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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1999
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 (I.R.S. Employer
incorporation or organization) Identification No.)
6 Liberty Lane West, Hampton, New Hampshire 03842
(Address of principal executive office) (Zip Code)
(603) 772-0775
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since
last report.)
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 X 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 August 1, 1999
Common Stock, No par value 4,699,726 Shares
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
INDEX
Part I. Financial Information Page No.
Consolidated Statements of Earnings - Three and Six
Months Ended June 30, 1999 and 1998 3
Consolidated Balance Sheets, June 30, 1999,
June 30, 1998 and December 31, 1998 4-5
Consolidated Statements of Cash Flows - Six Months
Ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Results of
Operations and Financial Condition 10-15
Exhibit 11 - Computation of Earnings per Average
Common Share Outstanding 16
Part II. Other Information 17
PART 1. FINANCIAL INFORMATION
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's except common shares and per share data)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
1999 1998 1999 1998
Operating Revenues
Electric $39,051 $38,200 $75,235 $75,859
Gas 3,672 3,335 9,828 9,661
Other 38 7 45 15
Total Operating Revenues 42,761 41,542 85,108 85,535
Operating Expenses
Fuel and Purchased Power 26,000 25,645 48,906 50,787
Gas Purchased for Resale 2,104 2,044 5,282 5,639
Operation and Maintenance 6,333 6,124 12,270 11,754
Depreciation and Amortization 2,914 2,571 5,849 4,901
Provisions for Taxes:
Local Property and Other 1,360 1,430 2,825 2,837
Federal and State Income 648 519 2,023 1,889
Total Operating Expenses 39,359 38,333 77,155 77,807
Operating Income 3,402 3,209 7,953 7,728
Non-Operating Expenses, Net 38 27 50 71
Income Before Interest Expense 3,364 3,182 7,903 7,657
Interest Expense, Net 1,766 1,704 3,561 3,557
Net Income 1,598 1,478 4,342 4,100
Less Dividends on Preferred Stock 67 69 135 138
Net Income Applicable to
Common Stock $1,531 $1,409 $4,207 $3,962
Average Common Shares
Outstanding 4,695,844 4,496,758 4,658,443 4,487,546
Basic Earnings Per Share $0.32 $0.31 $0.90 $0.88
Diluted Earnings Per Share $0.32 $0.30 $0.90 $0.86
Dividends Declared Per Share
of Common Stock (Note 1) $0.345 $0.34 $1.035 $1.02
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (000's)
(UNAUDITED) (AUDITED)
June 30, December 31,
1999 1998 1999
ASSETS:
Utility Plant:
Electric $158,872 $170,583 $152,940
Gas 32,647 30,942 32,622
Common 21,572 20,003 20,876
Construction Work in Progress 3,431 3,570 3,024
Total Utility Plant 216,522 225,098 209,462
Less: Accumulated
Depreciation 65,956 71,345 63,428
Net Utility Plant 150,566 153,753 146,034
Current Assets:
Cash 1,313 3,415 4,083
Accounts Receivable -
Less Allowance for
Doubtful Accounts of
$496, $682 and $646 15,380 15,363 15,999
Materials and Supplies 2,205 2,695 2,962
Prepayments 709 648 1,147
Accrued Revenue 4,820 4,257 5,322
Total Current Assets 24,427 26,378 29,513
Noncurrent Assets:
Regulatory Assets 161,830 27,970 163,034
Prepaid Pension Costs 8,789 8,363 8,591
Debt Issuance Costs 1,382 886 1,320
Other Noncurrent Assets 24,668 20,652 27,287
Total Noncurrent Assets 196,669 57,871 200,232
TOTAL $371,662 $238,002 $375,779
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Cont.) (000's)
(UNAUDITED) (AUDITED)
June 30, December 31,
1999 1998 1998
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common Stock Equity $75,977 $71,881 $75,351
Preferred Stock,
Non-Redeemable, Non-Cumulative 225 225 225
Preferred Stock,
Redeemable, Cumulative 3,532 3,618 3,618
