UTL

UNITIL CORP 10-Q Summary: Quarter Ended March 31, 2004

Business Context and Reporting Period

This Form 10-Q covers the three-month period ended March 31, 2004, for Unitil Corporation, a public utility holding company. The Company operates regulated retail distribution utilities in New Hampshire (Unitil Energy Systems, Inc.) and Massachusetts (Fitchburg Gas and Electric Light Company), providing electricity and natural gas. It also maintains an unregulated energy brokering subsidiary, Usource. As of April 27, 2004, there were 5,510,579 shares of common stock outstanding.

Key Financial Metrics

Segment Performance: Electric revenues decreased 8.9% to $47.5 million, while Gas revenues decreased 6.2% to $11.6 million. Other revenues (primarily Usource) increased 21.6% to $0.4 million.

Material Changes vs. Prior Period

• Revenue Decline: Total operating revenues fell $5.3 million year-over-year. Electric revenues dropped due to lower purchased electricity costs (pass-through costs) and lower commodity prices, despite a 1.1% increase in kWh sales. Gas revenues declined due to a milder winter (6.1% drop in therm sales) and lower commodity prices.
• Profitability: Net income increased $0.3 million to $2.8 million, driven by lower interest expense ($0.3 million reduction) and higher pre-tax earnings, despite a slight decrease in electric and gas sales margins.
• Cost Structure: Conservation & Load Management expenses nearly doubled (97.1% increase) due to new energy efficiency programs, though these are fully recovered from customers. Operation and Maintenance expenses rose slightly (1.7%) due to salary increases.
• Debt Reduction: The Company significantly reduced short-term borrowings by $7.0 million and retired $3.1 million in long-term debt (FG&E 8.55% Notes).

Guidance, Outlook, and Risks

Outlook: Management estimates total 2004 capital expenditures to be $21.9 million, equivalent to 2003 levels. The Company expects to continue applying SFAS No. 71 (Regulatory Accounting) for the foreseeable future.

Regulatory Matters:

• New Hampshire: UES filed for revised rates effective May 1, 2004, proposing a net decrease of 1.4%. The Company is seeking approval to defer and amortize transaction costs related to its reorganization.
• Massachusetts: FG&E filed summer gas rates effective May 1, 2004. While gas costs are projected to be 2.3% lower than current rates, the cessation of a temporary refund will result in a net average customer rate increase of 8.6%.
• Investigations: The Massachusetts Department of Telecommunications and Energy (MDTE) is investigating FG&E's dealings with Enermetrix, Inc., an affiliated company. Management believes this will not have a material adverse effect.

Risks: Key risks include weather variations, regulatory changes, interest rate fluctuations, and commodity price volatility. The Company notes that forward-looking statements are subject to inherent uncertainties.

Investor Verification Checklist

• Regulatory Asset Recovery: Verify the status of the $195 million in stranded costs and regulatory assets approved for recovery over the next 6-8 years.
• Rate Filings: Monitor the approval of the proposed 1.4% rate decrease in New Hampshire and the 8.6% net rate increase in Massachusetts effective May 1, 2004.
• Debt Maturity: Review the schedule for long-term debt maturities, noting the recent retirement of the FG&E 8.55% Notes.
• Environmental Liabilities: Confirm the status of the Sawyer Passway MGP site remediation and the "Temporary Solution" status extension.
• Affiliate Transactions: Track the outcome of the MDTE investigation regarding Enermetrix, Inc. transactions.