Funding an Ambitious Electric Utility

Banks can reference this case as an example of how — supported by a credible transition plan — a high-emitting company can be well positioned to receive transition finance, including general corporate purpose (GCP) financing. Banks may similarly facilitate GCP or other transition financing when a client assessment shows that a company has a sound and feasible plan to transition.

In 2023, Indiana was the second-largest coal consuming US state (after Texas), with coal accounting for almost 50% of its net electric generation. The US average, meanwhile, is closer to 15%. Financing the coal transition is seldom easy, and yet one utility in particular is forging ahead: Northern Indiana Public Service Co. (NIPSCO).

NIPSCO highlights why companies that transparently disclose transition-relevant data can more easily access transition finance. The lack of comparable data is a barrier to transition finance. NIPSCO, however, discloses ample historical data on plant operations, regularly-updated financial information, and forward-looking capex plans. This type of decision-useful information helps financial institutions prioritize their client engagement approach and product offerings.

NIPSCO is Indiana’s largest gas utility and the state’s second-largest electric utility, serving approximately 900,000 gas and 500,000 electric customers. NIPSCO (BBB+/Baa1) is a subsidiary of NiSource — a regulated, investor-owned utility with a nearly $20 billion market cap and total debt of around $13 billion (as of Dec 2024). NIPSCO electric's authorized return-on-equity is 9.80%, compared with the industry average of mid-9%. In 2021, 58% of NIPSCO’s electric capacity came from coal, 25% from gas, and 15% from wind. In November 2022, NiSource announced its 2040 net-zero goal, including NIPSCO phasing out coal by end-2028 (see chart below).

Tools like Engage & Act (see NIPSCO’s chart below) show that NIPSCO’s 2024 Integrated Resource Plan (IRP) aligns with its net-zero target and the International Energy Agency’s Net Zero Emissions 2050 scenario (IEA NZE) until 2030. In the United States, utility IRPs outline the portfolio of electricity resources that utilities believe can meet the grid’s needs for the next 10–30 years in an affordable, reliable, and safe manner. IRPs are non-binding, regulator-approved plans that indicate the direction of a utility’s generation mix and help utilities, investors, and regulators coordinate responses to opportunities and risks. IRPs are the output of transition planning for regulated US utilities and provide investors with high-quality, publicly available, transition-relevant data. Voluntary or regulatory transition plan guidance aspires to unlock transition-relevant data across sectors, but few sectors boast the kind of data access US regulated utilities provide investors today. Utility investors like that IRPs are plausible; IRPs are heavily scrutinized during regulatory approvals.

Tools like Engage & Act help financial institutions assess the credibility of a utility client’s transition plan by unpacking the capacity and generation mix behind the client’s planned decarbonization pathway — and illuminating a mix needed to meet its target. NIPSCO’s target appears feasible because it’s generally supported by an IRP that will ensure the right assets are built/retired at the right time. Emissions fall because coal and gas are replaced by renewables. Before 2030, NIPSCO’s IRP may need to be updated to align cumulative emissions with its 2040 target and IEA NZE.

NIPSCO is an example of a client poised to credibly raise transition finance, including GCP. In 2023, NIPSCO expected to invest roughly $3.5 billion in its electric generation transition through 2030 (though this estimate did not include all the likely upgrades necessary to improve the rest of NIPSCO’s electric system). That year, it raised $2.4 billion in equity from Blackstone.

NiSource sold 19.9% of NIPSCO to an affiliate of Blackstone Infrastructure Partners at what NiSource CEO Lloyd Yates called “a meaningful premium to other potential sources of financing”. That premium was reflected in the 32.5x price-to-earnings (PE) ratio, according to NiSource CFO Shawn Anderson. For comparison, NIPSCO’s parent NiSource today trades at a PE of around 21.5x.

It should be noted that NIPSCO was not the only US regulated utility to sell equity in a subsidiary to an infrastructure fund at a premium in 2023: FirstEnergy also agreed to sell 30% of a subsidiary for $3.5 billion at a roughly 27.5x valuation. This shows that, while the quality of NIPSCO’s net-zero transition plan was an important factor in raising transition financing at a premium valuation, it was not the only one. At least three climate-agnostic factors also helped NIPSCO: 1) These rare equity sales are fiercely sought by investors, 2) utility assets with regulated returns are generally highly valued, and 3) NIPSCO demonstrated strong growth.

Nevertheless, NIPSCO is an example of how an innovative, growth-oriented transition plan can boost value to investors. “NIPSCO wanted to stay a leader to maintain their premium valuation,” says RMI’s Ryan Foelske, a former utilities equity analyst who has tracked NiSource since 2009. “To stay a premium utility, you either grow or innovate and they chose to do both.” That innovative growth is largely predicated on a rapid transition from coal to renewables.

Because accelerating the transition away from coal and other high-emitting sectors remains challenging globally, financial institutions should stay engaged with clients regarding barriers that could disrupt their path to net zero. NIPSCO’s expected emissions reduction depends largely on early retirement of its coal assets, for example, but even loss-making coal plants are hard to close because of the energy services and jobs they provide. NIPSCO’s Schahfer coal closure was delayed from 2023 to end-2025 due to solar panel import turmoil, which slowed the build-out of the renewables planned to reliably replace the coal generation. Understanding a client’s dependencies is crucial to better identifying areas of risk and support.

By assessing their clients’ forward-looking investment plans against transition pathways, financial institutions can determine if, when, and how to disburse transition finance —especially GCP financing — to innovative, growing businesses in complex, high-emitting sectors. NIPSCO shows that credibly raising transition finance may not be perfect, but it is possible.