By KEVIN NEVERS

NiSource Inc. is reporting a net income of $282.2 million or $1.04 per share for 2006, compared to a net income of $306.5 million or $1.13 per share for 2005.

For the fourth quarter of 2006 NiSouce is reporting a net income of $62.5 million or 23 cents per share, compared to a net income of $68 million or 25 cents per share in the year-ago period.

“Overall, our core operating companies delivered solid performance during 2006,” NiSource President and CEO Robert Skaggs Jr. said in a statement released today.

“While our gas distribution business continued to be challenged by the dynamics of customer usage and attrition, we have begun to address these issues through the regulatory process in our various markets, and we made and continue to make significant progress on our efforts to expand and optimize our extensive natural gas transmission and storage system. In addition, our electric business continued to grow in terms of number of customers, volumes, and operating earnings.”

Skaggs did not directly address in his statement published reports that NiSource is trying to sell the Northern Indiana Public Service Company’s electric business, possibly to Duke Energy Group of Charlotte, N.C., for between $3.4 billion and $4 billion. “NiSource’s senior management and Board of Directors,” Skaggs did say, “remain intently focused on completing the strategic and financial review process initiated during 2006 to unlock the underlying value of the company’s asset base and position it for the future. As I indicated when we released third-quarter earnings in November of last year, we expect to be in a position to communicate the results of our process and NiSource’s path forward early this year. We remain committed to sharing information with investors and all other stakeholders in a transparent and timely fashion when decisions are made.”

NiSource did not issue an earnings guidance today. “Once we are in a position to share the outcome of our review process, I would anticipate providing additional information concerning our going-forward plan and outlook for the future,” Skaggs said.

In August 2006 NiSource backed off its original earnings guidance for the year—due to customer attrition and reduced usage of natural gas—and never issued a revised guidance.

On the subject of decreased usage of natural gas, Skagg said this: “Residential gas usage among NiSource’s distribution customers declined by about 4 percent during 2006, compared with 0.5 percent to 1 percent annual usage declines experienced historically. We believe the usage decline experienced during 2006 was in response to higher market prices for natural gas, particularly in the aftermath of the 2005 hurricane season. As prices decreased during the latter part of 2006, we did see some moderation in the levels of usage erosion. For 2007, we are projecting usage declines of 2 percent to 3 percent.”

On the subject of customer attrition, Skaggs said this: “Our data indicate that residential customer attrition for 2006 was approximately 0.8 percent. While this is somewhat above the historic levels of 0.5 percent, it is well below the more elevated levels that were indicated earlier in the year. Again, we believe moderating gas prices played a meaningful role in terms of the return of customers to our gas distribution systems.

“We have stepped up our efforts to pursue regulatory initiatives that will address customer conservation,” Skaggs added. “In addition, we are participating in an American Gas Association study that is designed to look at root causes of this issue across our industry and address potential solutions. This study is expected to be completed within the next several months, and we look forward to reviewing its conclusions and recommendations.”

Meanwhile, NiSource has made a filing with the Indiana Utility Regulatory Commission in which it proposes a “rate simplification” to address reduced usage by natural gas customers. That proposal “would provide funding for weatherization and other customer programs while also providing relief to the company for reduced customer usage.” NiSource said that it expects an order on the filing sometime in the second quarter of the year.

By Segment

•NiSource reported income from continuing operations in 2006 of $313.5 million, compared to $284.1 million in 2005. For the fourth quarter of 2006 NiSource reported income from continuing operations of $92.4 million, compared to $72.9 million in the year-ago period. “Unfavorable weather impacted 2006 operating income by approximately $83 million, as NiSource’s gas markets experienced 12 percent warmer weather than north weather over the 12-month period, and the northern Indiana electric market had an 11 percent cooler than normal summer cooling season,” NiSource said.

•Operating income from gas distribution operations in 2006 was $290 million, compared to $368.2 million in 2005. For the fourth quarter of 2006 it was $121.6 million, compared to $157.2 million in the year-ago period.

•Operating income from gas transmission and storage operations in 2006 was $340.8 million, compared to $344.4 million in 2005. For the fourth quarter of 2006 it was $82.6 million, compared to $95.9 million in the year-ago period. “Operating expenses increased by $41.4 million mainly due to higher legal reserves, pipeline integrity expenses, property insurance premiums, and employee and administrative costs as the segment continues to build its commercial resources,” NiSource said.

•Operating income from electric operations in 2006 was $310.4 million, compared to $293.3 million in 2005. For the fourth quarter of 2006 it was $70.7 million, compared to $56.5 million in the year-ago period. “Our northern Indiana electric business had a very strong year,” Skaggs said. “Steady residential and commercial growth, and continued strength in industrial sales volumes, helped drive this solid performance. Sales volumes to NIPSCO’s largest electric customers were up 4.1 percent in 2006, compared with year-end 2005 levels.”

•NiSource reported a net loss from other operations in 2006 of $40.2 million, compared to a net loss of $12.3 million in 2005. For the fourth quarter it reported a net loss from other operations of $26.4 million, compared to a net income of $2.1 million in 2005. NiSource attributed those results chiefly to increased losses at Whiting Clean Energy (WCE), but noted that a definitive agreement with BP, under which WCE will provide BP with steam for oil refining, should improve WCE’s performance beginning this year.

•NiSource reported a net loss from corporate in 2006 of $21 million, compared to a net loss of $41 million in 2005. For the fourth quarter it reported a net loss from corporate of $5.3 million, compared to a net loss of $9.1 million in the year-ago period.

Posted 1/30/2007