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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-K þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _____ to _____ Commission file number 001-01098 C O L U M B I A   E
N E R G Y   G R O U P  Delaware
    
    13-1594808(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)801 East 86th AvenueMerrillville, Indiana
    
    46410(Address of principal executive offices)
    
    (Zip Code)
 (877) 647-5990   Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Which Registered   Debentures6.80% Series C due November 28, 2005
    
    7.42% Series F due November 28, 20157.05% Series D due November 28, 2007
    
    7.62% Series G due November 28, 20257.32% Series E due November 28, 2010
 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2). Yes o No þ As of November 1, 2000, all shares of the registrants Common Shares, $.01 par value, were issued
and outstanding, all held beneficially and of record by NiSource Inc. THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION I. (1) (A) AND (B) OF FORM
10-K AND IS FILING THIS FORM 10-K UNDER THE REDUCED DISCLOSURE FORMAT. Documents Incorporated by
Reference




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CONTENTS PageNo.Part IItem 1.
Business
    
    
    3Item 2. Properties
    
    
    4Item 3. Legal Proceedings
    
    
    5Item 4. Submission of Matters to a Vote of Security Holders
    
    
    6Part IIItem 5. Market for the Registrants Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
    
    
    7Item 6. Selected Financial Data
    
    
    7Item 7. Managements Narrative and Analysis of Results of Operations
    
    
    8Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    15Item 8. Financial Statements and Supplementary Data
    
    
    16Item 9.
Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    50Item 9A. Controls and Procedures
    
    
    50Item 9B. Other Information
    
    
    50Part IIIItem 10. Directors and Executive Officers of the Registrant
    
    
    50Item 11. Executive Compensation
    
    
    50Item 12. Security Ownership of Certain Beneficial Owners and Management
    
    
    50Item 13. Certain Relationships and Related Transactions
    
    
    50Item 14. Principal Accounting Fees and Services
    
    
    51Part IVItem 15. Exhibits, Financial Statement Schedules
    
    
    52Signatures
    
    
    53Exhibits
    
    
    54Amended and Restated By-LawsStatements of Ratio of Earnings to Fixed Charges302 Certification of Chief Executive Officer302 Certification of Principal Financial Officer906 Certification of Chief Executive Officer906 Certification of Principal Financial Officer
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PART 1 
 ITEM 1. BUSINESS Columbia Energy Group and Subsidiaries Columbia Energy Group (Columbia) and its subsidiaries are primarily engaged in natural gas
transmission and natural gas distribution. Columbia, organized under the laws of the State of
Delaware on September 30, 1926, is a registered holding company under the Public Utility Holding
Company Act of 1935, as amended, and derives substantially all of its revenues and earnings from
the operating results of its 15 direct subsidiaries. Presentation of Segment Information Columbia meets the conditions specified in General Instruction I(1)(a) and (b) to Form 10-K and is
permitted to use the reduced disclosure format for wholly-owned subsidiaries of companies, such as
NiSource Inc. (NiSource) that are reporting companies under the Securities Exchange Act of 1934.
Accordingly, Managements Narrative and Analysis of Results of Operations is included in this
report, and Columbia has omitted from this report the information called for by Item 7
(Managements Discussion and Analysis of Financial Condition and Results of Operations). Columbia operates in three segments: Gas Distribution Operations, Gas Transmission and Storage
Operations, and Other Operations. Gas Distribution Operations Columbias five Gas Distribution Operations subsidiaries provide natural gas to approximately 2.2
million residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky
and Maryland. These operations include 33,935 miles of pipelines, 1,350 reservoir acres of underground storage, 8 storage wells and one compressor station with 800
horsepower (hp) of installed capacity. Columbias Gas Distribution Operations subsidiaries are
involved in programs that provide residential customers the opportunity to purchase their natural
gas requirements from third parties and use the Columbia Gas Distribution Operations subsidiaries
for transportation services. Gas Transmission and Storage Operations Columbia Gas Transmission Corporation (Columbia Transmission) has 877,144 acres of underground
storage, 3,550 storage wells, 11,480 miles of interstate pipelines and 89 compressor stations with
597,004 hp of installed capacity. These operations are located in Delaware, Kentucky, Maryland,
New Jersey, New York, North Carolina, Ohio, Pennsylvania, Virginia and West Virginia. Columbia
Gulf Transmission Company (Columbia Gulf) has 4,130 miles of transmission pipelines and 12
compressor stations with 479,102 hp of installed capacity. Columbia Gulfs operations are located
in Kentucky, Louisiana, Mississippi, Tennessee, Texas, Wyoming, and the offshore Gulf of Mexico.
The Gas Transmission and Storage Operations subsidiaries are engaged in several projects that will
expand their facilities and throughput. The largest such project is the proposed Millennium
Pipeline. The Millennium Pipeline is a project proposed by a partnership of energy companies
including Columbia Transmission, which would replace parts of an existing Columbia Transmission
pipeline. Another project is Hardy Storage, a Columbia Transmission partnership to develop a
storage field in West Virginia to provide additional natural gas storage for the eastern United
States. Other Operations Other Operations is primarily comprised of the remaining gas sales obligations of Columbia Energy
Services Inc. (Columbia Energy Services), which was in the commercial and residential natural gas
retail business, and the operations of the remaining microwave relay business. For additional discussion of Columbias business segments, including financial information for the
last three fiscal years, see the Notes to Consolidated Financial Statements. 3




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ITEM
1  BUSINESS (continued) Columbia Energy Group and Subsidiaries Competition and Changes in the Regulatory Environment The regulatory frameworks applicable to Columbias operations, at both the state and federal
levels, continue to evolve. These changes have had and will continue to have an impact on
Columbias operations, structure and profitability. Management continually seeks new ways to be
more competitive and profitable in this changing environment, including providing gas customers
with increased choices for products and services, and developing new energy-related products and
services for residential, commercial and industrial customers. Natural Gas Competition.Open access to natural gas supplies over interstate pipelines and the
deregulation of the commodity price of gas has led to tremendous change in the energy markets,
which continue to evolve. During the past few years, local distribution company (LDC) customers
and marketers began to purchase gas directly from producers and marketers and an open, competitive
market for gas supplies emerged. This separation or unbundling of the transportation and other
services offered by pipelines and LDCs allows customers to purchase the commodity independent of
services provided by the pipelines and LDCs. The LDCs continue to purchase gas and recover the
associated costs from their customers. Columbias Gas Distribution Operations subsidiaries are
involved in programs that provide residential customers the opportunity to purchase their natural
gas requirements from third parties and use the Columbia Gas Distribution Operations subsidiaries
for transportation services. Other Relevant Business Information Columbias customer base is broadly diversified, with no single customer accounting for a
significant portion of revenues. As of December 31, 2004, Columbia had 3,740 employees of whom 1,051 were subject to collective
bargaining agreements. Columbias subsidiaries are subject to extensive federal, state and local laws and regulations
relating to environmental matters. These laws and regulations, which are constantly changing,
require expenditures for corrective action at various operating facilities, waste disposal sites
and former gas manufacturing sites for conditions resulting from past practices that have
subsequently become subject to environmental regulation. Information relating to environmental
matters is detailed in Note 14-F, Environmental Matters, in the Notes to Consolidated Financial
Statements. 
 ITEM 2. PROPERTIES Information relating to properties is included in Item 1. Assets under lien and other guarantees
are described in Note 14-C, Assets Under Lien, and Note 14-D, Guarantees and Indemnities, in
the Notes to Consolidated Financial Statements. Neither Columbia Energy Group (Columbia) nor any subsidiary knows of material defects in the title
to any real properties of the subsidiaries of Columbia or any material adverse claim of any right,
title, or interest therein, pending or contemplated. Substantially all of Columbia Gas
Transmission Corporation (Columbia Transmission)s property has been pledged to Columbia as
security for First Mortgage Bonds issued by Columbia Transmission to Columbia. 4




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ITEM 3. LEGAL PROCEEDINGS Columbia energy group and subsidiaries 1. Virginia Natural Gas, Inc. v. Columbia Gas Transmission Corporation, Federal Energy Regulatory
Commission On January 13, 2004, Virginia Natural Gas, Inc. (VNG) filed with the Federal Energy Regulatory
Commission (FERC) a Complaint Seeking Compliance with the Natural Gas Act and with Regulations and
Certificate Orders of the Federal Energy Regulatory Commission and Seeking Remedies in Docket No.
RP04-139. VNG alleged various violations during the winter of 2002-2003 by Columbia Gas
Transmission Corporation (Columbia Transmission) of its firm service obligations to VNG. VNG
sought monetary damages and remedies (exceeding $37 million), and also sought certain prospective
remedies. On July 29, 2004, the FERC issued an order in which it refused to grant VNG any monetary
damages and said such claims are best determined by a court of law. The FERC also agreed with
Columbia Transmission that Columbia Transmission had not abandoned its obligation to provide
service and that it had not inappropriately continued interruptible service to the detriment of
firm service. However, the FERC did find that Columbia Transmission had failed to exercise
sufficient due diligence in its modifications to or its operation of vaporization equipment at its
Chesapeake LNG facility and that Columbia Transmission had failed to deliver gas to VNG at 250
pounds per square inch gauge (psig) as called for by the agreement between VNG and Columbia
Transmission. The FERC declined VNGs request to award damages in this case and, as noted above,
stated that any claim for damages could best be determined by a court of law. Both VNG and
Columbia Transmission sought rehearing of the FERC order, but the FERC denied the requests for
rehearing. Both Columbia Transmission and VNG have appealed the FERCs decision to the United
States Court of Appeals for the D.C. Circuit, where the appeals are currently pending. 2. Stand Energy Corporation, et al. v. Columbia Gas Transmission Corporation, et al Kanawha County
Court, West Virginia On July 14, 2004, Stand Energy Corporation filed a complaint in Kanawha County Court in West
Virginia. The complaint contains allegations against various NiSource companies, including
Columbia Transmission and Columbia Gulf Transmission Company (Columbia Gulf), and asserts that
those companies and certain select shippers engaged in an illegal gas scheme that constituted a
breach of contract and violated state law. The illegal gas scheme complained of by the plaintiffs
relates to the Columbia Transmission and Columbia Gulf gas imbalance transactions that were the
subject of the FERC enforcement staff investigation and subsequent settlement approved in October
2000. Columbia Transmission and Columbia Gulf filed a Notice of Removal with the Federal Court in
West Virginia on August 13, 2004 and a Motion to Dismiss on September 10, 2004. In October 2004,
however, the plaintiffs filed their Second Amended Complaint, which clarified the identity of some
of the select shipper defendants and added a federal antitrust cause of action. On January 6,
2005, the Court denied the Columbia companies motion to strike the Second Amended Complaint and
granted the plaintiffs leave to amend. To address the issues raised in the Second Amended
Complaint, the Columbia companies revised their briefs in support of the previously filed motions
to dismiss and the motions are pending. 3. Vivian K. Kershaw et al. v. Columbia Natural Resources, Inc., et al., Chautauqua County Court,
New York Plaintiffs filed a complaint in 2000 against Columbia Natural Resources, Inc. (Columbia Natural
Resources,) a former subsidiary, Columbia Transmission, Columbia Energy Group and Columbia Energy
Resources, Inc. The complaint alleges that plaintiffs own an interest in oil and gas leases in New
York and that the defendants have underpaid royalties on those leases by, among other things,
failing to base royalties on the price at which natural gas is sold to the end-user and by
improperly deducting post-production costs. Plaintiffs seek the alleged royalty underpayment and
punitive damages. The complaint also seeks class action status on behalf of all royalty owners in
oil and gas leases owned by the defendants. Discovery is proceeding regarding class certification
issues. 5




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ITEM 3. LEGAL PROCEEDINGS (continued) Columbia energy group and subsidiaries 4. United States of America ex rel. Jack J. Grynberg v. Columbia Gas Transmission Corporation, et
al., U.S. District Court, E.D. Louisiana The plaintiff filed a complaint in 1997, under the False Claims Act, on behalf of the United States
of America, against approximately seventy pipelines, including Columbia Gulf and Columbia
Transmission. The plaintiff claimed that the defendants had submitted false royalty reports to the
government (or caused others to do so) by mis-measuring the volume and heating content of natural
gas produced on Federal land and Indian lands. The Plaintiffs original complaint was dismissed
without prejudice for misjoinder of parties and for failing to plead fraud with specificity. The
plaintiff then filed over sixty-five new False Claims Act complaints against over 330 defendants in
numerous Federal courts. One of those complaints was filed in the Federal District Court for the
Eastern District of Louisiana against Columbia Energy Group and thirteen affiliated entities
(collectively, the Columbia defendants). Plaintiffs second complaint, filed in 1997, repeats the mis-measurement claims previously made and
adds valuation claims alleging that the defendants have undervalued natural gas for royalty
purposes in various ways, including sales to affiliated entities at artificially low prices. Most
of the Grynberg cases were transferred to Federal court in Wyoming in 1999. The defendants, including the Columbia defendants, have filed motions to dismiss for lack of
subject matter jurisdiction in this case. Oral argument on the motions to dismiss has been
scheduled for the end of the first quarter of 2005. 5. Tawney, et al. v. Columbia Natural Resources, Inc., Roane County, WV Circuit Court The Plaintiffs, who are royalty owners, filed a lawsuit in early 2003 against Columbia Natural
Resources alleging that Columbia Natural Resources underpaid royalties by improperly deducting
post-production costs and not paying a fair value for the gas produced from their leases.
Plaintiffs seek the alleged royalty underpayment and punitive damages claiming that Columbia
Natural Resources fraudulently concealed the deduction of post-production charges. The court has
certified the case as a class action that includes any person who, after July 31, 1990, received or
is due royalties from Columbia Natural Resources (and its predecessors or successors) on lands
lying within the boundary of the State of West Virginia. All individuals, corporations, agencies,
departments or instrumentalities of the United States of America are excepted from the class.
Columbia Natural Resources appealed the decision certifying the class and the Supreme Court of West
Virginia denied the appeal. Although NiSource sold Columbia Natural Resources in 2003, it remains
obligated to manage this litigation and also remains at least partly liable for any damages awarded
to the plaintiffs. In December 2004, the court granted plaintiffs motion to add NiSource Inc. and
Columbia Energy Group as defendants. Trial is scheduled for early in the third quarter of 2005. Refer to Note 14-B, Other Legal Proceedings, in the Notes to Consolidated Financial Statements
for additional information regarding legal proceedings. 
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Omitted pursuant to General Instruction I. (2) (c). 6




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PART II 
 ITEM
5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES Columbia energy group and subsidiaries NiSource is the holder of record of all the outstanding common equity securities of Columbia. 
 ITEM 6. SELECTED FINANCIAL DATA Omitted pursuant to General Instruction I. (2)(a). 7




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ITEM 7. MANAGEMENTS NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS Columbia Energy Group and Subsidiaries Index
    
    PageConsolidated Review
    
    
    8Liquidity and Capital Resources
    
    
    10Off Balance Sheet Items
    
    
    13Other Information
    
    
    13
 The information required by this Item is presented in a reduced disclosure format pursuant to
General Instruction I to Form 10-K. The Notes to Consolidated Financial Statements contain
information that is pertinent to the following analysis. Note regarding forward-looking statements The Managements Narrative Analysis of Results of Operations, including statements regarding market
risk sensitive instruments, contains forward-looking statements, within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of
1934, as amended. Investors and prospective investors should understand that many factors govern
whether any forward-looking statement contained herein will be or can be realized. Any one of
those factors could cause actual results to differ materially from those projected. These
forward-looking statements include, but are not limited to, statements concerning Columbia Energy
Groups (Columbia) plans, objectives, expected performance, expenditures and recovery of
expenditures through rates, stated on either a consolidated or segment basis, and any and all
underlying assumptions and other statements that are other than statements of historical fact.
From time to time, Columbia may publish or otherwise make available forward-looking statements of
this nature. All such subsequent forward-looking statements, whether written or oral and whether
made by or on behalf of Columbia, are also expressly qualified by these cautionary statements. All
forward-looking statements are based on assumptions that management believes to be reasonable;
however, there can be no assurance that actual results will not differ materially. Realization of Columbias objectives and expected performance is subject to a wide range of risks
and can be adversely affected by, among other things, weather, fluctuations in supply and demand
for energy commodities, growth opportunities for Columbias businesses, increased competition in
deregulated energy markets, the success of regulatory and commercial initiatives, dealings with
third parties over whom Columbia has no control, the scope, timing and impact of any outsourcing
initiative, actual operating experience of Columbia assets, the regulatory process, regulatory and
legislative changes, changes in general economic, capital and commodity market conditions, and
counter-party credit risk, many of which risks are beyond the control of Columbia. In addition,
the relative contributions to profitability by each segment, and the assumptions underlying the
forward-looking statements relating thereto, may change over time. Consolidated Review Columbias income from continuing operations for 2004 was $403.7 million, a decrease of $74.4
million from 2003. Income from continuing operations for 2003 was $478.1 million, an increase of
$44.9 million from 2002. Taking into account income from continuing operations, discontinued operations and the change in
accounting, Columbia reported net income of $407.4 million in 2004, a decrease of $5.7 million from
the prior year. Columbia reported net income of $413.1 million in 2003, a decrease of $2.3 million
from the prior year. Net Revenues Total consolidated net revenues (gross revenues less cost of sales) for the twelve months ended
December 31, 2004 were $1,740.5 million, a $32.0 million decrease compared with 2003. Gas
Distribution Operations net revenues decreased $23.5 million, primarily as a result of reduced
residential and commercial natural gas deliveries due to warmer weather of approximately $22
million compared to last year, lower revenues from contract cost reduction programs, reduced sales
of retail products and releases of capacity amounting to $25.8 million, and reduced revenue from
gas cost incentives of $4.3 million. These reductions in revenues were partially offset by $23.5
million of higher net revenues from regulatory strategies that included the regulatory stipulation
agreement granted for Columbia Gas of Ohio, Inc. (Columbia of Ohio.) In addition, firm service
contracts expired for both Columbia Gas Transmission Corporation and Columbia Gulf Transmission
Company on October 31, 2004, which represented approximately 60% of the Gas Transmission and
Storage Operations net annual revenues. The expiration of these contracts resulted in a reduction
of 2004 revenue of $5.8 million. Based upon new commitments, the Gas 8




