Company Quick10K Filing
Unitil
Price60.50 EPS2
Shares15 P/E28
MCap903 P/FCF10
Net Debt427 EBIT43
TEV1,330 TEV/EBIT31
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-04-30
10-K 2019-12-31 Filed 2020-01-30
10-Q 2019-09-30 Filed 2019-10-24
10-Q 2019-06-30 Filed 2019-07-25
10-Q 2019-03-31 Filed 2019-04-25
10-K 2018-12-31 Filed 2019-01-31
10-Q 2018-09-30 Filed 2018-10-25
10-Q 2018-06-30 Filed 2018-07-26
10-Q 2018-03-31 Filed 2018-04-26
10-K 2017-12-31 Filed 2018-02-01
10-Q 2017-09-30 Filed 2017-10-26
10-Q 2017-06-30 Filed 2017-07-27
10-Q 2017-03-31 Filed 2017-04-27
10-K 2016-12-31 Filed 2017-02-02
10-Q 2016-09-30 Filed 2016-10-20
10-Q 2016-06-30 Filed 2016-07-21
10-Q 2016-03-31 Filed 2016-04-21
10-K 2015-12-31 Filed 2016-01-28
10-Q 2015-09-30 Filed 2015-10-22
10-Q 2015-06-30 Filed 2015-07-23
10-Q 2015-03-31 Filed 2015-04-23
10-K 2014-12-31 Filed 2015-01-28
10-Q 2014-09-30 Filed 2014-10-23
10-Q 2014-06-30 Filed 2014-07-23
10-Q 2014-03-31 Filed 2014-04-23
10-K 2013-12-31 Filed 2014-01-29
10-Q 2013-09-30 Filed 2013-10-23
10-Q 2013-06-30 Filed 2013-07-24
10-Q 2013-03-31 Filed 2013-04-24
10-K 2012-12-31 Filed 2013-01-30
10-Q 2012-09-30 Filed 2012-10-24
10-Q 2012-06-30 Filed 2012-07-25
10-Q 2012-03-31 Filed 2012-04-25
10-K 2011-12-31 Filed 2012-02-01
10-Q 2011-09-30 Filed 2011-10-27
10-Q 2011-06-30 Filed 2011-07-28
10-Q 2011-03-31 Filed 2011-04-26
10-K 2010-12-31 Filed 2011-02-03
10-Q 2010-09-30 Filed 2010-10-26
10-Q 2010-06-30 Filed 2010-07-27
10-Q 2010-03-31 Filed 2010-04-27
10-K 2009-12-31 Filed 2010-02-10
8-K 2020-06-18
8-K 2020-06-16
8-K 2020-04-29
8-K 2020-04-17
8-K 2020-03-26
8-K 2020-03-26
8-K 2020-03-19
8-K 2020-03-16
8-K 2020-03-04
8-K 2020-02-28
8-K 2020-01-29
8-K 2019-12-18
8-K 2019-12-17
8-K 2019-09-12
8-K 2019-06-28
8-K 2019-06-12
8-K 2019-05-20
8-K 2019-05-01
8-K 2019-04-24
8-K 2019-04-24
8-K 2019-03-01
8-K 2019-01-30
8-K 2019-01-02
8-K 2018-11-30
8-K 2018-10-24
8-K 2018-08-30
8-K 2018-07-25
8-K 2018-07-25
8-K 2018-05-18
8-K 2018-05-02
8-K 2018-04-25
8-K 2018-04-25
8-K 2018-03-01
8-K 2018-02-28
8-K 2018-01-30

UTL 10Q Quarterly Report

Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
Item 1. Financial Statements
Note 1
Note 2
Note 3
Note 4
Note 5
Note 6 - Regulatory Matters
Note 7 - Environmental Matters
Note 8: Income Taxes
Note 9: Retirement Benefit Obligations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 5. Other Information
Item 6. Exhibits
EX-11 d912534dex11.htm
EX-31.1 d912534dex311.htm
EX-31.2 d912534dex312.htm
EX-31.3 d912534dex313.htm
EX-32.1 d912534dex321.htm
EX-99.1 d912534dex991.htm

Unitil Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
1.41.10.80.60.30.02012201420172020
Assets, Equity
0.20.20.10.10.00.02016201720182020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

10-Q
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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the quarterly period ended March 31
, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
For the transition period from
                    
to
                    
Commission File Number
1-8858
UNITIL CORPORATION
(Exact name of registrant as specified in its charter)
     
New Hampshire
 
02-0381573
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
 
 
     
6 Liberty Lane West, Hampton, New Hampshire
 
03842-1720
(Address of principal executive office)
 
(Zip Code)
 
 
 
 
 
 
 
Registrant’s telephone number, including area code: (603)
772-0775
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading Symbol
 
Name of each exchange of which registered
Common Stock , no par value
 
UTL
 
New York Stock Exchange
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
 filer
 
 
Smaller reporting company
 
         
 
Emerging growth company
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
    No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
     
Class
 
Outstanding at April 27, 2020
Common Stock,
n
o par value
 
14,959,262 Shares
 
 
 
 
 
 
 

Table of Contents
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
FORM
10-Q
For the Quarter Ended March 31, 2020
Table of Contents
             
 
Page No.
 
 
 
3
 
 
 
 
 
 
Part I. Financial Information
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
19
 
 
 
 
 
 
 
 
 
 
 
20-
21
 
 
 
 
 
 
 
 
 
 
 
22
 
 
 
 
 
 
 
 
 
 
 
23
 
 
 
 
 
 
 
 
 
 
 
24-
48
 
 
 
 
 
 
 
 
Item 2.
 
 
 
4-
18
 
 
 
 
 
 
 
 
Item 3.
 
 
 
48
 
 
 
 
 
 
 
 
Item 4.
 
 
 
48
 
 
 
 
 
 
Part II. Other Information
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
48
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
49
 
 
 
 
 
 
 
 
Item 2.
 
 
 
49
 
 
 
 
 
 
 
 
Item 3.
 
 
 
Inapplicable
 
 
 
 
 
 
 
 
Item 4.
 
 
 
Inapplicable
 
 
 
 
 
 
 
 
Item 5.
 
 
 
50
 
 
 
 
 
 
 
 
Item 6.
 
 
 
51
 
 
 
 
 
 
 
 
 
 
 
52
 
 
 
 
2

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Cautionary Statement
This report and the documents incorporated by reference into this report contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, included or incorporated by reference into this report, including, without limitation, statements regarding the financial position, business strategy and other plans and objectives for the Company’s future operations, are forward-looking statements.
These statements include declarations regarding the Company’s beliefs and current expectations. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other comparable terminology. These forward-looking statements are subject to inherent risks and uncertainties in predicting future results and conditions that could cause the actual results to differ materially from those projected in these forward-looking statements. Some, but not all, of the risks and uncertainties include those described in Item 1A (Risk Factors) and the following:
  the novel coronavirus
(COVID-19)
pandemic could adversely impact Unitil’s business, financial condition, results of operations and cash flows, including by disrupting the Company’s employees’ and contractors’ ability to provide ongoing services to the Company, by reducing customer demand for electricity or natural gas, or by reducing the supply of electricity or natural gas;
 
 
 
 
  the Company’s regulatory and legislative environment (including laws and regulations relating to climate change, greenhouse gas emissions and other environmental matters), could affect the rates the Company is able to charge, the Company’s authorized rate of return, the Company’s ability to recover costs in its rates, the Company’s financial condition, results of operations and cash flows and the scope of the Company’s regulated activities;
 
 
 
 
  fluctuations in the supply of, demand for, and the prices of, gas and electric energy commodities and transmission and transportation capacity and the Company’s ability to recover energy supply costs in its rates;
 
