NiSource Reports First Quarter 2010 Results of 72 Cents Per Share

MERRILLVILLE, Ind., May 4 /PRNewswire-FirstCall/ --

• Results in line with 2010 net operating earnings guidance
• Business initiatives, capital investments continue to advance

NiSource Inc. (NYSE: NI) today announced net operating earnings from continuing operations (non-GAAP) of $198.3 million, or 72 cents per share, for the three months ended March 31, 2010, compared to $170.4 million, or 62 cents per share, for the first quarter of 2009. Operating earnings for the quarter (non-GAAP) were $404.9 million, compared to $369.6 million for the same period in 2009.

On a GAAP basis, NiSource reported income from continuing operations for the three months ended March 31, 2010, of $197.3 million, or 71 cents per share, compared with $159.4 million, or 58 cents per share, in the same period a year ago. Operating income was $403.2 million for the first quarter of 2010, compared with $348.4 million in the year-ago period. Schedules 1 and 2 of this news release contain a reconciliation of net operating earnings and operating earnings to GAAP.

"We continue to see solid results from NiSource's low-risk, investment-driven strategy for meeting the needs of our customers while generating long-term, sustainable earnings growth and increased shareholder value," President and Chief Executive Officer Robert C. Skaggs, Jr. said. "Our first quarter performance is squarely in line with our 2010 earnings outlook and reflects our balanced plan of synchronizing infrastructure investments with complementary regulatory and commercial activities."

Skaggs also noted that the company's first quarter results reflected a modest uptick in industrial and residential demand in Indiana partially attributable to economic recovery. "Although it is too early to identify a definitive trend, we continue to see a gradual and modest pace of economic recovery across the markets served by our utilities," Skaggs noted.

Skaggs also highlighted steady progress on NiSource's key business priorities, including the advancement of customer service, reliability, and regulatory initiatives at Northern Indiana Public Service Company (NIPSCO), development of an array of natural gas transmission and storage growth opportunities linked to NiSource's extensive asset footprint in the Marcellus Shale region of Appalachia, and advancing infrastructure and regulatory programs at the company's natural gas utilities.

Indiana customer, reliability, and regulatory initiatives advance

NiSource's Indiana utilities are focused on a number of initiatives to enhance customer service and reliability, modernize rate structures, and position the company for future growth.

In February, Jimmy D. Staton, group CEO of NiSource's gas distribution businesses, assumed the added responsibility for the company's Indiana gas and electric utility businesses. Staton has considerable experience in the electric industry and has successfully implemented a broad range of regulatory and customer initiatives. Under his direction, the company is executing an aggressive 2010 business and regulatory agenda, including:

• Investing more than $200 million during 2010 in NIPSCO's generation fleet and service infrastructure to continue providing reliable, environmentally compliant, and affordable energy to its northern Indiana customers.

• Taking steps to broaden customer programs and reform rate structures. On May 3, NIPSCO filed a natural gas rate case with the Indiana Utility Regulatory Commission (IURC) proposing extension of popular energy-efficiency programs for customers, as well as a change in rate design. New rates, reflecting a modest impact on customer bills, are targeted to be effective by early 2011 or sooner.

• Developing new and enhanced energy-efficiency and customer-assistance programs for NIPSCO's electric customers and updating rates. The company plans to include several new customer program proposals in its next electric base rate case, expected to be filed in the third quarter of 2010. That filing also will propose to update base rates to reflect recent demand levels, investments and expenses, with new rates expected to be effective in the second half of 2011.

• NIPSCO's 2008 electric rate case remains pending before the IURC, with a decision in the case expected within the next few months.

"This is a pivotal year for NIPSCO as we continue to position the company for long-term growth while providing our customers with the tools to conserve energy and to manage through the current economic cycle," Skaggs said. "Executing our Indiana business and regulatory agenda requires a solid strategy, strong collaboration with all of our key stakeholders, and committed leadership. While it will certainly take time and a considerable amount of effort by the team, I believe we have the ingredients in place to deliver on that challenge."

Executing on Marcellus-driven growth in transmission & storage

NiSource's Gas Transmission & Storage (NGT&S) Operations continues to identify and advance a number of near-term, low-risk growth projects that leverage its geographic footprint throughout the Marcellus Shale production areas.

• The company's Cobb Compressor Station expansion project will help meet natural gas producers' near-term transportation needs in the Appalachian Basin, with agreements in place for more than 25,000 dekatherms per day of long-term, firm transportation service. The project is expected to be in service during the second quarter of 2010.

