Item 6. SELECTED FINANCIAL DATA

NIS****OURCE INC.

None.

On November 19, 2020, the SEC issued amendments to streamline and enhance certain financial disclosure requirements in Regulation S-K. These changes are effective for annual filings for the first fiscal year ending on or after August 9, 2021. Early adoption is permitted for companies after February 10, 2021, and companies are permitted to selectively early adopt the provisions of the final rules, provided an amended item is adopted in its entirety. We early adopted the amendments to Item 301 in their entirety, which removed the requirement to furnish selected financial data for each of the last five fiscal years.

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

NIS****OURCE INC.

Index			Page
Executive Summary			28
Summary of Consolidated Financial Results			30
Results and Discussion of Segment Operations			31
Gas Distribution Operations			32
Electric Operations			36
Liquidity and Capital Resources			40
Off Balance Sheet Arrangements			45
Market Risk Disclosures			45
Other Information			46

EXECUTIVE SUMMARY

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (Management’s Discussion) analyzes our financial condition, results of operations and cash flows and those of our subsidiaries. It also includes management’s analysis of past financial results and certain potential factors that may affect future results, potential future risks and approaches that may be used to manage those risks. See "Note regarding forward-looking statements" at the beginning of this report for a list of factors that may cause results to differ materially.

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

We are an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are fully regulated natural gas and electric utility companies serving customers in six states. We generate substantially all of our operating income through these rate-regulated businesses, which are summarized for financial reporting purposes into two primary reportable segments: Gas Distribution Operations and Electric Operations.

Refer to the “Business” section under Item 1 of this annual report and Note 24, "Segments of Business," in the Notes to Consolidated Financial Statements for further discussion of our regulated utility business segments.

Our goal is to develop strategies that benefit all stakeholders as we (i) address changing customer conservation patterns, (ii) develop more contemporary pricing structures, and (iii) embark on long-term infrastructure investment and safety programs. These strategies focus on improving reliability and safety, enhancing customer service, lowering customer bills and reducing emissions while generating sustainable returns. Additionally, we continue to pursue regulatory and legislative initiatives that will allow residential customers not currently on our system to obtain gas service in a cost effective manner. Refer also to the Electric Supply section of our Electric Operations Segment discussion for additional information on our long term electric generation strategy.

Columbia of Massachusetts Asset Sale: On February 26, 2020, NiSource and Columbia of Massachusetts entered into an Asset Purchase Agreement with Eversource (the "Asset Purchase Agreement"). Upon the terms and subject to the conditions set forth in the Asset Purchase Agreement, we sold the Massachusetts Business to Eversource for net proceeds of approximately $1,113 million in cash, subject to adjustment for the final working capital amount. The sale was approved by the Massachusetts DPU on October 7, 2020, and closed on October 9, 2020. As a result of the sale, we have transitioned to executing a TSA with Eversource. See Note 1, "Nature of Operations and Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements for additional information.

Your Energy, Your Future: Our plan to replace 80% of our coal generation capacity by the end of 2023 and all of our coal generation by the end of 2028 with primarily renewable resources is well underway. In October 2020, we executed three BTAs for 900 MW solar nameplate capacity and 135 MW of storage capacity. In December 2020, the formation of the Rosewater Wind Generation joint venture, one of our previously executed BTAs, was completed, and has begun operation. We executed in December 2020 a PPA for an additional 280 MW of solar nameplate capacity. These projects were selected following a comprehensive review of bids submitted through the RFP process that NIPSCO underwent in late 2019. The projects complement previously executed BTAs and PPAs with a combined nameplate capacity of 400 MW and 1,300 MW, respectively. For additional information, see Note 4 "Variable Interest Entities" and "Results and Discussion of Segment Operation - Electric Operations," in this Management's Discussion.

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

NIS****OURCE INC.

NiSource Next: We have launched a comprehensive, multi-year program designed to deliver long-term safety, sustainable capability enhancements and cost optimization improvements. This program will advance the high priority we place on safety and risk mitigation, further enable our safety management system ("SMS"), and enhance the customer experience. NiSource Next is designed to (i) leverage our current scale, (ii) utilize technology, (iii) define clear roles and accountability with our leaders and employees, and (iv) standardize our processes to focus on operational rigor, quality management and continuous improvement. An initial step in this program was the voluntary separation program announced in August 2020, with an expected total severance expense of approximately $38.0 million. The majority of these separation costs will be expensed in 2020 and approximately $21.2 million has been paid as of December 31, 2020. The NiSource Next initiative, along with the sale of the Massachusetts Business, is projected to achieve a reduction in ongoing operation and maintenance costs by approximately 8% in 2021 compared to 2020. For additional information, see Note 20-E, "Other Matters," in the Notes to Consolidated Financial Statements.

