Financial toll of Lawrence gas disaster soars — and may keep rising
The utility responsible for the Sept. 13 Merrimack Valley gas disaster said Wednesday that the potential financial costs have jumped to more than $1.6 billion, and that it is “reasonably possible” the toll could grow as the company faces numerous lawsuits and uncertainty over insurance reimbursements.
NiSource Inc., the parent company of Columbia Gas of Massachusetts, said in a quarterly report to investors that the costs include $1 billion alone for incident-related damages from the fires and explosions. That figure still does not account for potential penalties and fines as well as the lawsuits the company faces, including one brought by the family of 18-year-old Leonel Rondon, who was killed.
The company spent another $370 million on the monthslong response, including the setup of claims centers, and on labor. And the company said it cost $250 million to replace 43 miles of underground pipeline damaged by the disaster, as it raced to restore gas to tens of thousands of residents before the onset of cold weather.
NiSource acknowledged in its filings Wednesday that it could be liable for much of those costs, noting that one insurance plan provides $800 million in liability damages, and the coverage will likely exclude fines, penalties, and millions in charitable donations that the company doled out after the disaster. The company has a separate, $300 million plan for property damage that it wants to cover the costs of the pipe replacement.
Yet NiSource also disclosed Wednesday that its insurance carriers “have raised defenses to coverage under the terms and conditions of the respective insurance policies . . . that could limit the amount of insurance proceeds to the company.
“We are not able to estimate the amount of expenses that will not be covered by insurance, but these amounts are material to our financial statements,” the company stated.
NiSource spokesman Ken Stammen declined to comment on the potential increase in costs, saying that the company is focused on repairs and restoration of service to the Lawrence area, which went into a second phase this spring with the replacement of hundreds of additional heating appliances.
“The claims process is ongoing, and discussions are ongoing,” he said. “We really continue to be focused on finishing the restoration the right way and rebuilding trust within the community.”
The projections show that, long after its immediate emotional and physical effects were documented, the financial toll on the company continues to mount. Charles J. Fishman, an equity analyst with Morningstar Research Services, said the financial costs, penalties, and insurance coverage are issues that could weigh heavily on NiSource and its stock.
“There’s quite a bit they’re going to have to eat, regardless of what the insurance is, this is going to be financial,” he said. “It’s still relatively small for the company . . . but they’re feeling it, and the stock is feeling it. NiSource has lagged the rest of the group [of utilities], and it’s because of this.”
NiSource is based in Indiana, and operates gas and electric utilities in seven states. It reported revenues of $5.1 billion in 2018, and on Wednesday said its net income for the first three months of 2019 was $205.1 million, or 55 cents per share, compared to $276.1 million, or 82 cents per share, for the same period last year.
The stock declined 1.4 percent Wednesday, to close at $27.40.
NiSource has not said yet whether it will seek rate increases from Massachusetts to recover some of the costs.
The recent work to replace pipeline in the area was already slated to be done as part of a broader upgrade required under state regulations. In the normal course of business, Columbia would be expected to seek new rates for those improvements.
The company said in its filing Wednesday that “The recovery of any capital investment not reimbursed through insurance will be addressed in a future regulatory proceeding. The outcome of such a proceeding is uncertain.”