• Work is continuing on three incremental growth projects associated with NGT&S assets in the Majorsville region of southwestern Pennsylvania – a prime location for Marcellus-related production activities. The projects, which are scheduled to begin service during the third quarter of 2010, entail more than $80 million of investment and will aggregate Marcellus gas production for downstream transmission with a total capacity of 325,000 dekatherms per day.  

• In addition, NGT&S is developing an extensive portfolio of infrastructure growth projects in the Marcellus area designed to meet the needs of the market and deliver attractive returns on invested capital.

"Exploiting our competitive advantage is the focus of our growth project development activity at NGT&S, given our strategic footprint throughout one of the nation's largest shale production areas," Skaggs said. "Our core assets are in one of the Marcellus 'sweet spots,' and we have a broad range of opportunities for low-risk, strong return investments targeting the needs of our diverse customer base."

Gas Distribution progress continues

NiSource's Gas Distribution Operations continue to deliver strong results from its strategy of aligning infrastructure replacement and enhancement programs with a variety of regulatory and rate-design initiatives. Highlights include:

• On Jan. 28, Columbia Gas of Pennsylvania filed a base rate increase request with the Pennsylvania Public Utility Commission. In addition to proposing new residential home energy efficiency programs and the implementation of a more progressive rate design, the company is seeking an increase in its base rates of approximately $32 million annually. New rates are expected to be placed into effect in the fourth quarter of 2010.

• First quarter results were positively affected by the late-2009 approval of a Bay State Gas Co. rate case by the Massachusetts Department of Public Utilities (DPU). The new rates, which increased annual base revenues by approximately $19 million, took effect on Nov. 1, 2009. Notably, the DPU approved a decoupled rate design for Bay State, as well as the company's proposed infrastructure replacement tracking mechanism.

• On Jan. 28, Columbia Gas of Maryland filed a base rate adjustment request of $2.2 million with the Maryland Public Service Commission. New rates are expected to be placed into effect in the fourth quarter of 2010.

• During the quarter, Columbia Gas of Virginia (CGV) initiated its Conservation and Ratemaking Efficiency (CARE) Plan, which established a decoupled rate mechanism together with certain customer efficiency programs. Also during the quarter, legislation was enacted in Virginia which affords gas utilities the opportunity for accelerated recovery for certain infrastructure investments – a significant, positive development for CGV and its customers. Finally, on May 3, the company filed a rate case with the Virginia State Corporation Commission to establish customer rates to be effective at the conclusion of a four-year rate settlement, set to expire on Dec. 31. The filing proposes an increase in annual base revenues of $13 million.  

"Our customers and investors are experiencing current and ongoing benefits from our gas distribution team's commercial, regulatory and infrastructure initiatives," Skaggs said. "The introduction and deployment of innovative customer programs in tandem with long-term low-risk, infrastructure-replacement programs create an unparalleled platform for long-term, sustainable growth."

2010 guidance, growth outlook reaffirmed

Skaggs noted that NiSource's earnings outlook remains consistent with the company's previously announced net operating earnings guidance for 2010.

"We remain on track to deliver on our key business priorities – advancing the next wave of Marcellus Shale growth projects, continuing to execute our infrastructure replacement programs and related regulatory initiatives, and completing the NIPSCO repositioning process," Skaggs said.

Skaggs reiterated that NiSource expects its earnings to grow by 3 to 5 percent on a long-term basis. For 2010, net operating earnings (non-GAAP) are projected to fall within a range of $1.10 to $1.20 per share. As outlined in last quarter's earnings release, due to the unpredictability of weather and other factors, the company is not providing GAAP earnings guidance.

Skaggs also noted that NiSource's liquidity position remains strong following a series of initiatives taken in 2009 to address the company's long-term financing needs through 2011. The company also is on track to make capital expenditures of approximately $900 million in 2010, an increase of approximately $100 million, or 12.5 percent, over its 2009 program.  

First Quarter 2010 Operating Earnings – Segment Results (non-GAAP)

NiSource's consolidated operating earnings (non-GAAP) for the quarter ended March 31, 2010, were $404.9 million, compared to $369.6 million in the first quarter of 2009. Refer to Schedule 2 for the items included in 2010 and 2009 GAAP operating income but excluded from operating earnings.

Operating earnings for NiSource's business segments for the quarter ended March 31, 2010 are discussed below.