COVID-19: The safety of our employees and customers, while providing essential services during the COVID-19 pandemic, continues to be a key area of focus. Since March 2020, we have taken a proactive, coordinated approach intended to prevent, mitigate and respond to the pandemic, by utilizing our Incident Command System (ICS). The ICS includes members of our executive leadership team, a medical review professional, and members of functional teams from across our company. The ICS monitors state-by-state conditions and determines steps to conduct our operations safely for employees and customers.

We have implemented procedures designed to protect our employees who work in the field and who continue to work in operational and corporate facilities, including social distancing, wearing face coverings, temperature checks and more frequent cleaning of equipment and facilities. We have also implemented work-from-home policies and practices. We have minimized non-essential work that requires an employee to enter a customer premise and limited company vehicle occupancy to one person, where possible. We continue to employ physical and cybersecurity measures to ensure that our operational and support systems remain functional. Our actions to date have mitigated the spread of COVID-19 amongst our employees and principal field contractors. We will continue to follow CDC guidance and implement safety measures intended to ensure employee and customer safety during this pandemic. We are following all federal, state and local guidelines related to the COVID-19 vaccinations and will encourage employees to receive the vaccine when it is available to them.

Since the beginning of the pandemic, we have been helping our customers navigate this challenging time. We suspended disconnections soon after this outbreak began. As of December 2020, suspension of disconnections has been lifted in some, but not all, of our jurisdictions. We plan to continue our payment assistance programs across all of our operating territory to help customers deal with the impact of the pandemic. Additionally, we continue to have dialogue with the state regulatory commissions for each of our operating companies regarding the pandemic. Regulatory deferrals for certain costs have been allowed by all of our state regulatory commissions. Costs approved for deferral vary by state. For information on the state specific suspension of disconnections and COVID-19 regulatory filings, see Note 9, "Regulatory Matters," in the Notes to Consolidated Financial Statements. The CARES Act was enacted on March 27, 2020 and provides monetary-relief and financial aid to individuals, business, nonprofits, states and municipalities. The Coronavirus Relief Act was enacted on December 27, 2020 and extended or supplemented many of the programs from the CARES act. We are continuing to promote multiple resources available to customers including benefits from the CARES Act, such as additional funding for both the Low-Income Home Energy Assistance Program and the Community Services Block Grant to help support income-qualified customers. We are sharing energy efficiency tips to help customers save energy at home and promoting our budget plan program, which allows customers to pay about the same amount each month.

We have experienced lower revenue, higher expenses for personal protective equipment and supplies, and higher bad debt expense as a consequence of the pandemic, which has negatively impacted our results of operations through December 31, 2020. Refer to "Results and Discussion of Segment Operation" in this Management's Discussion for additional segment specific information. We did experience lower cash flows from operations for the year ended December 31, 2020 in comparison to the same period in 2019 due, in part, to slower collections of customer accounts receivable; however, we believe we have sufficient liquidity as a result of the issuance of $1.0 billion notes in April 2020, the remaining cash proceeds received from the sale of the Massachusetts Business in October 2020, the available capacity under our short-term revolving credit facility and accounts receivable securitization facilities, and our anticipated ability to access capital markets. Additionally, in the second quarter of 2020 we reduced our planned 2020 capital investments by $145 million. We did not make any other material changes to our capital construction programs or our renewable generation projects. While we have not experienced any significant issues in our supply chain, we are actively managing the materials, supplies, and contract services for our generation, transmission, distribution, and customer services functions.

Refer to Part I. Item 1A. "Risk Factors" for additional information related to the ongoing impact of the pandemic.

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

NIS****OURCE INC.

Greater Lawrence Incident: For the year ended December 31, 2020, we have incurred $17 million of third-party claims and other incident-related costs associated with the Greater Lawrence Incident. For additional information, see Note 20-C, "Legal Proceedings" and Note 20-E "Other Matters," in the Notes to Consolidated Financial Statements.

We invested approximately $258 million of capital spend for specific pipeline replacement work that was completed in 2019. We maintain property insurance for gas pipelines and other applicable property. In 2019, Columbia of Massachusetts filed a proof of loss with its property insurer for this pipeline replacement work. In January 2020, we filed a lawsuit against the property insurer, seeking payment of our property claim. We are currently unable to predict the timing or amount of any insurance recovery under the property policy. See Note 1, "Nature of Operations and Summary of Significant Accounting Policies," in the Notes to Consolidated Financial Statements for additional information.

Refer to Note 20-C. "Legal Proceedings" and Note 20-E "Other Matters," in the Notes to Consolidated Financial Statements, "Summary of Consolidated Financial Results," "Results and Discussion of Segment Operation - Gas Distribution Operations," and "Liquidity and Capital Resources" in this Management's Discussion for additional information related to the Greater Lawrence Incident.