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ITEM 7. MANAGEMENTS NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) Columbia Energy Group and Subsidiaries Transmission and Storage Operations segment is projecting a reduction of approximately $40 million
in annual revenues under the replacement contracts, which represent approximately 5% of total
Segment revenues. This projected reduction is expected to be partially offset by increased
revenues resulting from remarketing efforts and new firm contracts. Total consolidated net revenues of $1,772.5 million for 2003 reflected an increase of $35.4 million
from 2002. Items that favorably impacted the year included colder weather during the heating
season, which increased natural gas sales and deliveries in the first quarter amounting to
approximately $34 million, increases in off systems sales, gas cost incentive mechanisms and
contract cost reduction arrangements amounting to $9.0 million and non-weather related volume of
$9.1 million. These favorable items were offset by lower interruptible service revenues and firm
service revenues of $19.7 million in Gas Transmission and Storage Operations, a decrease in storage
and transportation revenues of $13.1 million and higher cost trackers and gross receipts taxes
generally offset in operating expenses. Expenses Operating expenses were $1,025.1 million in 2004, a $43.2 million increase from 2003 due primarily
to the comparable 2003 period being favorably impacted by insurance recoveries of $4.0 million, the
reversal of legal, environmental, and other accrued expenses of approximately $24.5 million and a
$16.6 million gain on the sale of Columbia Service Partners, Inc. (Columbia Service Partners).
Operating expenses for 2004 were favorably impacted by insurance recoveries and reserve adjustments
of $14.3 million partially offset by an increase in depreciation expense of $6.1 million. Operating expenses were $981.9 million in 2003, a slight decrease from 2002. Expense reductions
for 2003 include insurance recoveries of $4.0 million, the reversal of legal, environmental, and
other accrued expenses of approximately $24.5 million and a $16.6 million gain on the sale of
Columbia Service Partners. In addition, the 2003 period was favorably impacted by approval of a
bad debt tracker for Columbia of Ohio for the recovery of $25.2 million of previously uncollected
accounts receivable, but much of this was offset by an increase in uncollectible accounts
receivable expense amounting to $20.0 million. The 2002 period included $24.2 million of insurance
recoveries for environmental expenses, a reduction in estimated sales taxes of $11.4 million
related to sales of natural gas to customers of a subsidiary previously engaged in the retail and
wholesale gas marketing business, and the net reduction of legal, environmental, and other accrued
expenses of approximately $19.8 million. Other Income (Deductions) Other Income (Deductions) in 2004 reduced income $71.7 million compared to a reduction of $62.8
million in 2003. Interest expense of $96.5 million increased $11.9 million compared to the 2003
period primarily due to the termination of certain interest rate swap agreements. Other Income (Deductions) in 2003 reduced income $62.8 million compared to a reduction of $92.3
million in 2002. Interest expense was $84.6 million for 2003, a decrease of $31.9 million from
2002 primarily due to lower short-term interest rates. Income Taxes Income tax expense in 2004 totaled $240.0 million, a decrease of $9.7 million from 2003, primarily
as a result of lower pre-tax income in 2004 as compared to the earlier period partially offset by
prior year tax adjustments that decreased the 2003 effective tax rate. Income tax expense in 2003 totaled $249.7 million, an increase of $20.6 million from 2002,
primarily as a result of higher pre-tax income in 2003 as compared to the earlier period. Discontinued Operations Income from discontinued operations (including gains and losses on disposition of discontinued
operations) was $3.7 million in 2004 compared to a loss of $48.2 million in 2003 and a loss of
$17.8 million in 2002. The current years income from discontinued operations, after-tax, is
mostly the result of a reduction in estimated income taxes associated with Columbias former
exploration and production subsidiary, Columbia Energy Resources, Inc. (CER). In 2003, an
after-tax loss of $46.4 million was related to the sales of CER. Also in 2003, Columbia recorded a
loss on the sale of Columbia Transmission Communications Corporation (Transcom) of $1.3 million.
The 2002 results 9




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ITEM 7. MANAGEMENTS NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) Columbia Energy Group and Subsidiaries were unfavorably impacted by a charge of $51.3 million, after-tax, that was recognized as a result
of the continuing depressed market for dark fiber and Columbias decision to exit the
telecommunications business. Change in Accounting The change in accounting in 2003 of $16.8 million, net-of-tax, resulted from the cumulative effect
of adopting the Financial Accounting Standards Board statement on asset retirement obligations. Liquidity and Capital Resources A significant portion of Columbias operations, most notably in the gas distribution and gas
transportation business is subject to seasonal fluctuations in cash flow. During the heating
season, which is primarily from November through March, cash receipts from gas sales and
transportation services typically exceed cash requirements. Conversely, during the remainder of
the year, cash on hand together with external short-term financing, is used to purchase gas to
place in storage for heating season deliveries, perform necessary maintenance of facilities, make
capital improvements in plant and expand service into new areas. Operating Activities.Net cash from operating activities for the twelve months ended December 31,
2004 was $696.8 million, an increase of $531.3 million from a year ago. This change was due
primarily to a use of approximately $442 million from working capital changes during the comparable
2003 period versus $64 million use this year. The 2003 impact to working capital resulted from a
decrease of exchange gas payables, accounts payable, and other current liabilities that were
accrued at the end of 2002. Investing Activities.On September 30, 2003, Columbia sold Columbia Service Partners, Inc.
(Columbia Service Partners) for approximately $22.5 million. In the third quarter of 2003,
Columbia recognized a pre-tax gain of $16.6 million related to the sale. Columbia Service Partners
had been reported as assets held for sale. On August 29, 2003, Columbia sold its exploration and production subsidiary, CER to a subsidiary of
Triana Energy Holdings for $330 million, plus the assumption of obligations to deliver
approximately 94 billion cubic feet (Bcf) of natural gas pursuant to existing forward sales
contracts. On January 28, 2003, Columbias former subsidiary Columbia Natural Resources, Inc. sold
its interest in certain natural gas exploration and production assets in New York for approximately
$95 million. Columbia has accounted for CER as discontinued operations and has adjusted periods
after 1999 accordingly. During 2003, Columbia recognized an after-tax loss of $46.4 million
related to the sales. Financing Activities.Columbia subsidiaries satisfy their liquidity requirements primarily through
internally generated funds and through intercompany borrowings from the NiSource Money Pool. These
subsidiaries may borrow or invest, on an intercompany basis, a cumulative maximum of $1.13 billion
through the NiSource Money Pool as approved by the Securities and Exchange Commission under the
Public Utility Holding Company Act of 1935. NiSource Finance Corp. provides funding to the
NiSource Money Pool from external borrowing sources and maintains an aggregate $1.25 billion
revolving credit facility with a syndicate of banks. The credit facility is guaranteed by NiSource
Inc. (NiSource). As of December 31, 2004, Columbia had $440.7 million invested in the NiSource
Money Pool. Non-Trading Risks Commodity price risk resulting from non-trading activities at Columbias rate-regulated
subsidiaries is limited, since regulations allow recovery of prudently incurred gas costs through
the rate-making process. If states should explore additional regulatory reform, these subsidiaries
may begin providing services without the benefit of the traditional ratemaking process and may be
more exposed to commodity price risk. On May 12, 2004, Columbia terminated all remaining fixed-to-variable interest rate swap agreements.
Columbia received an aggregate settlement payment of $1.8 million, which is being amortized as a
reduction to interest expense over the remaining term of the underlying debt. 10




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ITEM 7. MANAGEMENTS NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) Columbia Energy Group and Subsidiaries On April 11, 2003, Columbia entered into fixed-to-variable interest rate swap agreements in a
notional amount of $100 million with two counterparties. Columbia received payments based upon a
fixed 7.42% interest rate and paid a floating interest amount based on U.S. 6-month BBA LIBOR plus
an average of 2.39% per annum. There was no exchange of premium at the initial date of the swaps.
These interest rate swap agreements were terminated on May 12, 2004. On April 4, 2003, Columbia terminated a fixed-to-variable interest rate swap agreement in a
notional amount of $100 million. Columbia received a settlement payment from the counterparty
amounting to $8.2 million, which is being amortized as a reduction to interest expense over the
remaining term of the underlying debt. On September 3, 2002, Columbia entered into new fixed-to-variable
interest rate swap agreements totaling $281.5 million with three
counterparties effective as of September 5, 2002. Under the
agreements, Columbia received payments based upon a fixed 7.32%
interest rate and paid a floating interest amount based on U.S.
6-month BBA LIBOR plus 2.66% per annum. There were no exchange of
premium at inception of the swaps. These interest rate swap
agreements were terminated on May 12, 2004. Sale of Trade Accounts Receivable On May 14, 2004, Columbia of Ohio entered into an agreement to sell, without recourse,
substantially all of its trade receivables, as they originate, to Columbia of Ohio Receivables
Corporation (CORC), a wholly-owned subsidiary of Columbia of Ohio. CORC, in turn, is party to an
agreement, also dated May 14, 2004, in which it sells an undivided percentage ownership interest in
the accounts receivable to a commercial paper conduit sponsored by Dresdner Kleinwort Wasserstein.
The conduit can purchase up to $300 million of accounts receivable under the agreement. The
agreement, which replaced a prior similar agreement, expires in May 2005, but can be renewed if
mutually agreed to by both parties. As of December 31, 2004, $137.7 million of accounts receivable
had been sold by CORC. Under the agreement, Columbia of Ohio acts as administrative agent, by performing record keeping
and cash collection functions for the accounts receivable sold by CORC. Columbia of Ohio receives a
fee, which provides adequate compensation, for such services. Credit Ratings On July 8, 2003, Moodys Investors Service affirmed the senior unsecured ratings of NiSource at
Baa3, and the existing ratings of all other subsidiaries, concluding a review for possible
downgrade that began on May 13, 2003. Moodys ratings outlook for NiSource and its subsidiaries is
now stable. On June 30, 2003, Fitch Ratings affirmed their BBB senior unsecured rating for
NiSource and the BBB+ rating for Columbia. Fitchs outlook for NiSource and all of its subsidiaries
is stable. On June 16, 2003, Standard and Poors affirmed its senior unsecured ratings of NiSource
at BBB, and the existing ratings of all other subsidiaries. Standard and Poors outlook for
NiSource and all of its subsidiaries was revised from negative to stable. Columbia is the principal for surety bonds issued to guarantee performance under forward gas sales
agreements. The surety bonds related to forward gas sales under agreements with Mahonia II Limited
have indemnity values amounting to approximately $71.1 million as of December 31, 2004, which
decline over time and have ratings triggers if the credit rating of Columbia falls below BBB at
Standard and Poors or Baa2 at Moodys. Columbias long-term debt ratings are currently BBB and
Baa2 at Standard and Poors and Moodys, respectively. The collateral requirement from a downgrade
below the ratings trigger levels would require the posting of a letter of credit of approximately
$71.1 million declining over time. In another, but unrelated transaction, the surety, in
accordance with the terms of its indemnity agreement, required Columbia to post a letter of credit
in the face amount of approximately $131 million, declining over time, to support the bonds. At
December 31, 2004, the total amount of letters of credit required with respect to this transaction
was $89.4 million. 11




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ITEM 7. MANAGEMENTS NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) Columbia Energy Group and Subsidiaries Contractual Obligations and Commercial Commitments Columbia has certain contractual obligations that extend beyond 2005. The obligations include
long-term debt, lease obligations, and purchase obligations for pipeline capacity, transportation
and storage services by Columbias Gas Distribution Operations subsidiaries. The total contractual
obligations in existence at December 31, 2004 and their maturities were: (in millions)
    
    Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    AfterLong-term debt
    
    $
    1,355.2
    
    
    $
    281.5
    
    
    $
    
    
    
    $
    281.5
    
    
    $
    
    
    
    $
    
    
    
    $
    792.2Capital leases
    
    
    2.6
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    
    
    
    
    0.9Operating leases
    
    
    119.2
    
    
    
    20.0
    
    
    
    20.3
    
    
    
    17.7
    
    
    
    14.8
    
    
    
    11.6
    
    
    
    34.8Unconditional purchase obligations
    
    
    333.0
    
    
    
    61.8
    
    
    
    56.6
    
    
    
    50.9
    
    
    
    37.2
    
    
    
    27.3
    
    
    
    99.2Total contractual obligations
    
    $
    1,810.0
    
    
    $
    363.7
    
    
    $
    77.4
    
    
    $
    350.5
    
    
    $
    52.4
    
    
    $
    38.9
    
    
    $
    927.1
 In addition, Columbia has obligations associated with interest and tax payments. For 2005,
Columbia projects that it will be required to make interest and tax payments of approximately
$509.3 million. Also, Columbia expects to make contributions of $0.6 million to its pension plans
and $28.7 million to its postretirement medical and life plans in 2005. Columbia has made certain commercial commitments that extend beyond 2005. The commitments include
guarantees, which support commercial activities. The total commercial commitments in existence at
December 31, 2004, including commercial commitments for discontinued operations, and the years in
which they expire were: (in millions)
    
    Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    AfterGuarantees supporting commodity
transactions of subsidiaries
    
    $
    701.1
    
    
    $
    50.0
    
    
    $
    476.9
    
    
    $
    30.6
    
    
    $
    50.9
    
    
    $
    53.5
    
    
    $
    39.2Other guarantees
    
    
    154.2
    
    
    
    50.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    102.0Total commercial commitments
    
    $
    855.3
    
    
    $
    100.0
    
    
    $
    476.9
    
    
    $
    30.6
    
    
    $
    50.9
    
    
    $
    55.7
    
    
    $
    141.2
 Of the commercial commitments outstanding shown above, Columbia had approximately $2.3 million of
capital lease obligations recorded on its Consolidated Balance Sheets at December 31, 2004. Capital Expenditures and Other Investing Activities The table below reflects actual capital expenditures and other investing activities by segment for
2004 and 2003 and an estimate for year 2005: (in millions)
    
    2005E
    
    
    2004
    
    
    2003Gas Distribution Operations
    
    $
    140.2
    
    
    $
    127.1
    
    
    $
    112.3Gas Transmission and Storage Operations
    
    
    203.6
    
    
    
    129.8
    
    
    
    119.4Other
    
    
    
    
    
    
    7.2
    
    
    
    Total
    
    $
    343.8
    
    
    $
    264.1
    
    
    $
    231.7
 For 2004, capital expenditures and other investing activities were $264.1 million, an increase of
$32.4 million over 2003. The Gas Distribution Operations segments capital program in 2004
included initiatives to extend service to new areas and develop future markets through new services
that may be added to the existing business and to create a potential new pool of customers, as well
as expenditures to ensure safe, reliable and improved service to customers and modernize and
upgrade facilities. The Gas Transmission and Storage Operations segment invested primarily in
modernizing and upgrading facilities and meeting the needs of existing and new customers through
the construction of significant new facilities, either wholly-owned by Columbia or in partnership
with other qualified project participants. Capital expenditures in Other Operations mainly
comprise partnership investments. For 2005, the projected capital program is expected to be $343.8 million, which is $79.7 million
higher than the 2004 level. This higher spending is mainly due to increased expenditures for
pipeline integrity related work and
growth initiatives in the Gas Transmission and Storage Operations segment and system upgrades in
the Gas Distribution Operations segment to maintain service and reliability. The program is
expected to be funded primarily with cash from operations. 12




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ITEM 7. MANAGEMENTS NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) Columbia Energy Group and Subsidiaries Pension Funding Due to strong equity markets, the fair value of Columbias pension fund assets as of September 30,
2004, have increased for the second year in a row. Additionally, $15.1 million in employer
contributions were made during 2004 to the companys qualified and non-qualified pension plans.
Columbia expects market returns to revert to normal levels as demonstrated in historical periods
and expects to contribute $0.6 million in 2005 to the pension plans and may provide additional
funding for the pension obligations if returns on plan assets fall short of the assumed 9.0%
long-term earnings rate assumption. As a result of the increase in the fair value of the plan
assets, Columbia expects pension expense for 2005 to decrease approximately $2.8 million from the
amount recognized in 2004. See Note 9, Pension and Other Postretirement Benefits, in the Notes
to Consolidated Financial Statements for more information. Off Balance Sheet Arrangements Columbia has issued guarantees that support up to approximately $701.1 million of commodity-related
payments to satisfy requirements under forward gas sales agreements of a former subsidiary. These
guarantees were provided to counter parties in order to facilitate physical and financial
transactions. To the extent liabilities exist under the commodity-related contracts subject to
these guarantees, such liabilities are included in the Consolidated Balance Sheets. In addition,
Columbia has other guarantees, purchase commitments and operating leases. Refer to Note 6, Risk
Management Activities, and Note 14, Other Commitments and Contingencies, in the Notes to
Consolidated Financial Statements for additional information about Columbias off balance sheet
arrangements. In addition, Columbia has sold certain accounts receivable. Columbias accounts receivable program
qualifies for sale accounting because it meets the conditions specified in Statement of Financial
Accounting Standards (SFAS) No. 140, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. In the agreements, all transferred assets have been isolated
from the transferor and put presumptively beyond the reach of the transferor and its creditors,
even in bankruptcy or other receivership. Columbia does not retain any interest in the receivables
under these programs. Refer to Note 13, Fair Value of Financial Instruments, in the Notes to
Consolidated Financial Statements for additional information on these agreements. Other Information Critical Accounting Policies Columbia applies certain accounting policies based on the accounting requirements discussed below
that have had, and may continue to have, significant impacts on Columbias results of operations
and Consolidated Balance Sheets. Basis of Accounting for Rate-Regulated Subsidiaries.SFAS No. 71, Accounting for the Effects of
Certain Types of Regulation (SFAS No. 71), provides that rate-regulated subsidiaries account for
and report assets and liabilities consistent with the economic effect of the way in which
regulators establish rates, if the rates established are designed to recover the costs of providing
the regulated service and if the competitive environment makes it probable that such rates can be
charged and collected. Columbias rate-regulated subsidiaries follow the accounting and reporting
requirements of SFAS No. 71. Certain expenses and credits subject to utility regulation or rate
determination normally reflected in income are deferred on the Consolidated Balance Sheets and are
recognized in income as the related amounts are included in service rates and recovered from or
refunded to customers. The total amounts of regulatory assets and liabilities reflected on the
Consolidated Balance Sheets were $681.5 million and $394.9 million at December 31, 2004, and $594.4
million and $382.7 million at December 31, 2003, respectively. For additional information, refer
to Note 1-D, Basis of Accounting for Rate-Regulated Subsidiaries, in the Notes to Consolidated Financial Statements. In the event that regulation significantly changes the opportunity for Columbia to recover its
costs in the future, all or a portion of Columbias regulated operations may no longer meet the
criteria for the application of SFAS No. 71. In such event, a write-down of all or a portion of
Columbias existing regulatory assets and liabilities could result. If transition cost recovery is
approved by the appropriate regulatory bodies that would meet the requirements under generally
accepted accounting principles for continued accounting as regulatory assets and liabilities during
such recovery period, the regulatory assets and liabilities would be reported at the recoverable
amounts. If unable to continue to apply the provisions of SFAS No. 71, Columbia would be required
to apply the provisions of SFAS No. 13




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ITEM 7. MANAGEMENTS NARRATIVE AND ANALYSIS OF RESULTS OF OPERATIONS (continued) Columbia Energy Group and Subsidiaries 101, Regulated Enterprises  Accounting for the Discontinuation of Application of Financial
Accounting Standards Board (FASB) Statement No. 71. In managements opinion, Columbias regulated
subsidiaries will be subject to SFAS No. 71 for the foreseeable future. Certain of the regulatory assets reflected on Columbias Consolidated Balance Sheets require
specific regulatory action in order to be included in future service rates. Although recovery of
these amounts is not guaranteed, Columbia believes that these costs meet the requirements for
deferral as regulatory assets under SFAS No. 71. Regulatory assets requiring specific regulatory
action amounted to $148.2 million at December 31, 2004. If Columbia determined that the amounts
included as regulatory assets were not recoverable, a charge to income would immediately be
required to the extent of the unrecoverable amounts. Accounting for Risk Management Activities.Under SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activity, as subsequently amended by SFAS No. 137, SFAS No. 138, and SFAS
No. 149 (collectively referred to as SFAS No. 133,) the accounting for changes in the fair value of
a derivative depends on the intended use of the derivative and resulting designation. Unrealized
and realized gains and losses are recognized each period as components of other comprehensive
income, earnings, or regulatory assets and liabilities depending on the nature of such derivatives.
For subsidiaries that utilize derivatives for cash flow hedges, the effective portions of the
gains and losses are recorded to other comprehensive income and are recognized in earnings
concurrent with the disposition of the hedged risks. For fair value hedges, the gains and losses
are recorded in earnings each period along with the change in the fair value of the hedged item.
As a result of the rate making process, the rate-regulated subsidiaries generally record gains and
losses as regulatory liabilities or assets and recognize such gains or losses in earnings when
both the contracts settle and the physical commodity flows. These gains and losses recognized in earnings are then subsequently
recovered in revenues through rates. In order for a derivative contract to be designated as a hedge, the relationship between the
hedging instrument and the hedged item or transaction must be highly effective. The effectiveness
test is performed at the inception of the hedge and each reporting period thereafter, throughout
the period that the hedge is designated. Any amounts determined to be ineffective are recorded
currently in earnings. Although Columbia applies some judgment in the assessment of hedge effectiveness to designate
certain derivatives as hedges, the nature of the contracts used to hedge the underlying risks is
such that the correlation of the changes in fair values of the derivatives and underlying risks is
high. Columbia generally uses New York Mercantile Exchange (NYMEX) exchange-traded natural gas
futures and options contracts and over-the-counter swaps based on published indices to hedge the
risks underlying its natural-gas-related businesses. Columbia had $159.6 million and $145.7
million of price risk management assets and $4.9 million and $3.3 million of price risk management
liabilities, all primarily related to hedges, at December 31, 2004 and 2003, respectively. The
amount of unrealized gains recorded to other comprehensive income was $103.7 million and $87.7
million at December 31, 2004 and 2003, respectively. Pensions and Postretirement Benefits.Columbia has defined benefit plans for both pensions and
other postretirement benefits. The plans are accounted for under SFAS No. 87, Employers
Accounting for Pensions, and SFAS No. 106, Employers Accounting for Postretirement Benefits
Other than Pensions. The calculation of the net obligations and annual expense related to the
plans requires a significant degree of judgment regarding the discount rates to be used in bringing
the liabilities to present value, long-term returns on plan assets and employee longevity, among
other assumptions. Due to the size of the plans and the long-term nature of the associated
liabilities, changes in the assumptions used in the actuarial estimates could have material impacts
on the measurement of the net obligations and annual expense recognition. For further discussion
of Columbias pensions and other postretirement benefits see Note 9, Pension and Other
Postretirement Benefits, in the Notes to Consolidated Financial Statements. Recently Issued Accounting Pronouncements Refer to Note 2, Recent Accounting Pronouncements, in the Notes to Consolidated Financial
Statements for information regarding recently issued accounting standards. 14




