FORM 10-Q

 

 

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 Quarter Ended September 30, 2001

 

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

 

 

 

 

 

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 November 1, 2001

Common Stock, No par value

4,743,696 Shares

 

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
FORM 10-Q
For the Quarter Ended September 30, 2001

 

Table of Contents

 

 

Part I. Financial Information

Item 1.  Financial Statements

 

Consolidated Statements of Earnings - Three and Nine Months Ended September 30, 2001 and 2000

 

Consolidated Balance Sheets, September 30, 2001, September 30, 2000 and December 31, 2000

 

Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2001 and 2000

 

Notes to Consolidated Financial Statements

 

Item 2.  Management's Discussion and Analysis of Results of Operations and Financial Condition

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 
 
 

Part II. Other Information

 

Item 1.  Legal Proceedings

 

Item 6.  Exhibits and Reports on Form 8-K

 

Signatures

 

Exhibit 11 - Computation of Earnings per Average Common Share Outstanding

 

 

 

 

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(000's except common shares and per share data)
(UNAUDITED)

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2001

 

2000

 

2001

 

2000

Operating Revenues

             

  Electric

$46,870

 

$41,189

 

$141,772

 

$118,925

  Gas

2,492

 

3,252

 

17,526

 

14,677

  Other

122

 

23

 

295

 

87

    Total Operating Revenues

49,484

 

44,464

 

159,593

 

133,689

               

Operating Expenses

             

  Fuel and Purchased Power

33,722

 

28,489

 

103,460

 

81,127

  Gas Purchased for Resale

1,123

 

1,953

 

10,992

 

8,261

  Operation and Maintenance

6,423

 

6,737

 

19,052

 

18,929

  Depreciation and Amortization

3,473

 

2,865

 

10,042

 

8,926

  Provisions for Taxes:

             

    Local Property and Other

930

 

1,180

 

3,606

 

3,802

    Federal and State Income

494

 

361

 

2,175

 

2,277

      Total Operating Expenses

46,165

 

41,585

 

149,327

 

123,322

Operating Income

3,319

 

2,879

 

10,266

 

10,367

    Non-Operating Expenses, Net

54

 

61

 

142

 

194

Income Before Interest Expense

             

       and Extraordinary Item

3,265

 

2,818

 

10,124

 

10,173

    Interest Expense, Net

1,847

 

1,687

 

5,248

 

5,151

Net Income before Extraordinary Item

1,418

 

1,131

 

4,876

 

5,022

Extraordinary Item (less applicable income
       taxes of $1,388) (Note 2)

(3,937)

 

---

 

(3,937)

 

---

Net Income

(2,519)

 

1,131

 

939

 

5,022

    Less Dividends on Preferred Stock

64

 

64

 

195

 

197

Net Income Applicable to Common Stock

($2,583)

 

$1,067

 

$744

 

$4,825

               

Average Common Shares Outstanding

4,746,196

 

4,725,989

 

4,742,441

 

4,720,236

Average Common Shares Outstanding- Diluted

4,760,744

 

4,740,111

 

4,759,556

 

4,743,888

               

Basic Earnings Per Share:

             

    Before Extraordinary Item

$0.29 

 

$0.23

 

$0.99

 

$1.02

    After Extraordinary Item (Note 2)

($0.54)

 

$0.23

 

$0.16

 

$1.02

               

Diluted Earnings Per Share:

             

    Before Extraordinary Item

$0.28 

 

$0.23

 

$0.98

 

$1.02

    After Extraordinary Item (Note 2)

($0.54)

 

$0.23

 

$0.16

 

$1.02

               

Dividends Declared Per Share

             

of Common Stock (Note 4)

$0.345

 

$0.345

 

$1.38

 

$1.38

(The accompanying notes are an integral part of these statements.)

