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Morningstar | NiSource's Investment Level the Next Five Years Expected to Almost Double the Previous Five Years

NiSource completed its separation from Columbia Pipeline Group in 2015 and now derives all of its operating revenue from its regulated electric and natural gas distribution utilities. About two thirds of operating income comes from its seven natural gas distribution utilities. The remaining third comes from its electric utility business in Indiana.NiSource's utilities have regulatory frameworks that include automatic rate tracker mechanisms for roughly 75% of planned capital expenditures, providing recovery of investments in less than 12 months. As a result of the favorable regulation, NiSource has stepped up its capital expenditures to almost $2 billion per year over the next five years. This is an investment level almost double the previous five years.Over the next 20 years, NiSource plans to invest about $30 billion in infrastructure improvements. Over 50% of these investments are modernization programs for replacing steel and cast iron pipe with plastic at its natural gas distribution utilities. Almost all of these investments receive rate tracker treatment. This allows NiSource to earn returns on these investments near allowed returns and reduces regulatory risk.In September 2018, a tragic natural gas explosion, killing one person, occurred north of Boston on NiSource's Columbia Gas of Massachusetts system. The preliminary report from the National Transportation Safety Board indicated that the ultimate responsibility--costs expected to exceed $1.1 billion--will rest with NiSource. Although insurance should cover a significant portion of costs, the event was a public relations nightmare and did have a negative impact on earnings. However, we expect annual earnings growth to be back to 6% by 2020. NiSource cut its dividend in 2015 to $0.62 per share annualized after the separation from CPG. The company increased its dividend by 9.4% in 2017 and 11.4% in 2018. However, in part due to the Boston tragedy, dividend growth was only 2.6% in 2019. As earnings recover, we expect 6% annual dividend increases through 2023, at the midpoint of management's target of 5%-7%.