UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
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)
Delaware | 35-2108964 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
801 East 86th Avenue Merrillville, Indiana |
46410 | |
(Address of principal executive offices) | (Zip Code) |
(877) 647-5990
(Registrants telephone number, including area code)
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.)
Yesþ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer þ Accelerated filer ¨
Non-accelerated filer ¨ Smaller reporting company ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: Common Stock, $0.01 Par Value: 284,092,190 shares outstanding at April 26, 2012.
NISOURCE INC.
FORM 10-Q QUARTERLY REPORT
FOR THE QUARTER ENDED MARCH 31, 2012
Page | ||||||||
Defined Terms | 3 | |||||||
PART I |
FINANCIAL INFORMATION | |||||||
Item 1. | Financial Statements - unaudited | |||||||
Condensed Statements of Consolidated Income (unaudited) | 6 | |||||||
Condensed Statements of Consolidated Comprehensive Income (unaudited) | 7 | |||||||
Condensed Consolidated Balance Sheets (unaudited) | 8 | |||||||
Condensed Statements of Consolidated Cash Flows (unaudited) | 10 | |||||||
Notes to Condensed Consolidated Financial Statements (unaudited) | 11 | |||||||
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations | 43 | ||||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 65 | ||||||
Item 4. | Controls and Procedures | 65 | ||||||
PART II |
OTHER INFORMATION | |||||||
Item 1. | Legal Proceedings | 66 | ||||||
Item 1A. | Risk Factors | 66 | ||||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 66 | ||||||
Item 3. | Defaults Upon Senior Securities | 66 | ||||||
Item 4. | Mine Safety Disclosures | 66 | ||||||
Item 5. | Other Information | 66 | ||||||
Item 6. | Exhibits | 67 | ||||||
Signature | 68 |
2
The following is a list of frequently used abbreviations or acronyms that are found in this report:
NiSource Subsidiaries and Affiliates |
||
Capital Markets |
NiSource Capital Markets, Inc. | |
CER |
Columbia Energy Resources, Inc. | |
CGORC |
Columbia Gas of Ohio Receivables Corporation | |
CNR |
Columbia Natural Resources, Inc. | |
Columbia |
Columbia Energy Group | |
Columbia Gulf |
Columbia Gulf Transmission Company | |
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. | |
Columbia Transmission |
Columbia Gas Transmission, L.L.C. | |
CPRC |
Columbia Gas of Pennsylvania Receivables Corporation | |
Crossroads Pipeline |
Crossroads Pipeline Company | |
Granite State Gas |
Granite State Gas Transmission, Inc. | |
Hardy Storage |
Hardy Storage Company, L.L.C. | |
Kokomo Gas |
Kokomo Gas and Fuel Company | |
Millennium |
Millennium Pipeline Company, L.L.C. | |
NARC |
NIPSCO Accounts Receivable Corporation | |
NDC Douglas Properties |
NDC Douglas Properties, Inc. | |
NiSource |
NiSource Inc. | |
NiSource Corporate Services |
NiSource Corporate Services Company | |
NiSource Development Company |
NiSource Development Company, Inc. | |
NiSource Finance |
NiSource Finance Corp. | |
NiSource Midstream |
NiSource Midstream Services, L.L.C. | |
Northern Indiana |
Northern Indiana Public Service Company | |
Northern Indiana Fuel and Light |
Northern Indiana Fuel and Light Company | |
PEI |
PEI Holdings, Inc. | |
Whiting Clean Energy |
Whiting Clean Energy, Inc. | |
Abbreviations |
||
AFUDC |
Allowance for funds used during construction | |
AMRP |
Accelerated Main Replacement Program | |
AOC |
Administrative Order by Consent | |
AOCI |
Accumulated other comprehensive income | |
ARP |
Alternative Regulatory Plan | |
ARRs |
Auction Revenue Rights | |
ASC |
Accounting Standards Codification | |
BBA |
British Banker Association | |
Bcf |
Billion cubic feet | |
Board |
Board of Directors | |
BPAE |
BP Alternative Energy North America Inc | |
BTMU |
The Bank of Tokyo-Mitsubishi UFJ, LTD. | |
BTU |
British Thermal Unit | |
CAA |
Clean Air Act | |
CAIR |
Clean Air Interstate Rule | |
CAMR |
Clean Air Mercury Rule | |
Ccf |
Hundred cubic feet | |
CERCLA |
Comprehensive Environmental Response, Compensation and Liability Act (also known as Superfund) | |
CSAPR |
Cross-State Air Pollution Rule |
3
DEFINED TERMS (continued)
Day 2 |
Began April 1, 2005 and refers to the operational control of the energy markets by MISO, including the dispatching of wholesale electricity and generation, managing transmission constraints, and managing the day-ahead, real-time and financial transmission rights markets | |
DPU |
Department of Public Utilities | |
DSM |
Demand Side Management | |
Dth |
Dekatherm | |
ECT |
Environmental Cost Tracker | |
EPA |
United States Environmental Protection Agency | |
EPS |
Earnings per share | |
FAC |
Fuel adjustment clause | |
FASB |
Financial Accounting Standards Board | |
FERC |
Federal Energy Regulatory Commission | |
FGD |
Flue Gas Desulfurization | |
FTRs |
Financial Transmission Rights | |
GAAP |
U.S. Generally Accepted Accounting Principles | |
GCR |
Gas cost recovery | |
GHG |
Greenhouse gases | |
gwh |
Gigawatt hours | |
IDEM |
Indiana Department of Environmental Management | |
IFRS |
International Financial Reporting Standards | |
IRP |
Infrastructure Replacement Program | |
IURC |
Indiana Utility Regulatory Commission | |
LDCs |
Local distribution companies | |
LIBOR |
London InterBank Offered Rate | |
LIFO |
Last in first out | |
Mcf |
Million cubic feet | |
MGP |
Manufactured Gas Plant | |
MISO |
Midwest Independent Transmission System Operator | |
Mitchell |
Dean H. Mitchell Coal Fired Generating Station | |
MMDth |
Million dekatherms | |
mw |
Megawatts | |
NAAQS |
National Ambient Air Quality Standards | |
NOV |
Notice of Violation | |
NO2 |
Nitrogen dioxide | |
NOx |
Nitrogen oxide | |
NSR |
New Source Review | |
NYMEX |
New York Mercantile Exchange | |
OCI |
Other Comprehensive Income (Loss) | |
OPEB |
Other Postretirement and Postemployment Benefits | |
OUCC |
Indiana Office of Utility Consumer Counselor | |
PADEP |
Pennsylvania Department of Environmental Protection | |
Piedmont |
Piedmont Natural Gas Company, Inc. | |
PJM |
PJM Interconnection (a regional transmission organization (RTO) that coordinates the movement of wholesale electricity in all or parts of 13 states and the District of Columbia.) | |
PM |
particulate matter | |
PSC |
Public Service Commission | |
PUC |
Public Utility Commission | |
PUCO |
Public Utilities Commission of Ohio | |
RA |
Resource Adequacy | |
RBS |
Royal Bank of Scotland PLC | |
RCRA |
Resource Conservation and Recovery Act | |
RTO |
Regional Transmission Organization | |
SEC |
Securities and Exchange Commission | |
SIP |
State Implementation Plan | |
SO2 |
Sulfur dioxide | |
VaR |
Value-at-risk and instrument sensitivity to market factors |
4
DEFINED TERMS (continued)
VIE |
Variable Interest Entities | |
VSCC |
Virginia State Corporation Commission |
5
PART I
NiSource Inc.
Condensed Statements of Consolidated Income (unaudited)
Three Months Ended March 31, (in millions, except per share amounts) | 2012 | 2011 | ||||||
|
||||||||
Net Revenues |
||||||||
Gas Distribution |
$ | 873.7 | $ | 1,372.0 | ||||
Gas Transportation and Storage |
409.2 | 403.0 | ||||||
Electric |
352.6 | 346.5 | ||||||
Other |
23.2 | 110.1 | ||||||
|
||||||||
Gross Revenues |
1,658.7 | 2,231.6 | ||||||
Cost of Sales (excluding depreciation and amortization) |
630.3 | 1,170.9 | ||||||
|
||||||||
Total Net Revenues |
1,028.4 | 1,060.7 | ||||||
|
||||||||
Operating Expenses |
||||||||
Operation and maintenance |
405.4 | 429.3 | ||||||
Depreciation and amortization |
146.1 | 134.3 | ||||||
Impairment and (gain)/loss on sale of assets, net |
(1.6 | ) | 0.7 | |||||
Other taxes |
86.8 | 93.0 | ||||||
|
||||||||
Total Operating Expenses |
636.7 | 657.3 | ||||||
|
||||||||
Equity Earnings in Unconsolidated Affiliates |
7.7 | 3.0 | ||||||
|
||||||||
Operating Income |
399.4 | 406.4 | ||||||
|
||||||||
Other Income (Deductions) |
||||||||
Interest expense, net |
(103.3 | ) | (89.8) | |||||
Other, net |
0.3 | 3.3 | ||||||
|
||||||||
Total Other Deductions |
(103.0 | ) | (86.5) | |||||
|
||||||||
Income from Continuing Operations before Income Taxes |
296.4 | 319.9 | ||||||
Income Taxes |
102.9 | 110.8 | ||||||
|
||||||||
Income from Continuing Operations |
193.5 | 209.1 | ||||||
|
||||||||
(Loss) Income from Discontinued Operations - net of taxes |
(0.1 | ) | 0.4 | |||||
|
||||||||
Net Income |
$ | 193.4 | $ | 209.5 | ||||
|
||||||||
Basic Earnings Per Share |
||||||||
Continuing operations |
$ | 0.68 | $ | 0.75 | ||||
Discontinued operations |
- | - | ||||||
|
||||||||
Basic Earnings Per Share |
$ | 0.68 | $ | 0.75 | ||||
|
||||||||
Diluted Earnings Per Share |
||||||||
Continuing operations |
$ | 0.66 | $ | 0.73 | ||||
Discontinued operations |
- | - | ||||||
|
||||||||
Diluted Earnings Per Share |
$ | 0.66 | $ | 0.73 | ||||
|
||||||||
|
||||||||
Dividends Declared Per Common Share |
$ | 0.46 | $ | 0.46 | ||||
|
||||||||
Basic Average Common Shares Outstanding |
282.9 | 279.3 | ||||||
Diluted Average Common Shares |
293.1 | 285.0 | ||||||
|
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
6
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Condensed Statements of Consolidated Comprehensive Income (unaudited)
Three Months Ended March 31, (in millions, net of taxes) | 2012 | 2011 | ||||||
|
||||||||
Net Income |
$ | 193.4 | $ | 209.5 | ||||
Other comprehensive (loss) income |
||||||||
Net loss on available for sale securities(a) |
(2.8 | ) | (0.3) | |||||
Net unrealized gains on cash flow hedges(b) |
1.0 | 1.1 | ||||||
Unrecognized pension benefit and OPEB costs(c) |
0.6 | 0.4 | ||||||
|
||||||||
Total other comprehensive (loss) income |
(1.2 | ) | 1.2 | |||||
|
||||||||
Total Comprehensive Income |
$ | 192.2 | $ | 210.7 | ||||
|
(a) | Net unrealized losses on available-for-sale securities, net of $2.0 million and $0.2 million tax benefit in the first quarter of 2012 and 2011. |
(b) | Net unrealized gains on derivatives qualifying as cash flow hedges, net of $0.6 million and $0.7 million tax expense in the first quarter of 2012 and 2011, respectively. Net unrealized gains on cash flow hedges includes realization of unrealized losses of $0.3 million and $0.2 million related to the unrealized losses of interest rate swaps held by NiSources unconsolidated equity method investments for the first quarter of 2012 and 2011, respectively. |
(c) | Unrecognized pension benefit and OPEB costs, net of $0.5 million and $0.4 million tax expense in the first quarter of 2012 and 2011. |
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
7
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Condensed Consolidated Balance Sheets (unaudited)
(in millions) | March 31, 2012 |
December 31, 2011 |
||||||
|
||||||||
ASSETS |
||||||||
Property, Plant and Equipment |
||||||||
Utility Plant |
$ | 20,571.1 | $ | 20,337.8 | ||||
Accumulated depreciation and amortization |
(8,805.9 | ) | (8,670.2) | |||||
|
||||||||
Net utility plant |
11,765.2 | 11,667.6 | ||||||
|
||||||||
Other property, at cost, less accumulated depreciation |
136.8 | 132.5 | ||||||
|
||||||||
Net Property, Plant and Equipment |
11,902.0 | 11,800.1 | ||||||
|
||||||||
Investments and Other Assets |
||||||||
Assets of discontinued operations and assets held for sale |
0.2 | 0.2 | ||||||
Unconsolidated affiliates |
204.8 | 204.7 | ||||||
Other investments |
156.5 | 150.9 | ||||||
|
||||||||
Total Investments and Other Assets |
361.5 | 355.8 | ||||||
|
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
38.5 | 11.5 | ||||||
Restricted cash |
149.7 | 160.6 | ||||||
Accounts receivable (less reserve of $45.6 and $30.5, respectively) |
730.3 | 854.8 | ||||||
Income tax receivable |
0.7 | 0.9 | ||||||
Gas inventory |
181.1 | 427.6 | ||||||
Underrecovered gas and fuel costs |
15.0 | 20.7 | ||||||
Materials and supplies, at average cost |
89.8 | 87.6 | ||||||
Electric production fuel, at average cost |
83.3 | 50.9 | ||||||
Price risk management assets |
141.9 | 137.2 | ||||||
Exchange gas receivable |
76.4 | 64.9 | ||||||
Regulatory assets |
186.2 | 169.7 | ||||||
Prepayments and other |
277.4 | 261.8 | ||||||
|
||||||||
Total Current Assets |
1,970.3 | 2,248.2 | ||||||
|
||||||||
Other Assets |
||||||||
Price risk management assets |
114.7 | 188.7 | ||||||
Regulatory assets |
1,940.1 | 1,978.2 | ||||||
Goodwill |
3,677.3 | 3,677.3 | ||||||
Intangible assets |
294.9 | 297.6 | ||||||
Postretirement and postemployment benefits assets |
34.9 | 31.5 | ||||||
Deferred charges and other |
150.2 | 130.9 | ||||||
|
||||||||
Total Other Assets |
6,212.1 | 6,304.2 | ||||||
|
||||||||
Total Assets |
$ | 20,445.9 | $ | 20,708.3 | ||||
|
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
8
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Condensed Consolidated Balance Sheet (unaudited) (continued)
(in millions, except share amounts) | March 31, 2012 |
December 31, 2011 |
||||||
|
||||||||
CAPITALIZATION AND LIABILITIES |
||||||||
Capitalization |
||||||||
Common Stockholders Equity |
||||||||
Common stock - $0.01 par value, 400,000,000 shares authorized; 283,890,607 and 281,853,571 shares issued and outstanding, respectively |
$ | 2.9 | $ | 2.8 | ||||
Additional paid-in capital |
4,198.9 | 4,167.7 | ||||||
Retained earnings |
980.0 | 917.0 | ||||||
Accumulated other comprehensive loss |
(60.9 | ) | (59.7) | |||||
Treasury stock |
(40.4 | ) | (30.5) | |||||
|
||||||||
Total Common Stockholders Equity |
5,080.5 | 4,997.3 | ||||||
Long-term debt, excluding amounts due within one year |
5,834.4 | 6,267.1 | ||||||
|
||||||||
Total Capitalization |
10,914.9 | 11,264.4 | ||||||
|
||||||||
Current Liabilities |
||||||||
Current portion of long-term debt |
750.8 | 327.3 | ||||||
Short-term borrowings |
1,264.2 | 1,359.4 | ||||||
Accounts payable |
380.7 | 434.8 | ||||||
Dividends payable |
65.3 | - | ||||||
Customer deposits and credits |
215.1 | 313.6 | ||||||
Taxes accrued |
237.3 | 220.9 | ||||||
Interest accrued |
70.2 | 111.9 | ||||||
Overrecovered gas and fuel costs |
74.3 | 48.9 | ||||||
Price risk management liabilities |
180.4 | 167.8 | ||||||
Exchange gas payable |
66.3 | 168.2 | ||||||
Deferred revenue |
10.6 | 10.1 | ||||||
Regulatory liabilities |
99.9 | 112.0 | ||||||
Accrued liability for postretirement and postemployment benefits |
26.6 | 26.6 | ||||||
Legal and environmental reserves |
37.0 | 43.9 | ||||||
Other accruals |
239.7 | 301.0 | ||||||
|
||||||||
Total Current Liabilities |
3,718.4 | 3,646.4 | ||||||
|
||||||||
Other Liabilities and Deferred Credits |
||||||||
Price risk management liabilities |
94.9 | 138.9 | ||||||
Deferred income taxes |
2,650.7 | 2,541.9 | ||||||
Deferred investment tax credits |
27.9 | 29.0 | ||||||
Deferred credits |
80.7 | 78.9 | ||||||
Accrued liability for postretirement and postemployment benefits |
946.0 | 953.8 | ||||||
Regulatory liabilities and other removal costs |
1,616.2 | 1,663.9 | ||||||
Asset retirement obligations |
148.4 | 146.4 | ||||||
Other noncurrent liabilities |
247.8 | 244.7 | ||||||
|
||||||||
Total Other Liabilities and Deferred Credits |
5,812.6 | 5,797.5 | ||||||
|
||||||||
Commitments and Contingencies (Refer to Note 19) |
- | - | ||||||
|
||||||||
Total Capitalization and Liabilities |
$ | 20,445.9 | $ | 20,708.3 | ||||
|
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
9
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Condensed Statements of Consolidated Cash Flows (unaudited)
Three Months Ended March 31, (in millions) | 2012 | 2011 | ||||||
|
||||||||
Operating Activities |
||||||||
Net Income |
$ | 193.4 | $ | 209.5 | ||||
Adjustments to Reconcile Net Income to Net Cash from Continuing Operations: |
||||||||
Depreciation and amortization |
146.1 | 134.3 | ||||||
Net changes in price risk management assets and liabilities |
24.9 | 14.3 | ||||||
Deferred income taxes and investment tax credits |
92.2 | 102.3 | ||||||
Deferred revenue |
0.5 | 0.7 | ||||||
Stock compensation expense and 401(k) profit sharing contribution |
8.9 | 7.8 | ||||||
Gain on sale of assets |
(1.6 | ) | - | |||||
Loss on impairment of assets |
- | 0.7 | ||||||
Income from unconsolidated affiliates |
(6.6 | ) | (3.1) | |||||
Loss (Gain) from discontinued operations - net of taxes |
0.1 | (0.4) | ||||||
Amortization of debt related costs |
2.3 | 2.1 | ||||||
AFUDC equity |
(1.0 | ) | (1.4) | |||||
Distributions of earnings received from equity investees |
12.9 | 1.8 | ||||||
Changes in Assets and Liabilities: |
||||||||
Accounts receivable |
127.9 | 16.0 | ||||||
Income tax receivable |
0.2 | 78.6 | ||||||
Inventories |
211.2 | 208.5 | ||||||
Accounts payable |
(41.3 | ) | (119.9) | |||||
Customer deposits and credits |
(98.5 | ) | (136.5) | |||||
Taxes accrued |
16.6 | 24.1 | ||||||
Interest accrued |
(41.7 | ) | (53.0) | |||||
Overrecovered gas and fuel costs |
31.1 | 191.0 | ||||||
Exchange gas receivable/payable |
(113.4 | ) | (129.6) | |||||
Other accruals |
(54.3 | ) | (34.0) | |||||
Prepayments and other current assets |
(4.7 | ) | 1.3 | |||||
Regulatory assets/liabilities |
(1.2 | ) | 15.2 | |||||
Postretirement and postemployment benefits |
(6.9 | ) | (94.4) | |||||
Deferred credits |
2.6 | 3.5 | ||||||
Deferred charges and other noncurrent assets |
(23.3 | ) | (3.6) | |||||
Other noncurrent liabilities |
4.0 | 1.0 | ||||||
|
||||||||
Net Operating Activities from Continuing Operations |
480.4 | 436.8 | ||||||
Net Operating Activities used for Discontinued Operations |
(0.4 | ) | (14.7) | |||||
|
||||||||
Net Cash Flows from Operating Activities |
480.0 | 422.1 | ||||||
|
||||||||
Investing Activities |
||||||||
Capital expenditures |
(292.6 | ) | (209.4) | |||||
Proceeds from disposition of assets |
2.1 | 5.5 | ||||||
Restricted cash withdrawals |
11.5 | 38.0 | ||||||
Contributions to equity investees |
(5.3 | ) | - | |||||
Other investing activities |
(10.4 | ) | (9.2) | |||||
|
||||||||
Net Cash Flow used for Investing Activities |
(294.7 | ) | (175.1) | |||||
|
||||||||
Financing Activities |
||||||||
Retirement of long-term debt |
(5.9 | ) | (2.8) | |||||
Premiums and other debt related costs |
- | (8.2) | ||||||
Change in short-term borrowings, net |
(94.8 | ) | (119.5) | |||||
Issuance of common stock |
17.4 | 3.7 | ||||||
Acquisition of treasury stock |
(9.9 | ) | (2.7) | |||||
Dividends paid - common stock |
(65.1 | ) | (64.2) | |||||
|
||||||||
Net Cash Flow used for Financing Activities |
(158.3 | ) | (193.7) | |||||
|
||||||||
Change in cash and cash equivalents from continuing operations |
27.4 | 68.0 | ||||||
Cash contributions to discontinued operations |
(0.4 | ) | (14.7) | |||||
Cash and cash equivalents at beginning of period |
11.5 | 9.2 | ||||||
|
||||||||
Cash and Cash Equivalents at End of Period |
$ | 38.5 | $ | 62.5 | ||||
|
The accompanying Notes to Condensed Consolidated Financial Statements (unaudited) are an integral part of these statements.
10
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. Basis of Accounting Presentation
The accompanying unaudited condensed consolidated financial statements for NiSource (the Company) reflect all normal recurring adjustments that are necessary, in the opinion of management, to present fairly the results of operations in accordance with GAAP in the United States of America.
The accompanying financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in NiSources Annual Report on Form 10-K for the fiscal year ended December 31, 2011. Income for interim periods may not be indicative of results for the calendar year due to weather variations and other factors.
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although NiSource believes that the disclosures made are adequate to make the information not misleading.
Immaterial Restatement
As indicated in NiSources Annual Report on Form 10-K for the fiscal year ended December 31, 2011, NiSource made correcting adjustments to its historical financial statements including for the first quarter of 2011 relating to deferred revenue, environmental asset recovery and OPEB over-reimbursement. NiSource does not believe that these corrections, individually or in the aggregate, are material to its financial statements (unaudited) for the quarterly period ended March 31, 2011. For additional information on these corrections, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, and Note 26, Quarterly Financial Data (Unaudited), of the Consolidated Financial Statements of NiSources Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
The following table sets forth the effects of the correcting adjustments to Net Income for the three months ended March 31, 2011:
Increase/(Decrease) in Net Income (in millions) | Three Months Ended March 31, 2011 |
|||
Previously reported Net Income |
$ | 205.2 | ||
Deferred revenue |
(0.6 | ) | ||
Environmental asset recovery |
8.0 | |||
OPEB over-reimbursement |
(0.2 | ) | ||
Total corrections |
7.2 | |||
Income taxes |
2.9 | |||
Corrected Net Income |
$ | 209.5 |
11
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited)
The following table sets forth the effects of the correcting adjustments on affected line items within the Condensed Statement of Consolidated Income (unaudited) for the three months ended March 31, 2011:
Condensed Statements of Consolidated Income (unaudited)
Three Months ended March 31, 2011 |
||||||||
(in millions, except per share amounts) | As Previously Reported |
As Corrected | ||||||
Net Revenues |
||||||||
Electric |
$ | 347.1 | $ | 346.5 | ||||
Gross Revenues |
2,232.2 | 2,231.6 | ||||||
Total Net Revenues |
1,061.3 | 1,060.7 | ||||||
Operation and maintenance |
432.5 | 429.3 | ||||||
Depreciation and amortization |
138.9 | 134.3 | ||||||
Total Operating Expenses |
665.1 | 657.3 | ||||||
Operating Income |
399.2 | 406.4 | ||||||
Income from Continuing Operations before Income Taxes |
312.7 | 319.9 | ||||||
Income Taxes |
107.9 | 110.8 | ||||||
Income from Continuing Operations |
204.8 | 209.1 | ||||||
Net Income |
$ | 205.2 | $ | 209.5 | ||||
|
||||||||
Basic Earnings Per Share ($) |
||||||||
Continuing operations |
$ | 0.73 | $ | 0.75 | ||||
Basic Earnings Per Share |
$ | 0.73 | $ | 0.75 | ||||
Diluted Earnings Per Share ($) |
||||||||
Continuing operations |
$ | 0.72 | $ | 0.73 | ||||
Diluted Earnings Per Share |
$ | 0.72 | $ | 0.73 |
These corrections affected certain line items within net cash flows from operating activities on the Condensed Statement of Consolidated Cash Flows (unaudited) for the three months ended March 31, 2011, with no net effect on total net cash flows from operating activities.
2. Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
Comprehensive Income. In June 2011, the FASB issued Accounting Standards Update 2011-05, which revises the manner in which entities present comprehensive income in their financial statements. The new guidance removes the presentation options in ASC 220 and requires entities to report components of comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements. The update does not change the items that must be reported in other comprehensive income. In December 2011, the FASB issued Accounting Standards Update 2011-12, which indefinitely defers the requirement to present reclassification adjustments out of accumulated other comprehensive income by component in both the Condensed Statements of Consolidated Income (unaudited) and the Condensed Statements of Consolidated Comprehensive Income (unaudited), as required by Accounting Standards Update 2011-05. For public entities, these updates are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. NiSource adopted the guidance on January 1, 2012 by presenting the Condensed Statements of Consolidated Income (unaudited) and the Condensed Statements of Consolidated Comprehensive Income (unaudited) as two separate statements.
12
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Recently Issued Accounting Pronouncements
Balance Sheet Disclosure. In December 2011, the FASB issued Accounting Standards Update 2011-11, which requires additional disclosures regarding the nature of an entitys rights to offset positions associated with its financial and derivative instruments. These new disclosures will provide additional information about the entitys gross and net financial exposure. The amendment is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013 with retrospective application required. NiSource is currently reviewing the provisions of this new standard to determine the impact on its Condensed Consolidated Financial Statements (unaudited) and Notes to Condensed Consolidated Financial Statements (unaudited).
Goodwill Impairment. In September 2011, the FASB issued Accounting Standards Update 2011-08, which gives entities testing goodwill for impairment the option of performing a qualitative assessment before calculating the fair value of a reporting unit for the goodwill impairment test. The amendment is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. As NiSource performs its annual Goodwill impairment test during the second quarter of its fiscal year, NiSource is currently reviewing the provisions of this new standard to determine if it will elect the option for the second quarter of 2012.
3. Earnings Per Share
Basic EPS is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The weighted average shares outstanding for diluted EPS includes the incremental effects of the various long-term incentive compensation plans and the Forward Agreements (refer to Note 4 Forward Equity Agreement for additional information). The calculation of diluted earnings per share for March 31, 2012 and 2011 excludes out-of-the-money stock options of 2.1 million and 3.5 million, respectively, which had an anti-dilutive effect. The numerator in calculating both basic and diluted EPS for each period is reported net income. The computation of diluted average common shares follows:
Three Months Ended March 31, (in thousands) | 2012 | 2011 | ||||||
Denominator |
||||||||
Basic average common shares outstanding |
282,925 | 279,339 | ||||||
Dilutive potential common shares |
||||||||
Nonqualified stock options |
126 | - | ||||||
Shares contingently issuable under employee stock plans |
158 | 1,112 | ||||||
Shares restricted under stock plans |
615 | 317 | ||||||
Forward agreements |
9,275 | 4,203 | ||||||
Diluted Average Common Shares |
293,099 | 284,971 |
4. Forward Equity Agreement
On September 14, 2010, NiSource and Credit Suisse Securities (USA) LLC, as forward seller, closed an underwritten registered public offering of 24,265,000 shares of NiSources common stock. All of the shares sold were borrowed and delivered to the underwriters by the forward seller. NiSource did not receive any of the proceeds from the sale of the borrowed shares, but NiSource will receive proceeds upon settlement of the Forward Agreements referred to below.
In connection with the public offering, NiSource entered into forward sale agreements (Forward Agreements) with an affiliate of the forward seller covering an aggregate of 24,265,000 shares of NiSources common stock. Settlement of the Forward Agreements is expected to occur no later than September 10, 2012. Subject to certain exceptions, NiSource may elect cash or net share settlement for all or a portion of its obligations under the Forward Agreements. Upon any physical settlement of the Forward Agreements, NiSource will deliver shares of its common stock in exchange for cash proceeds at the forward sale price, which initially is $15.9638 and is subject to adjustment as provided in the Forward Agreements. If the equity forward had been settled by delivery of shares at March 31, 2012, NiSource would have received approximately $351.2 million based on a forward price of $14.4744 for the 24,265,000 shares. NiSource currently anticipates settling the equity forward by delivering shares.
13
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
In accordance with ASC 815-40, NiSource has classified the Forward Agreement as an equity transaction. As a result of this classification, no amounts have been recorded in the Condensed Consolidated Financial Statements (unaudited) as of and for the three months ended March 31, 2012 and the year ended December 31, 2011 in connection with the Forward Agreements. The only impact to the Condensed Consolidated Financial Statements (unaudited) is the inclusion of incremental shares within the calculation of fully diluted EPS under the treasury stock method. Refer to Note 3, Earnings Per Share, for additional information.
5. Gas in Storage
Both the LIFO inventory methodology and the weighted average cost methodology are used to value natural gas in storage. Gas Distribution Operations price natural gas storage injections at the average of the costs of natural gas supply purchased during the year. For interim periods, the difference between current projected replacement cost and the LIFO cost for quantities of gas temporarily withdrawn from storage is recorded as a temporary LIFO liquidation credit or debit within the Condensed Consolidated Balance Sheets (unaudited). Due to seasonality requirements, NiSource expects interim variances in LIFO layers to be replenished by year-end. NiSource has a temporary LIFO liquidation debit of $21.7 million recorded for the three months ended March 31, 2012 for certain gas distribution companies recorded within Prepayments and other, on the Condensed Consolidated Balance Sheets (unaudited).
6. Discontinued Operations and Assets and Liabilities Held for Sale
There were no significant assets or liabilities of discontinued operations and held for sale on the Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011.
Results from discontinued operations, which primarily arise from changes in estimate for certain liabilities for NiSources former exploration and production subsidiary, CER, are provided in the following table:
Three Months Ended March 31, (in millions) | 2012 | 2011 | ||||||
Revenues from Discontinued Operations |
$ | - | $ | - | ||||
(Loss) Income from discontinued operations |
(0.2 | ) | 0.6 | |||||
Income tax (benefit) expense |
(0.1 | ) | 0.2 | |||||
(Loss) Income from Discontinued Operations - net of taxes |
$ | (0.1 | ) | $ | 0.4 | |||
Gain on Disposition of Discontinued Operations - net of taxes |
$ | - | $ | - |
7. Asset Retirement Obligations
Certain costs of removal that have been, and continue to be, included in depreciation rates and collected in the service rates of the rate-regulated subsidiaries are classified as Regulatory liabilities and other removal costs on the Condensed Consolidated Balance Sheets (unaudited).
Changes in NiSources liability for asset retirement obligations for the three months ended March 31, 2012 and 2011 are presented in the table below:
(in millions) | 2012 | 2011 | ||||||
Balance as of January 1, |
$ | 146.4 | $ | 138.8 | ||||
Accretion expense |
0.2 | 0.2 | ||||||
Accretion recorded as a regulatory asset/liability |
2.1 | 1.7 | ||||||
Settlements |
(0.3 | ) | (0.6 | ) | ||||
Balance as of March 31, |
$ | 148.4 | $ | 140.1 |
14
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
8. Regulatory Matters
Gas Distribution Operations Regulatory Matters
Significant Rate Developments. On June 27, 2011, Northern Indiana filed a settlement agreement with the IURC in which regulatory stakeholders agreed that Northern Indiana should adopt the WACOG accounting methodology instead of LIFO, Northern Indianas historical method. On August 31, 2011, the IURC approved the settlement and Northern Indiana transitioned to WACOG accounting methodology beginning January 1, 2012.
On March 15, 2012, the IURC approved a settlement agreement with Northern Indiana and all participating parties to extend its product and services contained in its current gas ARP indefinitely.
On January 14, 2011, Columbia of Pennsylvania filed a base rate case with the Pennsylvania PUC, seeking a revenue increase of approximately $37.8 million annually. The parties jointly filed a petition for approval of a partial settlement on July 1, 2011. The partial settlement resolved all issues except residential rate design and a challenge to the structure of one of Columbia of Pennsylvanias customer programs. The settlement provides for an annual revenue increase of $17 million. The Pennsylvania PUC issued an order on October 14, 2011 approving the annual revenue increase of $17 million. New rates went into effect on October 18, 2011. The Pennsylvania PUCs ruling increased the minimum residential customer charge from $12.25 to $18.73, which includes an allowance for 20 Ccf of distribution charges. However, the customer pays for gas commodity on all usage.
On November 12, 2010, Columbia of Pennsylvania filed a petition for an order authorizing the company to revise its accounting methodology for the gas it holds in storage. Columbia of Pennsylvania had historically used Last-In First-Out (LIFO) accounting but sought permission to move to a Weighted Average Cost of Gas (WACOG) accounting methodology as a means of simplifying regulatory accounting and to realize the value of low-cost gas injected into storage decades ago. On February 4, 2011, Columbia of Pennsylvania filed a settlement agreement with the Pennsylvania PUC in which regulatory stakeholders agreed that Columbia of Pennsylvania should adopt the WACOG accounting methodology and provide the benefit of the low-cost gas supplies to its customers. On March 31, 2011, the Pennsylvania PUC approved the settlement and Columbia of Pennsylvania began to provide the projected benefit as a credit to its customers as a reduction to the Gas Cost Recovery rate. The credit to customers of $43.8 million was totally refunded by September 2011.
On September 29, 2010, Columbia of Pennsylvania filed tariff modifications with the Pennsylvania PUC, seeking permission to apply a BTU content billing adjustment to customers metered volumetric consumption. The filing sought to account for high BTU content gas that is produced from Marcellus Shale, which burns hotter than gas from other sources, resulting in lower volumes than assumed in the design of the Columbia of Pennsylvanias rates. The proposed billing adjustment was designed to produce revenues reflective of the BTU content underlying the demand forecast in the design of Columbia of Pennsylvanias most recently approved base rates by synchronizing the BTU content used for billing with the BTU content used for rate design. If the billing adjustment had been in place for the twelve months ended June 30, 2010, it would have produced additional revenues of approximately $3.7 million due to the difference between the BTU value used in the design of the recently approved rates and the actual BTU value at the time of billing. By an Order entered on January 26, 2011, the Pennsylvania PUC consolidated this matter with Columbia of Pennsylvanias base rate case filed on January 14, 2011. As described above, on October 14, 2011, the Pennsylvania PUC approved a partial settlement of the base rate case. The partial settlement resolved the issue of BTU content whereby the parties agreed that Columbia of Pennsylvania would convert from usage-based billing to heat content billing by no later than the June 2012 billing cycle. Columbia of Pennsylvania began heat content billing, with a therm billing unit, on January 31, 2012.
On May 19, 2008 Columbia of Ohio filed an application with the PUCO to defer environmental remediation expenses. On September 24, 2008, the PUCO approved the application. Each year COH must report on the amounts deferred during the previous year. On December 6, 2011, COH filed its annual deferral report for the twelve months ended November 30, 2011. PUCO Staff filed its Comments on January 5, 2012, and objected to deferral of costs for a Toledo remediation project. As suggested by PUCO Staff, Columbia of Ohio capitalized $2.4 million in costs associated with the Toledo project which will be proposed for recovery as a component of future rate base.
15
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Columbia of Massachusetts filed an application to implement its Targeted Infrastructure Reinvestment Factor (TIRF) on April 30, 2010. On October 29, 2010, the Massachusetts DPU approved Columbia of Massachusetts proposed adjustment factor, to take effect November 1, 2010, subject to further investigation and reconciliation. On April 29, 2011, Columbia of Massachusetts filed its second annual application of its TIRF tracker for DPU approval for new rates to go into effect November 1, 2011. On October 31, 2011, the Massachusetts DPU approved Columbia of Massachusetts proposed adjustment factor subject to further investigation and reconciliation. On September 16, 2010, Columbia of Massachusetts filed a petition for approval to implement its first semi-annual revenue decoupling adjustment factor (RDAF) for the Peak Period. That adjustment, which took effect on November 1, 2010, subject to further review and reconciliation, was approved by the DPU on March 23, 2011. Columbia of Massachusetts filed its application for approval of its Off-peak Period RDAF on March 15, 2011. The rate took effect on May 1, 2011, subject to further review and reconciliation by the DPU. On September 15, 2011, Columbia of Massachusetts filed a petition for approval of its second Peak Period RDAF, with a proposed effective date of November 1, 2011. On October 31, 2011, the Massachusetts DPU approved Columbia of Massachusetts proposed adjustment factor subject to further investigation and reconciliation. On March 19, 2012, Columbia of Massachusetts filed its Off-Peak RDAF to take effect May 1, 2012. The filing is under review by the Massachusetts DPU.