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(000's)

 

 

(UNAUDITED)

 

(AUDITED)

 

September 30,

 

December 31,

 

2001

 

2000

 

2000

ASSETS:

         
           

Utility Plant:

         

  Electric

$179,862

 

$169,013

 

$173,883

  Gas

39,520

 

35,860

 

36,996

  Common

21,415

 

21,192

 

21,602

  Construction Work in Progress

5,926

 

5,035

 

3,080

Total Utility Plant

246,723

 

231,100

 

235,561

  Less:    Accumulated Depreciation

76,377

 

69,831

 

71,036

Net Utility Plant

170,346

 

161,269

 

164,525

           

Other Property and Investments

9,138

 

7,763

 

8,740

           

Current Assets:

         

  Cash

2,666

 

2,170

 

3,060

  Accounts Receivable - Less Allowance for

         

    Doubtful Accounts of $595, $590 and $596

22,346

 

17,593

 

20,057

  Refundable Taxes

146

 

611

 

1,980

  Materials and Supplies

3,476

 

3,228

 

2,854

  Prepayments

1,727

 

1,189

 

1,317

  Accrued Revenue

(724)

 

4,374

 

8,662

      Total Current Assets

29,637

 

29,165

 

37,930

           

Noncurrent Assets:

         

  Regulatory Assets (Notes 2 and 9)

150,532

 

158,455

 

157,278

  Prepaid Pension Costs

10,509

 

9,807

 

9,996

  Debt Issuance Costs

1,836

 

1,343

 

1,479

  Other Noncurrent Assets

3,599

 

2,931

 

3,019

      Total Noncurrent Assets

166,476

 

172,536

 

171,772

           

TOTAL

$375,597

 

$370,733

 

$382,967

(The accompanying notes are an integral part of these statements.)

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Cont.)
(000's)

 

 

(UNAUDITED)

 

(AUDITED)

 

September 30,

 

December 31,

 

2001

 

2000

 

2000

CAPITALIZATION AND LIABILITIES:

         
           

Capitalization:

         
           

Common Stock Equity

$74,599

 

$77,615

 

$79,935

Preferred Stock, Non-Redeemable,  
   Non-Cumulative (Note 6)

225

 

225

 

225

Preferred Stock, Redeemable,
   Cumulative (Note 6)

3,465

 

3,465

 

3,465

Long-Term Debt, Less Current Portion (Note 7)

107,528

 

81,811

 

81,695

      Total Capitalization

185,817

 

163,116

 

165,320

           

Current Liabilities:

         

  Long-Term Debt, Current Portion (Note 7)

3,220

 

3,203

 

3,207

  Capitalized Leases, Current Portion

920

 

831

 

935

  Accounts Payable

19,386

 

15,138

 

18,539

  Short-Term Debt

5,000

 

21,225

 

32,500

  Dividends Declared and Payable

1,784

 

1,848

 

209

  Refundable Customer Deposits

1,338

 

1,298

 

1,252

  Interest Payable

1,869

 

1,311

 

1,150

  Other Current Liabilities

7,998

 

7,307

 

6,377

      Total Current Liabilities

41,515

 

52,161

 

64,169

           

Deferred Income Taxes

48,187

 

44,534

 

45,859

           

Noncurrent Liabilities:

       

  Power Supply Contract Obligations (Note 9)

90,920

 

99,553

 

97,342

  Capitalized Leases, Less Current Portion

2,571

 

3,245

 

3,259

  Other Noncurrent Liabilities

6,587

 

8,124

 

7,018

      Total Noncurrent Liabilities

100,078

 

110,922

 

107,619

           

TOTAL

$375,597

 

$370,733

 

$382,967

 

(The accompanying notes are an integral part of these statements.)

 

 

 

UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (000'S)
(UNAUDITED)

 

 

Nine Months Ended September 30,

 

2001

 

2000

Net Cash Flow from Operating Activities:

     

  Net Income

$939

 

$5,022

  Adjustments to Reconcile Net Income to Cash

     

    Provided by Operating Activities:

     

    Depreciation and Amortization

10,042

 

8,926

    Deferred Taxes Provision

1,076

 

2,151

    Amortization of Investment Tax Credit

(115)

 

(192)

    Amortization of Debt Issuance Costs

51

 

45

  Changes in Working Capital:

     

    Accounts Receivable

(2,289)

 

(963)

    Materials and Supplies

(622)

 

(725)

    Prepayments

(923)

 

(1,164)

    Accrued Revenue

9,386

 

(2,112)

    Accounts Payable

847

 

(1,377)

    Refundable Customer Deposits

86

 

(4)

    Taxes and Interest Payable

2,553

 

874

  Other changes in assets and liabilities, net

(276)

 

743

        Net Cash Provided by Operating Activities

20,755

 

11,224

 

 

Net Cash Flows from Investing Activities:

 

    Acquisition of Property, Plant and Equip.