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Columbia Energy Group and Subsidiaries See Note 6, Risk Management Activities, in the Notes to Consolidated Financial Statements for a
discussion of risk management activities. 15




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Columbia Energy Group and Subsidiaries Index
    
    PageReport of Independent Registered Public Accounting Firm
    
    
    17Statements of Consolidated Income
    
    
    18Consolidated Balance Sheets
    
    
    19Statements of Consolidated Cash Flows
    
    
    21Statements of Consolidated Common Stock Equity and Comprehensive Income
    
    
    22Notes to Consolidated Financial Statements
    
    
    23Schedule II
    
    
    49
 16




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia Energy Group and Subsidiaries REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholder of Columbia Energy Group: We have audited the accompanying consolidated balance sheets of Columbia Energy Group (a Delaware
corporation, the Corporation and a wholly owned subsidiary of NiSource Inc.) and subsidiaries as
of December 31, 2004 and 2003, and the related statements of consolidated income, common stock
equity and comprehensive income, and cash flows for each of the three years in the period ended
December 31, 2004. Our audits also included the consolidated financial statement schedule listed
in the index at Item 8. These financial statements and the financial statement schedule are the
responsibility of the Corporations management. Our responsibility is to express an opinion on the
financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes consideration of internal control over financial reporting as a basis for designing

audit procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Corporations internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects,
the financial position of the Corporation and subsidiaries as of December 31, 2004 and 2003, and
the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein. As explained in Note 1.S. to the consolidated financial statements, effective January 1, 2003, the
Corporation adopted Statement of Financial Accounting Standard No. 143, Accounting for Asset
Retirement Obligations. DELOITTE & TOUCHE LLP Columbus, Ohio
March 7, 2005 17




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesSTATEMENTS OF CONSOLIDATED INCOME Year ended December 31, (in millions)
    
    2004
    
    
    2003
    
    
    2002Net RevenuesDistribution
    
    $
    2,203.2
    
    
    $
    2,020.4
    
    
    $
    1,623.7Transportation and Storage
    
    
    921.8
    
    
    
    945.9
    
    
    
    938.9Other
    
    
    85.1
    
    
    
    74.9
    
    
    
    32.7Affiliated revenues
    
    
    11.4
    
    
    
    9.3
    
    
    
    16.2Gross Revenues
    
    
    3,221.5
    
    
    
    3,050.5
    
    
    
    2,611.5Cost of Sales
    
    
    1,480.8
    
    
    
    1,273.2
    
    
    
    871.0Cost of Sales - Affiliated
    
    
    0.2
    
    
    
    4.8
    
    
    
    3.4Total Net Revenues
    
    
    1,740.5
    
    
    
    1,772.5
    
    
    
    1,737.1Operating ExpensesOperation and maintenance
    
    
    678.8
    
    
    
    664.2
    
    
    
    658.1Depreciation and amortization
    
    
    169.3
    
    
    
    163.2
    
    
    
    163.2Loss (Gain) on sale of assets
    
    
    1.2
    
    
    
    (18.4
    )
    
    
    (5.6
    )Other taxes
    
    
    175.8
    
    
    
    172.9
    
    
    
    166.8Total Operating Expenses
    
    
    1,025.1
    
    
    
    981.9
    
    
    
    982.5Operating Income
    
    
    715.4
    
    
    
    790.6
    
    
    
    754.6Other Income (Deductions)Interest expense
    
    
    (93.2
    )
    
    
    (78.5
    )
    
    
    (111.6
    )Interest expense - affiliated
    
    
    (3.3
    )
    
    
    (6.1
    )
    
    
    (4.9
    )Interest income
    
    
    6.0
    
    
    
    6.3
    
    
    
    9.1Interest income - affiliated
    
    
    14.2
    
    
    
    14.2
    
    
    
    12.8Other, net
    
    
    4.6
    
    
    
    1.3
    
    
    
    2.3Total Other Income (Deductions)
    
    
    (71.7
    )
    
    
    (62.8
    )
    
    
    (92.3
    )Income from Continuing Operations
before Income Taxes and Change in Accounting
    
    
    643.7
    
    
    
    727.8
    
    
    
    662.3Income Taxes
    
    
    240.0
    
    
    
    249.7
    
    
    
    229.1Income from Continuing Operations before Change in Accounting
    
    
    403.7
    
    
    
    478.1
    
    
    
    433.2Income (Loss) from Discontinued Operations - net of taxes
    
    
    2.1
    
    
    
    (0.5
    )
    
    
    33.5Gain (Loss) on Disposition of Discontinued Operations - net of taxes
    
    
    1.6
    
    
    
    (47.7
    )
    
    
    (51.3
    )Change in Accounting - net of taxes
    
    
    
    
    
    
    (16.8
    )
    
    
    Net Income
    
    $
    407.4
    
    
    $
    413.1
    
    
    $
    415.4
 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 18




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesCONSOLIDATED BALANCE SHEETS As of December 31, (in millions)
    
    2004
    
    
    2003ASSETSProperty, Plant and EquipmentUtility Plant
    
    $
    8,338.5
    
    
    $
    8,248.9Accumulated depreciation and amortization
    
    
    (3,718.7
    )
    
    
    (3,696.4
    )Net utility plant
    
    
    4,619.8
    
    
    
    4,552.5Other property, at cost, less accumulated depreciation
    
    
    2.0
    
    
    
    1.8Net Property, Plant and Equipment
    
    
    4,621.8
    
    
    
    4,554.3Investments and Other AssetsAssets of discontinued operations and assets held for sale
    
    
    23.4
    
    
    
    20.7Unconsolidated affiliates
    
    
    41.7
    
    
    
    33.5Other investments
    
    
    41.7
    
    
    
    40.9Total Investments
    
    
    106.8
    
    
    
    95.1Current AssetsCash and cash equivalents
    
    
    13.5
    
    
    
    13.7Cash invested in the NiSource money pool
    
    
    440.7
    
    
    
    56.2Restricted cash
    
    
    5.4
    
    
    
    3.6Accounts receivable (less reserve of $10.5 and $15.5, respectively)
    
    
    263.1
    
    
    
    301.6Accounts receivable - affiliated
    
    
    11.7
    
    
    
    9.2Unbilled revenue (less reserve of $8.9 and $2.1, respectively)
    
    
    164.4
    
    
    
    145.8Gas inventory
    
    
    285.7
    
    
    
    246.3Underrecovered gas and fuel costs
    
    
    239.4
    
    
    
    163.7Materials and supplies, at average cost
    
    
    17.0
    
    
    
    22.2Price risk management assets
    
    
    45.7
    
    
    
    35.2Exchange gas receivable
    
    
    131.7
    
    
    
    145.1Regulatory assets
    
    
    87.9
    
    
    
    92.0Prepayments and other
    
    
    74.0
    
    
    
    75.8Total Current Assets
    
    
    1,780.2
    
    
    
    1,310.4Other AssetsPrice risk management assets
    
    
    113.9
    
    
    
    110.5Regulatory assets
    
    
    354.2
    
    
    
    338.7Intangible assets, less accumulated amortization
    
    
    1.4
    
    
    
    0.9Deferred charges and other
    
    
    121.0
    
    
    
    99.1Other receivables - affiliated
    
    
    21.7
    
    
    
    23.9Total Other Assets
    
    
    612.2
    
    
    
    573.1Total Assets
    
    $
    7,121.0
    
    
    $
    6,532.9
 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 19




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesCONSOLIDATED BALANCE SHEETS As of December 31, (in millions)
    
    2004
    
    
    2003CAPITALIZATION AND LIABILITIESCapitalizationCommon stock equityAdditional paid-in-capital
    
    $
    1,419.5
    
    
    $
    1,408.2Retained earnings
    
    
    1,439.2
    
    
    
    1,081.8Accumulated other comprehensive income and other common stock equity
    
    
    104.1
    
    
    
    88.1Total common stock equity
    
    
    2,962.8
    
    
    
    2,578.1Long-term debt, excluding amounts due within one year
    
    
    1,075.9
    
    
    
    1,368.1Total Capitalization
    
    
    4,038.7
    
    
    
    3,946.2Current LiabilitiesCurrent portion of long-term debt
    
    
    281.9
    
    
    
    0.3Short-term borrowings
    
    
    0.1
    
    
    
    Accounts payable
    
    
    310.7
    
    
    
    206.9Accounts payable-affiliated
    
    
    19.4
    
    
    
    25.8Customer accounts receivable credit balances and deposits
    
    
    122.2
    
    
    
    109.5Taxes accrued
    
    
    120.2
    
    
    
    147.1Interest accrued
    
    
    11.4
    
    
    
    13.6Overrecovered gas and fuel costs
    
    
    1.6
    
    
    
    2.3Price risk management liabilities
    
    
    4.9
    
    
    
    3.3Exchange gas payable
    
    
    323.7
    
    
    
    288.4Current deferred revenue
    
    
    23.2
    
    
    
    19.6Regulatory liabilities
    
    
    24.5
    
    
    
    71.3Accrued liability for postretirement and postemployment benefits
    
    
    33.5
    
    
    
    30.3Deferred income taxes
    
    
    104.7
    
    
    
    72.1Other accruals
    
    
    156.0
    
    
    
    138.0Total Current Liabilities
    
    
    1,538.0
    
    
    
    1,128.5Other Liabilities and Deferred CreditsDeferred income taxes
    
    
    814.9
    
    
    
    740.6Deferred investment tax credits
    
    
    25.5
    
    
    
    26.9Deferred credits
    
    
    47.8
    
    
    
    49.1Noncurrent deferred revenue
    
    
    86.9
    
    
    
    112.9Accrued liability for postretirement and postemployment benefits
    
    
    84.5
    
    
    
    103.1Regulatory liabilities
    
    
    368.8
    
    
    
    309.1Other noncurrent liabilities
    
    
    115.9
    
    
    
    116.5Total Other Liabilities and Deferred Credits
    
    
    1,544.3
    
    
    
    1,458.2Commitments and Contingencies
    
    
    
    
    
    
    Total Capitalization and Liabilities
    
    $
    7,121.0
    
    
    $
    6,532.9
 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 20




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiaries
STATEMENTS OF CONSOLIDATED CASH FLOWS Year Ended December 31, (in millions)
    
    2004
    
    
    2003
    
    
    2002Operating ActivitiesNet income
    
    $
    407.4
    
    
    $
    413.1
    
    
    $
    415.4Adjustments to reconcile net income to net cash from continuing operations:Depreciation, depletion, and amortization
    
    
    169.3
    
    
    
    163.2
    
    
    
    163.2Net changes in price risk management assets and liabilities
    
    
    (7.7
    )
    
    
    4.0
    
    
    
    (40.9
    )Deferred income taxes and investment tax credits
    
    
    109.9
    
    
    
    117.6
    
    
    
    91.5Deferred revenue
    
    
    (22.4
    )
    
    
    (14.5
    )
    
    
    (15.9
    )Stock compensation expense
    
    
    0.6
    
    
    
    0.7
    
    
    
    (Gain) Loss on sale of assets
    
    
    1.2
    
    
    
    (18.4
    )
    
    
    (5.6
    )Change in accounting, net of tax
    
    
    
    
    
    
    16.8
    
    
    
    Income from unconsolidated affiliates
    
    
    
    
    
    
    
    
    
    
    (2.8
    )Loss (Gain) on sale of discontinued operations
    
    
    (1.6
    )
    
    
    47.7
    
    
    
    51.3Loss (Income) from discontinued operations
    
    
    (2.1
    )
    
    
    0.5
    
    
    
    (33.5
    )Other
    
    
    (1.5
    )
    
    
    (1.2
    )
    
    
    (0.3
    )Changes in assets and liabilities:Restricted cash
    
    
    (1.8
    )
    
    
    20.6
    
    
    
    4.9Accounts receivable and unbilled revenue
    
    
    1.3
    
    
    
    33.1
    
    
    
    143.4Inventories
    
    
    (34.3
    )
    
    
    (32.4
    )
    
    
    (19.8
    )Accounts payable
    
    
    85.6
    
    
    
    (96.5
    )
    
    
    40.1Customer deposits
    
    
    1.3
    
    
    
    3.2
    
    
    
    7.0Taxes accrued
    
    
    (13.5
    )
    
    
    (71.1
    )
    
    
    (43.8
    )Interest accrued
    
    
    (2.2
    )
    
    
    (5.2
    )
    
    
    1.9(Under) Overrecovered gas and fuel costs
    
    
    (76.4
    )
    
    
    (28.3

    )
    
    
    (62.5
    )Exchange gas receivable/payable
    
    
    101.8
    
    
    
    (185.0
    )
    
    
    212.6Other accruals
    
    
    1.8
    
    
    
    (92.1
    )
    
    
    (99.1
    )Prepayments and other current assets
    
    
    0.4
    
    
    
    12.1
    
    
    
    (13.4
    )Regulatory assets/liabilities
    
    
    17.9
    
    
    
    19.2
    
    
    
    21.4Postretirement and postemployment benefits
    
    
    (7.5
    )
    
    
    10.1
    
    
    
    19.8Deferred credits
    
    
    (1.3
    )
    
    
    7.5
    
    
    
    17.8Deferred charges and other noncurrent assets
    
    
    (29.8
    )
    
    
    (2.6
    )
    
    
    22.0Other noncurrent liabilities
    
    
    0.4
    
    
    
    (69.2
    )
    
    
    8.2Net Cash Flows from Continuing Operations
    
    
    696.8
    
    
    
    252.9
    
    
    
    882.9Net Cash Flows used for Discontinued Operations
    
    
    
    
    
    
    (87.4
    )
    
    
    (73.4
    )Net Cash Flows from Operating Activities
    
    
    696.8
    
    
    
    165.5
    
    
    
    809.5Investing ActivitiesCapital expenditures
    
    
    (254.1
    )
    
    
    (244.6
    )
    
    
    (257.5
    )Proceeds from disposition of assets
    
    
    3.4
    
    
    
    453.6
    
    
    
    Other investing activities
    
    
    (11.6
    )
    
    
    (18.3
    )
    
    
    (5.2
    )Net Cash Flows (used for) or from Investing Activities
    
    
    (262.3
    )
    
    
    190.7
    
    
    
    (262.7
    )Financing ActivitiesRetirement of long-term debt
    
    
    
    
    
    
    
    
    
    
    (281.7
    )Change in short-term debt
    
    
    (0.2
    )
    
    
    (0.8
    )
    
    
    (71.8
    )Dividends
paid - common shares
    
    
    (50.0
    )
    
    
    (300.0
    )
    
    
    (202.1
    )Net Cash Flows used for Financing Activities
    
    
    (50.2
    )
    
    
    (300.8
    )
    
    
    (555.6
    )Increase (decrease) in cash and cash equivalents
    
    
    384.3
    
    
    
    55.4
    
    
    
    (8.8
    )Cash and cash equivalents at beginning of year
    
    
    69.9
    
    
    
    14.5
    
    
    
    23.3Cash and cash equivalents at end of period
    
    $
    454.2
    
    
    $
    69.9
    
    
    $
    14.5Supplemental Disclosures of Cash Flow InformationCash paid for interest
    
    $
    100.2
    
    
    $
    89.8
    
    
    $
    119.1Interest capitalized
    
    
    1.5
    
    
    
    1.2
    
    
    
    3.3Cash paid for income taxes
    
    
    147.7
    
    
    
    216.3
    
    
    
    162.9
 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 21




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesSTATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY AND COMPREHENSIVE
INCOME Common Stock
    
    
    
    
    
    
    
    
    
    
    AccumulatedShares
    
    
    
    
    
    
    Additional
    
    
    
    
    
    
    OtherOutstanding
    
    
    Par
    
    
    Paid In
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    Comprehensive(in millions, except for share amounts)
    
    (Thousands)
    
    
    Value
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Total
    
    
    IncomeBalance at January 1, 2002
    
    
    3
    
    
    $
    
    
    
    $
    1,380.1
    
    
    $
    755.3
    
    
    $
    51.3
    
    
    $
    2,186.7Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    415.4
    
    
    
    
    
    
    
    415.4
    
    
    
    415.4Net unrealized gains on derivatives,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.6
    
    
    
    12.6
    
    
    
    12.6Gain on available for sale securities, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    0.4
    
    
    
    0.4Minimum pension liability, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (20.0
    )
    
    
    (20.0
    )
    
    
    (20.0
    )Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    408.4Cash dividends:Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (202.1
    )
    
    
    
    
    
    
    (202.1
    )Tax benefit allocation (See Note 1N)
    
    
    
    
    
    
    
    
    
    
    12.7
    
    
    
    
    
    
    
    
    
    
    
    12.7Balance at December 31, 2002
    
    
    3
    
    
    $
    
    
    
    $
    1,392.8
    
    
    $
    968.6
    
    
    $
    44.3
    
    
    $
    2,405.7Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    413.1
    
    
    
    
    
    
    
    413.1
    
    
    
    413.1Net unrealized gains on derivatives,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22.7
    
    
    
    22.7
    
    
    
    22.7Gain on foreign currency translation, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.9Minimum pension liability, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20.2
    
    
    
    20.2
    
    
    
    20.2Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    456.9Cash dividends:Common stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (299.9
    )
    
    
    
    
    
    
    (299.9
    )Tax benefit allocation (See Note 1N)
    
    
    
    
    
    
    
    
    
    
    15.4
    
    
    
    
    
    
    
    
    
    
    
    15.4Balance at December 31, 2003
    
    
    3
    
    
    $
    
    
    
    $
    1,408.2
    
    
    $
    1,081.8
    
    
    $
    88.1
    
    
    $
    2,578.1Comprehensive Income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    407.4
    
    
    
    
    
    
    
    407.4
    
    
    
    407.4Net unrealized gains on derivatives,
net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    16.0
    
    
    
    16.0
    
    
    
    16.0Total Comprehensive Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    423.4Cash dividends:Common stock
    
    
    
    
    
    
    
    

    
    
    
    
    
    
    (50.0
    )
    
    
    
    
    
    
    (50.0
    )Tax benefit allocation (See Note 1N)
    
    
    
    
    
    
    
    
    
    
    11.3
    
    
    
    
    
    
    
    
    
    
    
    11.3Balance at December 31, 2004
    
    
    3
    
    
    $
    
    
    
