables that fall within the scope of this ASU, the ASU did not result in any significant modifications to our policies related to recognizing an allowance on our trade receivables. Based on shared risk characteristics, we segregate our trade receivables into separate pools. We will apply separate models to calculate reserves for uncollectible receivables, as well as consider factors other than time to determine whether a credit loss exists. ASC 326 also prescribes additional presentation and disclosure requirements. For reporting periods beginning after January 1, 2020, we will include additional disclosures in our Notes to Consolidated Financial Statements based on qualitative and quantitative assessment of materiality.
ASU 2016-13, Financial Instruments-Credit Losses (Topic 326)

3**. Revenue Recognition**

In 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606). ASU 2014-09 outlines a single, comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. The core principle of the new standard is that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (ASC 606): Principal versus Agent Considerations, and ASU 2016-12, Revenue from Contracts with Customers (ASC 606): Narrow-Scope Improvements and Practical Expedients. We adopted the provisions of ASC 606 beginning on January 1, 2018 using a modified retrospective method, which was applied to all contracts. No material adjustments were made to January 1, 2018 opening balances as a result of the adoption. As required under the modified retrospective method of adoption, results for reporting periods beginning after January 1, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 605.

NIS****OURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

The table below provides results for the years ended December 31, 2019 and 2018 as if it had been prepared under historic accounting guidance. We included operating revenue information for the year ended December 31, 2017 for comparability.

Year Ended December 31, (in millions)		2019				2018				2017
Operating Revenues
Gas Distribution		$	2,336.1			$	2,348.4			$	2,063.2
Gas Transportation		1,171.3				1,055.2				1,021.5
Electric		1,698.5				1,707.4				1,785.5
Other		3.0				3.5				4.4
Total Operating Revenues		$	5,208.9			$	5,114.5			$	4,874.6

Beginning in 2018 with the adoption of ASC 606, the Statements of Consolidated Income (Loss) disaggregates “Customer revenues” (i.e. ASC 606 Revenues) from “Other revenues,” both of which are discussed in more detail below.

Customer Revenues. Substantially all of our revenues are tariff-based, which we have concluded is within the scope of ASC 606. Under ASC 606, the recipients of our utility service meet the definition of a customer, while the operating company tariffs represent an agreement that meets the definition of a contract. ASC 606 defines a contract as an agreement between two or more parties, in this case us and the customer, which creates enforceable rights and obligations. In order to be considered a contract, we have determined that it is probable that substantially all of the consideration to which we are entitled from customers will be collected upon satisfaction of performance obligations. We maintain common utility credit risk mitigation practices, including requiring deposits and actively pursuing collection of past due amounts. In addition, our regulated operations utilize certain regulatory mechanisms that facilitate recovery of bad debt costs within tariff-based rates, which provides further evidence of collectibility.

Customers in certain of our jurisdictions participate in programs that allow for a fixed payment each month regardless of usage. Payments received that exceed the value of gas or electricity actually delivered are recorded as a liability and presented in "Customer Deposits and Credits" on the Consolidated Balance Sheets. Amounts in this account are reduced and revenue is recorded when customer usage begins to exceed payments received.

We have identified our performance obligations created under tariff-based sales as 1) the commodity (natural gas or electricity, which includes generation and capacity) and 2) delivery. These commodities are sold and / or delivered to and generally consumed by customers simultaneously, leading to satisfaction of our performance obligations over time as gas or electricity is delivered to customers. Due to the at-will nature of utility customers, performance obligations are limited to the services requested and received to date. Once complete, we generally maintain no additional performance obligations.

Transaction prices for each performance obligation are generally prescribed by each operating company’s respective tariff. Rates include provisions to adjust billings for fluctuations in fuel and purchased power costs and cost of natural gas. Revenues are adjusted for differences between actual costs subject to reconciliation and the amounts billed in current rates. Under or over recovered revenues related to these cost recovery mechanisms are included in "Regulatory Assets" or "Regulatory Liabilities" on the Consolidated Balance Sheets and are recovered from or returned to customers through adjustments to tariff rates. As we provide and deliver service to customers, revenue is recognized based on the transaction price allocated to each performance obligation. In general, revenue recognized from tariff-based sales is equivalent to the value of natural gas or electricity supplied and billed each period, in addition to an estimate for deliveries completed during the period but not yet billed to the customer.

In addition to tariff-based sales, our Gas Distribution Operations segment enters into balancing and exchange arrangements of natural gas as part of our operations and off-system sales programs. We have concluded that these sales are within the scope of ASC 606. Performance obligations for these types of sales include transportation and storage of natural gas and can be satisfied at a point in time or over a period of time, depending on the specific transaction. For those transactions that span a period of time, we record a receivable or payable for any cumulative gas imbalances, as well as for any gas inventory borrowed or lent under a Gas Distributions Operations exchange agreement.

