UTL

UNITIL CORP - 10-Q Summary (Q1 2010)

Business Context and Reporting Period

This Form 10-Q covers the three-month period ended March 31, 2010. Unitil Corporation is a public utility holding company headquartered in Hampton, New Hampshire. Its principal business involves the local distribution of electricity and natural gas through three wholly-owned distribution utilities (Unitil Energy, Fitchburg, and Northern Utilities) and a natural gas transmission pipeline (Granite State). The company serves approximately 100,500 electric and 70,000 natural gas customers across New Hampshire, Massachusetts, and Maine. It also operates a non-regulated energy brokering business, Usource.

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Decline: Net income decreased $2.6 million (28.6%) to $6.5 million. Earnings per share dropped significantly from $1.14 to $0.61, primarily due to a 35% increase in average common shares outstanding following a 2009 equity offering used to finance acquisitions.
• Revenue Decrease: Total operating revenues fell $22.6 million (16.7%). This was driven by lower commodity costs passed through to customers and reduced sales volumes due to a milder winter (7.6% fewer Heating Degree Days).
• Sales Volume: Natural gas therm sales decreased 6.5% (2.7% on a weather-normalized basis). Electric kWh sales decreased 1.8% (flat on a weather-normalized basis).
• Expense Increases: Operation & Maintenance (O&M) expenses rose $1.8 million due to the full integration of Northern Utilities and Granite State operations. Depreciation and amortization increased $0.8 million.
• Debt Refinancing: The company reduced short-term debt by $45.2 million, issuing $40.0 million in new long-term debt (First Mortgage Bonds and Senior Unsecured Notes) to refinance borrowings.

Guidance, Outlook, and Risks

• Rate Case Filing: On April 15, 2010, Unitil Energy filed a proposed base rate increase of $10.1 million (6.5% increase) with the New Hampshire Public Utilities Commission (NHPUC), requesting temporary rates effective July 1, 2010. A decision may take up to one year.
• Capital Expenditures: Projected capital spending is approximately $64 million for 2010 and $60 million for 2011.
• Storm Recovery: The company incurred approximately $9.0 million in storm restoration costs following a wind storm in February 2010. These costs are being sought for recovery in the pending rate case.
• Regulatory Risks:
  • Fitchburg Gas Procurement: The Massachusetts Department of Public Utilities (MDPU) ordered a $4.6 million refund to customers for imprudent gas purchasing practices. Fitchburg has appealed this order to the Massachusetts Supreme Judicial Court.
  • Ice Storm Investigation: The NHPUC has opened a docket to examine the reasonableness of Unitil Energy's response to the December 2008 ice storm.
• Seasonality: Results are expected to be positively affected in Q1 and Q4 due to higher natural gas sales, and negatively affected in Q2 and Q3.

Investor Verification Checklist

• Verify the status and potential outcome of the Unitil Energy rate increase request filed in April 2010, as it impacts future revenue recovery.
• Monitor the appeal of the MDPU gas procurement order regarding Fitchburg, which involves a $4.6 million refund liability.
• Assess the impact of the 35% increase in share count on future EPS growth targets.
• Review the recovery timeline for storm costs (February 2010 wind storm and December 2008 ice storm) included in regulatory assets.
• Confirm compliance with the revolving credit facility covenants, specifically the restriction on long-term debt exceeding 65% of capitalization.