NiSource NI Business Risk Report

I. Market Risks

A. Volatility in energy prices
NiSource’s financial performance is significantly influenced by fluctuations in the prices of natural gas and electricity. Changes in these energy prices can affect the company’s revenue streams, as it operates within a regulated market where energy rates impact both operating costs and profit margins.

B. Regulatory changes impacting operations
NiSource must comply with numerous federal, state, and local regulations. Changes in these regulations, such as amendments in utility rate structures or the introduction of new environmental regulations, could impact the company’s operations, requiring adjustments in strategy and possibly leading to increased costs.

II. Operational Risks

A. Natural disasters affecting infrastructure
NiSource’s infrastructure could be significantly affected by natural disasters such as hurricanes, floods, or wildfires, which could disrupt operations and result in costly repairs and restoration efforts. The geographical areas where NiSource operates are susceptible to various natural disasters, affecting reliability and operating costs.

B. Cybersecurity threats and data breaches
As a utility provider, NiSource is a target for cyber-attacks that could threaten the security of critical infrastructure and customer data. A significant data breach or cybersecurity incident could result in service disruptions, legal liabilities, and damage to the company’s reputation.

III. Financial Risks

A. Debt levels and interest rate fluctuations
NiSource carries a significant amount of debt and is subject to the risks associated with interest rate fluctuations. Changes in interest rates can affect debt servicing costs and overall financial stability, posing a long-term risk to financial health.

B. Funding availability for capital expenditures
The availability of funding for capital expenditures is crucial for NiSource to continue its operations and growth. Access to capital markets or other financing sources can be influenced by economic conditions, credit market fluctuations, and the company’s credit ratings.

IV. Legal and Compliance Risks

A. Litigation risks related to past incidents
NiSource has faced litigations related to past operational incidents, such as the 2018 Merrimack Valley gas explosions. Such events not only lead to substantial legal and financial consequences but also affect the company’s public image and stakeholder trust.

B. Compliance with environmental regulations
Compliance with increasingly stringent environmental regulations is a significant challenge for NiSource due to its substantial involvement in the energy sector. Non-compliance could result in hefty penalties, legal disputes, and damage to the company’s reputation.

V. Strategic Risks

A. Integration risks related to acquisitions
NiSource faces risks associated with integrating acquisitions, which can include cultural mismatches, unforeseen costs, and disruption to existing operations. Successful integration is crucial to achieving the desired benefits from such business expansions.

B. Competition from renewable energy sources
The growing shift towards renewable energy sources poses a competitive risk to NiSource, as it may decrease the demand for traditional energy sources provided by the company. This shift could impact revenue and necessitate strategic adjustments.

VI. Mitigation Strategies

A. Diversification of energy sources to mitigate market risks
NiSource is actively seeking to diversify its energy mix by incorporating more renewable energy sources, which helps mitigate the risks associated with volatile energy prices and regulatory changes.

B. Regular maintenance and disaster recovery planning for operational risks
To reduce operational risks such as infrastructure damage from natural disasters or cybersecurity incidents, NiSource conducts regular maintenance and has implemented comprehensive disaster recovery plans.

C. Monitoring debt levels and hedging strategies for financial risks
NiSource closely monitors its debt levels and employs hedging strategies to manage the impact of interest rate fluctuations, ensuring financial stability and capacity to fund future capital needs.

D. Robust legal compliance programs and risk management framework
The company maintains robust legal compliance programs and a risk management framework to manage and mitigate legal and regulatory risks, focusing on adherence to environmental, safety, and corporate governance standards.

E. Comprehensive due diligence for strategic initiatives and investments
NiSource conducts comprehensive due diligence when considering strategic initiatives and investments to mitigate risks associated with acquisitions and competitive pressures from emerging energy technologies.