Long-Term Debt,
Less Current Portion 85,064 60,729 74,047
Total Capitalization 164,798 136,453 153,241
Current Liabilities:
Long-Term Debt, Current Portion 1,183 4,539 1,175
Capitalized Leases, Current Portion 866 1,054 907
Accounts Payable 13,742 15,713 11,382
Short-Term Debt --- 18,000 20,000
Dividends Declared and Payable 1,861 1,752 232
Refundable Customer Deposits 1,297 1,556 1,293
Taxes (Refundable) Payable (1,455) (73) (1,056)
Interest Payable 1,211 1,030 841
Other Current Liabilities 3,458 3,132 2,776
Total Current Liabilities 22,163 46,703 37,550
Deferred Income Taxes 43,163 41,958 43,027
Noncurrent Liabilities:
Power Supply Contract Obligations 128,651 --- 128,651
Capitalized Leases,
Less Current Portion 4,013 4,418 4,287
Other Noncurrent Liabilities 8,874 8,470 9,023
Total Noncurrent Liabilities 141,538 12,888 141,961
TOTAL $371,662 $238,002 $375,779
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000'S)
(UNAUDITED)
Six Months Ended June 30,
1999 1998
Net Cash Flow from Operating Activities:
Net Income $4,342 $4,100
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization 5,849 4,901
Deferred Taxes Provision 236 (33)
Amortization of Investment Tax Credit (188) (190)
Amortization of Debt Issuance Costs 30 32
Changes in Working Capital:
Accounts Receivable 619 1,527
Materials and Supplies 757 (32)
Prepayments 240 (457)
Accrued Revenue 502 2,539
Accounts Payable 2,360 979
Refundable Customer Deposits 4 (631)
Taxes and Interest Payable (29) 424
Other, Net (2,228) (308)
Net Cash Provided by
Operating Activities 12,494 12,851
Net Cash Flows from Investing Activities:
Acquisition of Property,
Plant and Equip. (6,009) (6,213)
Proceeds from Sale of
Electric Generation Assets 5,288 ---
Acquisition of Other Property
and Investments (3,271) ---
Net Cash Used in Investing
Activities (3,992) (6,213)
Cash Flows from Financing Activities:
Net Decrease in Short-Term Debt (20,000) --
Proceeds from Issuance of Long-Term Debt 12,000 --
Repayment of Long-Term Debt (975) (3,098)
Dividends Paid (3,324) (3,176)
Issuance of Common Stock 1,621 905
Retirement of Preferred Stock (86) (47)
Repayment of Capital Lease Obligations (508) (144)
Net Cash Flows Used in
Financing Activities (11,272) (5,560)
Net (Decrease) Increase in Cash (2,770) 1,078
Cash at Beginning of Year 4,083 2,337
Cash at June 30, $1,313 $3,415
Supplemental Cash Flow Information:
Cash Paid for:
Interest Paid $3,449 $3,650
Federal Income Taxes Paid $1,912 $1,290
Non-Cash Financing Activities:
Capital Leases Incurred $193 $365
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
Note 1.
Dividends Declared Per Share:
Three regular quarterly common stock dividends were declared during the six
month periods ended June 30, 1999 and 1998.
Common Stock Dividend:
On June 24, 1999, the Company's Board of Directors declared its regular
quarterly dividend on the Company's Common Stock of $0.345 per share which
was payable on August 13, 1999 to shareholders of record as of July 30, 1999.
On March 18, 1999, the Company's Board of Directors declared its regular
quarterly dividend on the Company's Common Stock of $0.345 per share which
was payable on May 14, 1999 to shareholders of record as of April 30, 1999.
On January 19, 1999 the Company's Board of Directors approved a 1.5%
increase to the dividend rate on its common stock. The new regular dividend
rate of $0.345 per share was payable February 15, 1999 to shareholders of
record as of February 1, 1999.
Note 2.
Common Stock:
During the second quarter of 1999, the Company sold 7,466 shares of Common
Stock, at an average price of $22.14 per share, in connection with its
Dividend Reinvestment and Stock Purchase Plan. Net proceeds of $165,319
were used to reduce short-term borrowings.
Note 3.