On April 13, 2012, Columbia of Massachusetts submitted a filing with the Massachusetts DPU requesting an annual revenue requirement increase of $29.2 million. Columbia of Massachusetts filed using a historic test year ending December 31, 2011. Additionally, Columbia of Massachusetts proposed rate-year, rate base treatment, as well as modification to the TIRF. The rate-year, rate base treatment has been proposed to reduce the impact of regulatory lag. An order is expected later this year, with new rates going into effect on November 1, 2012.
On January 30, 2009, Columbia of Ohio filed an application with the PUCO to implement a gas supply auction. The auction replaced Columbia of Ohios current GCR mechanism for providing commodity gas supplies to its sales customers. By Order dated December 2, 2009, the PUCO approved a stipulation that resolved all issues in the case. Pursuant to the stipulation, Columbia of Ohio conducted two consecutive one-year long standard service offer auction periods starting April 1, 2010 and April 1, 2011. On February 23, 2010, Columbia of Ohio held the first standard service offer auction which resulted in a final retail price adjustment of $1.93 per Mcf. On February 24, 2010 the PUCO issued an entry that approved the results of the auction and directed Columbia of Ohio to proceed with the implementation of the standard service offer process. On February 8, 2011, Columbia of Ohio held its second standard service offer auction which resulted in a retail price adjustment of $1.88 per Mcf. On February 9, 2011, the PUCO issued an entry that approved the results of the auction with the new retail price adjustment to become effective April 1, 2011. Several parties challenged the transition from a standard service offer auction to a standard choice offer auction and on September 7, 2011, the PUCO issued an Order authorizing Columbia of Ohio to implement a standard choice offer auction in February 2012. On October 7, 2011, the OCC filed an application for rehearing of the PUCOs Order. By Entry on Rehearing dated November 1, 2011, the PUCO denied the OCCs Application for Rehearing. On February 14, 2012, Columbia of Ohio held its first standard choice offer auction which resulted in a retail price adjustment of $1.53 per Mcf. On February 14, 2012, the PUCO issued an entry that approved the results of the auction with the new retail price adjustment to become effective April 1, 2012. With the implementation of the standard choice offer, Columbia of Ohio will report lower gross revenues and lower cost of sales. There is no impact on net revenues.
On October 3, 2011, Columbia of Ohio filed an application with PUCO, requesting authority to defer incurred charges to a regulatory asset for debt-based post-in-service carrying charges, depreciation and property taxes associated with Columbia of Ohios capital program. Interested parties filed comments on Columbia of Ohios application by February 17, 2012. Columbia of Ohio filed Reply Comments on February 27, 2012.
On November 30, 2011 Columbia of Ohio filed a Notice of Intent to file an application to adjust rates associated with Rider IRP and Rider DSM. On February 28, 2012, Columbia of Ohio filed its application to adjust rates associated with IRP and DSM Riders. The DSM Rider tracks and recovers costs associated with Columbia of Ohios energy efficiency and conservation programs. The application sought to increase the annual revenue from the riders by approximately $27.9 million. On April 10, 2012, Columbia of Ohio reached a settlement with parties allowing for an increase in annual revenue from the Riders of approximately $27 million. It is anticipated that the PUCO will approve the settlement to become effective May 1, 2012.
16
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
On December 9, 2011 Columbia of Ohio filed a Notice of Intent to file an application to extend its Infrastructure Replacement Program. On January 6, 2012, the OCC filed a Memorandum Contra, arguing that Columbia of Ohios base rates should be reviewed as part of the IRP extension process. Columbia of Ohio filed a Reply Memorandum on January 11, 2012. Columbia of Ohio filed an amended Notice of Intent and an amended Motion for Waiver on March 5, 2012.
On April 19, 2012, Columbia of Ohio filed an application that requests authority to increase its uncollectible expense rider rate in order to generate an additional $14.6 million in annual revenue in order to offset anticipated increases in uncollectible expenses.
Cost Recovery and Trackers. A significant portion of the distribution companies revenue is related to the recovery of gas costs, the review and recovery of which occurs via standard regulatory proceedings. All states require periodic review of actual gas procurement activity to determine prudence and to permit the recovery of prudently incurred costs related to the supply of gas for customers. NiSource distribution companies have historically been found prudent in the procurement of gas supplies to serve customers.
Certain operating costs of the NiSource distribution companies are significant, recurring in nature, and generally outside the control of the distribution companies. Some states allow the recovery of such costs via cost tracking mechanisms. Such tracking mechanisms allow for abbreviated regulatory proceedings in order for the distribution companies to implement charges and recover appropriate costs. Tracking mechanisms allow for more timely recovery of such costs as compared with more traditional cost recovery mechanisms. Examples of such mechanisms include GCR adjustment mechanisms, tax riders, and bad debt recovery mechanisms.
Comparability of Gas Distribution Operations line item operating results is impacted by regulatory trackers that allow for the recovery in rates of certain costs such as bad debt expenses. Increases in the expenses that are the subject of trackers, result in a corresponding increase in net revenues and therefore have essentially no impact on total operating income results.
Certain of the NiSource distribution companies have completed rate proceedings involving infrastructure replacement or are embarking upon regulatory initiatives to replace significant portions of their operating systems that are nearing the end of their useful lives. Each LDCs approach to cost recovery may be unique, given the different laws, regulations and precedent that exist in each jurisdiction.
Gas Transmission and Storage Operations Regulatory Matters
Columbia Gulf Rate Case. On October 28, 2010, Columbia Gulf filed a rate case with the FERC, proposing a rate increase and tariff changes. Among other things, the filing proposed a revenue increase of approximately $50 million to cover increases in the cost of services, which includes adjustments for operation and maintenance expenses, capital investments, adjustments to depreciation rates and expense, rate of return, and increased federal, state and local taxes. On November 30, 2010, the FERC issued an Order allowing new rates to become effective by May 2011, subject to refund. Columbia Gulf placed new rates into effect, subject to refund, on May 1, 2011. Columbia Gulf and the active parties to the case negotiated a settlement, which was filed with the FERC on September 9, 2011. On September 30, 2011, the Chief Judge severed the issues relating to a contesting party for separate hearing and decision. On October 4, 2011, the Presiding Administrative Law Judge certified the settlement agreement as uncontested to the FERC with severance of the contesting party from the settlement. On November 1, 2011, Columbia Gulf began billing interim rates to customers. On December 1, 2011, the FERC issued an order approving the settlement without change. The key elements of the settlement, which was a black box agreement, include: (1) increased base rate to $0.1520 per Dth and (2) establishing a postage stamp rate design. No protests to the order were filed and therefore, pursuant to the Settlement, the order became final on January 1, 2012 which made the settlement effective on February 1, 2012. On February 2, 2012, the Presiding Administrative Law Judge issued an initial decision granting a joint motion terminating the remaining litigation with the contesting party and allowing it to become a settling party. The FERC issued an order on March 15, 2012, affirming the initial decision, which terminated the remaining litigation with the contesting party. Refunds of approximately $16 million, accrued as of December 31, 2011, were disbursed to settling parties in March 2012.
17
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Electric Operations Regulatory Matters
Significant Rate Developments. On July 18, 2011, Northern Indiana filed with the IURC a settlement in its 2010 Electric Rate Case with the OUCC, Northern Indiana Industrial Group, NLMK Indiana and Indiana Municipal Utilities Group. The settlement agreement limited the proposed base rate impact to the residential customer class to a 4.5% increase. The parties have also agreed to a rate of return of 6.98% based upon a 10.2% return on equity. The settlement also resolves all pending issues related to compliance with the August 25, 2010 Order in the 2008 Electric Rate Case. On December 21, 2011, the IURC issued an Order approving the Settlement Agreement as filed, and new electric base rates became effective on December 27, 2011. On January 20, 2012, the City of Hammond filed an appeal of the IURCs December 21, 2011 Order. That appeal is pending.
During 2002, Northern Indiana settled certain regulatory matters related to an electric rate review. On September 23, 2002, the IURC issued an Order adopting most aspects of the settlement. The Order approving the settlement provided that certain electric customers of Northern Indiana would receive bill credits of approximately $55.1 million each year. The credits continued at approximately the same annual level and per the same methodology, until the IURC approval and implementation of new customer rates, which occurred on December 27, 2011. A final reconciliation of the credits will occur in a future fuel cost filing according to the terms of the approved settlement in the 2010 Electric Rate Case. Credits amounting to $(0.9) million and $13.0 million were recognized for electric customers for the first quarter of 2012 and 2011, respectively.
On December 9, 2009, the IURC issued an Order in its generic DSM investigation proceeding establishing an overall annual energy savings goal of 2% to be achieved by Indiana jurisdictional electric utilities in 10 years, with interim savings goals established in years one through nine. On May 25, 2011, the IURC issued an Order approving a tracker mechanism to recover the costs associated with these energy efficiency programs. On July 27, 2011, the IURC issued an Order approving the energy efficiency programs. On February 1, 2012, Northern Indiana submitted a petition to the IURC to recover lost margins, and an evidentiary hearing is scheduled for July 31, 2012.
Cost Recovery and Trackers. A significant portion of Northern Indianas 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, a standard, quarterly, summary regulatory proceeding in Indiana.
As part of a multi-state effort to strengthen the electric transmission system serving the Midwest, Northern Indiana anticipates making an investment in a new, 100-mile, 345-kilovolt transmission project in northern Indiana. The project, a major new transmission system improvement reviewed and authorized by the MISO, is scheduled to be in service during the latter part of the decade. On March 16, 2012, Northern Indiana filed with the FERC for incentives for this transmission project, including all construction work in progress in rate base. Northern Indiana has also been identified by the MISO as one of two Transmission Owners to invest in another project. On February 8, 2012, Pioneer Transmission, LLC filed a complaint with the FERC, seeking to obtain 100 percent of the investment rights in this second project. The last Response was filed by Northern Indiana on March 27, 2012.
In the Order issued on August 25, 2010, the IURC approved an RTO tracker for recovery of MISO non-fuel costs and revenues and off-system sales sharing and ordered that purchased power costs and fuel-related MISO charge types be recovered in the FAC. The IURC also approved a purchase capacity tracker referred to as the RA Tracker. Similar treatment was requested in the 2010 Electric Rate Case filing and approved in the December 21, 2011 Order approving the Settlement Agreement. The implementation of such trackers coincides with the implementation of new customer rates. Northern Indiana made its first filings for recovery of costs under the RTO and RA mechanisms on February 2, 2012. The RTO filing also seeks authorization from the IURC to retain certain revenues under MISO Schedule 26-A to support investments in Northern Indianas Multi-Value Projects under MISOs 2011 transmission expansion plan. On April 10, 2012, the IURC approved a procedural schedule to consider the retention of MISO Schedule 26-A revenues. The hearing date is set for May 14, 2012.
As part of the August 25, 2010 Order, a new purchase power benchmark became effective. This purchase power benchmark superseded the one made effective by a settlement in October 2007. The benchmark is based upon the costs of power generated by a hypothetical natural gas fired unit using gas purchased and delivered to Northern Indiana. During the quarters ended March 31, 2012 and 2011, no purchased power costs exceeded the benchmark.
18
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
On March 22, 2011, Northern Indiana filed a petition with the IURC for a certificate of public convenience and necessity and associated relief for the construction of additional environmental projects required to comply with the NOV consent decree lodged in the United States District Court for the Northern District of Indiana on January 13, 2011. Refer to Note 19-C, Environmental Matters, for additional information. This petition has since been trifurcated into three separate phases. On December 28, 2011, the IURC issued an order for the Phase I projects estimated to cost $500 million and granting the requested ratemaking and accounting relief associated with these Phase I projects. On February 15, 2012, the IURC issued an order for the Phase II projects. The proposed construction of a FGD unit on Michigan City Generating Station Unit 12 is the subject of Phase III of this proceeding. On February 14, 2012, the IURC issued a procedural schedule for the Phase III projects, which includes an evidentiary hearing scheduled on May 10, 2012.
On February 7, 2012, Northern Indiana filed ECR-19 and EER-9, the filing implementing the ECT, which included $109.6 million of net capital expenditures and operation and maintenance and depreciation expenses of $32.6 million for the period ended December 31, 2011.
9. Risk Management Activities
NiSource is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are commodity price risk and interest rate risk. Derivative natural gas contracts are entered into to manage the price risk associated with natural gas price volatility and to secure forward natural gas prices. Interest rate swaps are entered into to manage interest rate risk associated with NiSources fixed-rate borrowings. NiSource designates some of its commodity forward contracts as cash flow hedges of forecasted purchases of commodities and designates its interest rate swaps as fair value hedges of fixed-rate borrowings. Additionally, certain NiSource subsidiaries enter into forward physical contracts with various third parties to procure or sell natural gas or power. Certain forward physical contracts are derivatives which qualify for the normal purchase and normal sales exception which do not require mark-to-market accounting.
Accounting Policy for Derivative Instruments. The ASC topic on accounting for derivatives and hedging requires an entity to recognize all derivatives as either assets or liabilities on the Consolidated Balance Sheets at fair value, unless such contracts are exempted such as a normal purchase and normal sale contract under the provisions of the ASC topic. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and resulting designation.
NiSource uses a variety of derivative instruments (exchange traded futures and options, physical forwards and options, basis contracts, financial commodity swaps, and interest rate swaps) to effectively manage its commodity price risk and interest rate risk exposure. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or (b) a hedge of the exposure to variable cash flows of a forecasted transaction. In order for a derivative contract to be designated as a hedge, the relationship between the hedging instrument and the hedged item or transaction must be highly effective. The effectiveness test is performed at the inception of the hedge and each reporting period thereafter, throughout the period that the hedge is designated. Any amounts determined to be ineffective are recognized currently in earnings. For derivative contracts that qualify for the normal purchase and normal sales exception, a contracts fair value is not recognized in the Consolidated Financial Statements until the contract is settled.
Unrealized and realized gains and losses are recognized each period as components of AOCI, regulatory assets and liabilities or earnings depending on the designation of the derivative instrument. For subsidiaries that utilize derivatives for cash flow hedges, the effective portions of the gains and losses are recorded to AOCI and are recognized in earnings concurrent with the disposition of the hedged risks. If a forecasted transaction corresponding to a cash flow hedge is no longer probable to occur, the accumulated gains or losses on the derivative are recognized currently in earnings. For fair value hedges, the gains and losses are recorded in earnings each period together with the change in the fair value of the hedged item. As a result of the rate-making process, the rate-regulated subsidiaries generally record gains and losses as regulatory liabilities or assets and recognize such gains or losses in earnings when both the contracts settle and the physical commodity flows. These gains and losses recognized in earnings are then subsequently recovered or passed back to customers in revenues through rates. When gains and losses are recognized in earnings, they are recognized in revenues or cost of sales for derivatives that correspond to commodity risk activities and are recognized in interest expense for derivatives that correspond to interest-rate risk activities.
19
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NiSource has elected not to net fair value amounts for its derivative instruments or the fair value amounts recognized for its right to receive cash collateral or obligation to pay cash collateral arising from those derivative instruments recognized at fair value, which are executed with the same counterparty under a master netting arrangement. NiSource discloses amounts recognized for the right to reclaim cash collateral within Restricted cash and amounts recognized for the right to return cash collateral within Other accruals on the Consolidated Balance Sheets.
Commodity Price Risk Programs. NiSource and NiSources utility customers are exposed to variability in cash flows associated with natural gas purchases and volatility in natural gas prices. NiSource purchases natural gas for sale and delivery to its retail, commercial and industrial customers, and for most customers the variability in the market price of gas is passed through in their rates. Some of NiSources utility subsidiaries offer programs where variability in the market price of gas is assumed by the respective utility. The objective of NiSources commodity price risk programs is to mitigate this gas cost variability, for NiSource or on behalf of its customers, associated with natural gas purchases or sales by economically hedging the various gas cost components by using a combination of futures, options, forward physical contracts, basis swap contracts or other derivative contracts. Northern Indiana also uses derivative contracts to minimize risk associated with power price volatility. These commodity price risk programs and their respective accounting treatment are described below.
Northern Indiana, Columbia of Pennsylvania, Columbia of Kentucky, Columbia of Maryland and Columbia of Virginia use NYMEX futures and NYMEX options to minimize risk associated with gas price volatility. These derivative programs must be marked to fair value, but because these derivatives are used within the framework of the companies GCR or FAC mechanism, regulatory assets or liabilities are recorded to offset the change in the fair value of these derivatives.
Northern Indiana and Columbia of Virginia offer a fixed price program as an alternative to the standard GCR mechanism. These services provide certain customers with the opportunity to either lock in their gas cost or place a cap on the gas costs that would be charged in future months. In order to hedge the anticipated physical purchases associated with these obligations, forward physical contracts, NYMEX futures and NYMEX options are used to secure forward gas prices. The accounting treatment elected for these contracts is varied in that certain of these contracts have been accounted for as cash flow hedges while some contracts are not. The accounting treatment is based on the election of the company. The normal purchase and normal sales exception is elected for forward physical contracts associated with these programs where delivery of the commodity is probable to occur.
Northern Indiana also offers a DependaBill program to its customers as an alternative to the standard tariff rate that is charged to residential customers. The program allows Northern Indiana customers to fix their total monthly bill in future months at a flat rate regardless of gas usage or commodity cost. In order to hedge the anticipated physical purchases associated with these obligations, forward physical contracts, NYMEX futures and NYMEX options have been used to secure forward gas prices. The normal purchase and normal sales exception is elected for forward physical contracts associated with these programs where delivery of the commodity is probable to occur.
Northern Indiana enters into gas purchase contracts at first of the month prices that give counterparties the daily option to either sell an additional package of gas at first of the month prices or recall the original volume to be delivered. Northern Indiana charges a fee for this option. The changes in the fair value of these options are primarily due to the changing expectations of the future intra-month volatility of gas prices. These written options are derivative instruments, must be marked to fair value and do not meet the requirement for hedge accounting treatment. However, Northern Indiana records the related gains and losses associated with these transactions as a regulatory asset or liability.
Columbia of Kentucky, Columbia of Ohio and Columbia of Pennsylvania enter into contracts that allow counterparties the option to sell gas to them at first of the month prices for a particular month of delivery. These Columbia LDCs charge the counterparties a fee for this option. The changes in the fair value of the options are primarily due to the changing expectations of the future intra-month volatility of gas prices. These Columbia LDCs defer a portion of the change in the fair value of the options as either a regulatory asset or liability based on the regulatory customer sharing mechanisms in place, with the remaining changes in fair value recognized currently in earnings.
20
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
As part of the MISO Day 2 initiative, Northern Indiana was allocated or has purchased FTRs. These FTRs help Northern Indiana offset congestion costs due to the MISO Day 2 activity. The FTRs are marked to fair value and are not accounted for as a hedge, but since congestion costs are recoverable through the fuel cost recovery mechanism, the related gains and losses associated with marking these derivatives to market are recorded as a regulatory asset or liability. In the second quarter of 2008, MISO changed its allocation procedures from an allocation of FTRs to an allocation of ARRs, whereby Northern Indiana was allocated ARRs based on its historical use of the MISO administered transmission system. ARRs entitle the holder to a stream of revenues or charges based on the price of the associated FTR in the FTR auction, so ARRs can be used to purchase FTRs in the FTR auction. ARRs are not derivatives.
NiSource is in the process of winding down its unregulated natural gas marketing business, where gas financial contracts are utilized to economically hedge expected future gas purchases associated with forward gas agreements. These financial contracts, as well as the associated forward physical sales contracts, are derivatives and are marked-to-market with all associated gains and losses recognized to income. NiSource established a reserve of $3.5 million and $25.6 million against certain derivatives as of March 31, 2012 and December 31, 2011, respectively. This amount represents reserves related to the creditworthiness of certain customers, fair value of future cash flows, and the cost of maintaining significant amounts of restricted cash. The physical sales contracts marked-to-market had a fair value of approximately $72.9 million at March 31, 2012 and $136.8 million at December 31, 2011, while the financial derivative contracts marked-to-market had a fair value loss of $115.8 million at March 31, 2012, and $155.5 million at December 31, 2011. During the fourth quarter of 2011, NiSource recorded a reserve of $22.6 million on certain assets related to the wind down of the unregulated natural gas marketing business. During the first quarter of 2012, NiSource settled a majority of the contracts related to the reserve noted above. As a result, NiSource wrote off $43.8 million of price risk assets and recorded notes receivable of $20.7 million.
On October 31, 2011, cash and derivatives broker-dealer MF Global filed for Chapter 11 bankruptcy protection. MF Global brokered NYMEX hedges of natural gas futures on behalf of NiSource affiliates. At the date of bankruptcy, NiSource affiliates had contracts open with MF Global with settlement dates ranging from November 2011 to February 2014. On November 3, 2011, these contracts were measured at a mark-to-market loss of approximately $46.4 million. NiSource affiliates had posted initial margin to open these accounts of $6.9 million and additional maintenance margin for mark-to-market losses, for a total cash balance of $53.3 million. Within the first week after the filing, at the direction of the Bankruptcy Court, a transfer of assets was initiated on behalf of NiSource affiliates to a court-designated replacement broker for future trade activity. The existing futures positions were closed and then rebooked with the replacement broker at the new closing prices as of November 3, 2011. Initial margin on deposit at MF Global of $5.7 million was transferred to the court-designated replacement broker. The maintenance margin was retained by MF Global to offset the loss positions of the open contracts on November 3, 2011. NiSource affiliates are monitoring the activity in the bankruptcy case and have filed a proof of claim at the Courts direction. As of March 31, 2012, NiSource affiliates maintained a reserve for the $1.2 million difference between the initial margin posted with MF Global and the cash transferred to the court-designated replacement broker as a loss contingency.
21
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Commodity price risk program derivative contracted gross volumes are as follows:
March 31, 2012 | December 31, 2011 | |||||||
Commodity Price Risk Program: |
||||||||
Gas price volatility program derivatives (MMDth) |
23.3 | 26.1 | ||||||
Price Protection Service program derivatives (MMDth) |
0.5 | 1.0 | ||||||
DependaBill program derivatives (MMDth) |
0.2 | 0.3 | ||||||
Regulatory incentive program derivatives (MMDth) |
- | 0.9 | ||||||
Gas marketing program derivatives (MMDth)(a) |
16.4 | 28.5 | ||||||
Gas marketing forward physical derivatives (MMDth)(b) |
16.0 | 27.1 | ||||||
Electric energy program FTR derivatives (mw)(c) |
4,478.5 | 8,578.5 |
(a) Basis contract volumes not included in the above table were 16.5 MMDth and 15.9 MMDth as of March 31, 2012 and December 31, 2011, respectively.
(b) Basis contract volumes not included in the above table were 24.1 MMDth and 29.9 MMDth as of March 31, 2012 and December 31, 2011, respectively.
(c) Megawatt hours reported in thousands
Interest Rate Risk Activities. NiSource recognizes that the prudent and selective use of derivatives may help it to lower its cost of debt capital and manage its interest rate exposure. NiSource Finance has entered into various receive fixed and pay floating interest rate swap agreements which modify the interest rate characteristics of a portion of its outstanding long-term debt from fixed to variable rate. These interest rate swaps also serve to hedge the fair market value of NiSource Finances outstanding debt portfolio. As of March 31, 2012, NiSource had $6.6 billion of outstanding fixed rate debt, of which $500.0 million is subject to fluctuations in interest rates as a result of the fixed-to-variable interest rate swap transactions. These interest rate swaps are designated as fair value hedges. NiSource had no net gain or loss recognized in earnings due to hedging ineffectiveness for the three months ended March 31, 2012 and 2011.
On July 22, 2003, NiSource Finance entered into fixed-to-variable interest rate swap agreements in a notional amount of $500 million with four counterparties with an 11-year term. NiSource Finance receives payments based upon a fixed 5.40% interest rate and pays a floating interest amount based on U.S. 6-month BBA LIBOR plus an average of 0.78% per annum. There was no exchange of premium at the initial date of the swaps. In addition, each party has the right to cancel the swaps on July 15, 2013.
Contemporaneously with the issuance on September 16, 2005 of $1 billion of its 5.25% and 5.45% notes, maturing September 15, 2017 and 2020, respectively, NiSource Finance settled $900 million of forward starting interest rate swap agreements with six counterparties. NiSource paid an aggregate settlement payment of $35.5 million which is being amortized from AOCI to interest expense over the term of the underlying debt, resulting in an effective interest rate of 5.67% and 5.88%, respectively. As of March 31, 2012, AOCI includes $10.9 million related to forward starting interest rate swap settlement, net of tax. These derivative contracts are accounted for as a cash flow hedge.
As of March 31, 2012, NiSource holds a 47.5% interest in Millennium. As NiSource reports Millennium as an equity method investment, NiSource is required to recognize a proportional share of Millenniums OCI. NiSources proportionate share of the remaining unrealized loss associated with a settled interest rate swap is $19.4 million, net of tax, as of March 31, 2012. Millennium is amortizing the unrealized loss related to these terminated interest rate swaps into earnings using the effective interest method through interest expense as interest payments are made. NiSource records its proportionate share of the amortization as Equity Earnings in Unconsolidated Affiliates in the Condensed Statements of Consolidated Income (unaudited).
22
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NiSources location and fair value of derivative instruments on the Condensed Consolidated Balance Sheets (unaudited) were:
Asset Derivatives (in millions) | March 31, 2012 |
December 31, 2011 |
||||||
Balance Sheet Location | Fair Value (a) | Fair Value (a) | ||||||
Derivatives designated as hedging instruments |
||||||||
Interest rate risk activities |
||||||||
Price risk management assets (current) |
$ | - | $ | - | ||||
Price risk management assets (noncurrent) |
47.7 | 56.7 | ||||||
Total derivatives designated as hedging instruments |
$ | 47.7 | $ | 56.7 | ||||
Derivatives not designated as hedging instruments |
||||||||
Commodity price risk programs |
||||||||
Price risk management assets (current) |
$ | 143.1 | $ | 141.8 | ||||
Price risk management assets (noncurrent) |
67.5 | 150.0 | ||||||
Total derivatives not designated as hedging instruments |
$ | 210.6 | $ | 291.8 | ||||
Total Asset Derivatives |
$ | 258.3 | $ | 348.5 | ||||
(a) During the fourth quarter of 2011, NiSource recorded reserves of $22.6 million ($4.6 million current and $18.0 million noncurrent) on certain assets related to the wind down of the unregulated natural gas marketing business. As of March 31, 2012, $1.7 million ($1.2 million current and $0.5 million noncurrent) of these reserves remain. The non-designated price risk asset amounts above are shown gross and have not been adjusted for the reserves.
|
| |||||||
Liability Derivatives (in millions) | March 31, 2012 |
December 31, 2011 |
||||||
Balance Sheet Location | Fair Value | Fair Value | ||||||
Derivatives designated as hedging instruments |
||||||||
Commodity price risk programs |
||||||||
Price risk management liabilities (current) |
$ | 0.3 | $ | 0.4 | ||||
Price risk management liabilities (noncurrent) |
0.1 | 0.1 | ||||||
Total derivatives designated as hedging instruments |
$ | 0.4 | $ | 0.5 | ||||
Derivatives not designated as hedging instruments |
||||||||
Commodity price risk programs |
||||||||
Price risk management liabilities (current) |
$ | 180.1 | $ | 167.4 | ||||
Price risk management liabilities (noncurrent) |
94.8 | 138.8 | ||||||
Total derivatives not designated as hedging instruments |
$ | 274.9 | $ | 306.2 | ||||
Total Liability Derivatives |
$ | 275.3 | $ | 306.7 |
23
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The effect of derivative instruments on the Condensed Statements of Consolidated Income (unaudited) was:
Derivatives in Cash Flow Hedging Relationships
Three Months Ended, (in millions):
Amount of Gain Recognized in OCI on Derivative (Effective Portion) |
Location of Gain (Loss) Reclassified from AOCI |
Amount of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) |
||||||||||||||||
Derivatives in Cash Flow Hedging Relationships |
March 31, 2012 |
March 31, 2011 |
into Income (Effective Portion) |
March 31, 2012 |
March 31, 2011 |
|||||||||||||
|
||||||||||||||||||
Commodity price risk programs |
$ | 0.3 | $ | 0.5 | Cost of Sales | $ | 0.5 | $ | 0.6 | |||||||||
Interest rate risk activities |
0.4 | 0.4 | Interest expense, net | (0.7 | ) | (0.7) | ||||||||||||
|
||||||||||||||||||
Total |
$ | 0.7 | $ | 0.9 | $ | (0.2 | ) | $ | (0.1) | |||||||||
|
Three Months Ended, (in millions):
Location of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion |
Amount of Gain (Loss) Recognized in Income on Derivative (Ineffective Portion and Amount Excluded from Effectiveness Testing) |
|||||||||
Derivatives in Cash Flow Hedging | and Amount Excluded from | |||||||||
Relationships | Effectiveness Testing) | March 31, 2012 | March 31, 2011 | |||||||
|
||||||||||
Commodity price risk programs |
Cost of Sales | $ | - | $ | - | |||||
Interest rate risk activities |
Interest expense, net | - | - | |||||||
|
||||||||||
Total |
$ | - | $ | - | ||||||
|
||||||||||
It is anticipated that during the next twelve months the expiration and settlement of cash flow hedge contracts will result in income statement recognition of amounts currently classified in AOCI of approximately $0.4 million of loss, net of taxes.
Derivatives in Fair Value Hedging Relationships
Three Months Ended, (in millions)
|
| |||||||||
Derivatives in Fair Value Hedging | Location of Loss Recognized in | Amount of Loss Recognized in Income on Derivatives |
||||||||
Relationships | Income on Derivatives | March 31, 2012 | March 31, 2011 | |||||||
|
||||||||||
Interest rate risk activities |
Interest expense, net | $ | (9.0 | ) | $ | (10.3) | ||||
|
||||||||||
Total |
$ | (9.0 | ) | $ | (10.3) | |||||
|
||||||||||
Three Months Ended, (in millions)
|
| |||||||||
Hedged Item in Fair Value Hedge | Location of Gain Recognized in | Amount of Gain Recognized in Income on Related Hedged Items |
||||||||
Relationships | Income on Related Hedged Item | March 31, 2012 | March 31, 2011 | |||||||
|
||||||||||
Fixed-rate debt |
Interest expense, net | $ | 9.0 | $ | 10.3 | |||||
|
||||||||||
Total |
$ | 9.0 | $ | 10.3 | ||||||
|
24
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Derivatives not designated as hedging instruments
Three Months Ended, (in millions)
Amount of Realized/Unrealized Gain (Loss) Recognized in Income on Derivatives * |
||||||||||
Derivatives Not Designated as Hedging Instruments |
Location of Gain (Loss) Recognized in Income on Derivatives |
March 31, 2012 | March 31, 2011 | |||||||
|
||||||||||
Commodity price risk programs |
Gas Distribution revenues | $ | 0.2 | $ | (21.7) | |||||
Commodity price risk programs |
Other revenues | (1.7 | ) | 10.6 | ||||||
Commodity price risk programs |
Cost of Sales | (21.1 | ) | (2.4) | ||||||
|
||||||||||
Total |
$ | (22.6 | ) | $ | (13.5) | |||||
|
* For the amounts of realized/unrealized gain (loss) recognized in income on derivatives disclosed in the table above, losses of $19.8 million and $22.6 million for the first quarter of 2012 and 2011, respectively, were deferred as allowed per regulatory orders. These amounts will be amortized to income over future periods of up to twelve months as specified in a regulatory order.
NiSources derivative instruments measured at fair value as of March 31, 2012 and December 31, 2011 do not contain any credit-risk-related contingent features.
Certain NiSource affiliates have physical commodity purchase agreements that contain ratings triggers that require increases in collateral if the credit rating of NiSource or certain of its affiliates are rated below BBB- by Standard & Poors or below Baa3 by Moodys. These agreements are primarily for the physical purchase or sale of natural gas and electricity. The collateral requirement from a downgrade below the ratings trigger levels would amount to approximately $2.1 million. In addition to agreements with ratings triggers, there are some agreements that contain adequate assurance or material adverse change provisions that could result in additional credit support such as letters of credit and cash collateral to transact business.
NiSource had $148.2 million and $158.2 million of cash on deposit with brokers for margin requirements associated with open derivative positions reflected within Restricted cash on the Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2012 and December 31, 2011, respectively.
25
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
10. Fair Value Disclosures
A. Fair Value Measurements.
Recurring Fair Value Measurements. The following tables present financial assets and liabilities measured and recorded at fair value on NiSources Condensed Consolidated Balance Sheets (unaudited) on a recurring basis and their level within the fair value hierarchy as of March 31, 2012 and December 31, 2011:
Recurring Fair Value Measurements March 31, 2012 (in millions) |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance as of March 31, 2012 |
||||||||||||
Assets |
||||||||||||||||
Commodity Price risk management assets: | ||||||||||||||||
Physical price risk programs |
$ | - | $ | 75.3 | $ | - | $ | 75.3 | ||||||||
Financial price risk programs (a) |
133.6 | 1.6 | 0.1 | 135.3 | ||||||||||||
Interest rate risk activities |
- | 47.7 | - | 47.7 | ||||||||||||
Available-for-sale securities |
29.7 | 66.8 | - | 96.5 | ||||||||||||
Total |
$ | 163.3 | $ | 191.4 | $ | 0.1 | $ | 354.8 | ||||||||
Liabilities |
||||||||||||||||
Commodity Price risk management liabilities: | ||||||||||||||||
Physical price risk programs |
$ | - | $ | 0.7 | $ | - | $ | 0.7 | ||||||||
Financial price risk programs |
273.3 | 1.3 | - | 274.6 | ||||||||||||
Total |
$ | 273.3 | $ | 2.0 | $ | - | $ | 275.3 | ||||||||
(a) The financial price risk program amount above is shown gross and has not been adjusted for a reserve of $1.7 million on certain assets related to the wind down of the unregulated natural gas marketing business.
|
| |||||||||||||||
Recurring Fair Value Measurements December 31, 2011 (in millions) |
Quoted Prices in Active Markets for Identical Assets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
Balance as of December 31, 2011 |
||||||||||||
Assets |
||||||||||||||||
Commodity Price risk management assets: |
||||||||||||||||
Physical price risk programs |
$ | - | $ | 140.7 | $ | - | $ | 140.7 | ||||||||
Financial price risk programs (a) |
148.3 | 2.5 | 0.3 | 151.1 | ||||||||||||
Interest rate risk activities |
- | 56.7 | - | 56.7 | ||||||||||||
Available-for-sale securities |
32.9 | 63.1 | - | 96.0 | ||||||||||||
Total |
$ | 181.2 | $ | 263.0 | $ | 0.3 | $ | 444.5 | ||||||||
Liabilities |
||||||||||||||||
Commodity Price risk management liabilities: |
||||||||||||||||
Physical price risk programs |
$ | - | $ | 3.9 | $ | - | $ | 3.9 | ||||||||
Financial price risk programs |
301.1 | 1.7 | - | 302.8 | ||||||||||||
Total |
$ | 301.1 | $ | 5.6 | $ | - | $ | 306.7 |
26
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
(a) During the fourth quarter of 2011, NiSource recorded a reserve of $22.6 million on certain assets related to the wind down of the unregulated natural gas marketing business. The financial price risk program amount above is shown gross and has not been adjusted for the reserve.
Price risk management assets and liabilities include commodity exchange-traded and non-exchange-based derivative contracts. Exchange-traded derivative contracts are generally based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, and options. In certain instances, these instruments may utilize models to measure fair value. NiSource uses a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable market data by correlation or other means. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures. As of March 31, 2012 and 2011, there were no material transfers between fair value hierarchies. Additionally there were no changes in the method or significant assumptions used to estimate the fair value of NiSources financial instruments.
To determine the fair value of derivatives associated with NiSources unregulated natural gas marketing business, certain reserves were calculated. These reserves were primarily determined by evaluating the credit worthiness of certain customers, fair value of future cash flows, and the cost of maintaining restricted cash. Refer to Note 9, Risk Management Activities for additional information on price risk assets.
Price risk management assets also include fixed-to-floating interest-rate swaps, which are designated as fair value hedges, as a means to achieve NiSources targeted level of variable-rate debt as a percent of total debt. NiSource uses a calculation of future cash inflows and estimated future outflows related to the swap agreements, which are discounted and netted to determine the current fair value. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as current and projected interest rates and volatility. As they are based on observable data and valuations of similar instruments, the interest-rate swaps are categorized in Level 2 in the fair value hierarchy. Credit risk is considered in the fair value calculation of the interest rate swap.
