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NiSource CEO focused on rebuilding pipeline, public trust after Mass. gas blasts

NiSource expects insurance, equity to offset costs of rebuild from Boston-area blasts.

NiSource CEO sees natural gas as "fuel for the future."

Energy storage already "competitive" and "economic."

NiSource Inc. is still working to rebuild public confidence and infrastructure following a deadly series of fires and explosions in September 2018 in the Merrimack Valley of Massachusetts. Executives told investors that the company plans to issue between $500 million and $700 million in common equity in 2020 to finance pipeline replacement and restoration, third-party claims and other expenses not covered by the utility's insurance policy.

S&P Global Market Intelligence sat down with NiSource President and CEO Joseph Hamrock recently at the Edison Electric Institute Financial Conference in Orlando, Fla., to discuss the company's cost recovery and restoration plans following the blasts in Columbia Gas of Massachusetts' natural gas distribution service territory and NiSource's plans to transition its portfolio to a mix of renewables and gas generation. The following is an edited transcript of the conversation.

S&P Global Market Intelligence: Will the equity that will be issued and the insurance claims cover the costs of the Massachusetts incident?

Joseph Hamrock: We don't have that complete picture in focus yet. But if you think about the equity plan we announced on the third-quarter call, that is really intended to maintain our investment-grade credit metrics ... and also to finance in a permanent way the cost of the incident last year over and above our insurance proceeds. We still have outstanding the property insurance claim and some of the collections of the casualty insurance. So, there's some open variables in there, but it all does point toward financing the incident itself.

We don't yet have a regulatory plan that we've projected, but certainly we have said we would expect the property insurance in particular to offset the cost of the rebuild.

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NiSource President and CEO Joseph Hamrock says the company needs to issue equity to protect credit and finance the rebuild.
Source: NiSource Inc.

Given the Massachusetts incident and the risks associated with continuing to operate there, is the Massachusetts gas utility still a core business for NiSource?

I won't speculate about where it fits in the core business. We are committed to rebuilding and restoring public confidence based on the incidents of the past year and the work we've been doing there. We remain committed to that, and we will continue to look for all viable paths to ensure we do restore public confidence.

Where do you see natural gas fitting into the picture when investors or even customers look at NiSource five or 10 years down the road?

When we look across the territories we serve, natural gas is so well positioned as a fuel for the future. Great production opportunities, production economics, low volatility, clean fuel and then strong support from across our stakeholder communities.

That said, we recognize there are voices of decarbonization and electrification, and as we look at that, we think having a balanced mix of electric and gas utilities is a good way to be positioned through the coming planning horizon. I would go a step further and say, if you look at the use of natural gas for heating and a lot of other direct use, there's really not a good substitute. There's really not a better alternative when you look across our country and you look across our territories in particular.

Do you see battery storage as something that in the five- to 10-year time frame can be cost competitive?

Storage, in particular, coupled with solar is already showing up as competitive and really a key part of the puzzle to solve the capacity needs. We saw that as very economic in our [request for proposals] last year. I don't know why that would change. I see that continuing to play a role. That said, when you look at the broader picture and the regional and national energy needs, there is going to be a clear need for dispatchable thermal capacity and/or storage on a relatively large scale compared to anything we've seen in the past.

We'll continue to go to the market, test the market, make sure that what we bring into our plan is indeed dispatchable and deliverable into our territory.

If an investor or customer was looking at NiSource and trying to get a picture of the type of investments this company is going to make when you roll out your next capital expenditure plan, is it going to be largely wires focused or is it going to be a balance of wires and gas?

We've guided out through 2022. Our CapEx plan is running at a pretty consistent profile of about two-thirds on the gas side, predominantly infrastructure modernization, [and] there is some growth capital in there as well for expansion of the system. On the electric side, it has moved from an era where we had large projects for environmental retrofits and large transmission projects to more programmatic investments in the wires side of the business.

I think that mix is kind of our core base mix. Outside of that, over time, we might see occasional relatively large projects find their way in that could be electric transmission, gas transmission and renewables, and potential gas generation, depending on what we see in the marketplace.