 
 
 
  customers’ preferred energy sources;
 
 
 
 
  severe storms and the Company’s ability to recover storm costs in its rates;
 
 
 
 
  declines in the valuation of capital markets, which could require the Company to make substantial cash contributions to cover its pension obligations, and the Company’s ability to recover pension obligation costs in its rates;
 
 
 
 
  general economic conditions, which could adversely affect (i) the Company’s customers and, consequently, the demand for the Company’s distribution services, (ii) the availability of credit and liquidity resources and (iii) certain of the Company’s counterparty’s obligations (including those of its insurers and lenders);
 
 
 
 
  the Company’s ability to obtain debt or equity financing on acceptable terms;
 
 
 
 
  increases in interest rates, which could increase the Company’s interest expense;
 
 
 
 
  restrictive covenants contained in the terms of the Company’s and its subsidiaries’ indebtedness, which restrict certain aspects of the Company’s business operations;
 
 
 
 
  variations in weather, which could decrease demand for the Company’s distribution services;
 
 
 
 
  long-term global climate change, which could adversely affect customer demand or cause extreme weather events that could disrupt the Company’s electric and gas distribution services;
 
 
 
 
  cyber-attacks, acts of terrorism, acts of war, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other reasons could disrupt the Company’s operations and cause the Company to incur unanticipated losses and expense;
 
 
 
 
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  outsourcing of services to third parties could expose us to substandard quality of service delivery or substandard deliverables, which may result in missed deadlines or other timeliness issues,
non-compliance
(including with applicable legal requirements and industry standards) or reputational harm, which could negatively impact our results of operations;
 
 
 
 
  numerous hazards and operating risks relating to the Company’s electric and gas distribution activities, which could result in accidents and other operating risks and costs;
 
 
 
 
  catastrophic events;
 
 
 
 
  the Company’s ability to retain its existing customers and attract new customers; and
 
 
 
 
  increased competition.
 
 
 
 
Many of these risks are beyond the Company’s control. Any forward-looking statements speak only as of the date of this report, and the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events, except as required by law. New factors emerge from time to time, and it is not possible for the Company to predict all of these factors, nor can the Company assess the impact of any such factor on its business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements.
PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Unitil Corporation’s 2019 Form
10-K
for additional information.
OVERVIEW
Unitil Corporation (Unitil or the Company) is a public utility holding company headquartered in Hampton, New Hampshire. Unitil is subject to regulation as a holding company system by the Federal Energy Regulatory Commission (FERC) under the Energy Policy Act of 2005.
Unitil’s principal business is the local distribution of electricity and gas throughout its service territory in the states of New Hampshire, Massachusetts and Maine. Unitil is the parent company of three wholly-owned distribution utilities:
  i) Unitil Energy Systems, Inc. (Unitil Energy), which provides electric service in the southeastern seacoast and state capital regions of New Hampshire, including the capital city of Concord;
 
 
 
 
  ii) Fitchburg Gas and Electric Light Company (Fitchburg), which provides both electric and gas service in the greater Fitchburg area of north central Massachusetts; and
 
 
 
 
  iii) Northern Utilities, Inc. (Northern Utilities), which provides gas service in southeastern New Hampshire and portions of southern and central Maine, including the city of Portland, which is the largest city in northern New England.
 
 
 
