Unitil Corporation 10-Q Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company serving approximately 108,100 electric customers and 87,500 gas customers in New Hampshire, Massachusetts and Maine. Its principal businesses are electric and natural-gas distribution, supported by Granite State Gas Transmission, an 86-mile interstate pipeline. The report covers the three and nine months ended September 30, 2023; results are unaudited and seasonally affected by gas-heating demand.
Unitil had $1.4 billion of net utility plant at September 30, 2023. Revenue from purchased electricity and gas is generally recovered through pass-through and reconciliation mechanisms, limiting the direct earnings effect of commodity-cost changes. Electric sales were substantially decoupled and approximately 43% of annual gas sales were decoupled.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2023 | Year-over-Year Change | Nine Months Ended September 30, 2023 | Year-over-Year Change |
|---|---|---|---|---|
| Total operating revenue | $103.9 million | Down $6.3 million | $427.5 million | Up $25.8 million |
| Operating income | $8.0 million | Up $0.8 million | $59.3 million | Up $4.4 million |
| Net income | $1.4 million | Up $0.9 million | $29.7 million | Up $2.8 million |
| Basic and diluted EPS | $0.09 | Up $0.06 | $1.85 | Up $0.17 |
| Electric adjusted gross margin | $29.2 million | Up $0.8 million | $80.1 million | Up $3.5 million |
| Gas adjusted gross margin | $22.2 million | Up $1.8 million | $106.4 million | Up $5.8 million |
| Operating margin | Approximately 7.7% | Up from approximately 6.5% | Approximately 13.9% | Up from approximately 13.7% |
| Net margin | Approximately 1.3% | Up from approximately 0.5% | Approximately 6.9% | Up from approximately 6.7% |
Operating expenses were $95.9 million in the quarter and $368.2 million year to date. Nine-month expenses included $56.0 million of operation and maintenance, $50.1 million of depreciation and amortization, and $21.1 million of taxes other than income taxes. Net interest expense increased to $7.0 million in the quarter and $21.1 million year to date.
Cash provided by operating activities was $78.7 million for the first nine months, compared with $82.7 million in the prior-year period. Capital expenditures were $93.4 million, resulting in negative free cash flow before financing of approximately $14.7 million. Cash and cash equivalents were $6.0 million at September 30, 2023.
Short-term borrowings were $129.5 million, leaving $70.5 million available under the $200 million revolving credit facility. Long-term debt was $516.0 million net of issuance costs, including $509.0 million excluding the current portion. Total stockholders’ equity was $479.8 million. The company remained in compliance with its credit-facility covenants, including the 65% funded-debt-to-capitalization limit.
Quarterly common dividends were $0.405 per share, equivalent to a current annualized rate of $1.62 per share. Fitchburg issued $25.0 million of long-term notes in July 2023 to refinance existing debt and for general corporate purposes.
Material Changes Versus the Prior Comparable Period
- Third-quarter revenue declined 5.7%, primarily because lower electric and gas supply costs were passed through to customers. Nine-month revenue increased 6.4% due mainly to higher electric rates and electric supply costs.
- Electric adjusted gross margin increased 2.8% in the quarter and 4.6% year to date, driven by higher rates and customer growth, despite electric kilowatt-hour sales declines of 4.9% and 5.0%, respectively.
- Gas adjusted gross margin increased 8.8% in the quarter and 5.8% year to date, reflecting higher rates and customer growth. Nine-month gas results were partly offset by warmer winter weather and the absence of $2.4 million of higher-rate recognition recorded in the second quarter of 2022.
- Electric customers increased by approximately 50 and gas customers by approximately 800 from the prior year.
- Operation and maintenance expense increased $1.0 million in the quarter and $0.5 million year to date. Depreciation and amortization increased $0.2 million and $3.2 million, respectively, reflecting higher utility plant and deferred-cost amortization.
- Net interest expense increased $0.4 million in the quarter and $2.0 million year to date, primarily because of higher short-term borrowing costs. Average short-term borrowing rates rose to 6.4% for the quarter and 6.2% year to date, versus 3.6% and 2.4% in the respective 2022 periods.
- Net utility plant increased to $1.390 billion from $1.332 billion at December 31, 2022, while construction work in progress increased to $107.6 million from $52.6 million.
Guidance, Outlook, Risks and Unusual Items
- The filing does not provide formal earnings guidance.
- Northern Utilities received approval for a $7.6 million annual increase in Maine distribution revenues effective October 1, 2023, with a 9.35% authorized return on equity.
- Fitchburg filed Massachusetts electric and gas base-rate petitions in August 2023. The requested net increases were $4.1 million for electric and $6.7 million for gas, with rates proposed for July 1, 2024; decisions were expected in June 2024.
- Fitchburg requested recovery of approximately $4.8 million of January and March 2023 storm-repair costs through higher rates effective January 1, 2024. The request remained pending.
- Granite State received approval for a $1.0 million annual revenue increase effective September 1, 2023 under its final limited rate adjustment.
- Regulatory recovery is central to the business. The company recorded $104.4 million of regulatory assets and $51.7 million of regulatory liabilities at September 30, 2023 and believes recovery of regulated investments is probable.
- Environmental obligations totaled $4.6 million, including a $2.5 million accrual for remediation at Northern Utilities’ Rochester, New Hampshire manufactured-gas-plant site. Estimated high-end remediation costs for that site could reach $5.6 million; recovery through rates is expected.
- Major risks include regulatory decisions and cost recovery, interest-rate and refinancing risk, severe weather and storm costs, commodity supply and capacity issues, cybersecurity and operational disruptions, environmental liabilities, climate-related regulation, pension obligations, labor availability and changing customer energy preferences.
- SouthCoast Wind and Commonwealth Wind offshore-wind contracts were terminated with regulatory approval in September 2023. Massachusetts utilities issued a new offshore-wind solicitation seeking at least 400 MW and up to 3,600 MW, with proposals due January 31, 2024.
- The company reported no material subsequent events, no outstanding guarantees as of September 30, 2023, no material changes to previously disclosed risk factors, and effective disclosure controls.
Important Facts for Investors to Verify
- Whether the pending Fitchburg electric and gas rate cases, storm-cost recovery request and grid-modernization proceedings produce the anticipated recovery and timing.
- The sustainability of earnings growth as higher rates offset declining electric usage and weather-sensitive gas demand.
- Short-term borrowing levels, variable interest-rate exposure and refinancing needs, including the $129.5 million drawn on the revolving facility.
- Capital-expenditure requirements, construction work in progress and the company’s ability to fund investments while maintaining dividends and credit metrics.
- Regulatory-asset recovery, deferred-cost balances and the continuing applicability of regulated-operations accounting.
- Environmental remediation costs, particularly the Rochester site and the Unitil Energy Kensington site.
- Potential effects of Massachusetts decarbonization policy, offshore-wind contract developments and long-term changes in natural-gas demand.