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| NI > SEC Filings for NI > Form 10-Q on 1-May-2009 | All Recent SEC Filings |
1-May-2009
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
• NiSource's Gas Transmission and Storage Operations segment recorded a
$19.8 million restructuring charge.
• Depreciation and amortization expense increased $8.2 million partially due to the purchase of Sugar Creek within Electric Operations and changes in depreciation rates and capital plant additions for certain gas distribution businesses.
• Electric Operations net revenues were $5.0 million lower primarily due to lower industrial usage. Industrial volumes are down approximately 21% in the first quarter 2009 when compared to the first quarter 2008.
Decreases in income from continuing operations were partially offset due
primarily to the following items:
• Gas Distribution Operations' net revenues increased by $21.1 million due
primarily to increased revenues of $18.9 million from regulatory initiatives
including impacts from rate proceedings.
• Gas Transmission and Storage Operations' net revenues increased by $11.0 million due primarily to greater subscriptions for firm transportation services related to new interconnects along the Columbia Gulf pipeline system and incremental demand revenues on the Columbia Transmission system.
• Income tax expense decreased $14.6 million due to lower pre-tax book income partially offset by a higher effective tax rate for the three months ended March 31, 2009 versus the comparable period in 2008. Refer to Note 12, "Income Taxes," in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional detail.
These factors and other impacts to the financial results are discussed in more
detail within the following discussions of "Results of Operations" and "Results
and Discussion of Segment Operations."
Four-Point Platform for Growth
NiSource's four-part business plan will continue to center on commercial and
regulatory initiatives; commercial growth and expansion of the gas transmission
and storage business; financial management of the balance sheet; and process and
expense management.
Commercial and Regulatory Initiatives
Rate Development and Other Regulatory Matters. NiSource is moving forward on
regulatory initiatives across several distribution company markets and progress
continues with Northern Indiana's electric base rate case. Whether through full
rate case filings or other approaches, NiSource's goal is to develop strategies
that benefit all stakeholders as it addresses changing customer conservation
patterns, develops more contemporary pricing structures, and embarks on
long-term investment programs to enhance its infrastructure.
Northern Indiana filed a petition for new electric base rates and charges on
June 27, 2008. The case-in-chief was originally filed on August 29, 2008, and
amended on December 19, 2008 after the Sugar Creek facility was successfully
dispatched into MISO. The filing requests an increase in base rates calculated
to produce additional annual gross margin of $85.7 million annually. Evidentiary
hearings on Northern Indiana's direct case commenced on January 12, 2009 and
concluded on February 6, 2009. Several stakeholder groups have intervened in the
case, representing customer groups and various counties and towns within
Northern Indiana's electric service territory. A field hearing to record
customer testimony was held on March 3, 2009. The OUCC and intervenors are
scheduled to file their cases-in-chief in May 2009. Northern Indiana is
scheduled to file its rebuttal testimony in June 2009, and final hearings are
planned to begin July 27, 2009. If a settlement agreement is not reached, and
the full procedural schedule takes place, it is anticipated that new rates would
take effect in early 2010.
Northern Indiana received a favorable regulatory order on February 18, 2009
related to its actions to increase its electric generating capacity and advance
its electric rate case. Acting on a settlement reached among Northern Indiana
and its regulatory stakeholders, the IURC ruled that Northern Indiana's Sugar
Creek electric generating plant was "in service" for ratemaking purposes as of
December 1, 2008. The IURC also approved the deferral of depreciation expenses
and carrying costs associated with the $330 million Sugar Creek investment.
Northern
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
Indiana purchased Sugar Creek on May 30, 2008 and effective December 1, 2008,
Sugar Creek was accepted as an internal designated network resource within the
MISO.
On January 15, 2009, Columbia of Ohio filed an application with the PUCO
requesting authority to increase Columbia of Ohio's PIPP rider rate in order to
collect $82.2 million in PIPP arrearages. On March 3, 2009, Columbia of Ohio's
proposal was deemed approved and became effective.
On April 16, 2009, Bay State filed a base rate case with the Massachusetts
Department of Public Utilities, requesting an increase of $34.6 million. In its
initial filing, Bay State is seeking revenue decoupling, as well as an expedited
mechanism for the recovery of costs associated with the rehabilitation of the
company's infrastructure. This matter is currently pending and expected to be
resolved with new rates taking effect in the fourth quarter 2009.
On May 1, 2009, Columbia of Kentucky filed a base rate case with the Kentucky
PSC, requesting an annual increase of $11.6 million. In its initial filing,
Columbia of Kentucky is seeking enhancements to rate design, as well as an
expedited mechanism for the recovery of costs associated with the rehabilitation
of the company's infrastructure. This matter is currently pending.
