Unitil Corporation 10-Q Summary
Business context and reporting period
Unitil Corporation is a regulated utility holding company distributing electricity and natural gas in New Hampshire, Massachusetts and Maine, with an interstate gas transmission subsidiary and a non-regulated energy-brokering business. The filing covers the three and six months ended June 30, 2012, compared with the corresponding 2011 periods. The company served approximately 101,400 electric and 71,900 natural gas customers and had $520.0 million of net utility plant at June 30, 2012.
Key financial metrics
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Operating revenues | $68.8 million, versus $69.5 million | $183.0 million, versus $184.9 million |
| Operating income | $4.3 million, versus $4.2 million | $18.3 million, versus $17.6 million |
| Net income | $(0.3) million, versus $(0.7) million | $8.7 million, versus $8.0 million |
| Earnings applicable to common shareholders | $(0.4) million, or $(0.03) per share | $8.6 million, or $0.74 per share |
| Operating cash flow | Not separately provided | $52.9 million, versus $46.6 million |
| Capital expenditures | Not separately provided | $23.9 million, versus $25.1 million |
Gas sales margin increased to $12.6 million in the second quarter and $39.9 million year to date, from $9.8 million and $34.6 million, respectively. Electric sales margin increased to $17.5 million in the second quarter and $33.6 million year to date, from $15.9 million and $32.0 million. Based on sales margin divided by related operating revenue, gas margin was approximately 55.5% for the quarter and 45.9% year to date; electric margin was approximately 39.1% and 35.9%, respectively.
At June 30, 2012, cash was $6.8 million, total current assets were $88.4 million and current liabilities were $54.4 million. Long-term debt was $288.1 million, including $0.5 million current, and short-term debt was $5.0 million. Common equity was $254.7 million and total capitalization was $544.3 million. The revolving credit facility had a $115.0 million limit, $5.0 million outstanding and $110.0 million available at quarter-end; the limit was reduced to $60.0 million effective July 24, 2012.
Material changes versus the prior comparable period
- Second-quarter loss applicable to common shareholders improved by $0.4 million, while year-to-date earnings increased by $0.7 million.
- Natural gas therm sales declined 7.8% in the quarter and 10.1% year to date; electric kilowatt-hour sales declined 2.7% and 3.8%, respectively.
- Management attributed lower volumes primarily to mild weather. Heating Degree Days were 20% lower in the first six months, reducing estimated earnings by approximately $2.0 million, or $0.17 per share.
- Higher base rates, revenue decoupling and customer growth increased gas and electric sales margins despite lower volumes.
- Operation and maintenance expense increased $2.4 million in the quarter and $3.6 million year to date. Depreciation and amortization increased $1.0 million and $1.4 million, respectively.
- On May 16, 2012, Unitil issued 2.76 million common shares at $25.25 per share and received approximately $65.6 million of net proceeds. Proceeds were used for utility equity contributions, repayment of short-term debt and general corporate purposes.
- Year-to-date financing cash outflows included $82.9 million of short-term debt repayment, partially offset by $66.0 million of common-stock proceeds. Quarterly common dividends remained $0.345 per share.
Guidance, outlook, risks and unusual items
The filing does not provide formal earnings guidance. Results are seasonal, with natural gas earnings generally strongest in the first and fourth quarters. The company expects regulated rate mechanisms to recover approved purchased-energy, conservation, storm and other specified costs, but recovery remains subject to regulatory decisions.
- Fitchburg's approved revenue decoupling mechanisms reduce the sensitivity of certain distribution revenues to weather and usage. They apply to approximately 27% of total electric sales volumes and 13% of total gas sales volumes.
- Recent or pending rate actions include increases for Fitchburg, Unitil Energy, Northern Utilities and Granite State. Granite State filed for a $0.3 million annual incremental rate adjustment, effective August 1, 2012, which remained pending at filing.
- Storm-related costs were deferred or approved for recovery, including approximately $4.3 million for Fitchburg and $4.4 million for Unitil Energy.
- Environmental obligations totaled $14.5 million, including $12.0 million related to the Sawyer Passway former manufactured-gas-plant site and $2.8 million related to Northern Utilities sites. The company expects recovery of qualifying costs through rates but notes that estimates may change.
- The company had approximately $20.6 million of guarantees outstanding as of June 30, 2012, with the longest term extending through February 2014.
- A putative class action relating to the December 2008 Fitchburg ice storm remained pending; management believes it is without merit and does not expect ordinary-course proceedings to have a material financial impact.
- Key risks include regulatory cost recovery and allowed returns, severe weather and storms, commodity and transmission costs, interest rates, access to financing, pension obligations, environmental compliance, operating hazards and competition.
Important facts for investors to verify
- Confirm the effect of the May 2012 equity issuance on future per-share earnings, dividends and capitalization.
- Review the July 2012 reduction of the revolving credit facility and ongoing covenant compliance, including the 65% funded-debt-to-capitalization limit.
- Assess whether rate increases and decoupling mechanisms offset volume pressure from weather and changing customer usage.
- Monitor recovery and carrying-cost treatment for storm costs, environmental obligations and other regulatory assets totaling $154.7 million at June 30, 2012.
- Track pension funding requirements, interest-rate sensitivity and the $91.1 million retirement benefit obligation.
- Follow the Granite State rate filing, the FERC audit expected in September 2012, the pending billing-related regulatory request and the Fitchburg ice-storm litigation.