By KEVIN NEVERS

NiSource Inc. reported a net loss of $202.3 million in the second quarter of 2008 or 74 cents per basic share, compared to a net income of $26.7 million or 10 cents per basic share in the year-ago period.

That figure reflects a loss of $220.5 million from discontinued operations, chiefly related to the so-called “Tawney” class-action lawsuit filed in West Virginia against former NiSource subsidiary Columbia Natural Resources (CNR), for which the company retained primary financial responsibility. In May the West Virginia Supreme Court of Appeals declined to review the trial court judgment in that case, which included a compensatory damages of $134 million and punitive damages of $270 million awarded against CNR. NiSource has filed a petition for a writ of certiorari with the U.S. Supreme Court and expects to know late this year or early in 2009 whether it will accept the company’s appeal.

“While NiSource believes it has meritorious arguments, particularly with respect to the punitive damages, it cannot predict the outcome of the appellate process,” the company said in a statement released earlier this month. “Consequently, in the second quarter, the company increased its reserve related to the Tawney litigation to reflect the portion of the trial court judgment for which NiSource would be responsible, inclusive of interest.”

Operating income by segment for the first quarter:

•Gas Distribution reported an operating loss of $10 million, compared to an operating income of $13.3 million for the year-ago period. NiSource attributed the loss primarily to “increased operating expenses which were $9.6 million higher than the prior year,” the company said. “The increase was mainly due to higher employee and administrative expenses, uncollectable accounts, and higher depreciation costs. Net revenues were $3.2 million lower than the same period in 2007, as increases from rate proceedings and other service programs were more than offset by reduced revenues due to a stipulation entered into among Columbia of Ohio and its regulatory stakeholders in late 2007.”

•Gas Transmission and Storage reported an operating income of $77.9 million, compared to an operating income of $67.8 million in the year-ago period. “Increased net revenues were mostly offset by higher operating expenses and lower equity earnings,” NiSource said. “Increases in net revenues of $6.4 million were primarily due to increased subscriptions for firm transportation services related to new interconnects along the Columbia Gulf pipeline system, deliveries from the Hardy Storage field, and incremental revenues on the Columbia Gas Transmission pipeline system.”

•Electric reported an operating income of $50.7 million, compared to an operating income of $64.8 million in the year-ago period. “Operating expenses increased by $10.7 million due primarily to higher employee and administrative costs and higher depreciation costs,” including an $8.3 million adjust recorded by NIPSCO during the second quarter,” the company said. “Net revenues increased by $1 million as a result of higher industrial volumes, timing of revenue credits, and incremental revenues from the new Sugar Creek plant, partially offset by non-recoverable purchased power costs.”

•Other Business reported an operating income of $700,000, compared to a operating loss of $400,000 in the year-ago period. “The improvement resulted from higher net revenues from commercial and industrial gas marketing activities,” NiSource said.

•Corporate reported an operating loss of $2.7 million, compared to an operating loss of $1.6 million in the year-ago period.

NIPSCO

NiSource noted that, in the second quarter, its subsidiary, the Northern Indiana Public Service Company, acquired the 535-megawatt combined-cycle Sugar Creek generating facility, located in Terre Haute, for $330 million. On June 6, NIPSCO filed an alternative regulatory plan with the Indiana Utility Regulatory Commission (IURC) seeking the deferral of certain costs associated with the facility.

Meanwhile, on July 24, the IURC approved NIPSCO’s proposed purchase power agreement with Iberdrola Renewables, a producer of power from wind and other renewable sources. That agreement provides NIPSCO the opportunity to purchase 100 megawatts of wind power beginning in early 2009.

The Rate Case

On June 27, NIPSCO filed a petition with the IURC to modify its rates and charges for electric service. “NIPSCO’s landmark electric rate case marks the first time in more than 20 years that the company has sought a comprehensive review of its electric services, cost levels, and rates,” said NiSource President and CEO Robert Skaggs Jr.

Earnings Projection

NiSource is projecting a basic earnings from continuing operations in 2008 at the lower end of $1.23, “primarily due to transition costs associated with NiSource’s amended business agreement with IBM.”

Posted 8/18/2008