Preferred Stock:
Details on preferred stock at June 30, 1999, June 30, 1998 and December
31, 1998 are shown below:
(Amounts in Thousands)
June 30, December 31,
1999 1998 1998
Preferred Stock:
Non-Redeemable, Non-Cumulative,
6%, $100 Par Value $225 $225 $225
Redeemable, Cumulative,
$100 Par Value:
8.70% Series 215 215 215
5% Dividend Series 91 91 91
6% Dividend Series 168 168 168
8.75% Dividend Series 333 344 344
8.25% Dividend Series 385 395 395
5.125% Dividend Series 987 998 998
8% Dividend Series 1,353 1,407 1,407
Total Redeemable
Preferred Stock 3,532 3,618 3,618
Total Preferred Stock $3,757 $3,843 $3,843
Note 4.
Long-term Debt:
Details on long-term debt at June 30, 1999, June 30, 1998 and
December 31, 1998 are shown below:
(Amounts in Thousands)
June 30, December 31,
1999 1998 1998
Concord Electric Company:
First Mortgage Bonds:
Series H, 9.43%, due September 1, 2003 -- 5,200 --
Series I, 8.49%, due October 14, 2024 6,000 6,000 6,000
Series J, 6.96%, due September 1, 2028 10,000 -- 10,000
Exeter & Hampton Electric Company:
First Mortgage Bonds:
Series H, 8.50%, due December 15, 2002 -- 700 --
Series J, 9.43%, due September 1, 2003 -- 4,000 --
Series K, 8.49%, due October 14, 2024 9,000 9,000 9,000
Series L, 6.96%, due September 1, 2028 10,000 -- 10,000
Fitchburg Gas and Electric Light Company:
Promissory Notes:
8.55% Notes due March 31, 2004 13,000 14,000 14,000
6.75% Notes due November 30, 2023 19,000 19,000 19,000
7.37% Notes due January 15, 2029 12,000 -- --
Unitil Realty Corp.
Senior Secured Notes:
8.00% Notes Due August 1, 2017 7,247 7,368 7,222
Total 86,247 65,268 75,222
Less: Installments due
within one year 1,183 4,539 1,175
Total Long-term Debt $85,064 $60,729 $74,047
Note 5.
Contingencies:
The Company is currently undergoing an audit of the 1992 and 1993 Federal
income tax returns by the Internal Revenue Service. Although the outcome
cannot be predicted with certainty, it is not expected to have a material
impact on the Company's results of operations.
Note 6.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the consolidated financial
position as of June 30, 1999 and 1998; and results of operations for the
three and six months ended June 30, 1999 and 1998; and consolidated
statements of cash flows for the six months ended June 30, 1999 and 1998.
Reclassifications of amounts are made periodically to previously issued
financial statements to conform with the current year presentation.
The results of operations for the six months ended June 30, 1999 and 1998
are not necessarily indicative of the results to be expected for the full
year.
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
EARNINGS
The Company earned $0.32 per average common share (basic) for the second
quarter of 1999, up from $0.31 for the second quarter of 1998. The increase
of $0.01 per share was driven by higher Electric Sales to all customer
classes during the quarter, due to growth fueled by the overall healthy
regional economy and warmer-than-normal early summer temperatures. However,
because of this warmer weather, second quarter Gas Sales were off, compared
to prior year. Total Revenues increased by 2.9% for the second quarter of
1999, compared to 1998. These revenue gains were partially offset by higher
Depreciation and Operation and Maintenance expenses related to utility
industry restructuring.
On a year-to-date basis, basic earnings were up $0.02 to $0.90 per average
common share, compared to the six months ended June 30,1998.
Total electric KWH sales volume improved 4.9% in the second quarter and
5.3% on a year-to-date basis in 1999, compared to 1998. While Firm Therm
gas sales were down 8.2% during the second quarter, they increased
slightly - by 0.5% - over the first two quarters of 1998 (See Table).