 
Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as the “distribution utilities.” Together, the distribution utilities serve approximately 106,100 electric customers and 83,900 gas customers in their service territory.
In addition, Unitil is the parent company of Granite State Gas Transmission, Inc. (Granite State), an interstate gas transmission pipeline company, operating 86 miles of underground gas transmission
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pipeline primarily located in Maine and New Hampshire. Granite State provides Northern Utilities with interconnection to major gas pipelines and access to domestic gas supplies in the south and Canadian gas supplies in the north. 
Unitil had an investment in Net Utility Plant of $1,125.1 million at March 31, 2020. Unitil’s total operating revenue includes revenue to recover the approved cost of purchased electricity and gas in rates on a fully reconciling basis. As a result of this reconciling rate structure, the Company’s earnings are not directly affected by changes in the cost of purchased electricity and gas. Earnings from Unitil’s utility operations are primarily derived from the return on investment in the utility assets of the three distribution utilities and Granite State.
Unitil Resources is the Company’s wholly-owned
non-regulated
subsidiary. Usource, Inc. and Usource L.L.C. (collectively, Usource), which the Company divested of in the first quarter of 2019, were wholly-owned subsidiaries of Unitil Resources. Usource provided brokering and advisory services to large commercial and industrial customers in the northeastern United States. See additional discussion of the divestiture of Usource in “Divestiture of
Non-Regulated
Business Subsidiary” in Note 1 to the Consolidated Financial Statements.
The Company’s other subsidiaries include Unitil Service Corp., which provides, at cost, a variety of administrative and professional services to Unitil’s affiliated companies, Unitil Realty Corp., which owns and manages Unitil’s corporate office building and property located in Hampton, New Hampshire and Unitil Power Corp., which formerly functioned as the full requirements wholesale power supply provider for Unitil Energy. Unitil’s consolidated net income includes the earnings of the holding company and these subsidiaries.
RATES AND REGULATION
Regulation
Unitil is subject to comprehensive regulation by federal and state regulatory authorities. Unitil and its subsidiaries are subject to regulation as a holding company system by the FERC under the Energy Policy Act of 2005 with regard to certain bookkeeping, accounting and reporting requirements. Unitil’s utility operations related to wholesale and interstate energy business activities are also regulated by the FERC. Unitil’s distribution utilities are subject to regulation by the applicable state public utility commissions, with regard to their rates, issuance of securities and other accounting and operational matters: Unitil Energy is subject to regulation by the New Hampshire Public Utilities Commission (NHPUC); Fitchburg is subject to regulation by the Massachusetts Department of Public Utilities (MDPU); and Northern Utilities is regulated by the NHPUC and the Maine Public Utilities Commission (MPUC). Granite State, Unitil’s interstate gas transmission pipeline, is subject to regulation by the FERC with regard to its rates and operations. Because Unitil’s primary operations are subject to rate regulation, the regulatory treatment of various matters could significantly affect the Company’s operations and financial position.
Unitil’s distribution utilities deliver electricity and/or gas to all customers in their service territory, at rates established under cost of service regulation. Under this regulatory structure, Unitil’s distribution utilities recover the cost of providing distribution service to their customers based on a historical test year, and earn a return on their capital investment in utility assets. In addition, the Company’s distribution utilities and its gas transmission pipeline company may also recover certain base rate costs, including capital project spending and enhanced reliability and vegetation management programs, through annual step adjustments and cost tracker rate mechanisms.
Fitchburg is subject to revenue decoupling. Revenue decoupling is the term given to the elimination of the dependency of a utility’s distribution revenue on the volume of electricity or gas sales. The difference between distribution revenue amounts billed to customers and the targeted revenue decoupling amounts is recognized as an increase or a decrease in Accrued Revenue which forms the basis for resetting rates for future cash recoveries from, or credits to, customers. These revenue decoupling targets may be adjusted as a result of rate cases and other authorized adjustments that the Company files with the MDPU. The Company estimates that revenue decoupling applies to approximately 27% and 11% of Unitil’s total annual electric and gas sales volumes, respectively.
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Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law. Among other things, the TCJA substantially reduced the corporate income tax rate to 21%, effective January 1, 2018. Each state public utility commission, with jurisdiction over the areas that are served by Unitil’s electric and gas subsidiary companies, issued orders directing how the tax law changes were to be reflected in rates. Unitil has complied with these orders and has made the required changes to its rates as directed by the commissions. The FERC issued a Notice of Proposed Rulemaking that would allow it to determine which pipelines under the Natural Gas Act may be collecting unjust and unreasonable rates in light of the corporate tax reduction. This matter has been resolved for Granite State in its May 2, 2018 uncontested rate settlement filing, which accounted for the effect of the TCJA.
On November 21, 2019, the FERC issued Order No. 864, a final rule on Public Utility Transmission Rate Changes to Address Accumulated Deferred Income Taxes. The new rule requires public utilities with formula transmission rates to revise their formula rates to include a transparent methodology to address the impacts of the TCJA and future tax law changes on customer rates by accounting for “excess” or “deficient” Accumulated Deferred Income Taxes (ADIT). FERC also required transmission providers with stated rates to account for the ADIT impacts of the TCJA in their next rate case. The Company is complying with the new rule and there is no material impact on its financial position, operating results, or cash flows.
Rate Case Activity
Northern Utilities – Base Rates – Maine –
On June 28, 2019, Northern Utilities filed a petition with the MPUC seeking an increase to annual base operating revenues of $7.0 million. In addition, Northern Utilities requested approval to implement a multi-year alternative rate mechanism (“Capital Investment Recovery Adjustment” or “CIRA”) to allow for the recovery of the costs of replacing and relocating existing facilities and other operational and safety-related system improvements between rate cases. On March 26, 2020, the MPUC approved an increase to base revenue of $3.6M, or a 3.6% increase over the Company’s test year operating revenues, effective April 1, 2020. The CIRA was not approved. The order approved a return on equity of 9.48%, and a hypothetical capital structure of 50% equity and 50% debt.
Northern Utilities – Targeted Infrastructure Replacement Adjustment (TIRA) – Maine –
The settlement in Northern Utilities’ Maine division’s 2013 rate case allowed the Company to implement a TIRA rate mechanism to adjust base distribution rates annually to recover the revenue requirements associated with targeted investments in gas distribution system infrastructure replacement and upgrade projects, including the Company’s Cast Iron Replacement Program (CIRP). In its Final Order issued on February 28, 2018 for Northern Utilities’ 2017 base rate case, the MPUC approved an extension of the TIRA mechanism, for an additional eight-year period, which will allow for annual rate adjustments through the end of the CIRP program. On April 17, 2019, the MPUC approved the Company’s request to increase its annual base rates by 2.1%, or $1.0 million, effective May 1, 2019, to recover the revenue requirements for 2018 eligible facilities. The Company’s request to increase its annual base rates by $1.4 million, effective May 1, 2020, to recover the revenue requirements for 2019 eligible facilities was approved by the MPUC on April 29, 2020.
Northern Utilities – Base Rates – New Hampshire –
On May 2, 2018, the NHPUC approved a settlement agreement providing for a net annual revenue increase of $3.2 million, incorporating the effect of the TCJA, and an initial step increase to recover post-test year capital investments. The Company’s second step increase of approximately $1.4 million of annual revenue was approved by the NHPUC, effective May 1, 2019, to recover eligible capital investments in 2018. According to the terms of the settlement agreement, Northern Utilities’ next distribution base rate case shall be based on an historic test year of no earlier than the twelve months ending December 31, 2020.
Unitil Energy – Base Rates –
On April 20, 2017 the NHPUC issued its final order providing for a permanent increase of $4.1 million, effective May 1, 2017, followed by two annual rate step adjustments to recover the revenue requirements associated with certain capital expenditures. On April 30, 2018, the NHPUC approved Unitil Energy’s first step increase, effective May 1, 2018. On April 22, 2019, the NHPUC approved Unitil Energy’s second and final step adjustment, providing for a revenue increase of approximately $340,000, effective May 1, 2019.
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Fitchburg – Base Rates – Electric –
Fitchburg’s base rates are decoupled, and subject to an annual revenue decoupling adjustment mechanism, which includes a cap on the amount that rates may be increased in any year. In addition, Fitchburg has an annual capital cost recovery mechanism to recover the revenue requirement associated with certain capital additions. On November 1, 2018, Fitchburg filed its cumulative revenue requirement of $0.9 million associated with the Company’s 2015-2017 capital expenditures. On December 27, 2018, the filing was approved, effective January 1, 2019, subject to further investigation and reconciliation. Final approval of the 2018 filing remains pending. On October 29, 2019, Fitchburg filed its cumulative revenue requirement of $1.1 million associated with the Company’s 2015-2018 capital expenditures. On December 16, 2019, the filing was approved, effective January 1, 2020, subject to further investigation and reconciliation. Final approval of the 2019 filing remains pending.
On December 17, 2019, Fitchburg filed for a $2.7 million increase in its electric base revenue decoupling target, which represents a 4.1% increase over 2018 test year operating electric revenues. On April 17, 2020, MDPU approved a settlement agreement entered into by the Company and the Massachusetts Office of the Attorney General providing for a distribution increase of $1.1 million, effective November 1, 2020. The agreement provides for a return on equity of 9.7% and a capital structure reflecting 52.45% equity and 47.55% long-term debt. Under the agreement, the Company will not increase or redesign base distribution rates to become effective prior to November 1, 2023, though the Company may seek cost recovery for certain exogenous events that meet a revenue impact threshold of $0.1 million. The agreement also provides for the implementation of a major storm reserve fund, whereby the Company may recover the costs of restoration of qualifying storm events. In addition, the agreement provides for the extension of the annual capital cost recovery mechanism, modified to allow the recovery of property tax on the cumulative net capital expenditures.
Fitchburg – Base Rates – Gas –
Pursuant to the Company’s revenue decoupling adjustment clause tariff, as approved in its last base rate case, the Company is allowed to modify, on a semi-annual basis, its base distribution rates to an established revenue per customer target in order to mitigate economic, weather and energy efficiency impacts to the Company’s revenues. The MDPU has consistently found that the Company’s filings are in accord with its approved tariffs, applicable law and precedent, and that they result in just and reasonable rates.
On December 17, 2019, Fitchburg filed for a $7.3 million increase in its gas base revenue decoupling target, which represents a 20.8% increase over 2018 test year total gas operating revenues. On February 28, 2020, the MDPU approved a settlement agreement between the Company and the Massachusetts Office of the Attorney General. The agreement provides for an annual distribution revenue increase of $4.6 million to be
phased-in
over two years: (1) an increase of $3.7 million, effective on March 1, 2020; and (2) an increase of $0.9 million, effective on March 1, 2021. Under the agreement, the Company will not increase or redesign base distribution rates to become effective prior to March 1, 2023, though the Company may seek cost recovery for certain exogenous events that meet a revenue impact threshold of $400 thousand. The agreement provides for a return on equity of 9.7% and a capital structure reflecting 52.45% equity and 47.55% long-term debt.
Fitchburg – Gas System Enhancement Program –
Pursuant to statute and MDPU order, Fitchburg has an approved Gas System Enhancement Plan (GSEP) tariff through which it may recover certain gas infrastructure replacement and safety related investment costs, subject to an annual cap. Under the plan, the Company is required to make two annual filings with the MDPU: a forward-looking filing for the subsequent construction year, to be filed on or before October 31 (the “GSEP Filing”); and a filing, submitted on or before May 1, of final project documentation for projects completed during the prior year, demonstrating substantial compliance with its plan in effect for that year and showing that project costs were reasonably and prudently incurred (the “GREC Filing”). The Company considers these to be routine regulatory proceedings and there are no material issues outstanding.
In an Order issued on April 30, 2019, the MDPU approved Fitchburg’s 2018 GSEP Filing and increased the annual cap on recovery. Because the increase in the amount for recovery, $1.6 million, still exceeded the annual cap, the Order resulted in a revenue increase of $1.0 million that went into effect on May 1,
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2019, subject to reconciliation. The amount that exceeded the cap, $0.6 million, has been deferred to be recovered in a later proceeding. On May 1, 2019, the Company made its 2019 GREC Filing, seeking a waiver of the annual cap and a revenue increase of $1.0 million. The MDPU approved the Company’s request in its Order issued October 31, 2019. On October 31, 2019, the Company made its annual filing for an increase in revenues associated with 2020 GSEP investment for rates effective May 1, 2020. On March 12, 2020, the Company made a revised GSEP filing to incorporate the inclusion of the 2015 through 2018 GSEP investments in base rates effective March 1, 2020. This matter remains pending before the MDPU.
Granite State – Base Rates –
On May 2, 2018, Granite State filed an uncontested rate settlement with the FERC which provided for no change in rates, and accounted for the effects of a capital step adjustment offset by the effect of the TCJA. The settlement was approved by the FERC on June 27, 2018, and complies with the FERC Notice of Proposed Rulemaking concerning the justness and reasonableness of rates in light of the corporate income tax reductions under the TCJA.
RESULTS OF OPERATIONS
The following section of MD&A compares the results of operations for each of the two fiscal periods ended March 31, 2020 and March 31, 2019 and should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and the accompanying Notes to unaudited Consolidated Financial Statements included in Part I, Item 1 of this report, which are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
The Company is responding to the novel coronavirus
(COVID-19)
pandemic (the “coronavirus pandemic”) by taking steps to mitigate the potential risks posed by its spread. The Company’s electric and gas service utility distribution operating systems have continued to provide service to customers without disruption due to the coronavirus pandemic through the date of this filing. The Company has implemented its Crisis Response Plan to address specific aspects of the coronavirus pandemic. The Crisis Response Plan guides emergency response, business continuity, and the precautionary measures being taken on behalf of employees and the public. The Company has initiated extra precautions to protect employees who work in the field and for employees who continue to work in operations, distribution and corporate facilities. The Company has implemented social distancing and work from home policies, where appropriate. The Company continues to implement strong physical and cyber-security measures to ensure that its systems remain functional in order to serve both operational needs with a remote workforce and to help ensure uninterrupted service to customers.
The extent to which the coronavirus pandemic impacts the Company’s financial condition, results of operations, and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus pandemic, and the actions to contain the coronavirus pandemic or treat its impact, among others. In particular, the continued spread of the coronavirus could adversely impact the Company’s business, including (i) by disrupting the Company’s employees and contractors ability to provide ongoing services to the Company, (ii) by reducing customer demand for electricity or gas, or (iii) by reducing the supply of electricity or gas, each of which could have an adverse impact on the Company’s financial condition, results of operations, and cash flows.
The Company’s results of operations reflect the seasonal nature of the gas business. Annual gas revenues are substantially realized during the heating season as a result of higher sales of gas due to cold weather. Accordingly, the results of operations are historically most favorable in the first and fourth quarters. Fluctuations in seasonal weather conditions may have a significant effect on the result of operations. Sales of electricity are generally less sensitive to weather than gas sales, but may also be affected by the weather conditions in both the winter and summer seasons. Also, as a result of recent rate cases, the Company’s gas GAAP gross margins and gas adjusted gross margins (a
non-GAAP
measure discussed below) are derived from a higher percentage of fixed billing components, including customer charges. Therefore, gas revenues and gas adjusted gross margin will be less affected by the seasonal nature of the gas business. In addition, as previously discussed, approximately 27% and 11% of the Company’s total annual electric and gas sales volumes, respectively, are decoupled and changes in sales to existing customers do not affect GAAP gross margin and adjusted gross margin.
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The Company analyzes operating results using Gas and Electric Adjusted Gross Margins, which are
non-GAAP
measures. Gas Adjusted Gross Margin is calculated as Total Gas Operating Revenue less Cost of Gas Sales. Electric Adjusted Gross Margin is calculated as Total Electric Operating Revenues less Cost of Electric Sales. The Company’s management believes Gas and Electric Adjusted Gross Margins provide useful information to investors regarding profitability. Also the Company’s management believes Gas and Electric Adjusted Gross Margins are important measures to analyze revenue from the Company’s ongoing operations because the approved cost of gas and electric sales are tracked, reconciled and passed through directly to customers in gas and electric tariff rates; resulting in an equal and offsetting amount reflected in Total Gas and Electric Operating Revenue.
In the tables below; the Company has reconciled Gas and Electric Adjusted Gross Margin to GAAP Gross Margin, which we believe to be the most comparable GAAP measure. GAAP Gross Margin is calculated as: Revenue less Cost of Sales and Depreciation and Amortization. The Company calculates Gas and Electric Adjusted Gross Margin as: Revenue less Cost of Sales. The Company believes excluding Depreciation and Amortization, which are period costs and not related to volumetric sales revenue, is a meaningful measure to inform investors of the Company’s profitability from gas and electric sales in the period.
                                 