Revenue Disaggregation and Reconciliation. We disaggregate revenue from contracts with customers based upon reportable segment as well as by customer class. As our revenues are primarily earned over a period of time, and we do not earn a material amount of revenues at a point in time, revenues are not disaggregated as such below. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia,

NIS****OURCE INC.

Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Kentucky, Maryland, Indiana and Massachusetts. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.

The table below reconciles revenue disaggregation by customer class to segment revenue as well as to revenues reflected on the Statements of Consolidated Income (Loss):

Year Ended December 31, 2019 (in millions)	Gas Distribution Operations				Electric Operations				Corporate and Other				Total
Customer Revenues**(1)**
Residential	$	2,309.0			$	481.6			$	—			$	2,790.6
Commercial	771.3				486.6				—				1,257.9
Industrial	245.2				607.7				—				852.9
Off-system	77.7				—				—				77.7
Miscellaneous	52.0				21.5				0.8				74.3
Total Customer Revenues	$	3,455.2			$	1,597.4			$	0.8			$	5,053.4
Other Revenues	54.5				101.0				—				155.5
Total Operating Revenues	$	3,509.7			$	1,698.4			$	0.8			$	5,208.9

(1) Customer revenue amounts exclude intersegment revenues. See Note 23, "Segments of Business," for discussion of intersegment revenues.

Year Ended December 31, 2018 (in millions)	Gas Distribution Operations				Electric Operations				Corporate and Other				Total
Customer Revenues**(1)**
Residential	$	2,250.0			$	494.7			$	—			$	2,744.7
Commercial	751.9				492.7				—				1,244.6
Industrial	228.0				613.6				—				841.6
Off-system	92.4				—				—				92.4
Miscellaneous	49.7				17.4				0.7				67.8
Total Customer Revenues	$	3,372.0			$	1,618.4			$	0.7			$	4,991.1
Other Revenues	34.4				89.0				—				123.4
Total Operating Revenues	$	3,406.4			$	1,707.4			$	0.7			$	5,114.5

(1) Customer revenue amounts exclude intersegment revenues. See Note 23, "Segments of Business," for discussion of intersegment revenues.

Customer Accounts Receivable. Accounts receivable on our Consolidated Balance Sheets includes both billed and unbilled amounts, as well as certain amounts that are not related to customer revenues. Unbilled amounts of accounts receivable relate to a portion of a customer’s consumption of gas or electricity from the date of the last cycle billing through the last day of the month (balance sheet date). Factors taken into consideration when estimating unbilled revenue include historical usage, customer rates and weather. The opening and closing balances of customer receivables for the years ended December 31, 2019 and 2018 are presented in the table below. We had no significant contract assets or liabilities during the period. Additionally, we have not incurred any significant costs to obtain or fulfill contracts.

(in millions)	Customer Accounts Receivable, Billed (less reserve)(1)				Customer Accounts Receivable, Unbilled (less reserve)
Balance as of December 31, 2018	$	540.5			$	349.1
Balance as of December 31, 2019	466.6				346.6
Decrease	$	(73.9	)		$	(2.5	)

(1) Customer billed receivables decreased due to decreased natural gas costs and warmer weather in 2019 compared to 2018.

Utility revenues are billed to customers monthly on a cycle basis. We generally expect that substantially all customer accounts receivable will be collected within the month following customer billing, as this revenue consists primarily of monthly, tariff-based billings for service and usage.

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Other Revenues. As permitted by accounting principles generally accepted in the United States, regulated utilities have the ability to earn certain types of revenue that are outside the scope of ASC 606. These revenues primarily represent revenue earned under alternative revenue programs. Alternative revenue programs represent regulator-approved programs that allow for the adjustment of billings and revenue for certain broad, external factors, or for additional billings if the entity achieves certain objectives, such as a specified reduction of costs. We maintain a variety of these programs, including demand side management initiatives that recover costs associated with the implementation of energy efficiency programs, as well as normalization programs that adjust revenues for the effects of weather or other external factors. Additionally, we maintain certain programs with future test periods that operate similarly to FERC formula rate programs and allow for recovery of costs incurred to replace aging infrastructure. When the criteria to recognize alternative revenue have been met, we establish a regulatory asset and present revenue from alternative revenue programs on the Statements of Consolidated Income (Loss) as “Other revenues.” When amounts previously recognized under alternative revenue accounting guidance are billed, we reduce the regulatory asset and record a customer account receivable.

