UTL

UNITIL CORP - 10-K Summary (Fiscal Year Ended Dec 31, 2007)

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2007. Unitil Corporation is a public utility holding company incorporated in New Hampshire. Its principal business is the retail distribution of electricity in southeastern New Hampshire and both electricity and natural gas in north central Massachusetts. Operations are conducted primarily through two regulated subsidiaries: Unitil Energy Systems, Inc. (UES) and Fitchburg Gas and Electric Light Company (FG&E). The company also operates a non-regulated energy brokering subsidiary, Usource.

Key Financial Metrics

Material Changes vs. Prior Period

• Earnings Growth: Earnings applicable to common shareholders increased 9% to $8.6 million, driven by higher electric and gas sales margins and improved profits from the non-regulated Usource business.
• Revenue Mix: Total revenue increased slightly by $2.0 million. Electric operating revenue remained flat ($225.0M vs $225.2M) due to cooler summer weather and energy conservation, while gas operating revenue increased 2.7% ($34.2M vs $33.3M) due to a colder winter and higher industrial sales.
• Costs and Expenses: Interest expense increased $1.8 million to $9.6 million due to higher debt levels and interest rates. Operating and Maintenance (O&M) expenses rose 1.9% primarily due to higher employee compensation and benefits.
• Capital Structure: Long-term debt increased by $19.6 million following the issuance of $20.0 million in Senior Long-Term Notes in May 2007, which was used to refinance short-term borrowings. Consequently, short-term debt decreased by $7.2 million.
• Regulatory Assets: Regulatory assets decreased by $28.3 million, primarily reflecting current year cost recoveries and a corresponding decrease in Power Supply Contract Obligations.

Guidance, Outlook, and Risks

• Dividend Policy: The company maintained an unbroken record of quarterly dividend payments. The annual dividend remained at $1.38 per share. The Board declared a quarterly dividend of $0.345 per share in January 2008.
• Capital Expenditures: Capital expenditures for 2008 are projected to be $29.3 million, reflecting normal utility plant additions.
• Regulatory Matters:
  • FG&E Electric Rates: A $3.3 million rate increase request was filed in August 2007. The Massachusetts Department of Public Utilities (MDPU) suspended the effective date pending investigation, with a final order anticipated by March 1, 2008.
  • Revenue Decoupling: Both the MDPU and New Hampshire Public Utilities Commission (NHPUC) have opened inquiries into revenue decoupling mechanisms to remove disincentives for energy efficiency. These proceedings remain pending.
• Key Risks:
  • Weather Sensitivity: Approximately 75% of natural gas sales are temperature-sensitive; mild winters can significantly reduce revenue.
  • Regulatory Risk: The company's ability to recover costs and maintain profitability depends on regulatory approvals for rate adjustments.
  • Stranded Costs: The company has approximately $104.8 million in regulatory assets related to stranded costs and restructuring to be recovered over the next three to five years.
  • Environmental Liabilities: An estimated $12.0 million liability is recorded for the permanent remediation of the Sawyer Passway MGP site in Fitchburg, MA.

Investor Verification Checklist

• Verify the status of the pending $3.3 million electric rate increase request for FG&E with the MDPU.
• Monitor the progress of revenue decoupling inquiries in both Massachusetts and New Hampshire, as this could alter the revenue model.
• Review the recovery schedule for the $104.8 million in stranded cost regulatory assets to ensure timely collection.
• Assess the impact of weather variability on future gas sales volumes, given the high temperature sensitivity.
• Confirm the company's ability to meet pension funding requirements under the Pension Protection Act of 2006, which mandates higher funding targets starting in 2008.