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NiSource to shut down 900 MW of coal as it accelerates energy transition

Highlights

Retiring 2 more units at Schahfer plant

COVID impact in 2020 was 10 cents/share

New York — Northern Indiana Public Service Co. will retire two units at the 1,625-MW R.M. Schahfer coal plant by the end of the year as part of an accelerating transition to cleaner energy resources, executives with parent company NiSource Inc. said Feb. 17.

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The NiSource subsidiary, or NIPSCO, previously announced in September 2018 plans to shut down its remaining coal capacity within 10 years beginning with the R.M. Schahfer units in Jasper County, Ind., followed by the 469-MW Michigan City coal plant in LaPorte County, Ind.

"As we continue to evaluate the economics of our generating fleet and the ongoing costs and investments required to keep the coal units operational, we determined that the right path forward for us is to initiate the retirement of two of the four coal units at Schahfer," NiSource Chief Strategy and Risk Officer Shawn Anderson said on the company's fourth-quarter 2020 earnings call. "Units 14 and 15 will retire by the end of 2021, which is the most economic decision for our customers."

Units 14 and 15 provide about 903 MW of operating capacity, according to S&P Global Market Intelligence data. In 2020, Schahfer was supplied coal by Peabody Energy Corp.'s Gateway Mine and North Antelope Rochelle Mine, and from Thunder Basin Coal Co.'s Black Thunder mine.

NIPSCO will file its 2021 integrated resource plan with the Indiana Utility Regulatory Commission in the fourth quarter, which will provide a clearer picture of its long-term generation plans, company management said.

"With the current events that are going on across the industry right now, it just starkly demonstrates that reliability and capacity are essential and the integrated resource planning process itself is critically important," NiSource President and CEO Joseph Hamrock said on the earnings call. "So, that's why our approach really starts with reliability and balances all the other attributes against that fundamental requirement."

NiSource held its earnings call as an historic cold snap swept across the U.S., knocking about 45 GW of generation offline in the Electric Reliability Council Of Texas Inc., which operates most of the state's power grid.

NIPSCO is focusing on a combination of wind, solar and storage capacity to replace its coal generation.

About $1.8 billion to $2 billion in renewable energy investments will be added to NiSource's rate base by the end of 2023 as the company transitions its generation fleet.

The company also will pursue about $1 billion in tax equity partnerships through 2023 as it pursues a mix of joint ventures and power purchase agreements to replace retired capacity.

NiSource's larger $10.5 billion capital plan through 2024 includes investments of $1.9 billion to $2.1 billion in 2021.

NiSource plans to finance its growth plans with a combination of annual equity and debt offerings, as well as a common equity block issuance of $500 million to $700 million in 2022 or 2023.

"I would just note that we continue to look at ways to optimize the financing of our growth strategy," NiSource Executive Vice President and CFO Donald Brown said on the call. "We are currently evaluating scenarios utilizing hybrids and/or convertibles that get 50% or more equity credit with the rating agencies and could minimize the need for [the] block equity offering in 2022 or 2023."

The company plans to execute a convertible or hybrid financing in 2021, which would help clarify the amount of equity still needed to be issued, the CFO said.

COVID impacts

NiSource management also outlined financial impacts from the COVID-19 pandemic.

"The total growth impact of COVID-19 in 2020 was approximately 10 cents per share," Brown said.

Brown, president of NiSource Corporate Services, said this impact was partially offset by cost management and regulatory solutions, "bringing the net 2020 impact of COVID-19 to approximately 5 cents per share."

"Consistent with our base case, we currently expect an additional COVID impact in 2021 of approximately 5 cents per share, which is factored into our 2021 non-GAAP EPS guidance range," Brown said.

NiSource on Feb. 17 reaffirmed its non-GAAP net operating earnings in the range of $1.28 per share to $1.36 per share in 2021.

NiSource also reaffirmed its projected 7% to 9% net operating earnings-per-share growth rate from 2021 to 2024.

"While we are monitoring the pandemic closely, to date it has not presented significant barriers to our safety and infrastructure modernization programs or our long-term growth," Brown said.

NiSource reported that its commercial and industrial sales fell significantly in 2020, partially offset by an increase in residential usage.

"Commercial usage has been consistently down and continues to be a profile that we're going to closely monitor and perhaps is the most strong indicator of recovery across our territories," Hamrock said.