4**. Earnings Per Share**

Basic EPS is computed by dividing net income attributable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. The weighted-average shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans and forward agreements when the impact of such plans and agreements would be dilutive. The calculation of diluted earnings per share for the year ended December 31, 2018 does not include any dilutive potential common shares as we had a net loss on the Statements of Consolidated Income (Loss) for that period, and any incremental shares would have had an anti-dilutive impact on EPS. The calculation of diluted earnings per share for the year ended December 31, 2017 excludes the impact of forward agreements, which had an anti-dilutive effect for that period. The computation of diluted average common shares is as follows:

Year Ended December 31, (in thousands)	2019			2018			2017
Denominator
Basic average common shares outstanding	374,650			356,491			329,388
Dilutive potential common shares:
Shares contingently issuable under employee stock plans	929			—			547
Shares restricted under stock plans	154			—			821
Forward agreements	253			—			—
Diluted Average Common Shares	375,986			356,491			330,756

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

5**. Property, Plant and Equipment**

Our property, plant and equipment on the Consolidated Balance Sheets are classified as follows:

At December 31, (in millions)	2019				2018
Property, Plant and Equipment
Gas Distribution Utility(1)	$	14,989.7			$	13,776.0
Electric Utility(1)	8,902.3				8,374.2
Corporate	153.3				155.8
Construction Work in Process	457.3				474.8
Non-Utility and Other	39.3				38.7
Total Property, Plant and Equipment	$	24,541.9			$	22,819.5
Accumulated Depreciation and Amortization
Gas Distribution Utility(1)	$	(3,556.0	)		$	(3,373.8	)
Electric Utility(1)	(3,973.8		)		(3,809.5		)
Corporate	(79.5		)		(74.6		)
Non-Utility and Other	(20.4		)		(19.1		)
Total Accumulated Depreciation and Amortization	$	(7,629.7	)		$	(7,277.0	)
Net Property, Plant and Equipment	$	16,912.2			$	15,542.5

(1)NIPSCO’s common utility plant and associated accumulated depreciation and amortization are allocated between Gas Distribution Utility and Electric Utility Property, Plant and Equipment.

The weighted average depreciation provisions for utility plant, as a percentage of the original cost, for the periods ended December 31, 2019, 2018 and 2017 were as follows:

	2019			2018			2017
Electric Operations(1)	2.8	%		2.9	%		3.4	%
Gas Distribution Operations	2.5	%		2.2	%		2.1	%

(1)Lower depreciation rate beginning in 2018 due to reduced EERM-related depreciation expense and higher depreciable base from transmission assets being placed into service in 2018.

We recognized depreciation expense of $612.2 million, $503.4 million and $501.5 million for the years ended 2019, 2018 and 2017, respectively.

Amortization of Software Costs. We amortized $55.5 million, $54.1 million and $44.0 million in 2019, 2018 and 2017, respectively, related to software costs. Our unamortized software balance was $169.6 million and $159.5 million at December 31, 2019 and 2018, respectively.

Amortization of Cloud Computing Costs. We amortized $1.6 million and $0.1 million in 2019 and 2018, respectively, related to cloud computing costs. Our unamortized cloud computing balance was $14.2 million and $4.9 million at December 31, 2019 and 2018, respectively.

6**. Goodwill and Other Intangible Assets**

Intangible and Other Long-Lived Assets Impairment. Our intangible assets, apart from goodwill, consist of franchise rights. Franchise rights were identified as part of the purchase price allocations associated with the acquisition in February 1999 of Columbia of Massachusetts. We review our definite-lived intangible assets, along with other long-lived assets (utility plant), for impairment when events or changes in circumstances indicate the assets' fair value might be below their carrying amount.

During the fourth quarter of 2019, in connection with the preparation of the year-end financial statements, we assessed the changes in circumstances that occurred during the quarter to determine if it was more likely than not that the fair value of our long-lived assets (including franchise rights) were below their carrying amount. While there was no single determinative event or factor, the consideration in totality of several factors that developed during the fourth quarter of 2019 led us to conclude that it was more likely than not that the fair value of the Columbia of Massachusetts reporting unit and the value of its long-lived assets was below

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

its carrying value. These factors included: (i) increased Massachusetts DPU regulatory enforcement activity related to Columbia of Massachusetts during the fourth quarter, including (a) an order imposing work restrictions on Columbia of Massachusetts, impacting Columbia of Massachusetts' infrastructure replacement program, (b) two orders opening public investigations into Columbia of Massachusetts related to the Greater Lawrence Incident and restoration efforts following the incident, and (c) an order defining the scope of the Massachusetts DPU's investigation into the preparation and response of Columbia of Massachusetts related to the incident; (ii) increased uncertainty as to the ability of Columbia of Massachusetts to execute its growth strategy, including utility infrastructure investments, and to obtain timely regulatory outcomes with reasonable rates of return; (iii) further damage to Columbia of Massachusetts' reputation as a result of concerns related to service lines abandoned during the restoration work following the Greater Lawrence Incident and the gas release event in Lawrence, Massachusetts on September 27, 2019; and (iv) the potential sale of the Massachusetts Business. See Note 19, "Other Commitments and Contingencies - C. Legal Proceedings" for more information regarding Massachusetts DPU regulatory enforcement activity. See Note 26, "Subsequent Event" for more information on the potential sale of the Massachusetts Business.

