Executive Summary / Key Takeaways

• NiSource ($NI) is a regulated utility powerhouse executing a substantial capital plan ($19.4 billion through 2029) focused on safety, reliability, and energy transition, driving predictable 6-8% annual adjusted EPS and 8-10% rate base growth.
• Operational excellence, powered by technology like the Work and Asset Management system and AI-driven scheduling, is enhancing efficiency, managing costs (targeting flat O&M), and improving safety metrics, strengthening the core business.
• Constructive regulatory relationships and effective capital trackers are key enablers, ensuring timely recovery of investments (81% within 12 months) and supporting financial health (targeting 14-16% FFO-to-debt).
• Significant upside potential exists from accelerating economic development and data center growth, particularly in Northern Indiana, representing opportunities incremental to the base plan that could drive substantial future value.
• The company's diversified footprint across six states and balanced investment portfolio provide resilience against regional or fuel-specific risks, while strategic initiatives like the NIPSCO Genco filing aim to capture new growth efficiently.

A Foundation of Regulation and Reliability

NiSource Inc. ($NI) stands as a significant player in the U.S. regulated utility sector, tracing its roots back to 1847 and evolving into a diversified energy holding company serving approximately 3.3 million natural gas and 500,000 electric customers across six states. Its core business model is anchored in the stable, predictable framework of regulated operations, providing essential natural gas distribution and electric generation, transmission, and distribution services. This model, distinct from the more volatile upstream production focus of companies like EQT Corporation (EQT), emphasizes long-term infrastructure investment and reliable service delivery.

The company's strategic journey has been marked by a deliberate focus on enhancing its regulated asset base and transitioning its energy mix. A pivotal shift began with the 2018 Integrated Resource Plan (IRP), accelerating the move away from coal-fired generation towards a balanced portfolio of lower-emission resources. This transition, alongside ongoing investments in modernizing aging gas and electric infrastructure, forms the bedrock of NiSource's growth strategy.

In a competitive landscape populated by other large regulated utilities like Eversource Energy (ES) and Sempra (SRE), and infrastructure providers like Williams Companies (WMB), NiSource positions itself through its diversified geographic footprint and a strong emphasis on operational excellence and customer service. While competitors like Sempra boast broader international reach and Williams Companies excels in large-scale gas transmission, NiSource's strength lies in its integrated utility model within its service territories and its deep engagement with state-level regulatory processes. The company's trailing twelve-month earned ROE of 9.9% (GAAP, weather adjusted) reflects its ability to generate reasonable returns within this regulated environment, competitive with peers like Eversource (ROE ~10%) and Sempra (ROE ~11%), though trailing the higher ROIC seen in some production-focused or pure transmission players like EQT Corporation or Williams Companies.

A key differentiator for NiSource is its increasing adoption of advanced technology to drive efficiency and improve operations. The implementation of the Work and Asset Management (WAM) enterprise resource planning system is central to this, aiming to optimize the planning, scheduling, and execution of field operations. Complementing this is the Work Management Intelligence Program, which leverages AI models for tasks like forecasting shift availability, predicting job duration, and optimizing schedules. These initiatives have yielded tangible, quantifiable benefits, including productivity gains exceeding 40,000 hours in Ohio and averaging 16.5% in other Columbia Operations regions, resulting in over 60,000 hours of productivity improvement year-over-year. The rollout of Automated Metering Infrastructure (AMI) in Indiana also contributes to this technological push, promising enhanced operational efficiencies and customer experience. While direct quantitative comparisons of these specific technologies' impact on efficiency metrics like operating costs per unit against all competitors are not detailed, management highlights their role in stabilizing O&M expenses and improving safety, areas critical for competitive positioning in regulated markets. These technological advancements are foundational to NiSource's strategy of delivering safe, reliable energy more efficiently, aiming to counter the cost pressures inherent in infrastructure modernization and compliance.

Executing on a Robust Capital Plan

NiSource's strategic narrative is currently dominated by the execution of a significant capital investment program. The updated five-year base capital plan for 2025-2029 stands at a substantial $19.4 billion. This plan is diversified across key areas: electric generation transition, gas and electric distribution modernization, system hardening, and customer growth. Gas utilities, including the Columbia companies and NIPSCO Gas, are driving over 60% of this five-year CapEx, reflecting ongoing needs for pipeline replacement, system hardening, and compliance with evolving regulations like those from PHMSA.

