Lawrence disaster estimated at $800 million and counting
The utility responsible for the Sept. 13 explosions and fires that rocked the Merrimack Valley estimated its potential financial costs on Thursday, and the money is big: more than $800 million.
Included in that amount are claims for personal injury and property losses. So are expenses related to the restoration effort, including up to $165 million to replace some 45 miles of damaged underground pipes in Lawrence, Andover, and North Andover. The utility indicated it would seek a rate increase to recover that spending on gas lines.
In a quarterly financial filing Thursday, NiSource Inc., the parent company of Columbia Gas of Massachusetts, said its costs could grow because its estimate does not include any fines or penalties the utility may incur, or payments to local businesses for lost revenue.
The company is also the subject of several lawsuits filed by victims of the disaster, including one from the family of an 18-year-old man who died in the incident.
The human toll of the disaster has been well documented, but the SEC filing began to reveal the financial hit to Indiana-based NiSource, which bought the Massachusetts company formerly known as Bay State Gas in 1999, and its insurer.
“We’ve acknowledged it could grow, and we’re watching this carefully,” NiSource spokesman Ken Stammen said. “We’re really focused on getting service restored to all the customers in Greater Lawrence, taking care of them, and taking care of the community. That really is our number one focus right now.”
NiSource also confirmed an earlier report in the Globe that it is under criminal investigation by the US attorney’s office in Boston. The company said it received subpoenas from prosecutors on Sept. 24. Stammen said NiSource is cooperating with the investigation but could not comment further.
The Lawrence-area disaster caused NiSource to report a $345 million loss, or 95 cents a share, for the quarter that ended Sept. 30, compared with net income of $14 million for the same period last year. Investors took the news in stride, perhaps because the company said it had insurance coverage for up to $800 million and would be seeking higher rates to pay for the new gas lines. The stock was little changed at $25.37, which translates to a market value of $9.2 billion.
The company’s financial report set out cost estimates for several major components of the disaster and recovery effort. The largest is $415 million to $450 million for personal and property losses, damage to municipal streets and other infrastructure, replacement of appliances for homeowners, and temporary lodging for displaced families.
A second category that includes company expenses, overtime and lodging for workers, and charitable donations could run $180 million to $210 million. The underground pipe replacement is estimated to cost between $135 million and $165 million, and NiSource said in the filing that the “recovery of this capital investment will be addressed in a future regulatory proceeding.”
But Stammen said there was no official determination Columbia would look to recover the pipeline replacement costs from ratepayers.
“That’s a question for another day,” he said.
After the September catastrophe, Columbia Gas withdrew a settlement on a rate increase that it previously reached with the state Department of Public Utilities.
The 45 miles of pipeline were already slated to be replaced as part of a broader upgrade Massachusetts utilities are required to make to eliminate older, leak-prone cast iron, and steel pipes. And in the normal course of business, Columbia would be permitted to seek higher rates for those improvements.
Massachusetts Attorney General Maura Healey, who has been critical of Columbia Gas’s response to the disaster, would not comment on the possibility of a rate increase, saying only that her office “will oppose any effort to force ratepayers to pay for Columbia Gas’s failures,” according to a spokeswoman.
Although NiSource’s insurance covers much of its exposure, insurance won’t reimburse for fines or penalties.
In 2015, the California Public Utilities Commission fined Pacific Gas and Electric Co. $1.6 billion for the San Bruno gas disaster five years earlier that killed eight people, what was then the largest fine against a utility in the United States. The federal government also fined the utility $3 million.
Last month, the credit-rating agency Moody’s Investors Services warned that the Merrimack Valley explosions “could result in the deterioration of” Columbia’s and NiSource’s financial position, pointing to the financial toll that the California explosion had on PG&E, which included $500 million in liability claims. While insurance covered the liability claims, PG&E shareholders had to cover $4 billion in costs and penalties, according to Moody’s.
But Charles J. Fishman, an equity analyst with Morningstar Research Services, said that he does not foresee Columbia Gas facing the same repercussions. While acknowledging the tragedy of the Merrimack Valley disaster, Fishman said there are different financial issues at play, including the scale of the events and Columbia’s backing by insurance and the larger NiSource.
Massachusetts also has caps on fines that California did not. The state can fine companies for pipeline violations of $209,000 per day, and up to $20 million for violation of emergency plans. And after Sept. 13, the DPU was authorized to fine Columbia Gas up to $1 million per violation of the department’s operational directives for the restoration effort.
Fishman estimates Columbia will face between $50 million and $100 million in fines and penalties that will not be covered by insurance.
“It’s not going to have an impact because it’s a big company,” he said.