Unitil Corporation — Form 10-Q Summary
Business context and reporting period
Unitil Corporation is a regulated utility holding company serving approximately 104,300 electric customers and 79,900 natural gas customers in New Hampshire, Massachusetts and Maine. Its principal businesses are electric and natural gas distribution, an 86-mile interstate natural gas transmission pipeline, and non-regulated energy brokering. This filing covers the three and six months ended June 30, 2017, compared with the corresponding 2016 periods.
Financial performance and key metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Total operating revenue | $80.8 million, versus $74.5 million | $206.8 million, versus $200.3 million |
| Operating income | $10.5 million, versus $9.5 million | $36.6 million, versus $32.9 million |
| Net income | $3.1 million, or $0.23 per share, versus $2.5 million, or $0.18 | $15.5 million, or $1.11 per share, versus $13.4 million, or $0.96 |
| Operating margin | Approximately 13.0%, versus 12.8% | Approximately 17.7%, versus 16.4% |
| Cash provided by operating activities | Not separately presented for the quarter | $63.2 million, versus $40.2 million |
| Capital expenditures | Not separately presented for the quarter | $44.9 million, versus $39.6 million |
- Gas operating revenue increased 10.7% in the quarter and 4.7% year to date. Gas sales margin increased to $20.5 million and $58.5 million, respectively.
- Electric operating revenue increased 7.5% in the quarter and 1.8% year to date. Electric sales margin increased to $23.3 million and $45.3 million, respectively.
- Natural gas therm sales increased 6.4% in the quarter and 4.6% year to date. Electric kilowatt-hour sales declined 0.4% and 0.8%, respectively.
- At June 30, 2017, net utility plant was $912.7 million and total assets were $1.14 billion.
- Cash and cash equivalents were $7.8 million. The $120 million revolving credit facility had $79.2 million of borrowings, $1.1 million of letters of credit and $39.7 million available.
- Long-term debt, net of issuance costs, was $333.4 million, including $29.9 million classified as current. Total capitalization was $603.9 million, including $300.4 million of equity.
- The company paid $10.2 million of dividends during the first six months. The quarterly dividend was increased to $0.36 per share, implying a current annualized rate of $1.44.
Material changes versus the prior comparable period
- Net income increased $0.6 million in the second quarter and $2.1 million for the first six months, primarily from higher gas and electric sales margins and customer growth.
- Higher distribution rates contributed materially to margin growth: gas rates contributed $0.6 million in the quarter and $1.7 million year to date; electric rates contributed $2.8 million and $4.4 million, respectively.
- O&M expense increased $1.9 million in the quarter and $2.1 million year to date, driven by utility operating costs, vegetation management, regulatory costs and compensation expenses.
- Depreciation and amortization increased $0.2 million in the quarter and $0.9 million year to date as utility plant additions entered service.
- Short-term debt increased to $79.2 million from $54.2 million at June 30, 2016, while long-term debt declined modestly from the prior-year comparable date. The average short-term borrowing rate increased to 2.2% for the first six months from 1.7%.
- Operating cash flow increased $23.0 million year over year, partly reflecting improved working-capital and regulatory-liability movements.
Guidance, outlook, risks and unusual items
- No quantitative earnings guidance was provided. Management noted that results are seasonal, with natural gas earnings typically strongest in the first and fourth quarters, and that quarterly results are not necessarily indicative of full-year results.
- Unitil Energy received approval for a $4.1 million permanent annual revenue increase and a three-year rate plan, including a $0.9 million May 2017 step adjustment and further steps in 2018 and 2019.
- Northern Utilities filed Maine and New Hampshire rate cases seeking annual revenue increases of $6.0 million and $4.7 million, respectively. The Maine decision was expected by February 2018 and the New Hampshire decision by April 2018. Temporary New Hampshire rates of approximately $1.6 million annually were expected to begin August 1, 2017, subject to regulatory approval.
- Northern Utilities received a $1.1 million annual Maine infrastructure replacement adjustment effective May 1, 2017. Granite State filed for a $0.2 million annual increase effective August 1, 2017; the filing remained pending.
- On July 14, 2017, subsidiaries agreed to issue $90 million of senior unsecured notes, expected to fund November 1, 2017, primarily to repay short-term debt and for general corporate purposes. Closing remained subject to customary conditions.
- Outstanding guarantees on energy and gas storage contracts totaled approximately $23.9 million, with the longest term extending through April 2018.
- Key risks include regulatory decisions and cost recovery, weather, commodity and transmission costs, interest rates, access to financing, pension obligations, severe storms, environmental compliance, operating hazards, competition and customer demand. Commodity costs are generally recovered through pass-through rate mechanisms.
- Pending matters include rate cases, environmental remediation at former manufactured gas plant sites, energy and grid-modernization proceedings, and litigation related to the 2008 Fitchburg ice storm. Management did not expect these matters to have a material adverse effect, but outcomes remain subject to regulatory, legal and environmental uncertainties.
- The company was implementing a new customer information system, subject to user testing and system acceptance. Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Progress, timing and final outcomes of the Northern Utilities Maine and New Hampshire rate cases and the Granite State rate filing.
- Closing and use of proceeds of the planned $90 million senior note issuance, and the resulting reduction in short-term borrowings.
- Whether customer growth and approved rate increases continue to offset weaker commercial and industrial electric usage, weather variability and higher operating costs.
- Available liquidity under the revolving credit facility, compliance with the 65% funded-debt-to-capitalization covenant, and refinancing needs for debt maturing in 2018.
- Future pension, environmental remediation, storm-recovery and regulatory-asset or regulatory-liability cash requirements.
- Potential effects of pending FERC transmission-rate proceedings, Massachusetts and New Hampshire clean-energy programs, and implementation of new accounting standards.