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Nisource (NI) Risk Analysis
Risk Overview Q3, 2022
Source: the company's latest filing for the period ended Sep 30, 2022, filed Nov 07, 2022
Risk Change Over Time
- Corporate Activity and Growth - Risk 1The Aspects of the implementation of NIPSCO’s our electric generation strategy, including the retirement of its our coal generation units, are expected to be delayed and may not achieve intended results.
Our plan to replace our coal generation capacity by the end of 2028 with primarily renewable resources, as described in our 2018 Plan, is well underway, but we are facing challenges as described below. The 2018 Plan outlined the retirement of R.M. Schahfer Generation Station's four coal units by mid-2023, with a preferred replacement plan including wind, solar, and battery storage projects. The 2021 Plan that we submitted to the IURC calls for the replacement of our remaining coal generation units with a diverse portfolio of resources including demand side management resources, incremental solar, stand-alone energy storage and upgrades to existing facilities at the Sugar Creek Generating Station, among other steps. The precise timing of the retirements will be informed by regulatory and policy changes, our ability to maintain reliability of the system and our ability to secure replacement capacity. For additional information, see below and "Results and Discussion of Segment Operations - Electric Operations," in Management's Discussion and Analysis of Financial Condition and Results of Operations. Recent developments, including macro supply chain issues and U.S. federal policy actions, have created significant uncertainty around the availability of key input material necessary to develop and place solar projects in service in the U.S. Solar industry supply chain issues include the Antidumping and Countervailing Duties Anti Circumvention Petition filed by a domestic solar manufacturer, the Uyghur Forced Labor Protection Act and Forced Labor Withhold Release Order, Section 201 Tariffs, and general global supply chain and labor availability issues. The most prominent effect of these issues is the significant curtailment of imported solar panels and other key components required to complete utility scale solar projects in the U.S. Any solar panels that are available are priced much higher than previously anticipated and the incremental cost may not be recoverable through customer rates. As a result of the challenges in obtaining solar panels, many solar projects in the U.S. have been delayed or canceled. As we are in the midst of a transition to a solar dominant electric generation portfolio, our projects are subject to the effects of these issues, and there is currently uncertainty around the timing of completion for our portfolio of projects under the 2018 Plan. We have received and are evaluating several notices of possible force majeure from developers in connection with the solar and storage projects. Depending on the outcome of these issues, developers and financing partners could seek to either modify the terms of or abandon the development of solar projects, which could negatively impact the planned in-service dates and cost estimates that have been approved by our regulators. Our expectation has been that solar energy sources would be one of the primary ways in which we will meet our electric generation capacity and reliability obligations to the MISO market and reliably serve our customers when we retire our coal generation capacity. The high level of uncertainty surrounding the completion of our solar renewable energy projects creates significant risks for us to reliably meet our capacity and energy obligations to MISO and to provide reliable and affordable energy to our customers. Delays to the completion dates of our ten approved (or planned) solar projects are expected to impact our capacity position and our ability to meet our resource adequacy obligations to MISO. Delays to the completion dates of our projects could also include delays in the financial return of certain investments and impact the overall timing of our electric generation transition. Although we are not currently expecting delays to extend the completion dates of our six solar and storage BTA projects beyond the currently planned sunset of investment tax credits at the end of 2025, if such delays occur, they could impact the viability of the projects. We are evaluating potential paths to mitigate these risks, including extending operations of the remaining two coal units at Schahfer from the previously planned retirement date of May 2023 to the end of 2025 in order to continue to have sufficient electric generation resources in our portfolio to meet our capacity and reliability obligations. Having additional flexibility in the timing of the exact date of the retirement will allow us to better manage the uncertainty in the timing of the completion of our renewable projects. We currently have a pending application with the EPA to continue operation of a coal ash pond that is tied to operation of Schahfer Units 17 and 18. The application is being updated to reflect extending operation of our coal ash pond from 2023 to the end of 2025, with the coal ash pond closing by October 2028. It is difficult to assess the likelihood that the EPA would approve extending the operation of our coal ash pond. In recent proposed EPA actions denying continued operation of coal ash ponds at other utilities, EPA said that coal ash ponds should cease receipt of CCR within 135 days of final EPA action unless certain conditions are demonstrated, such as potential reliability issues. We believe that we can continue to operate the two units to the end of 2025 while still meeting the CCR rule's final October 2028 deadline for pond closure. Extending the operation of the two remaining Schahfer coal units beyond 2025 would require substantial investment in infrastructure to process CCRs without the coal ash pond. We are also evaluating the ability to secure electric capacity from other resources in the event that one or more of our solar projects is not viable. Furthermore, extending operations of the remaining two coal units at Schahfer from the previously planned retirement date of May 2023 may require us to acquire additional emission allowances for compliance with the EPA's proposed interstate air pollution transport rule, also known as the "Good Neighbor" Plan, which was published in the Federal Register on April 6, 2022. We are currently evaluating the proposed rule. The cost to acquire additional emission allowances may be material. As noted above, there are inherent risks and uncertainties in executing the projects that were outlined in the 2018 and 2021 Plans, both for what has been already executed and the additional capacity still planned to be secured in the future, including changes in market conditions, supply chain disruptions, regulatory approvals, environmental regulations, commodity costs and customer expectations, which are impeding our ability to achieve intended results and associated timelines. Changes in the cost, availability and supply of generation capacity are affecting the implementation of the results from the 2021 Plan. Advancements in technology in replacement resources may not become commercially available or economically feasible as projected in the 2021 Plan and the implementation execution may vary from that which has been communicated. Our future success will depend, in part, on our ability to successfully implement our long-term electric generation plans, to offer services that meet customer demands and evolving industry standards, and to recover all, or a significant portion of, any unrecovered investment in obsolete assets. As noted above, we expect our electric generation strategy to require additional investment to meet our MISO obligations and may require significant future capital expenditures, operating costs and charges to earnings that may negatively impact our financial position, financial results and cash flows. An inability to secure and deliver on renewable projects is negatively impacting our generation transition timeline and may negatively impact our achievement of decarbonization goals and reputation.