Available-for-sale securities are investments pledged as collateral for trust accounts related to NiSources wholly-owned insurance company. Available-for-sale securities are included within Other investments in the Condensed Consolidated Balance Sheets (unaudited). Securities classified within Level 1 include U.S. Treasury debt securities which are highly liquid and are actively traded in over-the-counter markets. NiSource values corporate and mortgage-backed debt securities using a matrix pricing model that incorporates market-based information. These securities trade less frequently and are classified within Level 2. Total gains and losses from available-for-sale securities are included in other comprehensive income (loss). The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale debt securities at March 31, 2012 and December 31, 2011 were:
(in millions) | Amortized Cost |
Total Gains |
Total Losses |
Fair Value |
||||||||||||
Available-for-sale debt securities, March 31, 2012 |
||||||||||||||||
U.S. Treasury |
$ | 33.9 | $ | 1.4 | $ | - | $ | 35.3 | ||||||||
Corporate/Other |
59.5 | 1.8 | (0.1 | ) | 61.2 | |||||||||||
Total Available-for-sale debt securities |
$ | 93.4 | $ | 3.2 | $ | (0.1 | ) | $ | 96.5 |
27
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
(in millions) | Amortized Cost |
Total Gains |
Total Losses |
Fair Value |
||||||||||||
Available-for-sale debt securities, December 31, 2011 |
||||||||||||||||
U.S. Treasury |
$ | 36.7 | $ | 1.7 | $ | - | $ | 38.4 | ||||||||
Corporate/Other |
56.3 | 1.6 | (0.3 | ) | 57.6 | |||||||||||
Total Available-for-sale debt securities |
$ | 93.0 | $ | 3.3 | $ | (0.3 | ) | $ | 96.0 |
For the three months ended March 31, 2012 and 2011, the net realized gain on the sale of available-for-sale U.S. Treasury debt securities was zero and $0.1 million, respectively. For the three months ended March 31, 2012 and 2011, the net realized gain on sale of available-for-sale Corporate/Other bond debt securities was zero and $0.5 million, respectively.
The cost of maturities sold is based upon specific identification. At March 31, 2012, all of the U.S. Treasury debt securities have maturities of greater than one year. At March 31, 2012, approximately $1.2 million of Corporate/Other bonds have maturities of less than a year while the remaining securities have maturities of greater than one year.
The following tables present the fair value reconciliation of Level 3 assets and liabilities measured at fair value on a recurring basis for the three months ended March 31, 2012 and 2011:
Three Months Ended March 31, 2012 (in millions) | Other Derivatives |
|||
Balance as of January 1, 2012 |
$ | 0.3 | ||
Total gains or (losses) (unrealized/realized) |
||||
Included in regulatory assets/liabilities |
(0.2 | ) | ||
Balance as of March 31, 2012 |
$ | 0.1 | ||
Change in unrealized gains/(losses) relating to instruments still held as of March 31, 2012 |
$ | - | ||
Three Months Ended March 31, 2011 (in millions) | Other Derivatives |
|||
Balance as of January 1, 2011 |
$ | 0.2 | ||
Total gains or losses (unrealized/realized) |
||||
Included in regulatory assets/liabilities |
(0.4 | ) | ||
Purchases |
(0.4 | ) | ||
Settlements |
0.5 | |||
Balance as of March 31, 2011 |
$ | (0.1 | ) | |
Change in unrealized gains/(losses) relating to instruments still held as of March 31, 2011 |
$ | (0.9 | ) |
Non-recurring Fair Value Measurements. There were no significant non-recurring fair value measurements recorded during the three months ended March 31, 2012 and 2011.
B. Other Fair Value Disclosures for Financial Instruments. NiSource has certain financial instruments that are not measured at fair value on a recurring basis but nevertheless are recorded at amounts that approximate fair value due to their liquid or short-term nature, including cash and cash equivalents, restricted cash, accounts receivable, accounts payable, customer deposits and short-term borrowings. NiSources long-term borrowings are recorded at historical amounts unless designated as a hedged item in a fair value hedge.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value.
28
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Long-term Debt. The fair values of these securities are estimated based on the quoted market prices for the same or similar issues or on the rates offered for securities of the same remaining maturities. Certain premium costs associated with the early settlement of long-term debt are not taken into consideration in determining fair value. These fair value measurements are classified as Level 2 within the fair value hierarchy. For the quarters ending March 31, 2012 and 2011, there were no changes in the method or significant assumptions used to estimate the fair value of the financial instruments.
The carrying amount and estimated fair values of financial instruments were as follows:
(in millions) | Carrying Amount as of March 31, 2012 |
Estimated Fair Value as of March 31, 2012 |
Carrying Amount as of Dec. 31, 2011 |
Estimated Fair Value as of Dec. 31, 2011 |
||||||||||||
Long-term debt (including current portion) |
6,585.2 | 7,420.5 | 6,594.4 | 7,369.4 |
11. Transfers of Financial Assets
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term borrowings on the Condensed Consolidated Balance Sheets (unaudited). The maximum amount of debt that can be recognized related to NiSources accounts receivable programs is $515 million.
All accounts receivables sold to the commercial paper conduits are valued at face value, which approximate fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables sold is determined in part by required loss reserves under the agreements. Below is information about the accounts receivable securitization agreements entered into by NiSources subsidiaries.
On October 23, 2009, Columbia of Ohio entered into an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to CGORC, a wholly-owned subsidiary of Columbia of Ohio. CGORC, in turn, is party to an agreement with BTMU and RBS, also dated October 23, 2009, under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to commercial paper conduits sponsored by BTMU and RBS. On October 21, 2011, the agreement was renewed with an amendment increasing the maximum seasonal program limit from $200 million to $240 million. The amended agreement expires on October 19, 2012, and can be renewed if mutually agreed to by all parties. As of March 31, 2012, $161.4 million of accounts receivable had been transferred by CGORC. CGORC is a separate corporate entity from NiSource and Columbia of Ohio, with its own separate obligations, and upon a liquidation of CGORC, CGORCs obligations must be satisfied out of CGORCs assets prior to any value becoming available to CGORCs stockholder. Under the agreement, an event of termination occurs if NiSources debt rating is withdrawn by either Standard & Poors or Moodys, or falls below BB- or Ba3 at either Standard & Poors or Moodys, respectively.
On October 23, 2009, Northern Indiana entered into an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to NARC, a wholly-owned subsidiary of Northern Indiana. NARC, in turn, is party to an agreement with RBS, also dated October 23, 2009, under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to a commercial paper conduit sponsored by RBS. The maximum seasonal program limit under the terms of the agreement is $200 million. On August 31, 2011, the agreement was renewed, having a new scheduled termination date of August 29, 2012, and can be further renewed if mutually agreed to by both parties. As of March 31, 2012, $169.3 million of accounts receivable had been transferred by NARC. NARC is a separate corporate entity from NiSource and Northern Indiana, with its own separate obligations, and upon a liquidation of NARC, NARCs obligations must be satisfied out of NARCs assets prior to any value becoming available to NARCs stockholder. Under the agreement, an event of termination occurs if Northern Indianas debt rating is withdrawn by either Standard & Poors or Moodys, or falls below BB or Ba2 at either Standard & Poors or Moodys, respectively.
On March 15, 2010, Columbia of Pennsylvania entered into an agreement to sell, without recourse, substantially all of its trade receivables, as they originate, to CPRC, a wholly-owned subsidiary of Columbia of Pennsylvania. CPRC, in turn, is party to an agreement with BTMU, also dated March 15, 2010, under the terms of which it sells an undivided percentage ownership interest in its accounts receivable to a commercial paper conduit sponsored by
29
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
BTMU. The maximum seasonal program limit under the terms of the agreement is $75 million. On March 13, 2012, the agreement was renewed, having a new scheduled termination date of March 12, 2013, and can be further renewed if mutually agreed to by both parties. As of March 31, 2012, $45.9 million of accounts receivable had been transferred by CPRC. CPRC is a separate corporate entity from NiSource and Columbia of Pennsylvania, with its own separate obligations, and upon a liquidation of CPRC, CPRCs obligations must be satisfied out of CPRCs assets prior to any value becoming available to CPRCs stockholder. Under the agreement, an event of termination occurs if NiSources debt rating is withdrawn by either Standard & Poors or Moodys, or falls below BB- or Ba3 at either Standard & Poors or Moodys, respectively.
The following table reflects the gross and net receivables transferred as well as short-term borrowings related to the securitization transactions as of March 31, 2012 and December 31, 2011 for Columbia of Ohio, Northern Indiana and Columbia of Pennsylvania:
(in millions) | March 31, 2012 | December 31, 2011 | ||||||
Gross Receivables |
$ | 446.4 | $ | 510.5 | ||||
Less: Receivables not transferred |
69.8 | 278.8 | ||||||
Net receivables transferred |
$ | 376.6 | $ | 231.7 | ||||
Short-term debt due to asset securitization |
$ | 376.6 | $ | 231.7 |
For the three months ended March 31, 2012 and 2011, $1.1 million and $1.5 million of fees associated with the securitization transactions were recorded as interest expense, respectively. Columbia of Ohio, Northern Indiana and Columbia of Pennsylvania remain responsible for collecting on the receivables securitized and the receivables cannot be sold to another party.
12. Goodwill Assets
In accordance with the provisions for goodwill accounting under GAAP, NiSource tests its goodwill for impairment annually as of June 30 each year unless indicators, events, or circumstances would require an immediate review. Goodwill is tested for impairment at a level of reporting referred to as a reporting unit, which generally is an operating segment or a component of an operating segment as defined by the FASB.
NiSources goodwill assets as of March 31, 2012 were $3.7 billion pertaining primarily to the acquisition of Columbia on November 1, 2000. Of this amount, approximately $2.0 billion is allocated to Columbia Transmission Operations and $1.7 billion is allocated to Columbia Distribution Operations. In addition, Northern Indiana Gas Distribution Operations goodwill assets at March 31, 2012 related to the purchase of Northern Indiana Fuel and Light in March 1993 and Kokomo Gas in February 1992 were $18.8 million.
The test performed at June 30, 2011 indicated that the fair value of each of the reporting units that carry or are allocated goodwill exceeded their carrying values, indicating that no impairment exists under Step 1 of the annual impairment test.
NiSource considered whether there were any events or changes in circumstances subsequent to the annual test that would reduce the fair value of any of the reporting units below their carrying amounts and necessitate another goodwill impairment test. No such indicators were noted that would require goodwill impairment testing during the first quarter.
13. Income Taxes
NiSources interim effective tax rates reflect the estimated annual effective tax rates for 2012 and 2011, adjusted for tax expense associated with certain discrete items. The effective tax rates for the three months ended March 31, 2012 and 2011 were 34.7% and 34.6%, respectively. These effective tax rates differ from the Federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility rate-making, and other permanent book-to-tax differences.
30
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
On December 27, 2011, the United States Treasury Department and the IRS issued temporary and proposed regulations effective for years beginning on or after January 1, 2012 that, among other things, provided guidance on whether expenditures qualified as deductible repairs. In addition, on March 15, 2012, the IRS issued a directive to discontinue exam activity related to positions on this issue taken on original tax returns for years beginning before January 1, 2012. NiSource expects the IRS to issue guidance for the treatment of expenditures for gas transmission and distribution assets, and generation within the next twelve months. NiSource further expects that it will be more likely to adopt the procedures provided in this guidance rather than the more general rules set forth in the temporary and proposed regulations. Accordingly, NiSource management expects to adjust unrecognized tax benefits recorded in 2009 related to its change in tax accounting for repairs for gas transmission and distribution assets and generation assets in the period specific guidance for these assets is issued. As noted above, NiSource management believes that the issuance of such guidance and intent to adopt the guidance by NiSource is reasonably possible to occur within the next twelve months. In that event, NiSource will recognize a tax benefit for this issue in the amount of $80.9 million. NiSource believes these adjustments will not have a significant effect on the income statement.
There were no material changes recorded in the first quarter of 2012 to NiSources uncertain tax positions as of December 31, 2011.
14. Pension and Other Postretirement Benefits
NiSource provides defined contribution plans and noncontributory defined benefit retirement plans that cover its employees. Benefits under the defined benefit retirement plans reflect the employees compensation, years of service and age at retirement. Additionally, NiSource provides health care and life insurance benefits for certain retired employees. The majority of employees may become eligible for these benefits if they reach retirement age while working for NiSource. The expected cost of such benefits is accrued during the employees years of service. Current rates of rate-regulated companies include postretirement benefit costs, including amortization of the regulatory assets that arose prior to inclusion of these costs in rates. For most plans, cash contributions are remitted to grantor trusts.
For the three months ended March 31, 2012, NiSource has contributed $0.9 million to its pension plans and $13.1 million to its other postretirement benefit plans.
The following table provides the components of the plans net periodic benefits cost for the three months ended March 31, 2012 and 2011:
Pension Benefits | Other Postretirement Benefits |
|||||||||||||||
Three Months Ended March 31, (in millions) | 2012 | 2011 | 2012 | 2011 | ||||||||||||
|
||||||||||||||||
Components of Net Periodic Benefit Cost |
||||||||||||||||
Service cost |
$ | 9.4 | $ | 9.4 | $ | 2.8 | $ | 2.5 | ||||||||
Interest cost |
28.2 | 29.9 | 9.3 | 9.6 | ||||||||||||
Expected return on assets |
(41.1 | ) | (41.8 | ) | (6.7 | ) | (6.7) | |||||||||
Amortization of transition obligation |
- | - | 0.3 | 0.3 | ||||||||||||
Amortization of prior service cost |
0.1 | 0.1 | (0.1 | ) | (0.1) | |||||||||||
Recognized actuarial loss |
20.3 | 13.9 | 2.4 | 1.7 | ||||||||||||
|
||||||||||||||||
Total Net Periodic Benefit Costs |
$ | 16.9 | $ | 11.5 | $ | 8.0 | $ | 7.3 | ||||||||
|
For the quarters ended March 31, 2012 and 2011, pension and other postretirement benefit cost of approximately $5.6 million and $7.1 million, respectively, was capitalized as a component of plant or recognized as a regulatory asset or liability consistent with regulatory orders for certain of NiSources regulated businesses.
31
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
15. Variable Interests and Variable Interest Entities
In general, a VIE is an entity which (1) has an insufficient amount of at-risk equity to permit the entity to finance its activities without additional financial subordinated support provided by any parties, (2) whose at-risk equity owners, as a group, do not have power, through voting rights or similar rights, to direct activities of the entity that most significantly impact the entitys economic performance or (3) whose at-risk owners do not absorb the entitys losses or receive the entitys residual return. A VIE is required to be consolidated by a company if that company is determined to be the primary beneficiary of the VIE.
NiSource consolidates those VIEs for which it is the primary beneficiary. NiSource considers quantitative and qualitative elements in determining the primary beneficiary. Qualitative measures include the ability to control an entity and the obligation to absorb losses or the right to receive benefits.
NiSources analysis includes an assessment of guarantees, operating leases, purchase agreements, and other contracts, as well as its investments and joint ventures. For items that have been identified as variable interests, or where there is involvement with an identified VIE, an in-depth review of the relationship between the relevant entities and NiSource is made to evaluate qualitative and quantitative factors to determine the primary beneficiary, if any, and whether additional disclosures would be required under the current standard.
At March 31, 2012, consistent with prior periods, NiSource consolidated its low income housing real estate investments from which NiSource derives certain tax benefits. As of March 31, 2012, NiSource is a 99% limited partner with a net investment of approximately $3.0 million. Consistent with prior periods, NiSource evaluated the nature and intent of the low income housing investments when determining the primary beneficiary. NiSource concluded that it continues to be the primary beneficiary. Subject to certain conditions precedent, NiSource has the contractual right to take control of the low income housing properties. At March 31, 2012, gross assets of the low income housing real estate investments in continuing operations were $28.6 million. Current and non-current assets were $0.5 million and $28.1 million, respectively. As of March 31, 2012, NiSource has long-term debt of approximately $9.7 million as a result of consolidating these investments. However, this debt is nonrecourse to NiSource and NiSources direct and indirect subsidiaries. Approximately $0.5 million of the assets are restricted to settle the obligations of the entity.
Northern Indiana has a service agreement with Pure Air, a general partnership between Air Products and Chemicals, Inc. and First Air Partners LP, under which Pure Air provides scrubber services to reduce sulfur dioxide emissions for Units 7 and 8 at the Bailly Generating Station. Services under this contract commenced on July 1, 1992, and Northern Indiana pays for the services under a combination of fixed and variable charges. The agreement provides that, assuming various performance standards are met by Pure Air, a termination payment would be due if Northern Indiana terminated the agreement prior to the end of the twenty-year contract period. NiSource has made an exhaustive effort to obtain information needed from Pure Air to determine the status of Pure Air as a VIE. However, Northern Indiana had not been able to obtain this information and as a result, it is unclear whether Pure Air is a VIE and if Northern Indiana is the primary beneficiary. Northern Indiana will continue to request the information required to determine whether Pure Air is a VIE. Northern Indiana has no exposure to loss related to the service agreement with Pure Air.
16. Long-Term Debt
On April 5, 2012, NiSource Finance negotiated a $250.0 million three-year bank term loan with a syndicate of banks which matures on April 3, 2015. Borrowings under the term loan will have an effective cost of LIBOR plus 137 basis points.
17. Short-Term Borrowings
During June 2011, NiSource Finance implemented a new commercial paper program with a program limit of up to $500.0 million with a dealer group comprised of Barclays, Citigroup, Credit Suisse and Wells Fargo. Commercial paper issuances are supported by available capacity under NiSources $1.5 billion unsecured revolving credit facility, which expires in March 2015. At March 31, 2012, NiSource had $496.6 million of commercial paper outstanding.
32
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
On March 3, 2011, NiSource Finance entered into a new $1.5 billion four-year revolving credit facility with a syndicate of banks led by Barclays Capital. The new facility has a termination date of March 3, 2015 and replaced an existing $1.5 billion five-year credit facility which would have expired during July 2011. The purpose of the facility is to fund ongoing working capital requirements and for general corporate purposes, including supporting liquidity for NiSources commercial paper program, and provides for the issuance of letters of credit. At March 31, 2012, NiSource had $391.0 million of outstanding borrowings under this facility.
As of March 31, 2012 and December 31, 2011, NiSource had $37.5 million of stand-by letters of credit outstanding, of which $19.2 million were under the revolving credit facility.
Transfers of accounts receivable are accounted for as secured borrowings resulting in the recognition of short-term debt on the Condensed Consolidated Balance Sheet in the amount of $376.6 million and $231.7 million as of March 31, 2012 and December 31, 2011, respectively. Refer to Note 11, Transfers of Financial Assets, for additional information.
(in millions) | March 31, 2012 |
December 31, 2011 |
||||||
Commercial Paper weighted average interest rate of 1.01% at March 31, 2012 and December 31, 2011. | $ | 496.6 | $ | 402.7 | ||||
Credit facilities borrowings weighted average interest rate of 2.07% and 1.99% at March 31, 2012 and December 31, 2011, respectively | 391.0 | 725.0 | ||||||
Accounts receivable securitization facility borrowings |
376.6 | 231.7 | ||||||
Total short-term borrowings |
$ | 1,264.2 | $ | 1,359.4 |
Given their turnover is less than 90 days, cash flows related to the borrowings and repayments of the items listed above are presented net in the Condensed Statements of Consolidated Cash Flows (unaudited).
18. | Share-Based Compensation |
The stockholders approved and adopted the NiSource Inc. 2010 Omnibus Incentive Plan (the Omnibus Plan), at the Annual Meeting of Stockholders held on May 11, 2010. The Omnibus Plan provides for awards to employees and non-employee directors of incentive and nonqualified stock options, stock appreciation rights, restricted stock and restricted stock units, performance shares, performance units, cash-based awards and other stock-based awards. The Omnibus Plan provides that the number of shares of common stock of NiSource available for awards is 8,000,000 plus the number of shares subject to outstanding awards granted under either the 1994 Plan or the Director Plan (described below) that expire or terminate for any reason. No further awards are permitted to be granted under the prior 1994 Plan or the Director Plan. At March 31, 2012, there were 7,513,387 shares reserved for future awards under the Omnibus Plan.
Prior to May 11, 2010, NiSource issued long-term equity incentive grants to key management employees under a long-term incentive plan approved by stockholders on April 13, 1994 (1994 Plan). The types of equity awards previously authorized under the 1994 Plan did not significantly differ from those permitted under the Omnibus Plan.
NiSource recognized stock-based employee compensation expense of $3.2 million and $3.0 million for the three months ended March 31, 2012 and 2011, respectively, as well as related tax benefits of $1.1 million and $1.0 million.
As of March 31, 2012, the total remaining unrecognized compensation cost related to nonvested awards amounted to $25.8 million, which will be amortized over the weighted-average remaining requisite service period of 2.3 years.
Stock Options. As of March 31, 2012, approximately 2.2 million options were outstanding and exercisable with a weighted average strike price of $22.11. No options were granted during the three months ended March 31, 2012 and 2011. As of March 31, 2012, the aggregate intrinsic value for the options outstanding and exercisable was $4.9 million. During the three months ended March 31, 2012, cash received from the exercise of options was $13.4 million. No options were exercised during the three months ended March 31, 2011.
33
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Restricted Awards. During the three months ended March 31, 2012, NiSource granted restricted stock units and shares of restricted stock of 151,999, subject to service conditions. The total grant date fair value of the shares of restricted stock and restricted stock units was $3.3 million, based on the average market price of NiSources common stock at the date of each grant less the present value of any dividends not received during the vesting period, which will be expensed, net of forfeitures, over the vesting period which is generally three years. If the employee terminates employment before the service conditions lapse due to (1) Retirement or Disability (as defined in the award agreement), or (2) death, the employment conditions will lapse with respect to a pro rata portion of the shares of restricted stock and restricted stock units on the date of termination. In the event of a Change-in-Control (as defined in the award agreement), all unvested shares of restricted stock and restricted stock units will immediately vest. Termination due to any other reason will result in all shares of restricted stock and restricted stock units awarded being forfeited effective on the employees date of termination. As of March 31, 2012, 595,593 nonvested shares (all of which are expected to vest) of restricted stock and restricted stock units were granted and outstanding.
Performance Shares. During the three months ended March 31, 2012, NiSource granted 709,193 performance shares subject to performance conditions. The grant date fair-value of the awards was $14.6 million, based on the average market price of NiSources common stock at the date of each grant less the present value of dividends not received during the vesting period which will be expensed, net of forfeitures, over the three year requisite service period. The performance conditions are based on achievement of two non-GAAP financial measures: cumulative net operating earnings, that NiSource defines as income from continuing operations adjusted for certain items; and cumulative funds from operations that NiSource defines as net operating cash flows provided by continuing operations; and relative total shareholder return that NiSource defines as the annualized growth in the dividends and share price of a share of NiSources common stock (calculated using a 20 trading day average of NiSources closing price beginning December 31, 2011 and ending on December 31, 2014) compared to the total shareholder return performance of a predetermined peer group of companies. The service conditions lapse on January 30, 2015 when the shares vest provided the performance criteria are satisfied. In general, if the employee terminates employment before January 30, 2015 due to (1) Retirement or Disability (as defined in the award agreement), or (2) death, the employment conditions will lapse with respect to a pro rata portion of the performance shares payable at target on the date of termination provided the performance criteria are met. In the event of a Change-in-Control (as defined in the award agreement), all unvested performance shares will immediately vest. Termination due to any other reason will result in all performance shares awarded being forfeited effective on the employees date of termination. As of March 31, 2012, 1,956,433 nonvested (all of which are expected to vest) performance shares were granted and outstanding.
Non-employee Director Awards. As of May 11, 2010, awards to non-employee directors may be made only under the Omnibus Plan. Currently, restricted stock units are granted annually to non-employee directors, subject to a non-employee directors election to defer receipt of such restricted stock unit award. The non-employee directors restricted stock units vest on the last day of the non-employee directors annual term corresponding to the year the restricted stock units were awarded subject to special pro-rata vesting rules in the event of Retirement or Disability (as defined in the award agreement), or death. The vested restricted stock units are payable as soon as practicable following vesting except as otherwise provided pursuant to the non-employee directors election to defer. As of March 31, 2012, 116,906 restricted stock units had been issued to non-employee directors under the Omnibus Plan.
Only restricted stock units remain outstanding under the prior plan for non-employee directors, the Amended and Restated Non-employee Director Stock Incentive Plan (the Director Plan). All such awards are fully vested and shall be distributed to the directors upon their separation from the Board. As of March 31, 2012, 241,401 restricted stock units remain outstanding under the Director Plan and as noted above no further shares may be awarded under the Director Plan.
401(k) Match, Profit Sharing and Company Contribution. NiSource has a voluntary 401(k) savings plan covering eligible employees that allows for periodic discretionary matches as a percentage of each participants contributions in newly issued shares of common stock. NiSource also has a retirement savings plan that provides for discretionary profit sharing contributions of shares of common stock to eligible employees based on earnings results; and eligible exempt employees hired after January 1, 2010, receive a non-elective company contribution of three percent of eligible pay in shares of common stock. For the quarter ended March 31, 2012 and 2011, NiSource recognized 401(k) match, profit sharing and non-elective contribution expense of $5.8 million and $3.9 million, respectively.
34
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
19. Other Commitments and Contingencies
A. Guarantees and Indemnities. As a part of normal business, NiSource and certain subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit. These agreements are entered into primarily to support or enhance the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby facilitating the extension of sufficient credit to accomplish the subsidiaries intended commercial purposes. The total guarantees and indemnities in existence at March 31, 2012 and the years in which they expire were:
(in millions) | Total | 2012 | 2013 | 2014 | 2015 | 2016 | After | |||||||||||||||||||||
Guarantees of subsidiaries debt |
$ | 6,120.8 | $ | 315.0 | $ | 420.3 | $ | 500.0 | $ | 230.0 | $ | 291.5 | $ | 4,364.0 | ||||||||||||||
Guarantees supporting commodity transactions of subsidiaries |
141.9 | 45.5 | 14.5 | - | 80.0 | - | 1.9 | |||||||||||||||||||||
Accounts receivable securitization |
376.6 | 376.6 | - | - | - | - | - | |||||||||||||||||||||
Lines of credit |
887.6 | 887.6 | - | - | - | - | - | |||||||||||||||||||||
Letters of credit |
37.5 | 33.9 | 2.6 | 1.0 | - | - | - | |||||||||||||||||||||
Other guarantees |
273.7 | 10.5 | 224.0 | 32.2 | 3.0 | - | 4.0 | |||||||||||||||||||||
Total commercial commitments |
$ | 7,838.1 | $ | 1,669.1 | $ | 661.4 | $ | 533.2 | $ | 313.0 | $ | 291.5 | $ | 4,369.9 |
Guarantees of Subsidiaries Debt. NiSource has guaranteed the payment of $6.1 billion of debt for various wholly-owned subsidiaries including NiSource Finance and Columbia of Massachusetts, and through a support agreement, Capital Markets, which is reflected on NiSources Condensed Consolidated Balance Sheets (unaudited). The subsidiaries are required to comply with certain covenants under the debt indenture and in the event of default, NiSource would be obligated to pay the debts principal and related interest. NiSource does not anticipate its subsidiaries will have any difficulty maintaining compliance. On October 3, 2011, NiSource executed a Second Supplemental Indenture to the original Columbia of Massachusetts Indenture dated April 1, 1991, for the specific purpose of guaranteeing Columbia of Massachusetts outstanding medium-term notes.
Guarantees Supporting Commodity Transactions of Subsidiaries. NiSource has issued guarantees, which support up to $141.9 million of commodity-related payments for its current subsidiaries involved in energy marketing activities. These guarantees were provided to counterparties in order to facilitate physical and financial transactions involving natural gas services. To the extent liabilities exist under the commodity-related contracts subject to these guarantees, such liabilities are included in the Condensed Consolidated Balance Sheets (unaudited).
Lines and Letters of Credit and Accounts Receivable Advances. On March 3, 2011, NiSource Finance entered into a new $1.5 billion four-year revolving credit facility with a syndicate of banks led by Barclays Capital. The new facility replaced an existing $1.5 billion five-year credit facility which would have expired during July 2011. The new facility has a termination date of March 3, 2015. The purpose of the facility is to fund ongoing working capital requirements and for general corporate purposes, including supporting liquidity for the Companys commercial paper program, and provides for the issuance of letters of credit. At March 31, 2012, NiSource had $391.0 million in borrowings under its four-year revolving credit facility, $496.6 million in commercial paper outstanding and $376.6 million outstanding under its accounts receivable securitization agreements. At March 31, 2012, NiSource issued stand-by letters of credit of approximately $37.5 million for the benefit of third parties. See Note 17, Short-Term Borrowings, for additional information.
Other Guarantees or Obligations. On June 30, 2008, NiSources subsidiary, PEI, sold Whiting Clean Energy to BPAE for $216.7 million which included $16.1 million in working capital. The agreement with BPAE contains representations, warranties, covenants and closing conditions. NiSource has executed purchase and sales agreement guarantees totaling $220 million which guarantee performance of PEIs covenants, agreements, obligations, liabilities, representations and warranties under the agreement with BPAE. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheet (unaudited) as of March 31, 2012. These guarantees are due to expire in June 2013.
35
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
NiSource has additional purchase and sales agreement guarantees totaling $30.0 million, which guarantee performance of the sellers covenants, agreements, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited). Management believes that the likelihood NiSource would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote.
In connection with Millenniums refinancing of its long-term debt in August 2010, NiSource provided a letter of credit to Union Bank N.A., as Collateral Agent for deposit into a debt service reserve account as required under the Deposit and Disbursement Agreement governing the Millennium notes offering. This account is to be drawn upon by the note holders in the event that Millennium is delinquent on its principal and interest payments. The value of NiSources letter of credit represents 47.5% (NiSources ownership percentage in Millennium) of the Debt Service Reserve Account requirement, or $16.2 million. The total exposure for NiSource is $16.2 million. NiSource has an accrued liability of $1.5 million related to the inception date fair value of this guarantee as of March 31, 2012.
NiSource has issued other guarantees supporting derivative related payments associated with interest rate swap agreements issued by NiSource Finance, operating leases for many of its subsidiaries and for other agreements entered into by its current and former subsidiaries.
B. Other Legal Proceedings. In the normal course of its business, NiSource and its subsidiaries have been named as defendants in various legal proceedings. In the opinion of management, the ultimate disposition of these currently asserted claims will not have a material impact on NiSources consolidated financial statements.
C. Environmental Matters.
NiSource operations are subject to environmental statutes and regulations related to air quality, water quality, hazardous waste and solid waste. NiSource believes that it is in substantial compliance with those environmental regulations currently applicable to its operations and believes that it has all necessary permits to conduct its operations.
It is managements continued intent to address environmental issues in cooperation with regulatory authorities in such a manner as to achieve mutually acceptable compliance plans. However, there can be no assurance that fines and penalties will not be incurred. Management expects a significant portion of environmental assessment and remediation costs to be recoverable through rates for certain NiSource companies.
As of March 31, 2012 and December 31, 2011, NiSource had recorded reserves of approximately $168.8 million and $173.5 million, respectively, to cover environmental remediation at various sites. The current portion of this reserve is included in Legal and Environmental Reserves in the Condensed Consolidated Balance Sheet. The noncurrent portion is included in Other Noncurrent Liabilities in the Condensed Consolidated Balance Sheet. NiSource accrues for costs associated with environmental remediation obligations when the incurrence of such costs is probable and the amounts can be reasonably estimated. The original estimates for cleanup can differ materially from the amount ultimately expended. The actual future expenditures depend on many factors, including currently enacted laws and regulations, the nature and extent of contamination, the method of cleanup, and the availability of cost recovery from customers. These expenditures are not currently estimable at some sites. NiSource periodically adjusts its reserves as information is collected and estimates become more refined.
Air
The actions listed below could require further reductions in emissions from various emission sources. NiSource will continue to closely monitor developments in these matters.
Climate Change. Future legislative and regulatory programs could significantly restrict emissions of GHGs or could impose a cost or tax on GHG emissions. Recently, proposals have been developed to implement Federal, state and regional GHG programs and to create renewable energy standards.
36
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
In 2009 and 2010, the United States Congress considered a number of legislative proposals to regulate GHG emissions. The United States House of Representatives passed a comprehensive climate change bill in June 2009 that would have created a GHG-cap-and trade system and implemented renewable energy standards. Bills on the same topics were introduced in the Senate in 2009 and 2010, but failed to garner enough support to pass. If a Federal or state comprehensive climate change bill were to be enacted into law, the impact on NiSources financial performance would depend on a number of factors, including the overall level of required GHG reductions, the renewable energy targets, the degree to which offsets may be used for compliance, the amount of recovery allowed from customers, and the extent to which NiSource would be entitled to receive CO2 allowances at no cost. Comprehensive Federal or state GHG regulation could result in additional expense or compliance costs that may not be fully recoverable from customers and could materially impact NiSources financial results.
National Ambient Air Quality Standards. The CAA requires EPA to set national air quality standards for particulate matter and five other pollutants (the NAAQS) considered harmful to public health and the environment. Periodically EPA imposes new or modifies existing NAAQS. States that contain areas that do not meet the new or revised standards must take steps to maintain or achieve compliance with the standards. These steps could include additional pollution controls on boilers, engines, turbines, and other facilities owned by electric generation, gas distribution, and gas transmission operations.
The following NAAQS were recently added or modified:
Particulate Matter: In 2006, the EPA issued revisions to the NAAQS for particulate matter. The final rule (1) increased the stringency of the current fine particulate (PM2.5) standard, (2) added a new standard for inhalable coarse particulate (particulate matter between 10 and 2.5 microns in diameter), and (3) revoked the annual standards for coarse particulate (PM10) while retaining the 24-hour PM10 standards. These actions were challenged in a case before the DC Court of Appeals, American Farm Bureau Federation et al. v. EPA. In 2009, the appeals court granted portions of the plaintiffs petitions challenging the fine particulate standards but denied portions of the petitions challenging the standards for coarse particulate. State plans implementing the new standard for inhalable coarse particulate and the modified 24-hour standard for fine particulate are expected in 2012. The annual and secondary PM2.5 standards have been remanded to the EPA for reconsideration. Northern Indiana will continue to monitor this matter and cannot estimate the impact of any new rules at this time.
Ozone (eight hour): On September 2, 2011, the EPA announced it would implement its 2008 eight-hour ozone NAAQS rather than tightening the standard in 2012. The EPA will review, and possibly revise, the standard in 2013 consistent with CAA requirements. In addition, the EPA has proposed to re-designate the Chicago metropolitan area, including the areas in which Northern Indiana operates three of its electric generation facilities, as non-attainment for ozone. Northern Indiana will continue to monitor this matter and cannot estimate the impact of any new rules at this time.
Nitrogen Dioxide (NO2): The EPA revised the NO2 NAAQS by adding a one-hour standard while retaining the annual standard. The new standard could impact some NiSource combustion sources. EPA will designate areas that do not meet the new standard beginning in 2012. States with areas that do not meet the standard will need to develop rules to bring areas into compliance within five years of designation. Additionally, under certain permitting circumstances emissions from some existing NiSource combustion sources may need to be assessed and compared to the revised NO2 standards before areas are designated. Petitions challenging the rule have been filed by various parties. NiSource will continue to monitor this matter and cannot estimate the impact of these rules at this time.
National Emission Standard for Hazardous Air Pollutants. On August 20, 2010, the EPA revised national emission standards for hazardous air pollutants for certain stationary reciprocating internal combustion engines. Compliance requirements vary by engine type and will generally be required within three years. NiSource is continuing its evaluation of the cost impacts of the final rule and estimates the cost of compliance to be $20 - $25 million.
37
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Waste
NiSource subsidiaries are potentially responsible parties at waste disposal sites under the CERCLA (commonly known as Superfund) and similar state laws. Additionally, a program has been instituted to identify and investigate former MGP sites where Gas Distribution Operations subsidiaries or predecessors may have liability. The program has identified 67 such sites where liability is probable. Remedial actions at many of these sites are being overseen by state or federal environmental agencies through consent agreements or voluntary remediation agreements.
During the fourth quarter of 2011, NiSource completed a probabilistic model to estimate its future remediation costs related to its MGP sites. The model was prepared by a third party and incorporates NiSource and general industry experience with remediating MGP sites. NiSource accordingly increased its liability for estimated remediation costs by $71.1 million. The total liability at NiSource related to the facilities subject to remediation was $137.6 million and $139.5 million at March 31, 2012 and December 31, 2011, respectively. The liability represents NiSources best estimate of the probable cost to remediate the facilities. NiSource believes that it is reasonably possible that remediation costs could vary by as much as $25 million in addition to the costs noted above. Remediation costs are estimated based on the best available information, applicable remediation standards at the balance sheet date, and experience with similar facilities.
Additional Issues Related to Individual Business Segments
The sections above describe various regulatory actions that affect Gas Transmission and Storage Operations, Electric Operations, and certain other discontinued operations for which NiSource has retained a liability. Specific information is provided below.
Gas Transmission and Storage Operations.
Waste
Columbia Transmission continues to conduct characterization and remediation activities at specific sites under a 1995 AOC (subsequently modified in 1996 and 2007). The 1995 AOC originally covered 245 major facilities, approximately 13,000 liquid removal points, approximately 2,200 mercury measurement stations and about 3,700 storage well locations. As a result of the 2007 amendment, approximately 50 facilities remain subject to the terms of the AOC. During the third quarter of 2011, Columbia Transmission completed a study to estimate its future remediation requirements related to the AOC. Columbia Transmission accordingly increased its liability for estimated remediation costs by $25.6 million. The total liability at Columbia Transmission related to the facilities subject to remediation was $27.7 million and $30.0 million at March 31, 2012 and December 31, 2011, respectively. The liability represents Columbia Transmissions best estimate of the cost to remediate the facilities or manage the site until retirement. A Response Action Work Plan consistent with this estimate was submitted to the EPA in the fourth quarter of 2011 and subsequently approved. Remediation costs are estimated based on the information available, applicable remediation standards, and experience with similar facilities. Columbia Transmission expects that the remediation for these facilities will be completed in 2015.
