UTL

UNITIL CORP 10-K Summary: Fiscal Year Ended December 31, 2006

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2006, 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 99,300 electric customers and 15,000 natural gas customers. The Company also maintains a non-regulated energy brokering subsidiary, Usource, and administrative subsidiaries.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total operating revenue increased 12.4% to $260.9 million, driven primarily by higher purchased electricity costs passed through to customers and a new gas transportation contract with a large industrial customer.
• Earnings Decline: Earnings applicable to common shareholders decreased 5.9% to $7.9 million. This was primarily due to milder weather in 2006 (reducing sales volume), higher operating and maintenance expenses, and increased interest costs.
• Weather Impact: Electric sales decreased 2.2% due to significantly milder winter and summer weather. Gas sales increased 8.6% overall, but absent a new industrial contract, sales would have been 10.7% lower due to the record warm winter.
• Debt and Capitalization: Long-term debt increased by $14.7 million following the issuance of $15.0 million in First Mortgage Bonds by UES in September 2006. Short-term debt increased by $7.3 million.
• Regulatory Assets: Regulatory assets increased by $19.1 million, largely due to the adoption of SFAS No. 158 requiring the recording of underfunded retirement benefit obligations and the recording of environmental remediation liabilities.

Guidance, Outlook, and Risks

• Rate Settlements: The Company secured final approval for a New Hampshire electric rate settlement increasing base distribution rates by approximately $3.1 million annually. A Massachusetts gas rate settlement was approved to phase in increases totaling $2.2 million starting in 2007.
• Capital Expenditures: Capital expenditures for 2007 are projected at $32.4 million, focusing on utility system additions and the final phase of the Advanced Metering Infrastructure (AMI) project.
• Key Risks:
  • Regulatory Risk: Dependence on state commissions (NHPUC, MDTE) for rate approvals and cost recovery.
  • Weather Sensitivity: Approximately 75% of natural gas sales are temperature-sensitive; mild winters significantly reduce revenue.
  • Pension Funding: Declines in capital markets could require substantial cash contributions to pension plans under the Pension Protection Act of 2006.
  • Environmental Liabilities: Ongoing remediation at the Sawyer Passway MGP site carries a recorded liability of $12.0 million, with potential for future cost increases.
• Dividend Policy: The Board declared a quarterly dividend of $0.345 per share in January 2007, maintaining an unbroken record of quarterly payments.

Investor Verification Checklist

• Verify the timing and magnitude of the approved rate increases in New Hampshire and Massachusetts to confirm revenue recovery in 2007.
• Monitor the status of the Massachusetts Attorney General's appeal regarding the recovery of supply-related bad debt costs.
• Review the funded status of pension and post-retirement benefit plans, particularly in light of SFAS No. 158 and the Pension Protection Act.
• Assess the progress and cost implications of the Advanced Metering Infrastructure (AMI) project.
• Track the resolution of the Sawyer Passway MGP site remediation and any potential insurance recoveries.