    $
    1,419.5
    
    
    $
    1,439.2
    
    
    $
    104.1
    
    
    $
    2,962.8
 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements. 22




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements 1. Nature of Operations and Summary of Significant Accounting Policies A. Principles of Consolidation.Columbia Energy Group (Columbia) is a wholly owned subsidiary of
NiSource Inc. (NiSource) and was acquired by NiSource on November 1, 2000. The consolidated
financial statements include the accounts of Columbia and its wholly-owned subsidiaries after the
elimination of all intercompany accounts and transactions. Investments for which at least a 20%
interest is owned, certain joint ventures and limited partnership interests of more than 3% are
accounted for under the equity method. Except where noted above and in the event where Columbia
has significant influence, investments with less than a 20% interest are accounted for under the
cost method. In the second quarter of 2004, a Columbia affiliate purchased an additional interest
in the Millennium Pipeline Project that temporarily raised the companys interest in the project
entities above the 50% threshold normally requiring consolidation. As of December 31, 2004,
Columbia did not consolidate the Millennium Pipeline Project entities because it plans to transfer
this additional interest to other sponsors in the first half of 2005. Certain amounts in 2003 and 2002 have been reclassified to conform to the current year
presentation. B. Cash, Cash Equivalents, and Restricted Cash.Columbia considers all investments with original
maturities of three months or less to be cash equivalents. Columbia reports amounts deposited in
brokerage accounts for margin requirements in the restricted cash balance sheet caption. In
addition, Columbia has amounts deposited in trust to satisfy requirements for the provision of
various property, liability, workers compensation, and long-term disability insurance, which is
classified as restricted cash and disclosed as an operating cash flow on the Statement of
Consolidated Cash Flows. Columbia subsidiaries may invest or borrow through the NiSource Money Pool. Columbia had $440.7
million and $56.2 million invested in the NiSource Money Pool at December 31, 2004 and 2003,
respectively. C. Investments in Debt and Equity Securities.Columbias investments in debt and marketable
securities are carried at fair value and are designated as available-for-sale. These investments
are included within Other investments on the Consolidated Balance Sheets. Unrealized gains
and losses, net of deferred income taxes, are reflected as accumulated other comprehensive income.
These investments are monitored for other than temporary declines in market value. Realized gains
and losses and permanent impairments are reflected in the Statements of Consolidated Income. At December 31, 2004 and December 31, 2003, respectively, approximately $36 million and $32 million
of investments were pledged as collateral for trust accounts related to Columbias wholly owned
insurance company. D. Basis of Accounting for Rate-Regulated Subsidiaries.Columbias rate-regulated subsidiaries
follow the accounting and reporting requirements of Statement of Financial Accounting Standards
(SFAS) No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS No. 71). SFAS No.
71 provides that rate-regulated subsidiaries account for and report assets and liabilities
consistent with the economic effect of the way in which regulators establish rates, if the rates
established are designed to recover the costs of providing the regulated service and it is probable
that such rates can be charged and collected. Certain expenses and credits subject to utility
regulation or rate determination normally reflected in income are deferred on the Consolidated
Balance Sheets and are recognized in income as the related amounts are included in service rates
and recovered from or refunded to customers. In the event that regulation significantly changes the opportunity for Columbia to recover its
costs in the future, all or a portion of Columbias regulated operations may no longer meet the
criteria for the application of SFAS No. 71. In such event, a write-down of all or a portion of
Columbias existing regulatory assets and liabilities could result. If transition cost recovery
was approved by the appropriate regulatory bodies that would meet the requirements under generally
accepted accounting principles for continued accounting as regulatory assets and liabilities during
such recovery period, the regulatory assets and liabilities would be reported at the recoverable
amounts. If unable to continue to apply the provisions of SFAS No. 71, Columbia would be required
to apply the provisions of SFAS No. 101, Regulated Enterprises  Accounting for the
Discontinuation of Application of Financial Accounting Standards Board (FASB) Statement No. 71.
In managements opinion, Columbias regulated subsidiaries will be subject to SFAS No. 71 for the
foreseeable future. 23




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Regulatory assets and liabilities were comprised of the following items: At December 31, (in millions)
    
    2004
    
    
    2003AssetsEnvironmental costs
    
    $
    2.3
    
    
    $
    7.3Postemployment and postretirement benefits costs
    
    
    105.6
    
    
    
    110.8Percent of income plan receivables
    
    
    43.1
    
    
    
    43.4Retirement income plan costs
    
    
    16.2
    
    
    
    22.4Regulatory effects of accounting for income taxes
    
    
    75.8
    
    
    
    79.6Post in-service carrying charges
    
    
    13.8
    
    
    
    14.1Underrecovered gas costs
    
    
    239.4
    
    
    
    163.7Uncollectible accounts receivable
    
    
    43.0
    
    
    
    36.7Depreciation expense
    
    
    131.7
    
    
    
    103.0Other
    
    
    10.6
    
    
    
    13.4Total Regulatory Assets
    
    $
    681.5
    
    
    $
    594.4LiabilitiesRate refunds and reserves
    
    $
    4.9
    
    
    $
    2.7Overrecovered gas costs
    
    
    1.6
    
    
    
    2.3Regulatory effects of accounting for income taxes
    
    
    21.8
    
    
    
    24.6Transition capacity cost
    
    
    71.2
    
    
    
    68.7Cost of
removal (see Note 15)
    
    
    294.0
    
    
    
    282.7Other
    
    
    1.4
    
    
    
    1.7Total Regulatory Liabilities
    
    $
    394.9
    
    
    $
    382.7
 Regulatory assets of approximately $533.2 million are not presently included in rate base and
consequently are not earning a return on investment. These regulatory assets are being recovered
as components of cost of service over a remaining life of up to 11 years. Regulatory assets of
approximately $148.2 million require specific rate action. Columbia reclassified its cost of
removal as of December 31, 2002 from accumulated depreciation to regulatory liabilities and other
removal costs on the Consolidated Balance Sheets and, upon adoption of SFAS No. 143 Accounting for
Asset Retirement Obligations (SFAS No. 143), recharacterized the liability as a regulatory
liability as of December 31, 2003. In Columbia Gas of Ohio, Inc.s (Columbia of Ohio) 1999 rate agreement, the Public Utilities
Commission of Ohio (PUCO) authorized Columbia of Ohio to revise its depreciation accrual rates for
the period January 1, 1999 through October 31, 2004. The revised depreciation rates are lower than
those which would have been utilized if Columbia of Ohio were not subject to regulation and,
accordingly, a regulatory asset has been established for the difference. The amount of
depreciation that would have been recorded for 2004 had Columbia of Ohio not been subject to rate
regulation is $36.4 million, a $20.5 million increase over the $15.9 million reflected in rates.
The amount of depreciation that would have been recorded for 2003 had Columbia of Ohio not been
subject to rate regulation is $36.6 million, a $22.1 million increase over the $14.5 million
reflected in rates. The balance of the regulatory asset was $131.7 million and $103.0 million as of
December 31, 2004 and 2003, respectively. E. Utility Plant and Other Property and Related Depreciation and Maintenance.Property, plant and
equipment (principally utility plant) are stated at cost. The rate-regulated subsidiaries record
depreciation using composite rates on a straight-line basis over the remaining service lives of the
electric, gas and common properties. For rate-regulated companies, an allowance for funds used during construction (AFUDC) is
capitalized on all classes of property except organization, land, autos, office equipment, tools
and other general property purchases. The allowance is applied to construction costs for that
period of time between the date of the expenditure and the date on which such project is completed
and placed in service, reducing gross interest expense during the respective construction period.
The pre-tax rate for AFUDC was 2.7% in 2004, 2.0% in 2003, and 2.8% in 2002. Short-term borrowings
were used to fund construction efforts for all three years presented. The short-term rates in 2004
increased as compared to short-term rates in 2003, while short-term interest rates declined in 2003
from 2002. 24




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Generally, Columbias subsidiaries follow the practice of charging maintenance and repairs,
including the cost of removal of minor items of property, to expense as incurred. When property
that represents a retired unit is replaced or removed, the cost of such property is credited to
utility plant, and such cost, net of salvage, is charged to the accumulated provision for
depreciation. Columbias subsidiaries provide for annual depreciation on a composite straight-line basis. The
average annual depreciation rates for the Gas Distribution Operations subsidiaries property were
2.5%, 2.6% and 2.7% in 2004, 2003, and 2002, respectively. The average annual depreciation rates
for the Gas Transmission and Storage Operations subsidiaries property were 2.4%, 2.3% and 2.3% in
2004, 2003, and 2002, respectively. F. Intangible Assets.Intangible assets are recorded at cost (i.e. estimated fair value) and are
amortized on a straight-line basis. At December 31, 2004 and 2003, Columbia had intangible assets
of $1.4 million and $0.9 million, respectively, which mainly reflected the additional minimum
liability associated with the unrecognized prior service cost of the pension plans pursuant to SFAS
No. 87, Employers Accounting for Pensions. G. Revenue Recognition.Columbias Gas Distribution Operations segment bills customers on a
monthly cycle billing basis. Revenues are recorded on the accrual basis and include estimates for
gas delivered. Cash received in advance from sales of commodities to be delivered in the future is
recorded as deferred revenue and recognized as income upon delivery of the commodities. Columbias Gas Transmission and Storage Operations segment revenues are recorded as services are
provided and are billed to customers on a monthly basis. Revenues are recorded on the accrual
basis and include estimates for services provided. H. Estimated Rate Refunds.Certain rate-regulated subsidiaries collect revenues subject to refund
pending final determination in rate proceedings. In connection with such revenues, estimated rate
refund liabilities are recorded which reflect managements current judgment of the ultimate
outcomes of the proceedings. No provisions are made when, in the opinion of management, the facts
and circumstances preclude a reasonable estimate of the outcome. I. Accounts Receivable Sales Program.Columbia enters into agreements with third parties to sell
certain accounts receivable without recourse. These sales are reflected as reductions of accounts
receivable in the accompanying Consolidated Balance Sheets and as operating cash flows in the
accompanying Statements of Consolidated Cash Flows. The costs of this program, which are based
upon the purchasers level of investment and borrowing costs, are charged to other income in the
accompanying statements of consolidated income. J. Use of Estimates.The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ from those
estimates. K. Gas Cost Adjustment Clause.Columbias Gas Distribution Operations subsidiaries defer most
differences between gas purchase costs and the recovery of such costs in revenues, and adjust
future billings for such deferrals on a basis consistent with applicable state-approved tariff
provisions. L. Gas Inventory.The Gas Distribution Operations subsidiaries gas inventory is carried at cost
on a last-in, first-out (LIFO) basis. The excess of replacement cost of gas inventory at December
31, 2004 and 2003, over the carrying value is approximately $327.6 million and $246.3 million,
respectively. Liquidation of LIFO layers related to gas delivered by the Gas Distribution
Operations subsidiaries does not affect income since the effect is passed through to customers as
part of purchased gas adjustment tariffs. 25




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ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) M. Accounting for Risk Management Activities.SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activity, as subsequently amended by SFAS No. 137, SFAS No. 138, and SFAS
No. 149 (collectively referred to as SFAS No. 133) establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities. SFAS No. 133 requires an
entity to recognize all derivatives as either assets or liabilities on the Consolidated Balance
Sheets at fair value, unless such contracts are exempted as normal under the provisions of the
standard. The accounting for changes in the fair value of a derivative depends on the intended use
of the derivative and resulting designation. Columbia uses a variety of derivative instruments (exchange traded futures & options, physical
forwards & options, financial commodity swaps, and interest rate swaps) to effectively manage its
commodity price risk and interest rate risk exposure. If certain conditions are met, a derivative
may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, or (b) a hedge of the exposure to
variable cash flows of a forecasted transaction. In order for a derivative contract to be
designated as a hedge, the relationship between the hedging instrument and the hedged item or
transaction must be highly effective. The effectiveness test is performed at the inception of the
hedge and each reporting period thereafter, throughout the period that the hedge is designated.
Any amounts determined to be ineffective are recognized currently in earnings. For the years ended
December 31, 2004, 2003 and 2002 the ineffectiveness on Columbias hedged instruments was
immaterial. Unrealized and realized gains and losses are recognized each period as components of other
comprehensive income, regulatory assets and liabilities or earnings depending on the nature of such
derivatives. For subsidiaries that utilize derivatives for cash flow hedges, the effective
portions of the gains and losses are recorded to other comprehensive income and are recognized in
earnings concurrent with the disposition of the hedged risks. If a forecasted transaction
corresponding to a cash flow hedge is not expected to occur, the accumulated gains or losses on the
derivative are recognized currently in earnings. For fair value hedges, the gains and losses are
recorded in earnings each period along with the change in the fair value of the hedged item. As a
result of the rate-making process, the rate-regulated subsidiaries generally record gains and
losses as regulatory liabilities or assets and recognize such gains or losses in earnings when both
the contracts settle and the physical commodity flows. These gains and losses recognized in
earnings are then subsequently recovered in revenues through rates. When gains and losses are
recognized in earnings, they are recognized in cost of sales for derivatives that correspond to
commodity risk activities and are recognized in interest expense for derivatives that correspond to
interest-rate risk activities. N. Income Taxes and Investment Tax Credits.Columbia and its subsidiaries record income taxes to
recognize full interperiod tax allocations. Under the liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial statement carrying amounts
and the tax basis of existing assets and liabilities. Previously recorded investment tax credits
of the regulated subsidiaries were deferred and are being amortized over the life of the related
properties to conform to regulatory policy. To the extent certain deferred income taxes of the regulated companies are recoverable or payable
through future rates, regulatory assets and liabilities have been established. Regulatory assets
for income taxes are primarily attributable to property related tax timing differences for which
deferred taxes had not been provided in the past, when regulators did not recognize such taxes as
costs in the rate-making process. Regulatory liabilities for income taxes are primarily
attributable to the regulated companies obligation to credit to ratepayers deferred income taxes
provided at rates higher than the current federal income tax rate currently being credited to
ratepayers using the average rate assumption method and unamortized deferred investment tax
credits. Columbia joins in the filing of consolidated federal and state income tax returns with its parent
company, NiSource, and certain of NiSources other affiliated companies. Columbia and its
subsidiaries are parties to a tax allocation agreement under which the consolidated tax is
allocated among the members of the group in proportion to each members relative contribution to
the groups consolidated tax liability. Additionally, NiSources tax benefits from its tax losses
are allocated to its subsidiaries and recognized as adjustments to equity. The amount of tax
benefits allocated to Columbia for the 2003 and 2002 tax years were $11.3 million and $15.4
million. These amounts were recorded in equity in the 2004 and 2003 periods, respectively. 26




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) O. Environmental Expenditures.Columbia accrues for costs associated with environmental
remediation obligations when the incurrence of such costs is probable and the amounts can be
reasonably estimated, regardless of when the expenditures are actually made. The undiscounted
estimated future expenditures are based on currently enacted laws and regulations, existing
technology and site-specific costs. The liability is adjusted as further information is discovered
or circumstances change. The reserves for estimated environmental expenditures are recorded on the
statement of financial position in Other Accruals for short-term portions of these liabilities
and Other Non-current Liabilities for the respective long-term portions of these liabilities.
Rate-regulated subsidiaries applying SFAS No. 71 establish regulatory assets on the Consolidated
Balance Sheets to the extent that future recovery of environmental remediation costs is probable
through the regulatory process. P. Affiliated Company Transactions.Columbia receives executive, financial, sales and marketing,
and administrative and general services from an affiliate, NiSource Corporate Services Company
(NCS), a wholly-owned subsidiary of NiSource. The costs of these services that are charged to
Columbia consist primarily of employee compensation and benefits and expenses incurred by NCS
employees for the benefit of Columbia. These costs totaled $163.3 million, $152.3 million and
$193.2 million for 2004, 2003 and 2002, respectively. Columbia recorded gas sales, transportation and storage revenues from affiliates of $11.4 million,
$9.3 million and $16.2 million and purchased natural gas from affiliated companies in the amount of
$0.2 million, $4.8 million and $3.4 million during 2004, 2003 and 2002, respectively. At December 31, 2004, Columbia had $440.7 million invested in the NiSource Money Pool. At December
31, 2003, Columbia had $56.2 million invested in the NiSource Money Pool. Columbia had notes receivable from NCS totaling $23.9 million at December 31, 2004 and 2003, of
which $21.7 million and $23.9 million was non-current at December 31, 2004 and December 31, 2003,
respectively. The interest is payable semi-annually and is based on rates ranging from 7.3% to 8.1
%. The maturities range from November 2005 to November 2025. Q. Excise Taxes.Columbia accounts for excise taxes that are customer liabilities by separately
stating on its invoices the tax to its customers and recording amounts invoiced as liabilities
payable to the applicable taxing jurisdiction. These types of taxes, comprised largely of sales
taxes collected, are presented on a net basis affecting neither revenues nor cost of sales.
Columbia accounts for other taxes for which it is liable by recording a liability for the expected
tax with a corresponding charge to Other Taxes expense. R. Amortization of Software Costs.External and internal costs associated with computer software
developed for internal use are capitalized. Capitalization of such costs commences upon the
completion of the preliminary stage of each project in accordance with Statement of Position (SOP)
98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Once
the installed software is ready for its intended use, such capitalized costs are amortized on a
straight-line basis over a period of five to ten years. Columbia amortized $12.1 million in 2004,
$9.7 million in 2003 and $9.2 million in 2002 related to software costs. S. Asset Retirement Obligations.Columbia accounts for retirement obligations on its assets in
accordance with SFAS No. 143. This accounting standard requires entities to record the fair value
of a liability for an asset retirement obligation in the period in which it is incurred. When the
liability is initially recorded, the entity capitalizes the cost, thereby increasing the carrying
amount of the related long-lived asset. Over time, the liability is accreted, and the capitalized
cost is depreciated over the useful life of the related asset. The rate-regulated subsidiaries
defer the difference between the amount recognized for depreciation and accretion and the amount
collected in rates as required pursuant to SFAS No. 71. Columbia adopted the provisions of SFAS No. 143 on January 1, 2003, and as a result an asset
retirement obligation liability of $49.2 million was recognized, of which $40.9 million was related
to assets sold in 2003. In addition, Columbia capitalized $19.3 million in additions to plant
assets, net of accumulated amortization, of which $10.9 million was related to assets sold in 2003.
The cumulative after-tax effect of adopting SFAS No. 143 amounted to $16.8 million. Certain costs
of removal that have been, and continue to be, included in depreciation rates and collected in the
service rates of the rate-regulated subsidiaries, did not meet the definition of an asset
retirement obligation pursuant to SFAS No. 143. The amount of the other costs of removal reflected
as a component of 27




