NiSource 10-Q 2022-03-31

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 001-16189

NiSource Inc.

(Exact name of registrant as specified in its charter)

DE									35-2108964
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification No.)
801 East 86th Avenue
Merrillville,			IN						46410
(Address of principal executive offices)									(Zip Code)

(877) 647-5990

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class			Trading Symbol(s)			Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share			NI			NYSE
Depositary Shares, each representing a 1/1,000th ownership interest in a share of 6.50% Series B Fixed-Rate Reset Cumulative Redeemable Perpetual Preferred Stock, par value $0.01 per share, liquidation preference $25,000 per share and a 1/1,000th ownership interest in a share of Series B-1 Preferred Stock, par value $0.01 per share, liquidation preference $0.01 per share			NI PR B			NYSE
Series A Corporate Units			NIMC			NYSE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)

Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer ¨ Emerging growth company ☐ Non-accelerated filer ¨ Smaller reporting company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.01 Par Value: 405,798,111 shares outstanding at April 26, 2022.

NISOURCE INC.

FORM 10-Q QUARTERLY REPORT

FOR THE QUARTER ENDED MARCH 31, 2022

Table of Contents

									Page
			Defined Terms						3
PART I			FINANCIAL INFORMATION
			Item 1.			Financial Statements - unaudited
						Condensed Statements of Consolidated Income (unaudited)			7
						Condensed Statements of Consolidated Comprehensive Income (unaudited)			8
						Condensed Consolidated Balance Sheets (unaudited)			9
						Condensed Statements of Consolidated Cash Flows (unaudited)			11
						Condensed Statements of Consolidated Equity (unaudited)			12
						Notes to Condensed Consolidated Financial Statements (unaudited)			14
			Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
			Item 3.			Quantitative and Qualitative Disclosures About Market Risk			53
			Item 4.			Controls and Procedures			53
PART II			OTHER INFORMATION
			Item 1.			Legal Proceedings			54
			Item 1A.			Risk Factors			54
			Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			55
			Item 3.			Defaults Upon Senior Securities			55
			Item 4.			Mine Safety Disclosures			55
			Item 5.			Other Information			55
			Item 6.			Exhibits			56
			Signature						57

DEFINED TERMS
The following is a list of frequently used abbreviations or acronyms that are found in this report:
NiSource Subsidiaries and Affiliates
Columbia of Kentucky			Columbia Gas of Kentucky, Inc.
Columbia of Maryland			Columbia Gas of Maryland, Inc.
Columbia of Massachusetts			Bay State Gas Company
Columbia of Ohio			Columbia Gas of Ohio, Inc.
Columbia of Pennsylvania			Columbia Gas of Pennsylvania, Inc.
Columbia of Virginia			Columbia Gas of Virginia, Inc.
NIPSCO			Northern Indiana Public Service Company LLC
NiSource ("we," "us" or "our")			NiSource Inc.
Rosewater			Rosewater Wind Generation LLC and its wholly owned subsidiary, Rosewater Wind Farm LLC
Indiana Crossroads Wind			Indiana Crossroads Wind Generation LLC and its wholly owned subsidiary, Indiana Crossroads Wind Farm LLC
Abbreviations and Other
ACE			Affordable Clean Energy
AFUDC			Allowance for funds used during construction
AOCI			Accumulated Other Comprehensive Income (Loss)
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
ATM			At-the-market
BTA			Build-transfer agreement
CCRs			Coal Combustion Residuals
CEP			Capital Expenditure Program
CERCLA			Comprehensive Environmental Response Compensation and Liability Act (also known as Superfund)
Corporate Units			Series A Corporate Units
COVID-19 ("the COVID-19 pandemic" or "the pandemic")			Novel Coronavirus 2019 and its variants, including the Delta and Omicron variants, and any other variant that may emerge
DSIC			Distribution System Improvement Charge
DPU			Department of Public Utilities
EPA			United States Environmental Protection Agency
EPS			Earnings per share
Equity Units			Series A Equity Units
FAC			Fuel adjustment clause
FASB			Financial Accounting Standards Board
FMCA			Federally Mandated Cost Adjustment
GAAP			Generally Accepted Accounting Principles
GCA			Gas cost adjustment
GHG			Greenhouse gases
GWh			Gigawatt hours
IRP			Infrastructure Replacement Program
IURC			Indiana Utility Regulatory Commission
LIBOR			London InterBank Offered Rate

DEFINED TERMS
LIFO			Last In, First Out
LIHEAP			Low Income Heating Energy Assistance Programs
Massachusetts Business			All of the assets sold to, and liabilities assumed by, Eversource pursuant to the Asset Purchase Agreement
MGP			Manufactured Gas Plant
MISO			Midcontinent Independent System Operator
MMDth			Million dekatherms
MW			Megawatts
MWh			Megawatt hours
NTSB			National Transportation Safety Board
NYMEX			New York Mercantile Exchange
OPEB			Other Postemployment Benefits
PHMSA			Pipeline and Hazardous Materials Safety Administration
PPA			Power Purchase Agreement
PUCO			Public Utilities Commission of Ohio
RNG			Renewable Natural Gas
SAVE			Steps to Advance Virginia's Energy Plan
Scope 1 GHG Emissions			Direct emissions from sources owned or controlled by us (e.g., emissions from our combustion of fuel, vehicles, and process emissions and fugitive emissions)
SEC			Securities and Exchange Commission
Section 201 Tariffs			Tariffs imposed by Executive Order from the President of the U.S. on certain imported solar cells and modules at a rate of 15%, which were recently extended to 2026
SMRP			Safety Modification and Replacement Program
STRIDE			Strategic Infrastructure Development Enhancement
TCJA			An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018 (commonly known as the Tax Cuts and Jobs Act of 2017)
TDSIC			Transmission, Distribution and Storage System Improvement Charge
U.S. Attorney's Office			U.S. Attorney's Office for the District of Massachusetts
VIE			Variable Interest Entity