Summary of Consolidated Financial Results

A summary of our consolidated financial results for the years ended December 31, 2020, 2019 and 2018, are presented below:

Year Ended December 31*,* (in millions, except per share amounts)			2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Operating Revenues			$	4,681.7					$	5,208.9					$	5,114.5					$	(527.2)					$	94.4
Operating Expenses
Cost of energy			1,109.3						1,534.8						1,761.3						(425.5)						(226.5)
Other Operating Expenses			3,021.6						2,783.4						3,228.5						238.2						(445.1)
Total Operating Expenses			4,130.9						4,318.2						4,989.8						(187.3)						(671.6)
Operating Income			550.8						890.7						124.7						(339.9)						766.0
Total Other Deductions, Net			(582.1)						(384.1)						(355.3)						(198.0)						(28.8)
Income Taxes			(17.1)						123.5						(180.0)						(140.6)						303.5
Net Income (Loss)			(14.2)						383.1						(50.6)						(397.3)						433.7
Net income attributable to noncontrolling interest			3.4						—						—						3.4						—
Net Income (Loss) attributable to NiSource			(17.6)						383.1						(50.6)						(400.7)						433.7
Preferred dividends			(55.1)						(55.1)						(15.0)						—						(40.1)
Net Income (Loss) Available to Common Shareholders			(72.7)						328.0						(65.6)						(400.7)						393.6
Basic Earnings (Loss) Per Share			$	(0.19)					$	0.88					$	(0.18)					$	(1.07)					$	1.06
Basic Average Common Shares Outstanding			384.3						374.6						356.5						9.7						18.1

The majority of the costs of energy in both segments are tracked costs that are passed through directly to the customer, resulting in an equal and offsetting amount reflected in operating revenues.

On a consolidated basis, we reported a net loss available to common shareholders of $72.7 million or $0.19 per basic share for the twelve months ended December 31, 2020 compared to income to common shareholders of $328.0 million or $0.88 per basic share for the same period in 2019. Additionally, we reported operating income of $550.8 million for the twelve months ended December 31, 2020 compared to $890.7 million for the same period in 2019. The decrease in both net income available to common shareholders and operating income during 2020 was primarily due to lower operating revenue related to the sale of the Massachusetts Business, as well as higher operating expenses due to insurance recoveries recorded in 2019, net of third-party claims and other costs, related to the Greater Lawrence Incident. Additionally, the decrease to net income available to common shareholders was also impacted by the loss on early extinguishment of debt in 2020 as well as partially offset by a change from income tax expense in 2019 to an income tax benefit in 2020.

Other Deductions, Net

Other deductions, net reduced income by $582.1 million in 2020 compared to a reduction in income of $384.1 million in 2019. This change is primarily due to the loss on early extinguishment of debt in 2020.

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

NIS****OURCE INC.

Income Taxes

The decrease in income tax expense from 2019 to 2020 is primarily attributable to lower pre-tax income, resulting from the items discussed above in "Operating Income" and "Other Deductions, Net," state jurisdictional mix of pre-tax loss in 2020 tax effected at statutory tax rates and increased amortization of excess deferred federal income taxes in 2020 compared to 2019. These items are offset by increased deferred tax expense recognized on the sale of the Columbia of Massachusetts' regulatory liability, established due to TCJA in 2017, that would have otherwise been recognized over the amortization period, non-cash impairment of goodwill related to Columbia of Massachusetts in 2019 (see Note 7, "Goodwill and Other Intangible Assets" for additional information) and one-time adjustments to deferred tax balances.

Refer to Note 11, "Income Taxes," in the Notes to Consolidated Financial Statements for additional information on income taxes and the change in the effective tax rate.

RESULTS AND DISCUSSION OF OPERATIONS

Presentation of Segment Information

Our operations are divided into two primary reportable segments: Gas Distribution Operations and Electric Operations. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other" within the Notes to the Consolidated Financial Statements and primarily are comprised of interest expense on holding company debt, and unallocated corporate costs and activities.

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

NIS****OURCE INC.

Gas Distribution Operations

Financial and operational data for the Gas Distribution Operations segment for the years ended December 31, 2020, 2019 and 2018, are presented below:

Year Ended December 31, (in millions)			2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Operating Revenues			$	3,140.1					$	3,522.8					$	3,419.5					$	(382.7)					$	103.3
Operating Expenses
Cost of energy			794.2						1,067.6						1,259.3						(273.4)						(191.7)
Operation and maintenance			1,138.0						935.7						1,908.1						202.3						(972.4)
Depreciation and amortization			363.1						403.2						301.0						(40.1)						102.2
Impairment of intangible assets			—						209.7						—						(209.7)						209.7
Loss on sale of fixed assets and impairments, net			412.4						0.1						0.2						412.3						(0.1)
Other taxes			233.3						231.1						205.0						2.2						26.1
Total Operating Expenses			2,941.0						2,847.4						3,673.6						93.6						(826.2)
Operating Income (Loss)			$	199.1					$	675.4					$	(254.1)					$	(476.3)					$	929.5
Revenues
Residential			$	2,110.6					$	2,317.2					$	2,248.3					$	(206.6)					$	68.9
Commercial			679.7						775.1						753.7						(95.4)						21.4
Industrial			213.8						245.8						228.6						(32.0)						17.2
Off-System			41.0						77.7						92.4						(36.7)						(14.7)
Other			95.0						107.0						96.5						(12.0)						10.5
Total			$	3,140.1					$	3,522.8					$	3,419.5					$	(382.7)					$	103.3
Sales and Transportation (MMDth)
Residential			249.5						274.9						280.3						(25.4)						(5.4)
Commercial			170.5						189.6						187.6						(19.1)						2.0
Industrial			538.1						542.5						555.7						(4.4)						(13.2)
Off-System			23.3						32.9						30.0						(9.6)						2.9
Other			0.3						0.3						—						—						0.3
Total			981.7						1,040.2						1,053.6						(58.5)						(13.4)
Heating Degree Days			5,097						5,375						5,562						(278)						(187)
Normal Heating Degree Days			5,485						5,452						5,610						33						(158)
% Warmer than Normal			(7)		%				(1)		%				(2)		%
Gas Distribution Customers
Residential			2,954,478						3,221,178						3,194,662						(266,700)						26,516
Commercial			253,184						282,778						281,517						(29,594)						1,261
Industrial			4,968						5,982						5,833						(1,014)						149
Other			3						3						3						—						—
Total			3,212,633						3,509,941						3,482,015						(297,308)						27,926

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

NIS****OURCE INC.

Gas Distribution Operations (continued)

Cost of energy for the Gas Distribution Operations segment is principally comprised of the cost of natural gas used while providing transportation and distribution services to customers. These are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in operating revenue. In addition, comparability of operation and maintenance expenses, depreciation and amortization, and other taxes may be impacted by regulatory, depreciation and tax trackers that allow for the recovery in rates of certain costs. Therefore, increases in these tracked operating expenses are offset by increases in operating revenues and have essentially no impact on net income.

2020 vs. 2019 Operating Income

For 2020, Gas Distribution Operations reported operating income of $199.1 million, a decrease of $476.3 million from the comparable 2019 period.

Operating revenues for 2020 were $3,140.1 million, a decrease of $382.7 million from the same period in 2019. The change in operating revenues was primarily driven by:

• Lower cost of energy billed to customers, which is offset in operating expense, of $273.4 million.

• Lower revenues due to the sale of the Massachusetts Business of $102.2 million.

• Lower revenues from the effects of warmer weather in 2020 of $47.9 million.

• Lower regulatory, depreciation, and tax trackers, which are offset in operating expense, of $20.7 million.

• The effects of decreased commercial and industrial usage and decreased late and disconnection fees, both primarily related to the COVID-19 pandemic, of $11.3 million.

Partially offset by:

• New rates from base rate proceedings, infrastructure replacement programs and Columbia of Ohio's CEP of $57.1 million.

• The effects of increased residential usage primarily related to the pandemic of $5.0 million.

Operating expenses were $93.6 million higher in 2020 compared to 2019. This change was primarily driven by:

• Loss on sale of the Massachusetts Business of $412.4 million.

• Insurance recoveries recorded in 2019, net of third party claims and other costs, related to the Greater Lawrence Incident of $243.2 million.

• Severance and outside services expense related to NiSource Next initiative of $32.4 million.

• Increased expenses primarily due to the impact of the pandemic related to materials and supplies, outside services, and uncollectible expenses of $23.8 million, offset by $12.0 million of deferral of uncollectible and other expenses, net of benefits, related to the pandemic.

• Higher depreciation and amortization and property tax expense primarily due to higher capital expenditures placed in service of $24.3 million

Partially offset by:

• Lower cost of energy billed to customers, which is offset in operating revenue, of $273.4.

• Non-cash impairment of the Columbia of Massachusetts franchise rights of $209.7 million in 2019.

• Lower operation and maintenance and depreciation and amortization expenses due to the Massachusetts Business sale of $98.7 million.

• Lower employee and administrative expense of $28.9 million.

• Lower regulatory, depreciation, and tax trackers, which are offset in operating revenues, of $20.7 million.

2019 vs. 2018 Operating Income

For 2019, Gas Distribution Operations reported operating income of $675.4 million, an increase of $929.5 million from the comparable 2018 period.

Operating revenues for 2019 were $3,522.8 million, an increase of $103.3 million from the same period in 2018. The change in operating revenues was primarily driven by:

• New rates from base rate proceedings and infrastructure replacement programs of $243.2 million.

• Higher regulatory, depreciation and tax trackers, which are offset in operating expense, of $36.2 million.

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

NIS****OURCE INC.

Gas Distribution Operations (continued)

• Higher revenues of $14.5 million resulting from an update in the weather-related normal heating degree day methodology, partially offset by a $7.1 million revenue decrease from the effects of warmer weather in 2019.

• The effects of commercial and residential customer growth of $12.8 million.

Partially offset by:

• Lower cost of energy billed to customers, which is offset in operating expenses of $191.7 million.

Operating expenses were $826.2 million lower in 2019 compared to 2018. This change was primarily driven by:

• Decreased expenses related to third-party claims and other costs for the Greater Lawrence Incident of $1,090.7 million, net of insurance recoveries recorded.

