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| NI > SEC Filings for NI > Form 10-Q on 30-Oct-2009 | All Recent SEC Filings |
30-Oct-2009
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
as a result of 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.
• Electric Operations net revenues were $42.1 million lower primarily due to lower industrial usage and off-system sales and the impact of cooler weather. Industrial volumes are down approximately 22% in the first nine months of 2009 when compared to the same 2008 period.
• NiSource's Gas Transmission and Storage Operations segment recorded $20.0 million in restructuring charges, primarily in the first quarter of 2009, and Northern Indiana recorded a $4.6 million restructuring charge in the third quarter of 2009, impacting Gas Distribution Operations by $1.4 million and Electric Operations by $3.2 million.
• Interest expense increased $21.3 million primarily due to incremental interest expense associated with the issuance of $700 million of long-term debt in May of 2008, $600 million of long-term debt in March of 2009 and a $385 million two-year term loan issued in April of 2009, partially offset by the open market debt repurchase of $100 million in January 2009, the $250.6 million tender offer debt repurchase in April 2009 and lower short-term interest rates.
• Other, net decreased $22.4 million as a result of lower interest income.
Decreases in income from continuing operations were partially offset due to the
following items:
• Gas Distribution Operations' net revenues increased by $82.5 million due
primarily to increased revenues of $82.3 million from regulatory initiatives
including impacts from rate proceedings.
• Gas Transmission and Storage Operations' net revenues increased by $44.5 million due primarily to increases in firm capacity reservation fees principally from growth projects such as the Eastern Market Expansion, the Ohio Storage Expansion and new Appalachian supply contracts, increases in shorter-term transportation and storage services, and mineral rights leasing.
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 requested an increase in base rates calculated
to produce additional annual gross margin of $85.7 million. 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. Field hearings to record customer
testimonies were held on March 3, 2009 and July 15, 2009. The OUCC and
intervenors filed their cases-in-chief on May 8, 2009. Northern Indiana filed
its rebuttal testimony on June 26, 2009. Northern Indiana made several minor
changes to its revenue requirement, and, as a result the margin
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
requirement in the proposed order filing is $8 million less than the original
request. The hearings concluded on August 6, 2009, and the briefing schedule
will conclude on January 12, 2010. The case is expected to be resolved with new
electric rates effective during early 2010.
Northern Indiana anticipates filing another electric base rate case during 2010.
Among other things, the filing is expected to include the effect of increased
pension expense, as well as demand levels based on more recent operating
experience.
Northern Indiana currently has plans underway for the filing of a gas rate case,
the first since 1987. The filing is expected to be made in 2010, with new rates
anticipated to be effective in late 2010 or early 2011.
On April 30, 2009, Columbia of Ohio filed an application with the PUCO to defer
pension and other postretirement benefits expenses above those currently subject
to collection in rates, effective January 1, 2009. On July 8, 2009, the PUCO
issued an Order approving Columbia of Ohio's application, although the deferred
balances shall not accrue carrying charges and Columbia of Ohio shall not seek
recovery of pension and other postretirement benefits deferrals in a base rate
proceeding for a period of five years. The amount deferred will be approximately
$13.0 million for 2009, of which $9.8 million has been included in the third
quarter of 2009 results.
On April 16, 2009, Bay State filed a base rate case with the Massachusetts
Department of Public Utilities, requesting an increase of $34.2 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 is 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. A settlement agreement has been reached with
all parties which was presented in a hearing before the Kentucky PSC on
September 18, 2009. On October 26, 2009, the Kentucky PSC approved the
settlement agreement as filed, with new rates taking effect on October 27, 2009.
Refer to Note 20, "Subsequent Events," in the Notes to the Condensed
Consolidated Financial Statements for more information.
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 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 over a three year period. On March 3,
2009, Columbia of Ohio's proposal was deemed approved and became effective.
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 VSCC approved
Dominion Virginia Power Company's planned Bear Garden station with service
expected to begin by the summer of 2011.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
Commercial Growth and Expansion of the Gas Transmission and Storage Business
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 market 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.
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 November 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.
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. The first two
phases of this project were available for service 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.
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-phase development will provide 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.
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 included building a new 9,470 hp compressor station in West Virginia.
The Appalachian Expansion Project added 100,000 Dth per day of transportation
capacity and is fully subscribed on a 15-year contracted firm basis.
Construction is complete and the project was placed in service on July 1, 2009.
Eastern Market Expansion Project. On January 14, 2008, the FERC issued an order
which granted a certificate to construct the 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 added 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 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 was
available beginning May 2009 and the remainder is expected to be available by
the fourth quarter of 2009. The expansion capacity is 58% contracted on a
long-term, firm basis, with the FERC authorized market-based rates for these
services.
Easton Compressor Station Project. 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. Construction is under
way and service is expected to commence in the fourth quarter of 2009.
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
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
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.
Cobb Compressor Station Expansion Project. Shippers have also executed precedent
agreements for a total of approximately 25,500 Dth per day of long-term firm
transportation service associated with a facility expansion at Cobb Compressor
Station in Kanawha County, West Virginia. The Cobb Expansion is expected to be
in service by the second quarter of 2010.
Majorsville, PA Project. The Gas Transmission and Storage Operations segment is
pursuing the development of three separate projects totaling approximately
$80 million in the Majorsville, PA vicinity to aggregate Marcellus gas
production for downstream transmission on the Columbia Gas Transmission system.