Three Months Ended March 31, 2020 ($ in millions)
 
 
 
 
 
 
Non-
Regulated
 
 
 
 
Gas
 
 
Electric
 
 
and Other
 
 
Total
 
Total Operating Revenue
  $
70.2
    $
60.2
    $
—  
    $
130.4
 
Less: Cost of Sales
   
(27.8
)    
(37.1
)    
—  
     
(64.9
)
Less: Depreciation and Amortization
   
(7.4
)    
(5.9
)    
(0.2
)    
(13.5
)
                                 
GAAP Gross Margin
   
35.0
     
17.2
     
(0.2
)    
52.0
 
Depreciation and Amortization
   
7.4
     
5.9
     
0.2
     
13.5
 
                                 
Adjusted Gross Margin
  $
42.4
    $
23.1
    $
 —  
    $
65.5
 
                                 
                                 
Three Months Ended March 31, 2019 ($ in millions)
 
 
 
 
 
 
Non-
Regulated
 
 
 
 
Gas
 
 
Electric
 
 
and Other
 
 
Total
 
Total Operating Revenue
  $
86.4
    $
64.8
    $
0.9
    $
152.1
 
Less: Cost of Sales
   
(42.9
)    
(41.7
)    
—  
     
(84.6
)
Less: Depreciation and Amortization
   
(7.4
)    
(6.1
)    
(0.3
)    
(13.8
)
                                 