The electric generation transition at NIPSCO remains a critical component. The plan is on track to retire the remaining two coal units at R.M. Schahfer by the end of 2025 and the Michigan City Generating Station by the end of 2028. Replacement resources include a mix of owned renewable and storage projects developed under Build-Transfer Agreements (BTAs) and Power Purchase Agreements (PPAs). As of March 31, 2025, 1500 MW of owned renewable/storage and 600 MW of PPA projects were in service, with an additional 650 MW BTA and 600 MW PPA projects under development. Recent milestones include the commercial operation of Dunns Bridge II in January 2025 and the expected in-service of Fairbanks and Gibson later this year. The strategic shift towards full ownership of projects like Cavalry, Dunns Bridge II, Fairbanks, and Gibson, approved in 2024, allows NiSource to leverage Inflation Reduction Act (IRA) provisions, monetize renewable tax credits more effectively, and potentially lower costs for customers compared to prior structures. The company is also pursuing the conversion of the Templeton Wind project from a PPA to company ownership, further enhancing its owned renewable portfolio.

Underpinning the feasibility of this ambitious capital plan is NiSource's proactive regulatory strategy. The company maintains a strong track record of constructive engagement across its six jurisdictions, utilizing capital trackers and forward-looking rate mechanisms to ensure timely recovery of investments. Management emphasizes that approximately 81% of the new base capital is expected to begin recovery within 12 months of deployment. Recent regulatory successes, including rate case settlements in Pennsylvania, Kentucky, and Virginia in late 2024, and settlements for the NIPSCO Gas and Electric rate cases in early 2025, demonstrate the effectiveness of this approach in securing the necessary revenue streams to support the capital program and deliver predictable financial outcomes.

Operational excellence initiatives, including Project Apollo and the deployment of the WAM system and AI tools, are integral to executing this capital plan efficiently and managing the overall cost structure. These programs target sustainable cost savings and efficiency gains, contributing to management's goal of maintaining flat Operation and Maintenance (O&M) expenses. This focus on efficiency is crucial for managing customer affordability while making necessary system investments.

Financial Performance and Forward Outlook

NiSource's recent financial performance reflects the impact of its ongoing capital investments and regulatory successes. For the three months ended March 31, 2025, the company reported Net Income Attributable to NiSource of $474.8 million, or $1.00 per diluted share, a significant increase from $365.0 million, or $0.77 per diluted share, in the same period of 2024. This increase was primarily driven by higher operating revenues ($2,183.2 million in Q1 2025 vs. $1,706.3 million in Q1 2024), largely attributable to regulated revenues recovering capital investments and favorable weather compared to the prior year. Operating expenses also increased, notably Cost of Energy ($647.5 million vs. $425.0 million), Operation and Maintenance ($427.8 million vs. $378.4 million), and Depreciation and Amortization ($258.6 million vs. $242.1 million), partially offsetting the revenue gains. The increase in Cost of Energy is largely a pass-through to customers via regulatory mechanisms, having minimal impact on net income.

Segment results for Q1 2025 show strong contributions from both Columbia Operations and NIPSCO Operations. Columbia Operations reported Operating Revenues of $1,243.8 million and Operating Income of $445.8 million, while NIPSCO Operations reported Operating Revenues of $941.7 million and Operating Income of $311.9 million. Both segments saw increased revenues and operating income compared to Q1 2024, driven by new rates from base rate proceedings and regulatory capital programs, as well as the effects of colder weather and customer growth.

Looking ahead, NiSource has reaffirmed its adjusted EPS guidance for 2025 at $1.85 to $1.89, consistent with its long-term commitment to 6% to 8% annual adjusted EPS growth through 2029. This guidance is based on the $19.4 billion base capital plan, which is expected to drive 8% to 10% rate base growth over the same period. Management expresses high confidence in achieving this guidance, citing the visibility provided by finalized or pending regulatory rate increases for 2025 and the predictable nature of recovery mechanisms.

The company's financing plan is designed to support this capital program while maintaining a strong balance sheet. NiSource targets a Funds From Operations (FFO) to debt ratio of 14% to 16% in all years of the plan. This is supported by a balanced mix of cash flow from operations, new long-term debt, and annual maintenance equity issuances ($200 million to $300 million per year) through its At-the-Market (ATM) program. As of March 31, 2025, the company had approximately $147.5 million of equity available under its ATM program. Recent financing activity includes the issuance of $750 million of senior unsecured notes in March 2025. The company's debt to capitalization ratio stood at 53.8% as of March 31, 2025, well within its covenant limits.

Management notes being ahead of schedule on its 2025 financing plan, having secured at least half of forecasted equity issuances and issued the $750 million in long-term debt.