As a result, we performed a year-end impairment test of the held and used long-lived assets in which we compared the book value of the Columbia of Massachusetts asset group to its undiscounted future cash flow and determined the carrying value of the asset group was not recoverable. We estimated the fair value of the Columbia of Massachusetts asset group using a weighting of income and market approaches and determined that the fair value was less than the carrying value. This resulting impairment was allocated to reduce the entire franchise rights book value to its fair value of zero, which resulted in an impairment charge totaling $209.7 million recorded in the Gas Distribution Operations segment.

We also considered if any regulatory assets or ROU assets were probable of disallowance and determined no disallowances were probable. All of Columbia of Massachusetts' regulatory assets represent incurred costs probable of recovery.

As of December 31, 2019 and 2018, the carrying amount of the franchise rights was $0.0 million and $220.7 million (net of accumulated amortization of $221.5 million), respectively. We recorded amortization expense of $11.0 million in 2019, 2018 and 2017 related to our franchise rights intangible asset.

Goodwill. Substantially all of our goodwill relates to the excess of cost over the fair value of the net assets acquired in the Columbia acquisition on November 1, 2000. The following presents our goodwill balance allocated by segment as of December 31, 2019 and 2018:

(in millions)	2019				2018
Gas Distribution Operations	$	1,485.9			$	1,690.7
Electric Operations	—				—
Corporate and Other	—				—
Total	$	1,485.9			$	1,690.7

For our annual goodwill impairment analysis performed as of May 1, 2019, we completed a qualitative "step 0" analysis for all reporting units other than our Columbia of Massachusetts reporting unit. In the step 0 analysis, we assessed various assumptions, events and circumstances that would have affected the estimated fair value of the applicable reporting units as compared to their baseline May 1, 2016 "step 1" fair value measurement. The results of this assessment indicated that it was not more likely than not that the fair values of these reporting units were less than their respective carrying values, accordingly, no "step 1" analysis was required.

The results of our Columbia of Massachusetts reporting unit were negatively impacted by the Greater Lawrence Incident (see Note 19-C, "Legal Proceedings"). As a result, we completed a quantitative "step 1" analysis for the May 1, 2019 goodwill analysis for this reporting unit. This analysis considered the progress Columbia of Massachusetts had made with its restoration efforts related to the Greater Lawrence Incident, including the replacement of previously repaired equipment and the settlement agreement with the three impacted municipalities, as well as the ability for Columbia of Massachusetts to sustain its infrastructure replacement growth strategy through GSEP and timely rate cases with reasonable rates of return. Consistent with our historical impairment testing of goodwill, fair value of the Columbia of Massachusetts reporting unit was determined based on a weighting of income and market approaches. These approaches require significant judgments, including appropriate long-term growth rates and discount rates for the income approach and appropriate multiples of earnings for peer companies and control premiums for the market approach. These approaches also incorporate the latest available cash flow projections reflecting the estimated ongoing impacts of the Greater Lawrence Incident on Columbia of Massachusetts’ operations. The discount rates were derived using peer company

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

data compiled with the assistance of a third party valuation services firm. The discount rates used are subject to change based on changes in tax rates at both the state and federal level, debt and equity ratios at each reporting unit and general economic conditions. The long-term growth rate was derived by evaluating historic growth rates, new business and investment opportunities beyond the near term horizon. The long-term growth rate is subject to change depending on inflationary impacts to the U.S. economy and the individual business environments in which each reporting unit operates. The step 1 analysis performed indicated that the fair value of the Columbia of Massachusetts reporting unit exceeds its carrying value. As a result, no impairment charge was recorded as of the May 1, 2019 test date.

Although our annual impairment test is performed during the second quarter, we continue to monitor changes in circumstances that may indicate that it is more likely than not that the fair value of our reporting units is less than the reporting unit carrying value. During the fourth quarter of 2019, in connection with the preparation of the year-end financial statements, we assessed the matters related to Columbia of Massachusetts. These factors were the same fourth quarter circumstances outlined in the intangible and other long-lived assets impairment above.

