UNITIL CORP - 10-Q Summary (Quarter Ended June 30, 2010)
Business Context and Reporting Period
This Form 10-Q covers the three and six months ended June 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 Company, and Northern Utilities) and one 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 completed in late 2008/early 2009, which involved the issuance of 5.0 million common shares.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2010 |
|---|---|---|
| Total Operating Revenues | $71.4 million | $184.4 million |
| Net Income (Loss) | ($2.0) million | $4.5 million |
| Earnings (Loss) Applicable to Common Shareholders | ($2.1) million | $4.4 million |
| Earnings Per Share (Basic/Diluted) | ($0.19) | $0.41 |
| Cash Provided by Operating Activities | N/A | $27.0 million |
| Capital Expenditures | $8.9 million | $19.2 million |
| Short-Term Debt | $24.6 million | $24.6 million |
| Long-Term Debt (Less Current) | $288.6 million | $288.6 million |
Material Changes vs. Prior Period
- Earnings Decline: The company reported a net loss of $2.1 million for the second quarter of 2010, compared to earnings of $0.2 million in the same period of 2009. For the six-month period, net income applicable to common shareholders was $4.4 million, down from $9.3 million in 2009.
- Gas Sales Impact: Natural gas sales margins decreased by $2.4 million (Q2) and $3.8 million (YTD) due to warmer regional temperatures, resulting in approximately 22% and 12% fewer Heating Degree Days compared to the prior year. Total gas therm sales declined 5.1% (Q2) and 6.0% (YTD).
- Electric Sales Growth: Electric sales margins increased slightly ($0.4 million Q2, $0.1 million YTD) driven by a 5.3% (Q2) and 1.5% (YTD) increase in kilowatt-hour sales.
- Expense Increases: Depreciation and amortization increased by $0.7 million (Q2) and $1.5 million (YTD) due to utility plant additions. Net interest expense increased by $0.8 million (Q2) and $0.3 million (YTD), partly due to $40 million in new long-term debt issued in March 2010.
- Cash Flow: Cash provided by operating activities dropped significantly to $27.0 million for the six months ended June 30, 2010, from $53.5 million in 2009. This was primarily driven by a $19.9 million decrease in changes to current assets and liabilities, specifically a reduction in gas inventory driven by lower natural gas prices.
Guidance, Outlook, and Risks
- Rate Cases:
- Unitil Energy: Received approval for a temporary rate increase of $5.2 million effective July 1, 2010. A permanent base rate increase request of $10.1 million is pending final approval by the New Hampshire Public Utilities Commission (NHPUC), expected by February 2011.
- Granite State Gas Transmission: Filed a base transportation rate increase with the FERC on June 29, 2010, seeking approximately $3 million in annual revenue. An effective date of January 1, 2011, is expected.
- Fitchburg and Northern Utilities: Are preparing base rate cases expected to be filed within the next year.
- Capital Requirements: Capital expenditures are projected to be approximately $64.0 million in 2010 and $60.0 million in 2011.
- Regulatory and Legal Risks:
- Storm Costs: The company is seeking recovery for costs related to the December 2008 ice storm and the February 2010 wind storm. While $5.9 million of wind storm costs were deferred as a regulatory asset, recovery is subject to regulatory approval.
- Fitchburg Gas Procurement: The Massachusetts Department of Public Utilities (MDPU) ordered a $4.6 million refund to customers regarding gas procurement practices. Fitchburg has appealed this order to the Massachusetts Supreme Judicial Court.
- Class Action: A putative class action lawsuit regarding the December 2008 ice storm remains pending in Worcester Superior Court.
- Market Risks: The company faces risks related to weather variations, regulatory changes, interest rate fluctuations, and the ability to recover deferred storm costs. Commodity price risk is mitigated by pass-through rate mechanisms.
Investor Verification Checklist
- Rate Case Outcomes: Monitor the final approval of Unitil Energy's permanent rate increase and Granite's FERC rate filing, as these directly impact future revenue and earnings.
- Storm Cost Recovery: Verify the regulatory status of the $13.5 million (Fitchburg) and $2.3 million (Unitil Energy) deferred storm costs from the 2008 ice storm, and the $5.9 million deferred from the 2010 wind storm.
- Legal Proceedings: Track the status of the Fitchburg gas procurement appeal and the Bellerman class action lawsuit regarding the 2008 ice storm.
- Weather Sensitivity: Assess the impact of seasonal weather patterns on natural gas sales margins, which are highly volatile based on Heating Degree Days.
- Debt Structure: Review the impact of the $40 million long-term debt issuance in March 2010 on future interest expense and liquidity.