The new chief executive at NiSource Inc. plans to consider asset divestments and purchases as part of a strategic review of the Midwest and mid-Atlantic multi-utility's business.

NiSource President and CEO Lloyd Yates said management and the board of directors will take a "hard look" at the company's portfolio and whether it is "maximizing shareholder value." That portfolio includes local natural gas distribution companies in six states serving 4 million customers, a northern Indiana electric utility serving about 500,000 customers, and a portfolio of generation assets NiSource is shifting toward renewables and natural gas.

"We're going to look at the content of that portfolio. Should we keep all of the LDCs or all the businesses we have? Should we buy some? Should we sell other businesses?" Yates said during a quarterly conference call Feb. 23.

In 2021, NiSource's gas distribution business and electric operations generated $673.7 million and $387.2 million, respectively, in adjusted operating earnings.

Asked about the current business mix, Yates said some companies levered toward electric operations are commanding higher valuations. NiSource must consider that dynamic and whether there are opportunities to shift toward electric operations, Yates said. However, the CEO said NiSource is not exiting natural gas.

"I think in the states that we operate in, gas is very valuable. It may not be popular, but it's valuable," Yates said. "We have to consider all those options but also consider where we operate."

NiSource faces frothy M&A market for LDCs

Against a backdrop of pipeline opposition, tightening federal gas infrastructure review and building electrification mandates, five of the six states where NiSource distributes gas — Indiana, Kentucky, Ohio, Pennsylvania and Virginia — have passed or introduced laws prohibiting local governments from restricting gas use in buildings.

NiSource has not developed specific criteria for divestment, but management will be looking at recent transactions, including Dominion Energy Inc.'s recent $690 million sale of its West Virginia natural gas utility. UGI Corp. has also transacted in the state, purchasing the parent of Mountaineer Gas Co. for $540 million in December 2020. In an interview with S&P Global Market Intelligence, UGI expressed interest in purchasing NiSource subsidiary Columbia Gas of Pennsylvania Inc. and other mid-Atlantic assets.

But it was CenterPoint Energy Inc. that set the tone for LDC M&A in April 2021 when it struck a deal to sell its Arkansas and Oklahoma gas utilities for 2.5 times their combined 2020 rate base. Yates acknowledged the frothy market.

"If we sell, we want to try to get as much as we can for any asset that we have, and I think that's the challenge in the strategic evaluation," the executive said. "Everybody wants to accomplish the same objective, right? Buy low, sell high."

NiSource itself has been in the M&A market in recent years. The company sold Columbia Gas of Massachusetts to Eversource Energy for $1.1 billion in 2020 after agreeing to exit the state as part of a settlement over the 2018 Merrimack Valley disaster. NiSource will consider the dis-synergies that resulted from that divestment when considering other LDC sales, Yates said.

Clarity on renewable power investments to come

The company expects to present a timeline for the strategic review at NiSource's investor day in May, Yates said. NiSource also plans to update its capital plan at the event, according to Executive Vice President and CFO Donald Brown.

At an investor day in September 2020, NiSource laid out plans to invest up to $10.6 billion from 2021 through 2024 in its electric and gas operations, with $2 billion earmarked for renewable energy investments as it shuts down its coal fleet.

NiSource utility subsidiary Northern Indiana Public Service Co. unveiled a preferred energy resource plan in October 2021 that calls for the retirement of its 455-MW Michigan City coal plant in LaPorte County, Ind., between 2026 and 2028.

"We do want to take the plan out to at least the period of retiring that plant, so it would certainly be to 2027 or 2028," said Brown, who is also president of NiSource Corporate Services Co.

The CFO said NiSource will provide clarity on the $750 million in investments needed to replace its retiring coal capacity at the May investor day. NiSource's current capital plan calls for spending about $2.4 billion to $2.7 billion across its electric and gas operations in 2022.

Management did not indicate any renewable project delays due to supply chain constraints. Northern Indiana Public Service has investments in 14 solar, storage and wind projects in various stages of development.

"All projects are currently scheduled to be in service by the end of 2023. That's the critical window," NiSource Chief Strategy and Risk Officer Shawn Anderson said on the call. "So, we have the benefit of the remainder of the calendar for 2022 and 2023 for each project, which is at a different stage in its life cycle to work through what is necessary to get it into service by the end of 2023."

Earnings results

On Feb. 23, NiSource reported fourth-quarter net operating earnings of $166.7 million, or 39 cents per diluted share. The results topped year-ago EPS of 34 cents and Wall Street's expectations for 35 cents. The company reported full-year 2021 net operating earnings of $571.2 million, or $1.37 per diluted share, compared with year-ago EPS of $1.32 and analysts' expectations for $1.36.