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Columbias accumulated depreciation and amortization was $294.0 million and $282.7 million at
December 31, 2004 and 2003, respectively, based on rates for estimated removal costs embedded in
composite depreciation rates. Columbia reclassified its cost of removal as of December 31, 2002
from accumulated depreciation to regulatory liabilities and other removal costs on the Consolidated
Balance Sheets and upon adoption of SFAS No. 143 Accounting for Asset Retirement Obligations
recharacterized the liability as a regulatory liability as of December 31, 2003. For the twelve months ended December 31, 2004, and December 31, 2003, Columbia recognized accretion
expense of $0.2 million and $0.6 million, respectively. Accretion expense decreased in 2004 as
compared to 2003 due to certain assets becoming fully accreted and the sale of three Transmission
storage fields. The sale reduced the retirement obligations liability by approximately $2.8
million. The asset retirement obligations liability totaled $5.9 million and $8.4 million at
December 31, 2004, and December 31, 2003, respectively. 2. Recent Accounting Pronouncements SFAS No. 123 (revised 2004)  Share-Based Payment (SFAS No. 123R).In December 2004, the FASB
issued SFAS No. 123R which requires that the cost resulting from all share-based payment
transactions be recognized in the financial statements and establishes fair value as the
measurement objective in accounting for these transactions. This statement is effective for
public entities as of the beginning of the first interim or annual reporting period beginning after
June 15, 2005, using a modified version of the prospective application. Columbia anticipates that the adoption of this statement in the third quarter of 2005 will not have
a material impact to Columbias financial position or results of operations for 2005. FASB Staff Position (FSP) No. FAS 106-2  Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (FSP 106-2). (Supersedes FSP
106-1 Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003.)On December 8, 2003, the President of the United
States signed the Medicare Prescription Drug, Improvement and Modernization Act into law. The Act
introduces a prescription drug benefit under Medicare (Medicare Part D) as well as a federal
subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. SFAS 106, Employers Accounting for
Postretirement Benefits Other Than Pensions, requires presently enacted changes in relevant laws
to be considered in current period measurements of postretirement benefit costs and the Accumulated
Projected Benefit Obligation. FSP 106-2 is effective for the first interim or annual period
beginning after June 15, 2004. Columbia had previously elected to defer accounting for the effects
of this pronouncement, as allowed by FSP 106-1. On July 1, 2004, Columbia adopted the provisions
of FSP 106-2. The impact of accounting for the federal subsidy was not material to Columbias
financial position or results of operations. FASB Interpretation No. 46 (Revised December 2003)  Consolidation of Variable Interest Entities
(FIN 46R).On January 17, 2003, the FASB issued FIN 46R which required a variable interest entity
to be consolidated by a company if that company is subject to a majority of the risk of loss from
the variable interest entitys activities or is entitled to receive a majority of the entitys
residual returns. A company that consolidates a variable interest entity is called the primary
beneficiary of that entity. In general, a variable interest entity is a corporation, partnership,
trust, or any other legal structure used for business purposes that either (a) does not have equity
investors with voting rights, or (b) has equity investors that do not provide sufficient financial
resources for the entity to support its activities. FIN 46R also requires various disclosures
about variable interest entities that a company is not required to consolidate but in which it has
a significant variable interest. On December 18, 2003, the FASB deferred the implementation of FIN
46R to the first quarter of 2004. The adoption of FIN 46R on January 1, 2004 did not have an effect
on Columbias financial position or results of operations. 3. Restructuring Activities Since 2000, NiSource has implemented restructuring initiatives to streamline its operations and
realize efficiencies as a result of the acquisition of Columbia by NiSource. In 2000, these
restructuring initiatives included a severance program, a voluntary early retirement program, and a
transition plan to implement operational efficiencies throughout the company. In 2001, NiSources
restructuring initiatives focused on creating operating efficiencies in 28




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ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) the Gas Distribution Operations segment. During 2002, Columbia implemented a restructuring
initiative which resulted in employee terminations throughout the organization mainly affecting
executive and other management-level employees. In connection with these restructuring initiatives, a total of approximately 915 management,
professional, administrative and technical positions have been identified for elimination. As of
December 31, 2004, approximately 900 employees had been terminated, of whom approximately 3
employees were terminated during 2004. At December 31, 2004 and 2003, the Consolidated Balance
Sheets reflected liabilities of $14.1 million and $17.2 million related to the restructuring
initiatives, respectively. Of the remaining restructuring liability, $12.3 million was related to
facility exit costs. During 2004 and 2003, payments of $4.5 million and $13.8 million were made in
association with the restructuring initiatives, respectively. Additionally, during 2004, the
liability associated with the restructuring initiatives was increased by $1.4 million due to a
change in estimated expenses related to previous restructuring initiatives and an accrual for
vacant office space. The increase in the estimated liability was reflected in Operation and
Maintenance expense. 4. Discontinued Operations and Assets Held for Sale In May 2004, Columbia Gas Transmission Corporation (Columbia Transmission) identified certain
facilities as being non-core to the operation of the pipeline system. As a result, Columbia
Transmission is in the process of selling these facilities to third parties. Columbia has
accounted for the assets of these facilities, with a net book value of approximately $14.2 million,
as assets held for sale. During the third quarter of 2004, $1.1 million of these assets were sold
for a nominal amount. In the fourth quarter of 2004, Columbia Transmission signed a letter of
intent to sell an additional facility valued at $4.2 million, which was classified as an asset
held for sale. Columbia is also actively pursuing a buyer of certain assets formerly held by
Columbia Transmission Communications Corporation (Transcom) valued at $6.1 million. On September 30, 2003, Columbia sold Columbia Service Partners, Inc. (Columbia Service Partners)
for approximately $22.5 million. In 2003, Columbia recognized a pre-tax gain of $16.6 million
related to the sale. Columbia Service Partners had been reported as assets held for sale. On August 29, 2003, Columbia sold its exploration and production subsidiary, Columbia Energy
Resources, Inc. (CER), to a subsidiary of Triana Energy Holdings (Triana). Under the CER sales
agreement, Triana, an affiliate of Morgan Stanley Dean Witter Capital Partners IV, L.P. (MSCP),
purchased all of the stock of CER for $330 million, plus the assumption of obligations to deliver
approximately 94 billion cubic feet (Bcf) of natural gas pursuant to existing forward sales
contracts. The sale transferred 1.1 trillion cubic feet of natural gas reserves. Approximately
$220 million of after-tax cash proceeds from the sale were used to reduce NiSources debt. In
addition, a $213 million liability related to the forward sales contracts was removed from the
Consolidated Balance Sheets. On January 28, 2003, Columbias former subsidiary Columbia Natural
Resources, Inc. sold its interest in certain natural gas exploration and production assets in New
York for approximately $95 million. Columbia has accounted for CER as discontinued operations and
has adjusted all periods presented accordingly. During 2004, Columbia realized after-tax net
income due primarily to tax adjustments, while an after-tax loss of $46.4 million related to the
sale of CER was recorded in 2003. During 2002, Columbia decided to exit the telecommunications business. The results of operations
related to Transcom were displayed as discontinued operations on Columbias Statement of
Consolidated Income and its assets and liabilities were separately aggregated and reflected as
assets and liabilities of discontinued operations on the Consolidated Balance Sheets in 2002. On
September 15, 2003, Columbia sold 100% of its shares in Transcom. During 2003, Columbia recognized
an additional after-tax loss of $1.3 million related to the sale. 29




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Results from discontinued operations of CER (including the New York State properties,) and Transcom
are provided in the following table: Twelve
Months ended December 31, (in millions)
    
    2004
    
    
    2003
    
    
    2002Revenues from discontinued operations
    
    $
    
    
    
    $
    104.1
    
    
    $
    210.6Income (Loss) from discontinued operations
    
    
    (10.5
    )
    
    
    1.3
    
    
    
    55.1Income tax expense (benefit)
    
    
    (12.6
    )
    
    
    1.8
    
    
    
    21.6Net Income (Loss) from discontinued operations
    
    $
    2.1
    
    
    $
    (0.5
    )
    
    $
    33.5
 The assets of discontinued operations and assets held for sale were net property, plant, and
equipment of $23.4 million and $20.7 million at December 31, 2004 and December 31, 2003,
respectively. 5. Regulatory Matters Gas Distribution Operations Related Matters
Changes in gas industry regulation, which began in the mid-1980s at the federal level, have
broadened to retail customers at the state level. For many years, large industrial and commercial
customers have had the ability to purchase natural gas directly from marketers and to use Gas
Distribution Operations facilities for transportation services. Beginning in the mid-1990s, Gas
Distribution Operations has provided these CHOICE® programs for its retail customers.
Through the month of December 2004, approximately 656,000 of Gas Distribution Operations
residential and small commercial and industrial customers selected an alternate supplier. Gas Distribution Operations continues to offer CHOICE® opportunities through regulatory initiatives
in all of its jurisdictions. While CHOICE® programs generally provide all customer classes with
the opportunity to obtain gas supplies from alternative merchants, Gas Distribution Operations
expects to play a substantial role in supplying gas commodity services to its customers for the
foreseeable future. Customer participation in some of these programs can leave the Gas
Distribution Operations subsidiaries with pipeline capacity for which it has contracted but no
longer has a need. The state commissions in jurisdictions served by Gas Distribution Operations
are at various stages in addressing methods for recovering the cost of such capacity. Gas
Distribution Operations is currently recovering, or has the opportunity to recover, the costs
resulting from the unbundling of its services and believes that most of such future costs will be
mitigated or recovered. Methodologies for mitigating or recovering these costs include the use of
assets available from previous funding mechanisms, incentive sharing mechanisms, reducing levels of
reserved pipeline capacity and mandatory assignment of pipeline capacity to alternative suppliers. Through October 2004, Columbia of Ohios rates were established by regulatory stipulation approved
by the PUCO. On October 9, 2003, Columbia of Ohio and other parties filed with the PUCO an amended
stipulation that would govern Columbia of Ohios regulatory framework from November 2004 through
October 2010. Most of Columbia of Ohios volumetric capacity under contracts with interstate
pipelines expired on October 31, 2004, and the amended stipulation would have provided Columbia of
Ohio with guaranteed recovery of the costs of renewing those contracts for firm capacity sufficient
to meet up to 100% of the design peak day requirements through October 31, 2005 and up to 95% of
the design peak day requirements through October 31, 2010. Among other things, the amended
stipulation would also have: (1) extended Columbia of Ohios CHOICE® program from November 1, 2004
through October 2010; (2) provided Columbia of Ohio with an opportunity to generate revenues
sufficient to cover the stranded costs associated with the CHOICE® program; and (3) allowed
Columbia of Ohio to record post-in-service carrying charges on plant placed into service after
October 2004, and to defer the property taxes and depreciation associated with such plant. On March 11, 2004, the PUCO issued an order that adopted and modified the stipulation. The order
extended Columbia of Ohios CHOICE® program through December 31, 2007 and declined to pre-approve
the amount of
firm interstate pipeline capacity for which Columbia of Ohio could contract and receive assurance
of cost recovery. In addition, the PUCO made other modifications which would limit Columbia of
Ohios ability to generate revenues sufficient to cover stranded costs, including declining to
mandate that natural gas marketers participating in the CHOICE® program obtain 75% of their
interstate capacity directly from Columbia of Ohio and changing the amount of revenues generated
through off-system sales or capacity release transactions. The order allowed 30




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Columbia of Ohio to
record post-in-service carrying charges on plant placed in service between October 2004 and
December 31, 2007, and allowed the deferral of property taxes and depreciation associated with such
plant for that same time frame. On April 9, 2004, Columbia of Ohio and other signatory parties to the stipulation (Joint
Petitioners), consistent with standard regulatory process, petitioned the PUCO for rehearing on the
components which were modified in the March 11 order. That same day the Office of the Ohio
Consumers Counsel (OCC) also filed an application for rehearing, and argued that the PUCO should
not have permitted Columbia of Ohio to record post-in-service carrying charges on plant placed into
service after October 2004, and to defer the property taxes and depreciation associated with such
plant. On April 19, 2004, the OCC filed a motion to dismiss the application for rehearing filed by
Columbia of Ohio and other parties. On May 5, 2004, the PUCO issued an order on rehearing, in which it denied the OCCs motion to
dismiss and its application for rehearing. The PUCO granted part of the joint application filed by
Columbia of Ohio and others. The PUCO modified its previous orders. Specifically, it (1) revised
the term of the stipulation so that it extends through October 31, 2008; (2) restored the mandate
that natural gas marketers participating in the CHOICE® program obtain 75% of their interstate
pipeline capacity directly from Columbia of Ohio; and (3) revised the mechanism applicable to
Columbia of Ohios sharing of off-system sales and capacity release revenue. Under the revised
off-system sales/capacity release revenue sharing mechanism, Columbia of Ohio will begin sharing
such revenue with the customers after the annual revenue exceeds $25 million, instead of $35
million as originally proposed in the stipulation. This order further provided for Columbia of
Ohio to retain a portion of net revenues provided through regulatory strategies and to record
post-in-service carrying charges on plant placed in service between October 2004 and October 2008,
and allowed the deferral of property taxes and depreciation associated with such plant for that
same time frame. Columbia of Ohio and the other signatory parties to the stipulation accepted the PUCOs
modifications. Nevertheless, on May 14, 2004, the OCC filed a Second Application for Rehearing.
Therein, the OCC argued that the Joint Petitioners did not meet the statutory requirements for an
application for rehearing, and thus the PUCOs rehearing order was unlawful. The OCC also argued
that the rehearing order was void as it resulted from settlement negotiations from which the OCC
was excluded. The OCC also continued to challenge the PUCOs treatment of off-system sales and
capacity release revenues, and post-in-service carrying charges and related deferrals. On June 3, 2004, Columbia of Ohio filed its proposed tariffs and accounting. On June 9, 2004, the
PUCO denied the OCCs Second Application for Rehearing. On July 29, 2004, the OCC filed an appeal
with the Supreme Court of Ohio, contesting the PUCOs May 5, 2004 order on rehearing, which granted
in part Columbia of Ohios joint application for rehearing, and the PUCOs June 9, 2004 order,
denying the OCCs Second Application for Rehearing. Columbia of Ohio intervened in the appellate
proceeding. The briefing process has been completed and the parties are waiting for the Supreme
Court of Ohio to schedule oral arguments. On December 17, 2003, the PUCO approved an application by Columbia of Ohio and other Ohio local
distribution companies (LDCs) to establish a tracking mechanism that will provide for recovery of
current bad debt expense and for the recovery over a five-year period of previously deferred
uncollected accounts receivable. On October 1, 2004, Columbia of Ohio filed an application for
approval to increase its Uncollectible Expense Rider and on October 20, 2004, the PUCO approved the
application. The PUCOs approval of this application resulted in Columbia of Ohios commencing
recovery of the deferred uncollectible accounts receivables and establishment of future bad-debt
recovery requirements in November 2004. As of December 31, 2004, Columbia of Ohio has $43 million
of uncollected accounts receivable pending future recovery. On December 2, 2004, Columbia of Ohio filed two applications with the Ohio Power Siting Board,
requesting certificates of environmental compatibility and public need for the construction of the
Northern Columbus Loop Natural Gas Pipeline project. The project is proposed in three phases
(Phases IV, V and VI), and contemplates an
approximately 25-mile long pipeline, to be constructed in northern Columbus and southern Delaware
County. The project will help secure current and future natural gas supplies for Columbia of Ohios
customers in the region. Columbia of Ohio also filed requests for waivers from certain of the
Boards requirements. The waivers were approved on February 4, 2005. The application is currently
pending, awaiting further Board action. 31




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) On September 10, 2004, the Pennsylvania Public Utility Commission approved a settlement agreement
among Columbia Gas of Pennsylvania, Inc. (Columbia of Pennsylvania), The Office of Consumer
Advocate, The Office of Small Business Advocate, The Office of Trial Staff, and Commercial &
Industrial Intervenors in Columbia of Pennsylvanias annual gas cost recovery proceeding. Under
the Settlement Agreement, the signatory parties agreed to financial incentive mechanisms for
off-system sales and capacity release transactions performed by Columbia of Pennsylvania. Under
the incentive mechanism, customers receive 100% of the total combined proceeds from off-system
sales and capacity release transactions up to a benchmark of $6 million. After the benchmark is
reached, Columbia of Pennsylvania will retain 50% of proceeds from the transactions; however,
Columbia of Pennsylvania may never retain more than 40% of the actual net proceeds generated from
off-system sales and capacity release transactions. The incentive mechanism began October 1, 2004
and ends on September 30, 2006. All of the Columbia distribution companies hold long-term contracts for pipeline and storage
services with its affiliate pipelines, Columbia Transmission and Columbia Gulf Transmission Company
(Columbia Gulf), and a majority of those contracts expired on October 31, 2004. The Columbia
distribution companies are comprised of Columbia Gas of Kentucky, Inc. (Columbia of Kentucky),
Columbia Gas of Maryland, Inc., Columbia of Ohio, Columbia of Pennsylvania, and Columbia Gas of
Virginia, Inc. (Columbia of Virginia). Several distribution companies discussed their plan to
renew pipeline and storage contracts with industry stakeholders to ensure the continued ability to
serve the requirements of firm customers in a tightening capacity market. All contract
negotiations between the distribution companies and Columbia Transmission and Columbia Gulf were
resolved prior to the contracts expiring. In addition, certain contracts were subject to the
approval of the respective state regulatory agencies. On April 29, 2004, the Pennsylvania Public
Utility Commission approved a request by Columbia of Pennsylvania to renew its pipeline and storage
contracts with Columbia Transmission and Columbia Gulf. Pursuant to this approval, Columbia of
Pennsylvanias storage contracts and approximately half of its pipeline contracts will be renewed
for terms of fifteen years, while the remaining pipeline contracts will be renewed on a tiered
basis for terms ranging from five to ten years. Columbia of Pennsylvania will also acquire
additional capacity to meet customer requirements on peak days. In addition, on August 3, 2004,
the Virginia State Corporation Commission approved a request by Columbia of Virginia to renew its
pipeline and storage contracts with Columbia Transmission and Columbia Gulf. Pursuant to this
approval, Columbia of Virginias storage and pipeline contracts with Columbia Transmission and
Columbia Gulf will be renewed for terms of fifteen years. Gas Transmission and Storage Operations Related Matters
On February 11, 2004, the FERC issued an order regarding the annual Electric Power Cost Adjustment
(EPCA) filing, which upheld Columbia Transmissions ability to fully recover its electric costs,
but required Columbia Transmission to implement a separate EPCA rate to recover from specific
customers the electric power costs incurred by a newly expanded electric-powered compressor
station. The order also limits Columbia Transmissions ability to prospectively discount its EPCA
rates. On December 22, 2004, the FERC issued an order affirming Columbia Transmissions right to
recover its actual electric costs and removed the obligation to make a separate filing to recover
these costs from specific customers. The FERC permitted Columbia Transmission to revisit the
method for recovering the costs in a new filing. Management does not believe this order will have
a material financial impact. On April 14, 2004 the FERC issued an order accepting Columbia Transmissions Retainage Adjustment
Mechanism (RAM) filing and approving the full recovery of gas required in system operations. The
FERC will permit parties to pursue certain issues raised in the 2003 filing in connection with
consideration of Columbia Transmissions 2004 RAM filing, which became effective April 1, 2004, and
is currently pending. 6. Risk Management Activities Columbia uses derivative financial instruments to manage certain risks in its business including
commodity price risk. Columbia accounts for its derivatives under SFAS No. 133, as amended. Refer
to Note 1-M, Accounting for Risk Management Activities, in the Notes to Consolidated Financial
Statements for additional information. 32




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Hedging Activities.Many of the risk management programs in use by Columbias operating companies
qualify for hedge accounting. The cash flow hedge activity affecting other comprehensive income
for the years 2004 and 2003 was as follows: (in millions, net of tax)
    
    2004
    
    
    2003Net unrealized gains on derivatives qualifying as cash
flow hedges at the beginning of the period
    
    $
    87.7
    
    
    $
    65.0Unrealized hedging gains arising during the period on
derivatives qualifying as cash flow hedges
    
    
    44.7
    
    
    
    17.9Reclassification adjustment for net loss (gain) included in net income
    
    
    (28.7
    )
    
    
    4.8Net unrealized gains on derivatives qualifying as cash flow hedges
at the end of the period
    