Note regarding forward-looking statements

This Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Investors and prospective investors should understand that many factors govern whether any forward-looking statement contained herein will be or can be realized. Any one of those factors could cause actual results to differ materially from those projected. These forward-looking statements include, but are not limited to, statements concerning our plans, strategies, objectives, expected performance, expenditures, recovery of expenditures through rates, stated on either a consolidated or segment basis, and any and all underlying assumptions and other statements that are other than statements of historical fact. Expressions of future goals and expectations and similar expressions, including "may," "will," "should," "could," "would," "aims," "seeks," "expects," "plans," "anticipates," "intends," "believes," "estimates," "predicts," "potential," "targets," "forecast," and "continue," reflecting something other than historical fact are intended to identify forward-looking statements. All forward-looking statements are based on assumptions that management believes to be reasonable; however, there can be no assurance that actual results will not differ materially.

Factors that could cause actual results to differ materially from the projections, forecasts, estimates and expectations discussed in this Quarterly Report on Form 10-Q include, among other things, our ability to execute our business plan or growth strategy, including utility infrastructure investments; potential incidents and other operating risks associated with our business; our ability to adapt to, and manage costs related to, advances in technology; impacts related to our aging infrastructure; our ability to obtain sufficient insurance coverage and whether such coverage will protect us against significant losses; the success of our

electric generation strategy; construction risks and natural gas costs and supply risks; fluctuations in demand from residential and commercial customers; fluctuations in the price of energy commodities and related transportation costs or an inability to obtain an adequate, reliable and cost-effective fuel supply to meet customer demands; the attraction and retention of a qualified, diverse workforce and ability to maintain good labor relations; our ability to manage new initiatives and organizational changes; the actions of activist stockholders; the performance of third-party suppliers and service providers; potential cybersecurity attacks; increased requirements and costs related to cybersecurity; any damage to our reputation; any remaining liabilities or impact related to the sale of the Massachusetts Business; the impacts of natural disasters, potential terrorist attacks or other catastrophic events; the physical impacts of climate change and the transition to a lower carbon future; our ability to manage the financial and operational risks related to achieving our carbon emission reduction goals; our debt obligations; any changes to our credit rating or the credit rating of certain of our subsidiaries; any adverse effects related to our equity units; adverse economic and capital market conditions or increases in interest rates; inflation; economic regulation and the impact of regulatory rate reviews; our ability to obtain expected financial or regulatory outcomes; continuing and potential future impacts from the COVID-19 pandemic; economic conditions in certain industries; the reliability of customers and suppliers to fulfill their payment and contractual obligations; the ability of our subsidiaries to generate cash; pension funding obligations; potential impairments of goodwill; changes in the method for determining LIBOR and the potential replacement of the LIBOR benchmark interest rate; the outcome of legal and regulatory proceedings, investigations, incidents, claims and litigation; potential remaining liabilities related to the Greater Lawrence Incident; compliance with the agreements entered into with the U.S. Attorney's Office to settle the U.S. Attorney's Office's investigation relating to the Greater Lawrence Incident; compliance with applicable laws, regulations and tariffs; compliance with environmental laws and the costs of associated liabilities; changes in taxation; other matters in the "Risk Factors" section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and matters related to our electric generation transition as set forth in the "Risk Factors" section of this Quarterly Report on Form 10-Q, many of which risks are beyond our control. In addition, the relative contributions to profitability by each business segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time.

All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements. We undertake no obligation to, and expressly disclaim any such obligation to, update or revise any forward-looking statements to reflect changed assumptions, the occurrence of anticipated or unanticipated events or changes to the future results over time or otherwise, except as required by law.

Index			Page
Condensed Statements of Consolidated Income (unaudited)			7
Condensed Statements of Consolidated Comprehensive Income (unaudited)			8
Condensed Consolidated Balance Sheets (unaudited)			9
Condensed Statements of Consolidated Cash Flows (unaudited)			11
Condensed Statements of Consolidated Equity (unaudited)			12
Notes to Condensed Consolidated Financial Statements (unaudited)			14
1. Basis of Accounting Presentation			14
2. Recent Accounting Pronouncements			14
3. Revenue Recognition			14
4. Earnings Per Share			17
5. Equity			18
6. Gas in Storage			19
7. Regulatory Matters			20
8. Risk Management Activities			20
9. Fair Value			22
10. Income Taxes			25
11. Pension and Other Postretirement Benefits			25
12. Variable Interest Entities			26
13. Long-Term Debt			27
14. Short-Term Borrowings			27
15. Other Commitments and Contingencies			28
16. Accumulated Other Comprehensive Loss			31
17. Other, Net			31
18. Business Segment Information			31
19. Subsequent Event			32

Table of Contents

PART I

ITEM 1. FINANCIAL STATEMENTS

NiSource Inc.

