Unitil Corporation 10-Q Summary
Business Context and Reporting Period
Unitil Corporation is a regulated utility holding company providing electric and natural gas distribution in New Hampshire, Massachusetts and Maine, plus interstate natural gas transmission and non-regulated energy-brokering services. Its distribution utilities serve approximately 104,300 electric customers and 79,900 natural gas customers. The filing covers the three and nine months ended September 30, 2017; financial statements are unaudited.
Financial Performance and Key Metrics
| Metric | Three Months 2017 | Three Months 2016 | Nine Months 2017 | Nine Months 2016 |
|---|---|---|---|---|
| Total operating revenue | $84.0 million | $78.8 million | $290.8 million | $279.1 million |
| Operating income | $9.5 million | $11.1 million | $46.1 million | $44.0 million |
| Net income | $2.3 million | $3.5 million | $17.8 million | $16.9 million |
| Basic and diluted EPS | $0.16 | $0.25 | $1.27 | $1.21 |
| Operating cash flow | Not separately provided | Not separately provided | $74.7 million | $62.7 million |
| Capital expenditures | Not separately provided | Not separately provided | $84.2 million | $74.4 million |
- Gas sales margin increased 5.0% to $16.8 million in the quarter and to $75.3 million for the nine months.
- Electric sales margin decreased 3.1% to $24.8 million in the quarter but increased 6.1% to $70.1 million for the nine months.
- Operation and maintenance expense increased $2.3 million in the quarter and $4.4 million for the nine months, primarily due to compensation, vegetation management, system maintenance and regulatory costs.
- Net interest expense increased to $5.8 million in the quarter and $17.1 million for the nine months, primarily reflecting higher short-term borrowings.
- Net utility plant was $946.7 million at September 30, 2017, compared with $883.4 million at December 31, 2016.
- Cash and cash equivalents were $10.9 million at September 30, 2017, compared with $5.8 million at December 31, 2016.
- Quarterly dividends were $0.36 per common share, representing a stated annualized rate of $1.44 per share.
Material Changes Versus Prior Comparable Period
- Third-quarter net income declined $1.2 million, or $0.09 per share, primarily because milder summer weather reduced electric sales volumes and margins, while operating expenses increased.
- Nine-month net income increased $0.9 million, or $0.06 per share, driven by higher gas and electric distribution rates, customer growth and higher gas margins.
- Natural gas therm sales increased 6.2% in the quarter and 4.9% for the nine months. Electric kWh sales decreased 3.9% and 2.0%, respectively.
- Total customers increased by approximately 1,200 natural gas customers and 1,000 electric customers over the prior twelve months.
- Cash provided by operations rose $12.0 million, while capital expenditures increased $9.8 million, resulting in continued reliance on financing to support utility investment.
- Short-term borrowings increased to $111.9 million from $81.9 million at December 31, 2016 and $36.9 million at September 30, 2016.
Debt, Liquidity and Capital Resources
- The revolving credit facility has a $120.0 million limit, matures October 4, 2020 and includes a $25.0 million letter-of-credit sublimit. At September 30, 2017, $111.9 million was outstanding, $1.1 million was committed to letters of credit and $7.0 million remained available.
- Total long-term debt was $336.2 million before unamortized issuance costs; $29.8 million was classified as current and $303.6 million as noncurrent, net of issuance costs.
- The company remained in compliance with its credit-facility covenants, including the requirement that funded debt to capitalization not exceed 65%.
- Northern Utilities, Fitchburg and Granite State agreed to issue an aggregate $90.0 million of senior unsecured notes, expected to close November 1, 2017, subject to customary conditions. Proceeds were intended primarily to repay short-term debt and fund general corporate purposes.
- Credit ratings were BBB+ from Standard & Poor’s for the company and specified utility subsidiaries; Moody’s ratings ranged from Baa1 to Baa2.
- Outstanding guarantees on energy and natural gas storage management contracts totaled approximately $19.8 million, with the longest term extending through August 2018.
Guidance, Outlook, Regulatory Matters and Risks
- The filing does not provide formal earnings guidance. Management emphasizes that results are seasonal, with natural gas earnings generally strongest in the first and fourth quarters, and that quarterly results are not necessarily indicative of full-year results.
- Unitil Energy received approval for a $4.1 million permanent electric base-rate increase and a $0.9 million May 2017 rate step adjustment, with additional steps scheduled for 2018 and 2019.
- Northern Utilities’ Maine division requested a $6.0 million base-rate increase plus $0.7 million for its Targeted Area Build-out Program; a decision was expected by the end of February 2018.
- Northern Utilities’ New Hampshire division requested a $4.7 million permanent increase. Temporary rates increased annual revenue by approximately $1.6 million beginning August 1, 2017; a final decision was expected in the second quarter of 2018.
- A $22.0 million pipeline refund received in 2015 continues to be credited to customers and marketers; $3.4 million remained recorded as a regulatory liability at September 30, 2017.
- Key risks include regulatory decisions and cost recovery, weather variability, energy commodity and transmission costs, severe storms, pension funding, interest rates, access to financing, debt covenants, operating hazards, environmental liabilities, customer retention and competition.
- The company reported no material changes to the risk factors in its 2016 Form 10-K and stated that ordinary-course legal proceedings were not expected to materially affect financial position, results or cash flows.
- The company implemented a new customer information system during the third quarter. Management concluded that disclosure controls were effective and reported no material change in internal control over financial reporting.
Investor Verification Points
- Verify the November 2017 closing and use of proceeds for the planned $90.0 million senior unsecured note issuance.
- Monitor available borrowing capacity, short-term debt levels and compliance with the 65% funded-debt-to-capitalization covenant.
- Track final outcomes of Northern Utilities’ Maine and New Hampshire rate cases and the requested mechanisms for future capital recovery.
- Assess whether higher O&M expenses, pension obligations and capital spending remain recoverable through regulated rates.
- Evaluate weather-normalized electric demand and the sustainability of gas and electric customer growth.
- Review the continuing customer credits related to the pipeline refund and the potential effects of regulatory, environmental and storm-cost proceedings.