On October 1, 2008, Columbia of Maryland filed a base rate case with the
Maryland PSC. On February 20, 2009, Columbia of Maryland and all interested
parties filed a unanimous settlement in the case, recommending an annual revenue
increase of $1.2 million. On March 27, 2009, the settlement was approved as
filed.
Refer to the "Results and Discussion of Segment Operations" for a complete
discussion of regulatory matters.
Bear Garden Station. Columbia of Virginia has entered into an agreement with
Dominion Virginia Power to install facilities to serve a 585 mw combined cycle
generating station in Buckingham County, VA, known as the Bear Garden station.
The project requires approximately 13.3 miles of 24-inch steel pipeline and
associated facilities to serve the station. In March 2009, the Virginia State
Corporation Commission approved Dominion Virginia Power Company's planned Bear
Garden station with service expected to begin by the summer of 2011. The total
estimated cost for Columbia of Virginia's facilities is $51.0 million.
Commercial Growth and Expansion of the Gas Transmission and Storage Business
Hardy Storage Project. The first two phases of Hardy Storage are in service,
receiving customer injections and withdrawing natural gas from its new
underground natural gas storage facility in West Virginia. When the third and
final Phase is fully operational in 2009, the field will have a working storage
capacity of 12 Bcf, and the ability to deliver 176,000 Dth of natural gas per
day. Hardy Storage is a joint venture of subsidiaries of Columbia Transmission
and Piedmont.
Florida Gas Transmission Project. In conjunction with a March 2009 open season,
Columbia Gulf completed the addition of 95,000 Dth per day of contracted
capacity for delivery to the Florida Gas Transmission system near Lafayette, LA.
The new capacity is in addition to 145,000 Dth per day of capacity already
subscribed to Florida Gas Transmission.
Line 1570 - Project. In October 2008, Columbia Transmission entered into a
Precedent Agreement to gather and transport phased in volumes of up to 150,000
Dth per day of gas in the Waynesburg, PA area along Line 1570. Capacity will be
created by taking certain existing Points of Delivery off the system and
modifying certain facilities at the Waynesburg Compressor Station. The first two
phases of volumes were able to be implemented prior to construction in
October 2008 and March 2009. Additional volumes will be phased in later in 2009
and during 2010. Facilities are expected to be completed in fourth quarter of
2009.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
Millennium Pipeline Project. The Millennium pipeline was substantially completed
in the fourth quarter of 2008 and the pipeline commenced service on December 22,
2008, with the capability to transport up to 525,400 Dth per day of natural gas
to markets along its route, as well as to the New York City markets through its
pipeline interconnections. The Millennium partnership is currently comprised of
interest from Columbia Transmission (47.5%), DTE Millennium Company (26.25%),
and National Grid Millennium LLC (26.25%) with Columbia Transmission acting as
operator.
Columbia Penn Project. In September 2008, Columbia Transmission announced its
intention to develop additional natural gas transmission, gathering and
processing services along and around its existing pipeline corridor between
Waynesburg, PA and Renovo, PA, referred to as the "Columbia Penn" corridor. This
two-phased development will accelerate access to pipeline capacity in
conjunction with production increases in the Marcellus Shale formation which
underlies Columbia Transmission's transmission and storage network in the
region. Phase I was placed into service in February 2009 and Phase II should be
available by the end of 2009.
Eastern Market Expansion Project. The project allows Columbia Transmission to
expand its facilities to provide additional storage and transportation services
and to replace certain existing facilities. The Eastern Market Expansion is
projected to add 97,000 Dth per day of storage and transportation deliverability
and is fully subscribed on a 15-year contracted firm basis. Construction of the
facilities is complete and the project was placed in service April 1, 2009.
Ohio Storage Project. On June 24, 2008, Columbia Transmission filed an
application before the FERC for approval to expand two of its Ohio storage
fields for additional capacity of nearly 7 Bcf and 103,400 Dth per day of daily
deliverability. Approval was granted in March 2009 and construction of the
facilities began in April 2009. Partial service related to this expansion is
expected to be available by May 1, 2009 and the remainder will be available no
later than the fourth quarter of 2009. The expansion capacity is 58% contracted
on a long-term, firm basis with revenue based on market-based rates recently
approved by the FERC.
Appalachian Expansion Project. On August 22, 2008, the FERC issued an order to
Columbia Transmission, which granted a certificate to construct the project. The
project includes building a new 9,470 hp compressor station in West Virginia.
The Appalachian Expansion Project will add 100,000 Dth per day of transportation
capacity and is fully subscribed on a 15-year contracted firm basis.
Construction is in progress and the project is expected to be in service by the
second half of 2009.
Easton Compressor Station. On March 30, 2009, Columbia Transmission announced a
binding open season for capacity into premium East Coast markets resulting from
modifications made to the company's Easton Compressor Station. The modifications
will increase delivery capacity from the Wagoner interconnection point between
the Columbia Transmission and Millennium pipeline systems. Through the open
season, which closed on April 3, 2009, Columbia Transmission received 30,000 Dth
per day of binding bids.