One of the facilities subject to the 1995 AOC is the Majorsville Operations Center, which was remediated under an EPA approved Remedial Action Work Plan in summer 2008. Pursuant to the Remedial Action Work Plan, Columbia Transmission completed a project that stabilized residual oil contained in soils at the site and in sediments in an adjacent stream. Columbia Transmission continues to monitor the site subject to EPA oversight. On April 23, 2009, PADEP issued an NOV to Columbia Transmission, alleging that the remediation did not fully address the contamination. The NOV asserts violations of the Pennsylvania Clean Streams Law and the Pennsylvania Solid Waste Management Act and includes a proposed penalty of $1 million. Columbia Transmission is unable to estimate the likelihood or cost of potential penalties or additional remediation at this time.
Electric Operations.
Air
Northern Indiana expects to become subject to a number of new air-quality mandates in the next several years. These mandates may require Northern Indiana to make capital improvements to its electric generating stations. The cost of capital improvements is estimated to be $620 million to $1.1 billion. This figure includes additional capital improvements associated with the New Source Review Consent Decree, CSAPR and the Utility Mercury and Air Toxics Standards Rule. Northern Indiana believes that the capital costs will likely be recoverable from ratepayers.
38
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Sulfur dioxide: On December 8, 2009, the EPA revised the SO2 NAAQS by adopting a new 1-hour primary NAAQS for SO2. EPA expects to designate areas that do not meet the new standard by mid-2012. States with such areas would have until 2014 to develop attainment plans with compliance required by 2017. Northern Indiana will continue to monitor developments in these matters but does not anticipate a material impact.
Cross-State Air Pollution Rule / Clean Air Interstate Rule (CAIR) / Transport Rule: On July 6, 2011, the EPA announced its replacement for the 2005 CAIR to reduce the interstate transport of fine particulate matter and ozone. The CSAPR reduces overall emissions of SO2 and NOx by setting state-wide caps on power plant emissions. The CSAPR limits emissions, including Northern Indianas, with restricted emission allowance trading programs scheduled to begin in 2012. In a decision issued on December 30, 2011, the D.C. Circuit Court stayed the CSAPR and reinstated the CAIR trading program provisions and requirements, including reissuing CAIR emission allowances, pending resolution of the stay. This development does not significantly impact Northern Indianas current emissions control plans. Northern Indiana utilizes the inventory model in accounting for emission allowances issued under the CAIR program whereby these allowances were recognized at zero cost upon receipt from the EPA. Northern Indiana believes its current multi-pollutant compliance plan and New Source Review Consent Decree capital investments will allow Northern Indiana to meet the emission requirements of CSAPR whenever final resolution of the appeal is reached.
Utility Mercury and Air Toxics Standards Rule: On February 8, 2008, the United States Court of Appeals for the District of Columbia Circuit vacated two EPA rules that are the basis for the Indiana Air Pollution Control Boards Clean Air Mercury Rule (CAMR) that established utility mercury emission limits in two phases (2010 and 2018) and a cap-and-trade program to meet those limits. In response to the vacatur, the EPA pursued a new Section 112 rulemaking to establish MACT standards for electric utilities. The EPA finalized the Mercury and Air Toxics Standards (MATS) Rule on December 16, 2011. Compliance for Northern Indianas affected units will be required in early 2015, with the possibility of a one year extension. Northern Indiana is currently developing a plan for further environmental controls to comply with MATS.
New Source Review: On September 29, 2004, the EPA issued an NOV to Northern Indiana for alleged violations of the CAA and the Indiana SIP. The NOV alleges that modifications were made to certain boiler units at three of Northern Indianas generating stations between the years 1985 and 1995 without obtaining appropriate air permits for the modifications. Northern Indiana, EPA, the Department of Justice, and IDEM have settled the matter through a consent decree.
Water
The Phase II Rule of the Clean Water Act Section 316(b), which requires all large existing steam electric generating stations to meet certain performance standards to reduce the effects on aquatic organisms at their cooling water intake structures, became effective on September 7, 2004. Under this rule, stations will either have to demonstrate that the performance of their existing fish protection systems meet the new standards or develop new systems, such as a closed-cycle cooling tower. Various court challenges and EPA responses ensued. The EPA announced a proposed rule and is obligated to finalize a rule in 2012. Northern Indiana will continue to monitor this matter but cannot estimate the cost of compliance at this time.
Waste
On March 31, 2005, the EPA and Northern Indiana entered into an AOC under the authority of Section 3008(h) of the RCRA for the Bailly Station. The order requires Northern Indiana to identify the nature and extent of releases of hazardous waste and hazardous constituents from the facility. Northern Indiana must also remediate any release of hazardous constituents that present an unacceptable risk to human health or the environment. The process to complete investigation and select appropriate remediation activities is ongoing.
On June 21, 2010, EPA published a proposed rule for CCRs through the RCRA. The proposal outlines multiple regulatory approaches that EPA is considering. These proposed regulations could negatively affect Northern Indianas ongoing byproduct reuse programs and would impose additional requirements on its management of coal combustion residuals. Northern Indiana will continue to monitor developments in this matter and cannot estimate the cost of compliance at this time.
39
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
Other Operations.
Waste
NiSource affiliates have retained environmental liabilities, including cleanup liabilities associated with some of its former operations. Four sites are associated with its former propane operations and ten sites associated with former petroleum operations. At one of those sites, an AOC has been signed with EPA to address petroleum residue in soil and groundwater.
20. | Accumulated Other Comprehensive Loss |
The following table displays the components of Accumulated Other Comprehensive Loss.
(in millions) | March 31, 2012 |
December 31, 2011 |
||||||
Other comprehensive income (loss), before tax: |
||||||||
Unrealized gains on securities |
$ | 3.2 | $ | 8.0 | ||||
Tax expense on unrealized gains on securities |
(1.1 | ) | (3.1 | ) | ||||
Unrealized losses on cash flow hedges |
(50.7 | ) | (52.3 | ) | ||||
Tax benefit on unrealized losses on cash flow hedges |
19.9 | 20.5 | ||||||
Unrecognized pension and OPEB costs |
(51.9 | ) | (53.0 | ) | ||||
Tax benefit on unrecognized pension and OPEB costs |
19.7 | 20.2 | ||||||
Total Accumulated Other Comprehensive Loss, net of taxes |
$ | (60.9 | ) | $ | (59.7 | ) |
Equity Investment
As an equity method investment, NiSource is required to recognize a proportional share of Millenniums OCI. The remaining unrealized loss at March 31, 2012 of $19.4 million, net of tax, related to terminated interest rate swaps is being amortized over the period ending June 2025 into earnings using the effective interest method through interest expense as interest payments are made by Millennium. The unrealized loss of $19.4 million and $19.7 million at March 31, 2012 and December 31, 2011, respectively, is included in unrealized losses on cash flow hedges above.
21. | Business Segment Information |
Operating segments are components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assess performance. The NiSource Chief Executive Officer is the chief operating decision maker.
At March 31, 2012, NiSources operations are divided into three primary business segments. The Gas Distribution Operations segment provides natural gas service and transportation for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, Indiana and Massachusetts. The Gas Transmission and Storage Operations segment offers gas transportation and storage services for LDCs, marketers and industrial and commercial customers located in northeastern, mid-Atlantic, midwestern and southern states. The Electric Operations segment provides electric service in 20 counties in the northern part of Indiana.
40
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
The following table provides information about business segments. NiSource uses operating income as its primary measurement for each of the reported segments and makes decisions on finance, dividends and taxes at the corporate level on a consolidated basis. Segment revenues include intersegment sales to affiliated subsidiaries, which are eliminated in consolidation. Affiliated sales are recognized on the basis of prevailing market, regulated prices or at levels provided for under contractual agreements. Operating income is derived from revenues and expenses directly associated with each segment.
Three Months Ended March 31, (in millions) | 2012 | 2011 | ||||||
REVENUES |
||||||||
Gas Distribution Operations |
||||||||
Unaffiliated |
$ | 1,069.1 | $ | 1,584.8 | ||||
Intersegment |
0.2 | 0.7 | ||||||
Total |
1,069.3 | 1,585.5 | ||||||
Gas Transmission and Storage Operations |
||||||||
Unaffiliated |
233.0 | 213.4 | ||||||
Intersegment |
42.4 | 42.0 | ||||||
Total |
275.4 | 255.4 | ||||||
Electric Operations |
||||||||
Unaffiliated |
354.4 | 348.2 | ||||||
Intersegment |
0.2 | 0.2 | ||||||
Total |
354.6 | 348.4 | ||||||
Corporate and Other |
||||||||
Unaffiliated * |
2.2 | 85.2 | ||||||
Intersegment |
110.7 | 110.5 | ||||||
Total |
112.9 | 195.7 | ||||||
Eliminations |
(153.5 | ) | (153.4 | ) | ||||
Consolidated Revenues |
$ | 1,658.7 | $ | 2,231.6 | ||||
Operating Income |
||||||||
Gas Distribution Operations |
$ | 212.0 | $ | 241.5 | ||||
Gas Transmission and Storage Operations |
138.6 | 118.4 | ||||||
Electric Operations |
46.2 | 50.6 | ||||||
Corporate and Other |
2.6 | (4.1 | ) | |||||
Consolidated Operating Income |
$ | 399.4 | $ | 406.4 |
* The reduction to other revenues is attributed to the continued wind down of the unregulated natural gas marketing business as well as the early termination of certain contracts as discussed in Note 9, Risk Management Activities. There was a corresponding decrease in cost of sales with no impact to operating income.
41
ITEM 1. FINANCIAL STATEMENTS (continued)
NISOURCE INC.
Notes to Condensed Consolidated Financial Statements (unaudited) (continued)
22. | Supplemental Cash Flow Information |
The following table provides additional information regarding NiSources Condensed Statements of Consolidated Cash Flows (unaudited) for the three months ended March 31, 2012 and 2011:
Three Months Ended March 31, (in millions) | 2012 | 2011 | ||||||
Supplemental Disclosures of Cash Flow Information |
||||||||
Non-cash transactions: |
||||||||
Capital expenditures included in current liabilities |
$ | 71.0 | $ | 58.7 | ||||
Stock issuance to employee saving plans |
5.7 | 9.6 | ||||||
Schedule of interest and income taxes paid: |
||||||||
Cash paid for interest, net of interest capitalized amounts |
$ | 142.7 | $ | 140.9 | ||||
Cash paid for income taxes |
1.7 | 0.7 |
42
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
NISOURCE INC.
Note regarding forward-looking statements
The Managements Discussion and Analysis, including statements regarding market risk sensitive instruments, contains 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. 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 NiSources plans, objectives, expected performance, expenditures and 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. From time to time, NiSource may publish or otherwise make available forward-looking statements of this nature. All such subsequent forward-looking statements, whether written or oral and whether made by or on behalf of NiSource, are also expressly qualified by these cautionary 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.
Realization of NiSources objectives and expected performance is subject to a wide range of risks and can be adversely affected by, among other things, weather, fluctuations in supply and demand for energy commodities, growth opportunities for NiSources 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 NiSources 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, counterparty credit risk, and the matters set forth in the Risk Factors section of NiSources 2011 Form 10-K, which many of are beyond the control of NiSource. In addition, the relative contributions to profitability by each segment, and the assumptions underlying the forward-looking statements relating thereto, may change over time. NiSource expressly disclaims a duty to update any of the forward-looking statements contained in this report.
The following Managements Discussion and Analysis should be read in conjunction with NiSources Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
CONSOLIDATED REVIEW
Executive Summary
NiSource (the Company) is an energy holding company under the Public Utility Holding Company Act of 2005 whose subsidiaries are engaged in the transmission, storage and distribution of natural gas in the high-demand energy corridor stretching from the Gulf Coast through the Midwest to New England and the generation, transmission and distribution of electricity in Indiana. NiSource generates virtually 100% of its operating income through these rate-regulated businesses. A significant portion of NiSources operations are subject to seasonal fluctuations in sales. During the heating season, which is primarily from November through March, net revenues from gas sales are more significant, and during the cooling season, which is primarily from June through September, net revenues from electric sales and transportation services are more significant than in other months.
For the three months ended March 31, 2012, NiSource reported income from continuing operations of $193.5 million, or $0.68 per basic share, compared to $209.1 million, or $0.75 per basic share reported for the same period in 2011.
The decrease in income from continuing operations was due primarily to the following items:
| Warmer weather in the current quarter resulted in a decrease in income from continuing operations of $45.7 million compared to the prior year. Weather statistics are provided in the Gas Distribution Operations segment discussion. |
43
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
| NiSource incurred higher interest expense of $13.5 million resulting from the issuance of long-term debt of $400.0 million in June 2011 and $500.0 million in November 2011, the expiration of the Sugar Creek deferral, as well as higher average short-term borrowings and rates. These increases were partially offset by the repurchase of $125.3 million of the 2016 and $124.7 million of the 2013 notes in November 2011. |
| Depreciation and amortization increased $11.8 million due primarily to higher capital spend and the additional depreciation related to the Sugar Creek facility due to the expiration of the deferral as a result of the electric rate case. NiSources capital spend is projected to be approximately $1.4 billion in 2012. |
These decreases were partially offset by the following:
| Electric Operations net revenues increased $22.2 million primarily due to the implementation of the electric rate case. Refer to Note 8, Regulatory Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for more information. |
| Regulatory and service programs at Gas Distributions Operations increased net revenues by $11.5 million primarily due to the rate case at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohios approved infrastructure replacement program. Refer to Note 8, Regulatory Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for more information. |
| Higher demand margin revenues at Gas Transmission and Storage Operations increased net revenues by $8.6 million primarily due to growth projects placed into service since the first quarter of 2011. Refer below and to the Gas Transmission and Storage Operations segment discussion for a list of growth projects in progress. Additionally, the implementation of the rate case at Columbia Gulf increased net revenues by $7.2 million. |
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.
Platform for Growth
NiSources 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 cost and process excellence.
Commercial and Regulatory Initiatives
NiSource is moving forward on regulatory initiatives across several distribution company markets. Whether through full rate case filings or other approaches, NiSources 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 continues to advance initiatives designed to improve customer services and reliability, as well as enhance the regions environmental and economic sustainability.
| Significant environmental investments at Northern Indianas coal-fired electric generation facilities remain on track, including construction of FGD equipment on two units at the Companys Schahfer generating station. The improvements are part of a nearly $850 million environmental investment program over the next six to eight years. |
| On April 5, 2012, Northern Indiana introduced its IN-Charge Electric Vehicle Program. The pilot program provides a credit for residential electric customers to offset the cost of installing a home-based electric vehicle charging system. The program also offers customers free overnight charging for their vehicles at home. |
44
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
NiSource Gas Distribution companies continue to deliver strong results from their strategy of aligning long-term infrastructure replacement and enhancement programs with a variety of complementary customer programs and rate- design initiatives.
| Infrastructure projects across much of the gas distribution territory, combined with customer programs and regulatory treatment, continue to generate earnings growth. These initiatives, part of a $4 billion plus long-term investment program, along with the new rates in effect contributed to an increase of $11.5 million in net revenues compared to the same period in the prior year. |
| On April 13, 2012, Columbia of Massachusetts submitted a filing with the Massachusetts DPU requesting an annual revenue requirement increase of $29.2 million. Columbia of Massachusetts filed using a historic test year ending December 31, 2011. Additionally, Columbia of Massachusetts proposed a rate-year, rate base treatment, as well as modification to the Targeted Infrastructure Reinvestment Factor. The rate year rate base treatment has been proposed to reduce the impact of regulatory lag. An order is expected later this year with new rates going into effect on November 1, 2012. |
| At Columbia of Pennsylvania, the states General Assembly passed HB1294 on February 7, 2012, and was approved as Act 11 by the Governor on February 14, 2012. The law supports the companys infrastructure modernization initiatives by authorizing the Pennsylvania PUC to approve a distribution system improvement charge. In addition, it allows Pennsylvania utilities to base their rates on a forecasted test year, which will allow recovery of infrastructure investments as they are made. A similar law was passed in Ohio in 2011. |
Refer to Note 8, Regulatory Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for a complete discussion of regulatory and commercial matters.
Commercial Growth and Expansion of the Gas Transmission and Storage Business
NiSource Gas Transmission & Storage Operations continues to develop and execute investment opportunities in emerging and existing markets. The company is active in midstream, mineral leasing and traditional pipeline projects, particularly in areas encompassed by the Companys strategic footprint in the Utica and Marcellus shale production areas.
| Work is progressing on NiSource Midstreams Big Pine Gathering System. Anchored by a long-term agreement with XTO Energy Inc., the 70-mile, $150-million project is located in the hydrocarbon-rich area of western Pennsylvania. It will offer an initial capacity of approximately 425,000 Dth per day with interconnections to multiple interstate pipeline markets. The projects targeted in-service date is December 2012. |
| NiSource Midstream also is pursuing opportunities in the liquids-rich fairway of the Utica play in eastern Ohio, including proposals to provide gathering services, as well as cryogenic natural gas liquids processing. In addition, NiSource Midstream is in advanced discussions with a producer counterparty regarding a potential joint venture that would optimize NiSource Midstreams minerals position in this area, which could include downstream infrastructure investment opportunities. |
| NiSource Gas Transmission and Storage Operations is successfully pursuing growth opportunities within its existing pipeline system. For example, it recently completed open seasons on two supply- and market-driven expansions of its Columbia Transmission and Columbia Gulf systems. The approximately $220 million West Side Expansion Project will transport approximately 500,000 Dth per day of Marcellus production originating in southwest Pennsylvania and north-central West Virginia to Gulf Coast markets. Binding long-term precedent agreements have been signed with two shippers. The East Side Expansion Project would connect up to 500,000 Dth per day of northern Pennsylvania Marcellus production with growing mid-Atlantic markets. Discussions with customers for binding transportation agreements are currently underway. |
45
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
| Columbia Transmission received approval from the FERC to construct facilities to serve Virginia Electric and Power Companys 1,329-megawatt, gas-fired generation facility under construction in Warren County, Va. The approximately $35 million project will provide up to nearly 250,000 Dth per day of long-term, firm transportation starting in mid-2014. |
| During the first quarter 2012, Columbia Transmission continued discussions with customers regarding a long-term infrastructure modernization program. Similar to the modernization programs in place at NiSources gas utilities, this effort would enhance the reliability and flexibility of the Companys core pipeline system, ensuring continued safe and reliable service while positioning the Company to meet anticipated regulatory requirements. The plan could involve an investment of about $4 billion over a 10- to 15-year period. |
Financial Management of the Balance Sheet
At the end of the first quarter, NiSource maintained approximately $632 million in net available liquidity. Additionally, during the first quarter of 2012, Standard & Poors reaffirmed NiSources stable credit rating.
On April 5, 2012, NiSource Finance negotiated a $250.0 million three-year bank term loan with a syndicate of banks which matures on April 3, 2015. Borrowings under the term loan will have an effective cost of LIBOR plus 137 basis points.
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. NiSources senior management takes an active role in the development of this Form 10-Q and the monitoring of the companys internal control structure and performance. In addition, NiSource will continue its mandatory ethics training program for all employees.
Refer to Controls and Procedures included in Item 4.
Results of Operations
Quarter Ended March 31, 2012
Net Income
NiSource reported net income of $193.4 million, or $0.68 per basic share, for the three months ended March 31, 2012, compared to a net income of $209.5 million, or $0.75 per basic share, for the first quarter of 2011. Income from continuing operations was $193.5 million, or $0.68 per basic share, for the three months ended March 31, 2012, compared to income from continuing operations of $209.1 million, or $0.75 per basic share, for the first quarter of 2011. Operating income was $399.4 million, a decrease of $7.0 million from the same period in 2011. All per share amounts are basic earnings per share. Basic average shares of common stock outstanding at March 31, 2012 were 282.9 million compared to 279.3 million at March 31, 2011.
Comparability of line item operating results between quarterly periods is 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 have essentially no impact on income from continuing operations.
Immaterial Restatement
As indicated in NiSources Annual Report on Form 10-K for the fiscal year ended December 31, 2011, NiSource made correcting adjustments to its historical financial statements including for the first quarter of 2011 relating to deferred revenue, environmental asset recovery and OPEB over-reimbursement. NiSource does not believe that these corrections, individually or in the aggregate, are material to its financial statements (unaudited) for the quarterly period ended March 31, 2011. For additional information on these corrections, see Note 1, Nature of Operations and Summary of Significant Accounting Policies, and Note 26, Quarterly Financial Data (Unaudited), of the Consolidated Financial Statements of NiSources Annual Report on Form 10-K for the fiscal year ended December 31, 2011.
46
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
The following table sets forth the effects of the correcting adjustments to Net Income for the three months ended March 31, 2011:
Increase/(Decrease) in Net Income (in millions) | Three Months Ended March 31, 2011 |
|||
Previously reported Net Income |
$ | 205.2 | ||
Deferred revenue |
(0.6 | ) | ||
Environmental asset recovery |
8.0 | |||
OPEB over-reimbursement |
(0.2 | ) | ||
Total corrections |
7.2 | |||
Income taxes |
2.9 | |||
Corrected Net Income |
$ | 209.5 |
The following table sets forth the effects of the correcting adjustments on affected line items within the Condensed Statement of Consolidated Income (unaudited) for the three months ended March 31, 2011:
Condensed Statements of Consolidated Income (unaudited) |
| |||||||
Three
Months ended March 31, 2011 |
||||||||
(in millions, except per share amounts) | As Previously Reported |
As Corrected | ||||||
Net Revenues |
||||||||
Electric |
$ | 347.1 | $ | 346.5 | ||||
Gross Revenues |
2,232.2 | 2,231.6 | ||||||
Total Net Revenues |
1,061.3 | 1,060.7 | ||||||
Operation and maintenance |
432.5 | 429.3 | ||||||
Depreciation and amortization |
138.9 | 134.3 | ||||||
Total Operating Expenses |
665.1 | 657.3 | ||||||
Operating Income |
399.2 | 406.4 | ||||||
Income from Continuing Operations before Income Taxes |
312.7 | 319.9 | ||||||
Income Taxes |
107.9 | 110.8 | ||||||
Income from Continuing Operations |
204.8 | 209.1 | ||||||
Net Income |
$ | 205.2 | $ | 209.5 | ||||
|
||||||||
Basic Earnings Per Share ($) |
||||||||
Continuing operations |
$ | 0.73 | $ | 0.75 | ||||
Basic Earnings Per Share |
$ | 0.73 | $ | 0.75 | ||||
Diluted Earnings Per Share ($) |
||||||||
Continuing operations |
$ | 0.72 | $ | 0.73 | ||||
Diluted Earnings Per Share |
$ | 0.72 | $ | 0.73 |
These corrections affected certain line items within net cash flows from operating activities on the Condensed Statement of Consolidated Cash Flows (unaudited) for the three months ended March 31, 2011, with no net effect on total net cash flows from operating activities.
47
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Net Revenues
Total consolidated net revenues (gross revenues less cost of sales) for the quarter ended March 31, 2012, were $1,028.4 million, a $32.3 million decrease from the same period last year. This decrease in net revenues was primarily due to decreased Gas Distribution Operations net revenues of $73.9 million partially offset by increased Electric Operations net revenues of $22.2 million and increased Gas Transmission and Storage Operations net revenues of $19.1 million.
| Gas Distribution Operations net revenues decreased due primarily to lower regulatory and tax trackers, which are offset in expense, of $46.4 million and the effects of warmer weather of $39.0 million. These decreases in net revenues were partially offset by an increase of $11.5 million for regulatory and service programs, including impacts from the rate case at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohios approved infrastructure replacement program. |
| Electric Operations net revenues increased primarily due to increased industrial, commercial and residential margins of $20.6 million mainly due to the implementation of the electric rate case. Additionally, there were lower revenue credits of $13.9 million in the current period as the electric rate case discontinued these credits and an increase in RTO tracker revenues of $4.4 million. These increases were partially offset by a decrease in environmental cost recovery of $11.0 million due to the plant balance eligible for recovery being reset to zero as a result of the electric rate case and a decrease of $6.7 million due to the impact of weather. |
| Gas Transmission and Storage Operations net revenues increased primarily due to higher demand margin revenue of $8.6 million as a result of growth projects placed into service since the first quarter of 2011. Additionally, there was an increase of $7.2 million due to the impact of the rate case at Columbia Gulf and higher regulatory trackers of $2.6 million, which are offset in expense. |
Expenses
Operating expenses for the first quarter 2012 were $636.7 million, a decrease of $20.6 million from the 2011 period. This decrease was primarily due to lower operation and maintenance expenses of $23.9 million and a decrease in other taxes of $6.2 million partially offset by an increase in depreciation and amortization of $11.8 million. The decrease in operation and maintenance expenses is due to a decrease in regulatory trackers, which are offset in revenue, of $33.7 million, a mark-to-market adjustment of corporate owned life insurance assets of $7.9 million, and a decrease in outside service costs of $3.8 million. This was partially offset by higher electric generation costs of $6.8 million and an increase in MISO fees resulting from the electric rate case. Other taxes decreased primarily as a result of lower tax trackers, which are offset in revenue. Depreciation and amortization increased due primarily to higher capital expenditures and the additional depreciation related to the Sugar Creek facility due to the expiration of the deferral as a result of the electric rate case.
Equity Earnings in Unconsolidated Affiliates
Equity Earnings in Unconsolidated Affiliates were $7.7 million during the first quarter of 2012 compared to $3.0 million for the first quarter of 2011. Equity Earnings in Unconsolidated Affiliates includes investments in Millennium and Hardy Storage which are integral to the Gas Transmission and Storage Operations business. Equity earnings increased as a result of an increase in earnings at Millennium.
Other Income (Deductions)
Other Income (Deductions) reduced income by $103.0 million in 2012 compared to a reduction in income of $86.5 million in the prior year. The increase in deductions is primarily due to an increase in interest expense of $13.5 million resulting from the issuance of long-term debt of $400.0 million in June 2011 and $500.0 million in November 2011, the expiration of the Sugar Creek deferral, as well as higher average short-term borrowings and rates. This was partially offset by a decrease in interest expense due to the repurchase of $125.3 million of the 2016 and $124.7 million 2013 notes in November 2011. Other-net income of $0.3 million was recorded in 2012 compared to $3.3 million in 2011.
48
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Income Taxes
Income tax expense for the first quarter of 2012 was $102.9 million compared to $110.8 million in the prior year. NiSources interim effective tax rates reflect the estimated annual effective tax rates for 2012 and 2011, adjusted for tax expense associated with certain discrete items. The effective tax rates for the three months ended March 31, 2012 and 2011 were 34.7% and 34.6%, respectively. These effective tax rates differ from the Federal tax rate of 35% primarily due to the effects of tax credits, state income taxes, utility rate-making, and other permanent book-to-tax differences.
On December 27, 2011, the United States Treasury Department and the IRS issued temporary and proposed regulations effective for years beginning on or after January 1, 2012 that, among other things, provided guidance on whether expenditures qualified as deductible repairs. In addition, on March 15, 2012, the IRS issued a directive to discontinue exam activity related to positions on this issue taken on original tax returns for years beginning before January 1, 2012. NiSource expects the IRS to issue guidance for the treatment of expenditures for gas transmission and distribution assets, and generation within the next twelve months. NiSource further expects that it will be more likely to adopt the procedures provided in this guidance rather than the more general rules set forth in the temporary and proposed regulations. Accordingly, NiSource management expects to adjust unrecognized tax benefits recorded in 2009 related to its change in tax accounting for repairs for gas transmission and distribution assets and generation assets in the period specific guidance for these assets is issued. As noted above, NiSource management believes that the issuance of such guidance and intent to adopt the guidance by NiSource is reasonably possible to occur within the next twelve months. In that event, NiSource will recognize a tax benefit for this issue in the amount of $80.9 million. NiSource believes these adjustments will not have a significant effect on the income statement.
Refer to Note 13, Income Taxes, in the Notes to the Condensed Consolidated Financial Statements (unaudited) for more detail about income taxes.
Discontinued Operations
There was a net loss of $0.1 million in the first quarter of 2012 from discontinued operations compared to net income of $0.4 million in the first quarter of 2011.
Liquidity and Capital Resources
A significant portion of NiSources operations, most notably in the gas distribution, gas transportation and storage and electric distribution businesses, are subject to seasonal fluctuations in cash flow. During the heating season, which is primarily from November through March, cash receipts from gas sales and transportation services typically exceed cash requirements. During the summer months, cash on hand, together with the seasonal increase in cash flows from the electric business during the summer cooling season and external short-term and long-term financing, is used to purchase gas to place in storage for heating season deliveries and perform necessary maintenance of facilities. NiSource believes that through income generated from operating activities, amounts available under its revolving credit facility, commercial paper program, long-term debt agreements and NiSources ability to access the capital markets, there is adequate capital available to fund its operating activities and capital expenditures in 2012.
Operating Activities
Net cash from operating activities for the three months ended March 31, 2012 was $480.0 million, an increase of $57.9 million compared to the three months ended March 31, 2011. The increase in cash from operating activities was the result of a decrease in pension and other postretirement plan funding of $87.5 million, which is discussed below. Additionally, there was a decrease of $78.6 million in the use of working capital from accounts payable resulting from lower gas prices and volumes in 2012 compared to 2011. These increases were partially offset by a decrease in working capital from income tax receivables of $78.4 million as there was a refund received in 2011 which did not occur in 2012.
Pension and Other Postretirement Plan Funding. NiSource expects to make contributions of approximately $3.3 million to its pension plans and approximately $51.7 million to its postretirement medical and life plans in 2012, which could change depending on market conditions. For the three months ended March 31, 2012, NiSource has contributed $0.9 million to its pension plans and $13.1 million to its other postretirement benefit plans.
49
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Investing Activities
NiSources capital expenditures for the three months ended March 31, 2012 were $292.6 million, compared to $209.4 million for the comparable period in 2011. The increase is the result of increased spending for Gas Transmission and Storage Operations system growth and Electric Operations maintenance and other. NiSource projects 2012 capital expenditures to be approximately $1.4 billion.
Restricted cash was $149.7 million and $160.6 million as of March 31, 2012 and December 31, 2011, respectively. The decrease in restricted cash was due to the wind-down of NiSources unregulated natural gas marketing business.
Financing Activities
Long-term Debt. Refer to Note 16, Long-Term Debt, in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on long-term debt.
Credit Facilities. On March 3, 2011, NiSource Finance entered into a new $1.5 billion four-year revolving credit facility with a syndicate of banks led by Barclays Capital. The new facility replaced an existing $1.5 billion five-year credit facility which would have expired during July 2011. The purpose of the new facility is to fund ongoing working capital requirements and for general corporate purposes, including supporting liquidity for the companys commercial paper program, and provides for the issuance of letters of credit.
During June 2011, NiSource Finance implemented a new commercial paper program with a program limit of up to $500.0 million with a dealer group comprised of Barclays, Citigroup, Credit Suisse and Wells Fargo. Commercial paper issuances are supported by available capacity under NiSources $1.5 billion unsecured revolving credit facility, which expires in March 2015.
NiSource Finance had $391.0 million in outstanding borrowings under its four-year revolving credit facility at March 31, 2012, at a weighted average interest rate of 2.07% and borrowings of $725.0 million at December 31, 2011, at a weighted average interest rate of 1.99%. In addition, NiSource Finance had $496.6 million in commercial paper outstanding at March 31, 2012, at a weighted average interest rate of 1.01% and $402.7 million in commercial paper outstanding at December 31, 2011, at a weighted average interest rate of 1.01%.
As of March 31, 2012 and December 31, 2011, NiSource had $376.6 million and $231.7 million, respectively, of short-term borrowings recorded on the Condensed Consolidated Balance Sheets (unaudited) and cash from financing activities in the same amount relating to its accounts receivable securitization facilities. See Note 11, Transfers of Financial Assets.
As of March 31, 2012 and December 31, 2011, NiSource had $37.5 million of stand-by letters of credit outstanding of which $19.2 million were under the revolving credit facility.
As of March 31, 2012, an aggregate of $593.2 million of credit was available under the credit facility.
Sale of Trade Accounts Receivables. Refer to Note 11, Transfers of Financial Assets, in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on the sale of accounts receivable.
All accounts receivable sold to the commercial paper conduits are valued at face value, which approximates fair value due to their short-term nature. The amount of the undivided percentage ownership interest in the accounts receivables sold is determined, in part, by required loss reserves under the agreements.
Credit Ratings. On February 29, 2012, Standard & Poors affirmed the senior unsecured ratings for NiSource and its subsidiaries at BBB-. Standard & Poors outlook for NiSource and all of its subsidiaries is stable. On December 13, 2011, Fitch affirmed the senior unsecured ratings for NiSource at BBB-, and the existing ratings of all other subsidiaries. Fitchs outlook for NiSource and all of its subsidiaries is stable. On November 18, 2011, Moodys
50
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Investors Service affirmed the senior unsecured ratings for NiSource at Baa3, and the existing ratings of all other subsidiaries. Moodys outlook for NiSource and all of its subsidiaries is stable. Although all ratings continue to be investment grade, a downgrade by Standard & Poors, Moodys or Fitch would result in a rating that is below investment grade.
Certain NiSource affiliates have agreements that contain ratings triggers that require increased collateral if the credit ratings of NiSource or certain of its subsidiaries are rated below BBB- by Standard & Poors or Baa3 by Moodys. These agreements are primarily for insurance purposes and for the physical purchase or sale of power. The collateral requirement that would be required in the event of a downgrade below the ratings trigger levels would amount to approximately $23.0 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. In addition, under Northern Indianas trade receivables sales program, an event of termination occurs if Northern Indianas debt rating is withdrawn by either Standard & Poors or Moodys, or falls below BB or Ba2 at either Standard & Poors or Moodys, respectively. Likewise, under Columbia of Ohios and Columbia of Pennsylvanias trade receivables sales programs, an event of termination occurs if NiSources debt rating is withdrawn by either Standard & Poors or Moodys, or falls below BB- or Ba3 at either Standard & Poors or Moodys, respectively.
Contractual Obligations. Refer to Note 13, Income Taxes, in the Notes to Condensed Consolidated Financial Statements (unaudited) for material changes recorded during the three months ended March 31, 2012 to NiSources uncertain tax positions recorded as of December 31, 2011.
Forward Equity Sale. Refer to Note 4, Forward Equity Agreement, in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on financing activities related to the forward equity sale.
Market Risk Disclosures
Risk is an inherent part of NiSources energy businesses. The extent to which NiSource properly and effectively identifies, assesses, monitors and manages each of the various types of risk involved in its businesses is critical to its profitability. NiSource seeks to identify, assess, monitor and manage, in accordance with defined policies and procedures, the following principal market risks that are involved in NiSources energy businesses: commodity price risk, interest rate risk and credit risk. Risk management at NiSource is a multi-faceted process with oversight by the Risk Management Committee that requires constant communication, judgment and knowledge of specialized products and markets. NiSources 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 include but are not limited to market, operational, financial and strategic risk types. In recognition of the increasingly varied and complex nature of the energy business, NiSources risk management process, policies and procedures continue to evolve and are subject to ongoing review and modification.
Various analytical techniques are employed to measure and monitor NiSources market and credit risks, including VaR. VaR represents the potential loss or gain for an instrument or portfolio from changes in market factors, for a specified time period and at a specified confidence level.
Commodity Price Risk
NiSource is exposed to commodity price risk as a result of its subsidiaries operations involving natural gas and power. To manage this market risk, NiSources subsidiaries use derivatives, including commodity futures contracts, swaps and options. NiSource is not involved in speculative energy trading activity.
Commodity price risk resulting from derivative activities at NiSources rate-regulated subsidiaries is limited, since regulations allow recovery of prudently incurred purchased power, fuel and gas costs through the rate-making process, including gains or losses on these derivative instruments. If states should explore additional regulatory reform, these subsidiaries may begin providing services without the benefit of the traditional rate-making process and may be more exposed to commodity price risk. Some of NiSources rate-regulated utility subsidiaries offer commodity price risk products to its customers for which derivatives are used to hedge forecasted customer usage under such products. These subsidiaries do not have regulatory recovery orders for these products and are subject to gains and losses recognized in earnings due to hedge ineffectiveness.
51
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Interest Rate Risk
NiSource is exposed to interest rate risk as a result of changes in interest rates on borrowings under its revolving credit agreement, commercial paper program and accounts receivable programs, which have interest rates that are indexed to short-term market interest rates. NiSource is also exposed to interest rate risk due to changes in interest rates on fixed-to-variable interest rate swaps that hedge the fair value of long-term debt. 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 $4.4 million for the three months ended March 31, 2012 and $4.4 million for the three months ended March 31, 2011.
