Grade: F — Major Red Flags
Framework: Schilit *Financial Shenanigans* + Beneish M-Score + forensic accounting principles
Data: SEC EDGAR 10-K (Filed 2026-02-11) + Yahoo Finance
Auditor: Deloitte & Touche LLP — Clean opinion (1 critical audit matter: regulatory matters)
One-line verdict: NiSource operates the largest fully regulated natural gas distribution network in the United States (Columbia Gas companies across six states) plus NIPSCO, an electric and gas utility in northern Indiana. Revenue surged 21.8% to $6.64B, operating income grew to $1.94B, and net income attributable to NiSource rose 22.2% to $930M. The growth is remarkable for a utility and is driven by rate case approvals across multiple jurisdictions plus the ADS (data center) contract for NIPSCO. The F grade reflects four red flags: AR outpacing revenue for two consecutive years, negative FCF, minimal cash, and negative post-acquisition FCF — all structural except the AR anomaly, which deserves investigation given the rapid revenue growth. NiSource's data center ambitions through the ADS Contract make it one of the most interesting utility growth stories, but also introduce execution risk.
| Metric | Result |
|---|---|
| Red Flags | **4** (AR vs revenue, FCF negative, cash vs debt, FCF after acquisitions) |
| Watch Items | **1** (leverage 5.3x) |
| Checks Completed | **15/18** |
| Beneish M-Score | **N/A** (insufficient data) |
| Altman Z-Score | **0.54** (distress zone) |
Business Overview
From the 10-K: NiSource's "primary subsidiaries are fully regulated natural gas and electric utility companies serving customers in six states." The company reports in two segments:
Columbia Operations: Natural gas distribution through Columbia Gas companies in Ohio, Pennsylvania, Virginia, Kentucky, Maryland, and Indiana. Columbia of Ohio is the largest subsidiary by revenue.
NIPSCO Operations: Northern Indiana Public Service Company, providing both electric and gas service in northern Indiana. From the 10-K, NIPSCO's financial detail shows:
| Line | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| NIPSCO Operating Revenues | $3,309M | $2,752M | $2,772M |
| NIPSCO Operating Expenses | $2,370M | $2,032M | $2,230M |
| **NIPSCO Operating Income** | **$938M** | **$720M** | **$542M** |
NIPSCO operating income grew 30.3% YoY and 73% over two years — exceptional for a regulated utility.
NIPSCO Electric Revenue Detail (from 10-K)
| Customer Type | FY2025 | FY2024 | Change |
|---|---|---|---|
| Residential | $771M | $650M | +$121M |
| Commercial | $717M | $620M | +$97M |
| Industrial | $581M | $500M | +$81M |
| Wholesale & Other | $139M | $143M | $(4M) |
| **Total Electric** | **$2,209M** | **$1,914M** | **+$295M** |
The ADS Data Center Contract
NiSource is positioning NIPSCO to serve large data center customers. The 10-K mentions "the ADS Contract" and warns about risks including "any decision by ADS to terminate or reduce the committed capacity under the ADS Contract" and "customers under any future data center contracts." This represents a strategic bet on data center electricity demand in Indiana — a state with favorable power costs, land availability, and grid access.
The 10-K also discloses associated generation development: "Generation assets and related transmission infrastructure to be developed in connection with the ADS Contract" — suggesting NiSource is building dedicated generation for its data center customer.
Consolidated Financial Summary (from 10-K)
| Line Item | FY2025 | FY2024 | FY2023 |
|---|---|---|---|
| Customer revenues | $6,523M | $5,283M | $5,348M |
| Other revenues | $119M | $172M | $158M |
| **Total Operating Revenues** | **$6,642M** | **$5,455M** | **$5,505M** |
| Cost of energy | $1,584M | $1,132M | $1,533M |
| O&M | $1,710M | $1,515M | $1,495M |
| D&A | $1,168M | $1,043M | $904M |
| **Net Income (NiSource)** | **$930M** | **$760M** | **$714M** |
| Metric | FY2022 | FY2023 | FY2024 | FY2025 | Trend |
|---|---|---|---|---|---|
| Revenue | $5.85B | $5.51B | $5.46B | $6.64B | Accelerating |
| Net Income | $804M | $714M | $760M | $930M | Growing |
| Gross Margin | 38.5% | 45.0% | 51.5% | 50.4% | Improved |
| Net Margin | 13.7% | 13.0% | 13.9% | 14.0% | Stable |
| ROE | 10.6% | 8.6% | 8.8% | 9.8% | Improving |
Rate Case Actions (from 10-K)
NiSource disclosed a comprehensive table of recent rate cases:
| Company | Approved ROE | Requested Revenue | Approved Revenue |
|---|---|---|---|
| Columbia of Pennsylvania | 10.00% | $110.4M | $55.6M |
| Columbia of Maryland | 9.80% | $10.7M | $7.8M |
| Columbia of Kentucky | 9.75% | $23.8M | $14.3M |
| Columbia of Virginia | 9.75% | $37.2M | $28.2M |
| Columbia of Ohio | 9.60% | $221.4M | $68.3M |
| NIPSCO - Gas | 9.75% | $161.9M | $120.9M |
| NIPSCO - Electric | 9.75% | $368.7M | $257.0M |
The pattern is consistent: regulators approve 50-70% of requested revenue increases. Columbia of Ohio received only 31% of its request ($68.3M of $221.4M) — the lowest approval rate, suggesting regulatory resistance in Ohio.
