Unitil Corporation — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2011; filed July 28, 2011. Unitil is a regulated utility holding company serving approximately 100,900 electric and 70,800 natural gas customers in New Hampshire, Massachusetts and Maine, with an 87-mile interstate gas transmission pipeline and a non-regulated energy-brokering business.
Financial Performance and Position
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total operating revenue | $69.5 million, versus $71.4 million | $184.9 million, versus $184.4 million |
| Operating income | $4.2 million, versus $2.6 million | $17.6 million, versus $13.5 million |
| Net income | $(0.7) million, versus $(2.0) million | $8.0 million, versus $4.5 million |
| Earnings applicable to common shareholders | $(0.8) million, versus $(2.1) million | $7.9 million, versus $4.4 million |
| Basic and diluted EPS | $(0.08), versus $(0.19) | $0.73, versus $0.41 |
| Cash flow from operations | Not separately presented | $46.6 million, versus $27.0 million |
| Capital expenditures | $14.3 million | $25.1 million, versus $19.2 million |
- Gas revenue increased 6.3% in the quarter and 7.4% year to date, while gas sales margin increased $0.4 million and $4.0 million, respectively.
- Electric revenue declined 7.9% in the quarter and 6.5% year to date, primarily because lower purchased-power costs and increased use of third-party suppliers reduced pass-through revenue. Electric sales margin nevertheless increased $2.7 million and $4.7 million, respectively.
- Operating margins, calculated from reported operating income and revenue, were approximately 6.0% for the quarter and 9.5% year to date, compared with approximately 3.6% and 7.3% in the comparable 2010 periods.
- Interest expense, net increased $0.3 million for the quarter and $0.6 million year to date, to $4.8 million and $9.4 million, respectively.
- Cash flow from operations exceeded capital expenditures by $21.5 million year to date. Financing activities used $24.6 million, including $15.5 million of short-term debt repayment and $7.6 million of dividends.
- At June 30, 2011, cash was $5.8 million; short-term debt was $51.3 million; long-term debt was $288.6 million, including $0.5 million current maturities; and common equity was $186.3 million.
- The company had an $80.0 million revolving credit facility, with $28.7 million available at quarter-end. Unitil was in compliance with its debt covenants, including the covenant limiting funded debt to 65% of capitalization.
- Net utility plant was $484.2 million and total assets were $727.6 million at June 30, 2011.
Material Changes Versus Prior Comparable Period
- Year-to-date earnings applicable to common shareholders increased $3.5 million, driven primarily by higher gas and electric sales margins and higher sales volumes, partly offset by increased operating, depreciation, tax and interest expenses.
- Natural gas therm sales increased 18.8% in the quarter and 14.6% year to date; weather-normalized growth was 8.5% and 9.2%, respectively. Heating degree days were 10% higher year to date.
- Electric kilowatt-hour sales were flat in the quarter and increased 2.5% year to date; weather-normalized sales decreased 1.4% in the quarter and increased 1.2% year to date.
- Operation and maintenance expense increased $0.1 million in the quarter and $0.9 million year to date. The year-to-date increase reflected higher compensation, utility operating costs and professional fees, partly offset by a $1.0 million insurance settlement benefit.
- Depreciation and amortization increased $0.5 million in the quarter and $1.3 million year to date, reflecting utility plant additions and higher amortization.
- Short-term debt increased from $24.6 million at June 30, 2010 and declined from $66.8 million at December 31, 2010 to $51.3 million at June 30, 2011.
Regulation, Outlook, Risks and Unusual Items
- Unitil Energy received permanent annual revenue increases of $5.2 million effective July 1, 2010 and $5.0 million effective May 1, 2011. The approved long-term plan includes estimated additional increases of $1.5 million, $1.9 million and $1.4 million in 2012, 2013 and 2014.
- Granite State received an approximately $1.7 million annual revenue increase effective January 1, 2011. A filed amendment, if approved, would add approximately $0.5 million effective August 1, 2011.
- Fitchburg requested annual distribution revenue increases of $7.1 million for electric operations and $4.4 million for gas operations; a final Massachusetts regulatory decision was expected August 2, 2011.
- Northern Utilities requested annual gas distribution revenue increases of $5.2 million in New Hampshire and $10.1 million in Maine. New Hampshire temporary rates added approximately $1.7 million annually effective August 1, 2011; the Maine temporary-rate request remained pending. Final orders were expected in the first half of 2012.
- Capital expenditures were projected at approximately $58.0 million for full-year 2011. Management expects natural gas operations to remain seasonal, with stronger results generally in the first and fourth quarters and weaker results in the second and third quarters.
- Regulatory assets totaled $151.5 million at June 30, 2011, including $46.9 million for retirement benefit obligations, $20.9 million for deferred storm charges and $18.4 million for environmental obligations. Recovery depends on continued favorable regulatory treatment.
- Environmental obligations included $12.0 million for a former manufactured-gas-plant site in Fitchburg and $2.6 million related to Northern Utilities sites. Fitchburg received approximately $2.0 million from an insurance settlement in the first quarter.
- A billing error involving a large Unitil Energy customer resulted in an estimated $1.8 million overcharge. Unitil had refunded $611,699 and sought regulatory authorization regarding additional refunds and recovery from other customers. Related litigation sought approximately $1.2 million plus interest, fees and potentially enhanced damages.
- Fitchburg continued to appeal a Massachusetts order requiring a $4.6 million natural-gas-cost refund, plus carrying charges; the company had recorded a $4.9 million pre-tax charge in 2009.
- Unitil had $32.3 million of guarantees outstanding on energy and storage-management contracts, plus guarantees of $3.6 million of Unitil Realty notes and $10.0 million of Granite notes.
- Principal risks include regulatory disallowances or delayed rate recovery, weather and storm events, energy commodity and interest-rate exposure, pension funding requirements, environmental liabilities, financing availability, debt covenants, customer demand, competition and performance of energy-brokering counterparties. Management reported no material change to the risk factors in the 2010 Form 10-K.
- The company declared quarterly common dividends of $0.345 per share, or $1.035 per share for the first six months of 2011.
Investor Verification Items
- Verify final regulatory outcomes for the Fitchburg rate cases and Northern Utilities’ New Hampshire and Maine rate cases, including the extent and timing of permanent revenue recovery.
- Confirm FERC action on Granite State’s amended settlement and the resulting revenue increases.
- Monitor the Unitil Energy billing-error proceeding, customer refund exposure and related litigation.
- Assess whether regulatory assets, storm costs, environmental obligations and pension liabilities remain recoverable through rates.
- Reconcile the company’s planned $58.0 million of 2011 capital expenditures with operating cash flow, short-term borrowings and available credit capacity.
- Evaluate liquidity under the $80.0 million revolving facility, including the $28.7 million available at June 30, 2011 and the 65% funded-debt-to-capitalization covenant.
- Consider the seasonal nature of gas operations and the impact of weather-normalized demand, customer migration to third-party suppliers and future commodity costs.