Credit Risk
Due to the nature of the industry, credit risk is embedded in many of NiSources business activities. NiSources 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 Corporate Credit Risk 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 NiSource 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, letters of credit and qualified guarantees of support.
NiSource closely monitors the financial status of its banking credit providers and interest rate swap counterparties. NiSource evaluates the financial status of its 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.
On October 31, 2011, cash and derivatives broker-dealer MF Global filed for Chapter 11 bankruptcy protection. MF Global brokered NYMEX hedges of natural gas futures on behalf of NiSource affiliates. At the date of bankruptcy, NiSource affiliates had contracts open with MF Global with settlement dates ranging from November 2011 to February 2014. On November 3, 2011, these contracts were measured at a mark-to-market loss of approximately $46.4 million. NiSource affiliates had posted initial margin to open these accounts of $6.9 million and additional maintenance margin for mark-to-market losses, for a total cash balance of $53.3 million. Within the first week after the filing, at the direction of the Bankruptcy Court, a transfer of assets was initiated on behalf of NiSource affiliates to a court-designated replacement broker for future trade activity. The existing futures positions were closed and then rebooked with the replacement broker at the new closing prices as of November 3, 2011. Initial margin on deposit at MF Global of $5.7 million was transferred to the court-designated replacement broker. The maintenance margin was retained by MF Global to offset the loss positions of the open contracts on November 3, 2011. NiSource affiliates are monitoring the activity in the bankruptcy case and have filed a proof of claim at the Courts direction. As of March 31, 2012, NiSource affiliates maintained a reserve for the $1.2 million difference between the initial margin posted with MF Global and the cash transferred to the court-designated replacement broker as a loss contingency.
Fair Value Measurement
NiSource measures certain financial assets and liabilities at fair value. The level of the fair value hierarchy disclosed is based on the lowest level of input that is significant to the fair value measurement. NiSources financial assets and liabilities include price risk assets and liabilities, available-for-sale securities and a deferred compensation plan obligation.
Exchange-traded derivative contracts are generally based on unadjusted quoted prices in active markets and are classified within Level 1. These financial assets and liabilities are secured with cash on deposit with the exchange; therefore nonperformance risk has not been incorporated into these valuations. Certain non-exchange-traded derivatives are valued using broker or over-the-counter, on-line exchanges. In such cases, these non-exchange-traded derivatives are classified within Level 2. Non-exchange-based derivative instruments include swaps, forwards, and options. In certain instances, these instruments may utilize models to measure fair value. NiSource
52
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
uses a similar model to value similar instruments. Valuation models utilize various inputs that include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, other observable inputs for the asset or liability, and market-corroborated inputs, i.e., inputs derived principally from or corroborated by observable market data by correlation or other means. Where observable inputs are available for substantially the full term of the asset or liability, the instrument is categorized in Level 2. Certain derivatives trade in less active markets with a lower availability of pricing information and models may be utilized in the valuation. When such inputs have a significant impact on the measurement of fair value, the instrument is categorized in Level 3. Credit risk is considered in the fair value calculation of derivative instruments that are not exchange-traded. Credit exposures are adjusted to reflect collateral agreements which reduce exposures.
Price risk management assets also include fixed-to-floating interest-rate swaps, which are designated as fair value hedges, as a means to achieve its targeted level of variable-rate debt as a percent of total debt. NiSource uses a calculation of future cash inflows and estimated future outflows related to the swap agreements, which are discounted and netted to determine the current fair value. Additional inputs to the present value calculation include the contract terms, as well as market parameters such as current and projected interest rates and volatility. As they are based on observable data and valuations of similar instruments, the interest-rate swaps are categorized in Level 2 in the fair value hierarchy. Credit risk is considered in the fair value calculation of the interest rate swap.
Refer to Note 10, Fair Value Disclosures, in the Notes to the Condensed Consolidated Financial Statements (unaudited) for additional information on NiSources fair value measurements.
Market Risk Measurement
Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, volatilities, correlations or other market factors, such as liquidity, will result in losses for a specified position or portfolio. NiSource calculates a one-day VaR at a 95% confidence level for the unregulated gas marketing group that utilizes a variance/covariance methodology. The daily market exposure for the unregulated gas marketing portfolio on an average, high and low basis was $0.1 million, $0.2 million and $0.1 million, respectively, for the first quarter of 2012. Prospectively, management has set the VaR limit at $0.4 million for gas marketing. Exceeding this limit would result in management actions to reduce portfolio risk.
Refer to Note 9, Risk Management Activities, in the Notes to Condensed Consolidated Financial Statements (unaudited) for further discussion of NiSources risk management.
Off Balance Sheet Arrangements
As a part of normal business, NiSource and certain subsidiaries enter into various agreements providing financial or performance assurance to third parties on behalf of certain subsidiaries. Such agreements include guarantees and stand-by letters of credit.
NiSource has issued guarantees that support up to approximately $141.9 million of commodity-related payments for its current and former subsidiaries involved in energy marketing activities. These guarantees were provided to counterparties in order to facilitate physical and financial transactions involving natural gas services. To the extent liabilities exist under the commodity-related contracts subject to these guarantees, such liabilities are included in the Condensed Consolidated Balance Sheets (unaudited).
NiSource has purchase and sales agreement guarantees totaling $30.0 million, which guarantee performance of the sellers covenants, agreements, obligations, liabilities, representations and warranties under the agreements. No amounts related to the purchase and sales agreement guarantees are reflected in the Condensed Consolidated Balance Sheets (unaudited). Management believes that the likelihood NiSource would be required to perform or otherwise incur any significant losses associated with any of the aforementioned guarantees is remote.
NiSource has other guarantees outstanding. Refer to Note 19-A, Guarantees and Indemnities, in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information about NiSources off balance sheet arrangements.
53
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Other Information
Critical Accounting Policies
Goodwill. NiSources goodwill assets at March 31, 2012 were $3,677.3 million, most of which resulted from the acquisition of Columbia on November 1, 2000. In addition, Northern Indiana Gas Distribution Operations goodwill assets at June 30, 2011 related to the purchase of Northern Indiana Fuel and Light and Kokomo Gas were $18.8 million. As required, NiSource tests for impairment of goodwill on an annual basis and on an interim basis when events or circumstances indicate that a potential impairment may exist. NiSources annual goodwill test takes place in the second quarter of each year and was most recently finalized as of June 30, 2011. The fair value of each reporting unit exceeded the carrying value based on this impairment test. Refer to Note 12, Goodwill Assets, in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information concerning NiSources annual goodwill test.
There were no significant changes to critical accounting policies for the period ended March 31, 2012.
Recently Adopted and Issued Accounting Pronouncements
Refer to Note 2, Recent Accounting Pronouncements, in the Notes to Condensed Consolidated Financial Statements (unaudited).
International Financial Reporting Standards
In February 2012, the SEC Chief Accountant advised that SEC commissioners will receive a proposal on IFRS in the coming months when the SEC Staff produces their final report on IFRS. In February 2010, the SEC expressed its commitment to the development of a single set of high quality globally accepted accounting standards and directed its staff to execute a work plan addressing specific areas of concern regarding the potential incorporation of IFRS for the U.S. In May 2011, a Staff Paper was issued outlining a possible endorsement approach for the incorporation of IFRS into the U.S. financial reporting system, as opposed to a single-date approach, if the SEC were to decide that incorporation of IFRS is in the best interest of U.S. investors. Under this possible framework, IFRS would be incorporated into U.S. GAAP during a transition period (e.g., five to seven years) and the FASB would be retained as the United States standard setter. The accounting differences between U.S. GAAP and IFRS are complex and significant in many aspects, and conversion to IFRS would have broad impacts across NiSource. NiSources strategy for addressing a potential mandate of IFRS will be re-assessed when the SEC makes its determination on whether to require the use of IFRS and by what method.
Dodd-Frank Financial Reform Bill
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Act) was passed by Congress on July 15, 2010 and was signed into law on July 21, 2010. The Act, among other things, establishes a Financial Stability Oversight Council (FSOC) and a Consumer Financial Protection Bureau (CFPB) whose duties will include the monitoring of domestic and international financial regulatory proposals and developments, as well as the protection of consumers. The FSOC may submit comments to the SEC and any standard-setting body with respect to an existing or proposed accounting principle, standard or procedure. The Act also creates increased oversight of the over-the-counter derivative market, requiring certain transactions in swaps, options, and other derivatives to be cleared through a clearing house, requiring cash margins to be posted for those transactions, and requiring substantial reporting and regulatory oversight for entities engaged as a dealer in derivatives and swaps. Some regulations to implement the Act have been finalized and others are scheduled to be issued later this year. NiSource is monitoring the rulemaking process under the Act. Although the Act and the new regulations are expected to have some impact on capital markets and derivatives markets generally, NiSource does not expect the Act to have any material effect on its operations.
54
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
RESULTS AND DISCUSSION OF SEGMENT OPERATIONS
Presentation of Segment Information
NiSources operations are divided into three primary business segments: Gas Distribution Operations, Gas Transmission and Storage Operations, and Electric Operations.
55
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Distribution Operations
Three Months Ended March 31, (in millions) | 2012 | 2011 | ||||||
Net Revenues |
||||||||
Sales Revenues |
$ | 1,069.3 | $ | 1,585.5 | ||||
Less: Cost of gas sold (excluding depreciation and amortization) |
555.6 | 997.9 | ||||||
Net Revenues |
513.7 | 587.6 | ||||||
Operating Expenses |
||||||||
Operation and maintenance |
204.2 | 242.2 | ||||||
Depreciation and amortization |
46.7 | 42.9 | ||||||
Loss on sale or impairment of assets |
- | 0.1 | ||||||
Other taxes |
50.8 | 60.9 | ||||||
Total Operating Expenses |
301.7 | 346.1 | ||||||
Operating Income |
$ | 212.0 | $ | 241.5 | ||||
|
||||||||
Revenues ($ in Millions) |
||||||||
Residential |
726.5 | 1,075.7 | ||||||
Commercial |
241.7 | 360.2 | ||||||
Industrial |
60.3 | 77.8 | ||||||
Off System |
35.1 | 76.8 | ||||||
Other |
5.7 | (5.0) | ||||||
Total |
1,069.3 | 1,585.5 | ||||||
Sales and Transportation (MMDth) |
||||||||
Residential |
102.9 | 134.5 | ||||||
Commercial |
61.2 | 77.6 | ||||||
Industrial |
131.3 | 118.9 | ||||||
Off System |
13.5 | 17.5 | ||||||
Other |
0.1 | 0.3 | ||||||
Total |
309.0 | 348.8 | ||||||
Heating Degree Days |
2,262 | 3,014 | ||||||
Normal Heating Degree Days |
2,931 | 2,900 | ||||||
% (Warmer) Colder than Normal |
(23%) | 4% | ||||||
Customers |
||||||||
Residential |
3,050,576 | 3,047,157 | ||||||
Commercial |
281,539 | 282,044 | ||||||
Industrial |
7,859 | 7,705 | ||||||
Other |
18 | 65 | ||||||
Total |
3,339,992 | 3,336,971 |
NiSources natural gas distribution operations serve approximately 3.3 million customers in seven states: Ohio, Indiana, Pennsylvania, Massachusetts, Virginia, Kentucky and Maryland. The regulated subsidiaries offer both traditional bundled services as well as transportation only for customers that purchase gas from alternative suppliers. The operating results reflect the temperature-sensitive nature of customer demand with 74% of annual residential and commercial throughput affected by seasonality. As a result, segment operating income is higher in the first and fourth quarters reflecting the heating demand during the winter season.
Regulatory Matters
Refer to Note 8, Regulatory Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on significant rate developments and cost recovery and trackers for the Gas Distribution Operations segment.
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Distribution Operations (continued)
Customer Usage. Increased efficiency of natural gas appliances and improvements in home building codes and standards has contributed to a long-term trend of declining average use per customer. In addition, usage for the first quarter of 2012 declined from the same period last year primarily due to warmer than normal weather. While historically, rate design at the distribution level has been structured such that a large portion of cost recovery is based upon throughput, rather than in a fixed charge, operating costs are largely incurred on a fixed basis, and do not fluctuate due to changes in customer usage. As a result, the NiSource LDCs have pursued changes in rate design to more effectively match recoveries with cost incurrence. Each of the states in which the NiSource LDCs operate has different requirements regarding the procedure for establishing changes to rate design. Columbia of Ohio restructured its rate design through a base rate proceeding and has adopted a de-coupled rate design which more closely links the recovery of fixed costs with fixed charges. Columbia of Massachusetts and Columbia of Virginia received regulatory approval of decoupling mechanisms which adjust revenues to an approved benchmark level through a volumetric adjustment factor. In its 2011 rate case, Columbia of Pennsylvania implemented a higher fixed residential customer charge. In its 2010 rate case, Northern Indiana implemented a higher fixed customer charge for residential and small customer classes moving toward full straight fixed variable rate design. This rate design was also incorporated in the settlement of the 2011 merger of the three Indiana LDCs; Northern Indiana, Kokomo Gas and Northern Indiana Fuel and Light.
Environmental Matters
Various environmental matters occasionally impact the Gas Distribution Operations segment. As of March 31, 2012, a reserve has been recorded to cover probable and estimable environmental response actions. Refer to Note 19-C, Environmental Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Gas Distribution Operations segment.
Weather
In general, NiSource calculates the weather related revenue variance based on changing customer demand driven by weather variance from normal heating degree-days. Normal is evaluated using heating degree days across the NiSource distribution region. While the temperature base for measuring heating degree days (i.e. the estimated average daily temperature at which heating load begins) varies slightly across the region, the NiSource composite measurement is based on 65 degrees. NiSource composite heating degree days reported do not directly correlate to the weather related dollar impact on the results of Gas Distribution Operations. Heating degree days experienced during different times of the year or in different operating locations may have more or less impact on volume and dollars depending on when and where they occur. When the detailed results are combined for reporting, there may be weather related dollar impacts on operations when there is not an apparent or significant change in the aggregated NiSource composite heating degree-day comparison.
Weather in the Gas Distribution Operations territories for the first quarter of 2012 was 23% warmer than normal and 25% warmer than the first quarter in 2011.
Throughput
Total volumes sold and transported of 309.0 MMDth for the first quarter of 2012 decreased by 39.8 MMDth from the same period last year. This 11.4% decrease in volume was primarily due to warmer weather.
Net Revenues
Net revenues for the first quarter of 2012 were $513.7 million, a decrease of $73.9 million from the same period in 2011, due primarily to lower regulatory and tax trackers, which are offset in expense, of $46.4 million and the effects of warmer weather of $39.0 million. These decreases in net revenues were partially offset by an increase of $11.5 million for regulatory and service programs, including impacts from the rate case at Columbia of Pennsylvania and the implementation of rates under Columbia of Ohios approved infrastructure replacement program.
At Northern Indiana, sales revenues and customer billings are adjusted for amounts related to under and over-recovered purchased gas costs from prior periods per regulatory order. These amounts are primarily reflected in the Other gross revenues statistic provided at the beginning of this segment discussion. The adjustment to Other gross revenues for the three months ended March 31, 2012 was a revenue decrease of $36.2 million compared to a decrease of $34.9 million for the three months ended March 31, 2011.
57
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Distribution Operations (continued)
Operating Income
For the first quarter of 2012, Gas Distribution Operations reported operating income of $212.0 million, a decrease of $29.5 million from the comparable 2011 period. Operating income decreased as a result of lower net revenues, as described above, partially offset by lower operating expenses. Operating expenses were $44.4 million lower than the comparable period reflecting a decrease of $46.4 million in regulatory and tax trackers, which are offset in net revenue. This was partially offset by an increase of $3.8 million in depreciation costs due to an increase in capital expenditures.
58
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Transmission and Storage Operations
Three Months Ended March 31, (in millions) | 2012 | 2011 | ||||||
Net Revenues |
||||||||
Transportation revenues |
$ | 218.1 | $ | 199.7 | ||||
Storage revenues |
49.3 | 50.5 | ||||||
Other revenues |
8.0 | 5.2 | ||||||
Total Operating Revenues |
275.4 | 255.4 | ||||||
Less: Cost of sales (excluding depreciation and amortization) |
0.9 | - | ||||||
Net Revenues |
274.5 | 255.4 | ||||||
Operating Expenses |
||||||||
Operation and maintenance |
94.7 | 94.6 | ||||||
Depreciation and amortization |
33.0 | 32.7 | ||||||
Other taxes |
15.9 | 12.7 | ||||||
Total Operating Expence |
143.6 | 140.0 | ||||||
Equity Earnings in Unconsolidated Affiliates |
7.7 | 3.0 | ||||||
Operating Income |
$ | 138.6 | $ | 118.4 | ||||
|
||||||||
Throughput (MMDth) |
||||||||
Columbia Transmission |
379.4 | 426.6 | ||||||
Columbia Gulf |
227.5 | 244.0 | ||||||
Crossroads Gas Pipeline |
4.3 | 5.1 | ||||||
Intrasegment eliminations |
(105.7) | (152.6) | ||||||
Total |
505.5 | 523.1 |
NiSources Gas Transmission and Storage Operations segment primarily consists of the operations of Columbia Transmission, Columbia Gulf, NiSource Midstream, Crossroads Pipeline, and the equity investments in Millennium and Hardy Storage. In total, NiSource owns a pipeline network of approximately 15,000 miles extending from the Gulf of Mexico to New York and the eastern seaboard. The pipeline network serves customers in 16 northeastern, mid-Atlantic, midwestern and southern states, as well as the District of Columbia. In addition, the Gas Transmission and Storage Operations segment operates one of the nations largest underground natural gas storage systems.
Gas Transmission and Storage Operations most significant projects are as follows:
Growth Projects Placed into Service
Clendenin Project. Construction began in 2010 on this approximately $18 million capital project that modified existing facilities in the Clendenin, West Virginia area to move Marcellus production to liquid market centers. The Clendenin project provided the Gas Transmission and Storage Operations segment the ability to meet incremental transportation demand of up to 150,000 Dth per day. Long-term firm transportation contracts for 133,100 Dth were executed, some of which began in the third quarter 2010 and others that began in June 2011.
East Lateral Project. In 2010, the Gas Transmission and Storage Operations segment initiated a $5 million project to modify existing facilities on the Columbia Gulf East Lateral to provide firm transportation service for up to 300,000 Dth per day. Firm transportation contracts for 250,000 Dth per day were executed for five-year terms. This FERC-approved project was completed and put into service in May 2011.
Majorsville, PA Project. The Gas Transmission and Storage Operations segment executed three separate projects totaling approximately $80 million in the Majorsville, PA vicinity to aggregate Marcellus Shale gas production for downstream transmission. Fully contracted, the pipeline and compression assets allow the Gas Transmission and Storage Operations segment to gather and deliver more than 325,000 Dth per day of Marcellus production gas to the Majorsville MarkWest Liberty processing plants developed by MarkWest Liberty Midstream & Resources L.L.C.
59
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Transmission and Storage Operations (continued)
In 2010, Columbia Transmission received approval from the FERC to refunctionalize certain transmission assets to gathering and transferred these pipeline facilities to a newly formed affiliate, NiSource Midstream Services, LLC. These facilities are included in providing non-FERC jurisdiction gathering services to producers in the Majorsville, PA vicinity. Two of the three projects were completed and placed into service on August 1, 2010, creating an integrated gathering and processing system serving Marcellus production in southwestern Pennsylvania and northern West Virginia. Precedent agreements were executed by anchor shippers in the fourth quarter of 2009, which were superseded by the execution of long-term service agreements in August and September 2010. In the fourth quarter, construction began on the third project on a pipeline to deliver residue gas from the Majorsville MarkWest Liberty processing plant to the Texas Eastern Wind Ridge compressor station in southwestern Pennsylvania to provide significant additional capacity to eastern markets. This project was placed into service in April 2011.
Southern Appalachian Project. The Gas Transmission and Storage Operations segment invested nearly $4 million that expanded Line SM-116 to transport approximately 38,500 Dth per day on a firm basis as a continuation of its strategy to provide transportation services to producers of Marcellus and Appalachian gas. This additional capacity was supported by executed, binding precedent agreements. These additional facilities were placed in service in April 2011.
Growth Projects in Progress
Smithfield Project. The Gas Transmission and Storage Operations segment is making approximately $14 million of capital investments for modifications to existing pipeline and compressor facilities to accommodate receipt of up to 150,000 Dth per day of additional Marcellus gas from connections near Smithfield, West Virginia and Waynesburg, Pennsylvania. Three anchor shippers agreed to long-term, firm transportation contracts, one contract that began in April 2011 and others that began in August 2011. The project is expected to be fully in service in July 2012.
Rimersburg Expansion Project. The Gas Transmission and Storage Operations segment is investing approximately $7 million for this project that added capacity to north central Pennsylvania to meet the growing demands of producers in the area. The project expands Line 134 from the Brinker compressor station to the Iowa regulator, adding approximately 19,000 Dth per day of additional capacity, all of which has been sold through precedent agreements. The project will be placed into service in the second quarter of 2012.
Line WB Expansion Project. The Gas Transmission and Storage Operations segment is expanding its WB system through investment in additional facilities, which provide transportation service on a firm basis from Loudoun, Virginia to Leach, Kentucky. The expansion totaled approximately $14 million, allowing producers to meet incremental transportation demand in the Marcellus/Appalachian Basin. Binding precedent agreements for approximately 175,000 Dth per day of firm transportation capacity were executed, some which began in January 2011. Final construction on all facilities will be completed and placed into service in May 2012.
Big Pine Gathering System Project. The Gas Transmission and Storage Operations segment is making an investment of approximately $150 million, which includes right-of-way acquisitions and installation, refurbishment and operation of approximately 70 miles of pipeline facilities in the hydrocarbon-rich Western Pennsylvania shale production region. The newly constructed pipeline will have an initial combined capacity of 425,000 Dth per day. Natural gas will initially be sourced from a new processing plant owned by XTO Energy Inc., a subsidiary of ExxonMobil, and delivered to Columbia Transmission and two other third-party pipelines in Pennsylvania. The project is expected to be placed in service in late 2012.
Power Plant Generation Project. The Gas Transmission and Storage Operations segment is spending nearly $35 million on an expansion project, which includes new pipeline and modifications to existing compression assets, with Virginia Power Services Energy Corporation, Inc., the energy manager for Virginia Electric and Power Company. This project will expand the Columbia Transmission system in order to provide up to nearly 250,000 Dth per day of transportation capacity under a long-term, firm contract. The project is expected to be ready for commercial operations by mid-2014.
Westside Expansion. The Gas Transmission and Storage Operations segment is planning to invest $220 million in new pipeline and compression to increase supply origination from the Smithfield and Waynesburg areas on the Columbia Transmission system and provides a backhaul transportation path to Gulf Coast markets on the Columbia Gulf system. This investment will increase capacity up to 500,000 Dth per day transporting Marcellus production under long-term, firm contracts. The project is expected to be in service by the fourth quarter 2014.
60
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Transmission and Storage Operations (continued)
Equity Investments
Millennium Pipeline. Millennium Pipeline Company, L.L.C. operates approximately 250 miles of pipeline granted under the authority of the FERC. The Millennium pipeline has the capability to transport up to 525,400 Dth per day of natural gas to markets along its route, which lies between Corning, New York and Ramapo, New York, as well as to the New York City market through its pipeline interconnections. Columbia Transmission owns a 47.5% interest in Millennium and acts as operator for the pipeline in partnership with DTE Millennium Company and National Grid Millennium LLC, which each own an equal remaining share of the company.
Columbia Transmission made a contribution of $5.2 million and received distributions of earnings of $12.4 million from Millennium in the first quarter 2012. No contributions were made nor distributions received during the first quarter of 2011.
Hardy Storage. Hardy Storage is a joint venture between subsidiaries of Columbia Transmission and Piedmont that manages an underground storage field in Hardy and Hampshire counties in West Virginia. Columbia Transmission serves as operator of the company, which is regulated by the FERC. Hardy Storage has a working storage capacity of 12 Bcf and the ability to deliver 176,000 Dth of natural gas per day.
Hardy Storage distributed a total of $0.5 million and $1.8 million of available accumulated earnings in the first quarter 2012 and 2011, respectively, to NiSource. NiSource made no contributions during the first quarter of 2012 or 2011.
Sales and Percentage of Physical Capacity Sold
Columbia Transmission and Columbia Gulf compete for transportation customers based on the type of service a customer needs, operating flexibility, available capacity and price. Columbia Gulf and Columbia Transmission provide a significant portion of total transportation services under firm contracts and derive a smaller portion of revenues through interruptible contracts, with management seeking to maximize the portion of physical capacity sold under firm contracts.
Firm service contracts require pipeline capacity to be reserved for a given customer between certain receipt and delivery points. Firm customers generally pay a capacity reservation fee based on the amount of capacity being reserved regardless of whether the capacity is used, plus an incremental usage fee when the capacity is used. Annual capacity reservation revenues derived from firm service contracts generally remain constant over the life of the contract because the revenues are based upon capacity reserved and not whether the capacity is actually used. The high percentage of revenue derived from capacity reservation fees mitigates the risk of revenue fluctuations within the Gas Transmission and Storage Operations segment due to changes in near-term supply and demand conditions. For the quarter ended March 31, 2012, approximately 91.8% of the transportation revenues were derived from capacity reservation fees paid under firm contracts and 6.5% of the transportation revenues were derived from usage fees under firm contracts compared to approximately 91.7% and 6.8%, respectively, for the quarter ended March 31, 2011.
Interruptible transportation service is typically short term in nature and is generally used by customers that either do not need firm service or have been unable to contract for firm service. These customers pay a usage fee only for the volume of gas actually transported. The ability to provide this service is limited to available capacity not otherwise used by firm customers, and customers receiving services under interruptible contracts are not assured capacity in the pipeline facilities. Gas Transmission and Storage Operations provides interruptible service at competitive prices in order to capture short term market opportunities as they occur and interruptible service is viewed by management as an important strategy to optimize revenues from the gas transmission assets. For the quarters ended March 31, 2012 and 2011, approximately 1.7% and 1.5%, respectively, of the transportation revenues were derived from interruptible contracts.
61
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Gas Transmission and Storage Operations (continued)
Regulatory Matters
Refer to Note 8, Regulatory Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on regulatory matters for the Gas Transmission and Storage Operations segment.
Environmental Matters
Various environmental matters occasionally impact the Gas Transmission and Storage Operations segment. As of March 31, 2012, a reserve has been recorded to cover probable and estimable environmental response actions. Refer to Note 19-C, Environmental Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Gas Transmission and Storage Operations segment.
Throughput
Columbia Transmissions throughput consists of gas transportation service deliveries to LDC city gates, to gas fired power plants, other industrial customers, or other interstate pipelines in its market area. Columbia Transmissions market area covers portions of Northeastern, Mid-Atlantic, Midwestern, and Southern states as well as the District of Columbia. Gas delivered via transportation services to storage is not accounted for as throughput until it is withdrawn from storage and delivered to one of the aforementioned locations via a transportation service. Throughput for Columbia Gulf traditionally consists of gas delivered to Columbia Transmission at Leach, Kentucky as well as gas delivered south of Leach to other interstate pipelines or to an LDCs city gate. Recent changes in market conditions have resulted in more nontraditional throughput such as backhaul transportation services that originate in Leach that flow southward. Columbia Gulf has also began to flow gas in a southerly direction from its Louisiana interconnects to Florida markets. Crossroads Pipeline serves customers in Northern Indiana and Ohio via gas flowing west to east originating from outside the Chicago area to Cygnet, Ohio where it interconnects with Columbia Transmission. Intra-segment eliminations represent gas delivered to an affiliated pipeline within the segment.
Throughput for the Gas Transmission and Storage Operations segment totaled 505.5 MMDth for the first quarter of 2012, compared to 523.1 MMDth for the same period in 2011. The decrease of 17.6 MMDth for the three-month period was attributable to the significantly warmer weather, which drove a vast majority of the decrease on the Columbia Transmission system. Because of the impact from increased production of Appalachian shale gas and the warmer winter weather, fewer deliveries were made on the Columbia Gulf system to Columbia Transmission at Leach, Kentucky. The increase in shale gas from the Appalachian, Haynesville and Barnett shale areas has also led to an increase in non-traditional throughput on Columbia Gulf in the form of backhaul services to serve demand in the Florida markets.
Net Revenues
Net revenues were $274.5 million for the first quarter of 2012, an increase of $19.1 million from the same period in 2011, primarily due to higher demand margin revenue of $8.6 million as a result of growth projects placed into service since the first quarter of 2011. Additionally, there was an increase of $7.2 million due to the impact of the rate case at Columbia Gulf and higher regulatory trackers of $2.6 million, which are offset in expense.
Operating Income
Operating income was $138.6 million for the first quarter of 2012, an increase of $20.2 million from the first quarter of 2011. This increase is due to an increase in operating revenues, as described above, and higher equity earnings, partially offset by higher operating expenses. Equity earnings increased $4.7 million primarily from increased earnings at Millennium. Operating expenses increased as a result of higher other taxes of $3.2 million and an increase in regulatory trackers of $2.6 million, which are offset in operating revenues. These increases were partially offset by a decrease in outside service costs of $3.8 million and lower employee and administrative expenses of $2.6 million, primarily pension costs.
62
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Electric Operations
Three Months Ended March 31, (in millions) | 2012 | 2011 | ||||||
|
||||||||
Net Revenues |
||||||||
Sales revenues |
$ | 354.6 | $ | 348.4 | ||||
Less: Cost of sales (excluding depreciation and amortization) |
117.2 | 133.2 | ||||||
|
||||||||
Net Revenues |
237.4 | 215.2 | ||||||
|
||||||||
Operating Expenses |
||||||||
Operation and maintenance |
114.1 | 93.8 | ||||||
Depreciation and amortization |
60.9 | 54.5 | ||||||
Other taxes |
16.2 | 16.3 | ||||||
|
||||||||
Total Operating Expenses |
191.2 | 164.6 | ||||||
|
||||||||
Operating Income |
$ | 46.2 | $ | 50.6 | ||||
|
||||||||
Revenues ($ in millions) |
||||||||
Residential |
96.0 | 97.5 | ||||||
Commercial |
100.4 | 92.5 | ||||||
Industrial |
158.0 | 155.2 | ||||||
Wholesale |
0.4 | 2.2 | ||||||
Other |
(0.2 | ) | 1.0 | |||||
|
||||||||
Total |
354.6 | 348.4 | ||||||
|
||||||||
Sales (Gigawatt Hours) |
||||||||
Residential |
781.2 | 855.8 | ||||||
Commercial |
907.8 | 924.9 | ||||||
Industrial |
2,385.0 | 2,442.4 | ||||||
Wholesale |
19.1 | 67.1 | ||||||
Other |
32.5 | 44.5 | ||||||
|
||||||||
Total |
4,125.6 | 4,334.7 | ||||||
|
||||||||
Electric Customers |
||||||||
Residential |
400,348 | 400,169 | ||||||
Commercial |
53,928 | 53,826 | ||||||
Industrial |
2,457 | 2,424 | ||||||
Wholesale |
16 | 15 | ||||||
Other |
717 | 739 | ||||||
|
||||||||
Total |
457,466 | 457,173 | ||||||
|
NiSource generates and distributes electricity, through its subsidiary Northern Indiana, to approximately 457 thousand customers in 20 counties in the northern part of Indiana. The operating results reflect the temperature-sensitive nature of customer demand with annual sales affected by temperatures in the northern part of Indiana. As a result, segment operating income is generally higher in the second and third quarters, reflecting cooling demand during the summer season.
63
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS (continued)
NISOURCE INC.
Electric Operations (continued)
Electric Supply
On October 28, 2011, Northern Indiana filed its 2011 Integrated Resource Plan with the IURC. The plan evaluates demand-side and supply-side resource alternatives to reliably and cost-effectively meet Northern Indiana customers future energy requirements over the next twenty years. Existing resources are expected to be sufficient, assuming favorable outcomes for environmental upgrades, to meet customers needs for the next decade. Northern Indiana continues to monitor and assess economic, regulatory and legislative activity, and will update its resource plan as appropriate.
Regulatory Matters
Refer to Note 8, Regulatory Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for information on significant rate developments, MISO, and cost recovery and trackers for the Electric Operations segment.
Environmental Matters
Various environmental matters occasionally impact the Electric Operations segment. As of March 31, 2012, a reserve has been recorded to cover probable and estimable environmental response actions. Refer to Note 19-C, Environmental Matters, in the Notes to Condensed Consolidated Financial Statements (unaudited) for additional information regarding environmental matters for the Electric Operations segment.
Sales
Electric Operations sales quantities for the first quarter of 2012 were 4,125.6 gwh, a decrease of 209.1 gwh compared to the first quarter of 2011.
Net Revenues
Net revenues were $237.4 million for the first quarter of 2012, an increase of $22.2 million from the same period in 2011, primarily due to increased industrial, commercial and residential margins of $20.6 million mainly due to the implementation of the electric rate case. Additionally, there were lower revenue credits of $13.9 million in the current period as the electric rate case discontinued these credits and an increase in RTO tracker revenues of $4.4 million. These increases were partially offset by a decrease in environmental cost recovery of $11.0 million due to the plant balance eligible for recovery being reset to zero as a result of the electric rate case and a decrease of $6.7 million due to the impact of weather.
At Northern Indiana, sales revenues and customer billings are adjusted for amounts related to under- and over-recovered purchased fuel costs from prior periods per regulatory order. These amounts are primarily reflected in the Other gross revenues statistic provided at the beginning of this segment discussion. The adjustment to Other gross revenues for the three months ended March 31, 2012 was a revenue decrease of $20.1 million, compared to a decrease of $10.8 million for the three months ended March 31, 2011.
Operating Income
Operating income for the first quarter of 2012 was $46.2 million, a decrease of $4.4 million from the same period in 2011 due to higher operating expenses partially offset by the increase in net revenues described above. Operating expenses increased $26.6 million due primarily to and higher employee and administrative costs of $7.7 million and an increase in electric generation costs of $6.8 million. Additionally, there was an increase in depreciation costs of $6.4 million primarily due to depreciation for Sugar Creek and higher MISO fees of $5.5 million, both of which were previously deferred and the electric rate case resulted in the expiration of those deferrals.
64
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
NISOURCE INC.
For a discussion regarding quantitative and qualitative disclosures about market risk see Managements Discussion and Analysis of Financial Condition and Results of Operations - Market Risk Disclosures.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
NiSources Chief Executive Officer and its Principal Financial Officer, after evaluating the effectiveness of NiSources disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded based on the evaluation required by paragraph (b) of Exchange Act Rules 13a-15 and 15d-15 that, as of the end of the period covered by this report, NiSources disclosure controls and procedures are considered effective.
Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by NiSource in the reports that it files or submits under the Exchange Act is accumulated and communicated to NiSources management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There have been no changes in NiSources internal control over financial reporting during the fiscal quarter covered by this report that has materially affected, or is reasonably likely to materially affect, NiSources internal control over financial reporting.
65
PART II
NISOURCE INC.
Majorsville Operations Center PADEP Notice of Violation
In 1995, Columbia Transmission entered into an AOC with the EPA that requires Columbia Transmission to characterize and remediate environmental contamination at thousands of locations along Columbia Transmissions pipeline system. One of the facilities subject to the AOC is the Majorsville Operations Center, which was remediated under an EPA approved Remedial Action Work Plan in summer 2008. Pursuant to the Remedial Action Work Plan, Columbia Transmission completed a project that stabilized residual oil contained in soils at the site and in sediments in an adjacent stream.
On April 23, 2009, however, the PADEP issued Columbia Transmission an NOV, alleging that the remediation was not effective. The NOV asserts violations of the Pennsylvania Clean Streams Law and the Pennsylvania Solid Waste Management Act and contains a settlement demand in the amount of $1 million. Columbia Transmission is unable to estimate the likelihood or cost of potential penalties or additional remediation at this time.
There were no material changes from the risk factors disclosed in NiSources 2011 Annual Report on Form 10-K filed on February 24, 2012.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
66
NISOURCE INC.
(10.1) | Savings Restoration Plan for NiSource Inc. and Affiliates as amended and restated, effective January 1, 2012. |
(10.2) | NiSource Inc. Executive Deferred Compensation Plan as amended and restated effective January 1, 2012. |
(31.1) | Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
(31.2) | Certification of Stephen P. Smith, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
(32.1) | Certification of Robert C. Skaggs, Jr., Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
(32.2) | Certification of Stephen P. Smith, Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). |
(101.INS) | XBRL Instance Document |
(101.SCH) | XBRL Schema Document |
(101.CAL) | XBRL Calculation Linkbase Document |
(101.LAB) | XBRL Labels Linkbase Document |
(101.PRE) | XBRL Presentation Linkbase Document |
(101.DEF) | XBRL Definition Linkbase Document |
Pursuant to Item 601(b)(4)(iii) of Regulation S-K, NiSource hereby agrees to furnish the SEC, upon request, any instrument defining the rights of holders of long-term debt of NiSource not filed as an exhibit herein. No such instrument authorizes long-term debt securities in excess of 10% of the total assets of NiSource and its subsidiaries on a consolidated basis.