Sales and Revenues (000's)
Three Months Ended Six Months Ended
KWH Sales 6/30/99 6/30/98 Change 6/30/99 6/30/98 Change
Residential 124,464 120,693 3.1% 279,137 271,822 2.7%
Commercial/Industrial 253,724 239,781 5.8% 513,257 480,639 6.8%
Total KWH Sales 378,188 360,474 4.9% 792,394 752,461 5.3%
Electric Revenue
Residential $13,897 $13,976 (0.6)% $28,561 $29,654 (3.7)%
Commercial/Industrial 25,154 24,224 3.8% 46,674 46,205 1.0%
Total Electric
Revenue $39,051 $28,200 2.2% $75,235 $75,859 (0.8)%
Firm Therm Sales
Residential 2,235 2,496 (10.5)% 7,629 7,989 (4.5)%
Commercial/Industrial 2,074 2,199 (5.7)% 6,920 6,482 6.8%
Total Firm
Therm Sales 4,309 4,695 (8.2)% 14,549 14,471 0.5%
Gas Revenue
Residential $1,681 $1,805 (6.9)% $4,931 $5,262 (6.3)%
Commercial/Industrial 1,265 1,162 8.9% 3,845 3,520 9.2%
Total Firm
Gas Revenue 2,946 2,967 (0.7)% 8,776 8,782 (0.1)%
Interruptible Gas
Revenue 726 368 97.3% 1,052 879 19.7%
Total Gas Revenues $3,672 $3,335 10.1% $9,828 $9,661 1.7%
Despite the mild winter weather during the first half of 1999, total energy
sales were favorable to prior year, partially as a result of increased sales
to a major customer who had previously curtailed its operations and then
restarted and expanded operations in the last half of 1998 and the first
half of 1999. However, this customer recently notified the Company that,
because of a bankruptcy filing by its parent, it has suspended operations.
As a result, the Company now anticipates that energy sales to this customer
will be significantly reduced in the near future.
Total Operating Revenues were $42.8 million in the second quarter of 1999,
compared to $41.5 million in the prior year. The increase in Electric
Operating revenues of 2.2% in the second quarter of 1999 was due to higher
KWH sales volume, partially offset by the Company's lower electric rates in
1999. The lower electric rates are a result of a reduction in energy supply
prices, which are passed through to customers. Also, a 10% rate reduction,
granted to our Massachusetts customers as a result of electric utility
industry restructuring, began in March, 1998. On a year-to-date basis,
Electric Operating revenues were $75.2 million in 1999, compared to $75.9
million in 1998.
Lower Firm Therm gas sales volume in the second quarter resulted in
relatively flat Firm Therm gas revenues compared to the prior year. Lower
gas supply prices in 1999 offset an approved gas base rate increase
implemented by the Company on December 1, 1998. Total gas revenues in the
second quarter increased by 10.1% compared to the prior year, due to the
significant increase in interruptible gas sales. Margins earned on
interruptible gas sales are used to lower rates directly to firm gas
customers through the cost of gas adjustment mechanism.
For the six months ended June 30, 1999, Operation and Maintenance expenses
increased over the prior year due to the costs of customer information,
metering and billing systems and accounting and other administrative systems
needed to implement electric and gas utility industry restructuring. The
increase in Depreciation and Amortization expenses during the same period
was due to the accelerated write-off of electric generating assets -
including the Company's abandoned investment in Seabrook Station as a
result from electric utility industry restructuring in Massachusetts.
In 1999 Unitil acquired a minority interest in North American Power Brokers,
Inc. ("NAP"), through the purchase of Preferred Stock and Common Stock
Warrants for approximately $3 Million in cash. Also, Unitil Resources, Inc.
(URI) purchased NAP's New York customer list and now, under the name
"Usource", offers retail energy consumers the price benefits of competitive
energy supplier bidding, without URI or its customers undertaking the
financial risk of commodity ownership.
As previously reported, the Company's Balance Sheet reflects the recording
at December 31, 1998, of significant Regulatory Assets, estimated at $140
million, related to the approval by the Massachusetts Department of
Telecommunications and Energy ("MDTE") of Fitchburg Gas and Electric Light
Company's ("FG&E") Electric Restructuring Plan. FG&E is Unitil's Electric
and Gas Utility subsidiary in Massachusetts. FG&E's divestiture process is
complete and consummation awaits MDTE approval, which is expected in the
third quarter.
