UNITIL CORP 10-K Summary: Fiscal Year Ended December 31, 2005
Business Context and Reporting Period
This Form 10-K covers the fiscal year ended December 31, 2005 for Unitil Corporation, a public utility holding company incorporated in New Hampshire. The Company operates primarily through two regulated retail distribution subsidiaries: Unitil Energy Systems, Inc. (UES) in New Hampshire and Fitchburg Gas and Electric Light Company (FG&E) in Massachusetts. Unitil serves approximately 98,600 electric customers and 15,000 natural gas customers. The Company also maintains unregulated operations through Unitil Resources and Usource, providing energy brokering and consulting services.
Key Financial Metrics
| Metric | 2005 | 2004 |
|---|---|---|
| Total Operating Revenue | $232.1 million | $214.1 million |
| Operating Income | $15.5 million | $15.2 million |
| Net Income | $8.6 million | $8.2 million |
| Earnings Applicable to Common Shareholders | $8.4 million | $8.0 million |
| Earnings Per Share (Diluted) | $1.51 | $1.45 |
| Dividends Per Share | $1.38 | $1.38 |
| Cash Provided by Operating Activities | $24.1 million | $30.6 million |
| Total Assets | $450.1 million | $457.0 million |
| Long-Term Debt (less current) | $125.4 million | $110.7 million |
| Short-Term Debt | $18.7 million | $25.7 million |
| Common Stock Equity | $96.3 million | $94.3 million |
Material Changes vs. Prior Period
- Revenue Growth: Total operating revenue increased 8.4% to $232.1 million. Electric revenue rose 7.3% driven by higher wholesale commodity costs (passed through to customers) and a 2.8% increase in kWh sales due to hotter summer weather and customer growth. Gas revenue increased 14.2% due to higher commodity costs and a 5.1% increase in firm therm sales from a new industrial contract.
- Profitability: Earnings applicable to common shareholders increased 4.8% to $8.4 million. Combined electric and gas sales margins increased by $1.5 million.
- Expenses: Operation and Maintenance (O&M) expenses increased 5.2% ($1.2 million), primarily due to higher salaries, retiree benefits, and audit fees related to Sarbanes-Oxley compliance. Purchased electricity costs rose 9.7% and purchased gas costs rose 21.4%, reflecting higher wholesale market prices.
- Capital Structure: Long-term debt increased by approximately $14.7 million following the issuance of $15.0 million in unsecured notes by FG&E in December 2005 to repay short-term borrowings. Short-term debt decreased by $7.0 million.
Guidance, Outlook, and Risks
- Regulatory Matters:
- UES Rate Case: UES filed a request for a $4.65 million base rate increase on November 4, 2005, to recover pension and post-retirement benefit costs. The New Hampshire Public Utilities Commission (NHPUC) approved temporary rates effective December 4, 2005, with a final order anticipated before November 2006.
- FG&E Filings: FG&E filed annual reconciliation and rate filings with the Massachusetts Department of Telecommunications and Energy (MDTE) in December 2005. Revised rates were approved effective January 1, 2006, subject to further investigation.
- Capital Expenditures: Projected capital expenditures for 2006 are $37.2 million, including a $10.8 million initial phase for an Automated Metering Infrastructure (AMI) project.
- Risks and Contingencies:
- Regulatory Risk: The Company's ability to recover costs and maintain profitability depends on regulatory approvals. Stranded costs of approximately $154 million remain on the balance sheet for future recovery.
- Weather Sensitivity: Natural gas sales are highly seasonal and temperature-sensitive. Electric sales are less sensitive but affected by summer cooling and winter heating demand.
- Environmental: Ongoing remediation at the Sawyer Passway MGP site in Fitchburg, MA. Costs are recoverable from customers over seven-year periods.
- Counterparty Risk: Mirant, a key power supply provider, emerged from Chapter 11 bankruptcy in January 2006. Unitil has secured replacement guarantees for performance.
Investor Verification Checklist
- Verify the outcome of the UES base rate case filed in late 2005, specifically regarding the recovery of pension and post-retirement benefit costs.
- Monitor the status of FG&E's annual reconciliation filings with the MDTE to ensure timely cost recovery.
- Review the progress and cost implications of the $10.8 million Automated Metering Infrastructure (AMI) project scheduled for 2006.
- Assess the impact of potential changes in wholesale energy commodity prices on operating cash flows, noting that while costs are pass-through, timing differences can affect liquidity.
- Confirm the continued performance of Mirant under its supply contracts following its emergence from bankruptcy.