GAAP Gross Margin
   
36.1
     
17.0
     
0.6
     
53.7
 
Depreciation and Amortization
   
7.4
     
6.1
     
0.3
     
13.8
 
                                 
Adjusted Gross Margin
  $
43.5
    $
23.1
    $
0.9
    $
67.5
 
                                 
Earnings Overview
The Company’s Net Income was $15.2 million, or $1.02 in earnings per share (EPS), for the first quarter of 2020, a decrease of $11.3 million in Net Income, or $0.76 per share, compared to the first quarter of 2019. In the first quarter of 2019 the Company recognized a
one-time
net gain of $9.8 million, or $0.66 in EPS, on the Company’s divestiture of its
non-regulated
business subsidiary, Usource. The decrease in earnings was also driven by lower gas operating revenue, partially offset by lower cost of gas sales, reflecting warmer winter weather in 2020 compared to 2019. The Company estimates that the warmer than normal winter weather negatively affected Net Income by approximately $3.1 million, or $0.20 per share, in the first quarter of 2020.
Gas GAAP gross margin and gas adjusted gross margin (a
non-GAAP
measure) were $35.0 and $42.4 million, respectively, in the three months ended March 31, 2020, decreases of $1.1 million and $1.1 million,
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respectively, compared to the same period in 2019. These decreases were driven by lower therm sales of $3.2 million, partially offset by higher rates of $1.4 million and customer growth of $0.7 million. The higher rates include a revenue decoupling adjustment of $0.6 million in the period for the Company’s gas distribution subsidiary in Massachusetts.
Gas therm sales decreased 6.7% in the three months ended March 31, 2020 compared to the same period in 2019. The decrease in gas therm sales in the Company’s service areas reflects warmer winter weather in the first quarter of 2020 compared to the same period in 2019. Based on weather data collected in the Company’s gas service areas, there were 11.5% fewer Effective Degree Days (EDD) in the first quarter of 2020, on average, compared to the same period in 2019 and 13.2% fewer EDD compared to normal. The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were up 1.0% in the first quarter of 2020 compared to the same period in 2019. As of March 31, 2020, the number of gas customers served has increased by 1,082 over the previous year.
Electric GAAP gross margin was $17.2 million in the three months ended March 31, 2020, an increase of $0.2 million compared to the same period in 2019. Electric adjusted gross margin (a
non-GAAP
measure1) was $23.1 million in the three months ended March 31, 2020, on par with the same period in 2019. Electric GAAP gross margin and electric adjusted gross margin were positively affected by higher electric distribution rates of $0.6 million, offset by the impact of warmer winter weather and lower average usage of $0.6 million on kWh sales. Additionally, electric GAAP gross margin in the three months ended March 31, 2020 reflects lower depreciation and amortization expense of $0.2 million compared to the same period in 2019.
Total electric kilowatt-hour (kWh) sales increased 0.8% compared to the first quarter of 2019. The increase in sales primarily reflects customer growth and increased sales to two large industrial customers in the Company’s Massachusetts service area, partially offset by the adverse impact of warmer winter weather in 2020 and lower average usage. As of March 31, 2020, the number of electric customers served has increased by 687 over the previous year. The Company’s Massachusetts service area operates under a revenue decoupling mechanism and therefore the increased sales to the two large industrial customers do not impact electric adjusted gross margin.
Operation and Maintenance (O&M) expenses decreased $0.6 million in the three months ended March 31, 2020 compared to the same period in 2019. The decrease in the first quarter of 2020 includes $0.4 million of lower labor and other costs related to Usource operations in the first quarter of 2019. The change in O&M expenses also reflects: lower utility operating costs of $1.0 million; higher bad debt expense of $0.6 million, which includes a provision for the impact of the coronavirus pandemic; and higher professional fees of $0.2 million. Labor costs in the first quarter of 2020 were on par with the same period in 2019, reflecting higher compensation costs offset by lower employee benefit costs.
Depreciation and Amortization expense decreased $0.3 million in the three months ended March 31, 2020 compared to the same period in 2019, reflecting lower amortization.
Taxes Other Than Income Taxes increased $0.1 million in the three months ended March 31, 2020 compared to the same period in 2019, reflecting higher local property tax rates on higher levels of utility plant assets in service.
Other Expense (Income), Net changed from income of $12.1 million in the first quarter of 2019 to an expense of $1.5 million in the first quarter of 2020, a net change of $13.6 million. This change primarily reflects a
pre-tax
gain of $13.4 million on the Company’s divestiture of Usource in the first quarter of 2019 and $0.2 million of higher retirement benefit costs in 2020.
Interest Expense, Net in the three months ended March 31, 2020 was on par compared to the same period in 2019, primarily reflecting higher interest on long-term debt, offset by lower short-term interest rates on lower levels of short-term debt.
Provision for Income Taxes decreased $3.5 million for the three months ended March 31, 2020 compared to the same period in 2019, reflecting lower
pre-tax
earnings in the current period.
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At its January 2020 and April 2020 meetings, the Unitil Corporation Board of Directors declared quarterly dividends on the Company’s common stock of $0.375 per share. These quarterly dividends result in a current effective annualized dividend rate of $1.50 per share, representing an unbroken record of quarterly dividend payments since trading began in Unitil’s common stock.
A more detailed discussion of the Company’s results of operations for the three months ended March 31, 2020 is presented below.
Gas Sales, Revenues and Adjusted Gross Margin
Therm Sales –
Unitil’s total therm sales of gas decreased 6.7% in the three months ended March 31, 2020 compared to the same period in 2019, reflecting decreases of 7.9% and 6.2% in sales to Residential and Commercial and Industrial (C&I) customers, respectively. The decrease in gas therm sales in the Company’s service areas reflects warmer winter weather in the first quarter of 2020 compared to the same period in 2019. Based on weather data collected in the Company’s gas service areas, there were 11.5% fewer EDD in the first quarter of 2020, on average, compared to the same period in 2019 and 13.2% fewer EDD compared to normal. The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were up 1.0% in the first quarter of 2020 compared to the same period in 2019. As of March 31, 2020, the number of gas customers served has increased by 1,082 over the previous year. As previously discussed, gas adjusted gross margin derived from decoupled unit sales (representing approximately 11% of total annual therm sales volume) is not sensitive to changes in gas therm sales.
The following table details total firm therm sales for the three months ended March 31, 2020 and 2019, by major customer class:
                                 
Therm Sales
(millions)
 
 
Three Months Ended March 31,
 
 
2020
 
 
2019
   
Change
   
% Change
 
Residential
 
 
22.1
 
   
24.0
     
(1.9
)    
(7.9
%)
Commercial / Industrial
 
 
67.6
 
   
72.1
     
(4.5
)    
(6.2
%)
                                 
Total
 
 
89.7
 
   
96.1
     
(6.4
)    
(6.7
%)
                                 
Gas Operating Revenues and Gas Adjusted Gross Margin
– The following table details total Gas Operating Revenues and Gas Adjusted Gross Margin for the three months ended March 31, 2020 and 2019:
                                 
Gas Operating Revenues and Adjusted Gross Margin
($ in millions)
 
 
Three Months Ended March 31,
 
 
2020
 
 
2019
   
$ Change
   
% Change
 
Gas Operating Revenues:
   
     
     
     
 
Residential
 
$
29.5
 
  $
35.8
    $
(6.3
)    
(17.6
%)
Commercial / Industrial
 
 
40.7
 
   
50.6
     
(9.9
)    
(19.6
%)
                                 
Total Gas Operating Revenues
 
$
70.2
 
  $
86.4
    $
(16.2
)    
(18.8
%)
                                 
Cost of Gas Sales
 
$
27.8
 
  $
42.9
    $
(15.1
)    
(35.2
%)
                                 
Gas Adjusted Gross Margin
 
$
42.4
 
  $
43.5
    $
(1.1
)    
(2.5
%)
                                 
Gas adjusted gross margin was $42.4 million in the three months ended March 31, 2020, a decrease of $1.1 million compared to the same period in 2019. The decrease in gas adjusted gross margin was driven by lower therm sales of $3.2 million, partially offset by higher rates of $1.4 million and customer growth of $0.7 million. The higher rates include a revenue decoupling adjustment of $0.6 million in the period for the Company’s gas distribution subsidiary in Massachusetts.
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The decrease in Total Gas Operating Revenues of $16.2 million in the first quarter of 2020 reflects lower cost of gas sales, which are tracked and reconciled costs that are passed through directly to customers, and lower gas sales volumes.
Electric Sales, Revenues and Adjusted Gross Margin
Kilowatt-hour Sales
– In the first quarter of 2020, Unitil’s total electric kWh sales increased 0.8% compared to the first quarter of 2019. Sales to Residential customers decreased 1.3% and sales to C&I customers increased 2.5% in the first quarter of 2020 compared to the same period in 2019. The decrease in sales to Residential customers reflects warmer winter weather in 2020, discussed above, and lower average usage per customer due to energy efficiency initiatives and net metered distributed generation, partially offset by customer growth. The increase in sales to C&I customers primarily reflects increased sales to two large industrial customers in the Company’s Massachusetts service area and customer growth, partially offset by the adverse impact of warmer winter weather in 2020. As of March 31, 2020, the number of electric customers served has increased by 687 over the previous year. As previously discussed, electric adjusted gross margin derived from decoupled unit sales (representing approximately 27% of total annual kWh sales volume) are not sensitive to changes in electric kWh sales.
The following table details total kWh sales for the three months ended March 31, 2020 and 2019 by major customer class:
                                 
kWh Sales
(millions)
 
