Columbia Gas under financial scrutiny after gas disaster

Oct. 13--BOSTON -- One day after gas fires and explosions ripped through Columbia Gas' service territory in the Merrimack Valley, shares in the utility's parent, NiSource, plummeted amid Wall Street concerns the disaster would hurt the company's finances.

Its share price fell 11.7 percent to close at $24.79 a day after the fires and explosions that killed a teenager, injured more than two dozen other people and damaged as many as 80 homes in Lawrence, Andover and North Andover. Since then its stock has struggled to recover, with shares hovering around the $25 mark.

And, on Thursday, NiSource stock dipped even further -- to $24.65 a share -- following a preliminary report by the National Transportation Safety Board that suggests Columbia Gas did not require crews to relocate pressure sensors while doing work on natural gas pipelines in the area. The company's shares closed at $24.31 on Friday.

Despite investors' jitters, analysts familiar with the energy industry say NiSource has pockets deep enough to cover the cost of restoring service, fines likely to be imposed by regulators, and to settle any lawsuits from homeowners and businesses who've been without gas for cooking, heat and hot water for weeks.

"It's a solid company with an investment-grade rating, and their operations in other locations are doing well," said Charles Fishman, an analyst with the Chicago-based research company Morningstar Inc. "Obviously that doesn't diminish the fact this was a tragedy and that someone died. But this isn't something that occurs very often."

Fishman estimates a $100 million impact on the company from lawsuits and fines related to the disaster, but he said its return on capital investments will likely offset that cost.

The utilities have been spending $80 million to $120 million a year to upgrade miles of aging cast iron and steel gas pipes, according to a Morningstar report.

"They'll accelerate those capital expenditures, which will give them increased earnings," he said. "In the end it will be a wash for the company."

Based in northwest Indiana, NiSource is one of the largest utilities in the country, serving more than 3.5 million natural gas customers and 500,000 electric customers in seven states.

Its subsidiary Columbia Gas serves about 320,000 customers in Massachusetts, including about 8,600 in the Merrimack Valley.

Energy experts point out that Columbia Gas' service area in the Merrimack Valley is only a minor portion of NiSource's overall operations.

"It's a huge company with more than 60,000 miles of distribution pipeline," said Philip Q. Hanser, a principal at the Cambridge-based Brattle Group, an economic research company. "So, as long as Columbia Gas remains a subsidiary of NiSource, I can't imagine it pursuing a bankruptcy right now. That would be a very drastic move at this point."

Erica Steckler, co-director of the Donahue Center for Business Ethics and Social Responsibility at the UMass Lowell's Manning School of Business, said the utilities need to "act with integrity" to restore service and compensate consumers.

She said the long-term viability of Columbia Gas remains in question.

"It's difficult to imagine how they will survive moving forward," she said. "I'm not sure they will ever recover trust and reputation from the local communities."

NiSource CEO Joe Hamrock has said the company will take full responsibility for what happened and is implementing a service restoration plan.

"We know this has damaged the confidence and trust in our company and what we do," he said recently. "Our full commitment is restoring that trust and that confidence."

To date at least two ratings agencies have raised red flags that the gas explosions could affect the finances -- and debt rating -- of Columbia Gas and its parent company.

Moody's Investors Service issued a "credit negative" notice for NiSource, warning that the explosions "could result in the deterioration of each company's financial position."

Meanwhile, Standard and Poor's revised its outlook for the energy company and its subsidiary, from stable to negative, citing the fires and explosions.

The agencies' reports could foreshadow changes in bond ratings for the utility down the road. Lower ratings would make borrowing more difficult and expensive for the NiSource and its subsidiaries.

They also generally mean higher interest charges, because the risk for investors is perceived to be greater.

Meanwhile, Columbia Gas has backed away from a $33 million rate increase set to go into effect in Massachusetts in November, which was planned to fund pipeline upgrades.

Speaking to reporters on Friday, U.S. Sen. Ed Markey pointed out that NiSource has a market capitalization of about $8.8 billion, so it can afford restoration costs.

"Columbia Gas is a very wealthy company," Markey, a Democrat, said at a press briefing in Boston. "We need to make sure they pay for everything and not shortchange residents."

Christian M. Wade covers the Massachusetts Statehouse for North of Boston Media Group's newspapers and websites. Email him at cwade@cnhi.com.

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