As a result, a new impairment analysis was required for our Columbia of Massachusetts reporting unit. Consistent with the May 1, 2019 test, fair value of this reporting unit was determined based on a weighting of income and market approaches. The income approach calculated discounted cash flows using updated cash flow projections, discount rates and return on equity assumptions. The market approach applied a combination of comparable company multiples and comparable transactions and used updated cash flow projections. While certain assumptions, such as market multiples, remained unchanged in the year-end test, our cash flow projections, return on equity and rate case assumptions were all unfavorably updated at year-end compared to the May 1, 2019 test. The effects of these unfavorable developments were greater than the favorable change in weighted average cost of capital between the two tests. The year-end impairment analysis indicated that the fair value of the Columbia of Massachusetts reporting unit was below its carrying value. As a result, we reduced the Columbia of Massachusetts reporting unit goodwill balance to zero and recognized a goodwill impairment charge totaling $204.8 million, which is non-deductible for tax purposes.

7**. Asset Retirement Obligations**

We have recognized asset retirement obligations associated with various legal obligations including costs to remove and dispose of certain construction materials located within many of our facilities, certain costs to retire pipeline, removal costs for certain underground storage tanks, removal of certain pipelines known to contain PCB contamination, closure costs for certain sites including ash ponds, solid waste management units and a landfill, as well as some other nominal asset retirement obligations. We also have a significant obligation associated with the decommissioning of our two hydro facilities located in Indiana. These hydro facilities have an indeterminate life, and as such, no asset retirement obligation has been recorded.

Changes in our liability for asset retirement obligations for the years 2019 and 2018 are presented in the table below:

(in millions)	2019				2018
Beginning Balance	$	352.0			$	268.7
Accretion recorded as a regulatory asset/liability	15.7				11.1
Additions	—				63.3			(2)
Settlements	(5.4		)		(5.9		)
Change in estimated cash flows	54.6			(1)	14.8			(2)
Ending Balance	$	416.9			$	352.0

(1)The change in estimated cash flows for 2019 is primarily attributed to changes in estimated costs and settlement timing for electric generating stations and the changes in estimated costs for retirement of gas mains.

(2)In 2018, $59.8 million of additions and $17.7 million of the change in estimated cash flows are attributed to costs associated with refining the CCR compliance plan. See Note 19-D, "Environmental Matters," for additional information on CCRs.

Certain non-legal costs of removal that have been, and continue to be, included in depreciation rates and collected in the customer rates of the rate-regulated subsidiaries are classified as "Regulatory liabilities" on the Consolidated Balance Sheets.

8. Regulatory Matters

Regulatory Assets and Liabilities

We follow the accounting and reporting requirements of ASC Topic 980, which provides that regulated entities account for and report assets and liabilities consistent with the economic effect of regulatory rate-making procedures if the rates established are

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

designed to recover the costs of providing the regulated service and it is probable that such rates can be charged and collected from customers. Certain expenses and credits subject to utility regulation or rate determination normally reflected in income or expense are deferred on the balance sheet and are recognized in the income statement as the related amounts are included in customer rates and recovered from or refunded to customers.

Regulatory assets were comprised of the following items:

At December 31, (in millions)	2019				2018
Regulatory Assets
Unrecognized pension and other postretirement benefit costs (see Note 11)	$	739.1			$	798.3
Deferred pension and other postretirement benefit costs (see Note 11)	91.3				74.1
Environmental costs (see Note 19-D)	73.4				61.5
Regulatory effects of accounting for income taxes (see Note 1-N and Note 10)	234.0				233.1
Under-recovered gas and fuel costs (see Note 1-J)	3.9				34.7
Depreciation	210.7				209.6
Post-in-service carrying charges	219.8				206.6
Safety activity costs	118.6				91.7
DSM programs	50.1				45.5
Bailly Generating Station	221.8				244.3
Other	276.9				238.1
Total Regulatory Assets	$	2,239.6			$	2,237.5

Regulatory liabilities were comprised of the following items:

At December 31, (in millions)	2019				2018
Regulatory Liabilities
Over-recovered gas and fuel costs (see Note 1-J)	$	42.6			$	32.0
Cost of removal (see Note 7)	1,047.5				1,076.0
Regulatory effects of accounting for income taxes (see Note 1-N and Note 10)	1,307.0				1,428.3
Deferred pension and other postretirement benefit costs (see Note 11)	64.7				62.7
Other	50.4				61.0
Total Regulatory Liabilities	$	2,512.2			$	2,660.0

Regulatory assets, including under-recovered gas and fuel cost, of approximately $1,524.3 million as of December 31, 2019 are not earning a return on investment. These costs are recovered over a remaining life of up to 41 years. Regulatory assets of approximately $1,932.4 million include expenses that are recovered as components of the cost of service and are covered by regulatory orders. Regulatory assets of approximately $307.2 million at December 31, 2019, require specific rate action.

