A series of natural gas explosions last Thursday in three Massachusetts communities near Boston is a “credit negative” for parent company NiSource Inc. and Columbia Gas of Massachusetts, aka Bay State Gas Co., Moody’s Investors Service said.
National Transportation Safety Board Chairman Robert Sumwalt said Sunday a preliminary investigation pointed to an issue with the regulator that controls the gas flow between high- and low-pressure parts of the system, which may have permitted “significantly greater flows and pressure” into structures in Lawrence, Andover and Lower Andover.
Gas explosions killed one man, injured about two dozen people and damaged or destroyed up to 80 structures.
“The tragic event...is credit negative” for NiSource and Bay State, “and could result in the deterioration of each company’s financial position and lead to a more contentious regulatory relationship,” analysts said.
“Quantifying the financial damage associated with the event will take time, but the company’s management and their response to the event is already being politicized…”
Massachusetts Gov. Charlie Baker last Friday put Boston-based utility, Eversource Energy, in charge of restoring utility services after they were shut down to contain the incident. NiSource is headquartered in Indiana.
“Although rare, natural gas distribution utilities experience explosions occasionally and typically carry insurance to cover property damages and casualties,” Moody’s analysts noted. The “similar scale” San Bruno, CA, gas pipeline explosion in a neighborhood eight years ago on Pacific Gas & Electric’s (PG&E) pipelines led to third-party liability claims of more than $500 million.
Most of the claims were covered by insurance. “However, the California Public Utilities Commission and interveners were sharply critical of PG&E. As a result, PG&E shareholders ultimately had to fund more than $4 billion of unrecoverable costs and penalties.”
Bay State Gas historically has maintained a “healthy relationship with the Massachusetts Department of Public Utilities (DPU), achieving credit supportive rate case outcomes, with frequent settlements, including the last one filed earlier this month…”
However, Moody’s analysts expect the DPU to delay executing the proposed settlement until more details are known about the cause of last week’s event.
Bay State debt is guaranteed by NiSource, one of the largest local distribution utility holding companies in the country. NiSource has seven utilities operating across different jurisdictions in the northeastern quadrant of the United States.
“Bay State Gas is NiSource’s fourth largest utility, after its Ohio-, Indiana- and Pennsylvania-based utilities, and accounts for about 10% of consolidated rate base and operating cash flows,” Moody’s noted.
The diversity of the NiSource service territory is important in supporting credit quality, as its multi-state operations help contain regulatory risks from being concentrated in any one state.
“Still, NiSource’s rapid growth has strained its financial position, leaving little cushion for unforeseen events,” said the credit ratings agency.
NiSource “has made great progress” to improve its balance sheet, but the Massachusetts incident “could make it harder for the company to achieve that goal as it incurs additional costs for system restoration and faces potential liability for damages.”