Basic earnings per average common share for the 12 months ended June 30,
1999 and 1998, were $1.79 and $1.68, respectively. The increase is
attributable to higher Electric and Gas marginal revenues, lower Interest
Expense and lower effective Income Tax rates which were partially offset by
higher Operation and Maintenance and Depreciation and Amortization expenses.
RESTRUCTURING AND COMPETITION
Regulatory activity surrounding restructuring and competition continues in
both Massachusetts and New Hampshire. March 1, 1998 was "Choice Date" or the
beginning of competition for all electric consumers in Massachusetts, while
New Hampshire's "Choice Date" slipped past the legislature's mandated date
of July 1, 1998 and is currently the subject of a federal court injunction
(see below).
Massachusetts gas industry restructuring plans continue to be under
development. The MDTE, gas utilities and other stakeholders began a
collaborative effort in late 1997 to develop solutions to the many issues
that surround restructuring the local natural gas distribution business.
Unitil has been preparing for electric and gas industry restructuring by
developing transition plans that will move its utility subsidiaries into
this new market structure in a way that will ensure fairness in the
treatment of the Company's assets and obligations that are dedicated to the
current regulated franchises and, at the same time, provide choice for all
customers.
Massachusetts (Electric)- On January 15, 1999, the MDTE gave final approval
to FG&E's restructuring plan with certain modifications. The Plan provides
customers with: a) a choice of energy supplier; b) an option to purchase
Standard Offer Service (i.e. state-mandated energy service) provided by FG&E
at regulated rates for up to seven years; and c) a cumulative 15% rate
reduction. The Plan also provides for FG&E to divest generation assets and
its portfolio of purchased power contracts. The Company will be afforded
full recovery of any transition costs through a non-bypassable retail
Transition Charge.
Pursuant to the Plan, on October 30, 1998, FG&E filed with the MDTE a
proposed contract with Constellation Power Services Inc. for provision of
Standard Offer Service. The MDTE's January 15, 1999 Order approves the
FG&E/Constellation contract, and service thereunder commenced on March 1,
1999, and is scheduled to continue through February 28, 2005. This contract
is the result of the first successful Standard Offer auction conducted in
Massachusetts.
The January 15 Order also approved FG&E's power supply divestiture plan for
its interest in three generating units and four long-term power supply
contracts. A contract for the sale of FG&E's interest in the New Haven
Harbor plant was filed with the MDTE on November 20, 1998. The MDTE approved
the contract on March 31, 1999 and the deal closed on April 14, 1999. A
contract for the sale of the entire output from FG&E's remaining generating
assets and purchased power contracts was filed with the MDTE on June 11,
1999. MDTE approval is pending.
The first annual reconciliation filing was made with the MDTE on May 5,
1999. As a result of the reconciliations, approved by the MDTE on May 28,
1999, FG&E raised its transmission charges and reduced its transition
charges effective June 1, 1999. On July 30, 1999, FG&E filed with the MDTE a
proposal to lower its transition charge effective September 1, 1999, to
reflect: a) the legislative requirement to increase its retail rate discount
another 5%, to 15%; b) the impact of inflation since mid-1997; and c) the
effects of the divestiture of its generation assets and sale of the output
from its portfolio of purchased power contracts.
Massachusetts (Gas) -In mid-1997, the MDTE directed all Massachusetts
natural gas Local Distribution Companies (LDCs) to form a collaborative with
other stakeholders to develop common principles and appropriate regulations
for the unbundling of gas service, and directed FG&E and four other LDCs to
file unbundled gas rates for its review. FG&E's unbundled gas rates were
approved by the MDTE and implemented in November 1998.
On February 1, 1999, the MDTE issued an order in which it determined that
the LDCs would continue to have an obligation to provide gas supply and
delivery services for another five years, with a review after three years.