Emerging Opportunities and Competitive Dynamics

Beyond the robust base plan, NiSource is actively developing significant incremental investment opportunities, particularly related to accelerating economic development and data center growth. The Northern Indiana service territory served by NIPSCO is highlighted as a premier location for data centers due to its access to critical infrastructure (transmission, fiber), predictable climate, low natural catastrophe risk, and a constructive business climate with supportive state government. Management notes accelerated customer interest in this region.

While these opportunities are not yet included in the base or identified upside capital plans ($2.2 billion of identified upside for traditional infrastructure projects), NiSource is strategically positioning itself to capture this growth. The NIPSCO Genco initiative, involving a declination of jurisdiction petition filed with the IURC in January 2025, is a key step. This framework aims to accommodate megaload customers by potentially separating costs to protect existing customers, providing speed and flexibility for new generation resource construction, maintaining NIPSCO's financial integrity, and preserving business model flexibility. Active settlement negotiations are ongoing regarding this filing.

This focus on large load growth and economic development is also evident in other parts of the service territory, such as a preliminary settlement reached in Virginia to build a gas pipeline for a data center and efforts to support manufacturing expansion in Ohio and Indiana. These projects represent potential growth drivers that could be incremental to the current financial guidance.

In the competitive arena, NiSource's ability to attract and serve large industrial and emerging data center loads is a key battleground. While established players like Sempra and Williams Companies have extensive infrastructure, NiSource's vertically integrated model in Indiana and its strong regional relationships provide a distinct advantage in responding to local demand. The company's focus on operational efficiency through technology like AI-driven scheduling and WAM also contributes to its competitive positioning by potentially lowering operational costs and improving service reliability, factors critical for attracting and retaining large, high-demand customers. Compared to peers, NiSource's investment in these specific operational technologies appears to be a strategic focus aimed at enhancing its execution capabilities and cost management, which could translate into a competitive edge in delivering projects and services efficiently.

Risks and Mitigation

Despite its stable regulated business model and growth plans, NiSource faces several risks. These include potential challenges in executing its large capital plan on time and budget, supply chain constraints for materials and equipment, and increased competition for skilled labor, which could impact costs and project timelines. Adverse economic conditions, including inflation and rising interest rates, could affect financing costs and customer affordability.

Regulatory risk remains inherent, as outcomes of rate cases and approvals for new investments are subject to commission decisions, which could impact the timing and level of cost recovery. Changes in environmental regulations, such as new EPA rules for fossil fuel plants or state-level GHG reduction mandates, could require additional investments or impact operational flexibility, potentially increasing costs for customers. The company's Net Zero Goal by 2040 is subject to supportive policies and technological advancements that are not yet fully realized.

Operational risks include potential incidents related to aging infrastructure and the physical impacts of climate change, such as severe weather events, which can disrupt service and require significant restoration efforts. Cybersecurity threats also pose a risk to critical infrastructure and data.

NiSource employs several mitigation strategies. Its strong regulatory relationships and use of trackers are designed to manage recovery risk. Operational excellence programs, including investments in technology, infrastructure modernization, and safety management systems, aim to enhance reliability, reduce incidents, and improve efficiency. The diversified capital plan and financing strategy, including maintaining target FFO-to-debt levels and utilizing various funding sources, help manage financial risk. Proactive engagement with stakeholders and evaluation of emerging technologies like hydrogen and renewable natural gas are part of the strategy to navigate the energy transition and environmental challenges. The disciplined approach to evaluating and pursuing large load opportunities, such as the NIPSCO Genco framework, is intended to manage the risks associated with significant new investments while protecting existing customers.

Conclusion

NiSource Inc. presents a compelling investment thesis grounded in its stable, regulated utility operations and a clearly defined, executable growth strategy. The company is actively deploying a substantial capital plan focused on modernizing infrastructure, enhancing safety and reliability, and transitioning its energy portfolio towards lower-emission resources. This plan, supported by a constructive regulatory framework and efficient cost recovery mechanisms, is projected to deliver consistent 6-8% annual adjusted EPS growth and 8-10% rate base growth through 2029.

Operational excellence, driven by strategic technology investments in areas like work management and AI, is a key enabler of this strategy, enhancing efficiency and managing costs effectively. While facing inherent risks common to the utility sector, including regulatory and environmental challenges, NiSource's established mitigation strategies and diversified footprint provide resilience. The emerging opportunity presented by accelerating economic development and data center demand, particularly in Northern Indiana, represents a significant potential upside that could further differentiate NiSource and drive incremental value beyond its current base plan. Investors focused on predictable growth from a regulated utility with significant potential upside from new demand drivers should find NiSource's story compelling, with key indicators to watch being the continued execution of the base capital plan, progress on large load initiatives like the NIPSCO Genco filing, and ongoing regulatory outcomes.