Cash Flow
| Metric | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|
| Operating Cash Flow | $1.41B | $1.94B | $1.78B | $2.36B |
| CFFO / NI | 1.75 | 2.71 | 2.34 | 2.54 |
| Free Cash Flow | $(794M) | $(711M) | $(862M) | $(794M) |
| Cash on Hand | $41M | $2.25B | $157M | $110M |
| Total Debt | $11.3B | $14.1B | $14.0B | $16.2B |
Total debt grew from $11.3B to $16.2B (+$4.9B, +43%) over four years. From the 10-K: "We had total consolidated indebtedness of $16,213.5 million outstanding as of December 31, 2025." The company's "Net Available Liquidity" was $2,024M, providing adequate short-term funding.
The 18-Point Screening
Revenue Quality
| # | Check | Result | Detail |
|---|---|---|---|
| A1 | DSO | Pass | 66 days, +1 day YoY |
| A2 | AR vs Revenue | **FAIL** | AR outpaced revenue for 2 consecutive years |
| A3 | Revenue vs CFFO | Pass | Revenue +21.8%, CFFO +32.6%. Cash follows revenue |
A2: AR outgrowing revenue for two consecutive years is a real anomaly. DSO of 66 days is already high for a utility (compare 20 days at Entergy, 23 days at FirstEnergy). The combination of high DSO and AR growth exceeding revenue growth could indicate: (1) new data center customers with different billing terms, (2) increased customer arrears from higher rates, or (3) seasonal billing effects from weather-driven demand. This warrants investigation.
However, A3 provides a counterpoint: CFFO growth of 32.6% dramatically outpaced revenue growth of 21.8%, suggesting the underlying cash generation is strong.
Expense Quality
| # | Check | Result | Detail |
|---|---|---|---|
| B1 | Inventory | Pass | +15.5% vs COGS +24.4%. Normal |
| B2 | CapEx | Pass | CapEx +19.4% vs revenue +21.8% |
| B3 | SG&A Ratio | N/A | Utility cost structure |
| B4 | Gross Margin | Pass | 50.4%, -1.1pp. Stable |
Cash Flow Quality
| # | Check | Result | Detail |
|---|---|---|---|
| C1 | CFFO vs NI | Pass | Ratio 2.54. Profits backed by cash |
| C2 | FCF | **FAIL** | FCF negative for 3+ years |
| C3 | Accruals | Pass | -4.0%. Low accruals |
| C4 | Cash vs Debt | **FAIL** | Cash $110M covers 1% of $16.2B debt |
Balance Sheet
| # | Check | Result | Detail |
|---|---|---|---|
| D1 | Goodwill + Intangibles | Pass | $1.5B = 16% of equity |
| D2 | Leverage | **WATCH** | Debt/EBITDA = 5.3x |
| D3 | Soft Assets | N/A | Insufficient data |
| D4 | Impairment | Pass | Write-offs normal |
Total assets grew from $31.8B to $35.9B (+$4.1B), driven by $1.3B in "net property, plant and equipment assets" at the generation company (GenCo) being developed for the ADS data center contract.
Acquisition & Manipulation
| # | Check | Result | Detail |
|---|---|---|---|
| E1 | Serial Acquirer | **FAIL** | FCF after acquisitions negative for 3 years |
| E2 | Goodwill Surge | Pass | Goodwill flat |
| F1 | M-Score | N/A | Insufficient data |
Key Risks
1. Data center execution risk. The ADS Contract represents a concentrated bet on a single large customer. If ADS reduces committed capacity or terminates, NiSource will have stranded generation assets.
2. Multi-state regulatory complexity. Operating regulated utilities across six states means simultaneous rate proceedings with different regulators, each with different allowed ROEs and cost recovery mechanisms.
3. Debt growth. Total debt grew 43% in four years to $16.2B. From the 10-K, NiSource relies on "accounts receivable securitization programs and our $1.85 billion commercial paper program" for liquidity.
4. Columbia of Ohio regulatory resistance. Ohio approved only 31% of Columbia Gas's requested rate increase — the lowest approval rate among NiSource's jurisdictions.
Summary
| # | Check | Result |
|---|---|---|
| A1-A3 | Revenue Quality | Pass-Fail-Pass |
| B1-B4 | Expense Quality | Pass-Pass-N/A-Pass |
| C1-C4 | Cash Flow Quality | Pass-Fail-Pass-Fail |
| D1-D4 | Balance Sheet | Pass-Watch-N/A-Pass |
| E1-E2 | M&A Risk | Fail-Pass |
| F1 | Beneish M-Score | N/A |
Grade: F — mostly structural, with one genuine anomaly (AR vs revenue) and notable growth dynamics.
NiSource is one of the most interesting utilities in this batch because of its data center growth strategy. Revenue growth of 21.8% and operating income growth at NIPSCO of 30.3% are exceptional for a regulated utility. The F grade is dominated by structural factors (FCF, debt), but the AR anomaly (A2) — receivables outpacing revenue for two consecutive years at a company with already-high DSO (66 days) — is a genuine signal that merits monitoring. If this reflects data center contract billing terms, it may normalize; if it reflects customer payment stress from higher rates, it could worsen.
**Disclaimer**: This report is based on NiSource Inc.'s FY2025 10-K (SEC EDGAR, filed 2026-02-11) and public financial data. This is NOT investment advice.
Data: SEC EDGAR 10-K (Filed 2026-02-11) + Yahoo Finance
Auditor: Deloitte & Touche LLP (Unqualified opinion, 1 critical audit matter)