Centerville Expansion Project. An open season to solicit interest and receive
bids for expanded capacity on Columbia Gulf's system for delivery to Southern
Natural Gas and the Louisiana intrastate pipeline market was held during the
first quarter of 2008, and bids for 60,000 Dth per day of capacity were
submitted. The remaining 175,000 Dth per day of capacity is being reviewed in
conjunction with other market opportunities on the East Lateral in South
Louisiana. The project is expected to be placed into service in late 2010.
Financial Management of the Balance Sheet
NiSource has been closely monitoring developments relative to the financial
crisis and has executed on its plan to effectively manage through this period.
During the past several months, NiSource has successfully executed against its
financing and liquidity plan through the following actions:
• On April 9, 2009 NiSource Finance closed on a senior unsecured term loan with
an effective cost of LIBOR plus 538 basis points with a syndicate of lenders.
The initial February, 2009 closing of the term loan was at the level of
$265 million, and the company was successful in expanding the loan to a total
of $385 million at final closing under an accordion feature in the financing
agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
• On March 9, 2009 NiSource Finance issued $600 million of senior unsecured
notes in an underwritten offering. NiSource will use the proceeds from the
issuance to complete the refinancing of outstanding debt scheduled to mature
in November 2009 and for general corporate purposes, including refinancing a
portion of outstanding debt scheduled to mature in November 2010.
• On April 28, 2009 NiSource Finance announced results of a tender offer for up to $300 million aggregate principal amount of its outstanding notes due in 2010. The aggregate principal amount of notes tendered was approximately $250.6 million.
NiSource's overall liquidity strategy, including the recent financial and
optimization initiatives, not only fully addresses the company's 2009 debt
refinancing requirements but also places the company well on the way toward
meeting the 2010 refinancing needs of approximately $690 million. NiSource will
continue to closely monitor events in the credit markets, as well as overall
economic conditions in the nation and the markets it serves. Maintaining
financial flexibility will remain a key priority for NiSource.
Credit Ratings. On March 5, 2009, Standard and Poor's affirmed its senior
unsecured ratings for NiSource and its subsidiaries at BBB-, and revised the
outlook to stable from negative. On February 4, 2009, Moody's Investors Service
affirmed the senior unsecured ratings for NiSource at Baa3, and the existing
ratings of all other subsidiaries. Moody's outlook for NiSource and its
subsidiaries is negative. On February 4, 2009, Fitch lowered its senior
unsecured ratings for NiSource to BBB- and for Northern Indiana to BBB. Fitch's
outlook for NiSource and all of its subsidiaries is stable. Although all ratings
continue to be investment grade, an additional downgrade by Standard and Poor's,
Moody's or Fitch would result in a rating that is below investment grade.
Process and Expense Management
On February 27, 2009, NiSource announced an organizational restructuring of the
Gas Transmission and Storage Operations segment. NiSource is eliminating
positions across the 16 state operating territory of Gas Transmission and
Storage Operations. The reductions will occur through normal attrition as well
as through voluntary programs and involuntary separations. In addition to
employee reductions, the Gas Transmission and Storage Operations segment will
take steps to achieve additional cost savings by efficiently managing its
various business locations, reducing its fleet operations, creating alliances
with third party service providers, and implementing other changes in line with
its strategic plan for growth and in response to current economic conditions.
During the first quarter of 2009, NiSource recorded a pre-tax restructuring
charge of $19.8 million to "Operation and maintenance" expense on the Condensed
Statement of Consolidated Income (unaudited), which primarily includes costs
related to severance and other employee related costs for approximately 350
employees. NiSource expects this restructuring initiative to be substantially
complete by the end of 2009. Refer to Note 4, "Restructuring Activities," in the
Notes to Condensed Consolidated Financial Statements (unaudited) for additional
information regarding restructuring initiatives.
On April 8, 2009, Northern Indiana and representatives of the United
Steelworkers union reached tentative five-year collective bargaining agreements
covering approximately 1,900 Northern Indiana employees. The parties' prior
labor agreements are scheduled to expire on May 31, 2009. The labor agreements
are subject to a ratification process which is expected to be concluded in early
May 2009.
Ethics and Controls
NiSource has had a long term commitment to providing accurate and complete
financial reporting as well as high standards for ethical behavior by its
employees. NiSource's senior management takes an active role in the development
of this Form 10-Q and the monitoring of the company's internal control structure
and performance. In addition, NiSource will continue its mandatory ethics
training program in which employees at every level throughout the organization
participate.
