UTL

UNITIL CORP 10-Q Summary: Quarter Ended March 31, 2006

Business Context and Reporting Period

UNITIL CORPORATION (Unitil) is a public utility holding company providing retail distribution of electricity and natural gas in New Hampshire and Massachusetts through subsidiaries Unitil Energy Systems, Inc. (UES) and Fitchburg Gas and Electric Light Company (FG&E). This report covers the three-month period ended March 31, 2006. The quarter was significantly impacted by one of the warmest winters on record, with heating degree days approximately 12% below the prior year, adversely affecting sales volumes.

Key Financial Metrics

Liquidity: As of March 31, 2006, the Company held $2.2 million in cash and had $19.3 million in unused bank lines of credit available under $44.0 million in total unsecured revolving lines.

Material Changes vs. Prior Period

• Revenue Composition: While total revenues increased by $10.7 million, this was driven primarily by higher pass-through costs for purchased electricity ($10.6 million increase) and purchased gas ($1.8 million increase). Gross sales margins for both electric and gas declined due to lower volumes.
• Sales Volume: Total electric kWh sales decreased 1.2% due to milder weather. Residential natural gas sales dropped 11.7%, while commercial/industrial gas sales rose 8.0% due to a new special contract with a large industrial customer.
• Expenses: Operation & Maintenance expenses increased $0.2 million due to higher salaries and benefits. Depreciation and Amortization decreased $0.9 million following the full amortization of regulatory assets related to the Seabrook Station investment in late 2005.
• Interest: Net interest expense increased $0.2 million, driven by a higher weighted average cost of debt following the refinancing of variable-rate short-term debt with fixed-rate long-term notes.

Guidance, Outlook, and Risks

Regulatory Matters: UES filed a base rate increase request of $4.65 million with the New Hampshire Public Utilities Commission (NHPUC) in November 2005. Temporary rates were approved effective January 1, 2006, with a final order anticipated before the end of 2006. The Company is not recognizing potential rate increases until the outcome is more clearly determined.

Capital Requirements: Annual capital expenditures are budgeted at $37.2 million for 2006, up from $24.4 million in 2005. This includes approximately $9.5 million for Automated Meter Infrastructure projects expected to complete in 2007.

Risks and Contingencies:

• Weather Sensitivity: Earnings remain highly sensitive to weather variations, particularly heating degree days.
• Regulatory Uncertainty: Outcomes of pending rate cases and regulatory approvals for pension cost recovery mechanisms (PAC) could materially impact future financial results.
• Interest Rate Risk: The Company has variable-rate short-term debt; a 1% change in rates on $25 million of debt would impact annual interest expense by approximately $250,000.
• Environmental: Ongoing remediation at the Sawyer Passway MGP site in Fitchburg, MA, with costs recoverable through rates subject to regulatory caps.

Investor Verification Checklist

• Rate Case Outcome: Monitor the NHPUC decision on the UES $4.65 million rate increase request, expected by late 2006.
• Weather Normalization: Assess the impact of the record warm winter on full-year sales volume and margin recovery in subsequent quarters.
• Capital Spending: Verify the execution of the increased $37.2 million capital budget, specifically the $9.5 million Automated Meter Infrastructure project.
• Pension Cost Recovery: Track the regulatory approval status for the Pension/PBOP Adjustment Charge (PAC) mechanism for UES.
• Debt Structure: Review the impact of the recent refinancing of short-term variable debt into long-term fixed debt on future interest expense stability.