That order also set forth the MDTE's decision regarding release by LDCs of
their pipeline capacity contracts to competitive marketers. On March 24,
1999 the LDCs and other stakeholders filed a settlement with the MDTE which
set forth rules for implementing an interim firm transportation service
through October 31, 2000. The interim service will ultimately be superseded
by the permanent transportation service, beginning as early as November 1,
1999. The MDTE approved the settlement on April 2, 1999. On May 17, 1999,
FG&E made a compliance filing with the MDTE to implement the interim firm
gas transportation service for its largest general service customers
effective June 1, 1999. On May 28, 1999, the MDTE approved FG&E's Interim
Firm Transportation filing. On June 11, 1999, FG&E filed a Firm Gas Peaking
Service with the MDTE to complement the Interim Firm Transportation Service.
The MDTE's decision is pending. FG&E continues to work with the other
Massachusetts LDCs and various stakeholders to develop and implement the
infrastructure to complete the restructuring of gas service for all
customers in Massachusetts.
New Hampshire - On February 28, 1997, the New Hampshire Public Utilities
Commission (NHPUC) issued its Final Plan for transition to a competitive
electric market in New Hampshire. The order allowed Concord Electric Company
and Exeter & Hampton Electric Company, Unitil's New Hampshire retail
distribution utilities, to recover 100% of "stranded" costs for a two-year
period, but excluded recovery of certain administrative-related charges.
Northeast Utilities' affiliate, Public Service Company of New Hampshire
(PSNH), appealed the NHPUC order in Federal District Court. A temporary
restraining order was issued on March 10, 1997. In June 1997, Unitil was
admitted as a Plaintiff Intervenor in the Federal Court proceeding. On June
9, 1998, the Federal Court issued an injunction continuing the freeze on
NHPUC efforts to implement restructuring. Various interlocutory appeals and
pretrial disputes have delayed this proceeding and no date has been
scheduled for a trial. However, at a preliminary hearing on April 7, 1999,
the Judge reiterated the continuing injunction against implementation by the
NHPUC. The Company will vigorously pursue its action in the federal court
and simultaneously look for ways to resolve issues and bring forth choice to
its retail customers.
In September 1998, the Company reached a comprehensive restructuring
settlement with key parties and filed this voluntary Agreement with the
NHPUC. The Agreement was modified on October 20, 1998. In oral deliberations
on November 2 and November 18, 1998, the NHPUC imposed conditions to
approval of the Settlement which were unacceptable to the Company, and the
Settlement was subsequently withdrawn. The component of the Agreement
dealing with wholesale rates was filed with the Federal Energy Regulatory
Commission ("FERC") in September 1998, and approved by the FERC in early
November. However, implementation will not occur, as the changes were
conditioned upon approval by the NHPUC. Unitil continues to participate
actively in all proceedings and in several NHPUC-established working groups
which will define details of the transition to competition and customer
choice. In June 1999, the Governor of New Hampshire announced a Memorandum
of Understanding (MOU) with PSNH intended to lead to a comprehensive
settlement of all restructuring issues for PSNH. A settlement was
subsequently filed with the NHPUC on August 2, 1999 for review and approval.
Extensive hearings on the settlement are expected.
Rate Cases -The last formal regulatory hearings to increase base electric
rates for Unitil's three retail operating subsidiaries occurred in 1985 for
Concord Electric Company, 1984 for Fitchburg Gas and Electric Light Company
and 1981 for Exeter & Hampton Electric Company.
On May 15, 1998, FG&E filed a gas base rate case with the MDTE. After
evidentiary hearings, the MDTE issued an Order allowing FG&E to establish
new rates, effective November 30, 1998, that would produce an annual
increase of approximately $1.0 million in gas revenues. However, as part of
the proceeding, the Attorney General of the Commonwealth of Massachusetts
alleged that FG&E had double-collected fuel inventory finance charges, since
1987, and requested that the MDTE require FG&E to refund approximately
$1.6 million to its customers. The Company believes that the Attorney
General's claim is without merit and that a refund is not justified or
warranted. The MDTE stated its intent to open a separate proceeding to
investigate the Attorney General's claim.
A majority of the Company's operating revenues are collected under various
periodic rate adjustment mechanisms including fuel, purchased power, cost of
gas and energy efficiency program cost recovery mechanisms. Restructuring
will continue to change the methods of how certain costs are recovered from
customers and from suppliers. Transition costs, Standard Offer Service and
Default Service power supply costs, internal and external transmission
service costs and energy efficiency and renewable energy program costs for
FG&E are being recovered via fully reconciling rate adjustment mechanisms in
Massachusetts.