Condensed Statements of Consolidated Income (unaudited)

			Three Months Ended March 31,
(in millions, except per share amounts)			2022						2021
Operating Revenues
Customer revenues			$	1,840.3					$	1,506.5
Other revenues			33.0						39.1
Total Operating Revenues			1,873.3						1,545.6
Operating Expenses
Cost of energy			706.7						476.8
Operation and maintenance			394.3						361.5
Depreciation and amortization			192.7						185.0
Loss (gain) on sale of assets, net			(105.0)						8.1
Other taxes			84.3						81.0
Total Operating Expenses			1,273.0						1,112.4
Operating Income			600.3						433.2
Other Income (Deductions)
Interest expense, net			(83.7)						(84.6)
Other, net			10.9						10.5
Total Other Deductions, Net			(72.8)						(74.1)
Income before Income Taxes			527.5						359.1
Income Taxes			96.2						62.6
Net Income			431.3						296.5
Net income attributable to noncontrolling interest			4.5						1.0
Net Income Attributable to NiSource			426.8						295.5
Preferred dividends			(13.8)						(13.8)
Net Income Available to Common Shareholders			413.0						281.7
Earnings Per Share
Basic Earnings Per Share			$	1.02					$	0.72
Diluted Earnings Per Share			$	0.94					$	0.72
Basic Average Common Shares Outstanding			406.0						392.7
Diluted Average Common Shares			441.4						393.9

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.

Condensed Statements of Consolidated Comprehensive Income (unaudited)

			Three Months Ended March 31,
(in millions, net of taxes)			2022						2021
Net Income			$	431.3					$	296.5
Other comprehensive income:
Net unrealized loss on available-for-sale debt securities(1)			(5.7)						(2.5)
Net unrealized gain on cash flow hedges(2)			47.0						84.6
Unrecognized pension and OPEB benefit (costs)(3)			0.1						(0.9)
Total other comprehensive income			41.4						81.2
Comprehensive Income			$	472.7					$	377.7

(1)Net unrealized loss on available-for-sale debt securities, net of $1.5 million and $0.7 million tax benefit in the first quarter of 2022 and 2021, respectively.

(2)Net unrealized gain on cash flow hedges, net of $21.3 million and $28.0 million tax expense in the first quarter of 2022 and 2021, respectively.

(3)Unrecognized pension and OPEB benefit, net of zero and $0.9 million tax expense in the first quarter of 2022 and 2021, respectively.

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions)			March 31, 2022						December 31, 2021
ASSETS
Property, Plant and Equipment
Plant			$	25,538.3					$	25,171.3
Accumulated depreciation and amortization			(7,417.6)						(7,289.5)
Net Property, Plant and Equipment(1)			18,120.7						17,881.8
Investments and Other Assets
Unconsolidated affiliates			0.8						0.8
Available-for-sale debt securities (amortized cost of $161.7 and $169.3, allowance for credit losses of $0.6 and $0.2, respectively)			156.7						171.8
Other investments			82.4						87.1
Total Investments and Other Assets			239.9						259.7
Current Assets
Cash and cash equivalents			114.5						84.2
Restricted cash			15.9						10.7
Accounts receivable			989.6						849.1
Allowance for credit losses			(28.5)						(23.5)
Accounts receivable, net			961.1						825.6
Gas inventory			74.8						327.4
Materials and supplies, at average cost			146.9						139.1
Electric production fuel, at average cost			41.5						32.2
Exchange gas receivable			98.6						99.6
Regulatory assets			154.7						206.2
Prepayments and other			263.9						195.8
Total Current Assets(1)			1,871.9						1,920.8
Other Assets
Regulatory assets			2,276.3						2,286.0
Goodwill			1,485.9						1,485.9
Deferred charges and other			370.8						322.7
Total Other Assets			4,133.0						4,094.6
Total Assets			$	24,365.5					$	24,156.9

(1)Includes $690.4 million and $695.9 million at March 31, 2022 and December 31, 2021, respectively, of net property, plant and equipment assets and $27.4 million and $14.3 million at March 31, 2022 and December 31, 2021, respectively, of current assets of consolidated VIEs that may be used only to settle obligations of the consolidated VIEs. Refer to Note 12, "Variable Interest Entities" for additional information.

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.

Condensed Consolidated Balance Sheets (unaudited) (continued)

(in millions, except share amounts)			March 31, 2022						December 31, 2021
CAPITALIZATION AND LIABILITIES
Capitalization
Stockholders’ Equity
Common stock - $0.01 par value, 600,000,000 shares authorized; 405,734,408 and 405,303,023 shares outstanding, respectively			$	4.1					$	4.1
Preferred stock - $0.01 par value, 20,000,000 shares authorized; 1,302,500 shares outstanding			1,546.5						1,546.5
Treasury stock			(99.9)						(99.9)
Additional paid-in capital			7,208.9						7,204.3
Retained deficit			(1,372.3)						(1,580.9)
Accumulated other comprehensive loss			(85.4)						(126.8)
Total NiSource Stockholders’ Equity			7,201.9						6,947.3
Noncontrolling interest in consolidated subsidiaries			329.5						325.6
Total Equity			7,531.4						7,272.9
Long-term debt, excluding amounts due within one year			9,179.8						9,183.4
Total Capitalization			16,711.2						16,456.3
Current Liabilities
Current portion of long-term debt			57.9						58.1
Short-term borrowings			520.0						560.0
Accounts payable			628.5						697.8
Dividends payable - common stock			95.3						—
Dividends payable - preferred stock			19.4						—
Customer deposits and credits			155.2						237.9
Taxes accrued			313.5						277.1
Interest accrued			94.3						105.5
Exchange gas payable			37.8						107.7
Regulatory liabilities			229.1						137.4
Accrued compensation and employee benefits			130.5						182.7
Other accruals			313.1						382.0
Total Current Liabilities(1)			2,594.6						2,746.2
Other Liabilities
Deferred income taxes			1,789.8						1,659.4
Accrued liability for postretirement and postemployment benefits			285.3						292.5
Regulatory liabilities			1,843.1						1,842.6
Asset retirement obligations			472.0						469.7
Other noncurrent liabilities			669.5						690.2
Total Other Liabilities(1)			5,059.7						4,954.4
Commitments and Contingencies (Refer to Note 15, "Other Commitments and Contingencies")
Total Capitalization and Liabilities			$	24,365.5					$	24,156.9