67
NISOURCE INC.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NiSource Inc. |
||||||||
(Registrant) | ||||||||
Date: May 1, 2012 | By: | /s/ Jon D. Veurink |
||||||
Jon D. Veurink | ||||||||
Vice President and Chief Accounting Officer | ||||||||
(Principal Accounting Officer | ||||||||
and Duly Authorized Officer) |
68
Exhibit 10.1
SAVINGS RESTORATION PLAN
FOR NISOURCE INC. AND AFFILIATES
As Amended and Restated Effective January 1, 2012
TABLE OF CONTENTS
Page | ||||
ARTICLE I BACKGROUND AND PURPOSE |
1 | |||
1.1. Background |
1 | |||
1.2. Purpose |
2 | |||
ARTICLE II DEFINITIONS |
2 | |||
2.1. Account |
2 | |||
2.2. Affiliate |
2 | |||
2.3. Basic Plan |
2 | |||
2.4. Beneficiary |
3 | |||
2.5. Benefits Committee |
3 | |||
2.6. Board |
3 | |||
2.7. Code |
3 | |||
2.8. Company |
3 | |||
2.9. Compensation |
3 | |||
2.10. DCP |
3 | |||
2.11. Disability |
3 | |||
2.12. Effective Date |
3 | |||
2.13. Eligible Employee |
3 | |||
2.14. Employer |
3 | |||
2.15. ERISA |
3 | |||
2.16. In-Service Withdrawal |
4 | |||
2.17. Limits |
4 | |||
2.18. ONC Committee |
4 | |||
2.19. Participant |
4 | |||
2.20. Plan |
4 | |||
2.21. Plan Administrator |
4 | |||
2.22. Plan Year |
4 | |||
2.23. Post-2004 Account |
4 | |||
2.24. Pre-2005 Account |
4 | |||
2.25. Separation from Service |
4 | |||
2.26. Specified Employee |
4 | |||
2.27. Unforeseeable Emergency |
5 | |||
2.28. Valuation Date |
5 | |||
ARTICLE III ELIGIBILITY AND PARTICIPATION |
5 | |||
3.1. Eligibility |
5 | |||
3.2. Participation |
5 | |||
3.3. Continuation of Participation |
5 | |||
3.4. Amendment of Eligibility Criteria |
5 | |||
ARTICLE IV ACCOUNTS |
5 |
i
4.1. Account |
5 | |||
4.2. Employer Credits |
6 | |||
4.3. Timing of Credits; Withholding |
7 | |||
4.4. Determination of Account |
7 | |||
4.5. Statement of Account |
8 | |||
ARTICLE V INVESTMENTS |
8 | |||
5.1. Investment Options |
8 | |||
5.2. Election of Investment Options |
8 | |||
5.3. Allocation of Investment Options |
8 | |||
5.4. No Actual Investment |
8 | |||
ARTICLE VI PAYMENTS AND DISTRIBUTIONS |
9 | |||
6.1. Distributions/Events Generally |
9 | |||
6.2. In-Service Withdrawals |
9 | |||
6.3. Distributions After Separation from Service |
10 | |||
6.4. Unforeseeable Emergency Distributions |
12 | |||
6.5. Automatic Cash-Out |
12 | |||
6.6. Special Payment Election by December 31, 2006, for Code Section 409A Transition Relief |
12 | |||
6.7. Withholding for Taxes |
13 | |||
6.8. Payment to Guardian |
13 | |||
ARTICLE VII BENEFICIARY DESIGNATION |
13 | |||
7.1. Beneficiary Designation |
13 | |||
7.2. No Beneficiary Designation |
13 | |||
ARTICLE VIII PLAN ADMINISTRATION |
13 | |||
8.1. Allocation of Duties to Committees |
13 | |||
8.2. Agents |
14 | |||
8.3. Information Required by Plan Administrator |
14 | |||
8.4. Binding Effect of Decisions |
14 | |||
ARTICLE IX CLAIMS PROCEDURE |
14 | |||
9.1. Claim |
14 | |||
9.2. Review of Claim |
14 | |||
9.3. Notice of Denial of Claim |
15 | |||
9.4. Reconsideration of Denied Claim |
15 | |||
9.5. Employer to Supply Information |
16 |
ii
ARTICLE X PLAN AMENDMENT AND TERMINATION |
16 | |||
10.1. Plan Amendment |
16 | |||
10.2. Partial Plan Termination |
16 | |||
ARTICLE XI MISCELLANEOUS PROVISIONS |
17 | |||
11.1. Unfunded Plan |
17 | |||
11.2. Company and Employer Obligations |
17 | |||
11.3. Unsecured General Creditor |
17 | |||
11.4. Trust Fund |
17 | |||
11.5. Nonalienation of Benefits |
17 | |||
11.6. Indemnification |
18 | |||
11.7. No Enlargement of Employee Rights |
19 | |||
11.8. Protective Provisions |
19 | |||
11.9. Governing Law |
19 | |||
11.10. Validity |
19 | |||
11.11. Notice |
19 | |||
11.12. Successors |
19 | |||
11.13. Incapacity of Recipient |
19 | |||
11.14. Unclaimed Benefit |
20 | |||
11.15. Tax Compliance and Payouts |
20 | |||
11.16. General Conditions |
21 |
iii
SAVINGS RESTORATION PLAN
FOR NISOURCE INC. AND AFFILIATES
ARTICLE I.
BACKGROUND AND PURPOSE
1.1 Background. Prior to January 1, 2004, Columbia Energy Group sponsored the Savings Restoration Plan for Columbia Energy Group for eligible executives of Columbia Energy Group and certain Affiliates. Effective January 1, 2004, NiSource Inc., the parent company of Columbia Energy Group, assumed sponsorship of the Savings Restoration Plan for Columbia Energy Group, renamed the Plan the Savings Restoration Plan for NiSource Inc. and Affiliates, and broadened the Plan to include all employees of NiSource Inc. and Affiliates.
The Plan was amended and restated effective January 1, 2004, and amended effective January 1, 2005. The Plan was then amended and restated again effective January 1, 2005, to comply with Code Section 409A, and guidance and regulations thereunder, with respect to benefits earned under the Plan from and after January 1, 2005. Benefits under the Plan earned and vested prior to January 1, 2005 shall be administered without giving effect to Code Section 409A, and guidance and regulations thereunder. The provisions of the Plan as set forth herein apply only to Participants who actively participate in the Plan on or after January 1, 2005. Any Participant who retired or otherwise terminated employment with the Company and all Affiliates prior to January 1, 2005 shall have his or her rights determined under the provision of the Plan as it existed when his or her employment relationship terminated.
The Plan was further amended and restated, effective January 1, 2008, to provide for mandatory lump sum payments of small account balances in accordance with Code Section 409A. The Plan was amended and restated again, effective January 1, 2010, to contain provisions that eliminate mid-year enrollment into the Plan and to allow Participants who make Roth Contributions to a Basic Plan to participate in this Plan. The plan was further amended and restated, effective January 1, 2010, to restore certain Employer Contributions given to Participants who are classified as exempt employees by the Employer and who are hired or rehired on or after January 1, 2010.
The Plan was amended and restated again, effective May 13, 2011, to restore Profit Sharing Contributions that otherwise would have been contributed to Participants under the Basic Plan (if not subject to the Limits, defined below) and to transfer all administrative authority with respect to the Plan (including the authority to render decisions on claims and appeals and make administrative or ministerial amendments) from the ONC Committee to the Benefits Committee. The Plan is hereby amended and restated again, effective January 1, 2012, to (1) remove the ability of participants to make elective deferrals to the Plan; (2) change eligibility to receive Employer credits under the Plan to those employees who are in job scope level C2 and above; (3) provide for investment options in addition to the fixed interest credits currently available for the crediting of earnings on Accounts under the Plan; and (4) clarify other administrative matters related to the Plan.
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1.2 Purpose. The purpose of the Plan is to provide for the payment of savings restoration benefits to employees of NiSource Inc. and Affiliates, whose benefits under the Basic Plan are subject to the Limits or affected by deferrals into the DCP, so that the total savings plan benefits of such employees shall be determined on the same basis as is applicable to all other employees of the Company. The Plan is adopted solely (1) for the purpose of providing benefits to Participants in the Plan and their Beneficiaries in excess of the Limits imposed on qualified plans by Code Section 401(a)(17) and any other Code Sections, by restoring benefits to such Plan Participants and Beneficiaries that are no longer available under the Basic Plan as a result of the Limits, and (2) for the purpose of restoring benefits to Plan Participants and Beneficiaries that are no longer available under the Basic Plan as a result of the Participants deferrals into the DCP.
ARTICLE II.
DEFINITIONS
For the purposes of the Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise. Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. Defined terms used in the Plan that are not defined in this Article or elsewhere in the Plan but are defined in the Basic Plan shall have the meanings assigned to them in the Basic Plan. The headings of Articles and Sections are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control.
2.1 Account. The device used by an Employer to measure and determine the amount to be paid under the Plan. Each Account shall be divided into a Pre-2005 Account containing contributions to the Plan earned and vested prior to January 1, 2005, and a Post-2004 Account containing contributions to the Plan earned and/or vested on or after January 1, 2005.
2.2 Affiliate. Any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b)) that includes the Company; any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c)) with the Company; any organization (whether or not incorporated) that is a member of an affiliated service group (as defined in Code Section 414(m)) that includes the Company; any leasing organization, to the extent that its employees are required to be treated as if they were employed by the Company pursuant to Code Section 414(n) and the regulations thereunder; and any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o). An entity shall be an Affiliate only with respect to the existing period as described in the preceding sentence.
2.3 Basic Plan. The NiSource Inc. Retirement Savings Plan, as amended and restated effective January 1, 2010, and as further amended from time to time (or as amended and restated for any prior period to the extent the provisions of the Plan refer to such prior period for the Basic Plan).
2
2.4 Beneficiary. The person, persons or entity entitled to receive any Plan benefits payable after a Participants death, as elected by a Participant under the Basic Plan.
2.5 Benefits Committee. The NiSource Benefits Committee.
2.6 Board. The Board of Directors of NiSource. Inc.
2.7 Code. The Internal Revenue Code of 1986, as amended from time to time.
2.8 Company. NiSource Inc.
2.9 Compensation. Compensation as defined under the Basic Plan for purposes of determining Pre-Tax Contributions, Roth Contributions, and Matching Contributions under the Basic Plan. For purposes of calculating Employer credits to Participant Accounts under this Plan, Compensation may exceed the Compensation Limit under Code Section 401(a)(17)(B) and shall not be impacted by any other Limit.
2.10 DCP. The Columbia Energy Group Deferred Compensation Plan on or prior to December 31, 2003, and, thereafter, the NiSource Inc. Executive Deferred Compensation Plan, as further amended from time to time.
2.11 Disability. A condition that (a) causes a Participant to be unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, (b) causes a Participant, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, to receive income replacement benefits for a period of not less than three months under an accident and health plan covering employees of the Company or an Affiliate or (c) causes a Participant to be eligible to receive Social Security disability payments.
2.12 Effective Date. January 1, 2012, the date on which the provisions of this amended and restated Plan become effective, except as otherwise provided herein.
2.13 Eligible Employee. A select group of management or highly compensated employees of the Employer who satisfy the criteria established by the ONC Committee in accordance with this Plan.
2.14 Employer. The Company or any Affiliate that maintains or adopts the Basic Plan for the benefit of its eligible Employees.
2.15 ERISA. The Employee Retirement Income Security Act of 1974, as amended.
3
2.16 In-Service Withdrawal. A distribution from a Participants Pre-2005 Account before that Participants Separation from Service made in accordance with the Participants written election under Article V of this Plan.
2.17 Limits. The limits imposed on tax qualified retirement plans by Code Sections 415 and 401(a)(17) and any other Code Sections.
2.18 ONC Committee. The Officer Nomination and Compensation Committee of the Board of Directors of the Company.
2.19 Participant. Any Eligible Employee who is participating in the Plan in accordance with its provisions.
2.20 Plan. The Savings Restoration Plan for NiSource Inc. and Affiliates (formerly known as the Savings Restoration Plan for the Columbia Energy Group, and before that as the Thrift Restoration Plan for the Columbia Energy Group), as set forth herein and as amended from time to time.
2.21 Plan Administrator. The Benefits Committee or such delegate of the Benefits Committee delegated to carry out the administrative functions of the Plan.
2.22 Plan Year. The 12-month period commencing each January 1 and ending the following December 31.
2.23 Post-2004 Account. The portion of a Participants Account equal to the excess of (1) the balance of the Participants Account determined as of a Participants date of Separation from Service after December 31, 2004, over (2) the Pre-2005 Account, to which the Participant would be entitled under the Plan if he voluntarily separated from service without cause as of such date and received a full payment of benefits from the Plan on the earliest possible date allowed under the Plan following his Separation from Service.
2.24 Pre-2005 Account. The portion of a Participants Savings Account determined as of December 31, 2004, adjusted to reflect earnings (or losses) credited to such balance from and after such date.
2.25 Separation from Service. A termination of services provided by a Participant to his or her Employer, whether voluntarily or involuntarily, consistent with Code Section 409A and the guidance promulgated thereunder.
2.26 Specified Employee. A Participant who is in job scope level C2 or above with respect to any Employer that employs him or her; provided that if at any time the total number of employees in job category C2 and above is less than 50, a Specified Employee shall include any employee who meets the definition of key employee set forth in Code Section 416(i) (without reference to paragraph 5 of Code Section 416(i)). A Participant shall be deemed to be a Specified Employee with respect to a Separation from Service that occurs during a calendar year if he or she is a Specified Employee on September 30 of the preceding calendar year. The Benefits Committee shall determine which Participants are Specified Employees in accordance with the guidance promulgated under Code Section 409A.
4
2.27 Unforeseeable Emergency. A severe financial hardship to a Participant resulting from an illness or accident of the Participant, the Participants spouse or a dependent (as defined in Code Section 152(a)), of the Participant, loss of the Participants property due to casualty or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
2.28 Valuation Date. The close of business of each business day.
ARTICLE III.
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. On and after January 1, 2012, eligibility to participate in the Plan shall be limited to an employee in job scope level C2 or above.
3.2 Participation. The Plan Administrator shall inform each Employee of his or her eligibility to participate in the Plan as soon as practicable but before the earliest date such Employees participation could become effective. An Eligible Employee becomes a Participant when the Employer credits the Participants Account with the Employer credits described in Article IV of this Plan.
3.3 Continuation of Participation. A Participant shall remain a Participant so long as his or her Account has not been fully distributed to him or her.
3.4 Amendment of Eligibility Criteria. The ONC Committee may, in its discretion, change the criteria for eligibility for any reason, provided, however, that no change in the criteria for eligibility shall be effective unless such changes are (a) within guidelines established by the ONC Committee or (b) approved by the ONC Committee. Eligibility for participation in one year does not guarantee eligibility to participate in any future year.
ARTICLE IV.
ACCOUNTS
4.1 Account. The Employer credits, as described in Sections 4.2 and 4.3, and earnings thereon, shall be credited to the Participants Account. The Account shall be a bookkeeping device utilized for the sole purpose of determining the benefits payable under the Plan and shall not constitute a separate fund of assets.
5
4.2 Employer Credits.
(a) | Matching Contribution Credits. The amount of Employer credits related to Matching Contributions for a Participant shall equal (1) minus (2) below: |
(1) | The total amount of Matching Contributions that would otherwise have been contributed to the Basic Plan for the Participant during all years in which the Participant participated in the Basic Plan without regard to the Limits; |
(2) | The actual amount of Matching Contributions that have been contributed to the Basic Plan for the Participant. |
In addition to making the credits related to Matching Contributions described above, the Employer also will make the following true-up credit. If (i) the allocation period under the Basic Plan is shorter than the Plan Year, and (ii) on the last day of the Plan Year, the amount of Matching Contributions under the Basic Plan is less than the amount of Matching Contributions that would have been made had the allocation period for Matching Contributions been the Plan Year, then the Employer will make an additional credit to a Participants Account. This credit will be in the amount necessary to make the Employer credit related to Matching Contributions equal to the amount of Employer credits related to Matching Contributions that would have been made had the allocation period been the Plan Year. Notwithstanding the foregoing, an Employer shall make this true-up credit only for Participants who are employed with the Employer on the last day of the Plan Year and Participants who experienced a Separation from Service before the last day of the Plan Year due to death, Disability, or retirement.
(b) | Profit Sharing Contribution Credits. Employer credits pursuant to this Section 4.2(b) shall be reflected in the Plan for all Participants in the Plan on or after such date, including the following: (1) those who received Profit Sharing Contributions to the Basic Plan for 2010 or later that were subject to the Limits, or (2) those who otherwise had Profit Sharing Contributions limited or adjusted under the Basic Plan on or after January 1, 2011. The amount of Employer credits related to Profit Sharing Contributions for a participant shall equal (1) minus (2) below: |
(1) | The total amount of Profit Sharing Contributions that otherwise would have been contributed to the Basic Plan for the Participant during all years in which the Participant participated in the Basic Plan, as determined by Compensation as defined under this Plan without regards to the Limits; |
6
(2) | The actual amount of Profit Sharing Contributions that have been contributed to the Basic Plan for the Participant. |
(c) | Next-Gen Contribution Credits. With respect to a Participant who is classified by the Employer as an exempt employee and who is hired or rehired on or after January 1, 2010, the amount of Employer credits for a Participant shall equal (1) minus (2) below: |
(1) | The total amount of the Employer Contribution that otherwise would have been contributed to the Basic Plan in an amount equal to 3% of the Participants Compensation (as defined under this Plan) without regard to the Limits; |
(2) | The actual amount of the Employer Contribution under the Basic Plan that was contributed to the Participant in an amount equal to 3% of the Participants Compensation (as defined under the Basic Plan). |
This amount shall be payable to any applicable Participant in addition to any amounts he or she may be entitled to under Sections 4.2(a) and 4.2(b) of this Plan and regardless of whether such Participant has signed a written agreement to participate in this Plan.
4.3 Timing of Credits; Withholding. The Employer credits shall be made to the Participants Account annually, at such time determined by the Plan Administrator. Any withholding of taxes or other amounts that is required by federal, state, or local law shall be withheld from the Participants nondeferred Compensation to the maximum extent possible and any remaining amount shall reduce the amount credited to the Participants Account.
4.4 Determination of Account. Each Participants Account as of each Valuation Date shall consist of the balance of the Account as of the immediately preceding Valuation Date, adjusted as follows:
(a) | New Employer Credits. The Account shall be increased by any Employer credits made in accordance with Sections 4.2 or 4.3, as applicable, since such preceding Valuation Date. |
(b) | Distributions. The Account shall be reduced by any benefits distributed from the Account to the Participant since such preceding Valuation Date. |
(c) | Valuation of Account. The Account shall be increased or decreased by the aggregate earnings, gains and losses on such Account since such preceding Valuation Date, based on the manner in which the Participants Account has been hypothetically allocated among the investment options selected by the Participant. |
7
4.5 Statement of Account. The Plan Administrator shall give to each Participant a statement showing the balance in the Participants Account periodically at such times as may be determined by the Plan Administrator, in written or electronic form.
ARTICLE V.
INVESTMENTS
5.1 Investment Options. Amounts credited hereunder to the Account of a Participant shall be invested as such Participant elects among the investment choices provided to the Participant. The investment options shall be determined by the Plan Administrator from time to time in its sole and absolute discretion. As necessary, the Plan Administrator may, in its sole discretion, discontinue, substitute or add an investment option. Each such action will take effect on such date established by the Plan Administrator.
5.2 Election of Investment Options. A Participant, in connection with his or her payment election under Article VI of this Plan, shall elect one or more of the previously described investment options, as applicable, to be used to determine the amounts to be credited or debited to his or her Account. If a Participant does not elect any investment options, the Participants Account shall automatically be allocated into the lowest-risk investment option, as determined by the Plan Administrator, in its sole discretion. The Participant may (but is not required to) elect to add or delete one or more investment options to be used to determine the amounts to be credited or debited to his or her Account, or to change the portion of his or her Account allocated to each previously or newly elected investment option. If an election is made in accordance with the previous sentence, it shall apply as of the first business day deemed reasonably practicable by the Plan Administrator, in its sole discretion, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. Notwithstanding the foregoing, the Plan Administrator, in its sole discretion, may impose limitations on the frequency with which one or more of the investment options elected in accordance with this Section may be added or deleted by such Participant; furthermore, the Plan Administrator, in its sole discretion, may impose limitations on the frequency with which the Participant may change the portion of his or her Account allocated to each previously or newly elected investment option.
5.3 Allocation of Investment Options. In making any election related to investment options, the Participant shall specify, in increments specified by the Plan Administrator, the percentage of his or her Account or investment option, as applicable, to be allocated or reallocated.
5.4 No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the investment options are to be used for measurement purposes only, and a Participants election of any such investment option, the allocation of his or her Account thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participants Account shall not be considered or construed in any manner as an actual investment of his or her Account in any such investment option. In the event that the
8
Company, in its own discretion, decides to invest funds in any or all of the investments on which the investment options are based, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participants Account shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company; the Participant shall at all times remain an unsecured creditor of the Company.
ARTICLE VI.
PAYMENTS AND DISTRIBUTIONS
6.1 Distributions/Events Generally. Participants generally will not be entitled to receive a distribution of their Account balance until they experience a Separation from Service with the Employer for any reason. A Participant may receive a distribution before Separation from Service, however, in accordance with this Article VI, upon (1) an Unforeseeable Emergency that occurs before Separation from Service, or (2) a year that has been designated by the Participant only with respect to his Pre-2005 Account balance that occurs before Separation from Service.
6.2 In-Service Withdrawals. This section applies only to a Participants Pre-2005 Account balance.
(a) | General Payments. Subject to the limitations of paragraph (b) below, a Participant, by filing a written request with the Plan Administrator, may, while employed by an Employer or an Affiliate, elect to withdraw 33%, 67% or 100% of his or her Pre-2005 Account. |
(b) | Limitation on In-Service Withdrawals. Any In-Service Withdrawal under paragraph (a) of this Section 6.2 shall be subject to a 10% early distribution penalty. In addition, the following conditions shall apply to In-Service Withdrawals: |
(1) | Only one In-Service Withdrawal shall be permitted in any 12-month period. |
(2) | In-Service Withdrawals shall require suspension of Employer credits (but not credits of earnings or losses) under the Plan for a period of time varying with the percentage of the value of the Participants Pre-2005 Account that is withdrawn, according to the following schedule: |
Percentage |
Suspension | |
Up to 33% |
2 months | |
34 67% |
4 months | |
68 100% |
6 months |
9
This suspension shall not affect a Participants participation in the Basic Plan nor the basis for determining the Employer contributions or Participant Pre-tax Contributions under the Basic Plan.
6.3 Distributions After Separation from Service.
(a) | Generally. If a Participant experiences a Separation from Service, the provisions of this Section 6.3 shall apply to the distribution of the Participants Account. The Participant may elect to receive such benefits as either a lump sum or in equal annual installments over a period not to exceed 15 years. If no such election is made, payment shall be made as a lump sum. |
(b) | Pre-2005 Account. |
(1) | Form of Payment of Pre-2005 Account. The Pre-2005 Account payable under the Plan to a Participant or his or her spouse, Beneficiary, or legal representative shall be paid in the same form under which the Basic Plan benefit is payable to the Participant or his or her spouse, Beneficiary, or legal representative. The Participants election under the Basic Plan of any optional form of payment of his or her Basic Plan benefit (with the valid consent of his or her surviving spouse where required under the Basic Plan) shall also be applicable to the payment of his or her Pre-2005 Account under the Plan. |
(2) | Timing of Payment of Pre-2005 Account. Payment of the Pre-2005 Account under the Plan to a Participant or his or her spouse, Beneficiary, or legal representative under the Plan shall commence on the same date as payment of the benefit to the Participant or his or her spouse, Beneficiary, or legal representative under the Basic Plan commences. Any election under the Basic Plan made by the Participant with respect to the commencement of payment of his or her benefit under the Basic Plan shall also be applicable with respect to the commencement of payment of his or her Pre-2005 Account under the Plan. |
(3) | Approval by Plan Administrator. Notwithstanding the provisions of paragraphs (i) and (ii) above, an election made by the Participant under the Basic Plan with respect to the form of payment of his or her Pre-2005 Account thereunder (with the valid consent of his or her surviving spouse where required under the Basic Plan), or the date for commencement of payment thereof, shall not be effective with respect to the form of payment or date for commencement of payment of his or her Pre-2005 Account under the Plan unless such election is expressly approved in |
10
writing by the Plan Administrator. If the Plan Administrator shall not approve such election in writing, then the form of payment or date for commencement of payment of the Participants Pre-2005 Account under the Plan shall be selected by the Plan Administrator at its sole discretion. |
(c) | Post-2004 Account. |
(1) | Form of Payment of Post-2004 Account. The Post-2004 Account shall be payable in a form elected by a Participant no later than December 31, 2005. Notwithstanding the preceding sentence, in the case of an Eligible Employee who becomes a Participant on or after January 1, 2005, the aforementioned election with respect to the form of payment of a Post-2004 Account shall be made at such time prescribed by the Plan Administrator, which shall end no later than December 31st of the year preceding the Plan Year in which the Participant is first eligible to participate in the Plan. The form of payment shall be elected by the Participant at the time he makes the election described in the first or second sentence of this paragraph (ii) from among those forms of payment available at that time under the Basic Plan. If a timely payment election is not made by a Participant, payment shall be made in a lump sum. |
(2) | Timing of Payment of Post-2004 Account. Payment of a Post-2004 Account in accordance with this Section 6.3 shall commence within 45 days after the Participants date of Separation from Service, or, if later, within such timeframe permitted under Code Section 409A, and guidance and regulations thereunder. |
(3) | Modifications to Time and Form of Payment. A Participant cannot change the time or form of payment of a Post-2004 Account under this Subsection 6.3(b) unless (A) such election does not take effect until at least 12 months after the date the election is made, (B) in the case of an election related to a payment not related to the Participants Disability or death, the first payment with respect to which such new election is effective is deferred for a period of not less than five years from the date such payment would otherwise have been made, and (C) any election related to a payment based upon a specific time or pursuant to a fixed schedule may not be made less than 12 months prior to the date of the first scheduled payment. |
(4) | Time of Payment for Specified Employees. Notwithstanding any other provision of the Plan, in no event can a payment of a Post-2004 Account to a Participant who is a Specified Employee, at a time during which the Companys capital stock or capital stock of an Affiliate is publicly traded on an established securities market, |
11
in the calendar year of his or her Separation from Service be made before the date that is six months after the date of the Participants Separation from Service, unless such Separation from Service is due to death or Disability. |
6.4 Unforeseeable Emergency Distributions.
(a) | Pre-2005 Account. Upon a finding that a Participant has suffered an Unforeseeable Emergency, the Plan Administrator may, in its sole discretion, make distributions from the Participants Pre-2005 Account. The amount of such a distribution shall be limited to the amount reasonably necessary to meet the Participants needs resulting from the Unforeseeable Emergency. Any distribution pursuant to this Subsection shall be payable in a lump sum. The distribution shall be paid within 30 days after the determination of an Unforeseeable Emergency. |
(b) | Post-2004 Account. Upon a finding that a Participant has suffered an Unforeseeable Emergency, the Plan Administrator may, in its sole discretion, make distributions from the Participants Post-2004 Account and/or suspend Employer credits entirely in accordance with the guidance under Code Section 409A. The amount of such distribution shall be limited to the amount necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). Any distribution pursuant to this Subsection shall be payable in a lump sum. The distribution shall be paid within 30 days after the determination of an Unforeseeable Emergency. |
6.5 Automatic Cash-Out. Notwithstanding any other provision in the Plan, if (1) the sum of the Participants Pre-2005 Account and Post-2004 Account does not exceed the applicable dollar limit under code Section 402(g)(1)(B) and (2) this sum is the entirety of the Participants interest in the Plan and all other arrangements that are considered a single nonqualified deferred compensation plan under Code Section 409A and applicable guidance thereunder, the Employer, in its sole discretion may distribute the Participants entire Pre-2005 Account and Post-2004 Account (and the Participants entire interest under any other arrangement that is required to be aggregated with this Plan under Code Section 409A), regardless whether the Participant has otherwise had a distributable event under this Plan. The form of payment of both the Pre-2005 Account and Post-2004 Account shall be a single lump sum.
6.6 Special Payment Election by December 31, 2006, for Code Section 409A Transition Relief. Notwithstanding any preceding provision of this Section 6.3(b), a Participant may change an election with respect to the time and form of payment of a Post-2004 Account, without regard to the restrictions imposed under paragraph (iii) next above, on or before
12
December 31, 2006; provided that such election (A) applies only to amounts that would not otherwise be payable in calendar year 2006, and (B) shall not cause an amount to be paid in calendar year 2006 that would not otherwise be payable in such year.
6.7 Withholding for Taxes. To the extent required by the law in effect at the time payments are made, an Employer shall withhold from the payments made hereunder any taxes required to be withheld by the federal or any state or local government, including any amounts which the Employer determines is reasonably necessary to pay any generation-skipping transfer tax which is or may become due. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Code Section 3405(a)(2).
6.8 Payment to Guardian. The Plan Administrator may direct payment to the duly appointed guardian, conservator or other similar legal representative of a Participant or Beneficiary to whom payment is due. In the absence of such a legal representative, the Plan Administrator may, in its sole and absolute discretion, make payment to a person having the care and custody of a minor, incompetent or person incapable of handling the disposition of property upon proof satisfactory to the Plan Administrator of incompetency, status as a minor, or incapacity. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
ARTICLE VII.
BENEFICIARY DESIGNATION
7.1 Beneficiary Designation. Each Participants Beneficiary (both primary as well as secondary) to whom benefits under the Plan shall be paid in the event of the Participants death prior to complete distribution of the Participants Account, shall be the Beneficiary that the Participant has selected under the Basic Plan. A Participant may designate a Beneficiary or change a prior Beneficiary designation only by designating or changing a Beneficiary under the Basic Plan.
7.2 No Beneficiary Designation. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participants benefits, the Participants Beneficiary shall be the person identified in accordance with the procedures under the Basic Plan.
ARTICLE VIII.
PLAN ADMINISTRATION
8.1 Allocation of Duties to Committees. The Plan shall be administered by the Benefits Committee, as delegated by the ONC Committee. The Benefits Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the
13
administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as may arise in such administration, except as otherwise reserved to the ONC Committee herein, or by resolution or charter of the respective committees.
In its discretion, the Plan Administrator may delegate to any division or department of the Company the discretionary authority to make decisions regarding Plan administration, within limits and guidelines from time to time established by the Plan Administrator. The delegated discretionary authority shall be exercised by such division or departments senior officer, or his/her delegate. Within the scope of the delegated discretionary authority, such officer or person shall act in the place of the Plan Administrator and his/her decisions shall be treated as decisions of the Plan Administrator.
8.2 Agents. The Plan Administrator may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company.
8.3 Information Required by Plan Administrator. The Company shall furnish the Plan Administrator with such data and information as the Plan Administrator may deem necessary or desirable in order to administer the Plan. The records of the Company as to an employees or Participants period or periods of employment, separation from Service and the reason therefore, reemployment and Compensation will be conclusive on all persons unless determined to the Plan Administrators satisfaction to be incorrect. Participants and other persons entitled to benefits under the Plan also shall furnish the Plan Administrator with such evidence, data or information as the Plan Administrator considers necessary or desirable to administer the Plan.
8.4 Binding Effect of Decisions. Subject to applicable law, and the provisions of Article VIII, any interpretation of the provisions of the Plan and any decision on any matter within the discretion of the Benefits Committee and/or the ONC Committee (or any duly authorized delegate of either such committee) and made in good faith shall be binding on all persons.
ARTICLE IX.
CLAIMS PROCEDURE
9.1 Claim. Claims for benefits under the Plan shall be made in writing to the Plan Administrator. The Plan Administrator shall establish rules and procedures to be followed by Participants and Beneficiaries in filing claims for benefits, and for furnishing and verifying proof necessary to establish the right to benefits in accordance with the Plan, consistent with the remainder of this Article.
9.2 Review of Claim. The Plan Administrator shall review all claims for benefits. Upon receipt by the Plan Administrator of such a claim, it shall determine all facts that are necessary to establish the right of the claimant to benefits under the provisions of the Plan and the amount thereof as herein provided within 90 days of receipt of such claim. If prior to the
14
expiration of the initial 90 day period, the Plan Administrator determines additional time is needed to come to a determination on the claim, the Plan Administrator shall provide written notice to the Participant, Beneficiary or other claimant of the need for the extension, not to exceed a total of 180 days from the date the application was received. If the Plan Administrator fails to notify the claimant in writing of the denial of the claim within 90 days after the Plan Administrator receives it, the claim shall be deemed denied.
9.3 Notice of Denial of Claim. If the Plan Administrator wholly or partially denies a claim for benefits, the Plan Administrator shall, within a reasonable period of time, but no later than 90 days after receiving the claim (unless extended as noted above), notify the claimant in writing of the denial of the claim. Such notification shall be written in a manner reasonably expected to be understood by such claimant and shall in all respects comply with the requirements of ERISA, including but not limited to inclusion of the following:
(a) | the specific reason or reasons for denial of the claim; |
(b) | a specific reference to the pertinent Plan provisions upon which the denial is based; |
(c) | a description of any additional material or information necessary for the claimant to perfect the claim, together with an explanation of why such material or information is necessary; and |
(d) | an explanation of the Plans review procedure. |
9.4 Reconsideration of Denied Claim. Within 60 days of the receipt by the claimant of the written notice of denial of the claim, or within 60 days after the claim is deemed denied as set forth above, if applicable, the claimant or duly authorized representative may file a written request with the Benefits Committee that it conduct a full and fair review of the denial of the claimants claim for benefits. If the claimant or duly authorized representative fails to request such a reconsideration within such 60 day period, it shall be conclusively determined for all purposes of the Plan that the denial of such claim by the Benefits Committee is correct. In connection with the claimants appeal of the denial of his or her benefit, the claimant may review pertinent documents and may submit issues and comments in writing.
The Benefits Committee shall render a decision on the claim appeal promptly, but not later than 60 days after receiving the claimants request for review, unless, in the discretion of the Benefits Committee, special circumstances require an extension of time for processing, in which case the 60-day period may be extended to 120 days. The Benefits Committee shall notify the claimant in writing of any such extension. The notice of decision upon review shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions upon which the decision is based. If the decision on review is not furnished within the time period set forth above, the claim shall be deemed denied on review.
If such determination is favorable to the claimant, it shall be binding and conclusive. If such determination is adverse to such claimant, it shall be binding and conclusive unless the claimant or his duly authorized representative notifies the Benefits Committee within 90 days
15
after the mailing or delivery to the claimant by the Benefits Committee of its determination that claimant intends to institute legal proceedings challenging the determination of the Benefits Committee and actually institutes such legal proceedings within 180 days after such mailing or delivery.
9.5 Employer to Supply Information. To enable the Benefits Committee to perform its functions, each Employer shall supply fully and timely information to the Benefits Committee of all matters relating to the retirement, death, or other cause for Separation from Service of all Participants, and such other pertinent facts as the Benefits Committee may require.
ARTICLE X.
PLAN AMENDMENT AND TERMINATION
10.1 Plan Amendment. While the Company intends to maintain the Plan in conjunction with the Basic Plan, the Company or the ONC Committee reserves the right to amend the Plan at any time and from time to time with respect to eligibility for the Plan, the level of benefits awarded under the Plan and the time and form of payment for benefits from the Plan. The Benefits Committee, the ONC Committee, or the Board shall have the authority to amend the Plan as described herein. The ONC Committee or the Board shall have the exclusive authority to amend the Plan regarding eligibility for the Plan, the amount or level of benefits awarded under the Plan, and the time and form of payments for benefits from the Plan. In addition, the ONC Committee or the Board shall also have the exclusive authority to make amendments that constitute a material increase in Compensation, any change requiring action or consent by a committee of the Board pursuant to the rules of the Securities and Exchange Commission, the New York Stock Exchange or other applicable law, or such other material changes to the Plan such that approval of the Board is required. Unless otherwise determined by the ONC Committee, the Benefits Committee shall have the authority to amend the Plan in all respects that are not exclusively reserved to the ONC Committee or the Board.
The respective committee may at any time amend the Plan by written instrument, notice of which is given to all Participants and to Beneficiaries. Notwithstanding the preceding sentence, no amendment shall reduce the amount accrued in any Account prior to the date such notice of the amendment is given.
10.2 Partial Plan Termination. The ONC Committee or the Company at any time may partially terminate the Plan provided that such partial termination of the Plan shall not impair or alter any Participants or Beneficiarys right to the applicable Participants Account balance as of the effective date of such partial termination. If such a partial termination occurs, no additional Employer credits shall be made after the date of such partial termination other than the crediting of earnings (or losses) until the date of distribution of Participant Account balances. Further, the Plan shall otherwise continue to be administered with respect to Account balances credited before the effective date of such partial termination, and distribution shall be made at such times as specified under this Plan.
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ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1 Unfunded Plan. The Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of management or highly-compensated employees within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Nothing contained in the Plan shall constitute a guaranty by the Company or any other Employer or any other entity or person that the assets of the Company or any other Employer shall be sufficient to pay any benefit hereunder.
11.2 Company and Employer Obligations. The obligation to make benefit payments to any Participant under the Plan shall be a joint and several liability of the Company and the Employer that employed the Participant.
