Toll from natural gas disaster in Merrimack Valley passes $1 billion
The Sept. 13 natural gas disaster that ripped through the Merrimack Valley has now cost Columbia Gas of Massachusetts more than $1 billion, and the utility also reported Wednesday that it is seeking to settle the numerous lawsuits filed against it.
The latest estimate is nearly double the initial projection made by Columbia Gas parent company NiSource, which conceded it had underestimated the “required scope of the restoration work inside the affected homes and the extended period of time over which the restoration work would take place.”
The company again declined to say when it will seek a rate increase to cover a portion of its Lawrence costs.
In its 2018 financial report filed Wednesday, NiSource said it incurred $757 million in third-party claims related to the disaster, such as for property loss, and said the figure could go higher.
NiSource also reported $266 million in costs for other Lawrence-related expenses, such as the deployment of workers in the recovery effort, bringing the total bill for the utility to $1.023 billion so far.
Those expenses do not include any fines or penalties the company may receive from federal and state regulators. NiSource is also facing a host of lawsuits filed by victims alleging negligence, including one by the family of Leonel Rondon, the 18-year-old man who was killed in the accident.
NiSource said it is negotiating a settlement with the plaintiffs, and the various cases have been consolidated before a single judge in Essex County Superior Court. In January, the judge agreed to a 90-day hold on cases to allow mediation between the utility and the victims, NiSource said in its filing, and the parties are preparing to ask for more time.
Noting that it has $800 million in liability insurance for damages, and another $300 million in coverage for pipelines and other property, NiSource said that “total expenses related to the incident have exceeded the total amount of liability insurance coverage available under our policies.”
So far the company has recorded $135 million in “insurance recoveries.”
The utility’s report puts a large dollar figure on a disaster whose human toll has been well documented. Two dozen people were injured, and thousands of residents across Lawrence, Andover, and North Andover went without heat or hot water for weeks during the onset of cold weather, forced to live in hotels and portable trailers as crews worked to repair the gas system; some braved the dropping temperatures, cooking on hot plates and warming parts of their homes with space heaters.
The incident remains under investigation, although the National Transportation Safety Board issued a preliminary report finding that an error by a Columbia Gas engineer during a pipeline replacement job in Lawrence led to over-pressurization of the system, triggering a rush of gas that erupted into more than 120 fires and explosions. The NTSB expects its final report to take many more months to complete.
The US attorney’s office also is investigating whether NiSource can be held criminally liable.
The utility disclosed Wednesday that it was fined $75,000 by Massachusetts regulators for an over-pressurization incident at its gas system in Taunton in 2016. The fine was handed out by the Massachusetts Department of Public Utilities in November, more than two months after the Merrimack Valley disaster.
NiSource could still face sizable fines for the Lawrence disaster, but the company said it could not project those amounts at this time. The Massachusetts DPU, for example, could levy penalties of up to $209,000 for each violation of federal pipeline safety regulations, and up to $250,000 for every violation of the company’s emergency response plan, up to $20 million for related violations.
In one of the most cataclysmic pipeline accidents in recent years, the state of California fined PG&E $1.6 billion for a 2010 explosion that killed eight people and destroyed a neighborhood outside San Francisco. The company also faced $500 million in liability claims.
Insurance coverage does not typically cover fines and penalties, leaving those costs to shareholders. In California, PG&E shareholders ultimately had to cover $4 billion in costs and penalties, according to a Moody’s Investors Services report following the Merrimack Valley disaster.
In addition, the state of Massachusetts and the communities of Lawrence, Andover, and North Andover are seeking reimbursement from Columbia for their respective expenses.
In a statement accompanying the financial report, NiSource chief executive Joe Hamrock said the company remains committed to its Lawrence response efforts. Over a three-month period in 2018, the utility repaired more than 44 miles of pipeline and restored gas service to the area, though crews are slated to return in the spring to replace appliances of some residents, repair roads and lawns, and make other infrastructure repairs. The company has reached an agreement with the state to complete the work by September.
“We remain humbled by the event, and we’re engaged in extensive efforts to enhance the safety and reliability of our gas distribution systems across our seven-state footprint,” Hamrock said, referring to the companies NiSource oversees in six states other than Massachusetts.
The utility previously said it spent $165 million replacing damaged underground pipes, and last year indicated it would seek a rate increase to recover that spending. Asked about it during a conference call with investors Wednesday, Hamrock said it is too early in the recovery process to consider a rate hike.
Added NiSource spokesman Ken Stammen: “We’re really focused on the restoration and haven’t made any decisions on any regulatory rate cases.”
Overall, NiSource, which operates gas and electric utilities in the seven states, reported a net loss for the year of $65.6 million, compared to a profit of $128.5 million in 2017. But the company’s underlying business operations performed strongly last year, with revenues topping $5 billion for the first time since 2014.
“The core operating business is doing well,” Stammen said, adding the disaster had been the “big driver” in the company’s net loss.