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NiSource Feels Impact of Customer Energy Conservation

Despite weather than was 5% colder than normal in the fourth quarter of 2005 and 2% colder for the year, gas customers in NiSource's utility territories in the Northeast and East North Central regions used about 5% less gas because of conservation due to high prices, the company reported.

"The biggest ongoing concern -- as it is for most gas utilities -- is gas usage reduction," said NiSource CEO Robert C. Skaggs in a statement on the company's financial results. "Although the weather was colder than normal for the year and particularly during the fourth quarter, high gas prices caused customers to dial back their thermostats. Excluding the impact of weather, residential volume declines decreased operating earnings by approximately $20 million for the year. This is a steeper decline than we have seen in the past."

The drop in customer gas usage also came despite the addition of 28,000 new gas customers last year. Operating earnings for NiSource's gas distribution operations in New England, the Mid Atlantic and Ohio were down $34.6 million to $394.2 million for 2005 compared to 2004. In addition to reduced usage, the earnings decline also was attributed to greater depreciation of $30 million resulting from the 2004 expiration of the prior regulatory stipulation for Columbia Gas of Ohio.

The company as a whole reported a 14% drop in fourth quarter operating earnings per share to 45 cents/share and 10% drop in operating earnings for the full year 2005 to $1.38/share compared to the prior year's results. Net operating earnings totaled $375.4 million for the year compared with $405.8 million in 2004.

Skaggs said the decrease was the result of higher depreciation expense, decreased customer usage, incremental costs associated with the Midwest Independent System Operator (MISO) in NiSource's Indiana electric market, and lower net revenues in the gas transmission and storage business due primarily to the 2004 renegotiation of contracts with NiSource pipelines' major customers, net of remarketing activities.

"Despite the challenges of record high natural gas prices, the impact of hurricanes and a dynamic energy market environment, the NiSource employee team put in place the four key elements of our platform for growth: expansion and commercial growth in the pipeline and storage business; regulatory and commercial initiatives; management of the balance sheet; and expense management," he said. NiSource expects 2006 net operating earnings in the range of $1.45 to $1.55 per share.

"We made significant progress on pipeline and storage growth projects, with the Hardy Storage project in West Virginia receiving its Federal Energy Regulatory Commission (FERC) certificate to move forward, Millennium Pipeline signing Consolidated Edison and KeySpan as anchor customers, and Columbia Gas Transmission's Eastern Market Expansion moving forward toward a 2009 in service date based on definitive agreements with four East Coast customers," Skaggs said.

NiSource's gas transmission and storage business reported operating earnings of $349.6 million, a $16.9 million decrease from 2004 due mainly to the renegotiation of contracts with major pipeline customers.

"We expected a material decrease in revenues due to the recontracting, but notably, the pipeline team offset nearly half of the reduction in revenue by aggressively marketing available capacity and lowering operation and maintenance expenses by $15.6 million," Skaggs said. "Our pipeline and storage business shows great potential for growth and expansion, with expanded commercial activities and new revenue-producing projects scheduled to come on- line as early as 2007."

Columbia Gas Transmission Corp. (TCO), a unit of NiSource, announced plans on Wednesday to expand its pipeline, compression and storage networks to provide an incremental 97,050 Dth/d of storage deliverability and associated firm pipeline transportation capacity to four local distribution company customers in the Mid Atlantic region. The Eastern Market Expansion Project is expected to be in service by April 1, 2009.

Four utilities executed 15-year agreements for the combined storage and transportation services. The total storage contract quantity associated with the expansion exceeds 5.8 million dekatherms, NiSource said. TCO plans to expand existing storage fields in West Virginia and Ohio, as well as construct pipeline loops and install additional compression.

"Incremental firm storage deliverability in the Eastern and Mid-Atlantic markets is needed to meet the robust growth demands of the region," said Christopher A. Helms, president of NiSource's Pipeline Group. "This project, and others like Hardy Storage and Millennium, will generate long term sustainable growth for TCO and NiSource."

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