By KEVIN NEVERS

NiSource Inc. is reporting a net income of $172.9 million or 63 cents per share for the first quarter of 2006, compared to a net income of $206.3 million or 77 cents per share in the year-ago period.

Results were affected by “the effect of record-setting warm winter weather conditions that were 15 percent warmer than a year ago,” NiSource said in a statement released today, and the “continuing decline in usage by natural gas utility customers.” As expected, the company added, “losses at Whiting Clean Energy increased compared with the year-ago period due to planned maintenance.”

Those negative impacts were partially offset by “successful sales of shorter-term transportation and storage services in NiSource’s gas transmission and storage business; growth in the electric distribution business; and an $8.2 million decrease in interest expense for the quarter due to the refinancing of $2.4 billion in long-term debt at lower rates in 2005.”

NiSource reported income from continuing operations of $171.8 million in the first quarter, compared to $208.7 million in the year-ago period.

“Despite significant external challenges, NiSource delivered solid first-quarter results that are on the mark with our 2006 net operating earnings outlook,” NiSource President and CEO Robert Skaggs Jr. said. “Like every company in the North American gas utility industry, we’ve had to deal with unprecedented weather and high gas prices that, among other dislocations, have continued to weaken residential customers’ usage of natural gas and made for a more challenging regulatory-political environment.”

In the third quarter of 2005, NiSource began reporting results in terms of “net operating earnings” and “operating earnings,” both of them non-Generally Accepted Accounting Principles (GAAP), “because management believes these measures better represent the fundamental earnings strength of the company.”

Under non-GAAP, NiSource projected 2006 net operating earnings in the range of $1.45 to $1.55 per share on the release of its 2005 annual report earlier this year. Under GAAP, the company is projecting income for continuing operations of $1.33 to $1.43 basic earnings per share. “The weather impact from the first quarter of approximately 9 cents per share and transition costs associated with the outsourcing initiative with IBM of approximately 3 cents per share comprise the difference between guidance for net operating earnings (non-GAAP) and income from continuing operations,” the company said.

“Overall,” Skaggs concluded, “our first-quarter performance was solid, and meeting our 2006 objectives clearly remains a priority. We continue to partner with IBM to transform the way we operate our business process and support services through the outsourcing agreement we entered into last year; and we are realizing the expected savings in interest expense from the refinancing of our balance sheet completed during 2005. . . . (A)s noted in my recent annual letter to stockholders published in our Annual Report, we believe that NiSource is currently undervalued, we are committed to unlocking the long-term value of our assets, and we will report on the progress of our efforts in future communications.”

GAAP Results

•Under GAAP, operating income for gas distribution operations in the first quarter was $206.0 million, compared to $274.9 in the year-ago period. NiSource attributed the decrease primarily to “continued declines in customer usage.”

•Under GAAP, operating income for gas transmission and storage in the first quarter was $110.3 million, compared to $109.5 million in the year-ago period. “The increase results from higher net revenues due to increased subscriptions for demand services and sales of shorter-term transportation and storage services,” NiSource said.

•Under GAAP, operating income for electric operations was $68.1 million in the first quarter, compared to $65.4 million in the year-ago period. Among other things, NiSource attributed the increase in “customer growth” and “industrial usage.”

•Under GAAP, NiSource reported an operating loss of $9.2 million for other operations in the first quarter, compared to an operating loss of $5.2 million in the year-ago period. NiSource attributed the increased operating loss to “costs associated with scheduled maintenance at the Whiting Clean Energy facility, partially offset by lower uncollectible accounts due to the settlement of Enron bankruptcy claims.”

•Under GAAP, NiSource reported an operating loss of $6.7 million for corporate in the first quarter, compared to an operating loss of $6.9 million in the year-ago period. “The decreased loss was primarily the result of lower employee and administrative expenses,” NiSource said.

Posted 5/3/2006