(1)Includes $16.7 million and $10.0 million at March 31, 2022 and December 31, 2021, respectively, of current liabilities and $20.6 million and $20.5 million at March 31, 2022 and December 31, 2021, respectively, of other liabilities of consolidated VIEs that creditors do not have recourse to our general credit. Refer to Note 12, "Variable Interest Entities," for additional information.

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

Table of Contents

ITEM 1. FINANCIAL STATEMENTS (continued)

NiSource Inc.

Condensed Statements of Consolidated Cash Flows (unaudited)

Three Months Ended March 31, (in millions)			2022						2021
Operating Activities
Net Income			$	431.3					$	296.5
Adjustments to Reconcile Net Income to Net Cash from Operating Activities:
Depreciation and amortization			192.7						185.0
Deferred income taxes and investment tax credits			87.2						55.2
Loss (gain) on sale of assets			(105.0)						8.1
Other adjustments			8.0						3.5
Changes in Assets and Liabilities:
Components of working capital			(42.4)						(89.3)
Regulatory assets/liabilities			24.9						8.4
Deferred charges and other noncurrent assets			(7.4)						(10.7)
Other noncurrent liabilities			(9.5)						(8.4)
Net Cash Flows from Operating Activities			579.8						448.3
Investing Activities
Capital expenditures			(450.1)						(367.0)
Insurance recoveries			105.0						—
Payment to renewable generation asset developer			—						(7.4)
Other investing activities			(25.3)						(27.4)
Net Cash Flows used for Investing Activities			(370.4)						(401.8)
Financing Activities
Repayments of finance lease obligations			(7.3)						(5.9)
Change in short-term borrowings, net (maturity ≤ 90 days)			(40.0)						17.0
Issuance of common stock, net of issuance costs			2.8						2.8
Equity costs, premiums and other debt related costs			(8.9)						(2.5)
Contributions from noncontrolling interest			—						7.5
Distributions to noncontrolling interest			(0.6)						—
Dividends paid - common stock			(95.3)						(86.2)
Dividends paid - preferred stock			(8.1)						(8.1)
Contract liability payment			(16.5)						—
Net Cash Flows used for Financing Activities			(173.9)						(75.4)
Change in cash, cash equivalents and restricted cash			35.5						(28.9)
Cash, cash equivalents and restricted cash at beginning of period			94.9						125.6
Cash, Cash Equivalents and Restricted Cash at End of Period			$	130.4					$	96.7

Reconciliation to Balance Sheet

Three Months Ended March 31, (in millions)			2022
Cash and cash equivalents			114.5
Restricted Cash			15.9
Total Cash, Cash Equivalents and Restricted Cash			130.4

Supplemental Disclosures of Cash Flow Information

Three Months Ended March 31, (in millions)			2022						2021
Non-cash transactions:
Capital expenditures included in current liabilities			$	183.4					$	155.6
Dividends declared but not paid			114.7						105.7
Obligation to developer at formation of joint venture			$	—					$	6.0

The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.

Table of Contents

NiSource Inc.

Condensed Statements of Consolidated Equity (unaudited)

(in millions)			Common Stock						Preferred Stock**(1)**						Treasury Stock						Additional Paid-In Capital						Retained Deficit						Accumulated Other Comprehensive Loss						Noncontrolling Interest in Consolidated Subsidiaries						Total
Balance as of January 1, 2022			$	4.1					$	1,546.5					$	(99.9)					$	7,204.3					$	(1,580.9)					$	(126.8)					$	325.6					$	7,272.9
Comprehensive Income:
Net income			—						—						—						—						426.8						—						4.5						431.3
Other comprehensive income, net of tax			—						—						—						—						—						41.4						—						41.4
Dividends:
Common stock ($0.47 per share)			—						—						—						—						(190.7)						—						—						(190.7)
Preferred stock (See Note 5)			—						—						—						—						(27.5)						—						—						(27.5)
Distributions to noncontrolling interests			—						—						—						—						—						—						(0.6)						(0.6)
Stock issuances:
Employee stock purchase plan			—						—						—						1.2						—						—						—						1.2
Long-term incentive plan			—						—						—						0.9						—						—						—						0.9
401(k) and profit sharing			—						—						—						2.5						—						—						—						2.5
Balance as of March 31, 2022			$	4.1					$	1,546.5					$	(99.9)					$	7,208.9					$	(1,372.3)					$	(85.4)					$	329.5					$	7,531.4

(1)Series A, Series B, and Series C shares have an aggregate liquidation preference of $400M, $500M, and $863M, respectively. See Note 5, "Equity" for additional information.