 
Three Months Ended March 31,
 
 
2020
 
 
2019
   
Change
   
% Change
 
Residential
 
 
179.1
 
   
181.5
     
(2.4
)    
(1.3
%)
Commercial / Industrial
 
 
241.9
 
   
236.0
     
5.9
     
2.5
%
                                 
Total
 
 
421.0
 
   
417.5
     
3.5
     
0.8
%
                                 
Electric Operating Revenues and Electric Adjusted Gross Margin
– The following table details total Electric Operating Revenues and Electric Adjusted Gross Margin for the three months ended March 31, 2020 and 2019:
                                 
Electric Operating Revenues and Adjusted Gross Margin
($ in millions)
 
 
Three Months Ended March 31,
 
 
2020
 
 
2019
   
$ Change
   
% Change
 
Electric Operating Revenues:
   
     
     
     
 
Residential
 
$
35.9
 
  $
38.8
    $
(2.9
)    
(7.5
%)
Commercial / Industrial
 
 
24.3
 
   
26.0
     
(1.7
)    
(6.5
%)
                                 
Total Electric Operating Revenues
 
$
60.2
 
  $
64.8
    $
(4.6
)    
(7.1
%)
                                 
Total Cost of Electric Sales
 
$
37.1
 
  $
41.7
    $
(4.6
)    
(11.0
%)
                                 
Electric Sales Margin
 
$
23.1
 
  $
23.1
    $
—  
     
—  
 
                                 
Electric adjusted gross margin was $23.1 million in the three months ended March 31, 2020, on par with the same period in 2019. Electric adjusted gross margin in the first quarter of 2020 was positively affected by higher electric distribution rates of $0.6 million, offset by the impact of warmer winter weather and
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lower average usage of $0.6 million on kWh sales, discussed above. Although overall kWh sales increased 0.8% in the first quarter of 2020 compared to the same period in 2019, this increase was driven by two large industrial customers in the Company’s Massachusetts service area, which operates under a revenue decoupling mechanism and therefore these increases do not impact electric adjusted gross margin.
The decrease in Total Electric Operating Revenues of $4.6 million in the first quarter of 2020 reflects lower cost of electric sales, which are tracked and reconciled costs that are passed through directly to customers, partially offset by higher sales of electricity.
Operating Revenue – Other
The following table details total Other Operating Revenue for the three months ended March 31, 2020 and 2019:
                                 
Other Operating Revenue
($ in millions)
 
 
Three Months Ended March 31,
 
 
2020
 
 
2019
   
$ Change
   
% Change
 
Other
 
$
—  
 
  $
0.9
    $
(0.9
)    
N/M
 
                                 
Total Other Operating Revenue
 
$
—  
 
  $
0.9
    $
(0.9
)    
N/M
 
                                 
Total Other Operating Revenue (See “Other Operating Revenue –
Non-regulated”
in Note 1 to the accompanying Consolidated Financial Statements), which is comprised of revenues from the Company’s former
non-regulated
energy brokering business, Usource, decreased $0.9 million in the first quarter of 2020, compared to the first quarter of 2019, reflecting the Company’s divestiture of Usource in the first quarter of 2019 (See “Divestiture of
Non-Regulated
Business Subsidiary” in Note 1 to the accompanying Consolidated Financial Statements).
Operating Expenses
Cost of Gas Sales
– Cost of Gas Sales includes the cost of gas purchased and manufactured to supply the Company’s total gas supply requirements and spending on energy efficiency programs. Cost of Gas Sales decreased $15.1 million, or 35.2%, in the three months ended March 31, 2020 compared to the same period in 2019. This decrease reflects lower wholesale gas prices and lower sales of gas. The Company reconciles and recovers the approved Cost of Gas Sales in its rates at cost on a pass-through basis and therefore changes in approved expenses do not affect earnings.
Cost of Electric Sales
– Cost of Electric Sales includes the cost of electric supply as well as other energy supply related restructuring costs, including power supply buyout costs, and spending on energy efficiency programs. Cost of Electric Sales decreased $4.6 million, or 11.0%, in the three months ended March 31, 2020 compared to the same period in 2019. This decrease reflects lower wholesale electricity prices, partially offset by an increase in the amount of electricity purchased by customers directly from third-party suppliers and slightly higher sales of electricity. The Company reconciles and recovers the approved Cost of Electric Sales in its rates at cost on a pass-through basis and therefore changes in approved expenses do not affect earnings.
Operation and Maintenance
– O&M expense includes electric and gas utility operating costs, and the operating costs of the Company’s other business activities. O&M expenses decreased $0.6 million, or 3.2%, in the three months ended March 31, 2020 compared to the same period in 2019. The decrease in the first quarter of 2020 includes $0.4 million of lower labor and other costs related to Usource operations in the first quarter of 2019. The change in O&M expenses also reflects: lower utility operating costs of $1.0 million; higher bad debt expense of $0.6 million, which includes a provision for the impact of the coronavirus pandemic; and higher professional fees of $0.2 million. Labor costs in the first quarter of 2020 were on par with the same period in 2019, reflecting higher compensation costs offset by lower employee benefit costs.
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Depreciation and Amortization -
Depreciation and Amortization expense decreased $0.3 million, or 2.2%, in the three months ended March 31, 2020 compared to the same period in 2019, reflecting lower amortization.
Taxes Other Than Income Taxes -
Taxes Other Than Income Taxes increased $0.1 million, or 1.6%, in the three months ended March 31, 2020 compared to the same period in 2019, reflecting higher local property tax rates on higher levels of utility plant assets in service.
Other Expense (Income), Net –
Other Expense (Income), Net changed from income of $12.1 million in the first quarter of 2019 to an expense of $1.5 million in the first quarter of 2020, a net change of $13.6 million. This change primarily reflects a
pre-tax
gain of $13.4 million on the Company’s divestiture of Usource in the first quarter of 2019 and $0.2 million of higher retirement benefit costs in 2020.
Provision for Income Taxes
– Federal and State Income Taxes decreased $3.5 million for the three months ended March 31, 2020 compared to the same period in 2019, reflecting lower
pre-tax
earnings in the current period.
Interest Expense, Net
Interest expense is presented in the financial statements net of interest income. Interest expense is mainly comprised of interest on long-term debt and short-term borrowings. In addition, certain reconciling rate mechanisms used by the Company’s distribution operating utilities give rise to regulatory assets and regulatory liabilities on which interest is accrued.
Unitil’s utility subsidiaries operate a number of reconciling rate mechanisms to recover specifically identified costs on a pass-through basis. These reconciling rate mechanisms track costs and revenue on a monthly basis. In any given month, this monthly tracking and reconciling process will produce either an under-collected or an over-collected balance of costs. In accordance with the distribution utilities’ rate tariffs, interest is accrued on these balances and will produce either interest income or interest expense. Consistent with regulatory precedent, interest income is recorded on an under-collection of costs which creates a regulatory asset to be recovered in future periods when rates are reset. Interest expense is recorded on an over-collection of costs, which creates a regulatory liability to be refunded in future periods when rates are reset.
                         
