UNITIL CORP - 10-Q Summary (Quarter Ended September 30, 2006)
Business Context and Reporting Period
UNITIL Corporation (Unitil) is a public utility holding company providing retail distribution of electricity and natural gas in New Hampshire and Massachusetts through subsidiaries Unitil Energy Systems, Inc. (UES) and Fitchburg Gas and Electric Light Company (FG&E). The company also operates an unregulated energy brokering business, Usource. This report covers the three and nine months ended September 30, 2006.
Key Financial Metrics
| Metric | 3 Months Ended Sep 30, 2006 | 9 Months Ended Sep 30, 2006 |
|---|---|---|
| Total Operating Revenues | $66.3 million | $197.2 million |
| Net Income | $1.8 million | $5.3 million |
| Earnings Applicable to Common Shareholders | $1.8 million | $5.2 million |
| Earnings Per Share (Basic & Diluted) | $0.32 | $0.93 |
| Cash Provided by Operating Activities | N/A | $17.1 million |
| Capital Expenditures | $10.2 million | $24.7 million |
| Long-Term Debt (Less Current) | $140.1 million | $140.1 million |
| Short-Term Debt | $17.6 million | $17.6 million |
| Cash and Equivalents | $3.8 million | $3.8 million |
Material Changes vs. Prior Period
- Earnings: Q3 2006 earnings applicable to common shareholders increased $0.2 million (12.8%) to $1.8 million compared to Q3 2005, driven by a New Hampshire electric rate increase. However, nine-month earnings decreased $0.5 million to $5.2 million due to milder weather reducing sales volumes.
- Electric Sales: Total electric kWh sales decreased 3.2% in Q3 and 1.7% in the nine-month period due to warmer winter weather (12% warmer) and cooler summer weather (11% cooler) compared to 2005. Despite lower volume, electric operating revenues increased 16.4% in Q3 and 17.5% in the nine-month period due to higher commodity costs passed through to customers and approved base rate increases.
- Gas Sales: Total gas therm sales increased 32.0% in Q3 and 11.7% in the nine-month period, primarily due to a new contract with a large industrial customer. Absent this contract, sales would have declined due to milder weather.
- Expenses: Depreciation and amortization decreased $1.4 million in Q3 and $2.9 million in the nine-month period due to lower utility plant depreciation rates and the expiration of the Seabrook Amortization Surcharge. Interest expense, net, increased due to higher weighted average costs of debt following new bond issuances.
Guidance, Outlook, and Risks
- Regulatory Developments: On October 6, 2006, the New Hampshire Public Utilities Commission (NHPUC) approved a settlement for UES's electric distribution base rate case. This includes a $2.3 million annual rate increase effective January 1, 2006, and future step increases totaling approximately $0.5 million. The settlement also resolves pension and postretirement benefit cost recovery issues.
- Capital Requirements: Annual capital expenditures for 2006 are projected at $33.5 million, up from $24.4 million in 2005. This includes $6.7 million for an Automated Metering Infrastructure project.
- Financing: UES issued $15 million of Series O, 6.32% First Mortgage Bonds in September 2006 to refinance short-term borrowings. FG&E issued $15 million of unsecured long-term notes in December 2005.
- Risks: Key risks include weather variations affecting sales, regulatory changes, interest rate fluctuations, and commodity price volatility. The company notes that while commodity costs are passed through, regulatory commissions could require deferral of costs. Additionally, the implementation of SFAS No. 158 regarding pension accounting is expected to significantly impact the balance sheet in 2006.
Investor Verification Checklist
- Verify the impact of the NHPUC rate settlement on future cash flows and the specific timing of the $2.3 million annual increase.
- Monitor the status of the margin sharing approval for the new large industrial gas contract with the Massachusetts Department of Telecommunications and Energy (MDTE).
- Assess the potential balance sheet impact of SFAS No. 158 implementation for pension and postretirement benefits in the upcoming year-end filing.
- Review the progress of the Automated Metering Infrastructure project and its alignment with the $6.7 million capital outlay.
- Track the outcome of the Massachusetts Attorney General's appeal regarding FG&E's bad debt recovery order.