(in millions)			Common Stock						Preferred Stock**(1)**						Treasury Stock						Additional Paid-In Capital						Retained Deficit						**Accumulated Othe

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NiSource Inc.

Regulatory Capital Programs. We replace pipe and modernize our gas infrastructure to enhance safety and reliability by reducing leaks, which subsequently reduces GHG emissions. In 2022, we continue to move forward on core infrastructure and environmental investment programs supported by complementary regulatory and customer initiatives across all six states of our operating area.

The following table describes the most recent vintage of our regulatory programs to recover infrastructure replacement and other federally mandated compliance investments currently in rates or pending commission approval:

(in millions)
Company			Program			Incremental Revenue			Incremental Capital Investment			Investment Period			Costs Covered(1)			Rates Effective
Columbia of Ohio(2)			IRP - 2022			$	25.0		$	232.9		1/21-12/21			Replacement of (1) hazardous service lines, (2) cast iron, wrought iron, uncoated steel, and bare steel pipe, (3) natural gas risers prone to failure and (4) installation of AMR devices.			May 2022
Columbia of Ohio(2)			CEP - 2022			32.2			253.5			1/21-12/21			Assets not included in the IRP.			September 2022
NIPSCO - Gas			TDSIC 4			17.2			77.5			7/21-12/21			New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development.			July 2022
NIPSCO - Gas			FMCA 7			0.4			32.8			4/21-9/21			Project costs to comply with federal mandates.			April 2022
Columbia of Virginia(3)			SAVE - 2022			4.0			63.0			1/22-12/22			Replacement projects that (1) enhance system safety or reliability, or (2) reduce, or potentially reduce, greenhouse gas emissions.			January 2022
Columbia of Maryland			STRIDE - 2022			$	1.3		$	17.5		1/22-12/22			Pipeline upgrades designed to improve public safety or infrastructure reliability.			January 2022
NIPSCO - Electric(4)			TDSIC - 9			$	0.2		$	42.7		2/21-5/21			New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development.			February 2022
NIPSCO - Electric(5)			TDSIC - 1			$	10.4		$	148.5		6/21-1/22			New or replacement projects undertaken for the purpose of safety, reliability, system modernization or economic development.			August 2022

(1)Programs do not include any costs already included in base rates.

(2)The January through March 2021 investments included in these filings are also included in the pending Columbia of Ohio rate case. The infrastructure filings will be adjusted to reflect the final rate case outcome.

(3)Columbia of Virginia filed its application to amend and extend its SAVE program with the Virginia SCC on August 12, 2021, requesting approval of a two-year SAVE program for calendar years 2022-2023 that includes incremental capital investments of $63.0 million and $72.0 million, respectively. The Commission approved the Company's application in its December 6, 2021 Order Approving SAVE Rider.

(4)On April 1, 2021, NIPSCO filed a notice with the IURC that it intended to terminate its current Electric TDSIC plan effective May 31, 2021. NIPSCO filed the TDSIC-9 petition on September 28, 2021, with capital investment through the plan termination date of May 2021, and received an order on January 26, 2022 approving TDSIC-9.

(5) NIPSCO filed for a new electric TDSIC plan on June 1, 2021. An order approving NIPSCO's new electric TDSIC plan was received on December 28, 2021. NIPSCO filed its first tracker, TDSIC – 1, on March 30, 2022. An order is expected in July 2022 with rates requested to be effective August 2022.

In 2022, NIPSCO filed additional petitions associated with the FMCA program to recover federally mandated compliance investments.

On March 30, 2022, NIPSCO Electric filed a petition with the IURC seeking approval of NIPSCO's federally mandated costs for closure of Michigan City Generating Station's CCR ash ponds. The project includes a total estimated $40.0 million of federally mandated retirement costs. NIPSCO is requesting all associated accounting and ratemaking relief, including establishment of a periodic rate adjustment through the FMCA mechanism. Refer to Note 15, ''Other Commitments and Contingencies - D Environmental Matters,'' in the Notes to the Condensed Consolidated Financial Statements (unaudited) for further discussion of the CCRs.

On April 1, 2022, NIPSCO Gas filed a petition with the IURC seeking approval of NIPSCO's federally mandated costs for a Pipeline Safety III Compliance Plan. The federally mandated costs include a total estimated $228.7 million of capital costs as well as $34.1 million of operation and maintenance programs. NIPSCO Gas is requesting all associated accounting and ratemaking relief, including establishment of a periodic rate adjustment mechanism.

Financing Activities

Common Stock, Preferred Stock and Equity Unit Sale. Refer to Note 5, ''Equity,'' in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on common and preferred stock activity.

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NiSource Inc.

Short-term Debt and Sale of Trade Accounts Receivables. Refer to Note 14, ''Short-Term Borrowings,'' in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on short-term debt activity, including sale of trade accounts receivable.

Noncontrolling Interest. Refer to Note 12, "Variable Interest Entities," in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on contributions from noncontrolling interest activity.