11.3 Unsecured General Creditor. Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of the Company, any other Employer, or any other party for payment of benefits under the Plan. Any life insurance policies, annuity contracts or other property purchased by the Employer in connection with the Plan shall remain its general, unpledged and unrestricted assets. Obligations of the Company and each other Employer under the Plan shall be an unfunded and unsecured promise to pay money in the future.
11.4 Trust Fund. Subject to Section 12.3, the Company may establish separate subtrusts for deferrals by employees of each Employer, pursuant to a trust agreement entered into with such trustees as the Benefits Committee may approve, for the purpose of providing for the payment of benefits owed under the Plan. At its discretion, each Employer may contribute deferrals under the Plan for its employees to the subtrust established with respect to such Employer under such trust agreement. To the extent any benefits provided under the Plan are paid from any such subtrust, the Employer shall have no further obligation to pay them. If not paid from a subtrust, such benefits shall remain the obligation of the Employer. Although such subtrusts may be irrevocable, their assets shall be held for payment of all the Companys general creditors in the event of insolvency or bankruptcy.
11.5 Nonalienation of Benefits. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof or rights to, which are expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participants or any other persons bankruptcy or insolvency.
Notwithstanding the preceding paragraph, the Account of any Participant shall be subject to and payable in the amount determined in accordance with any qualified domestic relations order, as that term is defined in Section 206(d)(3) of ERISA. The Retirement Committee shall
17
provide for payment in a lump sum from a Participants Account to an alternate payee (as defined in Code Section 414(p)(8)) as soon as administratively practicable following receipt of such order. Any federal, state or local income tax associated with such payment shall be the responsibility of the alternate payee. The balance of an Account that is subject to any qualified domestic relations order shall be reduced by the amount of any payment made pursuant to such order.
Notwithstanding the preceding paragraph, the Account of any Participant shall be subject to and payable in the amount determined in accordance with any qualified domestic relations order, as that term is defined in Section 206(d)(3) of ERISA. The Plan Administrator shall provide for payment of such portion of an Account to an alternate payee (as defined in Section 206(d)(3) of ERISA) as soon as administratively possible following receipt of such order. Any federal, state or local income tax associated with such payment shall be the responsibility of the alternate payee. The balance of any Account that is subject to any qualified domestic relations order shall be reduced by the amount of any payment made pursuant to such order.
11.6 Indemnification.
(a) | Limitation of Liability. Notwithstanding any other provision of the Plan or any trust established under the Plan, none of the Company, any other Employer, any member of the Benefits Committee or the ONC Committee, nor any individual acting as an employee, or agent or delegate of any of them, shall be liable to any Participant, former Participant, Beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan or any trust established under the Plan, except when the same shall have been judicially determined to be due to the willful misconduct of such person. |
(b) | Indemnity. The Company shall indemnify and hold harmless each member of the Benefits Committee and the ONC Committee, or any employee of the Company or any individual acting as an employee or agent of either of them (to the extent not indemnified or saved harmless under any liability insurance or any other indemnification arrangement with respect to the Plan or any trust established under the Plan) from any and all claims, losses, liabilities, costs and expenses (including attorneys fees) arising out of any actual or alleged act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any claim relating thereto with respect to the administration of the Plan or any trust established under the Plan, except that no indemnification or defense shall be provided to any person with respect to any conduct that has been judicially determined, or agreed by the parties, to have constituted willful misconduct on the part of such person, or to have resulted in his or her receipt of personal profit or advantage to which he or she is not entitled. In connection with the indemnification provided by the preceding sentence, expenses incurred in defending a civil or criminal action, suit or proceeding, or incurred in connection with a civil or criminal investigation, may be paid by the |
18
Company in advance of the final disposition of such action, suit, proceeding, or investigation, as authorized by the Benefits Committee or the ONC Committee in the specific case, upon receipt of an undertaking by or on behalf of the party to be indemnified to repay such amount unless it shall ultimately be determined that the person is entitled to be indemnified by the Company pursuant to this paragraph. |
11.7 No Enlargement of Employee Rights. No Participant or Beneficiary shall have any right to a benefit under the Plan except in accordance with the terms of the Plan. The Plan shall not constitute a contract of employment between an Employer and the Participant. Nothing in the Plan shall give any Participant or Beneficiary the right to be retained in the service of an Employer or to interfere with the right of an Employer to discipline or discharge a Participant at any time.
11.8 Protective Provisions. A Participant shall cooperate with his Employer by furnishing any and all information requested by the Employer in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as the Employer may deem necessary and taking such other action as may be requested by the Employer.
11.9 Governing Law. The Plan shall be construed and administered under the laws of the State of Indiana, except to the extent preempted by applicable federal law.
11.10 Validity. In case any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but the Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.
11.11 Notice. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed as given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Benefits Committee shall be directed to the Companys address. Mailed notice to a Participant or Beneficiary shall be directed to the individuals last known address in the applicable Employers records.
11.12 Successors. The provisions of the Plan shall bind and inure to the benefit of the Employers and their successors and assigns. The term successors as used herein shall include any corporate or other business entity that shall, whether by merger, consolidation, purchase, or otherwise, acquire all or substantially all of the business and assets of an Employer, and successors of any such corporation or other business entity.
11.13 Incapacity of Recipient. If any person entitled to a benefit payment under the Plan is deemed by the Plan Administrator to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until a claim shall have been made by a duly appointed guardian or other legal representative of such person, the Plan Administrator may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company, any other Employer, the Plan Administrator and the Plan.
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11.14 Unclaimed Benefit. Each Participant shall keep the Plan Administrator informed of his or her current address and the current address of his or her Beneficiaries. The Plan Administrator shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Plan Administrator within three years after the date on which payment of the Participants benefit may first be made, payment may be made as though the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed or within three years after the actual death of a Participant, the Plan Administrator is unable to locate any Beneficiary of the Participant, then the Plan Administrator shall have no further obligation to pay any benefit hereunder to such Participant, Beneficiary, or any other person and such benefit shall be irrevocably forfeited.
11.15 Tax Compliance and Payouts.
(a) | It is intended that the Plan comply with the provisions of Code Section 409A of the Code, so as to prevent the inclusion in gross income of any amounts deferred hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise actually be paid or made available to Participants or Beneficiaries. This Plan shall be construed, administered, and governed in a manner that affects such intent, and neither any Participant, Beneficiary, nor Plan Administrator shall not take any action that would be inconsistent with such intent. |
(b) | Although the Plan Administrator shall use its best efforts to avoid the imposition of taxation, interest and penalties under Code Section 409A, the tax treatment of deferrals under this Plan is not warranted or guaranteed. Neither the Company, the other Affiliates, the Plan Administrator, the Retirement Committee, nor any designee shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant, Beneficiary or other taxpayer as a result of the Plan. |
(c) | Notwithstanding anything to the contrary contained herein, (1) in the event that the Internal Revenue Service prevails in its claim that any amount of a Pre-2005 Account, payable pursuant to the Plan and held in the general assets of the Company or any other Employer, constitutes taxable income to a Participant or his or her Beneficiary for a taxable year prior to the taxable year in which such amount is distributed to him or her, or (2) in the event that legal counsel satisfactory to the Company, and the applicable Participant or his or her Beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the amount of such Pre-2005 Account held in the general assets of the Company or any other Employer, to the extent constituting taxable income, shall be immediately distributed to the Participant or his or her Beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or if the Participant or Beneficiary, based upon an opinion of legal counsel satisfactory to the Company and the Participant or his or her Beneficiary, fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period. |
20
(d) | Notwithstanding anything to the contrary contained herein, (1) in the event that the Internal Revenue Service prevails in its claim that any amount of a Post-2004 Account, payable pursuant to the Plan and held in the general assets of the Company or any other Employer, constitutes taxable income under Code Section 409A, and guidance and regulations thereunder, to a Participant or his or her Beneficiary for a taxable year prior to the taxable year in which such amount is distributed to him or her, or (2) in the event that legal counsel satisfactory to the Company, and the applicable Participant or his or her Beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the amount of such Post-2004 Account held in the general assets of the Company or any other Employer, to the extent constituting such taxable income, shall be immediately distributed to the Participant or his or her Beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or if the Participant or Beneficiary, based upon an opinion of legal counsel satisfactory to the Company and the Participant or his or her Beneficiary, fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim, to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period. |
11.16 General Conditions. Except as otherwise expressly provided herein, all terms and conditions of the Basic Plan applicable to a Basic Plan benefit shall also be applicable to a benefit payable hereunder. Any Basic Plan benefit shall be paid solely in accordance with the terms and conditions of the Basic Plan and nothing in the Plan shall operate or be construed in any way to modify, amend or affect the terms and provisions of the Basic Plan.
[signature block follows on next page]
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IN WITNESS WHEREOF, NiSource Inc. has caused this amended and restated Savings and Restoration Plan for NiSource Inc. and Affiliates to be executed in its name, by its duly authorized officer, effective as of January 1, 2012.
NISOURCE INC. | ||
By: | /s/ Joel Hoelzer | |
Its: | Vice President, HR | |
Date: | 3/14/12 |
22
Exhibit 10.2
NISOURCE INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
Amended and Restated Effective January 1, 2012
TABLE OF CONTENTS
Page | ||||||
ARTICLE I BACKGROUND AND PURPOSE |
1 | |||||
1.1 |
Background | 1 | ||||
1.2 |
Purpose | 1 | ||||
ARTICLE II DEFINITIONS |
2 | |||||
2.1 |
Account | 2 | ||||
2.2 |
Affiliate | 2 | ||||
2.3 |
Annual Deferral Amount | 2 | ||||
2.4 |
Beneficiary | 2 | ||||
2.5 |
Benefits Committee | 2 | ||||
2.6 |
Board | 2 | ||||
2.7 |
Code | 2 | ||||
2.8 |
Company | 2 | ||||
2.9 |
Compensation | 2 | ||||
2.10 |
Discretionary Contribution | 3 | ||||
2.11 |
Effective Date | 3 | ||||
2.12 |
Election Form | 3 | ||||
2.13 |
Eligible Employee | 3 | ||||
2.14 |
Employer | 3 | ||||
2.15 |
ONC Committee | 3 | ||||
2.16 |
Participant | 3 | ||||
2.17 |
Plan | 3 | ||||
2.18 |
Plan Administrator | 3 | ||||
2.19 |
Plan Year | 3 | ||||
2.20 |
Post-2004 Account | 3 | ||||
2.21 |
Pre-2005 Account | 4 | ||||
2.22 |
Retirement Committee | 4 | ||||
2.23 |
Separation from Service | 4 | ||||
2.25 |
Specified Employee | 4 | ||||
2.26 |
Transferred Bay State Account | 4 | ||||
2.27 |
Transferred Columbia Account | 4 | ||||
2.28 |
Unforeseeable Emergency | 4 | ||||
2.29 |
Valuation Date | 4 | ||||
ARTICLE III ELIGIBILITY AND PARTICIPATION |
5 | |||||
3.1 |
Eligibility | 5 | ||||
3.2 |
Participation | 5 | ||||
3.3 |
Continuation of Participation | 5 | ||||
3.4 |
Amendment of Eligibility Criteria | 5 | ||||
ARTICLE IV DEFERRAL COMMITMENTS |
5 | |||||
4.1 |
Timing of Deferral Elections | 5 | ||||
4.2 |
Amount of Deferral | 5 |
i
4.3 |
Distribution Options | 6 | ||||
4.4 |
Duration of Election Form | 6 | ||||
4.5 |
Modification of Election Form | 6 | ||||
4.6 |
Change in Employment Status | 6 | ||||
ARTICLE V ACCOUNTS |
7 | |||||
5.1 |
Account | 7 | ||||
5.2 |
Timing of Credits; Withholding | 7 | ||||
5.3 |
Discretionary Contributions | 7 | ||||
5.4 |
Determination of Account | 7 | ||||
5.5 |
Vesting of Account | 7 | ||||
5.6 |
Statement of Account | 8 | ||||
ARTICLE VI INVESTMENTS |
8 | |||||
6.1 |
Investment Options | 8 | ||||
6.2 |
Special Investment Option for Former Participants in the Bay State Plan and Participants in the Plan | 8 | ||||
6.3 |
Special Investment Option for Former Participants in the Columbia Plan | 9 | ||||
6.4 |
Election of Investment Options | 9 | ||||
6.5 |
Allocation of Investment Options | 9 | ||||
6.6 |
No Actual Investment | 9 | ||||
ARTICLE VII PAYMENTS AND DISTRIBUTIONS |
10 | |||||
7.1 |
Distributions/Events Generally | 10 | ||||
7.2 |
In-Service Distributions | 10 | ||||
7.3 |
Distributions After Separation from Service | 11 | ||||
7.4 |
Unforeseeable Emergency/Hardship Distributions | 14 | ||||
7.5 |
Distribution Provisions Applicable to a Transferred Bay State Account | 15 | ||||
7.6 |
Automatic Cash-Out | 15 | ||||
7.7 |
Withholding for Taxes | 15 | ||||
7.8 |
Payment to Guardian | 16 | ||||
ARTICLE VIII BENEFICIARY DESIGNATION |
16 | |||||
8.1 |
Beneficiary Designation | 16 | ||||
8.2 |
Changing Beneficiary | 16 | ||||
8.3 |
Community Property | 16 | ||||
8.4 |
No Beneficiary Designation | 17 | ||||
ARTICLE IX PLAN ADMINISTRATION |
17 | |||||
9.1 |
Allocation of Duties to Committees | 17 | ||||
9.2 |
Agents | 18 | ||||
9.3 |
Information Required by Plan Administrator | 18 | ||||
9.4 |
Binding Effect of Decisions | 18 | ||||
9.5 |
Section 16 Compliance | 18 | ||||
ARTICLE X CLAIMS PROCEDURE |
19 | |||||
10.1 |
Claim | 19 |
ii
10.2 |
Review of Claim | 19 | ||||
10.3 |
Notice of Denial of Claim | 19 | ||||
10.4 |
Reconsideration of Denied Claim | 20 | ||||
10.5 |
Employer to Supply Information | 20 | ||||
ARTICLE XI AMENDMENT AND TERMINATION OF PLAN |
21 | |||||
11.1 |
Plan Amendment | 21 | ||||
11.2 |
Plan Termination | 21 | ||||
ARTICLE XII MISCELLANEOUS |
22 | |||||
12.1 |
Unfunded Plan | 22 | ||||
12.2 |
Company and Employer Obligations | 22 | ||||
12.3 |
Unsecured General Creditor | 22 | ||||
12.4 |
Trust Fund | 22 | ||||
12.5 |
Nonalienation/Nonassignability | 22 | ||||
12.6 |
Indemnification | 23 | ||||
12.7 |
No Enlargement of Employment Rights | 24 | ||||
12.8 |
Protective Provisions | 24 | ||||
12.9 |
Governing Law | 24 | ||||
12.10 |
Validity | 24 | ||||
12.11 |
Notice | 24 | ||||
12.12 |
Successors | 24 | ||||
12.13 |
Incapacity of Recipient | 24 | ||||
12.14 |
Unclaimed Benefit | 24 | ||||
12.15 |
Tax Compliance and Payouts | 25 |
iii
NISOURCE INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
ARTICLE I
BACKGROUND AND PURPOSE
1.1 Background. Effective November 1, 2000, the Bay State Gas Company Key Employee Deferred Compensation Plan (the Bay State Plan) was merged into the NIPSCO Plan and the NIPSCO Plan was renamed the NiSource Inc. Executive Deferred Compensation Plan (the Plan). Effective January 1, 2004, the Columbia Energy Group Deferred Compensation Plan (the Columbia Plan) was merged into the Plan. Effective January 1, 2005, the Plan was amended and restated to comply with Code Section 409A, and guidance and regulations thereunder. Deferred Compensation, Discretionary Contributions, and earnings thereon, earned and vested prior to January 1, 2005 shall be administered without giving effect to Code Section 409A, and guidance and regulations thereunder. Effective January 1, 2008, the Plan was amended and restated to incorporate the provisions of amendments to the Plan since the January 1, 2005, amendment and restatement and to allow participants to elect to participate in the Plan only during the applicable enrollment period or at such later date allowed under Code Section 409A for certain performance based bonuses. The Plan was amended and restated again effective as of May 13, 2011 to transfer all administrative authority with respect to the Plan (including the authority to render decisions on claims and appeals and make administrative or ministerial amendments) from the ONC Committee to the Benefits Committee.
The Plan is hereby amended and restated again, effective as of January 1, 2012, to (1) change eligibility to defer Compensation under the Plan; (2) limit the amount of annual incentive compensation that may be deferred under the Plan to 80% of such annual incentive compensation; and (3) clarify other administrative matters related to the Plan.
1.2 Purpose. The purpose of this Plan is to provide current tax planning opportunities as well as supplemental funds for retirement or death for selected employees of an Employer. It is intended that the Plan will aid in attracting and retaining employees of exceptional ability by providing them with these benefits.
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ARTICLE II
DEFINITIONS
For the purposes of the Plan, the following terms shall have the meanings indicated, unless the context clearly indicates otherwise. Except when otherwise required by the context, any masculine terminology in this document shall include the feminine, and any singular terminology shall include the plural. The headings of Articles and Sections are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control.
2.1 Account. The device used by an Employer to measure and determine the amount to be paid to a Participant under the Plan. Each Account shall be divided into a Pre-2005 Account containing contributions to the Plan earned and vested prior to January 1, 2005, a Post-2004 Account containing contributions to the Plan earned and/or vested on or after January 1, 2005, and, if applicable, a Transferred Bay State Account containing any amount transferred from the Bay State Plan or a Transferred Columbia Account containing any amount transferred from the Columbia Plan.
2.2 Affiliate. Any corporation that is a member of a controlled group of corporations (as defined in Code Section 414(b)) that includes the Company; any trade or business (whether or not incorporated) that is under common control (as defined in Code Section 414(c)) with the Company; any organization (whether or not incorporated) that is a member of an affiliated service group (as defined in Code Section 414(m)) that includes the Company; any leasing organization, to the extent that its employees are required to be treated as if they were employed by the Company pursuant to Code Section 414(n) and the regulations thereunder; and any other entity required to be aggregated with the Company pursuant to regulations under Code Section 414(o). An entity shall be an Affiliate only with respect to the existing period as described in the preceding sentence.
2.3 Annual Deferral Amount. The portion of a Participants Compensation that a Participant elects to defer under this Plan for any one Plan Year.
2.4 Beneficiary. The person, persons or entity entitled to receive any Plan benefits payable after a Participants death.
2.5 Benefits Committee. The NiSource Benefits Committee, or any delegate thereof.
2.6 Board. The Board of Directors of NiSource Inc.
2.7 Code. The Internal Revenue Code of 1986, as amended from time to time.
2.8 Company. NiSource Inc.
2.9 Compensation. Aggregate basic annual salary or wage and annual incentive awards paid to a Participant by his Employer. Compensation shall include the following: (1)
2
amounts deferred and excluded from the Participants taxable income pursuant to Code Sections 125, 132(f)(4), 402(e)(3), or 402(h)(1)(B), and (2) amounts deferred to a nonqualified plan maintained by an Employer. Compensation earned on or after January 1, 2005 shall not include incentive payments other than annual incentive awards. Compensation does not include expense reimbursements, any form of noncash compensation, or benefits. Compensation does not include lump sum severance payments or lump sum vacation payouts.
2.10 Discretionary Contribution. The Employer contribution credited to a Participants Account under Section 5.3.
2.11 Effective Date January 1, 2012, the date on which the provisions of this amended and restated Plan become effective, except as otherwise provided herein.
2.12 Election Form. The agreement properly submitted by a Participant to the Retirement Committee or Benefits Committee prior to the beginning of a Plan Year, with respect to a Deferral Commitment made for such Plan Year.
2.13 Eligible Employee. A select group of management or highly compensated employees of the Employer selected by the ONC Committee in accordance with this Plan.
2.14 Employer. The Company and any subsidiary or Affiliate of the Company designated by the ONC Committee to participate in the Plan.
2.15 ONC Committee. The Officer Nomination and Compensation Committee of the Board of Directors of the Company.
2.16 Participant. Any Eligible Employee who is participating in the Plan in accordance with its provisions.
2.17 Plan. The NiSource Inc. Executive Deferred Compensation Plan, as set forth herein and as amended from time to time.
2.18 Plan Administrator. The Benefits Committee, or such delegate of the Benefits Committee delegated to carry out the administrative functions of the Plan as provided under Article IX.
2.19 Plan Year. The 12-month period commencing each January 1 and ending the following December 31.
2.20 Post-2004 Account. The excess of (1) the total balance of the Participants Account determined as of a Participants date of Separation from Service after December 31, 2004 over (2) his Pre-2005 Account, to which the Participant would be entitled under the Plan if he voluntarily separated from service without cause as of such date and received a full payment of benefits from the Plan on the earliest possible date allowed under the Plan following his Separation from Service.
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2.21 Pre-2005 Account. The balance of a Participants Account determined as of December 31, 2004, adjusted to reflect earnings credited to such balance from and after such date.
2.22 Retirement Committee. A committee consisting of the Companys Senior Vice President of Human Resources and the Vice President of Human Resources (in charge of Total Rewards), or such other offices as shall be deemed equivalent to such positions, or the delegates thereof.
2.23 Separation from Service. A termination of services provided by a Participant to his or her Employer, whether voluntarily or involuntarily, as determined by the Benefits Committee in accordance with Code Section 409A and the guidance promulgated thereunder.
2.25 Specified Employee. A Participant who is in job scope level C2 or above with respect to any Employer that employs him or her; provided that if at any time the total number of employees in job category C2 and above is less than 50, a Specified Employee shall include any employee who meets the definition of key employee set forth in Code Section 416(i) (without reference to paragraph 5 of Code Section 416(i)). A Participant shall be deemed to be a Specified Employee with respect to a Separation from Service that occurs during a calendar year if he or she is a Specified Employee on September 30 of the preceding calendar year. The Benefits Committee shall determine which Participants are Specified Employees in accordance with the guidance promulgated under Code Section 409A.
2.26 Transferred Bay State Account. The balance of a Participants Account containing any amount transferred from the Bay State Plan. The Bay State Plan was merged into the Plan as of November 1, 2000. The balance of the account of each Bay State Plan participant, determined as of November 1, 2000, was transferred to the Plan and became the initial balance in such Participants Transferred Bay State Account in the Plan. A Participants Transferred Bay State Account shall be held, administered, invested, and distributed pursuant to the terms of the Plan.
2.27 Transferred Columbia Account. The balance of a Participants Account containing any amount transferred from the Columbia Plan. The Columbia Plan was merged into the Plan as of January 1, 2004. The balance of the account of each Columbia Plan participant, determined as of December 31, 2003, was transferred to the Plan and became the initial balance in such Participants Transferred Columbia Account in the Plan. A Participants Transferred Columbia Account shall be held, administered, invested, and distributed pursuant to the terms of the Plan.
2.28 Unforeseeable Emergency. A severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participants spouse, or a dependent (as defined in Code Section 152(a)) of the Participant, loss of the Participants property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant.
2.29 Valuation Date. The close of business of each business day.
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ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. On and after January 1, 2012, eligibility to participate in the Plan for a Plan Year shall be limited to (1) an employee in job scope level C2 or above, (2) an employee in job scope level D2 or above who completed an Election Form in 2011 with respect to an Annual Deferral Amount related to services performed in the Plan Year beginning January 1, 2012; provided however, that such an employee will remain eligible to defer Compensation after the 2012 Plan Year only if he or she completes an Election Form in each successive Plan Year after 2012, and (3) any other key employee of an Employer who is designated from time to time by the ONC Committee.
3.2 Participation. An Eligible Employee shall become a Participant in the Plan by electing to defer Compensation in accordance with Article IV. An Eligible Employee also becomes a participant if the Employer credits the Participants Account with a Discretionary Contribution.
3.3 Continuation of Participation. A Participant shall remain a Participant so long as his or her Account has not been fully distributed.
3.4 Amendment of Eligibility Criteria. The ONC Committee may, in its discretion, change the criteria for eligibility for any reason, provided, however, that no change in the criteria for eligibility shall be effective unless such changes are (a) within guidelines established by the ONC Committee or (b) approved by the ONC Committee. Eligibility for participation in one year does not guarantee eligibility to participate in any future year.
ARTICLE IV
DEFERRAL COMMITMENTS
4.1 Timing of Deferral Elections. An Eligible Employee may elect to defer Compensation for services performed in any Plan Year by submitting an Election Form to the Retirement Committee only during the annual enrollment period established by the Retirement Committee, which shall end no later than December 31st, of the year preceding such Plan Year. Thus, for any salary to be paid for services performed in a Plan Year, an election to defer such salary must be made no later than December 31, of the prior Plan Year. Further, an election to defer such annual incentive award must be made no later than December 31, of the prior Plan Year. To illustrate these provisions, an election to defer salary payable for services performed in 2013 must be made by December 31, 2012. Further, an election to defer annual incentive awards that are (1) not performance-based compensation as described under Code Section 409A, (2) earned for the 2013 calendar year, and (3) to be paid in March 2014, must be made by December 31, 2012.
4.2 Amount of Deferral. A Participant may elect an Annual Deferral Amount in the Election Form as follows:
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(a) | Base Salary Deferral Amount. The amount of Compensation related to base salary that a Participant may elect to defer in an Election Form shall be stated as a whole percentage of base Compensation from 5% to 80%; provided, however, that the Company may reduce the amount deferred to the extent necessary to satisfy federal, state, local, or other tax withholding obligations and employee benefit plan withholding requirements. |
(b) | Annual Incentive Deferral Amount. The amount of Compensation related to any annual incentive award that a Participant may elect to defer in an Election Form shall be stated as a whole percentage of the annual incentive award from 5% to 80%; provided, however, that the Company may reduce the amount deferred to the extent necessary to satisfy federal, state, local, or other tax withholding obligations and employee benefit plan withholding requirements. |
No amount of Compensation may be deferred after the date of a Participants Separation from Service.
4.3 Distribution Options. Each Election Form with respect to a Plan Year shall specify the date on which the applicable deferred amount and earnings thereon shall be distributed. Such date shall be the first to occur of (1) the date of the Participants Separation from Service; or (2) a date selected by the Participant, provided that a selected date must be at least one year after the date the deferred amount would have been paid to the Participant in cash in the absence of the election to make the deferral, except as otherwise provided under Article VII.
4.4 Duration of Election Form. A Participant shall make an election in his Election Form as to the time and form of payment of the Annual Deferral Amount for each Plan Year. A Participants Election Form for any Plan Year is effective only for such Plan Year. In order to defer Compensation for a subsequent Plan Year, an Eligible Employee must file a new Election Form with respect to such Compensation. A Participant shall not be required to designate the same time and form of payment for each Plan Year.
4.5 Modification of Election Form. Except as provided otherwise in this Plan, Election Forms shall be irrevocable.
4.6 Change in Employment Status. If the Plan Administrator determines that a Participant has experienced a change in job scope level or employment status that no longer is eligible for participation in the Plan, but the Participants employment with an Employer is not terminated, the Participants existing Election Form shall terminate at the end of the current Plan Year, and no new Election Form may be submitted by such Participant for any Plan Year.
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ARTICLE V
ACCOUNTS
5.1 Account. The Compensation deferred by a Participant under the Plan, including any Discretionary Contributions and earnings thereon, shall be credited to the Participants Account. Separate subaccounts may be maintained to reflect different forms of distribution, investment options, levels of vesting, and forms of payment. The Account shall be a bookkeeping device utilized for the sole purpose of determining the benefits payable under the Plan and shall not constitute a separate fund of assets.
5.2 Timing of Credits; Withholding. A Participants deferred Compensation shall be credited to the Participants Account at the time it would have been payable to the Participant. Any withholding of taxes or other amounts with respect to deferred Compensation that is required by federal, state or local law shall be withheld from the Participants nondeferred Compensation to the maximum extent possible and any remaining amount shall reduce the amount credited to the Participants Account.
5.3 Discretionary Contributions. An Employer may make Discretionary Contributions to a Participants Account. Discretionary Contributions shall be credited at such times and in such amounts as the ONC Committee in its sole discretion shall determine. The amount so credited to a Participant may be smaller or larger than the amount credited to any other Participant, and the amount credited to any Participant for a Plan Year may be zero, even though one or more other Participants receive a Discretionary Contribution for that Plan Year.
5.4 Determination of Account. Each Participants Account as of each Valuation Date shall consist of the balance of the Account as of the immediately preceding Valuation Date, adjusted as follows:
(a) | New Deferrals. The Account shall be increased by any deferred Compensation credited since such preceding Valuation Date. |
(b) | Discretionary Contributions. The Account shall be increased by any Discretionary Contributions credited since such preceding Valuation Date. |
(c) | Distributions. The Account shall be reduced by any benefits distributed from the Account to the Participant since such preceding Valuation Date. |
(d) | Valuation of Account. The Account shall be increased or decreased by the aggregate earnings, gains and losses on such Account since such preceding Valuation Date, based on the manner in which the Participants Account has been hypothetically allocated among the investment options selected by the Participant. |
5.5 Vesting of Account. Each Participant shall be vested in the amounts credited to such Participants Account and earnings thereon as follows:
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(a) | Amounts Deferred. A Participant shall be 100% vested at all times in the amount of Compensation elected to be deferred under the Plan, and earnings thereon. |
(b) | Discretionary Contributions. A Participants Discretionary Contributions, and earnings thereon, shall become vested as determined by the ONC Committee. |
(c) | Transferred Account. A Participant shall be 100% vested at all times in the balance of his Transferred Bay State Account or Transferred Columbia Account, if any. |
5.6 Statement of Account. The Retirement Committee shall give to each Participant a statement showing the balance in the Participants Account periodically, at such times as may be determined by the Retirement Committee, in written or electronic form.
ARTICLE VI
INVESTMENTS
6.1 Investment Options. Amounts credited hereunder to the Account of a Participant shall be invested as such Participant elects among the investment choices provided to the Participant. The investment options shall be determined by the Plan Administrator from time to time in its sole and absolute discretion. As necessary, the Plan Administrator may, in its sole discretion, discontinue, substitute or add an investment option. Each such action will take effect on such date established by the Plan Administrator.
6.2 Special Investment Option for Former Participants in the Bay State Plan and Participants in the Plan. Former participants in the Bay State Plan who became Participants in the Plan, or Participants in the Plan on November 1, 2000, shall have an additional special investment option applicable solely to their Transferred Bay State Account balances, or their Account balances in the Plan, valued as of November 1, 2000, and any subsequent amounts contributed to such Participants Account. Such Participants may invest their Transferred Bay State Account balances, or their Account balances in the Plan as of November 1, 2000, and any subsequent amounts contributed to such Participants Account, in a subaccount which shall be credited with earnings equal to one percentage point higher than the effective annual yield of the average of the Moodys Average Corporate Bond Yield Index for the previous calendar month as published by Moodys Investor Services, Inc. (or any successor publisher thereto), or, if such index is no longer published, a substantially similar index selected by the Plan Administrator. A Participants Transferred Bay State Account balance, or his Account balance in the Plan on November 1, 2000, shall be invested pursuant to this special investment option from and after November 1, 2000, and until such time as another investment choice is designated by him under this Plan with respect to all or a portion of his Transferred Bay State Account, or his Account balance in the Plan on November 1, 2000. Subsequent amounts contributed to any such Participants Account may be invested pursuant to this option as designated by the Participant pursuant to this Plan. However, any portion of a Transferred Bay State Account, or an Account balance in the Plan, subsequently transferred from the investment option described in this Section to another investment option may not be reinvested under this Section.
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6.3 Special Investment Option for Former Participants in the Columbia Plan. Former participants in the Columbia Plan who become Participants in the Plan on January 1, 2004 shall have an additional special investment option applicable solely to their Transferred Columbia Account balances, valued as of January 1, 2004. Such Participants may invest all or any portion of their Transferred Columbia Account balances in a subaccount that shall be credited with earnings equal to the prime rate of interest, as listed in The Wall Street Journal. All or the designated portion of a Participants Transferred Columbia Account balance shall be invested pursuant to this special investment option from and after January 1, 2004, and until such time as another investment choice is designated by him pursuant to this Plan with respect to all or a portion of his Transferred Columbia Account. Any portion of a Transferred Columbia Account subsequently transferred from the investment option described in this Section to another investment option may not be reinvested under the investment option described in this Section. Amounts contributed to any such Participants Account on or after January 1, 2004 shall not be eligible for the investment option described in this Section.
6.4 Election of Investment Options. A Participant, in connection with completing his or her Election Form, shall elect one or more of the previously described investment options, as applicable, to be used to determine the amounts to be credited or debited to his or her Account. No Election Form of a Participant shall be effective until such time as the Participant submits his initial investment election to the Company. The Participant may (but is not required to) elect to add or delete one or more investment options to be used to determine the amounts to be credited or debited to his or her Account, or to change the portion of his or her Account allocated to each previously or newly elected investment option. If an election is made in accordance with the previous sentence, it shall apply as of the first business day deemed reasonably practicable by the Plan Administrator, in its sole discretion, and shall continue thereafter for each subsequent day in which the Participant participates in the Plan, unless changed in accordance with the previous sentence. Notwithstanding the foregoing, the Plan Administrator, in its sole discretion, may impose limitations on the frequency with which one or more of the investment options elected in accordance with this Section may be added or deleted by such Participant; furthermore, the Plan Administrator, in its sole discretion, may impose limitations on the frequency with which the Participant may change the portion of his or her Account allocated to each previously or newly elected investment option.
6.5 Allocation of Investment Options. In making any election related to investment options, the Participant shall specify, in increments specified by the Plan Administrator, the percentage of his or her Account or investment option, as applicable, to be allocated or reallocated.
6.6 No Actual Investment. Notwithstanding any other provision of this Plan that may be interpreted to the contrary, the investment options are to be used for measurement purposes only, and a Participants election of any such investment option, the allocation of his or her Account thereto, the calculation of additional amounts and the crediting or debiting of such amounts to a Participants Account shall not be considered or construed in any manner as an actual investment of his or her Account in any such investment option. In the event that the Company, in its own discretion, decides to invest funds in any or all of the investments on which the investment options are based, no Participant shall have any rights in or to such investments themselves. Without limiting the foregoing, a Participants Account shall at all times be a bookkeeping entry only and shall not represent any investment made on his or her behalf by the Company; the Participant shall at all times remain an unsecured creditor of the Company.
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ARTICLE VII
PAYMENTS AND DISTRIBUTIONS
7.1 Distributions/Events Generally. Participants generally will not be entitled to receive a distribution of their Account balance until they experience a Separation from Service for any reason. A Participant may receive a distribution before Separation from Service, however, in accordance with this Article VII, upon (1) an Unforeseeable Emergency that occurs before Separation from Service, or (2) a year that has been designated by the Participant in an Election Form and that occurs before Separation from Service.
7.2 In-Service Distributions.
(a) | General Payments. A Participant may elect in his or her Election Form to receive his or her Compensation deferred for a Plan Year, and all amounts credited or debited thereto, in a specified year while employed with an Employer. The Participant, in an Election Form, may elect to receive such an in-service distribution as either a lump sum or equal annual installments over a period of not more than 15 years. If a Participant does not make such an election, the payment shall be made in a lump sum. |
If a Participant elects to receive an in-service distribution as a lump sum, the amount of the lump sum payment will be based on the value of the Participants account as of March 15 of the designated year. The distribution date generally shall be on or as soon as administratively practicable after the March 31st of such year, or, if later, within such time frame permitted under Code Section 409A and the guidance and regulations thereunder. |
If a Participant elects to receive installments, the amount of each installment payment will be based on the value of the participants account as of the March 15 preceding the distribution of each installment payment. The distribution date generally shall be each subsequent March 31, or if later, within such time frame permitted under Code Section 409A, and the guidance and regulations thereunder. |
(b) Modifying In-Service Distributions.