• Lower cost of energy billed to customers, which is offset in operating revenues of $191.7 million.

Partially offset by:

• Non-cash impairment of the Columbia of Massachusetts franchise rights of $209.7 million.

• Increased depreciation of $103.8 million due to the regulatory outcome of NIPSCO's gas rate case, an increase in amortization of depreciation previously deferred as a regulator asset resulting from Columbia of Ohio's CEP, and higher capital expenditures placed in service.

• Higher employee and administrative expenses of $50.2 million driven by resources shifting from the temporary assistance on the Greater Lawrence Incident restoration to normal operations (offset in the decreased Greater Lawrence Incident costs discussed above) and an increase in headcount.

• Increased regulatory, depreciation and tax trackers, which are offset in operating revenues, of $36.2 million.

• Higher property taxes of $22.2 million primarily due to increased amortization of property taxes previously deferred as a regulatory asset resulting from Columbia of Ohio's CEP, as well as higher capital expenditures placed in service.

• Higher outside services of $17.4 million primarily due to increased line location and safety-related work.

Weather

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

The definition of “normal” weather was updated during the first quarter of 2019 to reflect more current weather pattern data and to more closely align with the regulators' jurisdictional definitions of “normal” weather. Impacts of the change in methodology will be reflected prospectively and disclosed to the extent it results in notable year-over-year variances in operating revenues.

Weather in the Gas Distribution Operations service territories for 2020 was about 7% warmer than normal and about 5% warmer than 2019, leading to decreased operating revenues of $47.9 million for the year ended December 31, 2020 compared to 2019. The majority of these amounts were driven by NIPSCO and Columbia of Pennsylvania.

Weather in the Gas Distribution Operations service territories for 2019 was about 1% warmer than normal and about 3% warmer than 2018; however, due to the aforementioned change in methodology, the change in operating revenues attributed to weather resulted in an increase of $7.4 million for the year ended December 31, 2019 compared to 2018. The variance is detailed further below:

• An update in the weather-related normal heating degree day methodology resulting in a favorable variance attributed to weather of $14.5 million, as discussed above.

Offset by:

• The effects of warmer weather in 2019 of $7.1 million.

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

NIS****OURCE INC.

Gas Distribution Operations (continued)

Throughput

Total volumes sold and transported for the year ended December 31, 2020 were 981.7 MMDth, compared to 1,040.2 MMDth for 2019. This decrease is primarily attributable to warmer weather experienced in 2020 compared to 2019, the sale of the Massachusetts Business and decreased usage by commercial and industrial customers primarily due to the pandemic.

Total volumes sold and transported for the year ended December 31, 2019 were 1,040.2 MMDth, compared to 1,053.6 MMDth for 2018. This decrease is primarily attributable to warmer weather experienced in 2019 compared to 2018.

Commodity Price Impact

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

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

Greater Lawrence Incident

Refer to Note 20-C. "Legal Proceedings," and Note 20-E. "Other Matters," in the Notes to Consolidated Financial Statements, "Summary of Consolidated Financial Results" and "Liquidity and Capital Resources" in this Management's Discussion, and Part I. Item 1A. "Risk Factors" for additional information related to the Greater Lawrence Incident.

Columbia of Massachusetts Asset Sale

On February 26, 2020, we entered into the Asset Purchase Agreement with Eversource providing for the sale of the Massachusetts Business to Eversource, subject to the terms and conditions set forth in the agreement. This sale was completed on October 9, 2020. For additional information, see Note 1, “Nature of Operations and Summary of Significant Accounting Policies,” in the Notes to Consolidated Financial Statements.

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

NIS****OURCE INC.

Electric Operations

Financial and operational data for the Electric Operations segment for the years ended December 31, 2020, 2019 and 2018, are presented below:

Year Ended December 31, (in millions)			2020						2019						2018						2020 vs. 2019						2019 vs. 2018
Operating Revenues			$	1,536.6					$	1,699.2					$	1,708.2					$	(162.6)					$	(9.0)
Operating Expenses
Cost of energy			315.2						467.3						502.1						(152.1)						(34.8)
Operation and maintenance			497.6						495.0						500.0						2.6						(5.0)
Depreciation and amortization			321.3						277.3						262.9						44.0						14.4
Gain on sale of fixed assets and impairments, net			—						(0.1)						—						0.1						(0.1)
Other taxes			53.7						52.9						57.1						0.8						(4.2)
Total Operating Expenses			1,187.8						1,292.4						1,322.1						(104.6)						(29.7)
Operating Income			$	348.8					$	406.8					$	386.1					$	(58.0)					$	20.7
Revenues
Residential			$	527.8					$	481.6					$	494.7					$	46.2					$	(13.1)
Commercial			480.3						486.7						492.6						(6.4)						(5.9)
Industrial			412.9						608.4						614.4						(195.5)						(6.0)
Wholesale			12.3						11.7						15.7						0.6						(4.0)
Other			103.3						110.8						90.8						(7.5)						20.0
Total			$	1,536.6					$	1,699.2					$	1,708.2					$	(162.6)					$	(9.0)
Sales (Gigawatt Hours)
Residential			3,484.0						3,369.5						3,535.2						114.5						(165.7)
Commercial			3,550.0						3,760.3						3,844.6						(210.3)						(84.3)
Industrial			7,480.3						8,466.1						8,829.5						(985.8)						(363.4)
Wholesale			83.6						8.2						114.3						75.4						(106.1)
Other			106.0						117.2						124.4						(11.2)						(7.2)
Total			14,703.9						15,721.3						16,448.0						(1,017.4)						(726.7)
Cooling Degree Days			900						962						1,180						(62)						(218)
Normal Cooling Degree Days			803						803						806						—						(3)
% Warmer than Normal			12		%				20		%				46		%
Electric Customers
Residential			418,871						415,534						412,267						3,337						3,267
Commercial			57,435						57,058						56,605						377						453
Industrial			2,154						2,256						2,284						(102)						(28)
Wholesale			722						726						735						(4)						(9)
Other			2						2						2						—						—
Total			479,184						475,576						471,893						3,608						3,683

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

NIS****OURCE INC.

Electric Operations (continued)

Cost of energy for the Electric Operations segment is principally comprised of the cost of coal, related handling costs, natural gas purchased for internal generation of electricity at NIPSCO, and the cost of power purchased from third-party generators of electricity. The majority of these are tracked costs that are passed through directly to the customer resulting in an equal and offsetting amount reflected in operating revenue. In addition, comparability of operation and maintenance expenses and depreciation and amortization may be impacted by regulatory and depreciation trackers that allow for the recovery in rates of certain costs. Therefore, increases in these tracked operating expenses are offset by increases in operating revenues and have essentially no impact on net income.

2020 vs. 2019 Operating Income

For 2020, Electric Operations reported operating income of $348.8 million, a decrease of $58.0 million from the comparable 2019 period.

Operating revenues for 2020 were $1,536.6 million, an decrease of $162.6 million from the same period in 2019. The change in operating revenues was primarily driven by:

• Lower cost of energy billed to customers, which is offset in operating expense, of $152.1 million.

• Lower regulatory and depreciation trackers, which are offset in operating expense, of $25.2 million.

• The effects of decreased commercial and industrial usage and decreased late and disconnection fees, both primarily related to the COVID-19 pandemic, of $24.9 million.

Partially offset by:

• Higher revenue from recent base rate proceedings of $22.5 million.

• The effects of increased residential usage primarily related to the pandemic of $13.5 million.

• The effects of customer growth of $4.0 million.

Operating expenses were $104.6 million lower in 2020 than 2019. This change was primarily driven by:

• Lower cost of energy billed to customers, which is offset in operating revenue, of $152.1 million.

• Lower regulatory and depreciation trackers, which are offset in operating revenues, of $25.2 million.

• Lower outside services costs of $16.0 million primarily related to lower generation-related maintenance.

• Lower employee and administrative costs of $8.1 million.

Partially offset by:

• Increased depreciation of $61.6 million primarily due to additional plant placed in service.

• Severance and outside services expenses related to the NiSource Next initiative of $13.0 million.

• Increased expenses primarily due to the impact of pandemic-related materials and supplies, outside services, uncollectible and sequestration expenses of $10.7 million, offset by a $5.3 million deferral of uncollectible and other expenses, related to the pandemic.

• Increased materials and supplies costs of $4.7 million

• Higher insurance expense of $2.7 million primarily driven by increased premiums.

• Increased environmental costs of $1.3 million.

2019 vs. 2018 Operating Income

For 2019, Electric Operations reported operating income of $406.8 million, an increase of $20.7 million from the comparable 2018 period.

Operating revenues for 2019 were $1,699.2 million, a decrease of $9.0 million from the same period in 2018. The change in operating revenues was primarily driven by:

• Lower cost of energy billed to customers, which is offset in operating expense, of $34.8 million.

• Lower revenues from the effects of cooler weather of $15.1 million.

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

NIS****OURCE INC.

Electric Operations (continued)

• Decreased residential, commercial and industrial usage of $10.8 million.

Partially offset by:

• New rates from the recent rate case proceeding, incremental capital spend on infrastructure replacement programs, and electric transmission projects of $24.8 million.

• Decreased fuel handling costs of $11.0 million.

• Higher regulatory and depreciation trackers, which are offset in operating expense, of $8.4 million.

• Increased commercial and residential customer growth of $3.9 million.

Operating expenses were $29.7 million lower in 2019 than 2018. This change was primarily driven by:

• Lower cost of energy billed to customers, which is offset in operating revenue, of $34.8 million.

• Decreased materials and supplies costs of $7.8 million, primarily related to the retirement of Bailly Generating Station Units 7 and 8 on May 31, 2018.

• Decreased employee and administrative costs of $5.0 million.

