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NiSource expects operating costs to level off after sharp increase

NiSource Inc.'s commitments to gas system improvements have driven up costs, but the company expects those expenses to level off and to collect more money from infrastructure trackers, company executives said during an earnings call.

Despite higher revenues thanks to higher rates at NiSource's gas distribution operations during the second quarter, the segment's operating earnings were down due to higher operating costs. The companies saw a $40 million increase in an array of operating expenses, including higher costs related to employees, administrative activities, outside services, depreciation, property taxes and environmental activities, executives said during the Aug. 2 call.

The electric business similarly saw an increase in electric operations expenses, with the increase related to some of the same factors as in the gas system, along with more generation-related maintenance and vegetation management.

The uptick in operations and maintenance expenses is not likely to repeat and these costs should stabilize, officials noted.

"In the gas segment, we've made commitments in recent rate case settlements to make certain investments in safety, reliability and customer service enhancements. In our electric business, we've increased the plant maintenance and vegetation management activities to boost our reliability," Donald Brown, NiSource's executive vice president and CFO, said during the call. "We're managing these expenses closely, and ... we remain confident that our performance transformation process will lead to a flattening of O&M expenses after 2017."

The company in recent months has made headway on cost recuperation proceedings in a few states, executives said. In Indiana, Northern Indiana Public Service Co. got approval for its most recent semiannual tracker update, which covered $61 million in investments from the latter half of 2016. Columbia Gas of Maryland Inc. in late July reached a settlement in its rate case at the Maryland Public Service Commission, which would boost annual revenues by $2.4 million if approved.

Columbia Gas of Ohio Inc. and Columbia Gas of Massachusetts both saw tracker updates take effect during the quarter ended June 30, getting authorization to recover $236 million and $69 million, respectively, in infrastructure upgrade costs.

Columbia Gas of Ohio is awaiting approval for a five-year extension of the company's infrastructure replacement program. Public Utilities Commission of Ohio staff in July recommended that the program extension get approved with a few modifications, NiSource executives said, noting that the PUCO is expected to make a decision by the end of 2017.

Even with the hike in operations and maintenance expenses, the company boosted its guidance for 2017. Having originally pegged the year's earnings guidance at $1.12 to $1.18 per share, NiSource executives said Aug. 2 that they now expect earnings to fall within the $1.17 to $1.20 range, in part thanks to a 2-cent-per-share interest savings achieved through refinancing.

NiSource reported $33.3 million in second-quarter net operating earnings from continuing operations, or 10 cents per share, up from $26.6 million, or 8 cents per share, in the comparable quarter of 2016.