Interest Expense, Net ($in millions)
 
Three Months Ended
March 31,
 
 
2020
 
 
2019
   
Change
 
Interest Expense
 
 
 
 
 
 
 
 
 
Long-term Debt
 
$
6.1
 
  $
5.7
    $
0.4
 
Short-term Debt
 
 
0.6
 
   
1.0
     
(0.4
)
Regulatory Liabilities
 
 
0.1
 
   
0.1
     
—  
 
                         
Subtotal Interest Expense
 
 
6.8
 
   
6.8
     
—  
 
                         
Interest (Income)
 
 
 
 
 
 
 
 
 
Regulatory Assets
 
 
(0.3
)
   
(0.2
)    
(0.1
)
AFUDC and Other
 
 
(0.3
)
   
(0.4
)    
0.1
 
                         
Subtotal Interest (Income)
 
 
(0.6
)
   
(0.6
)    
—  
 
                         
Total Interest Expense, Net
 
$
6.2
 
  $
6.2
    $
—  
 
                         
Interest Expense, Net in the three months ended March 31, 2020 was on par compared to the same period in 2019, primarily reflecting higher interest on long-term debt, offset by lower short-term interest rates on lower levels of short-term debt.
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Capital Requirements
Sources of Capital
Unitil requires capital to fund utility plant additions, working capital and other utility expenditures recovered in subsequent periods through regulated rates. The capital necessary to meet these requirements is derived primarily from internally-generated funds, which consist of cash flows from operating activities. The Company initially supplements internally-generated funds through short-term bank borrowings, as needed, under its unsecured revolving Credit Facility. Periodically, the Company replaces portions of its short-term debt with long-term financings more closely matched to the long-term nature of its utility assets. Additionally, from time to time, the Company has accessed the public capital markets through public offerings of equity securities. The Company’s utility operations are seasonal in nature and are therefore subject to seasonal fluctuations in cash flows. The amount, type and timing of any future financing will vary from year to year based on capital needs and maturity or redemptions of securities.
The Company and its subsidiaries are individually and collectively members of the Unitil Cash Pool (the “Cash Pool”). The Cash Pool is the financing vehicle for
day-to-day
cash borrowing and investing. The Cash Pool allows for an efficient exchange of cash among the Company and its subsidiaries. The interest rates charged to the subsidiaries for borrowing from the Cash Pool are based on actual interest costs from lenders under the Company’s revolving Credit Facility (as defined below). At March 31, 2020, March 31, 2019 and December 31, 2019, the Company and all of its subsidiaries were in compliance with the regulatory requirements to participate in the Cash Pool.
On July 25, 2018, the Company entered into a Second Amended and Restated Credit Agreement and related documents (collectively, the “Credit Facility”) with a syndicate of lenders, which amended and restated in its entirety the Company’s prior credit facility. The Credit Facility extends to July 25, 2023, subject to two
one-year
extensions under certain circumstances, and has a borrowing limit of $120 million, which includes a $25 million sublimit for the issuance of standby letters of credit. The Credit Facility provides the Company with the ability to elect that borrowings under the Credit Facility bear interest under several options, including at a daily fluctuating rate of interest per annum equal to
one-month
London Interbank Offered Rate plus 1.125%. The Company may increase the borrowing limit under the Credit Facility by up to $50 million under certain circumstances.
The Company utilizes the Credit Facility for cash management purposes related to its short-term operating activities. Total gross borrowings were $74.3 million for the three months ended March 31, 2020. Total gross repayments were $61.3 million for the three months ended March 31, 2020. The following table details the borrowing limits, amounts outstanding and amounts available under the Credit Facility as of March 31, 2020, March 31, 2019 and December 31, 2019:
                         
 
Revolving Credit Facility ($in millions)
 
 
March 31,
   
December 31,
 
 
2020
 
 
2019
   
2019
 
Limit
 
$
120.0
 
  $
120.0
    $
120.0
 
Short-Term Borrowings Outstanding
 
 
71.6
 
   
65.8
     
58.6
 
Letter of Credit Outstanding
 
 
0.1
 
   
—  
     
0.1
 
                         
Available
 
$
48.3
 
  $
54.2
    $
61.3
 
                         
The Credit Facility contains customary terms and conditions for credit facilities of this type, including affirmative and negative covenants. There are restrictions on, among other things, the Company’s and its subsidiaries’ ability to permit liens or incur indebtedness, and restrictions on the Company’s ability to
15

Table of Contents
merge or consolidate with another entity or change its line of business. The affirmative and negative covenants under the Credit Facility shall apply until the Credit Facility terminates and all amounts borrowed under the Credit Facility are paid in full (or with respect to letters of credit, they are cash collateralized). The only financial covenant in the Credit Facility provides that Funded Debt to Capitalization (as each term is defined in the Credit Facility) cannot exceed 65%, tested on a quarterly basis. At March 31, 2020, March 31, 2019 and December 31, 2019, the Company was in compliance with the covenants contained in the Credit Facility in effect on that date. (See also “Credit Arrangements” in Note 4.)
The Company is monitoring the novel coronavirus
(COVID-19)
pandemic and does not believe it will adversely affect the Company’s access to capital and funding sources and its planned capital expenditures. The Company believes the future operating cash flows of the Company, along with its existing borrowing availability and access to financial markets for the issuance of new long-term debt, will be sufficient to meet any working capital and future operating requirements, and capital investment forecast opportunities.
As discussed previously, the Company divested of its
non-regulated
subsidiary business, Usource, in the first quarter of 2019. The Company used the net proceeds of $9.8 million from this divestiture for general corporate purposes.
On December 18, 2019, Unitil Corporation issued $30 million of Notes due 2029 at 3.43%. Unitil Corporation used the net proceeds from this offering to repay short-term debt and for general corporate purposes. Approximately $0.2 million of costs associated with these issuances have been netted against Long-Term Debt for presentation purposes on the Consolidated Balance Sheets.
On September 12, 2019, Northern Utilities issued $40 million of Notes due 2049 at 4.04%. Northern Utilities used the net proceeds from this offering to repay short-term debt and for general corporate purposes. Approximately $0.2 million of costs associated with these issuances have been netted against Long-Term Debt for presentation purposes on the Consolidated Balance Sheets.
In April 2014, Unitil Service Corp. entered into a financing arrangement, structured as a capital lease obligation, for various information systems and technology equipment. Final funding under this capital lease occurred on October 30, 2015, resulting in total funding of $13.4 million. This capital lease was paid in full in the second quarter of 2019.
Unitil Corporation and its utility subsidiaries, Fitchburg, Unitil Energy, Northern Utilities, and Granite State are currently rated “BBB+” by Standard & Poor’s Ratings Services. Unitil Corporation and Granite State are currently rated “Baa2”, and Fitchburg, Unitil Energy and Northern Utilities are currently rated “Baa1” by Moody’s Investors Services.
The continued availability of various methods of financing, as well as the choice of a specific form of security for such financing, will depend on many factors, including, but not limited to: security market conditions; general economic climate; regulatory approvals; the ability to meet covenant issuance restrictions; the level of earnings, cash flows and financial position; and the competitive pricing offered by financing sources.
The Company provides limited guarantees on certain energy and gas storage management contracts entered into by the distribution utilities. The Company’s policy is to limit the duration of these guarantees. As of March 31, 2020, there were approximately $6.2 million of guarantees outstanding.
Northern Utilities enters into asset management agreements under which Northern Utilities releases certain gas pipeline and storage assets, resells the gas storage inventory to an asset manager and subsequently repurchases the inventory over the course of the gas heating season at the same price at which it sold the gas inventory to the asset manager. There was $2.5 million, $2.2 million and $6.5 million of gas storage inventory at March 31, 2020, March 31, 2019 and December 31, 2019, respectively, related to these asset management agreements. The amount of gas inventory released in March 2020 and payable in April 2020 is $0.6 million and is recorded in Accounts Payable at March 31, 2020. The amount of gas inventory released in March 2019 and payable in April 2019 was $2.1 million and was recorded in Accounts Payable at March 31, 2019. The amount of gas inventory released in December 2019 and payable in January 2020 was $1.0 million and was recorded in Accounts Payable at December 31, 2019.
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Table of Contents
Off-Balance
Sheet Arrangements
The Company and its subsidiaries do not currently use, and are not dependent on the use of,
off-balance
sheet financing arrangements such as securitization of receivables or obtaining access to assets or cash through special purpose entities or variable interest entities. Unitil Corporation’s subsidiaries conduct a portion of their operations in leased facilities and also lease some of their vehicles, machinery and office equipment under both capital and operating lease arrangements. Additionally, as of March 31, 2020, there were approximately $6.2 million of guarantees on certain energy and gas storage management contracts entered into by the distribution utilities outstanding. See Note 4 (Debt and Financing Arrangements) to the accompanying Consolidated Financial Statements.
Critical Accounting Policies
The preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. In making those estimates and assumptions, the Company is sometimes required to make difficult, subjective and/or complex judgments about the impact of matters that are inherently uncertain and for which different estimates that could reasonably have been used could have resulted in material differences in its financial statements. If actual results were to differ significantly from those estimates, assumptions and judgment, the financial position of the Company could be materially affected and the results of operations of the Company could be materially different than reported. As of March 31, 2020, the Company’s critical accounting policies and estimates had not changed significantly from December 31, 2019. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies” in the Company’s 2019 Form
10-K
for additional information.
LABOR RELATIONS
As of March 31, 2020, the Company and its subsidiaries had 520 employees. The Company considers its relationship with employees to be good and has not experienced any major labor disruptions.
As of March 31, 2020, a total of 171 employees of certain of the Company’s subsidiaries were represented by labor unions. The following table details by subsidiary the employees covered by a collective bargaining agreement (CBA) as of March 31, 2020:
                 