Partially offset by:

• Higher regulatory and depreciation trackers, which are offset in operating revenues, of $8.4 million.

• Increased depreciation of $8.7 million due to higher capital expenditures placed in service.

Weather

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

The definition of “normal” weather was updated during the first quarter of 2019 to reflect more current weather pattern data and to more closely align with the regulators' jurisdictional definitions of “normal” weather. Impacts of the change in methodology will be reflected prospectively and disclosed to the extent it results in notable year-over-year variances in operating revenues.

Weather in the Electric Operations’ territories for 2020 was 12% warmer than normal and 6% cooler than the same period in 2019, which had an immaterial impact on operating revenues for the year ended December 31, 2020 compared to 2019.

Weather in the Electric Operations’ territories for 2019 was 20% warmer than normal and 18% cooler than the same period in 2018, decreasing operating revenues $15.1 million for the year ended December 31, 2019 compared to 2018.

Sales

Electric Operations sales were 14,703.9 GWh for 2020, a decrease of 1,017.4 GWh, or 6.5% compared to 2019. This decrease was primarily attributable to decreased usage by industrial and commercial customers due to the pandemic and higher self-generation by industrial customers, partially offset by increased usage by residential customers primarily due to the pandemic.

Electric Operations sales were 15,721.3 GWh for 2019, a decrease of 726.7 GWh, or 4.4% compared to 2018. This decrease was primarily attributable to higher internal generation from large industrial customers in 2019 and the effects of cooler weather on residential and commercial customers.

Commodity Price Impact

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

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

NIS****OURCE INC.

Electric Operations (continued)

NIPSCO's performance remains closely linked to the performance of the steel industry. NIPSCO’s MWh sales to steel-related industries accounted for approximately 45.9% and 51.5% of the total industrial MWh sales for the years ended December 31, 2020 and 2019, respectively.

Electric Supply

NIPSCO 2018 Integrated Resource Plan. NIPSCO concluded in its October 2018 Integrated Resource Plan submission that NIPSCO’s current fleet of coal generation facilities will be retired earlier than previous Integrated Resource Plan’s had indicated. The Integrated Resource Plan evaluated demand-side and supply-side resource alternatives to reliably and cost effectively meet NIPSCO customers' future energy requirements over the ensuing 20 years. The preferred option within the Integrated Resource Plan retires the R.M. Schahfer Generating Station by mid-2023 and the Michigan City Generating Station by the end of 2028. These stations represent 2,080 MW of generating capacity, equal to 72% of NIPSCO’s remaining capacity and 100% of NIPSCO's remaining coal-fired generating capacity. In the second quarter of 2020, the MISO approved NIPSCO's plan to retire the R.M. Schahfer Generating Station in 2023. The planned replacement by the end of 2023 of approximately 1,400 MW of retiring coal-fired generation station could provide incremental capital investment opportunities of approximately $1.8 to $2.0 billion, primarily in 2022 and 2023. Refer to Note 6, "Property, Plant and Equipment" and Note 20-E, "Other Matters," in the Notes to Consolidated Financial Statements for further information. In February 2021, NIPSCO decided to submit modified Attachment Y Notices to MISO requesting accelerated retirement of two of the four coal fired units at R.M. Schahfer Generating Station. The two units are now expected to be retired by the end of 2021, with the remaining two units still scheduled to be retired in 2023. At retirement, the net book value of the retired units will be reclassified from "Non-Utility and Other property", to current and long-term “Regulatory Assets.”

The current replacement plan includes renewable sources of energy, including wind, solar, and battery storage to be obtained through a combination of NIPSCO ownership and PPAs. NIPSCO has executed several PPAs to purchase 100% of the output from renewable generation facilities at a fixed price per MWh. Each facility supplying the energy will have an associated nameplate capacity, and payments under the PPAs will not begin until the associated generation facility is constructed by the owner/seller. NIPSCO has also executed several BTAs with developers to construct renewable generation facilities. The following table summarizes the executed PPAs and BTAs that have not yet been placed into service:

Project Name			Transaction Type			Technology			Nameplate Capacity (MW)			Storage Capacity (MW)			Submitted to IURC			IURC Approval			Estimated Construction Completion
Jordan Creek			20 year PPA			Wind			400			—			02/01/2019			6/05/2019			In Service (12/10/2020)
Rosewater(1)			BTA			Wind			100			—			02/01/2019			8/07/2019			In Service (12/29/2020)
Indiana Crossroads(2)			BTA			Wind			300			—			10/22/2019			2/19/2020			12/31/2021
Greensboro			20 year PPA			Solar & Storage			100			30			7/17/2020			1/27/2021			6/30/2023
Brickyard			20 year PPA			Solar			200			—			7/17/2020			1/27/2021			6/30/2023
Green River			20 year PPA			Solar			200			—			12/23/2020			Pending			6/30/2023
Cavalry(2)			BTA			Solar & Storage			200			60			11/30/2020			Pending			12/31/2023
Dunn's Bridge I(2)			BTA			Solar			265			—			11/30/2020			Pending			12/31/2022
Dunn's Bridge II(2)			BTA			Solar & Storage			435			75			11/30/2020			Pending			12/31/2023
Gibson			22 year PPA			Solar			280			—			01/29/2021			Pending			12/31/2023

(1) Ownership of the facility was transferred to a joint venture whose members include NIPSCO and an unrelated tax equity partner.