    $
    103.7
    
    
    $
    87.7
 Unrealized gains and losses on Columbias hedges were recorded as price risk management assets and
liabilities. The accompanying Consolidated Balance Sheets include price risk management assets
related to unrealized gains and losses on hedges of $159.6 million and $145.7 million at December
31, 2004 and 2003, respectively, of which $45.7 million and $35.2 million were included in Current
Assets and $113.9 million and $110.5 million were included in Other Assets. During 2004 and 2003, no amounts were recognized in earnings due to the change in value of certain
derivative instruments primarily representing time value. Additionally, all derivatives classified
as a hedge are assessed for hedge effectiveness, with any components determined to be ineffective
charged to earnings or classified as a regulatory asset or liability per SFAS No. 71 as
appropriate. During 2004 and 2003, Columbia reclassified no amounts related to its cash flow
hedges from other comprehensive income to earnings, due to the probability that certain forecasted
transactions would not occur. It is anticipated that during the next twelve months the expiration
and settlement of cash flow hedge contracts will result in income recognition of amounts currently
classified in other comprehensive income of approximately $29.7 million, net of tax. Commodity Price Risk Programs.For regulatory incentive purposes, Columbia Gas of Kentucky,
Columbia of Ohio, and Columbia of Pennsylvania, (collectively, the Columbia LDCs) enter into
contracts that allow counterparties the option to sell gas to Columbia LDCs at first of the month
prices for a particular month of delivery. Columbia LDCs charge the counterparties a fee for this
option. The changes in the fair value of the options are primarily due to the changing
expectations of the future intra-month volatility of gas prices. Columbia LDCs defer a portion of
the change in the fair value of the options as either a regulatory asset or liability in accordance
with SFAS No. 71, Accounting for the Effects of Certain Types of Regulation. The remaining
change is recognized currently in earnings. The Consolidated Balance Sheets reflected $4.6 million
and $3.3 million of price risk management liabilities associated with the programs at December 31,
2004 and December 31, 2003, respectively. Columbia of Pennsylvania uses New York Mercantile Exchange (NYMEX) derivative contracts to minimize
risk associated with gas price volatility. This derivative hedging program must be marked to fair
value, but because these derivatives are used within the framework of its gas cost recovery
mechanism, regulatory assets or liabilities are recorded to offset the change in the fair value of
these derivatives. The Consolidated Balance Sheets reflected $0.3 million and zero of price risk
management liabilities associated with these programs at December 31, 2004 and December 31, 2003,
respectively. Columbia Energy Services Corporation (Columbia Energy Services) has fixed price gas delivery
commitments to three municipalities in the United States. Columbia Energy Services entered into a
forward purchase agreement with a gas supplier, wherein the supplier will fulfill the delivery
obligation requirements at a slight premium to index. In order to hedge this anticipated future
purchase of gas from the gas supplier, Columbia Energy Services entered into commodity swaps priced
at the locations designated for physical delivery. These swaps are designated as cash flow hedges
of the anticipated purchases. 33




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Interest Rate Risk Activities.On May 12, 2004, Columbia terminated all remaining
fixed-to-variable interest rate swap agreements. Columbia received an aggregate settlement payment of
$1.8 million, which is being amortized as a reduction to interest expense over the remaining term
of the underlying debt. On April 11, 2003, Columbia entered into fixed-to-variable interest rate swap agreements in a
notional amount of $100 million with two counterparties. Columbia received payments based upon a
fixed 7.42% interest rate and paid a floating interest amount based on U.S. 6-month BBA LIBOR plus
an average of 2.39% per annum. There was no exchange of premium at the initial date of the swaps.
These interest rate swap agreements were terminated on May 12, 2004. On April 4, 2003, Columbia terminated a fixed-to-variable interest rate swap agreement containing a
notional amount of $100 million. Columbia received a settlement payment from the counterparty
amounting to $8.2 million, which will be amortized as a reduction to interest expense over the
remaining term of the underlying debt. On September 3, 2002, Columbia entered into new fixed-to-variable interest rate swap agreements
totaling $281.5 million with three counterparties effective as of September 5, 2002. Under the
agreements, Columbia received payments based upon a fixed 7.32% interest rate and paid a floating
interest amount based on U.S. 6-month BBA LIBOR plus 2.66% per annum. There was no exchange of
premium at inception of the swaps. These interest rate swap agreements were terminated on May 12,
2004. 7. Equity Investment Subsidiaries Certain investments of Columbia are accounted for under the equity method of accounting. Income
and losses are reflected in net income on Columbias Statements of Consolidated Income. All
investments shown as limited partnerships are limited partnership interests. In the second quarter of 2004, a Columbia affiliate purchased an additional interest in the
Millennium Pipeline Project that temporarily raised the companys interest in the project entities
above the 50% threshold normally requiring consolidation. As of December 31, 2004, Columbia did
not consolidate the Millennium Pipeline Project entities because it plans to transfer this
additional interest to other sponsors in the first half of 2005. The following is a list of Columbias equity investments at December 31, 2004. % of VotingPower orInvestee
    
    Type of Investment
    
    
    Interest HeldMillennium Pipeline Company, L.P.
    
    Limited Partnership
    
    
    68.5Millennium Pipeline Management Company, L.L.C.
    
    LLC Membership
    
    
    68.5
 34




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##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) 8. Income Taxes The components of income tax expense were as follows: Year
Ended December 31, (in millions)
    
    2004
    
    
    2003
    
    
    2002Income TaxesCurrentFederal
    
    $
    118.6
    
    
    $
    115.5
    
    
    $
    136.1State
    
    
    11.5
    
    
    
    16.6
    
    
    
    1.5Total Current
    
    
    130.1
    
    
    
    132.1
    
    
    
    137.6DeferredFederal
    
    
    101.5
    
    
    
    109.4
    
    
    
    70.4State
    
    
    9.8
    
    
    
    9.6
    
    
    
    22.5Total Deferred
    
    
    111.3
    
    
    
    119.0
    
    
    
    92.9Deferred Investment Credits
    
    
    (1.4
    )
    
    
    (1.4
    )
    
    
    (1.4
    )Income Taxes From Continuing Operations
    
    $
    240.0
    
    
    $
    249.7
    
    
    $
    229.1
 Total income taxes from continuing operations were different from the amount that would be computed
by applying the statutory Federal income tax rate to book income before income tax. The major
reasons for this difference were as follows: Year Ended December 31, (in millions)
    
    2004
    
    
    2003
    
    
    2002Book income
from Continuing Operations before income taxes
    
    $
    643.7
    
    
    
    
    
    
    $
    727.8
    
    
    
    
    
    
    $
    662.3Tax expense at statutory Federal income tax rate
    
    
    225.3
    
    
    
    35.0
    %
    
    
    254.7
    
    
    
    35.0
    %
    
    
    231.8
    
    
    
    35.0
    %Increases (reductions) in taxes resulting from:State income taxes, net of Federal income tax benefit
    
    
    13.8
    
    
    
    2.1
    
    
    
    17.0
    
    
    
    2.3
    
    
    
    15.6
    
    
    
    2.4Estimated non-deductible expenses
    
    
    1.6
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    1.1
    
    
    
    0.2Prior year tax adjustments
    
    
    0.3
    
    
    
    
    
    
    
    (19.9
    )
    
    
    (2.7
    )
    
    
    (16.1
    )
    
    
    (2.4
    )Other, net
    
    
    (1.0
    )
    
    
    
    
    
    
    (2.1
    )
    
    
    (0.3
    )
    
    
    (3.3
    )
    
    
    0.6Income Taxes from Continuing Operations
    
    $
    240.0
    
    
    
    37.3
    %
    
    $
    249.7
    
    
    
    34.3
    %
    
    $
    229.1
    
    
    
    34.6
    %
 35




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Deferred income taxes resulted from temporary differences between the financial statement carrying
amounts and the tax basis of existing assets and liabilities. The principal components of
Columbias net deferred tax liability were as follows: At December 31, (in millions)
    
    2004
    
    
    2003Deferred tax liabilitiesAccelerated depreciation and other property differences
    
    $
    817.5
    
    
    $
    743.1Unrecovered gas costs
    
    
    82.3
    
    
    
    36.0Other regulatory assets
    
    
    198.8
    
    
    
    179.4SFAS No. 133 and price risk adjustments
    
    
    56.0
    
    
    
    47.2Total Deferred Tax Liabilities
    
    
    1,154.6
    
    
    
    1,005.7Deferred tax assetsDeferred investment tax credits and other regulatory liabilities
    
    
    (139.1
    )
    
    
    (118.0
    )Pension and other postretirement/postemployment benefits
    
    
    (42.8
    )
    
    
    (38.6
    )Environmental liabilities
    
    
    (16.1
    )
    
    
    (18.2
    )Other accrued liabilities
    
    
    (29.5
    )
    
    
    (16.9
    )Other, net
    
    
    (7.5
    )
    
    
    (1.3
    )Total Deferred Tax Assets
    
    
    (235.0
    )
    
    
    (193.0
    )Less: Deferred income taxes related to current assets and liabilities
    
    
    104.7
    
    
    
    72.1Non-Current Deferred Tax Liability
    
    $
    814.9
    
    
    $
    740.6
 Other, net includes state income tax loss benefits of $6.8 million and $7.9 million for 2004 and
2003, respectively. These tax loss carry forward benefits expire after 2009. 9. Pension and Other Postretirement Benefits Columbia provides defined contribution plans and noncontributory defined benefit retirement plans
that cover its employees. Benefits under the defined benefit retirement plans reflect the
employees compensation, years of service and age at retirement. Additionally, Columbia provides
health care and life insurance benefits for certain retired employees. The majority of employees
may become eligible for these benefits if they reach retirement age while working for Columbia.
The expected cost of such benefits is accrued during the employees years of service. Current
rates of rate-regulated companies include postretirement benefit costs on an accrual basis,
including amortization of the regulatory assets that arose prior to inclusion of these costs in
rates. For most plans, cash contributions are remitted to grantor trusts. Columbia uses September
30 as its measurement date for its pension and postretirement benefit plans. 36




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Columbia employs a total return investment approach whereby a mix of equities and fixed income
investments are used to maximize the long-term return of plan assets for a prudent level of risk.
Risk tolerance is established through careful consideration of plan liabilities, plan funded
status, and asset class volatility. The investment portfolio contains a diversified blend of
equity and fixed income investments. Furthermore, equity investments are diversified across U.S.
and non-U.S. stocks, as well as growth, value, small and large capitalizations. Other assets such
as private equity and hedge funds are used judiciously to enhance long-term returns while improving
portfolio diversification. Derivatives may be used to gain market exposure in an efficient and
timely manner; however, derivatives may not be used to leverage the portfolio beyond the market
value of the underlying assets. Investment risk is measured and monitored on an ongoing basis
through quarterly investment portfolio reviews, annual liability measurements, and periodic
asset/liability studies. The most important component of an investment strategy is the portfolio asset mix, or the
allocation between the various classes of securities available to the pension plan for investment
purposes. The asset mix and acceptable minimum and maximum ranges established represents a
long-term view and are as follows: Asset Mix Policy of Total Fund: Asset Category
    
    Minimum

    

   MaximumDomestic Equities
    
    
    40
    %
    
    
    60
    %International Equities
    
    
    10
    %
    
    
    20
    %Fixed Income
    
    
    15
    %
    
    
    45
    %Real Estate/Alternative Investments
    
    
    0
    %
    
    
    10
    %Short-Term Investments
    
    
    0
    %
    
    
    10
    %
 Pension Plan and Postretirement Plan Asset Mix at September 30, 2004: Defined Benefit
    
    
    
    
    
    
    Post Retirement(in
millions)
    
    Pension Assets
    
    
    9/30/2004
    
    
    Welfare Plan Assets
    
    
    9/30/2004Asset Class
    
    Asset Value
    
    
    % of Total Assets
    
    
    Asset Value
    
    
    % of Total AssetsDomestic Equities
    
    $
    381.0
    
    
    
    49.3
    %
    
    $
    95.9
    
    
    
    54.8
    %International Equities
    
    
    126.0
    
    
    
    16.3
    %
    
    
    32.6
    
    
    
    18.6
    %Fixed Income
    
    
    221.0
    
    
    
    28.6
    %
    
    
    45.5
    
    
    
    26.0
    %Real
Estate/Alternative
Investments
    
    
    37.9
    
    
    
    4.9
    %
    
    
    
    
    
    
    0.0
    %Short-Term Investments
    
    
    7.0
    
    
    
    0.9
    %
    
    
    1.0
    
    
    
    0.6
    %Total
    
    $
    772.9
    
    
    
    100.0
    %
    
    $
    175.0
    
    
    
    100.0
    %
 Columbia employs a building block approach with proper consideration of diversification and
rebalancing in determining the long-term rate of return for plan assets. Historical markets are
studied and long-term historical relationships between equities and fixed income are analyzed to
ensure that they are consistent with the widely accepted capital market principle that assets with
higher volatility generate greater return over the long run. Current market factors such as
inflation and interest rates are evaluated before long-term capital market assumptions are
determined. Peer data and historical returns are reviewed to check for reasonability and
appropriateness. Columbia pension fund assets earned a return of 12.8% for the plan year ended September 30, 2004
and 22.0% for the plan year ended September 30, 2003. However, the discount rate used to measure
the accumulated benefit
obligation has decreased over the past two years, which slightly offset the fair-value increase in
the pension assets. In accordance with SFAS No. 87, Columbia adjusted its minimum pension
liability at December 31, 2004 and 2003. The adjustment for 2004 was not material. The 2003
adjustment resulted in a decrease to the retirement benefit liabilities of $34.3 million, a
decrease in intangible assets of $2.0 million, a decrease to deferred income tax assets of $12.1
million and an increase to other comprehensive income of $20.2 million after-tax. Columbia expects
pension expense for 2005 to decrease approximately $2.8 million and other post-retirement benefits
expense to remain approximately the same from the amounts recognized in 2004. In addition,
Columbia expects to make contributions of $0.6 million to its pension plans and $28.7 million to
its postretirement medical and life plans in 2005. 37




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) The following tables provide a reconciliation of the plans funded status and amounts reflected in
Columbias Consolidated Balance Sheets at December 31 based on a September 30 measurement date: Pension Benefits
    
    
    Other Benefits(in millions)
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Change in benefit obligationBenefit obligation at beginning of year
    
    $
    833.4
    
    
    $
    769.9
    
    
    $
    345.1
    
    
    $
    288.6Service cost
    
    
    19.3
    
    
    
    17.0
    
    
    
    4.3
    
    
    
    3.7Interest cost
    
    
    49.9
    
    
    
    51.4
    
    
    
    20.4
    
    
    
    19.5Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    Plan amendments
    
    
    (0.3
    )
    
    
    6.6
    
    
    
    
    
    
    
    11.0Actuarial loss
    
    
    28.4
    
    
    
    56.6
    
    
    
    24.5
    
    
    
    42.7Benefits paid
    
    
    (67.7
    )
    
    
    (68.1
    )
    
    
    (22.9
    )
    
    
    (20.3
    )Benefit obligation at end of year
    
    $
    863.0
    
    
    $
    833.4
    
    
    $
    372.4
    
    
    $
    345.2Change in plan assetsFair value of plan assets at beginning of year
    
    $
    736.1
    
    
    $
    668.3
    
    
    $
    152.4
    
    
    $
    121.3Actual return (loss) on plan assets
    
    
    89.5
    
    
    
    135.7
    
    
    
    19.0
    
    
    
    26.3Employer contributions
    
    
    15.0
    
    
    
    0.2
    
    
    
    25.5
    
    
    
    25.1Plan participants contributions
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    Benefits paid
    
    
    (67.7
    )
    
    
    (68.1
    )
    
    
    (22.9
    )
    
    
    (20.3
    )Fair value of plan assets at end of year
    
    $
    772.9
    
    
    $
    736.1
    
    
    $
    175.0
    
    
    $
    152.4Funded status
    
    $
    (90.1
    )
    
    $
    (97.3
    )
    
    $
    (197.4
    )
    
    $
    (192.8
    )Contributions made after measurement
date and before fiscal year end
    
    
    
    
    
    
    0.1
    
    
    
    6.5
    
    
    
    6.3Unrecognized actuarial loss
    
    
    101.0
    
    
    
    100.2
    
    
    
    76.6
    
    
    
    60.0Unrecognized prior service cost
    
    
    9.4
    
    
    
    10.6
    
    
    
    9.7
    
    
    
    10.1Net amount recognized at end of year
    
    $
    20.3
    
    
    $
    13.6
    
    
    $
    (104.6
    )
    
    $
    (116.4
    )Amounts recognized in the statement of
financial position consist of:Prepaid benefit liability
    
    $
    22.7
    
    
    $
    15.7Accrued benefit liability
    
    
    (3.6
    )
    
    
    Intangible asset
    
    
    1.2
    
    
    
    0.3Net amount recognized at end of year
    
    $
    20.3
    
    
    $
    16.0Other comprehensive loss attributable to
change in additional minimum liability
recognition
    
    $
    
    
    
    $
    (35.4
    )
 (in millions)
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003Weighted-average assumptions as of
September 30,Discount rate assumption
    
    
    6.00
    %
    
    
    6.25
    %
    
    
    6.00
    %
    
    
    6.25
    %Compensation growth rate assumption
    
    
    4.0
    %
    
    
    4.0
    %
    
    
    
    
    
    
    Medical cost trend assumption
    
    
    
    
    
    
    
    
    
    
    5.0
    %
    
    
    5.0
    %Assets earnings rate assumption
    
    
    9.0
    %
    
    
    9.0
    %
    
    
    7.0
    %
    
    
    9.0
    %
 38




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) The following table provides benefits expected to be paid in each of the next five fiscal years,
and in the aggregate for the five fiscal years thereafter. The expected benefits are estimated
based on the same assumptions used to measure the companys benefit obligation at the end of the
year and includes benefits attributable to the estimated future service of employees. Other
    
    
    FederalPension
    
    
    Post-retirement
    
    
    Subsidy(in millions)
    
    Benefits
    
    
    Benefits
    
    
    (Receipts)Year(s)2005
    
    $
    67.1
    
    
    $
    29.2
    
    
    $
    (0.4
    )2006
    
    
    69.7
    
    
    
    31.0
    
    
    
    (0.5
    )2007
    
    
    70.7
    
    
    
    32.2
    
    
    
    (0.6
    )2008
    
    
    73.6
    
    
    
    33.1
    
    
    
    (0.8
    )2009
    
    
    73.3
    
    
    
    33.7
    
    
    
    (0.9
    )2010-2014
    
    
    414.0
    
    
    
    164.1
    
    
    
    (7.2
    )
 The following table provides the components of the plans net periodic benefits cost (benefit) for
each of the three years: Pension Benefits
    
    
    Other Benefits(in millions)
    
    2004
    
    
    2003
    
    
    2002
    
    
    2004
    
    
    2003
    
    
    2002Net periodic costService cost
    
    $
    19.3
    
    
    $
    17.1
    
    
    $
    20.4
    
    
    $
    4.3
    
    
    $
    3.7
    
    
    $
    8.1Interest cost
    
    
    49.9
    
    
    
    51.4
    
    
    
    50.0
    
    
    
    20.4
    
    
    
    19.5
    
    
    
    17.4Expected return on assets
    
    
    (63.1
    )
    
    
    (56.9
    )
    
    
    (69.7
    )
    
    
    (12.6
    )
    
    
    (8.8
    )
    
    
    (8.5
    )Amortization of transitional obligation
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    1.0
    
    
    
    0.5
    
    
    
    1.2
    
    
    
    0.4
    
    
    
    (0.3
    )
    
    
    1.3Recognized actuarial (gain) loss
    
    
    1.2
    
    
    
    3.3
    
    
    
    (0.3
    )
    
    
    1.5
    
    
    
    0.7
    
    
    
    (0.7
    )Settlement gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Curtailment gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net Periodic Benefits Cost
    
    $
    8.3
    
    
    $
    15.4
    
    
    $
    2.5
    
    
    $
    14.0
    
    
    $
    14.8
    
    
    $
    17.6
 Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one-percentage-point change in assumed health care cost trend rates would
have the following effects: 1% point
    
    
    1% point(in millions)
    
    increase
    
    
    decreaseEffect on service and interest components of net periodic cost
    
    $
    2.3
    
    
    $
    (2.1
    )Effect on accumulated postretirement benefit obligation
    
    
    19.4
    
    
    
    (18.3
    )
 10. Common Stock Equity All of Columbias common equity shares are beneficially held by NiSource. 39




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) 11. Long-Term Debt The long-term debt (exclusive of current maturities) of Columbia and its subsidiaries is as
follows: At December 31, (in millions)
    
    2004
    
    
    2003Columbia Energy Group Debentures6.80% Series C due November 28, 2005
    
    $
    
    
    
    $
    281.57.05% Series D due November 28, 2007
    
    
    281.5
    
    
    
    281.57.32% Series E due November 28, 2010
    
    
    281.5
    
    
    
    281.57.42% Series F due November 28, 2015
    
    
    281.5
    
    
    
    281.57.62% Series G due November 28, 2025
    
    
    229.2
    
    
    
    229.2Fair value adjustment of debentures for interest rate swap agreements
    
    
    
    
    
    
    11.2Total Debentures
    
    
    1,073.7
    
    
    