Assets:

Unrecognized pension and other postretirement benefit costs. In 2007, we adopted certain updates of ASC 715 which required, among other things, the recognition in other comprehensive income or loss of the actuarial gains or losses and the prior service costs or credits that arise during the period but that are not immediately recognized as components of net periodic benefit costs. Certain subsidiaries defer these gains or losses as a regulatory asset in accordance with regulatory orders or as a result of regulatory precedent, to be recovered through base rates.

Deferred pension and other postretirement benefit costs. Primarily relates to the difference between postretirement expense recorded by certain subsidiaries due to regulatory orders and the postretirement expense recorded in accordance with GAAP. These costs are expected to be collected through future base rates, revenue riders or tracking mechanisms.

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Environmental costs. Includes certain recoverable costs of investigating, testing, remediating and other costs related to gas plant sites, disposal sites or other sites onto which material may have migrated. Certain of our companies defer the costs as a regulatory asset in accordance with regulatory orders, to be recovered in future base rates, billing riders or tracking mechanisms.

Regulatory effects of accounting for income taxes. Represents the deferral and under collection of deferred taxes in the rate making process. In prior years, we have lowered customer rates in certain jurisdictions for the benefits of accelerated tax deductions. Amounts are expensed for financial reporting purposes as we recover deferred taxes in the rate making process.

Under-recovered gas and fuel costs. Represents the difference between the costs of gas and fuel and the recovery of such costs in revenue and is used to adjust future billings for such deferrals on a basis consistent with applicable state-approved tariff provisions. Recovery of these costs is achieved through tracking mechanisms.

Depreciation. Represents differences between depreciation expense incurred on a GAAP basis and that prescribed through regulatory order. Significant components of this balance include:

•

Columbia of Ohio depreciation rates. Prior to 2005, the PUCO-approved depreciation rates for rate-making had been lower than those which would have been utilized if Columbia of Ohio were not subject to regulation resulting in the creation of a regulatory asset. In 2005, the PUCO authorized Columbia of Ohio to revise its depreciation accrual rates for the period beginning January 1, 2005. The revised depreciation rates are higher than those which would have been utilized if Columbia of Ohio were not subject to regulation allowing for amortization of the previously created regulatory asset. The amount of depreciation that would have been recorded from 2005 through 2019 had Columbia of Ohio not been subject to rate regulation is a cumulative $923.5 million, $103.8 million less than that reflected in rates. The resulting regulatory asset balance was $27.9 million and $39.5 million as of December 31, 2019 and 2018, respectively.

•

Columbia of Ohio IRP and CEP. Columbia of Ohio also has PUCO approval to defer depreciation and debt-based post-in-service carrying charges (see "Post-in-service carrying charges" below) associated with its IRP and CEP. As of December 31, 2019, depreciation of $31.9 million and $77.2 million was deferred for the respective programs. Depreciation deferral balances for the respective programs as of December 31, 2018 were $29.1 million and $76.0 million. Recovery of the depreciation is approved annually through the IRP and CEP riders. The equivalent of annual depreciation expense, based on the average life of the related assets, is included in the calculation of the IRP and CEP riders approved by the PUCO and billed to customers. Deferred depreciation expense is recognized as the IRP and CEP riders are billed to customers.

•

NIPSCO ECRM. NIPSCO obtained approval from the IURC to recover certain environmental related costs including operation and maintenance and depreciation expense once the environmental facilities become operational. The ECRM deferred charges represent expenses that will be recovered from customers through an annual ECRM Cost Tracker (ECT) which authorizes the collection of deferred balances over a six month period. Depreciation of $15.2 million and $14.4 million was deferred to a regulatory asset as of December 31, 2019 and 2018, respectively. This regulatory asset was included in electric base rates, which was approved by the IURC on December 4, 2019.

•

NIPSCO TDSIC. NIPSCO obtained approval from the IURC to recover costs for certain system modernization projects outside of a base rate proceeding. Eighty percent of the related costs, including depreciation, property taxes, and debt and equity based carrying charges (see "Post-in-service carrying charges" below) are recovered through a semi-annual recovery mechanism. Recovery of these costs will continue through the TDSIC tracker until such assets are included in rate base through a gas or electric base rate case, respectively. The remaining twenty percent of the costs are deferred until the next base rate case. As of December 31, 2019 and 2018, depreciation of $22.0 million and $16.5 million, respectively, was deferred as a regulatory asset.