Risk Highlights Q3, 2022
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 41
- Share Price & Shareholder Rights - Risk 1Actions of activist stockholders could negatively affect our business and stock price and cause us to incur significant expenses
We may be subject to actions or proposals from activist stockholders or others that may not be aligned with our long-term strategy or the interests of our other stockholders. We have had communications with an activist stakeholder. Our response to suggested actions, proposals, director nominations and contests for the election of directors activist stockholders could disrupt our business and operations, divert the attention of our board of directors, management and employees, and be costly and time-consuming. Potential actions by activist stockholders or others may interfere with our ability to execute our strategic plans; create perceived uncertainties as to the future direction of our business or strategy; cause uncertainty with our regulators; make it more difficult to attract and retain qualified personnel; and adversely affect our relationships with our existing and potential business partners. Any of the foregoing could adversely affect our business, financial condition and results of operations. Also, we may be required to incur significant fees and other expenses related to responding to shareholder activism, including for third-party advisors. Moreover, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any stockholder activism.
- Share Price & Shareholder Rights - Risk 2The trading prices for our Equity Units, initially consisting of Corporate Units, and related treasury units and Series C mandatory convertible preferred stock, are expected to be affected by, among other things, the trading prices of our common stock, the general level of interest rates and our credit quality.
The trading prices of the Equity Units, initially consisting of Corporate Units, which are listed on the New York Stock Exchange, and the related treasury units and Series C mandatory convertible preferred stock in the secondary market, are expected to be affected by, among other things, the trading prices of our common stock, the general level of interest rates and our credit quality. It is impossible to predict whether the price of our common stock or interest rates will rise or fall. The price of our common stock could be subject to wide fluctuations in the future in response to many events or factors, including those discussed in the risk factors herein, many of which events and factors are beyond our control. Fluctuations in interest rates may give rise to arbitrage opportunities based upon changes in the relative value of the common stock underlying the purchase contracts and of the other components of the Equity Units. Any such arbitrage could, in turn, affect the trading prices of the Corporate Units, treasury units, mandatory convertible preferred stock and our common stock.
- Share Price & Shareholder Rights - Risk 3The early settlement right triggered under certain circumstances and the supermajority rights of the mandatory convertible preferred stock following a fundamental change, could discourage a potential acquirer.
The fundamental change early settlement right with respect to the purchase contracts triggered under certain circumstances by a fundamental change and the supermajority voting rights of the mandatory convertible preferred stock in connection with certain fundamental change transactions jointly could discourage a potential acquirer, including potential acquirers that would otherwise seek a transaction with us that would be attractive to our investors.
- Share Price & Shareholder Rights - Risk 4Our Equity Units, initially consisting of Corporate Units, and related mandatory convertible preferred stock, and the issuance and sale of common stock in settlement of the purchase contracts and conversion of mandatory convertible preferred stock, may all adversely affect the market price of our common stock and will cause dilution to our stockholders.
The market price of our common stock is likely to be influenced by our Equity Units, initially consisting of Corporate Units, and related mandatory convertible preferred stock. For example, the market price of our common stock could become more volatile and could be depressed by: •investors’ anticipation of the sale into the market of a substantial number of additional shares of our common stock issued upon settlement of the purchase contracts or conversion of our mandatory convertible preferred stock; •possible sales of our common stock by investors who view our Equity Units, initially consisting of Corporate Units, or related mandatory convertible preferred stock as a more attractive means of equity participation in us than owning shares of our common stock; and •hedging or arbitrage trading activity that may develop involving our Equity Units, initially consisting of Corporate Units, or related mandatory convertible preferred stock and our common stock. In addition, we cannot predict the effect that future issuances or sales of our common stock, if any, including those made upon the settlement of the purchase contracts or conversion of the mandatory convertible preferred stock, may have on the market price for our common stock. Our Equity Units, initially consisting of Corporate Units, and the issuance and sale of substantial amounts of common stock, including issuances and sales upon the settlement of the purchase contracts or conversion of the mandatory convertible preferred stock, could adversely affect the market price of our common stock and will cause dilution to our stockholders.
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