Gas Distribution Operations reported operating earnings for the current quarter of $234.7 million compared to $237.3 million in the first quarter of 2009. Net revenues, excluding the impact of  trackers, decreased by $15.5 million, primarily attributable to Columbia Gas of Ohio's change from a volumetrically based rate design to one based on fixed monthly charges for certain customer classes. The revenue variance experienced in the first quarter will be offset throughout the balance of the year. The decrease in net revenues was partially offset by increases in other regulatory and service programs, including impacts from rate cases at various utilities.

Operating expenses, excluding trackers, were $12.9 million lower than the comparable 2009 period, reflecting lower employee and administrative costs, other taxes, and environmental related expenses. The lower employee and administrative costs were primarily due to decreases in pension and other post-retirement expenses, including the deferral of pension costs and other post-retirement expenses for Columbia Gas of Ohio.

Gas Transmission and Storage Operations reported operating earnings for the current quarter of $125.9 million compared to $111.1 million in the first quarter of 2009. Net revenues, excluding the impact of trackers, increased by $14.3 million, primarily attributable to increases in firm capacity reservation fees from growth projects such as the Eastern Market Expansion and the Ohio Storage Expansion, as well as new Appalachian production transportation contracts. Net revenues were also favorably impacted by the recognition of a gain on the transfer of native gas provided by Columbia Transmission to Hardy Storage Company (Hardy).

Operating expenses, excluding the impact of trackers, remained essentially unchanged compared to the first quarter of 2009.

Electric Operations reported operating earnings for the current quarter of $46.2 million compared to $26.1 million in the first quarter of 2009. Net revenues, excluding the impact of trackers, increased by $15.3 million, attributable to increased industrial and residential customer margins.  

Operating expenses decreased by $4.8 million, excluding trackers, primarily attributable to lower employee, administrative, and electric generation costs. The lower employee and administrative costs were primarily due to decreases in pension and other post-retirement expenses. The decrease in operating expenses was partially offset by an increase in environmental expenses primarily related to the impact of a favorable insurance settlement recorded during the first quarter of 2009.

Corporate and Other Operations reported an operating earnings loss of $1.9 million for the current quarter compared to a loss of $4.9 million in the first quarter of 2009. In the first quarter of 2010, management eliminated the "Other" segment. NiSource's decision to wind down the unregulated natural gas marketing activities will impact the results from Other Operations. Results previously recorded as "Other" are now included within "Corporate and Other Operations."

Interest expense increased by $8.3 million due to incremental interest expense associated with the issuance of $600 million of long-term debt in March of 2009 and $500 million of long-term debt in December of 2009, partially offset by the $250.6 million tender offer debt repurchase in April 2009 and the floating rate maturity in November 2009, coupled with lower short-term borrowings and interest rates.

Other-net income of $2.6 million was recorded in 2010 compared to a loss of $4.2 million for 2009 as a result of favorable AFUDC rates, an increase in interest income, and lower costs related to the sale of accounts receivables. The effective tax rate of net operating earnings was 35.8 percent compared to 38.0 percent for the same period last year.

About NiSource

NiSource Inc. (NYSE: NI), based in Merrillville, Ind., is a Fortune 500 company engaged in natural gas transmission, storage and distribution, as well as electric generation, transmission and distribution. NiSource operating companies deliver energy to 3.8 million customers located within the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England. Information about NiSource and its subsidiaries is available via the Internet at www.nisource.com. NI-F

Forward-Looking Statements

This news release includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the intent, belief or current expectations of NiSource and its management. Although NiSource believes that its expectations are based on reasonable assumptions, it can give no assurance that its goals will be achieved. Readers are cautioned that the forward-looking statements in this news release are not guarantees of future performance and involve a number of risks and uncertainties, and that actual results could differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, the following: weather; fluctuations in supply and demand for energy commodities; growth opportunities for NiSource's businesses; increased competition in deregulated energy markets; the success of regulatory and commercial initiatives; dealings with third parties over whom NiSource has no control; actual operating experience of NiSource's assets; the regulatory process; regulatory and legislative changes; the impact of potential new environmental laws or regulations; the results of material litigation; changes in pension funding requirements; changes in general economic, capital and commodity market conditions; and counter-party credit risk, and the matters set forth in the "Risk Factors" section in NiSource's 2009 Form 10-K, many of which risks are beyond the control of NiSource. NiSource expressly disclaims a duty to update any of the forward-looking statements contained in this release.

SOURCE NiSource Inc.

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