 
Employees Covered
 
 
CBA Expiration
 
Fitchburg
   
45
     
05/31/2022
 
Northern Utilities NH Division
   
36
     
09/04/2020
 
Northern Utilities ME Division
   
40
     
03/31/2021
 
Granite State
   
4
     
03/31/2021
 
Unitil Energy
   
40
     
05/31/2023
 
Unitil Service
   
6
     
05/31/2023
 
The CBAs provide discrete salary adjustments, established work practices and uniform benefit packages. The Company expects to negotiate new agreements prior to their expiration dates.
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Table of Contents
INTEREST RATE RISK
As discussed above, Unitil meets its external financing needs by issuing short-term and long-term debt. The majority of debt outstanding represents long-term notes bearing fixed rates of interest. Changes in market interest rates do not affect interest expense resulting from these outstanding long-term debt securities. However, the Company periodically repays its short-term debt borrowings through the issuance of new long-term debt securities. Changes in market interest rates may affect the interest rate and corresponding interest expense on any new issuances of long-term debt securities. In addition, short-term debt borrowings bear a variable rate of interest.
As a result, changes in short-term interest rates will increase or decrease interest expense in future periods. For example, if the average amount of short-term debt outstanding was $25 million for the period of one year, a change in interest rates of 1% would result in a change in annual interest expense of approximately $250,000. The average interest rates on the Company’s short-term borrowings and intercompany money pool transactions for the three months ended March 31, 2020 and March 31, 2019 were 2.6% and 3.7%, respectively. The average interest rate on the Company’s short-term borrowings for the twelve months ended December 31, 2019 was 3.4%.
COMMODITY PRICE RISK
Although Unitil’s three distribution utilities are subject to commodity price risk as part of their traditional operations, the current regulatory framework within which these companies operate allows for full collection of electric power and gas supply costs in rates on a pass-through basis. Consequently, there is limited commodity price risk after consideration of the related rate-making.
Regulatory Matters
Please refer to Note 6 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of Regulatory Matters.
ENVIRONMENTAL MATTERS
Please refer to Note 7 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of Environmental Matters.
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Table of Contents
Item 1.
Financial Statements
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions, except per share data)
(UNAUDITED)
                 
 
Three Months Ended
March 31,
 
 
2020
 
 
2019
 
Operating Revenues
 
 
 
 
 
 
Gas
 
$
70.2
 
  $
86.4
 
Electric
 
 
60.2
 
   
64.8
 
Other
 
 
—  
 
   
0.9
 
                 
Total Operating Revenues
 
 
130.4
 
   
152.1
 
                 
Operating Expenses
 
 
 
 
 
 
Cost of Gas Sales
 
 
27.8
 
   
42.9
 
Cost of Electric Sales
 
 
37.1
 
   
41.7
 
Operation and Maintenance
 
 
17.9
 
   
18.5
 
Depreciation and Amortization
 
 
13.5
 
   
13.8
 
Taxes Other than Income Taxes
 
 
6.5
 
   
6.4
 
                 
Total Operating Expenses
 
 
102.8
 
   
123.3
 
                 
Operating Income
 
 
27.6
 
   
28.8
 
Interest Expense, Net
 
 
6.2
 
   
6.2
 
Other Expense (Income), Net
 
 
1.5
 
   
(12.1
)
                 
Income Before Income Taxes
 
 
19.9
 
   
34.7
 
Provision For Income Taxes
 
 
4.7
 
   
8.2
 
                 
Net Income
 
$
15.2
 
  $
26.5
 
                 
Net Income Per Common Share (Basic and Diluted)
 
$
1.02
 
  $
1.78
 
Weighted Average Common Shares Outstanding – (Basic and Diluted)
 
 
14.9
 
   
14.9
 
 
 
 
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
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UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Millions)
(UNAUDITED)
                         
 
March 31,
   
December 31,
 
 
2020
 
 
2019
   
2019
 
ASSETS:
 
 
 
 
 
 
 
 
 
Current Assets
:
   
     
     
 
Cash and Cash Equivalents
 
$
6.2
 
  $
4.3
    $
5.2
 
Accounts Receivable, Net
 
 
62.6
 
   
73.9
     
55.1
 
Accrued Revenue
 
 
38.6
 
   
40.2
     
50.0
 
Exchange Gas Receivable
 
 
2.2
 
   
0.4
     
6.1
 
Gas Inventory
 
 
0.4
 
   
0.5
     
0.8
 
Materials and Supplies
 
 
9.2
 
   
7.8
     
7.9
 
Prepayments and Other
 
 
6.6
 
   
6.8
     
5.8
 
                         
Total Current Assets
 
 
125.8
 
   
133.9
     
130.9
 
                         
Utility Plant:
 
 
 
 
 
 
 
 
 
Gas
 
 
869.7
 
   
778.6
     
837.7
 
Electric
 
 
538.4
 
   
511.3
     
529.7
 
Common
 
 
62.8
 
   
61.1
     
62.7
 
Construction Work in Progress
 
 
43.3
 
   
26.1
     
37.4
 
                         
Total Utility Plant
 
 
1,514.2
 
   
1,377.1
     
1,467.5
 
Less: Accumulated Depreciation
 
 
389.1
 
   
339.3
     
356.0
 
                         
Net Utility Plant
 
 
1,125.1
 
   
1,037.8
     
1,111.5
 
                         
Other Noncurrent Assets:
 
 
 
 
 
 
 
 
 
Regulatory Assets
 
 
105.3
 
   
97.9
     
112.0
 
Operating Lease Right of Use Assets
 
 
4.9
 
   
3.9
     
4.0
 
Other Assets