Unitil Corporation 2022 Form 10-K Summary
Business context and reporting period
Unitil Corporation is a regulated utility holding company serving approximately 195,600 electric and natural-gas customers in New Hampshire, Massachusetts, and Maine. The company operates electric distribution, natural-gas distribution, and an 86-mile interstate gas transmission pipeline. This Form 10-K covers the fiscal year ended December 31, 2022, with comparisons primarily to 2021.
Key financial metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Operating revenue | $563.2 million | $473.3 million | 18.9% increase |
| Operating income | $80.5 million | $77.8 million | 3.5% increase |
| Net income | $41.4 million | $36.1 million | 14.7% increase |
| Basic and diluted EPS | $2.59 | $2.35 | 10.2% increase |
| Operating margin | 14.3% | 16.4% | Declined |
| Net margin | 7.4% | 7.6% | Slight decline |
| Cash flow from operations | $97.7 million | $107.8 million | 9.4% decrease |
| Capital expenditures | $122.1 million | $115.0 million | 6.2% increase |
| Net utility plant | $1,331.7 million | $1,257.2 million | 5.9% increase |
Electric operating revenue was $297.9 million and gas operating revenue was $265.3 million. Electric GAAP gross margin was $73.4 million and electric adjusted gross margin was $98.8 million. Gas GAAP gross margin was $107.6 million and gas adjusted gross margin was $143.9 million. Adjusted gross margin, a non-GAAP measure, excludes depreciation and amortization from gross margin.
At December 31, 2022, cash and cash equivalents were $9.0 million. Short-term debt was $116.0 million, and long-term debt, net of issuance costs, was $495.8 million, including $6.7 million classified as current. Total capitalization was $956.7 million, including $467.6 million of stockholders’ equity. The $200 million revolving credit facility had $84.0 million available, and the company was in compliance with its debt covenants.
The annual common dividend increased to $1.56 per share in 2022 from $1.52 in 2021. In January 2023, the board declared a quarterly dividend of $0.405 per share, equivalent to an annualized rate of $1.62.
Material changes versus the prior comparable period
- Revenue increased primarily because of higher regulated electric and gas rates, higher pass-through energy costs, customer growth, and colder winter weather.
- Electric adjusted gross margin increased $1.4 million to $98.8 million, while electric kilowatt-hour sales declined 1.0%.
- Gas adjusted gross margin increased $10.8 million to $143.9 million, and gas therm sales increased 1.3%. Weather-normalized gas sales excluding decoupled sales were essentially unchanged.
- Operating and maintenance expense increased $5.0 million, depreciation and amortization increased $3.1 million, and taxes other than income taxes increased $1.4 million.
- Interest expense, net decreased slightly to $25.5 million, while other expense decreased $2.2 million, primarily due to lower retirement benefit costs.
- Operating cash flow declined by $10.1 million, principally because working capital was a $6.0 million use of cash in 2022 versus a $6.2 million source in 2021.
- Unitil entered into a new $200 million revolving credit facility in September 2022, replacing the prior $120 million facility. The maturity is September 2027, subject to potential extensions.
- Revenue decoupling expanded materially: substantially all electric sales became decoupled beginning June 1, 2022, and approximately 43% of annual gas sales were decoupled beginning August 1, 2022.
- Retirement benefit obligations declined to $46.8 million from $133.9 million, primarily due to higher discount rates and changes to the retiree medical plan; the related regulatory asset declined to $29.1 million from $86.4 million.
Guidance, outlook, commentary, risks, and unusual items
Management projected 2023 capital spending of approximately $135 million to $145 million, above 2022 spending. The company stated that internally generated cash, short-term borrowings, long-term financing, and equity-market access are expected to provide sufficient funding for operations and capital requirements.
Rate proceedings during 2022 produced approved distribution increases for Unitil Energy and Northern Utilities’ New Hampshire division, together with new or expanded decoupling mechanisms. Fitchburg received approvals for grid modernization, electric-vehicle programs, and recovery of certain property-tax and other exogenous costs. A proposed 4.99-megawatt utility-scale solar facility remained pending before the New Hampshire Public Utilities Commission.
Fitchburg participates in long-term clean-energy and offshore-wind procurement programs. A legal appeal concerning the Massachusetts approval of certain offshore-wind power purchase agreements remained pending after year-end. The company also identified potential future commitments related to Massachusetts clean-energy requirements.
Material risks include regulatory disallowance or delay in recovering costs, changes in allowed rates of return, rising interest rates, access to capital, weather variability, severe storms, aging infrastructure, cyberattacks, operational failures, labor disruptions, environmental liabilities, pension funding requirements, energy-supply capacity, customer conservation, distributed generation, and long-term changes in natural-gas demand. The company has committed to reduce greenhouse-gas emissions from 2019 levels by at least 50% by 2030 and achieve net-zero emissions by 2050; regulatory or economic changes could increase the cost of those objectives or limit recovery through rates.
The company accrued $2.5 million for anticipated remediation at the Rochester, New Hampshire manufactured-gas-plant site; the high end of the reasonably possible cost range was estimated at $5.6 million. Total environmental obligations were $4.4 million at year-end. Outstanding guarantees related to energy and gas-storage contracts were approximately $1.2 million, generally with durations of less than one year.
Most important facts for investors to verify
- Confirm the composition, maturity profile, and interest rates of approximately $611.8 million of short- and long-term debt, including the 65% funded-debt-to-capitalization credit-facility covenant.
- Assess whether projected 2023 capital spending of $135 million to $145 million can be funded while maintaining dividends and credit quality.
- Review the regulatory asset and liability balances and the assumptions supporting continued regulated-operations accounting and future cost recovery.
- Evaluate the sustainability of 2022 margin growth given that gas margin benefited from higher rates and colder weather, while weather-normalized gas sales were essentially flat.
- Monitor pending regulatory and legal matters involving offshore wind, decarbonization, grid modernization, electric vehicles, transmission rates, and the proposed solar facility.
- Review environmental remediation exposure, particularly the Rochester site, and the extent to which related costs are recoverable from customers.
- Verify pension and post-retirement funding requirements, asset performance, discount-rate sensitivity, and the potential effect on cash flow.
- Consider the company’s stated dividend dependence on subsidiary distributions, regulatory approvals, cash flow, and debt covenants.