Refer to "Controls and Procedures" included in Item 4.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
Results of Operations
Quarter Ended March 31, 2009
Net Income
NiSource reported net income of $148.4 million, or $0.54 per basic share, for
the three months ended March 31, 2009, compared to net income of $99.3 million,
or $0.36 per basic share, for the first quarter 2008. Income from continuing
operations was $159.3 million, or $0.58 per basic share, for the three months
ended March 31, 2009, compared to $189.5 million, or $0.69 per basic share, for
the first quarter 2008. Operating income was $348.3 million, a decrease of $46.6
million from the same period in 2008. All per share amounts are basic earnings
per share. Basic average shares of common stock outstanding at March 31, 2009
were 274.2 million compared to 273.9 million at March 31, 2008.
Comparability of line item operating results was impacted by regulatory and tax
trackers that allow for the recovery in rates of certain costs such as bad debt
expenses. Therefore, increases in these tracked operating expenses are offset by
increases in net revenues and had essentially no impact on income from
continuing operations. A net increase in operating expenses of $12.5 million for
the first quarter of 2009 was offset by a corresponding net increase to net
revenues reflecting recovery of these tracked costs.
Net Revenues
Total consolidated net revenues (gross revenues less cost of sales) for the
three months ended March 31, 2009, were $1,065.4 million, a $24.7 million
increase from the same period last year. This increase in net revenues was
primarily due to increased Gas Distribution Operations' net revenues of
$21.1 million and increased Gas Transmission and Storage Operations' net
revenues of $11.0 million, partially offset by lower Electric Operations' net
revenues of $5.0 million. Gas Distribution Operations net revenues increased due
primarily to increased revenues of $18.9 million from regulatory initiatives
including impacts from rate proceedings, increased net regulatory and tax
trackers of $8.6 million offset in expense and colder weather of approximately
$7 million, partially offset by decreased customer usage of $9.3 million and a
$7.0 million decrease in off-system sales. Within Gas Transmission and Storage
Operations, net revenues increased due primarily to greater subscriptions for
firm transportation services related to new interconnects along the Columbia
Gulf pipeline system and incremental demand revenues on the Columbia
Transmission system. Electric Operations net revenues decreased due to lower
industrial usage, which was significantly impacted by steel and steel-related
companies. The major steel companies were operating at close to full capacity in
early 2008 and are now operating at about half capacity.
Expenses
Operating expenses for the first quarter 2009 were $723.5 million, an increase
of $75.7 million from the 2008 period. This increase was primarily due to higher
employee and administrative expenses of $31.7 million across NiSource's business
segments due mainly to higher pension expense of approximately $25 million, a
restructuring charge in Gas Transmission and Storage Operations of
$19.8 million, higher regulatory and tax trackers of $8.6 million offset in net
revenues described above, and an $8.1 million increase in depreciation and
amortization expense. The increase in pension expense for 2009 is due to a
$797.7 million reduction in pension plan assets in 2008 from a 30.3% negative
return on assets for the year due to the overall market decline and benefit
payments of $165.9 million made during 2008.
Other Income (Deductions)
Interest expense, net was $90.5 million for the quarter, a decrease of
$1.3 million compared to the first quarter 2008. This decrease was due primarily
to lower short-term interest rates and savings from the $100 million of open
market debt repurchases in January 2009 partially offset by incremental interest
expense associated with the $700 million debt issued in May 2008 and a partial
month of interest expense associated with the $600 million of debt issued in
March 2009. Other, net was a loss of $4.2 million for the current quarter
compared to a loss of $1.5 million for the comparable 2008 period due to lower
interest income.
Income Taxes
Income taxes for the first quarter of 2009 were $97.5 million, a decrease of
$14.6 million compared to the first quarter of 2008 due primarily to lower
pretax book income partially offset by a higher effective tax rate. The
effective tax rate for the quarter ended March 31, 2009 was 38.0% compared to
37.2% for the comparable period
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
last year. The 0.8% increase in the effective tax rate in the first quarter of
2009 versus the first quarter of 2008 is due primarily to a reduction in
estimated Section 199 deductions as a result of lower projected taxable income
for 2009, and an increase in tax expense related to AFUDC-Equity and certain
depreciation differences. Both periods included adjustments for discrete items
which increased tax expense by $1.9 million in the first quarter of 2009 and
$2.2 million in the first quarter of 2008.
Discontinued Operations
Discontinued operations reflected a loss of $10.9 million, or $0.04 loss per
basic share, in the first quarter of 2009, compared to a loss of $90.2 million,
or $0.33 loss per basic share, in the first quarter of 2008. The loss in 2009 is
primarily attributable to an adjustment to the reserve for litigation and
adjustments from businesses disposed of during 2008. The loss in 2008 is
primarily attributable to an estimated after-tax loss of $96.1 million recorded
for the dispositions of Northern Utilities, Granite State Gas and Whiting Clean
. . .
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