    1,366.4Subsidiary debtCapital lease obligations
    
    
    2.2
    
    
    
    1.7Total Long-Term Debt
    
    $
    1,075.9
    
    
    $
    1,368.1
 In May 2004, Columbia terminated its fixed-to-variable interest rate swap agreements. The interest
rate swaps were designated as fair value hedges. The effectiveness of the interest rate swaps in
offsetting the exposure to changes in the debts fair value was measured using the short-cut method
pursuant to SFAS No. 133. Columbia had no net gain or loss recognized in earnings due to hedging
ineffectiveness from prior years. Refer to Note 6, Risk Management Activities, in the Notes to
Consolidated Financial Statements for further information regarding interest rate swaps. The aggregate maturities of long-term debt and capitalized lease obligations during the next five
years are as follows: (in millions)2005
    
    $
    281.92006
    
    
    0.52007
    
    
    281.92008
    
    
    0.42009
    
    
    After
    
    
    793.1Total long-term debt
    
    $
    1,357.8
 12. Short-Term Borrowings Columbia subsidiaries satisfy their liquidity requirements primarily through internally generated
funds and through intercompany borrowings from the NiSource Money Pool. These subsidiaries may
borrow, on an intercompany basis, a cumulative maximum of $1.13 billion through the NiSource Money
Pool as approved by the Securities and Exchange Commission under the Public Utility Holding Company
Act of 1935. NiSource Finance Corp. provides funding to the NiSource Money Pool from external
borrowing sources and maintains an aggregate $1.25 billion revolving credit facility with a
syndicate of banks. The credit facility is guaranteed by NiSource. As of December 31, 2004,
Columbia had $440.7 million invested in the NiSource Money Pool. At December 31, 2004, approximately $41.0 million of investments were pledged as collateral for
trust accounts related to Columbias wholly owned insurance company. 13. Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of
financial instruments for which it is practicable to estimate fair value: Investments.Where feasible, the fair value of investments is estimated based on market prices for
those or similar investments. 40




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Long-term Debt.The fair values of these securities are estimated based on the quoted market
prices for the same or similar issues or on the rates offered for securities of the same remaining
maturities. Certain premium costs associated with the early settlement of long-term debt are not
taken into consideration in determining fair value. The carrying amount and estimated fair values of financial instruments were as follows: Carrying
    
    
    Estimated
    
    
    Carrying
    
    
    EstimatedAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair ValueAt December 31, (in millions)
    
    2004
    
    
    2004
    
    
    2003
    
    
    2003Long-term investments
    
    $
    39.0
    
    
    $
    39.0
    
    
    $
    36.2
    
    
    $
    36.2Long-term debt (including current portion)
    
    
    1,357.8
    
    
    
    1,414.3
    
    
    
    1,368.4
    
    
    
    1,475.8
 The long-term debt relates to utility operations. The utilities are subject to regulation and
gains or losses may be included in rates over a prescribed amortization period, if in fact settled
at amounts approximating those above. Sale of Trade Accounts Receivable.On May 14, 2004, Columbia of Ohio entered into an agreement to
sell, without recourse, substantially all of its trade receivables, as they originate, to Columbia
of Ohio Receivables Corporation (CORC), a wholly-owned subsidiary of Columbia of Ohio. CORC, in
turn, is party to an agreement, also dated May 14, 2004, in which it sells an undivided percentage
ownership interest in the accounts receivable to a commercial paper conduit sponsored by Dresdner
Kleinwort Wasserstein. The conduit can purchase up to $300 million of accounts receivable under
the agreement. The agreement, which replaced a prior similar agreement, expires in May 2005, but
can be renewed if mutually agreed to by both parties. As of December 31, 2004, $137.7 million of
accounts receivable had been sold by CORC. Under the agreement, Columbia of Ohio acts as administrative agent, by performing record keeping
and cash collection functions for the accounts receivable sold by CORC. Columbia of Ohio receives a
fee, which provides adequate compensation, for such services. Columbias accounts receivable program qualifies for sale accounting based upon the conditions met
in SFAS No. 140 Accounting for Transfers and Servicing of Financial Asset and Extinguishments of
Liabilities. In the agreement, all transferred assets have been isolated from the transferor and
put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other
receivership. Columbia does not retain any interest in the receivables under the agreement. 14. Other Commitments and Contingencies A. Capital Expenditures and Other Investing Activities.Columbia expects that approximately $343.8
million will be expended for construction and other investment purposes during 2005. Of this
amount, $140.2 million is for the Gas Distribution Operations and $203.6 million is for the Gas
Transmission and Storage Operations. B. Other Legal Proceedings.In the normal course of its business, Columbia and its subsidiaries
have been named as defendants in various legal proceedings. In the opinion of management, the
ultimate disposition of these currently asserted claims would not have a material adverse impact on
Columbias consolidated financial position or results of operations. C. Assets Under Lien.Substantially all of Columbia Transmissions properties have been pledged to
Columbia as security for debt owed by Columbia Transmission to Columbia. 41




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) C. Guarantees and Indemnities.As a part of normal business, Columbia and certain subsidiaries
enter into various agreements providing financial or performance assurance to third parties on
behalf of certain subsidiaries. These agreements are entered into primarily to support or enhance
the creditworthiness otherwise attributed to a subsidiary on a stand-alone basis, thereby
facilitating the extension of sufficient credit to accomplish the subsidiaries intended commercial
purposes. The total commercial commitments in existence at December 31, 2004 and the years in
which they expire were: (in millions)
    
    Total
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    AfterGuarantees supporting commodity
transactions of subsidiaries
    
    $
    701.1
    
    
    $
    50.0
    
    
    $
    476.9
    
    
    $
    30.6
    
    
    $
    50.9
    
    
    $
    53.5
    
    
    $
    39.2Other guarantees
    
    
    154.2
    
    
    
    50.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2.2
    
    
    
    102.0Total commercial commitments
    
    $
    855.3
    
    
    $
    100.0
    
    
    $
    476.9
    
    
    $
    30.6
    
    
    $
    50.9
    
    
    $
    55.7
    
    
    $
    141.2
 Guarantees Supporting Commodity Transactions of Subsidiaries.Columbia has issued guarantees,
which support up to approximately $701.1 million of commodity-related payments for its former and
current subsidiaries involved in forward gas sales agreements. These guarantees were provided to
counterparties in order to facilitate physical and financial transactions involving natural gas.
To the extent liabilities exist under the commodity-related contracts subject to these guarantees,
such liabilities are included in the Consolidated Balance Sheets. Off Balance Sheet Items.Columbia has purchase and sales agreement guarantees totaling $137.5
million, which guarantee performance of the sellers covenants, agreements, obligations,
liabilities, representations and warranties under the agreements. No amounts related to the
purchase and sales agreement guarantees are reflected in the Consolidated Balance Sheets. Management believes that the likelihood Columbia would be required to perform or otherwise incur
any significant losses associated with any of the aforementioned guarantees is remote. Columbia has retained liabilities related to the CER forward gas sales agreements with Mahonia II
Limited (Mahonia) for guarantees of the forward sales and for indemnity agreements with respect to
surety bonds backing the forward sales. The guarantees, surety bonds and associated indemnity
agreements remain in place subsequent to the closing of the CER sale and decline over time as
volumes (approximately 30.6 Bcf as of December 31, 2004) are delivered in satisfaction of the
contractual obligations, ending in February 2006. Columbia will be indemnified by Triana, and MSCP
will fund up to a maximum of $71.1 million of additional equity to Triana to support Trianas
indemnity, for Trianas gas delivery and related obligations to Mahonia. The MSCP commitment
declines over time in concert with the surety bonds and the guaranteed obligation to deliver gas to
Mahonia. Immediately after the close of the sale, Triana owned approximately 1.1 Tcf of proved reserves, and
was capitalized with $330 million, approximately $200 million of which was provided as initial
equity by MSCP and the remainder of which is provided as part of a $500 million revolving credit
facility. Columbia believes that the combination of Trianas proved reserves, sufficient
capitalization, and access to the credit facility, combined with the Triana indemnity and the $71.1
million of further commitments to Triana from MSCP, adequately offset any losses that may be
incurred by Columbia due to Trianas non-performance under the Mahonia agreements. Accordingly,
Columbia has not recognized a liability related to the retention of the Mahonia guarantees. E. Income Tax Examinations. Columbia records liabilities for potential income tax assessments.
The accruals relate to tax positions in a variety of taxing jurisdictions and are based on what
management believes will be the ultimate resolution of these positions. These liabilities may be
affected by changing interpretations of laws, rulings by tax authorities, or the expiration of the
statute of limitations. Columbia and its subsidiaries file a consolidated federal and several consolidated state income tax
returns with the NiSource Inc. and Subsidiaries consolidated group. As a member of the NiSource
consolidated group, Columbia and its subsidiaries are under continuous examination by the Internal
Revenue Service (IRS). The IRS has completed its audits through tax year 2000. Years through 1998
have been settled and are closed to further assessment. For years 1999 and 2000, NiSource
disagreed with three adjustments proposed by the IRS and filed a protest of those issues with the IRS Appeals Division. None of those issues impact the Columbia
companies. The audit of NiSources 2001 and 2002 federal income tax returns started on June 1,
2004 and is expected to be completed by the end of the third quarter, 2005. 42




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) Management currently believes that the ultimate resolution of these matters, individually or in the
aggregate, will not have a material adverse effect on Columbias business, financial condition,
results of operations or liquidity. F. Environmental Matters. General.The operations of Columbia are subject to extensive and evolving federal, state and local
environmental laws and regulations intended to protect the public health and the environment. Such
environmental laws and regulations affect operations as they relate to impacts on air, water and
land. Proposals for voluntary initiatives and mandatory controls are being discussed both in the United
States and worldwide to reduce so-called greenhouse gases such as carbon dioxide, a by-product of
burning fossil fuels, and methane, a component of natural gas. Certain Columbia affiliates engage
in efforts to voluntarily report and reduce their greenhouse gas emissions. Columbia is currently
a participant in the United States Environmental Protection Agency (EPA)s Climate Leaders program
and will continue to monitor and participate in developments related to efforts to register and
potentially regulate greenhouse gas emissions. Gas Distribution Operations.Several Gas Distribution Operations subsidiaries are potentially
responsible parties at waste disposal sites under the Comprehensive Environmental Response
Compensation and Liability Act (CERCLA) (commonly known as Superfund) and similar state laws, as
well as at former manufactured gas plant (MGP) sites, which such subsidiaries, or their corporate
predecessors, own or previously owned or operated. Gas Distribution Operations subsidiaries may be
required to share in the cost of clean up of such sites. In addition, some Gas Distribution
Operations subsidiaries have responsibility for corrective action under the Resource Conservation
and Recovery Act (RCRA) for closure and clean-up costs associated with underground storage tanks,
under the Toxic Substances Control Act for clean up of polychlorinated biphenyls, and for mercury
releases. The final costs of clean up have not yet been determined. As site investigations and
clean up proceed and as additional information becomes available reserves are adjusted. A program has been instituted to identify and investigate former MGP sites where Gas Distribution
Operations subsidiaries or predecessors are the current or former owner. The program has
identified 39 such sites. Additional investigation activities have been completed or are in
progress at 10 sites and remedial measures have been implemented or completed at 6 sites. Only
those site investigation, characterization and remediation costs currently known and determinable
can be considered probable and reasonably estimable under SFAS No. 5, Accounting for
Contingencies (SFAS No. 5). As costs become probable and reasonably estimable, reserves will be
adjusted. As reserves are recorded, regulatory assets are recorded to the extent environmental
expenditures are expected to be recovered through rates. Columbia is unable, at this time, to
accurately estimate the time frame and potential costs of the entire program. Management expects
that, as characterization is completed, additional remediation work is performed and more facts
become available, Columbia will be able to develop a probable and reasonable estimate for the
entire program or a major portion thereof consistent with the Securities and Exchange Commissions
Staff Accounting Bulletin No. 92, Accounting and Disclosures Relating to Lose Contingencies, SFAS
No. 5, and American Institute of Certified Public Accountants Statement of Position 96-1,
Environmental Remediation Liabilities (SOP No. 96-1). As of December 31, 2004, a reserve of approximately $38.5 million has been recorded to cover
probable environmental response actions. The ultimate liability in connection with these sites
will depend upon many factors, including the volume of material contributed to the site, years of
ownership or operation, the number of other potentially responsible parties and their financial
viability and the extent of environmental response actions required. Based upon investigations and
managements understanding of current environmental laws and regulations, Columbia believes that
any environmental response actions required will not have a material effect on its financial
position. Gas Transmission and Storage Operations.Columbia Transmission continues to conduct
characterization and remediation activities at specific sites under a 1995 EPA Administrative Order
by Consent (AOC). The program pursuant to the AOC covers approximately 245 facilities,
approximately 13,000 liquid removal points, approximately 2,200 mercury measurement stations and
about 3,700 storage well locations. Field characterization has been performed at all sites. Site
characterization reports and remediation plans, which must be submitted to the EPA for approval,
are in various stages of development and completion. Remediation has been completed at the 43




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) mercury measurement stations, liquid removal point sites and storage well locations and at most of
the 245 facilities. As of December 31, 2004, the remaining environmental liability recorded on the Consolidated Balance
Sheets of Columbia Transmission was approximately $3.6 million. Columbia Transmission and Columbia Gulf are potentially responsible parties at several waste
disposal sites under CERCLA and similar state laws. The potential liability is believed to be de
minimis. However, the final allocation of clean-up costs has yet to be determined. As site
investigations and clean-ups proceed and as additional information becomes available reserves will
be adjusted. After a lengthy legal proceeding, the EPA has begun implementing the Particulate Matter and Ozone
National Ambient Air Quality Standards it revised in July 1997. As a result, the EPA has
designated areas not attaining the standards. The Clean Air Act provides for a process that would
provide for promulgation of rules specifying a compliance level, compliance deadline, and necessary
controls to be implemented within designated areas over the next few years. In the interim,
existing ozone ambient air quality standards will remain in place and may require imposition of
additional controls in areas of non-attainment. In addition, the EPA has reissued the portion of
the nitrogen oxide (NOx) State Implementation Plan (SIP) Call regulation (dealing with regional
ozone transport) which is applicable to certain pipeline engines, but which was remanded by the
Court of Appeals after challenge by the pipeline industry. The resulting rules require additional
reductions in NOx emissions from reciprocating engines and turbines at pipeline compressor stations
(including compressor stations owned by Columbia Transmission and Columbia Gulf). The EPA and
state regulatory authorities are in the process of setting final implementation requirements.
Certain states have already begun to propose new NOx emission requirements that may be applicable
to pipeline compressor station engines and turbines. Columbia believes that the costs relating to
compliance with any new limits may be significant but are dependent upon the ultimate control
program established by the targeted states and the EPA, and currently are not reasonably estimable.
Columbia will continue to closely monitor developments in this area. Other Information.Other Affiliates.Columbia affiliates have retained environmental liabilities, including cleanup
liabilities associated with some of its former operations including those of propane operations,
petroleum operations, certain local gas distribution companies and CER. The most significant
environmental liability relates to former MGP sites whereas less significant liabilities are
associated with former petroleum operations and former mercury metering stations. As of December 31, 2004, a reserve of approximately $5.4 million has been recorded to cover
probable environmental response actions. The ultimate liability in connection with these
contamination sites will depend upon many factors including the extent of environmental response
actions required, other potentially responsible parties and their financial viability, and
indemnification from previous facility owners. Only those corrective action costs currently known
and determinable can be considered probable and reasonably estimable under SFAS No. 5 and
consistent with SOP No. 96-1. As costs become probable and reasonably estimable, reserves will be
adjusted as appropriate. Columbia believes that any environmental response actions required at
former operations, for which it is ultimately liable, will not have a material adverse effect on
Columbias financial position. Environmental Reserves.It is managements continued intent to address environmental issues in
cooperation with regulatory authorities in such a manner as to achieve mutually acceptable
compliance plans. However, there can be no assurance that fines and penalties will not be
incurred. Management expects most environmental assessment and remediation costs to be recoverable
through rates for certain Columbia companies. As of December 31, 2004, a reserve of approximately $47.5 million has been recorded to cover
probable corrective actions at sites where Columbia has environmental remediation liability.
Regulatory assets have been recorded to the extent environmental expenditures are expected to be
recovered in rates. The ultimate liability in connection with these sites will depend upon many
factors, including the volume of material contributed to the site, the number of the other
potentially responsible parties and their financial viability, the extent of corrective actions
required and rate recovery. Based upon investigations and managements understanding of current
environmental laws and regulations, Columbia believes that any corrective actions required will not
have a material effect on its financial position or results of operations. 44




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) G. Operating Leases.Payments made in connection with operating leases are primarily charged to
operation and maintenance expense as incurred. Such amounts were $28.7 million in 2004, $26.9
million in 2003 and $22.9 million in 2002. Future minimum rental payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year are: (in millions)2005
    
    $
    20.02006
    
    
    20.32007
    
    
    17.72008
    
    
    14.82009
    
    
    11.6After
    
    
    34.8Total operating leases
    
    $
    119.2
 H. Purchase Commitments.Columbia has service agreements that provide for pipeline capacity,
transportation and storage services. These agreements, which have expiration dates ranging from
2005 to 2024, require Columbia to pay fixed monthly charges. The estimated aggregate amounts of
such payments at December 31, 2004, were: (in millions)2005
    
    $
    61.82006
    
    
    56.62007
    
    
    50.92008
    
    
    37.22009
    
    
    27.3After
    
    
    99.2Total purchase commitments
    
    $
    333.0
 Costs incurred under these contracts are generally recovered under Columbias regulatory cost
recovery mechanisms. 15. Accumulated Other Comprehensive Income The following table displays the components of Accumulated Other Comprehensive Income. Year Ended December 31, (in millions)
    
    2004
    
    
    2003Other comprehensive income, before tax:Unrealized gains on securities
    
    $
    0.3
    
    
    $
    Unrealized gains on cash flow hedges
    
    
    159.5
    
    
    
    135.1Other comprehensive income, before tax:
    
    
    159.8
    
    
    
    135.1Income tax deferred related to items of other comprehensive income
    
    
    55.7
    
    
    
    47.0Total Accumulated Other Comprehensive Income, net of tax
    
    $
    104.1
    
    
    $
    88.1
 16. Interest Expense, Net Year Ended December 31, (in millions)
    
    2004
    
    
    2003
    
    
    2002Interest on long-term debt
    
    $
    94.7
    
    
    $
    79.7
    
    
    $
    113.1Interest on short-term borrowings
    
    
    3.3
    
    
    
    6.1
    
    
    
    4.8Allowance for borrowed funds used
during construction
    
    
    (1.5
    )
    
    
    (1.2
    )
    
    
    (1.4
    )Total Interest Expense, Net
    
    $
    96.5
    
    
    $
    84.6
    
    
    $
    116.5
 45




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ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiariesNotes to Consolidated Financial Statements (continued) 17. Segments of Business Columbia is a registered holding company under the Public Utility Holding Company Act of 1935, as
amended, and derives substantially all of its revenues and earnings from the operating results of
its 15 direct subsidiaries. Columbias operations are divided into three primary business
segments. The Gas Distribution Operations segment provides natural gas service and transportation
for residential, commercial and industrial customers in Ohio, Pennsylvania, Virginia, Kentucky and
Maryland. The Gas Transmission and Storage Operations segment offers gas transportation and
storage services for local distribution companies, marketers and industrial and commercial
customers located in northeastern, mid-Atlantic, midwestern and southern states and the District of
Columbia. The Other Operations segment is primarily comprised of the remaining gas sales
obligation of Columbia Energy Services, which was in the commercial and residential natural gas
retail business, and the operations of the remaining microwave relay business. The dark-fiber
optics telecommunications network was moved from Other Operations to discontinued operations in
2002. All prior periods were adjusted to reflect this change. During the second quarter 2003, Columbia re-aligned its reportable segments to reflect the
announced sale of its exploration and production operations. As of the second quarter 2003,
Columbia no longer reported an Exploration and Production Operations segment. All periods have
been adjusted to conform to the realignment. (in millions)
    