(2) Ownership of the facilities will be transferred to joint ventures whose members include NIPSCO and an unrelated tax equity partner.

We expect to secure additional agreements with counterparties and initiate regulatory compliance filings into 2021.

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

NIS****OURCE INC.

Liquidity and Capital Resources

We continually evaluate the availability of adequate financing to fund our ongoing business operations, working capital and core safety and infrastructure investment programs. Our financing is sourced through cash flow from operations and the issuance of debt and/or equity. External debt financing is provided primarily through the issuance of long-term debt, accounts receivable securitization programs and our $1.5 billion commercial paper program, which is backstopped by our committed revolving credit facility with a total availability from third-party lenders of $1.85 billion. The commercial paper program and credit facility provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves our desired capital structure. We have also utilized an at-the-market (ATM) equity sales program that allowed us to issue and sell shares of our common stock up to an aggregate offering price of $434.4 million. The program expired on December 31, 2020, but we expect to issue additional equity under ATM offerings from time to time.

We believe these sources provide adequate capital to fund our operating activities and capital expenditures in 2021 and beyond.

Greater Lawrence Incident. As discussed in the "Executive Summary", Part I, Item 1A “Risk Factors,” and in Note 20, “Other Commitments and Contingencies” in the Notes to Consolidated Financial Statements, due to the inherent uncertainty of litigation, there can be no assurance that the outcome or resolution of any particular claim related to the Greater Lawrence Incident will not continue to have an adverse impact on our cash flows. Through income generated from operating activities, amounts available under the short-term revolving credit facility, and our ability to access capital markets, we believe we have adequate capital available to settle remaining anticipated claims associated with the Greater Lawrence Incident. Previous costs in excess of insurance recoveries were primarily funded through short-term borrowings. The sale of the Massachusetts Business was completed on October 9, 2020. On October 14, 2020, we used a portion of the proceeds from the Massachusetts Business sale to pay down these short-term borrowings.

Operating Activities

Net cash from operating activities for the year ended December 31, 2020 was $1,104.0 million, a decrease of $479.3 million from 2019. This decrease was primarily driven by a year over year increase in net payments related to the Greater Lawrence Incident. During 2020, we paid approximately $227 million compared to net receipts of $289 million, representing insurance recoveries offset by payments, during 2019. Refer to Note 20, "Other Commitments and Contingencies" in the Notes to Consolidated Financial Statements for further information related to the Greater Lawrence Incident.

Investing Activities

Our cash used for investing activities varies year over year primarily as a result of changes in the level of annual capital expenditures. See below for further details of our capital expenditures and related regulatory programs. In 2020, our typical investing cash outflows were offset by $1,115.9 million of proceeds from the sale of assets, driven by the sale of the Massachusetts Business. Refer to Note 1 "Nature of Operations and Summary of Significant Accounting Policies" for more information.

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

NIS****OURCE INC.

Capital Expenditures. The table below reflects capital expenditures and certain other investing activities by segment for 2020, 2019 and 2018.

(in millions)			2020						2019						2018(3)
Gas Distribution Operations
System Growth and Tracker			$	975.7					$	1,006.1					$	897.5
Maintenance			291.2						374.3						417.8
Total Gas Distribution Operations			1,266.9						1,380.3						1,315.3
Electric Operations
System Growth and Tracker			222.1						279.5						346.0
Maintenance			200.7						189.4						153.3
Total Electric Operations			422.8						468.9						499.3
Corporate and Other Operations - Maintenance(1)			31.1						18.6						—
Total(2)			$	1,720.8					$	1,867.8					$	1,814.6

(1) Corporate and Other capital expenditures were zero in 2018 as specific IT assets were leased in 2018. Certain IT and other maintenance related assets were purchased in 2019 and 2020.

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

(3) The 2018 capital expenditures for Gas Distribution Operations reflects reclassifying the Greater Lawrence Incident pipeline replacement from system growth and tracker to maintenance.

For 2020, capital expenditures and certain other investing activities were $1,720.8 million, which was $147.0 million lower than the 2019 capital program. This decrease in spending is primarily due to the sale of the Massachusetts Business and impact of COVID 19.

For 2019, capital expenditures and certain other investing activities were $1,867.8 million, which was $53.2 million higher than the 2018 capital program. This increased spending is primarily due to growth, safety and system modernization projects.

For 2021, we project to invest approximately $1.9 to $2.1 billion in our capital program. This projected level of spend is an increase from our 2020 spend levels and supports continued investment in safety and reliability through modernizing gas and electric systems while meeting customer growth demands.