Post-in-service carrying charges. Represents deferred debt-based carrying charges incurred on certain assets placed into service but not yet included in customer rates. This balance includes:

•	Columbia of Ohio IRP and CEP. See description of IRP and CEP programs above under the heading "Depreciation." As of December 31, 2019 and 2018, Columbia of Ohio had deferred PISCC of $206.4 million and $197.1 million, respectively.

•

NIPSCO TDSIC. See description of TDSIC program above under the heading "Depreciation." Deferral of equity-based carrying charges for the TDSIC program is allowed; however, such amounts are not reflected in regulatory asset balances for financial reporting as equity-based returns do not meet the definition of incurred costs under ASC 980. As of December 31, 2019 and 2018, NIPSCO had deferred PISCC of $13.4 million and $9.5 million, respectively.

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

Safety activity costs. Represents the difference between costs incurred in eligible safety programs in excess of those being recovered in rates. The eligible cost deferrals represent necessary business expenses incurred in compliance with PHMSA regulations and are targeted to enhance the safety of the pipeline systems. Certain subsidiaries defer the excess costs as a regulatory asset in accordance with regulatory orders and recovery of these costs will be addressed in future base rate proceedings.

DSM programs. Represents costs associated with Gas Distribution Operations and Electric Operations segments' energy efficiency and conservation programs. Costs are recovered through tracking mechanisms.

Bailly Generating Station. Represents the net book value of Units 7 and 8 of Bailly Generating Station that was retired during 2018. These amounts are currently being amortized at a rate consistent with their inclusion in customer rates.

Liabilities:

Over-recovered gas and fuel costs. Represents the difference between the cost of gas and fuel and the recovery of such costs in revenues and is the basis to adjust future billings for such refunds on a basis consistent with applicable state-approved tariff provisions. Refunding of these revenues is achieved through tracking mechanisms.

Cost of removal. Represents anticipated costs of removal that have been, and continue to be, included in depreciation rates and collected in customer rates of the rate-regulated subsidiaries for future costs to be incurred.

Regulatory effects of accounting for income taxes. Represents amounts owed to customers for deferred taxes collected at a higher rate than the current statutory rates and liabilities associated with accelerated tax deductions owed to customers that are established during the rate making process. Balance includes excess deferred taxes recorded upon implementation of the TCJA in December 2017, net of amounts amortized through 2019.

Deferred pension and other postretirement benefit costs. Primarily represents cash contributions in excess of postretirement benefit expense that is deferred as a regulatory liability by certain subsidiaries in accordance with regulatory orders.

Cost Recovery and Trackers

Comparability of our line item operating results is impacted by regulatory trackers that allow for the recovery in rates of certain costs such as those described below. Increases in the expenses that are the subject of trackers generally result in a corresponding increase in operating revenues and, therefore, have essentially no impact on total operating income results.

Certain costs of our operating companies are significant, recurring in nature and generally outside the control of the operating companies. Some states allow the recovery of such costs through cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the operating companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include GCR adjustment mechanisms, tax riders, bad debt recovery mechanisms, electric energy efficiency programs, MISO non-fuel costs and revenues, resource capacity charges, federally mandated costs and environmental-related costs.

A portion of the Gas Distribution revenue is related to the recovery of gas costs, the review and recovery of which occurs through standard regulatory proceedings. All states in our operating area require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. Our distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.

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

Infrastructure Replacement and Federally-Mandated Compliance Programs

All of our operating utility companies have completed rate proceedings involving infrastructure replacement or enhancement, and have embarked upon initiatives to replace significant portions of their operating systems that are nearing the end of their useful lives. Each company's approach to cost recovery is unique, given the different laws, regulations and precedent that exist in each jurisdiction.

Columbia of Ohio, IRP - On December 3, 2008, the PUCO issued an order which established Columbia of Ohio’s IRP. Pursuant to that order, the IRP provides for recovery of costs resulting from: (1) the maintenance, repair and replacement of customer-owned service lines that have been determined by Columbia of Ohio to present an existing or probable hazard to persons and property;

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Notes to Consolidated Financial Statements

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA (continued)

(2) Columbia of Ohio’s replacement of cast iron, wrought iron, unprotected coated steel and bare steel pipe and associated company and customer-owned metallic service lines; (3) the replacement of customer-owned natural gas risers identified by the PUCO as prone to failure; and (4) the installation of AMR devices on all residential and commercial meters served by Columbia of Ohio. Recoverable costs include a return on investment, depreciation and property taxes, offset by specified cost savings. Columbia of Ohio’s five-year IRP plan renewal was last approved on January 31, 2018 for the years 2018-2022.

