? NiSource leaders prioritize system investments over mergers and acquisition activity.
? Tax code changes are good for customers and may take pressure off their bills.
? The utility sector can learn from other industries to stave off cyber threats.
Joseph Hamrock, NiSource president, CEO and director |
NiSource Inc. and other U.S. utilities are navigating changing corporate taxes, shifting interest rates and evolving cyber threats. NiSource's utilities serve about 3.5 million gas customers and 500,000 electric customers across seven states, requiring the companies to manage diverse customer needs and regulatory climates. NiSource President, CEO and Director Joseph Hamrock spoke with S&P Global Market Intelligence at the American Gas Association Financial Forum in Phoenix, Ariz., to discuss his company's strategies and priorities. The following is an edited transcript of that conversation.
S&P Global Market Intelligence: Earlier this year, a new tax law took effect, reducing the corporate tax rate from 35% to 21% and making other changes to the tax code. How is this impacting NiSource's plans for capital spending?
Joseph Hamrock:
Tax reform changed the cash flow picture for us, which ultimately changed our credit metrics, so the driver for us is really credit metrics ... We just did a $600 million block equity [issuance], which is the one thing that we needed to do. Once we had enough clarity around the timing of the regulatory approach to passing those taxes back to customers, then it came down to the timing of credit metrics and how much equity we need. We've resolved all of that now.
The regulatory approach has really been the fairly rapid regulatory cadence that already characterizes NiSource, because of our investments and the trackers and the rate case cycle that we're typically in. [It] gave us a good place to set up the pass-back, either inside of rate cases that we've filed, inside the trackers that we're already filing, or in other mechanisms that we will file.
This flows back to our customers. We're all for that. And ultimately, if that takes pressure off of customer bills [and] reduces our pass-through cost, it allows the affordability of these high-value investments that we're making to be enhanced and sustained.
How is NiSource managing cyber risks, both internally and in terms of how you work with your regulators?
It has always been viewed as a critical part of our risk management activities, not just an IT function, but an enterprise function. We even stepped up the focus at our board, and our leaders in our cyber management function have been out talking with our regulators over the past several years.
There is a growing and enhanced interest brought on by the high-profile nature of some of the things we've seen across many industries. Data privacy, for example — that's key to us.
We have very constructive, very transparent, constructive engagement with our regulators. It is one of the complex and dynamic risks that we and any industry face right now.
It's not the kind of thing that you set it and forget it — that you have a set of protocols and now you're good — because the malicious actors are always upping their game. It is a bit of a war in that sense, for the best talent, the best technology, the best defenses, and I feel that we're really well-situated there and well supported by our regulators because they are so engaged.
One of the most interesting dynamics around this is people risks. Any of us are susceptible to phishing and the kinds of things that are happening. We have a very aggressive training program that is already in place.
[We] just brought in a new chief security officer — just natural turnover — but it is someone out of retail. Clearly there are things we can learn in this sector by leaning across into others.
There have been instances in the past couple of years in which gas utility contractors were found to have cheated on the tests that qualify workers. Has NiSource changed anything about the way you look at contractors or work with regulators in terms of the training process?
The training for contractors is their responsibility, but we hold them to that standard. I think some of the examples you are alluding to involve concerns about operator qualifications. In any such case, if there was such a concern, we immediately shut down the crews and require assurance that they are properly qualified and trained.
We've invested pretty heavily with support from our regulators in new training platforms across our territory. We opened new centers: one in southwest Pennsylvania, one in Ohio, one in Virginia, one in Massachusetts.
It is not just about compliance and qualification. It's about the speed to proficiency for new employees entering the industry. Today, we're trying to accelerate that by creating immersion-type training in these centers, supplemented with on-the-job training that is very deliberate and very focused on a progression through key tasks, repetitive tasks, to learn them by doing them. [It is] where we need to go as an industry to ensure that it's not just a check-the-box qualification, but it's really an enhanced training and accelerated proficiency.
With a number of mergers and acquisitions in the gas and electric utility space, has NiSource considered being on either side of that type of transaction?
When we look at our plan, we have identified a need for $30 billion of investments: $20 billion on the gas side, $10 billion on the electric side. [These are] well-supported initiatives [with] strong stakeholder support, because of the value of those initiatives. Those drive our business plan.
M&A isn't a core part of our business plan. When you look at the kind of transactions we've seen in the marketplace and the premiums that are being paid, and you put it side by side with the investments that we're making and the value that they bring for our customers and our investors, it doesn't play a role for us.
How are you all thinking about interest rates these days, given recent increases?
Clearly some increased volatility and upward trend. The bottom is behind us. That's for sure. We are watching that closely and always assessing the implications for our cost of capital: how we finance the business, the right blend of different financing mechanisms. It is an interesting moment in time, relative to interest rates: where they are going, where they will settle, even the spreads across different tenors right now.
What regulatory initiatives are you focused on at the state and federal levels?
It always starts with, "If it's good for our customers, then that's where we're going to stand." On the steel tariffs, it is very much like that. We do serve a fairly large block of steel producers on both the electric and gas side in Indiana, and so we can see that the tariffs can be helpful to them, which ultimately is good for our communities and is beneficial. Now there is a lot more complexity in the steel tariff question that I won't get into, depending on which countries, and where the unfinished goods come from — you have to factor all of that in.
Our focus tends to be more at the state level, especially on the natural gas side. We focus actively and advocate actively for pipeline safety, [including] damage prevention legislation that we've sponsored in a number of states [and] looking for the most rigorous and strongest environment we can have around pipeline safety. One of the largest contributors to incidents is damage to our underground facilities.
The other area [is] the opportunity to grow the customer base. That can be extending our gas mains into rural territories [to] serve customers that aren't currently served. We don't particularly advocate for specific forms but for the general idea of bringing the benefits of affordable natural gas to as many customers as possible.