(1) | Pre-2005 Account. Notwithstanding any other provision of the Plan, a Participant may modify his election as to the form or time of distribution of his entire Pre-2005 Account, and earnings thereon, by a writing filed with the Retirement Committee at any time prior to the commencement of payment. A Participants modification of his election as to the form or time of commencement of payment shall be ineffective, unless (1) the modification election is filed with the Retirement Committee more than 12 months prior to the time of commencement of payment, or (2) a |
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Participant elects by written instrument delivered to the Company prior to the time of commencement of payment to have his Pre-2005 Account reduced by 10%. This reduction shall be forfeited and used by the Plan to reduce expenses of administration. This reduction is intended to discourage a Participant from modifying his election as to the form or time of commencement of payment within the period set forth in clause (1) above and prevent him from being deemed in constructive receipt of his Pre-2005 Account prior to its actual payment to him. |
(2) | Post-2004 Account. The Company, in its discretion, may allow a Participant to modify his election as to the form or time of distribution of his entire Post-2004 Account, and earnings thereon, or of any portion of his or her Post-2004 Account and earnings thereon, if (1) such election does not take effect until at least 12 months after the date on which the election is made, (2) the first payment with respect to which such election is made is deferred for a period of not less than five (5) years from the date on which such payment would otherwise have been made, and (3) any election related to a payment to be made at a specified date is made at least 12 months prior to the date of the first scheduled payment. For purposes of the Plan, the term payment means each separate installment and not the collective group of installment payments. |
(3) | Precedence of Distributions. With respect to both Pre-2005 Accounts and Post-2004 Accounts in the event a Participant has a Separation from Service, Unforeseable Emergency, or other event that triggers distribution of benefits under Article VII of this Plan, all amounts subject to an in-service distribution shall be paid in accordance with other applicable provisions of the Plan and not under this Section 7.2. If, however, a Participant made an election to postpone an in-service distribution under Section 7.2(b), and the Participant experiences a Separation from Service, the distribution will be made in accordance with Section 7.2(b) and not Section 7.3. |
7.3 Distributions After Separation from Service.
(a) | Generally. If a Participant experiences a Separation from Service, the provisions of this Section 7.3 shall apply to the distribution of the Participants Account. The Participant may elect, in his or her Election Form to receive such benefits as either a lump sum or in equal annual installments over a period not to exceed 15 years. If no such election is made, payment shall be made as a lump sum. |
(b) | Pre-2005 Account. |
(1) | Lump Sum. If payment of a Participants Pre-2005 Account is to be made in a lump sum, the lump sum payment generally shall be made on or as soon as administratively practicable after the March 31st immediately after the date in which the Participant experiences a Separation from Service. |
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(2) | Installments. If payment of a Participants Pre-2005 Account is to be made in annual installments, the distribution of the first annual installment payment generally shall be made on or as soon as administratively practicable after the March 31st immediately after the date in which the Participant experiences a Separation from Service. The amount of this first installment payment shall be based on the value of the Participants Account as of the March 15 preceding the distribution date of this installment payment. Each subsequent installment payment generally shall be paid on or as soon as administratively practicable after each subsequent March 31. The amount of each such installment shall be based on the value of the Participants Account as of the March 15 preceding the distribution date of such installment. |
(3) | Modifications to Time and Form of Payment. Notwithstanding any other provision of the Plan, a Participant may modify his election as to the form or time of distribution of his entire Pre-2005 Account, and earnings thereon, by a writing filed with the Retirement Committee at any time prior to the commencement of payment. A Participants modification of his election as to the form or time of commencement of payment shall be ineffective, unless (1) the modification election is filed with the Retirement Committee more than 12 months prior to the time of commencement of payment, or (2) a Participant elects by written instrument delivered to the Company prior to the time of commencement of payment to have his Pre-2005 Account reduced by 10%. To clarify how these provisions operate with respect to a Participant who originally elected to commence distribution upon Separation from Service, such a Participant may elect to be paid on or as soon as administratively practicable after one of the following permitted times: (a) the March 31st immediately after the one-year anniversary date of the request to modify the election (regardless of whether the Participant experiences a Separation from Service before such date), or (b) the March 31st immediately after the date of the modified election, provided however, that under this option the Participants Pre-2005 Account shall be reduced by 10%. This reduction shall be forfeited and used by the Plan to reduce expenses of administration. This reduction is intended to discourage a Participant from modifying his election as to the form or time of commencement of payment within the period set forth in clause (1) above and prevent him from being deemed in constructive receipt of his Pre-2005 Account prior to its actual payment to him. |
(c) | Post-2004 Account. |
(1) | Lump Sum. |
(i) | Non-Specified Employees. If payment of a Participants Post-2004 Account is to be made to the Participant in a lump sum, and the Participant is not a Specified Employee of any Employer, the |
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lump sum payment generally shall be made on or as soon as administratively practicable after the March 31st immediately after the date in which the Participant experiences a Separation from Service. |
(ii) | Specified Employees. If payment of a Participants Post-2004 Account is to be made to the Participant in a lump sum, and the Participant is a Specified Employee of any Employer, the lump sum payment generally shall be made on or as soon as administratively practicable after the later of (1) the March 31st immediately after the date in which the Participant experiences a Separation from Service, or (2) the date that is six (6) months after the date in which the Participant experiences a Separation from Service, unless due to such Participants death, in which case payment generally shall be made to the Beneficiary as soon as practicable after the date of the Participants death. |
(2) | Installments. |
(i) | Non-Specified Employees. If payment of a Participants Post- 2004 Account is to be made to the Participant in annual installments, the distribution of the first annual installment payment generally shall be made on or as soon as administratively practicable after the March 31st immediately after the date in which the Participant experiences a Separation from Service. The amount of this first installment payment shall be based on the value of the Participants Account as of the March 15 preceding the distribution date of this installment payment. Each subsequent installment payment generally shall be paid on or as soon as administratively practicable after each subsequent March 31. The amount of each such installment shall be based on the value of the Participants account as of the March 15 preceding the distribution date of such installment. |
(ii) | Specified Employees. If payment of a Participants Post-2004 Account is to be made to the Participant in annual installments, and the Participant is a Specified Employee of any Employer, the distribution of the first annual installment payment generally shall be made on or as soon as administratively practicable after the later of (1) the March 31st immediately after the date in which the Participant experiences a Separation from Service, or (2) the date that is six (6) months after the date in which the Participant experiences a Separation from Service, unless due to such Participants death, in which case such installment payment generally shall be made to the Beneficiary as soon as practicable |
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after the date of the Participants death. The amount of this first installment payment shall be based on the value of the Participants Account as of the March 15 preceding the distribution date of this installment payment. Each subsequent installment payment generally shall be paid on or as soon as administratively practicable after each subsequent March 31. The amount of each such installment shall be based on the value of the Participants account as of the March 15 preceding the distribution date of such installment. |
(3) | Modifications to Time and Form of Payment. The Company, in its discretion, may allow a Participant to modify his election as to the form or time of distribution of his entire Post-2004 Account, and earnings thereon, or of any portion of his or her Post-2004 Account and earnings thereon, if (1) such election does not take effect until at least 12 months after the date on which the election is made, (2) the first payment with respect to which such election is made is deferred for a period of not less than five (5) years from the date on which such payment would otherwise have been made, and (3) any election related to a payment to be made at a specified date is made at least 12 months prior to the date of the first scheduled payment. For purposes of the Plan, the term payment means each separate installment and not the collective group of installment payments. |
7.4 | Unforeseeable Emergency/Hardship Distributions. |
(a) | Pre-2005 Account. Upon a finding that a Participant has suffered an Unforeseeable Emergency, the Retirement Committee may, in its sole discretion, make distributions from the Participants Pre-2005 Account (including his Transferred Bay State Account or Transferred Columbia Account, if applicable). The amount of such a distribution shall be limited to the amount reasonably necessary to meet the Participants needs resulting from the Unforeseeable Emergency. Any distribution pursuant to this Subsection shall be payable in a lump sum. The distribution shall be paid within 30 days after the determination of an Unforeseeable Emergency. |
(b) | Post-2004 Account. Upon a finding that a Participant has suffered an Unforeseeable Emergency, the Retirement Committee may, in its sole discretion, make distributions from the Participants Post-2004 Account and/or allow a Participant to suspend his Annual Deferral Amount entirely in accordance with the guidance under Code Section 409A. The amount of such distribution shall be limited to the amount necessary to satisfy such Unforeseeable Emergency plus amounts necessary to pay taxes reasonably anticipated as a result of the distribution, after taking into account the extent to which such hardship is or may be relieved through reimbursement or compensation by insurance or otherwise or by |
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liquidation of the Participants assets (to the extent the liquidation of such assets would not itself cause severe financial hardship). Any distribution pursuant to this Section 7.4(b) shall be payable in a lump sum. The distribution shall be paid within 30 days after the determination of an Unforeseeable Emergency. |
7.5 Distribution Provisions Applicable to a Transferred Bay State Account. Notwithstanding any other provision in the Plan, the following provisions shall apply to the form and time of payment of the balance of a Transferred Bay State Account:
(a) | General Payment Rules. The portion of a Transferred Bay State Account not paid pursuant to Section 7.2 shall be paid to a Participant following his separation from service, or to his Beneficiary in the case of death, in the form selected by the Participant, by written instrument delivered to the Retirement Committee before November 1, 2000. If no form is selected by the Participant, payment shall be made in a lump sum. The provisions of Section 7.2(b) shall apply with respect to the election of the form of payment of a Transferred Bay State Account and the modification of such election. |
(b) | Modifications to General Payment Rules. Any former employee of Bay State Gas Company who (1) was a participant in the Bay State Plan immediately prior to November 1, 2000, (2) terminated employment with Bay State Gas Company prior to November 1, 2000, for any reason other than Retirement, death or Disability (as such terms were defined in the Bay State Plan immediately prior to November 1, 2000), and (3) as of November 1, 2000, had not commenced payment of his Account shall not commence payment of his Transferred Bay State Account until the earlier of the Participants attainment of age 65, Disability or death. Notwithstanding the preceding sentence, the Retirement Committee may, in its sole discretion, vary the manner and time of making the payment of a Participants Transferred Bay State Account to such former Bay State employee, and may make such distributions over a longer or shorter period of time or in a lump sum. |
7.6 Automatic Cash-Out. In the event a Participants Account balance at the time distribution begins, or following a distribution of an installment payment is $15,000 or less, that balance shall be paid to the Participant or his Beneficiary in a lump sum on the next annual installment distribution date notwithstanding any form of benefit payment elected by the Participant.
7.7 Withholding for Taxes. To the extent required by the law in effect at the time payments are made, an Employer shall withhold from the payments made hereunder any taxes required to be withheld by the federal or any state or local government, including any amounts which the Employer determines is reasonably necessary to pay any generation-skipping transfer tax which is or may become due. A Beneficiary, however, may elect not to have withholding of federal income tax pursuant to Code Section 3405(a)(2).
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7.8 Payment to Guardian. The Retirement Committee may direct payment to the duly appointed guardian, conservator or other similar legal representative of a Participant or Beneficiary to whom payment is due. In the absence of such a legal representative, the Retirement Committee may, in its sole and absolute discretion, make payment to a person having the care and custody of a minor, incompetent or person incapable of handling the disposition of property upon proof satisfactory to the Retirement Committee of incompetency, status as a minor, or incapacity. Such distribution shall completely discharge the Company from all liability with respect to such benefit.
ARTICLE VIII
BENEFICIARY DESIGNATION
8.1 Beneficiary Designation. Subject to Section 8.3, each Participant shall have the right, at any time, to designate one or more persons or an entity as Beneficiary (both primary as well as secondary) to whom benefits under the Plan shall be paid in the event of the Participants death prior to complete distribution of the Participants Account. Each Beneficiary designation shall be in a written form prescribed by the Retirement Committee and shall be effective only when filed with the Retirement Committee during the Participants lifetime.
8.2 Changing Beneficiary. Subject to Section 8.3, any Beneficiary designation may be changed by a Participant without the consent of the previously named Beneficiary by the filing of a new designation with the Retirement Committee. The filing of a new designation shall cancel all designations previously filed.
8.3 Community Property. If the Participant resides in a community property state, the following rules shall apply:
(a) | Designation by a married Participant of a Beneficiary other than the Participants spouse shall not be effective unless the spouse executes a written consent that acknowledges the effect of the designation, or it is established that the consent cannot be obtained because the spouse cannot be located. |
(b) | A married Participants Beneficiary designation may be changed by a Participant with the consent of the Participants spouse as provided for in Section 8.3(a) by the filing of a new designation with the Retirement Committee. |
(c) | If the Participants marital status changes after the Participant has designated a Beneficiary, the following shall apply: |
(1) | If the Participant is married at the time of death but was unmarried when the designation was made, the designation shall be void unless the spouse has consented to it in the manner prescribed in Section 8.3(a). |
(2) | If the Participant is unmarried at the time of death but was married when the designation was made: |
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(i) | The designation shall be void if the spouse was named as Beneficiary, unless the designation is reaffirmed when the Participant is unmarried. |
(ii) | The designation shall remain valid if a nonspouse Beneficiary was named. |
(3) | If the Participant was married when the designation was made and is married to a different spouse at death, the designation shall be void unless the new spouse has consented to it in the manner prescribed above. |
8.4 No Beneficiary Designation. If any Participant fails to designate a Beneficiary in the manner provided above, if the designation is void or if the Beneficiary designated by a deceased Participant dies before the Participant or before complete distribution of the Participants benefits, the Participants Beneficiary shall be the person in the first of the following classes in which there is a survivor:
(a) | The Participants spouse; |
(b) | The Participants children in equal shares, except that if any of the children predeceases the Participant but leaves issue surviving, then such issue shall take, by right of representation, the share the parent would have taken if living; |
(c) | The Participants estate. |
ARTICLE IX
PLAN ADMINISTRATION
9.1 Allocation of Duties to Committees. The Plan shall be administered by the Benefits Committee, as delegated by the ONC Committee. The Benefits Committee shall have the authority to make, amend, interpret, and enforce all appropriate rules and regulations for the administration of the Plan and decide or resolve any and all questions, including interpretations of the Plan, as may arise in such administration, except as otherwise reserved to the ONC Committee herein, or by resolution or charter of the respective committees. Members of the Retirement Committee or Benefits Committee may be Participants under the Plan.
In its discretion, the Plan Administrator may delegate to any division or department of the Company the discretionary authority to make decisions regarding Plan administration, within limits and guidelines from time to time established by the Plan Administrator. The delegated discretionary authority shall be exercised by such division or departments senior officer, or his/her delegate. Within the scope of the delegated discretionary authority, such officer or person shall act in the place of the Plan Administrator and his/her decisions shall be treated as decisions of the Plan Administrator.
Specifically, the Plan Administrator hereby delegates certain of its discretionary authority with respect to the Plan to the Retirement Committee. Pursuant to the foregoing sentence, the
17
delegation by the Plan Administrator to the Retirement Committee includes, but shall not be limited to, the ability to solicit and receive deferral elections, establish enrollment periods, distribute account statements, receive distribution elections and any permitted modifications thereto, make distributions, and determine claims under the Plan.
9.2 Agents. The Retirement Committee, Benefits Committee or ONC Committee may, from time to time, employ agents and delegate to them such administrative duties as it sees fit, and may from time to time consult with counsel who may be counsel to the Company.
9.3 Information Required by Plan Administrator. The Company shall furnish the Plan Administrator with such data and information as the Plan Administrator may deem necessary or desirable in order to administer the Plan. The records of the Company as to an employees or Participants period or periods of employment, Separation from Service and the reason therefore, reemployment and Compensation will be conclusive on all persons unless determined to the Plan Administrators satisfaction to be incorrect. Participants and other persons entitled to benefits under the Plan also shall furnish the Plan Administrator with such evidence, data or information as the Plan Administrator considers necessary or desirable to administer the Plan.
9.4 Binding Effect of Decisions. The decision or action of the Retirement Committee, Benefits Committee and/or the ONC Committee (or any duly authorized delegate of any such committee) with respect to any question arising out of or in connection with the administration, interpretation and application of the Plan and the rules and regulations promulgated hereunder shall be final, conclusive and binding upon all persons having any interest in the Plan.
9.5 Section 16 Compliance.
(a) | In General. This Plan is intended to be a formula plan for purposes of Section 16 of the Securities Exchange Act (the Act). Accordingly, in the case of a deferral or other action under the Plan that constitutes a transaction that could be covered by Rule 16b-3(d) or (e), if it were approved by the ONC Committee (Board Approval), it is intended that the Plan shall be administered by delegates of the Board, in the case of a Participant who is subject to Section 16 of the Act, in a manner that will permit the Board Approval of the Plan to avoid any additional Board Approval of specific transactions to the maximum possible extent. |
(b) | Approval of Distributions: This Subsection shall govern the distribution of a deferral that (i) is being distributed to a Participant in cash, (ii) is made to a Participant who is subject to Section 16 of the Act at the time the interest in phantom Company Common Stock, if any, would be liquidated in connection with the distribution, and (iii) if paid at the time the distribution would be made without regard to this subsection, could result in a violation of Section 16 of the Act because there is an opposite way transaction that would be matched with the liquidation of the Participants interest in phantom Company Common Stock (either as a discretionary transaction, within the meaning of Rule 16b-3(b)(l), or as a regular transaction, as applicable) (Covered Distribution). In the case of |
18
a Covered Distribution, if the liquidation of the Participants interest in the phantom Company Common Stock in connection with the distribution has not received Board Approval by the time the distribution would be made if it were not a Covered Distribution, or if it is a discretionary transaction, then the actual distribution to the Participant shall be delayed only until the earlier of: |
(1) | In the case of a transaction that is not a discretionary transaction, Board Approval of the liquidation of the Participants interest in the phantom Company Common Stock in connection with the distribution, or |
(2) | The date the distribution would no longer violate Section 16 of the Act, e.g., when the Participant is no longer subject to Section 16 of the Act, or when the time between the liquidation and an opposite way transaction is sufficient. |
ARTICLE X
CLAIMS PROCEDURE
10.1 Claim. Claims for benefits under the Plan shall be made in writing to the Retirement Committee. The Retirement Committee shall establish rules and procedures to be followed by Participants and Beneficiaries in filing claims for benefits, and for furnishing and verifying proof necessary to establish the right to benefits in accordance with the Plan, consistent with the remainder of this Article.
10.2 Review of Claim. The Retirement Committee shall review all claims for benefits. Upon receipt by the Retirement Committee of such a claim, it shall determine all facts that are necessary to establish the right of the claimant to benefits under the provisions of the Plan and the amount thereof as herein provided within 90 days of receipt of such claim. If prior to the expiration of the initial 90 day period, the Retirement Committee determines additional time is needed to come to a determination on the claim, the Retirement Committee shall provide written notice to the Participant, Beneficiary or other claimant of the need for the extension, not to exceed a total of 180 days from the date the application was received. If the Retirement Committee fails to notify the claimant in writing of the denial of the claim within 90 days after the Retirement Committee receives it, the claim shall be deemed denied.
10.3 Notice of Denial of Claim. If the Retirement Committee wholly or partially denies a claim for benefits, the Retirement Committee shall, within a reasonable period of time, but no later than 90 days after receiving the claim (unless extended as provided above), notify the claimant in writing of the denial of the claim. Such notification shall be written in a manner reasonably expected to be understood by such claimant and shall in all respects comply with the requirements of ERISA, including but not limited to inclusion of the following:
(a) | the specific reason or reasons for denial of the claim; |
(b) | a specific reference to the pertinent sections of the Plan on which the denial is based; |
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(c) | a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary; and, where appropriate, |
(d) | an explanation of the Plans review procedures. |
10.4 Reconsideration of Denied Claim. Within 60 days after receipt of the notice of the denial of a claim or within 60 days after the claim is deemed denied as set forth above, if applicable, such claimant or duly authorized representative may request, by mailing or delivery of such written notice to the Benefits Committee, a reconsideration by the Benefits Committee of the decision denying the claim. If the claimant or duly authorized representative fails to request such a reconsideration within such 60 day period, it shall be conclusively determined for all purposes of the Plan that the denial of such claim by the Benefits Committee is correct. In connection with the claimants appeal of the denial of his or her benefit, the claimant may review pertinent documents and may submit issues and comments in writing.
After such reconsideration request, the Benefits Committee shall determine within 60 days of receipt of the claimants request for reconsideration whether such denial of the claim was correct and shall notify such claimant in writing of its determination. In the event of special circumstances determined by the Benefits Committee, the time for the Benefits Committee to make a decision may be extended by an additional 60 days upon written notice to the claimant prior to the commencement of the extension. The notice of decision shall be in writing and shall include specific reasons for the decision, written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If the decision on review is not furnished within the time period set forth above, the claim shall be deemed denied on review.
If such determination is favorable to the claimant, it shall be binding and conclusive. If such determination is adverse to such claimant, it shall be binding and conclusive unless the claimant or his duly authorized representative notifies the Benefits Committee within 90 days after the mailing or delivery to the claimant by the Benefits Committee of its determination that claimant intends to institute legal proceedings challenging the determination of the Benefits Committee and actually institutes such legal proceedings within 180 days after such mailing or delivery.
10.5 Employer to Supply Information. To enable the Retirement Committee or the Benefits Committee to perform its functions, each Employer shall supply full and timely information to the respective committee of all matters relating to the retirement, death or other cause for Separation from Service of all Participants, and such other pertinent facts as the respective committee may require.
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ARTICLE XI
AMENDMENT AND TERMINATION OF PLAN
11.1 Plan Amendment. The Benefits Committee, the ONC Committee or the Board shall have the authority to amend the Plan. The ONC Committee or the Board shall have the exclusive authority to amend the Plan regarding eligibility for the Plan, the amount or level of benefits awarded under the Plan, and the time and form of payments for benefits from the Plan. In addition, the ONC Committee or the Board shall also have the exclusive authority to make amendments that constitute a material increase in compensation, any change requiring action or consent by a committee of the Board pursuant to the rules of the Securities and Exchange Commission, the New York Stock Exchange or other applicable law, or such other material changes to the Plan such that approval of the Board is required. Unless otherwise determined by the ONC Committee, the Benefits Committee shall have the authority to amend the Plan in all respects that are not exclusively reserved to the ONC Committee or the Board.
The respective committee may at any time amend the Plan by written instrument, notice of which is given to all Participants, and to Beneficiaries. Notwithstanding the preceding sentence, no amendment shall reduce the amount accrued in any Account prior to the date such notice of the amendment is given.
11.2 Plan Termination. The ONC Committee or the Company at any time may partially or completely terminate the Plan if, in its judgment, the tax, accounting or other effects of the continuance of the Plan, or potential payments thereunder, would not be in the best interests of the Employers.
(a) | Partial Termination. The ONC Committee may partially terminate the Plan by instructing the Retirement Committee not to accept any additional Annual Deferral Amounts. If such a partial termination occurs, the Plan shall otherwise continue to be administered with respect to Account balances credited before the effective date of such partial termination, and distribution shall be made at such times as specified under this Plan. |
(b) | Complete Termination. The ONC Committee may completely terminate the Plan by instructing the Retirement Committee not to accept any additional Annual Deferral Amounts, and by terminating all ongoing Annual Deferral Amounts. If such a complete termination occurs, the Plan shall cease to operate and the Employers shall pay out each Pre-2005 Account in equal monthly installments over the following period, based on the Pre-2005 Account balance: |
Account Balance |
Payout Period | |
Less than $50,000 |
Lump Sum | |
$50,000 but less than $100,000 |
3 Years | |
More than $100,000 |
5 Years |
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Payments shall commence within 65 days after the ONC Committee terminates the Plan, and earnings shall continue to be credited on the unpaid Account balance. Employers shall pay out each Post-2004 Account in a manner consistent with Treasury Regulation Section 1.409A-3(j)(4)(ix) or any successor guidance under Code Section 409A.
ARTICLE XII
MISCELLANEOUS
12.1 Unfunded Plan. The Plan is an unfunded plan maintained primarily to provide deferred compensation benefits for a select group of management or highly-compensated employees within the meaning of Sections 201, 301 and 401 of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and therefore is exempt from the provisions of Parts 2, 3 and 4 of Title I of ERISA. Nothing contained in the Plan shall constitute a guaranty by the Company or any other Employer or any other entity or person that the assets of the Company or any other Employer shall be sufficient to pay any benefit hereunder.
12.2 Company and Employer Obligations. The obligation to make benefit payments to any Participant under the Plan shall be a joint and several liability of the Company and the Employer that employed the Participant.
12.3 Unsecured General Creditor. Participants and Beneficiaries shall be unsecured general creditors, with no secured or preferential right to any assets of the Company, any other Employer, or any other party for payment of benefits under the Plan. Any life insurance policies, annuity contracts or other property purchased by the Employer in connection with the Plan shall remain its general, unpledged and unrestricted assets. Obligations of the Company and each other Employer under the Plan shall be an unfunded and unsecured promise to pay money in the future.
12.4 Trust Fund. Subject to Section 12.3, the Company may establish separate subtrusts for deferrals by employees of each Employer, pursuant to a trust agreement entered into with such trustees as the Benefits Committee may approve, for the purpose of providing for the payment of benefits owed under the Plan. At its discretion, each Employer may contribute deferrals under the Plan for its employees to the subtrust established with respect to such Employer under such trust agreement. To the extent any benefits provided under the Plan are paid from any such subtrust, the Employer shall have no further obligation to pay them. If not paid from a subtrust, such benefits shall remain the obligation of the Employer. Although such subtrusts may be irrevocable, their assets shall be held for payment of all the Companys general creditors in the event of insolvency or bankruptcy.
12.5 Nonalienation/Nonassignability. Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance of actual receipt the amounts, if any, payable hereunder, or any part thereof or rights to, which are expressly declared to be unassignable and nontransferable. No part of the amounts payable shall, prior to actual payment, be subject to seizure or sequestration for the payment of any debts, judgments, alimony, or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participants or any other persons bankruptcy or insolvency.
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Notwithstanding the preceding paragraph, the Account of any Participant shall be subject to and payable in the amount determined in accordance with any qualified domestic relations order, as that term is defined in Section 206(d)(3) of ERISA. The Retirement Committee shall provide for payment in a lump sum from a Participants Account to an alternate payee (as defined in Code Section 414(p)(8)) as soon as administratively practicable following receipt of such order. Any federal, state or local income tax associated with such payment shall be the responsibility of the alternate payee. The balance of an Account that is subject to any qualified domestic relations order shall be reduced by the amount of any payment made pursuant to such order.
12.6 Indemnification.
(a) | Limitation of Liability. Notwithstanding any other provision of the Plan or any trust established under the Plan, none of the Company, any other Employer, any member of the Retirement Committee, the Benefits Committee or the ONC Committee, nor an individual acting as an employee or agent or delegate of any of them, shall be liable to any Participant, former Participant, Beneficiary, or any other person for any claim, loss, liability or expense incurred in connection with the Plan or any trust established under the Plan, except when the same shall have been judicially determined to be due to the willful misconduct of such person. |
(b) | Indemnity. The Company shall indemnify and hold harmless each member of the Retirement Committee, the Benefits Committee and the ONC Committee, or any employee of the Company or any individual acting as an employee or agent of either of them (to the extent not indemnified or saved harmless under any liability insurance or any other indemnification arrangement with respect to the Plan or any trust established under the Plan) from any and all claims, losses, liabilities, costs and expenses (including attorneys fees) arising out of any actual or alleged act or failure to act made in good faith pursuant to the provisions of the Plan, including expenses reasonably incurred in the defense of any claim relating thereto with respect to the administration of the Plan or any trust established under the Plan, except that no indemnification or defense shall be provided to any person with respect to any conduct that has been judicially determined, or agreed by the parties, to have constituted willful misconduct on the part of such person, or to have resulted in his or her receipt of personal profit or advantage to which he or she is not entitled. In connection with the indemnification provided by the preceding sentence, expenses incurred in defending a civil or criminal action, suit or proceeding, or incurred in connection with a civil or criminal investigation, may be paid by the Company in advance of the final disposition of such action, suit, proceeding, or investigation, as authorized by the Retirement Committee, the Benefits Committee or the ONC Committee in the specific case, upon receipt of an undertaking by or on behalf of the party to be indemnified to repay such amount unless it shall ultimately be determined that the person is entitled to be indemnified by the Company pursuant to this paragraph. |
23
12.7 No Enlargement of Employment Rights. The Plan shall not constitute a contract of employment between an Employer and the Participant. Nothing in the Plan shall give any Participant or Beneficiary the right to be retained in the service of an Employer or to interfere with the right of an Employer to discipline or discharge a Participant at any time.
12.8 Protective Provisions. A Participant shall cooperate with his Employer by furnishing any and all information requested by the Employer in order to facilitate the payment of benefits hereunder, and by taking such physical examinations as the Employer may deem necessary and taking such other action as may be requested by the Employer.
12.9 Governing Law. The Plan shall be construed and administered under the laws of the State of Indiana, except as preempted by federal law.
12.10 Validity. In case any provision of the Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining parts hereof, but the Plan shall be construed and enforced as if such illegal and invalid provision had never been inserted herein.
12.11 Notice. Any notice required or permitted under the Plan shall be sufficient if in writing and hand delivered or sent by registered or certified mail. Such notice shall be deemed as given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark on the receipt for registration or certification. Mailed notice to the Retirement Committee or the Benefits Committee shall be directed to the Companys address. Mailed notice to a Participant or Beneficiary shall be directed to the individuals last known address in the applicable Employers records.
12.12 Successors. The provisions of the Plan shall bind and inure to the benefit of the Employers and their successors and assigns. The term successors as used herein shall include any corporate or other business entity that shall, whether by merger, consolidation, purchase, or otherwise, acquire all or substantially all of the business and assets of an Employer, and successors of any such corporation or other business entity.
12.13 Incapacity of Recipient. If any person entitled to a benefit payment under the Plan is deemed by the Plan Administrator to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until a claim shall have been made by a duly appointed guardian or other legal representative of such person, the Plan Administrator may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of the Company, any other Employer, the Plan Administrator and the Plan.
12.14 Unclaimed Benefit. Each Participant shall keep the Plan Administrator informed of his or her current address and the current address of his or her Beneficiaries. The Plan Administrator shall not be obligated to search for the whereabouts of any person. If the location of a Participant is not made known to the Plan Administrator within three years after the date on which payment of the Participants benefit may first be made, payment may be made as though
24
the Participant had died at the end of the three-year period. If, within one additional year after such three-year period has elapsed or within three years after the actual death of a Participant, the Plan Administrator is unable to locate any Beneficiary of the Participant, then the Plan Administrator shall have no further obligation to pay any benefit hereunder to such Participant, Beneficiary, or any other person and such benefit shall be irrevocably forfeited.
12.15 Tax Compliance and Payouts.
(a) | It is intended that the Plan comply with the provisions of Code Section 409A of the Code, so as to prevent the inclusion in gross income of any amounts deferred hereunder in a taxable year that is prior to the taxable year or years in which such amounts would otherwise actually be paid or made available to Participants or Beneficiaries. This Plan shall be construed, administered, and governed in a manner that affects such intent, and neither any Participant, Beneficiary, nor Plan Administrator shall not take any action that would be inconsistent with such intent. |
(b) | Although the Plan Administrator shall use its best efforts to avoid the imposition of taxation, interest and penalties under Code Section 409A, the tax treatment of deferrals under this Plan is not warranted or guaranteed. Neither the Company, the other Affiliates, the Plan Administrator, the Retirement Committee, nor any designee shall be held liable for any taxes, interest, penalties or other monetary amounts owed by any Participant, Beneficiary or other taxpayer as a result of the Plan. |
(c) | Notwithstanding anything to the contrary contained in the Plan, (1) in the event that the Internal Revenue Service prevails in its claim that amounts contributed to the Plan for the benefit of a Participant, and/or earnings thereon, constitute taxable income under Code Section 409A, and guidance and regulations thereunder, to the Participant or his Beneficiary for a taxable year prior to the taxable year in which such contributions and/or earnings are distributed to him, or (2) in the event that legal counsel satisfactory to the Company, and the applicable Participant or his Beneficiary, renders an opinion that the Internal Revenue Service would likely prevail in such a claim, the Post-2004 Account, to the extent constituting such taxable income, shall be immediately distributed to the Participant or his Beneficiary. For purposes of this Section, the Internal Revenue Service shall be deemed to have prevailed in a claim if such claim is upheld by a court of final jurisdiction, or, if based upon an opinion of legal counsel satisfactory to the Company and the Participant or his Beneficiary, the Plan fails to appeal a decision of the Internal Revenue Service, or a court of applicable jurisdiction, with respect to such claim to an appropriate Internal Revenue Service appeals authority or to a court of higher jurisdiction within the appropriate time period. |
{Signature on following page}
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IN WITNESS WHEREOF, the Company has caused the NiSource Inc. Executive Deferred Compensation Plan to be executed in its name by its duly authorized officer, effective as of January 1, 2012.
NISOURCE INC. | ||
By: | /s/ Joel Hoelzer | |
Its: | Vice President, HR | |
Date: | 3/14/12 |
26
Exhibit 31.1
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Robert C. Skaggs, Jr., certify that:
1. | I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter ended March 31, 2012; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 1, 2012 | By: | /s/ Robert C. Skaggs, Jr. | ||||
Robert C. Skaggs, Jr. | ||||||
Chief Executive Officer |
Exhibit 31.2
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Stephen P. Smith, certify that:
1. | I have reviewed this Quarterly Report of NiSource Inc. on Form 10-Q for the quarter ended March 31, 2012; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 1, 2012 | By: | /s/ Stephen P. Smith | ||||
Stephen P. Smith | ||||||
Executive Vice President and Chief Financial Officer |
Exhibit 32.1
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of NiSource Inc. (the Company) on Form 10-Q for the quarter ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert C. Skaggs, Jr., Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ Robert C. Skaggs, Jr. |
Robert C. Skaggs, Jr. |
Chief Executive Officer |
Date: May 1, 2012
Exhibit 32.2
Certification Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of NiSource Inc. (the Company) on Form 10-Q for the quarter ending March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Stephen P. Smith, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
/s/ Stephen P. Smith |
Stephen P. Smith |
Executive Vice President and Chief Financial Officer |
Date: May 1, 2012
Short-Term Borrowings (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-Term Borrowings [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Short-Term Borrowings |
|
Risk Management Activities (Location And Fair Value Of Derivative Instruments On Consolidated Balance Sheets) (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |||||
---|---|---|---|---|---|---|
Mar. 31, 2012
|
Dec. 31, 2011
|
|||||
Derivatives, Fair Value [Line Items] | ||||||
Total Asset Derivatives | $ 258.3 | [1] | $ 348.5 | [1] | ||
Total Liability Derivatives | 275.3 | 306.7 | ||||
Fair value reserve recorded on certain assets related to the wind down of the unregulated natural gas marketing business | 1.7 | 22.6 | ||||
Fair value reserve recorded on certain assets related to the wind down of the unregulated natural gas marketing business, current | 1.2 | 4.6 | ||||
Fair value reserve recorded on certain assets related to the wind down of the unregulated natural gas marketing business, noncurrent | 0.5 | 18.0 | ||||
Designated As Hedging Instruments [Member] | Interest Rate Risk Activities [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Asset Derivatives | 47.7 | [1] | 56.7 | [1] | ||
Designated As Hedging Instruments [Member] | Interest Rate Risk Activities [Member] | Price Risk Management Assets (Current) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Asset Derivatives | [1] | [1] | ||||
Designated As Hedging Instruments [Member] | Interest Rate Risk Activities [Member] | Price Risk Management Assets (Noncurrent) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Asset Derivatives | 47.7 | [1] | 56.7 | [1] | ||
Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Liability Derivatives | 0.4 | 0.5 | ||||
Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member] | Price Risk Management Liabilities (Current) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Liability Derivatives | 0.3 | 0.4 | ||||
Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member] | Price Risk Management Liabilities (Noncurrent) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Liability Derivatives | 0.1 | 0.1 | ||||
Not Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Asset Derivatives | 210.6 | [1] | 291.8 | [1] | ||
Total Liability Derivatives | 274.9 | 306.2 | ||||
Not Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member] | Price Risk Management Assets (Current) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Asset Derivatives | 143.1 | [1] | 141.8 | [1] | ||
Not Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member] | Price Risk Management Assets (Noncurrent) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Asset Derivatives | 67.5 | [1] | 150.0 | [1] | ||
Not Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member] | Price Risk Management Liabilities (Current) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Liability Derivatives | 180.1 | 167.4 | ||||
Not Designated As Hedging Instruments [Member] | Commodity Price Risk Programs [Member] | Price Risk Management Liabilities (Noncurrent) [Member]
|
||||||
Derivatives, Fair Value [Line Items] | ||||||
Total Liability Derivatives | $ 94.8 | $ 138.8 | ||||
|
Gas In Storage (Details) (USD $)
In Millions, unless otherwise specified |
Mar. 31, 2012
|
---|---|
Gas In Storage [Abstract] | |
Temporary LIFO liquidation | $ 21.7 |
Supplemental Cash Flow Information (Schedule Of Cash Flow, Supplemental Disclosures) (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | |
---|---|---|
Mar. 31, 2012
|
Mar. 31, 2011
|
|
Supplemental Cash Flow Information [Abstract] | ||
Capital expenditures included in current liabilities | $ 71.0 | $ 58.7 |
Stock issuance to employee saving plans | 5.7 | 9.6 |
Cash paid for interest, net of interest capitalized amounts | 142.7 | 140.9 |
Cash paid for income taxes | $ 1.7 | $ 0.7 |
Earnings Per Share (Computation Of Diluted Average Common Shares) (Details)
|
3 Months Ended | |
---|---|---|
Mar. 31, 2012
|
Mar. 31, 2011
|
|
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Basic average common shares outstanding | 282,900,000 | 279,300,000 |
Nonqualified stock options | 126,000 | |
Shares contingently issuable under employee stock plans | 158,000 | 1,112,000 |
Shares restricted under stock plans | 615,000 | 317,000 |
Forward agreements | 9,275,000 | 4,203,000 |
Diluted Average Common Shares | 293,100,000 | 285,000,000 |
Stock Options [Member]
|
||
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||
Diluted earnings per share excludes out-of-the-money stock options | 2,100,000 | 3,500,000 |
Discontinued Operations And Assets And Liabilities Held For Sale (Tables)
|
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Mar. 31, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discontinued Operations And Assets And Liabilities Held For Sale [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Results From Discontinued Operations |
|
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