    2004
    
    
    2003
    
    
    2002REVENUESGas Distribution OperationsUnaffiliated
    
    $
    2,551.4
    
    
    $
    2,402.0
    
    
    $
    1,949.3Intersegment and affiliates
    
    
    
    
    
    
    
    
    
    
    8.4Total
    
    
    2,551.4
    
    
    
    2,402.0
    
    
    
    1,957.7Transmission and Storage OperationsUnaffiliated
    
    
    585.8
    
    
    
    599.9
    
    
    
    618.9Intersegment and affiliates
    
    
    236.7
    
    
    
    230.6
    
    
    
    248.3Total
    
    
    822.5
    
    
    
    830.5
    
    
    
    867.2Other OperationsUnaffiliated
    
    
    72.8
    
    
    
    38.2
    
    
    
    25.8Intersegment and affiliates
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.2Total
    
    
    73.0
    
    
    
    38.5
    
    
    
    26.0Adjustments and eliminations
    
    
    (225.4
    )
    
    
    (220.5
    )
    
    
    (239.4
    )Consolidated Revenues
    
    $
    3,221.5
    
    
    $
    3,050.5
    
    
    $
    2,611.5
 46




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ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
(continued) Columbia
energy group and subsidiariesNotes to Consolidated Financial Statements (continued) (in millions)
    
    2004
    
    
    2003
    
    
    2002Operating Income (Loss)Gas Distribution Operations
    
    $
    345.5
    
    
    $
    375.7
    
    
    $
    335.5Transmission and Storage Operations
    
    
    359.0
    
    
    
    398.5
    
    
    
    395.8Other Operations
    
    
    0.6
    
    
    
    (3.1
    )
    
    
    18.3Corporate
    
    
    10.3
    
    
    
    19.5
    
    
    
    5.0Consolidated
    
    $
    715.4
    
    
    $
    790.6
    
    
    $
    754.6Depreciation and AmortizationGas Distribution Operations
    
    $
    56.3
    
    
    $
    54.4
    
    
    $
    55.2Transmission and Storage Operations
    
    
    112.9
    
    
    
    108.7
    
    
    
    107.9Other Operations
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1Consolidated
    
    $
    169.3
    
    
    $
    163.2
    
    
    $
    163.2AssetsGas Distribution Operations
    
    $
    3,611.6
    
    
    $
    3,430.2
    
    
    $
    3,315.0Transmission and Storage Operations
    
    
    2,998.4
    
    
    
    2,866.6
    
    
    
    2,887.4Other Operations
    
    
    187.2
    
    
    
    161.9
    
    
    
    130.3Corporate
    
    
    323.8
    
    
    
    74.2
    
    
    
    820.0Consolidated
    
    $
    7,121.0
    
    
    $
    6,532.9
    
    
    $
    7,152.7Capital ExpendituresGas Distribution Operations
    
    $
    126.9
    
    
    $
    108.9
    
    
    $
    112.6Transmission and Storage Operations
    
    
    127.0
    
    
    
    135.7
    
    
    
    144.1Other Operations
    
    
    0.1
    
    
    
    
    
    
    
    0.8Corporate
    
    
    0.1
    
    
    
    
    
    
    
    Consolidated
    
    $
    254.1
    
    
    $
    244.6
    
    
    $
    257.5
 47




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiaries Notes
to Consolidated Financial Statements (continued)
 18. Quarterly Financial Data (Unaudited) Quarterly financial data does not always reveal the trend of Columbias business operations due to
nonrecurring items and seasonal weather patterns, which affect earnings, and related components of
net revenues and operating income. First
    
    
    Second
    
    
    Third
    
    
    Fourth(in millions, except per share data)
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2004Net Revenues
    
    $
    594.1
    
    
    $
    340.9
    
    
    $
    299.8
    
    
    $
    505.7Operating Income
    
    
    298.6
    
    
    
    110.2
    
    
    
    69.0
    
    
    
    237.6Income from Continuing Operations
    
    
    177.5
    
    
    
    56.5
    
    
    
    31.2
    
    
    
    138.5Income (Loss) from Discontinued Operations -
net of taxes
    
    
    (3.0
    )
    
    
    (0.7
    )
    
    
    5.2
    
    
    
    2.2Net Income
    
    
    174.5
    
    
    
    55.8
    
    
    
    36.4
    
    
    
    140.72003Net Revenues
    
    $
    625.0
    
    
    $
    358.3
    
    
    $
    304.8
    
    
    $
    484.4Operating Income
    
    
    326.0
    
    
    
    133.6
    
    
    
    112.7
    
    
    
    218.3Income from Continuing Operations
    
    
    192.3
    
    
    
    71.1
    
    
    
    62.5
    
    
    
    152.2Income (Loss) from Discontinued Operations -
net of taxes
    
    
    43.7
    
    
    
    (126.1
    )
    
    
    32.1
    
    
    
    2.1Change in
Accounting - net of taxes
    
    
    (16.8
    )
    
    
    
    
    
    
    
    
    
    
    Net Income (Loss)
    
    
    219.2
    
    
    
    (55.0
    )
    
    
    94.6
    
    
    
    154.3
 48




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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA (continued) Columbia energy group and subsidiaries Schedule II
 Valuation and Qualifying Accounts Valuation and Qualifying Accounts Additions - Charged to
    
    
    Sale of AssetsBeginning
    
    
    Costs and
    
    
    Other
    
    
    and Discontinued
    
    
    
    
    
    
    EndingYear Ended December 31, (in millions)
    
    Balance
    
    
    Expenses
    
    
    Accounts
    
    
    Operations
    
    
    Deductions
    
    
    BalanceAllowance for doubtful accounts (a)2004
    
    $
    17.6
    
    
    $
    41.4
    
    
    $
    49.7
    
    
    $
    7.1
    
    
    $
    82.2
    
    
    $
    19.42003
    
    
    15.3
    
    
    
    131.2
    
    
    
    35.4
    
    
    
    
    
    
    
    164.3
    
    
    
    17.62002
    
    
    16.9
    
    
    
    28.6
    
    
    
    42.9
    
    
    
    
    
    
    
    73.1
    
    
    
    15.3Restructuring Activities (b)2004
    
    
    17.2
    
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    4.5
    
    
    
    14.12003
    
    
    35.4
    
    
    
    (4.4
    )
    
    
    
    
    
    
    
    
    
    
    13.8
    
    
    
    17.22002
    
    
    31.4
    
    
    
    19.1
    
    
    
    
    
    
    
    
    
    
    
    15.1
    
    
    
    35.4Environmental2004
    
    
    52.5
    
    
    
    4.0
    
    
    
    1.4
    
    
    
    
    
    
    
    10.4
    
    
    
    47.52003
    
    
    108.8
    
    
    
    (3.6
    )
    
    
    (33.2
    )
    
    
    
    
    
    
    19.5
    
    
    
    52.52002
    
    
    146.7
    
    
    
    (11.3
    )
    
    
    (5.5
    )
    
    
    
    
    
    
    21.1
    
    
    
    108.8Accumulated Provision for Rate Refunds2004
    
    
    2.8
    
    
    
    5.6
    
    
    
    3.7
    
    
    
    
    
    
    
    7.4
    
    
    
    4.72003
    
    
    9.3
    
    
    
    (2.3
    )
    
    
    (2.8
    )
    
    
    
    
    
    
    1.4
    
    
    
    2.82002
    
    
    8.3
    
    
    
    24.3
    
    
    
    
    
    
    
    
    
    
    
    23.3
    
    
    
    9.3Unpaid Medical Claims2004
    
    
    5.0
    
    
    
    7.0
    
    
    
    (2.4
    )
    
    
    
    
    
    
    8.0
    
    
    
    1.62003
    
    
    5.0
    
    
    
    7.5
    
    
    
    
    
    
    
    
    
    
    
    7.5
    
    
    
    5.02002
    
    
    6.8
    
    
    
    6.7
    
    
    
    
    
    
    
    
    
    
    
    8.5
    
    
    
    5.0Reserve for Cost of Operational Gas2004
    
    
    3.0
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    2.92003
    
    
    3.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.02002
    
    
    12.9
    
    
    
    (7.0
    )
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    3.0
   (a)
    Other Accounts primarily reflect reclassifications to a regulatory asset of the uncollectible accounts related to the Percent of Income Plan
(PIP) customers of Columbia Gas of Ohio, Inc. and Deductions principally reflect amounts charged off as uncollectible less amounts
recovered.(b)
    Deductions primarily reflect payments of severance and related termination benefits. 49




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE Columbia
energy group and subsidiaries On May 21, 2002 the Board of Directors of NiSource Inc., upon recommendation of its Audit
Committee, dismissed Arthur Andersen LLP as the independent public accountants for NiSource and its
subsidiaries, Columbia Energy Group (Columbia) and Northern Indiana Public Service Company
(collectively, the Registrants), and engaged Deloitte & Touche LLP to serve as the Registrants
independent public accountants for 2002. Information with respect to this matter is included in
Columbias current report on Form 8-K filed May 21, 2002, which information is incorporated herein
by reference. 
 ITEM 9A. CONTROLS AND PROCEDURES Evaluation
of Disclosure Controls and Procedures

Columbia Energy Group (Columbia)s principal executive officer and its principal financial officer,
after evaluating the effectiveness of Columbias disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded based on the evaluation required by
paragraph (b) of Exchange Act Rules 13a-15 and 15d-15 that, as of the end of the period covered by
this report, Columbias disclosure controls and procedures were adequate and effective to ensure
that material information relating to Columbia and its consolidated subsidiaries would be made
known to them by others within those entities. Changes
in Internal Controls

There was no change in Columbias internal control over financial reporting during the last quarter
of the fiscal year covered by this report that has materially affected, or is reasonably likely to
materially affect, Columbias internal control over financial reporting. 
 ITEM 9B. OTHER INFORMATION None 
 PART III 
 ITEM
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Omitted pursuant to General Instruction I. (2) (c). 
 ITEM 11. EXECUTIVE COMPENSATION Omitted pursuant to General Instruction I. (2) (c). 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Omitted pursuant to General Instruction I. (2) (c). 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Omitted pursuant to General Instruction I. (2) (c). 50




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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Columbia energy group and subsidiaries The following table represents the aggregate fees for professional services rendered to Columbia
Energy Groups (Columbia) corporate parent NiSource Inc. (NiSource) by Deloitte & Touche LLP,
NiSources current independent registered public accounting firm, for the audit of the NiSources
and Columbias annual financial statements for the years ended December 31, 2004 and 2003, and fees
billed for other services rendered by Deloitte & Touche LLP during those periods. Year Ended December 31, (in thousands)
    
    2004
    
    
    2003Deloitte & Touche LLP
    
    
    Deloitte & Touche LLPAudit Fees (1)
    
    $
    4,431.6
    
    
    $
    3,385.1Audit-Related Fees (2)
    
    
    407.5
    
    
    
    991.7Tax Fees (3)
    
    
    121.3
    
    
    
    110.7All Other Fees (4)
    
    
    
    
    
    
    23.5Total accounting fees and services:
    
    $
    4,960.4
    
    
    $
    4,511.0
   Audit Fees
 (2) Audit-Related Fees These are fees for the assurance and related services performed by
Deloitte & Touche LLP that are reasonably related to the performance of the audit or review of
NiSources and the Companys financial statements. (3) Tax Fees These are fees for professional services performed by Deloitte & Touche LLP with
respect to tax compliance, tax advice and tax planning. (4) All Other Fees These are fees for permissible work performed by Deloitte that does not meet
the above categories. Other fees for 2003 are for Sarbanes-Oxley training. Pre-Approval Policies and Procedures.During fiscal year 2004, the Audit Committee of NiSource
approved all audit, audit related and non-audit services provided to NiSource and its subsidiaries
by Deloitte & Touche LLP prior to management engaging the auditor for those purposes. The Audit
Committees current practice is to consider for pre-approval annually all audit, audit related and
non-audit services proposed to be provided by our independent auditors for the fiscal year.
Additional fees for other proposed audit-related or non-audit services which have been properly
presented to the Pre-Approval Subcommittee of the Audit Committee (consisting of Ian M. Rolland) by
the Vice President and Controller of NiSource (not within the scope of the approved audit
engagement) may be considered and, if appropriate, approved by the Pre-Approval Subcommittee of the
Audit Committee and subsequently ratified by the entire Audit Committee. In no event, however,
will (i) any non-audit related service be presented or approved that would result in the
independent registered public accounting firm no longer being considered independent under the
applicable Securities and Exchange Commission rules or (ii) any service be presented or approved by
the Pre-Approval Subcommittee the fees for which are estimated to exceed $100,000. In making its
recommendation to appoint Deloitte & Touche LLP as NiSource and its subsidiaries independent
registered public accounting firm, the Audit Committee of NiSource has considered whether the
provision of the non-audit services rendered by Deloitte & Touche LLP is compatible with
maintaining that firms independence. 51




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PART IV 
 ITEM 15 EXHIBITS, FINANCIAL STATEMENT SCHEDULES Columbia energy group and subsidiaries Exhibits

Reference is made to the list of exhibits filed as part of this Annual Report on Form 10-K. Pursuant to Item 601(b), paragraph (4)(iii)(A) of Regulation S-K, certain instruments representing
long-term debt of Columbia or its subsidiaries have not been included as Exhibits because such debt
does not exceed 10% of the total assets of Columbia and its subsidiaries on a consolidated basis.
Columbia agrees to furnish a copy of any such instrument to the U.S. Securities and Exchange
Commission upon request. Financial
Statement Schedules

All of the financial statements and financial statement schedules filed as a part of the Annual
Report on Form 10-K are included in Item 8. 52




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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized. COLUMBIA ENERGY GROUP(Registrant)Date:
March 9, 2005
    
    By:
    
    /s/ Michael W. ODonnellMichael W. ODonnellPresident and Director(Principal Executive Officer)
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated. /s/ Michael W. ODonnell
    
    President and Director
    
    March 9, 2005(Principal Executive Officer)Michael W. ODonnell/s/ David J. Vajda
    
    Vice President and Treasurer
    
    March 9, 2005(Principal Financial Officer)David J. Vajda/s/ Jeffrey W. Grossman
    
    Vice President
    
    March 9, 2005(Principal Accounting Officer)Jeffrey W. Grossman
 53




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EXHIBITS Columbia energy group and subsidiaries Exhibit
    
    Description of Item3.1
    
    Restated Certificate of Incorporation of Columbia Energy Group,
Inc. as amended through December 3, 2001 (incorporated by
reference to Exhibit 3.1 to the Columbia Energy Group Annual
Report on Form 10-K for the period ended December 31, 2003).3.2
    
    Amended and Restated By-Laws of Columbia Energy Group, Inc. as
amended through June 1, 2004). **4.1
    
    Indenture between The Columbia Gas System, Inc. and Marine Midland
Bank, N.A. Trustee, dated as of November 28, 1995 (incorporated by
reference to Exhibit 4-S to the Columbia Gas System Registration
Statement (Registration No. 33-64555)).4.2
    
    Third Supplemental Indenture, between The Columbia Gas System,
Inc. and Marine Midland Bank, N.A. Trustee, dated as of November
28, 1995 (incorporated by reference to Exhibit 4-V to the Columbia
Gas System Registration Statement (Registration No. 33-64555)).4.3
    
    Fourth Supplemental Indenture, between The Columbia Gas System,
Inc. and Marine Midland Bank, N.A. Trustee, dated as of November
28, 1995 (incorporated by reference to Exhibit 4-W to the Columbia
Gas System Registration Statement (Registration No. 33-64555)).4.4
    
    Fifth Supplemental Indenture, between The Columbia Gas System,
Inc. and Marine Midland Bank, N.A. Trustee, dated as of November
28, 1995 (incorporated by reference to Exhibit 4-X to the Columbia
Gas System Registration Statement (Registration No. 33-64555)).4.5
    
    Sixth Supplemental Indenture, between The Columbia Gas System,
Inc. and Marine Midland Bank, N.A. Trustee, dated as of November
28, 1995 (incorporated by reference to Exhibit 4-Y to the Columbia
Gas System Registration Statement (Registration No. 33-64555)).4.6
    
    Seventh Supplemental Indenture, between The Columbia Gas System,
Inc. and Marine Midland Bank, N.A. Trustee, dated as of November
28, 1995 (incorporated by reference to Exhibit 4-Z to the Columbia
Gas System Registration Statement (Registration No. 33-64555)).4.7
    
    Instrument of Resignation, Appointment and Acceptance dated as of
March 1, 1999, between Columbia Energy Group and Marine Midland
Bank, as Resigning Trustee and The First National Bank of Chicago,
as Successor Trustee (incorporated by reference to Exhibit 4-I to
the Columbia Energy Group Annual Report on Form 10-K for the
period ended December 31, 1998.)10.1
    
    U.S. Environmental Protection Agency Administrative Order by
Consent for Removal Actions for Columbia Gas Transmission
Corporation dated September 22,1994. (incorporated by reference
to Exhibit 10-AE to Columbia Energy Groups Annual Report on Form
10-K for the period ended December 31, 1994).10.2
    
    Amended and restated Indenture of Mortgage and Deed of Trust by
Columbia Gas Transmission Corporation to Wilmington Trust Company,
dated as of November 28, 1995 (incorporated by reference to
Exhibit 10-AF to the Columbia Energy Group Annual Report on Form
10-K for the period ended December 31, 1995).10.3
    
    Memorandum of Understanding among the Millennium Pipeline Project
partners (Columbia Transmission, West Coast Energy, MCN Investment
Corp. and TransCanada Pipelines Limited) dated December 1, 1997
(incorporated by reference to Exhibit 10-CF to Columbia Energy
Groups Annual Report on Form 10-K for the period ended December
31, 1997).10.4
    
    Agreement of Limited Partnership of Millennium Pipeline Company,
L.P. dated May 31, 1998 (incorporated by reference to Exhibit
10-CG to Columbia Energy Groups Annual Report on Form 10-K for
the period ended December 31, 1998).10.5
    
    Contribution Agreement Between Columbia Gas Transmission
Corporation and Millennium Pipeline Company, L.P. dated July 31,
1998 (incorporated by reference to Exhibit 10-CH to Columbia
Energy Groups Annual Report on Form 10-K for the period ended
December 31, 1998).10.6
    
    Regulations of Millennium Pipeline Management Company, L.L.C.
dated May 31, 1998 (incorporated by reference to Exhibit 10-CI to
Columbia Energy Groups Annual Report on Form 10-K for the period
ended December 31, 1998).10.7
    
    Receivables Sale Agreement, dated as of May 14, 2004 between
Columbia Gas of Ohio, Inc. as Seller and Columbia of Ohio
Receivables Corporation as Purchaser (incorporated by reference to
Exhibit 10.1 to Columbia Energy Groups Quarterly Report on Form
10-Q for the period ended June 30, 2004).
 54




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##### Table of Contents



EXHIBITS (continued) Columbia energy group and subsidiaries Exhibit
    
    Description of Item10.8
    
    Receivables Purchase Agreement dated as of May 14, 2004 among
Columbia of Ohio Receivables Corporation, as the Seller,
Beethoven Funding Corporation, as the Purchaser, Dresdner Bank
AG, New York Branch, as the Agent, and Columbia Gas of Ohio,
Inc., as the Servicer (incorporated by reference to Exhibit
10.2 to Columbia Energy Groups Quarterly Report on Form 10-Q
for the period ended June 30, 2004).12
    
    Statements of Ratio of Earnings to Fixed Charges.**31.1
    
    Certification of Michael W. ODonnell, Chief Executive
Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.**31.2
    
    Certification of David J. Vajda, Principal Financial Officer,
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**32.1
    
    Certification of Michael W. ODonnell, Chief Executive
Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 (furnished herewith). **32.2
    
    Certification of David J. Vajda, Principal Financial Officer,
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(furnished herewith). **
    55