Sources of Liquidity

The following table displays our liquidity position as of March 31, 2022 and December 31, 2021:

(in millions)			March 31, 2022			December 31, 2021
Current Liquidity
Revolving Credit Facility			$	1,850.0		$	1,850.0
Accounts Receivable Programs(1)			480.0			251.2
Less:
Commercial Paper			165.0			560.0
Accounts Receivable Programs Utilized			355.0			—
Letters of Credit Outstanding Under Credit Facility			14.4			18.9
Add:
Cash and Cash Equivalents			114.5			84.2
Net Available Liquidity			$	1,910.1		$	1,606.5

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

Debt Covenants**.** We are subject to financial covenants under our revolving credit facility, which require us to maintain a debt to capitalization ratio that does not exceed 70%. As of March 31, 2022, the ratio was 56.4%.

Credit Ratings. The credit rating agencies periodically review our ratings, taking into account factors such as our capital structure and earnings profile. The following table includes our and NIPSCO's credit ratings and ratings outlook as of March 31, 2022. There were no changes to the below credit ratings or outlooks since February 2020.

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

			S&P						Moody's						Fitch
			Rating			Outlook			Rating			Outlook			Rating			Outlook
NiSource			BBB+			Stable			Baa2			Stable			BBB			Stable
NIPSCO			BBB+			Stable			Baa1			Stable			BBB			Stable
Commercial Paper			A-2			Stable			P-2			Stable			F2			Stable

Certain of our subsidiaries have agreements that contain ''ratings triggers'' that require increased collateral if our credit rating or the credit ratings of certain of our subsidiaries are below investment grade. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. As of March 31, 2022, the collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $58.1 million. In addition to agreements with ratings triggers, there are other agreements that contain ''adequate assurance'' or ''material adverse change'' provisions that could necessitate additional credit support such as letters of credit and cash collateral to transact business.

Equity. Our authorized capital stock consists of 620,000,000 shares, $0.01 par value, of which 600,000,000 are common stock and 20,000,000 are preferred stock. As of March 31, 2022, 405,734,408 shares of common stock and 1,302,500 shares of preferred stock were outstanding.

Contractual Obligations. A summary of contractual obligations is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes from year-end during the three months ended March 31, 2022.

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NiSource Inc.

Guarantees, Indemnities and Other Off Balance Sheet Arrangements. We and certain of our subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries as a part of normal business. Such agreements include guarantees and stand-by letters of credit. Refer to Note 15, ''Other Commitments and Contingencies,'' in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information about such arrangements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.

Regulatory, Environmental and Safety Matters

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 subject to approved regulatory tracker mechanisms generally lead to increased regulatory assets, which ultimately result in a corresponding increase in operating revenues and, therefore, have essentially no impact on total operating income results. Certain approved regulatory tracker mechanisms allow for abbreviated regulatory proceedings in order for the operating companies to quickly implement revised rates and recover associated 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 confirm the recovery of prudently incurred energy commodity costs supplied to customers.

We recognize that energy efficiency reduces emissions, conserves natural resources and saves our customers money. Our gas distribution companies offers programs such as energy efficiency upgrades, home checkups and weatherization services. The increased efficiency of natural gas appliances and improvements in home building codes and standards contributes to a long-term trend of declining average use per customer. While we are looking to expand offerings so the energy efficiency programs can benefit as many customers as possible, our Gas Distribution Operations have pursued changes in rate design to more effectively match recoveries with costs incurred. Columbia of Ohio has adopted a straight fixed variable rate design that closely links the recovery of fixed costs with fixed charges. Columbia of Maryland and Columbia of Virginia have regulatory approval for weather and revenue normalization adjustments for certain customer classes, which adjust monthly revenues that exceed or fall short of approved levels. Columbia of Pennsylvania continues to operate its pilot residential weather normalization adjustment and also has a fixed customer charge. This weather normalization adjustment only adjusts revenues when actual weather compared to normal varies by more than 3%. Columbia of Kentucky incorporates a weather normalization adjustment for certain customer classes and also has a fixed customer charge. In a prior gas base rate proceeding, NIPSCO implemented a higher fixed customer charge for residential and small customer classes moving toward recovering more of its fixed costs through a fixed recovery charge, but has no weather or usage protection mechanism.

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, which is updated quarterly to reflect actual costs incurred to supply electricity to customers.

While increased efficiency of electric appliances and improvements in home building codes and standards has similarly impacted the average use per electric customer in recent years, NIPSCO expects future growth in per customer usage as a result of increasing electric applications. Further growth is anticipated as electric vehicles become more prevalent. These ongoing changes in use of electricity will likely lead to development of innovative rate designs, and NIPSCO will continue efforts to design rates that increase the certainty of recovery of fixed costs.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.

Regulatory, Environmental and Safety Matters

Rate Case Actions

The following table describes current rate case actions as applicable in each of our jurisdictions net of tracker impacts:

(in millions)
Company			Proposed ROE			Approved ROE			Requested Incremental Revenue			Approved Incremental Revenue			Filed			Status			Rates Effective
Currently Approved in Current or Future Rates
Columbia of Pennsylvania(1)			10.95		%	None specified			$	98.3		$	58.5		March 30, 2021			Approved December 16, 2021			December 2021
Columbia of Maryland			10.85		%	9.65		%	$	4.8		$	2.4		May 14, 2021			Approved December 3, 2021			December 2021
Columbia of Kentucky(2)			10.30		%	9.35		%	$	26.7		$	18.3		May 28, 2021			Approved December 28, 2021			January 2022
Columbia of Virginia(3)			10.95		%	None specified			$	14.2		$	1.3		August 28, 2018			Approved June 12, 2019			February 2019
Columbia of Ohio			11.50		%	10.39		%	$	87.8		$	47.1		March 3, 2008			Approved December 3, 2008			December 2008
NIPSCO - Gas			10.70		%	9.85		%	$	138.1		$	105.6		September 27, 2017			Approved September 19, 2018			October 2018
NIPSCO - Electric			10.80		%	9.75		%	$	21.4		$	(53.5)		October 31, 2018			Approved December 4, 2019			January 2020
Active Rate Cases
Columbia of Ohio(4)			10.95		%	In process			$	221.4		In process			June 30, 2021			Order Expected Q3 2022			Q3 2022
NIPSCO - Gas(5)			10.50		%	In process			$	109.7		In process			September 29, 2021			Order Expected Q3 2022			September 2022
Columbia of Pennsylvania			11.20		%	In process			$	82.2		In process			March 18, 2022			Order Expected Q4 2022			December 2022
Columbia of Virginia(6)			10.75		%	In process			$	40.6		In process			April 29, 2022			Pending procedural schedule			October 2022