Millstone Unit No. 3- FG&E has a 0.217% nonoperating ownership in the
Millstone Unit No. 3 (Millstone 3) nuclear generating unit which supplies it
with 2.49 megawatts (MW) of electric capacity. Due to various operating
problems and NRC oversight, Millstone 3 was out of service from March 30,
1996 until early July, 1998.
During the period that Millstone 3 was out of service, FG&E continued to
incur its proportionate share of the unit's ongoing Operations and
Maintenance (O&M) costs, and may incur additional O&M costs and capital
expenditures to meet NRC requirements. FG&E also incurred costs to replace
the power that was expected to be generated by the unit. During the outage,
FG&E had been incurring approximately $35,000 per month in replacement power
costs, and had been recovering those costs through its fuel adjustment
clause, which will be subject to review and approval by the MDTE.
In August 1997, FG&E, in concert with other non-operating joint owners,
filed a demand for arbitration in Connecticut and a lawsuit in
Massachusetts, in an effort to recover costs associated with the extended
unplanned shutdown. Several preliminary rulings have been issued in the
arbitration and legal cases and both cases are continuing.
YEAR 2000 SOFTWARE COMPLIANCE DISCUSSION
The Company recognizes the need to ensure its operations are not adversely
affected by software or device failures related to the Year 2000 date
recognition problem, ("Y2K Issues"). Specifically, Y2K Issues would arise
when software applications, or devices with embedded chips, fail to
correctly recognize and process the year 2000 and beyond. Certain software
applications and devices are certified to recognize and process date
references to the year 2000 and beyond and they are deemed to be Year 2000
compliant, ("Year 2000 Compliance"). Potential software failures could
create incorrect calculations, among other errors, and they present a risk
to the integrity of our Company's financial systems and the reliability of
our operating systems. In order to minimize the risk of disruption to our
business operations, the Company is taking the actions described below,
including communicating with suppliers, dealers, financial institutions and
others with which it does business, to coordinate the identification,
evaluation, remediation and testing of possible Y2K Issues which may affect
the Company.
The Company has established a centralized task force to identify and
implement necessary changes to the Company's internal computer systems,
controlling hardware devices and software applications in order to achieve
Year 2000 Compliance for those systems. The remediation of Y2K Issues and
testing of all critical components of the Company's internal systems was
completed on June 30, 1999.
The Company has also established processes for evaluating and managing the
risks and possible costs associated with Y2K Issues which may exist in
systems external to the Company's operations, but could affect the Company's
operations indirectly. The Company has already directed efforts to notify
our critical vendors and suppliers about Y2K Issues which may affect our
operations, and most are already providing important information about the
Year 2000 readiness of their organizations. Testing of certain critical
systems has been completed, in conjunction with our key suppliers and
vendors, and the Company is currently developing contingency plans for
circumstances where assurance of Year 2000 Compliance cannot be obtained or
where we believe the greatest Y2K susceptibility exists.
The Company currently estimates it will invest in the range of $250,000 to
$500,000 plus internal costs, over the cost of normal software upgrades and
replacements to achieve Year 2000 Compliance. These additional capital
outlays include costs to replace certain devices and software, and the
costs for consultants to assist us with software programming and testing.
Unitil relies on the proper operation of a regional network of systems and
devices to transport and distribute electricity and gas to its customers.
Any disruption in those systems caused by Y2K Issues could interrupt the
reliable delivery of electric and gas service through our Distribution
Operating Companies. Some of these software systems and devices belong to
other companies and are beyond the control of Unitil to ensure that they
are properly remediated for Year 2000. However, several agencies, including
the Department of Energy, The New England ISO, and The National Electricity
Reliability Council, have active Year 2000 programs in place. These
programs will ensure that member companies are actively and comprehensively
dealing with any Year 2000 Issues in their supply, generation,
transportation and distribution facilities and systems. Unitil participates
in these groups and currently believes that satisfactory progress is being
made and will continue to be made to ensure a reliable supply and delivery
of energy. Furthermore, these groups plan to establish contingency plans
to cover delivery difficulties during key Year 2000 dates. The Company also
plans to work with local, state and regional agencies and other utility
companies to ensure that appropriate contingency plans are in place for
energy supply and delivery systems which could be affected by Year 2000
difficulties.
