BY ROBERT P. MADER of CONTRACTOR’s staff
BOSTON — Finding that it’s tough to make a buck in the plumbing-and-heating business, utility KeySpan Corp. said it plans to sell a significant portion of its mechanical contracting operations. KeySpan also said it recorded a $90.4 million non-cash after-tax goodwill impairment charge in its energy services segment, of which mechanical contracting is a part. The charge resulted in a third quarter loss of $117.1 million.
“We have made the decision to exit portions of the business solutions division, which have not met our expectations,” Chairman and CEO Robert B. Catell said in a statement. “We will monetize those businesses which we determine do not contribute to the growth of our core gas and electric operations and retain the businesses which support our growth strategy.”
The Energy Services segment provides energy-related services to customers in the Northeast through Home Energy Services and Business Solutions. KeySpan Home Energy Services is a full-service energy company for residential and small commercial customers. KeySpan Business Solutions is an engineering, mechanical contracting and facility services company specializing in energy solutions for large commercial and institutional customers.
KBS’ contracting services has regional offices in New Jersey, New York, Connecticut, Pennsylvania, Maine, Rhode Island and New Hampshire. KBS was put together through acquisitions of contractors by KeySpan or its subsidiaries. For example, Northeast utility EnergyNorth’s non-utility subsidiary bought Maine contractors Northern Peabody and Granite State Plumbing and Heating, then renamed them ENI Mechanicals. KeySpan bought EnergyNorth and renamed ENI Mechanicals as KeySpan Business Solutions.
KeySpan spokesman Ed Yutkowitz said some of the contractors still operate under their own name with the tagline, “A KeySpan Business Solutions company,” while others just use the KeySpan Business Solutions name. Yutkowitz noted that the timing and specifics of the divestiture are still uncertain.
“We probably are looking to divest ourselves of most of the mechanical contractors, but everything is still under consideration and the process will be formalized over the coming months,” Yutkowitz said.
The segment reported a loss in operating income of $143 million for the third quarter, which includes the pre-tax non-cash goodwill impairment charge of $122 million. Operating results, before the goodwill impairment, were a loss of $21 million, as compared to a loss of $16 million in the prior year, which reflect continued deteriorating margin estimates on certain projects.
KeySpan said it will continue to evaluate the fair value of the mechanical contracting companies in relation to potential disposition alternatives and, as a result, may be required to write-down the carrying value of them in the near term. Hugh Kelleher, executive manager, Plumbing-Heating-Cooling Contractors of Greater Boston, said he isn’t holding his breath.
“Since they’re being subsidized to get into some of these other businesses, like the plumbing and mechanical businesses, by the ratepayers, I can’t believe that they are going to be quick to get out of businesses that compete directly with contractors,” Kelleher said.
KeySpan has been problematic in the Boston area with its giveaways of free gas furnaces and boilers, mostly as a way to convert oil-heating customers to gas.
At one time the Massachusetts Oilheat Council, upset about KeySpan’s continual gas equipment giveaways, attempted unsuccessfully to get the Massachusetts attorney general involved (October 2003, pg. 1). The Oilheat Council maintained that KeySpan has used $11.5 million is ratepayer money to subsidize the program.
Kelleher speculated that KeySpan had run into trouble trying to run large mechanical contractors that it has purchased.
“A lot of mechanical businesses have been built on the intelligence and character of one or two or three key people within the company, and when you lose that, often the company suffers, and when you try to impose an outside structure from a utility company, a lot of times it’s not going to work very well,” Kelleher said.
On the other hand, Kelleher does not expect to see KeySpan sell Home Energy Services, especially since its equipment giveaways have been central to KeySpan’s load building program.
“I don’t believe they will give up on equipment giveaways and luring people toward Home Services here in Massachusetts,” Kelleher said.