(1)No approved ROE is identified for this matter since the approved revenue increase is the result of a black box settlement under which parties agree upon the amount of increase without specifying ratemaking elements to establish the Company's revenue requirement. Pursuant to the settlement, for purposes of calculating its DSIC, Columbia of Pennsylvania shall use the equity return rate for gas utilities contained in the Pennsylvania Commission’s most recent Quarterly Report on the Earnings of Jurisdictional Utilities, including quarterly updates thereto.

(2)The approved ROE for natural gas capital riders (e.g. SMRP) is 9.275%.

(3)Columbia of Virginia's rate case resulted in a black box settlement, representing a settlement to a specific revenue increase but not a specified ROE. The settlement provides use of a 9.70% ROE for future SAVE filings.

(4)A proposed Incremental Revenue of $212.3M is reflected in the update filed with the PUCO on March 31, 2022.

(5) Proposed new rates would be implemented in 2 steps, with implementation of step 1 rates to be effective in September 2022 and step 2 rates to be effective in March 2023. A proposed ROE of 9.85% and Incremental Revenue of $71.8M are reflected in the Settlement and Stipulation Agreement filed with the IURC on March 2, 2022.

(6)The revenue request including the SAVE tracker related amount is $58.2 million. Beginning October 2022, interim rates will be billed subject to refund, pending a final commission order.

PHMSA Regulations

On December 27, 2020, the Protecting Our Infrastructure of Pipelines and Enhancing Safety (PIPES) Act of 2020 was signed into law, reauthorizing funding for federal pipeline safety programs through September 30, 2023. Among other things, the PIPES Act requires that PHMSA revise the pipeline safety regulations to require operators to update, as needed, their existing distribution integrity management plans, emergency response plans, and operation and maintenance plans. The PIPES Act also requires PHMSA to adopt new requirements for managing records and updating, as necessary, existing district regulator stations to eliminate common modes of failure that can lead to overpressurization. PHMSA must also require that operators implement and utilize advanced leak detection technologies that enable the location and categorization of all leaks that are hazardous, or potentially hazardous, to human safety or the environment. Natural gas companies, including NiSource and our subsidiaries, may see increased costs depending on how PHMSA implements the new mandates resulting from the PIPES Act.

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NiSource Inc.

Regulatory, Environmental and Safety Matters

Climate Change Issues

Increased frequency of severe and extreme weather events associated with climate change could materially impact our facilities, energy sales, and results of operations. We are unable to predict these events. However, we perform ongoing assessments of physical risk, including physical climate risk, to our business. More extreme and volatile temperatures, increased storm intensity and flooding, and more volatile precipitation leading to changes in lake and river levels are among the weather events that are most likely to impact our business. Efforts to mitigate these physical risks continue to be implemented on an ongoing basis.

Future legislative and regulatory programs, at both the federal and state levels, could significantly limit allowed GHG emissions or impose a cost or tax on GHG emissions. Revised or additional future GHG legislation and/or regulation related to the generation of electricity or the extraction, production, distribution, transmission, storage and end use of natural gas could materially impact our gas supply, financial position, financial results and cash flows. We continue to monitor the implementation of any final and proposed climate change-related legislation and regulations, including the Infrastructure Investment and Jobs Act, passed in November 2021, and the EPA's proposed methane regulations for the oil and natural gas industry, but we cannot predict their final form or impact on our business at this time. We have identified potential opportunities associated with the Infrastructure Investment and Jobs Act and are evaluating how they may align with our strategy going forward. The energy-related provisions include new federal funding for power grid infrastructure and resiliency investments, new and existing energy efficiency and weatherization programs, electric vehicle infrastructure for public chargers and additional LIHEAP funding over the next five years.

On July 8, 2019, the EPA published the final ACE rule, which establishes emission guidelines for states to use when developing plans to limit carbon dioxide at coal-fired electric generating units based on heat rate improvement measures. The U.S. Court of Appeals for the D.C. Circuit vacated and remanded the rule on January 19, 2021. On October 29, 2021, the U.S. Supreme Court agreed to review the scope of the EPA's authority to impose GHG emission standards under the Clean Air Act. We will continue to monitor this matter.

In February 2021, the United States rejoined the Paris Agreement, an international treaty through which parties set nationally determined contributions to reduce GHG emissions, build resilience, and adapt to the impacts of climate change. Subsequently, the Biden Administration released a target for the United States to achieve a 50%-52% GHG reduction from 2005 levels by 2030, which supports the President's goals to create a carbon-free power sector by 2035 and net zero emissions economy no later than 2050. There are many pathways to reach these goals.