In addition, while the Company currently believes that its own
mission-critical systems are Year 2000 Compliant, it cannot guarantee the
compliance of other systems operated by other companies upon which it
depends. For example, the Company's ability to provide electricity to its
customers depends upon the regional electric transmission grid which
connects the systems of neighboring utilities to provide electric power for
the region. If one company's system is not Year 2000 Compliant, then a
failure could impact all providers within the grid, including Unitil.
Similarly, the Company's gas operations depend upon natural gas pipelines
that it does not own or control, and any Year 2000 noncompliance associated
with these pipelines may affect the Company's ability to provide natural gas
to its customers. Failure to achieve Year 2000 readiness could have a
material effect on the Company's results of operations, financial position
and cash flows.
INVESTING ACTIVITIES
Capital expenditures on plant and equipment for the six months ended June
30, 1999 were approximately $6.0 million. This compares to $6.2 million
during the same period last year. Capital expenditures for plant and
equipment for the year 1999 are estimated to be approximately $15.2 million
as compared to $14.5 million for 1998. This projection reflects capital
expenditures for utility system expansions, replacements and other
improvements.
In 1999 Unitil acquired a minority interest in North American Power Brokers,
Inc. ("NAP"), through the purchase of Preferred Stock and Common Stock
Warrants for approximately $3 million in cash. Also, Unitil Resources,
Inc. (URI) purchased NAP's New York customer list and now, under the name
"Usource", offers retail energy consumers the price benefits of competitive
energy supplier bidding, without URI or its customers undertaking the
financial risk of commodity ownership.
LEGAL PROCEEDINGS
The Company is involved in legal and administrative proceedings and claims
of various types which arise in the ordinary course of business. In the
opinion of the Company's management, based upon information furnished by
counsel and others, the ultimate resolution of these claims will not have a
material impact on the Company's financial position.
FORWARD-LOOKING INFORMATION
This report contains forward-looking statements which are subject to the
inherent uncertainties in predicting future results and conditions. Certain
factors that could cause the actual results to differ materially from those
projected in these forward-looking statements include, but are not limited
to; variations in weather, changes in the regulatory environment, customers'
preferences on energy sources, general economic conditions, increased
competition and other uncertainties, all of which are difficult to predict,
and many of which are beyond the control of the Company.
PART I. EXHIBIT 11.
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
(UNAUDITED)
(Amounts in Thousands, except Shares and Per Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
BASIC EARNINGS PER SHARE 1999 1998 1999 1998
Net Income $1,598 $1,478 $4,342 $4,100
Less: Dividend Requirement
on Preferred Stock 67 69 135 138
Net Income Applicable
to Common Stock $1,531 $1,409 $4,207 $3,962
Average Number of Common
Shares Outstanding 4,695,844 4,496,758 4,658,443 4,487,546
Basic Earnings Per Common Share $0.32 $0.31 $0.90 $0.88
Three Months Ended Six Months Ended
June 30, June 30,
DILUTED EARNINGS PER SHARE 1999 1998 1999 1998
Net Income $1,598 $1,478 $4,342 $4,100
Less: Dividend Requirement
on Preferred Stock 67 69 135 138
Net Income Applicable
to Common Stock $1,531 $1,409 $4,207 $3,962
Average Number of Common
Shares Outstanding 4,703,965 4,605,770 4,667,028 4,599,252
Diluted Earnings per
Common Share $0.32 $0.30 $0.90 $0.86
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description of Exhibit Reference
11 Computation in Support of
Earnings Per Average Common Share Filed herewith
(b) Reports on Form 8-K
During the quarter ended June 30, 1999, the Company did not
file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNITIL CORPORATION
(Registrant)
Date: August 11, 1999 /s/ Anthony J. Baratta, Jr.
Anthony J. Baratta, Jr.
Chief Financial Officer
Date: August 11,1999 /s/ Mark H. Collin
Mark H. Collin
Treasurer