Unitil Corporation 2023 Form 10-K Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company serving approximately 196,900 electric and natural gas customers in New Hampshire, Massachusetts and Maine. Its principal businesses are electric distribution, natural gas distribution and an 85-mile interstate natural gas transmission pipeline. The filing covers the fiscal year ended December 31, 2023; results are seasonal, with gas earnings generally strongest in the first and fourth quarters.
- Electric customers: approximately 108,500; gas customers: approximately 88,400.
- Net utility plant: $1,420.9 million at December 31, 2023.
- Employees: 531, including 182 represented by labor unions.
- Operations are subject to FERC, NHPUC, MDPU and MPUC regulation.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total operating revenue | $557.1 million | $563.2 million | (1.1%) |
| Electric revenue | $306.5 million | $297.9 million | 2.9% |
| Gas revenue | $250.6 million | $265.3 million | (5.5%) |
| Operating income | $87.1 million | $80.5 million | 8.2% |
| Net income | $45.2 million | $41.4 million | 9.2% |
| Basic and diluted EPS | $2.82 | $2.59 | $0.23 |
| Cash from operating activities | $107.0 million | $97.7 million | 9.5% |
| Capital expenditures | $141.0 million | $122.1 million | 15.5% |
Reported operating margin was approximately 15.6%, and net margin was approximately 8.1%. GAAP gross margin was $191.2 million, compared with $180.1 million in 2022. Adjusted gross margin, a non-GAAP measure excluding depreciation and amortization, was $258.6 million, up from $242.7 million.
- Electric adjusted gross margin increased to $104.1 million from $98.8 million, primarily due to higher rates and customer growth.
- Gas adjusted gross margin increased to $154.5 million from $143.9 million, despite warmer winter weather.
- Electric kWh sales decreased 3.2%; gas therm sales decreased 1.5%.
- Operation and maintenance expense increased 2.6% to $75.6 million.
- Depreciation and amortization increased 7.7% to $67.4 million.
- Net interest expense increased 12.6% to $28.7 million, primarily because of higher short-term borrowing costs.
Liquidity, Debt and Capital Resources
- Cash and cash equivalents were $6.5 million at year-end, compared with $9.0 million in 2022.
- Short-term debt outstanding was $162.0 million, up from $116.0 million, leaving $38.0 million available under the $200.0 million revolving credit facility.
- Long-term debt, net of issuance costs, was $514.0 million, including $4.9 million current maturities.
- Total capitalization was $998.4 million, including $489.3 million of stockholders’ equity.
- Fitchburg issued $25.0 million of long-term notes in July 2023 at rates of 5.70% and 5.96%, primarily to refinance debt and for general corporate purposes.
- The revolving credit facility matures in September 2027, subject to potential extensions, and includes a 65% funded-debt-to-capitalization covenant. Unitil was in compliance at year-end.
- Debt ratings were BBB+ from S&P; Moody’s ratings were Baa2 for Unitil and Granite State and Baa1 for Fitchburg, Unitil Energy and Northern Utilities.
Operating cash flow of $107.0 million did not fully cover $141.0 million of capital expenditures. Financing activities provided $31.5 million. Projected 2024 capital spending is $165 million to $170 million.
Material Changes Versus 2022
- Net income rose $3.8 million, or 9.2%, supported by higher electric and gas adjusted gross margins.
- Revenue declined because lower gas commodity costs reduced pass-through gas revenue; these supply costs generally do not affect earnings because they are recovered through reconciling rates.
- Higher rates, capital tracker mechanisms and customer growth more than offset lower usage and warmer weather.
- Short-term debt increased $46.0 million, while net interest expense rose $3.2 million.
- Capital expenditures increased $18.9 million, primarily for electric and gas system additions.
- The annual common dividend increased from $1.62 per share in 2023 to an effective annualized rate of $1.70 per share beginning in January 2024.
- Revenue decoupling now covers substantially all electric sales and approximately 42% of gas therm sales, reducing earnings sensitivity to sales volumes in covered areas.
Guidance, Outlook, Risks and Unusual Items
- Management projected 2024 capital spending of $165 million to $170 million but did not provide explicit earnings guidance in the filing.
- Fitchburg has pending electric and gas base-rate filings seeking net distribution revenue increases of approximately $4.1 million and $6.7 million, respectively; decisions were expected in June 2024.
- Northern Utilities received approval for a $7.6 million Maine distribution revenue increase effective October 1, 2023, with a 9.35% authorized return on equity.
- Massachusetts regulatory proceedings may require changes to gas utility planning, decoupling and climate-compliance processes. The MDPU stated that existing natural gas infrastructure investments should not be jeopardized, but future recovery may require demonstrating that non-gas alternatives were considered.
- Fitchburg’s offshore wind and clean-energy commitments remain subject to project financing, regulatory approvals, pricing and transmission issues. Several previously approved offshore wind contracts were terminated in 2023; Unitil recorded a $1.1 million regulatory liability for customer benefit.
- Environmental obligations totaled $4.6 million. Potential remediation costs could reach $5.6 million at Northern Utilities’ Rochester manufactured-gas-plant site and $3.5 million at Fitchburg’s Sawyer Passway site, although recovery through rates is expected.
- Total known gas and electric supply contractual obligations were $491.3 million, including $479.2 million of gas supply commitments. These costs are generally subject to regulatory recovery.
- The company reported no cybersecurity risks that materially affected, or were reasonably likely to materially affect, its business, results or financial condition during 2023.
- Principal risks include rate-recovery decisions, interest rates, refinancing and liquidity, severe weather and storms, energy supply availability and prices, cybersecurity, aging infrastructure, environmental and climate regulation, pension obligations, labor relations and customer demand.
Important Facts for Investors to Verify
- Reconcile reported earnings growth with the increase in short-term debt, higher interest expense and the planned 2024 capital program.
- Review the availability and pricing of the $200 million revolving facility, including the $38 million year-end availability and 65% covenant.
- Assess pending Fitchburg rate cases, grid-modernization recovery, storm-cost recovery and the impact of Massachusetts climate-related regulation.
- Evaluate whether regulatory assets of $109.6 million and other deferred costs remain probable of recovery under future commission decisions.
- Monitor environmental remediation estimates and recovery mechanisms for the Rochester, Sawyer Passway and Kensington sites.
- Review the $491.3 million of energy supply commitments and the extent to which pass-through mechanisms protect margins and cash flow.
- Confirm the sustainability of the $1.70 annualized dividend given capital requirements, debt maturities and subsidiary dividend restrictions.
- Consider the sensitivity of earnings and cash flow to interest rates, weather, pension funding, regulatory outcomes and decarbonization policy.