The Virginia Clean Economy Act was signed into law in 2020. While the Act does not establish any new mandates on Columbia of Virginia, certain natural gas customers may, over the long-term, reduce their use of natural gas to meet the 100% renewable electricity requirement. Columbia of Virginia will continue to monitor this matter, but we cannot predict its final impact on our business at this time. Separately, the Virginia Energy Innovation Act ("the Act"), enacted into law in April 2022, and effective July 1, 2022, allows natural gas utilities to supply alternative forms of gas that meet certain standards and reduce emissions intensity. The Act also provides that the costs of enhanced leak detection and repair may be added to a utility’s plan to identify proposed eligible infrastructure replacement projects and related cost recovery mechanisms, known as the SAVE Plan. Furthermore, under the Act, utilities can recover eligible biogas supply infrastructure costs on an ongoing basis. The provisions of these laws may provide opportunities for Columbia of Virginia as it participates in the transition to a lower carbon future.

The Climate Solutions Now Act of 2022 requires Maryland to reduce GHG emissions by 60% by 2031 (from 2006 levels), and it requires the state to reach net zero emissions by 2045. The Maryland Department of the Environment is required to adopt a plan to achieve the 2031 goal by December 2023, and it is required to adopt a plan for the net zero goal by 2030. The Act also enacts a state policy to move to broader electrification of both existing buildings and new construction, and requires the Public Service Commission to complete a study assessing the capacity of gas and electric distribution systems to successfully serve customers under a transition to a highly electrified building sector. Columbia of Maryland will continue to monitor this matter, but we cannot predict its final impact on our business at this time.

In response to these transition risks and opportunities, we continue to actively implement our plans to reduce Scope 1 GHG emissions by 90% from 2005 levels by 2030, and to significantly reduce methane emissions, a component of Scope 1 GHG emissions. These plans include the retirement of coal-fired electric generation, increased sourcing of renewable energy, and methane reductions from priority pipeline replacement, traditional leak detection and repair, and deployment of advanced leak detection and repair. As of the end of 2021, we had reduced Scope 1 GHG emissions by approximately 58% from 2005 levels.

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NiSource Inc.

Regulatory, Environmental and Safety Matters

Additionally, we are active in several efforts to accelerate the development and demonstration of lower-carbon energy technologies and resources, such as hydrogen and RNG, to enable affordable pathways to economy-wide decarbonization.

In April 2022, Columbia of Pennsylvania and Columbia of Virginia each filed petitions to implement the Green Path Rider, which will be a voluntary rider that allows customers to opt in and offset either 50% or 100% of their natural gas related emissions. To reduce the emissions, the utilities will purchase RNG attributes and carbon offsets to match the usage for customers opting into the program.

As discussed above in this Management's Discussion within "Results and Discussion of Segment Operations - Electric Operations," and Part II, Item 1A. Risk Factors, NIPSCO continues to execute on an electric generation transition consistent with the preferred pathways identified in its 2018 and 2021 Integrated Resource Plans.

Market Risk Disclosures

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

Commodity Price Risk

Our Gas and Electric Operations have commodity price risk primarily related to the purchases of natural gas and power. To manage this market risk, our subsidiaries use derivatives, including commodity futures contracts, swaps, forwards and options. We do not participate in speculative energy trading activity.

Commodity price risk resulting from derivative activities at our rate-regulated subsidiaries is limited and does not bear signification exposure to earnings risk, since our current regulatory mechanisms allow recovery of prudently incurred purchased power, fuel and gas costs through the rate-making process, including gains or losses on these derivative instruments. These changes are included in the GCA and FAC regulatory rate-recovery mechanisms. If these mechanisms were to be adjusted or eliminated, these subsidiaries may begin providing services without the benefit of the traditional rate-making process and may be more exposed to commodity price risk. For additional information, see "Results and Discussion of Segment Operations" in this Management's Discussion.

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

Refer to Note 8, "Risk Management Activities," in the Notes to Condensed Consolidated Financial Statements (unaudited) for further information on our commodity price risk assets and liabilities as of March 31, 2022 and December 31, 2021.

Interest Rate Risk

We are exposed to interest rate risk as a result of changes in interest rates on borrowings under our revolving credit agreement, commercial paper program and accounts receivable programs, which have interest rates that are indexed to short-term market interest rates. Based upon average borrowings and debt obligations subject to fluctuations in short-term market interest rates, an increase (or decrease) in short-term interest rates of 100 basis points (1%) would have increased (or decreased) interest expense by $1.5 million and $1.2 million for the three months ended March 31, 2022 and 2021, respectively. We are also exposed to interest rate risk as a result of changes in benchmark rates that can influence the interest rates of future long-term debt issuances. From time to time we may enter into forward interest rate instruments to lock in long term interest costs and/ or rates.

Refer to Note 8, "Risk Management Activities," in the Notes to Condensed Consolidated Financial Statements (unaudited) for further information on our interest rate risk assets and liabilities as of March 31, 2022 and December 31, 2021.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)

NiSource Inc.

Credit Risk

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

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

Other Information

Critical Accounting Estimates

A summary of our critical accounting estimates is included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. There were no material changes made in the three months ended March 31, 2022.

Recently Issued Accounting Pronouncements

Refer to Note 2, "Recent Accounting Pronouncements," in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information about recently issued and adopted accounting pronouncements.

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NiSource Inc.