UNITIL CORP 10-Q Summary: Quarter Ended September 30, 2010
Business Context and Reporting Period
This Form 10-Q covers the three and nine months ended September 30, 2010. Unitil Corporation is a public utility holding company headquartered in Hampton, New Hampshire, operating three distribution utilities (Unitil Energy, Fitchburg Gas and Electric Light, and Northern Utilities) and an interstate gas transmission pipeline (Granite State Gas Transmission). The company serves approximately 100,500 electric and 70,000 natural gas customers across New Hampshire, Massachusetts, and Maine. Results for 2010 are not directly comparable to 2009 due to the acquisition of Northern Utilities and Granite State Gas Transmission completed in late 2008 and the issuance of 5.0 million common shares in 2009.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2010 | Nine Months Ended Sep 30, 2010 |
|---|---|---|
| Total Operating Revenues | $76.1 million | $260.5 million |
| Net Income (Loss) | ($0.1) million | $4.4 million |
| Earnings (Loss) Applicable to Common Shareholders | ($0.1) million | $4.3 million |
| Earnings Per Share (Basic & Diluted) | ($0.01) | $0.40 |
| Cash Provided by Operating Activities | N/A | $21.5 million |
| Cash Used in Investing Activities | N/A | ($33.8) million |
| Cash Provided by Financing Activities | N/A | $12.6 million |
| Net Utility Plant | $463.6 million | $463.6 million |
| Long-Term Debt (Less Current) | $288.5 million | $288.5 million |
| Short-Term Debt | $46.3 million | $46.3 million |
Material Changes vs. Prior Period
- Profitability: Net income for the nine months ended September 30, 2010, was $4.3 million, a decrease from $8.7 million in the same period of 2009. The third quarter 2010 reported a net loss of $0.1 million, an improvement from a $0.6 million loss in Q3 2009.
- Electric Sales: Electric sales margins increased by $2.4 million (Q3) and $2.5 million (9 months) compared to 2009, driven by higher kilowatt-hour sales (up 11.1% in Q3, 4.9% in 9 months) due to hotter summer weather and a rate increase implemented in July 2010.
- Gas Sales: Natural gas sales margins were unchanged in Q3 but decreased by $3.8 million for the nine-month period. Total gas therm sales were down 2.7% (Q3) and 5.5% (9 months) due to milder winter temperatures (13% fewer Heating Degree Days).
- Expenses: Operation and Maintenance (O&M) expenses increased $1.1 million (Q3) and $2.5 million (9 months) due to higher utility operating costs and professional fees. Interest expense, net, increased $0.7 million (Q3) and $1.0 million (9 months) following the issuance of $40 million in long-term debt in March 2010.
- Cash Flow: Cash provided by operating activities dropped significantly to $21.5 million for the nine months ended September 30, 2010, compared to $45.4 million in 2009, largely due to a $30.0 million decrease in working capital changes driven by gas inventory fluctuations.
Guidance, Outlook, and Risks
- Rate Cases: Unitil Energy received approval for a temporary rate increase of $5.2 million effective July 1, 2010, with permanent rates expected by February 2011. Granite State Gas Transmission filed for a base rate increase expected to be effective January 1, 2011. Fitchburg and Northern Utilities are preparing base rate cases for completion within the next twelve months.
- Capital Expenditures: Projected capital expenditures are approximately $55.0 million for 2010 and $60.0 million for 2011.
- Regulatory Risks: The company faces ongoing regulatory reviews regarding the December 2008 ice storm response. The Massachusetts Department of Public Utilities (MDPU) ordered Fitchburg to refund $4.6 million for imprudent gas purchasing practices (amortized over five years), a decision currently under appeal. The MDPU also ordered an independent management audit of Fitchburg.
- Legal Proceedings: A putative class action lawsuit regarding the December 2008 ice storm remains pending in Massachusetts. The company believes the suit is without merit.
- Environmental: Accrued liabilities of $12.0 million are recorded for the remediation of a former manufactured gas plant in Fitchburg, with an additional $2.5 million for Northern Utilities sites.
Investor Verification Checklist
- Verify the final approval and effective date of Unitil Energy's permanent base rate increase scheduled for February 2011.
- Monitor the outcome of Fitchburg's appeal regarding the $4.6 million gas cost refund ordered by the MDPU.
- Track the progress of the independent management audit of Fitchburg ordered by the MDPU following the 2008 ice storm.
- Review the status of the IRS examination regarding the company's 2006-2008 tax returns and net operating loss carrybacks.
- Assess the impact of weather variability on future gas sales volumes and margins, given the 13% reduction in Heating Degree Days in the first nine months of 2010.