Are You at Risk of a Ticking Time Bomb in Our Nation's Utility Industry?

Consolidated Edison (NYSE: ED  ) probably didn't need to think too hard about what caused an explosion that killed eight people in Harlem. It was an old gas pipe and Con Ed knew it was a problem. However, fixing that problem is a bigger issue than you may think. Particularly in light of the felony charges now being leveled against PG&E (NYSE: PCG  ) after a similar explosion in California.

Old toys
The United States is well past the industrial revolution that's now taking shape in countries like China. China is building shiny new toys from buildings to bridges. Domestically, we've had such vital infrastructure for decades. However, infrastructure built fifty or more years ago eventually needs to be replaced.

That's why the Verrazano Bridge and Tappan Zee Bridge are being replaced. The fact that the United States has been coasting on old infrastructure is also why the Metropolitan Transportation Authority of New York (MTA) went with Chinese steel for the Verrazano bridge—China has the know how and produces cheap steel. After getting bad press for that call, the MTA switched to a U.S. based mill for the Tap.

(Source: Patrice78500, via Wikimedia Commons)

That's good for the U.S. steel industry, and U.S. pride. However, replacing old bridges just puts an above ground face on the underground problem Con Ed is dealing with.

Old pipes
The most recent example is a natural gas pipe leak in Harlem that led to a fatal explosion. That pipe was over 100 years old. That makes a 50 year old bridge look like a baby in comparison. And, the scary thing is, Con Ed knew it was a problem. It's just the problem is so big it's going to take decades to fix.

There are over 2,000 miles of pipes in New York City that need to be replaced, according to Con Ed. The run rate for fixing the problem is about 100 miles a year. Simple math tells you that unless more money is spent, New York has 20 years of worry ahead of it since any pipe could turn into an explosion hazard at any time.

Con Ed isn't alone, however, National Grid (NYSE: NGG  ) also serves the Big Apple. According to the Daily News, this pair have seen nearly 40 "incidents" caused by gas leaks over the past three years.

Getting serious
This is a bigger than a breadbox problem... much bigger. PG&E experienced a massive explosion in the San Francisco area in 2010. That explosion destroyed 35 houses and killed eight people. Just like New York, the culprit was an old natural gas pipe.

(Source: Brocken Inaglory, via Wikimedia Commons)

Now, however, PG&E is facing felony charges. It stands accused of, "...knowingly and willfully..." violating safety standards. Much of the case is based on PG&E's record keeping and testing methods. Con Ed and National Grid know there are leaky old pipes under Manhattan. However, the pace of repair could become an issue of legal contention based on the life threatening risk involved.

Across the country
While PG&E, National Grid, and Consolidated Edison show that the problem exists, it's important to remember that the issue isn't a coastal one. Infrastructure across the United States is aging and in dire need of repair. An explosion from a leaky old gas pipe could hit anywhere.

If you own PG&E you need to keep an eye on the legal case it's now fighting. Based on that case, Con Ed and National Grid have more legal risk than they did before. And keep a close eye on this issue if you invest in utilities that own gas assets or make heavy use of the fuel.

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Reuben Brewer

Reuben Gregg Brewer believes dividends are a window into a company's soul. He tries to invest in good souls.

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9/1/2015 4:01 PM
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