By KEVIN NEVERS

NiSource Inc. will not be selling its electric business.

After a months-long “strategic and financial review process” which began last year, NiSource has concluded that the best approach for “unlocking the underlying value of NiSource’s asset base” is to stand pat and do nothing.

While the company did conclude that the sale of its electric business could “provide added financial flexibility and sharpen NiSource’s strategic focus as a pure-play gas company,” it was unable, after discussions with “a limited number of prospective counterparties,” to reach satisfactory terms.

“Although it was clear from very advanced stages of discussions that the overall financial value to NiSource from a potential transaction could fall within an acceptable range, NiSource concluded that no transaction adequately met all the requirements necessary to proceed,” the company said in a statement released on Wednesday. “Accordingly, NiSource recently terminated this phase of the process without a transaction taking place.”

NiSource did not altogether reject the possibility of selling the electric business should a suitable offer be made, but that option is presently off the table. “NiSource is not currently in discussions with any counterparties nor is it actively pursuing the sale of its electric business,” the company said. “There have been no changes in NiSource’s ongoing operational plans, investment strategy, strategic approach, or fundamental commitments to stakeholders regarding its electric operations.”

The market did not react well to NiSource’s announcement. NiSource stock lost nearly 8 percent of its value on Wednesday, closing at $22.07, down $1.87.

The Northern Indiana Public Service Company’s electric business serves more than 450,000 residential, commercial, and industrial customers, with sales of approximately $1.3 billion in 2006.

Earnings Outlook

Meanwhile, NiSource conceded that it expects earnings to remain stagnant for the next three years. “This outlook acknowledges that, until our stream of gas transmission and storage expansion projects begins to be fully operational and revenue producing, and our wave utility rate cases is completed, we have few near-term catalysts to lift operating earnings over the next couple years,” NiSource President and CEO Robert Skaggs said. “Going forward, however, our Path Forward business strategy is designed to achieve sustainable 3 to 5 percent annual earnings growth by 2010.”

That growth, NiSource said, “will be driven by expansion o the company’s gas transmission, distribution, and storage business; asset optimization; and the pursuit of innovative regulatory solutions. The company’s Path Forward strategy also stresses continued commitment to maintaining and eventually growing its dividend, along with maintenance of stable, investment-grade credit ratings.”

NiSource currently owns and operates the fourth largest gas transmission system in the U.S., is the nation’s third largest gas distribution company, and the second largest owner and operator of natural gas storage facilities, with operations “encompassing more than 40 percent of the U.S. population and 50 percent of the nation’s natural gas consumption.”

NiSource projected net income from continuing operations in 2007 to be $1.36 per share.

Posted 5/31/2007