The gathered production will be delivered to a new natural gas processing plant
to be owned and operated by Markwest in the Majorsville area. Precedent
Agreements have been executed by anchor shippers and the remaining available
capacity will be the subject of separate binding open seasons in the fourth
quarter of 2009.
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 June 25, 2009, Columbia of Virginia received approval from the VSCC for the
issuance of long-term debt of up to $75 million of either external long-term
debt or long-term inter-company notes. Northern Indiana is also seeking to
amend its financing petition with the IURC to allow for the issuance of
$120 million of either external long-term debt or long-term inter-company
notes.
• On April 9, 2009, NiSource Finance announced the final closing of a $385 million senior unsecured two-year bank term loan with a syndicate of banks maturing February 11, 2011. Borrowings under the bank term loan have an effective cost of LIBOR plus 538 basis points. On February 16, 2009, NiSource announced the initial closing of the bank term loan at the level of $265 million. Under an accordion feature, NiSource was able to increase the loan by $120 million prior to final closing.
• On March 31, 2009, NiSource Finance announced that it was commencing a cash tender offer for up to $300 million aggregate principal amount of its outstanding 7.875% notes due 2010. On April 28, 2009, NiSource Finance announced that $250.6 million of these notes were successfully tendered.
• 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.
• During January 2009, NiSource repurchased $32.4 million of the $450.0 million floating rate notes scheduled to mature in November 2009 and $67.6 million of the $1.0 billion 7.875% unsecured notes scheduled to mature in November 2010.
On October 23, 2009 new accounts receivable agreements were executed at Columbia of Ohio and Northern Indiana. During the fourth quarter of 2009, NiSource also expects Columbia of Pennsylvania to file a petition to add an accounts receivable securitization facility. Total combined capacity of these facilities is expected to be approximately $550 million at peak heating season. NiSource's liquidity position was significantly strengthened during the third quarter as the result of a change in tax method regarding certain electric and gas utility repair costs. The change provides significant additional liquidity in the form of income tax refunds of approximately $295 million associated with taxes paid in prior years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
In light of the change in tax method, NiSource estimates that its remaining
financing requirements through 2010 can be met through the issuance of
approximately $120 million in debt related to the Northern Indiana Sugar Creek
generating facility. In addition, the company retains the option of conducting
additional financing at the corporate level to meet its 2010 financing needs.
The ultimate timing and structure of the company's financing activities will be
determined based on prevailing market conditions.
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 July 29, 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
During the first quarter of 2009, NiSource began an organizational restructuring
initiative, beginning with Gas Transmission and Storage Operations, in response
to the decline in overall economic conditions.
In February 2009, NiSource announced the restructuring of the Gas Transmission
and Storage Operations segment. NiSource has eliminated positions across the 16
state operating territory of Gas Transmission and Storage. The reductions have
occurred through voluntary programs and involuntary separations. In addition to
employee reductions, the Gas Transmission and Storage Operations segment will
continue to 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 maximizing value of existing assets.
During the first nine months of 2009, NiSource recorded a pre-tax restructuring
charge related to this initiative, net of adjustments, of $20.0 million to
"Operation and maintenance" expense on the Condensed Statement of Consolidated
Income (Loss) (unaudited), which primarily includes costs related to severance
and other employee related costs. Management currently anticipates approximately
350 employees will be impacted. As of September 30, 2009, 305 employees had been
severed from employment, of which 51 were severed in the third quarter of 2009.
NiSource expects this phase of restructuring to be substantially complete by the
end of 2009.
In September 2009, NiSource announced the restructuring of Northern Indiana,
which aims to redefine business and operations strategies and achieve cost
reductions, and impacts both Electric Operations and Gas Distribution
Operations. During the third quarter of 2009, NiSource recorded a pre-tax
restructuring charge related to this initiative of $4.6 million to "Operation
and maintenance" expense on the Condensed Statement of Consolidated Income
(Loss) (unaudited), which primarily includes costs related to severance and
other employee related costs for approximately 43 employees and outside services
costs. NiSource expects this phase of restructuring to be substantially complete
by the end of 2009.
In the second quarter of 2009, Northern Indiana and representatives of the
United Steelworkers union reached five-year collective bargaining agreements
covering approximately 1,900 Northern Indiana employees. The parties' new labor
agreements are scheduled to expire May 31, 2014.
2009 Earnings Outlook
NiSource currently expects income from continuing operations for 2009 to fall
within a range of $0.80 to $0.90 per basic share. This expectation takes into
account restructuring charges of approximately $25 million and the impact from
unfavorable weather that occurred during the first nine months of 2009. A higher
effective tax rate and other changes discussed within the Management Discussion
and Analysis are also considered in this revised earnings outlook. Many factors
could effect this estimate, including those items discussed in the sections
captioned "Note regarding forward-looking statements" and "Risk Factors" in both
this report and in NiSource's 2008 Form 10-K filed February 27, 2009.
Ethics and Controls
NiSource has had a long term commitment to providing accurate and complete
financial reporting as well as high
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS (continued)
NiSource Inc.
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.
Results of Operations
Quarter Ended September 30, 2009
Net Income
NiSource reported a net loss of $15.4 million, or $0.05 loss per basic share,
. . .
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