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NiSource Inc. (NI - Analyst Report) announced that its unit Columbia Gas Transmission, under Gas Transmission and Storage (“NGT&S”) segment, achieved a customer settlement to upgrade its natural gas pipeline infrastructure. Today, the company filed this petition with Federal Energy Regulatory Commission.  

Per the settlement, NiSource plans to replace 1,000 miles of its existing interstate transmission pipelines, upgrade natural gas compression systems and increase in line checking capacities. This settlement also includes a customer base rate decline and an investment recovery contract.

This project is under a program with an initial span of five years. This program also has an option of further extension. The expected cost of this Columbia modernization program will be approximately $4 billion. Under this program, the company will invest annually $300 million on system improvements.

This infrastructure modernization program enables NiSource to provide uninterrupted service to its customers while strengthening its system competence and boosting environmental performance. These factors will subsequently improve the company’s customer reliability and public safety. In addition, the petition for reducing base rate, if approved will trim down pressure on its customers and this project will also create approximately 7,000 direct jobs.

We believe that NiSource’s strong financial position encourages it to follow steady infrastructure development activities. In second-quarter 2012, the company’s net cash from operating activities were $771.8 million, up from $736 million in the year-ago quarter. The company ended the previous quarter with cash and cash equivalents of $52.8 million, significantly up from $11.5 million as of December 31, 2011.

In addition, NiSource’s continuous effort toward improving customer service will act as a positive catalyst for improving its financial performance in the future.

However, we are skeptical about volatility in commodity prices and stringent regulatory barriers, which may negatively impact the company’s forthcoming performance.

NiSource Inc. currently retains a Zacks #3 Rank, which translates into a short-term Hold rating.

Merrillville, Indiana-based NiSource is an energy holding company, whose subsidiaries provide natural gas, electricity and other products and services in the U.S. The company competes with FirstEnergy Corporation (FE - Analyst Report).

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