Columbia of Ohio, CEP - On October 3, 2011, Columbia of Ohio filed an application for approval to establish the CEP that would provide for the deferral of PISCC on those assets placed into service, but not reflected in rates as plant in service, and the deferral of depreciation expense and property taxes directly attributable to the CEP assets for the period October 1, 2011 through December 31, 2012. Capital expenditures covered under this program included those placed into service that were not part of Columbia of Ohio's IRP. CEP was approved by the PUCO on August 29, 2012. Under this program, the PUCO’s approval provided for the deferral of related PISCC, depreciation and property taxes up to the point where the deferred amount, if included in rates, would exceed $1.50 per month impact on the Small General Service class of customers, subject to the PUCO’s determination of the prudence and reasonableness of investments covered under this program in a future regulatory proceeding. Subsequently, on October 3, 2013, the PUCO modified and approved Columbia of Ohio’s application to continue its CEP deferrals in 2013 and succeeding years, subject to the determination of the prudence, reasonableness and magnitude of the deferrals and capital expenditures in a future cost recovery proceeding. On December 1, 2017, Columbia of Ohio filed an application in which it requested authority to implement a rider to begin recovering plant and associated deferrals related to its CEP. On October 25, 2018, a joint stipulation and recommendation was filed to recover CEP investments and deferrals through December 31, 2017, with annual adjustments for capital investments made in subsequent years. Additionally, the signatory parties to the stipulation agreed to a reduction in rates to adjust for the impacts of the Tax Cut Jobs Act and for a base rate case filing to be made by Columbia of Ohio no later than June 30, 2021. On November 28, 2018 the PUCO issued an order unanimously approving the settlement, without modification.

NIPSCO Gas and Electric, TDSIC - On April 30, 2013, the Indiana Governor signed Senate Enrolled Act 560, known as the TDSIC statute, into law. Among other provisions, the TDSIC statute provides for cost recovery outside of a base rate proceeding for new or replacement electric and gas transmission, distribution, and storage projects that a public utility undertakes for the purposes of safety, reliability, system modernization or economic development. Provisions of the TDSIC statute require that, among other things, requests for recovery include a seven-year plan of eligible investments. Once the plan is approved by the IURC, eighty percent of eligible costs can be recovered using a periodic rate adjustment mechanism, known as the TDSIC mechanism. Recoverable costs include a return on the investment, including AFUDC, PISCC, depreciation and property taxes. The remaining twenty percent of recoverable costs are deferred for future recovery in NIPSCO's next general rate case. This rate adjustment mechanism is typically filed semi-annually and has a cap at an annual increase of two percent of total retail revenues. During the 2019 Legislative session, the Indiana General Assembly amended the TDSIC statute in House Enrolled Act 1470 that was signed into law by the Governor on April 24, 2019. The revisions that became effective on July 1, 2019 permit flexibility in TDSIC Plans between five and seven years in length, permits the IURC to authorize multi-unit projects that do not include specific locations or an exact number of inspections, repairs, or replacements and projects involving advanced technology investments to support the modernization of transmission, distribution, or storage systems. The amendments also authorize termination of TDSIC Plans prior to their expiration and provide that the projects associated with the terminated plan will continue to receive TDSIC treatment until an Order is issued in the utility’s next general rate case, and provide for the ability to seek approval of a new TDSIC Plan. The amended statute also provides that the two percent revenue cap applies to the aggregate of approved TDSIC Plans and requires that the utility file a base rate case at some point during the term of each TDSIC plan. On December 31, 2019, NIPSCO Gas filed a new 6-year TDSIC for the periods 2020 through 2025.

NIPSCO Electric, ECRM - NIPSCO has approval from the IURC to recover certain environmental related costs through an ECT (environmental cost tracker). Under the ECT, NIPSCO is permitted to recover (1) AFUDC and a return on the capital investment expended by NIPSCO to implement environmental compliance plan projects and (2) related operation and maintenance and depreciation expenses once the environmental facilities become operational. All deferred costs associated with ECRM were included in electric rate base and approved by the IURC on December 4, 2019.

NIPSCO Gas and Electric, FMCA - The FMCA statute provides for cost recovery outside of a base rate proceeding for projected federally mandated costs. Once the plan is approved by the IURC, eighty percent of eligible costs can be recovered using a periodic rate adjustment mechanism, known as the FMCA mechanism. Recoverable costs include a return on the investment, including AFUDC, PISCC, mandated operation and maintenance expenses, depreciation and property taxes. The remaining twenty percent of recoverable costs are deferred for future recovery in NIPSCO's next general rate case. Actual costs that exceed the projected

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Notes to Consolidated Financial Statements