(13,670)

 

(14,870)

    Proceeds from Sale of Electric Generation Assets

342

 

---

    Acquisition of Other Property and Investments

(535)

 

(1,257)

        Net Cash Used in Investing Activities

(13,863)

 

(16,127)

 

 

Cash Flows from Financing Activities:

     

    Net Increase (Decrease) in Short-Term Debt

(27,500)

 

10,725

    Proceeds from Issuance of Long-Term Debt

29,000

 

---

    Repayment of Long-Term Debt

(3,154)

 

(1,143)

    Dividends Paid

(5,163)

 

(5,085)

    Issuance of Common Stock

234

 

484

    Retirement of Preferred Stock

---

 

(68)

    Repayment of Capital Lease Obligations

(703)

 

(687)

        Net Cash Provided by (Used in) Financing Activities

(7,286)

 

4,226

Net Decrease in Cash

(394)

 

(677)

Cash at Beginning of Period

3,060

 

2,847

Cash at End of Period

$2,666

 

$2,170

       

Supplemental Cash Flow Information:

     

  Cash Paid for:

     

    Interest

$6,270

 

$6,029

    Federal Income Taxes

---

 

$350

(The accompanying notes are an integral part of these statements.)

 

 

 

 

UNITIL COPORATION AND SUBSIDIARY COMPANIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations - Unitil Corporation (Unitil or the Company) is registered with the Securities and Exchange Commission (SEC) as a public utility holding company under the Public Utility Holding Company Act of 1935, and is the parent of the Unitil System (the System). The following companies are wholly owned subsidiaries of Unitil: Concord Electric Company (CECo), Exeter & Hampton Electric Company (E&H), Fitchburg Gas and Electric Light Company (FG&E), Unitil Power Corp. (UPC), Unitil Realty Corp. (URC), Unitil Service Corp. (USC), and its unregulated business unit Unitil Resources, Inc. (URI). Usource, Inc. and Usource L.L.C. (collectively, Usource) are subsidiaries of Unitil Resources, Inc.

Unitil's principal business is the retail sale and distribution of electricity in New Hampshire and both electric and gas services in Massachusetts through its retail distribution subsidiaries CECo, E&H, and FG&E. The Company's wholesale electric power subsidiary, UPC, principally provides all the electric power supply requirements to CECo and E&H for resale at retail, and also engages in various other wholesale electric power services with affiliates and non-affiliates throughout the New England region. URI provides an Internet-based energy brokering business, Usource, as well as various energy consulting and marketing activities. Finally, URC and USC provide centralized facilities and operations and management services to support the Unitil system of companies.

With respect to rates and accounting practices, CECo and E&H are subject to regulation by the New Hampshire Public Utilities Commission (NHPUC), FG&E is regulated by the Massachusetts Department of Telecommunications & Energy (MDTE), and UPC, CECo, E&H, and FG&E are regulated by the Federal Energy Regulatory Commission (FERC).

The Company accounts for all its regulated operations in accordance with Statement of Financial Accounting Standard No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation," requiring the Company to record the financial statement effects of the rate regulation to which the Company is currently subject. If a separable portion of the Company's business no longer meets SFAS No. 71, the Company is required to eliminate the financial statement effects of regulation for that portion.

Reclassifications - 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 September 30, 2001 and 2000 and December 31, 2000; and results of operations for the three and nine months ended September 30, 2001 and 2000; and consolidated statements of cash flows for the nine months ended September 30, 2001 and 2000. Reclassifications are made periodically to amounts previously reported to conform to current year presentation.

 

NOTE 2 - EXTRAORDINARY ITEM - SUBSEQUENT EVENT

In November 1997, the Massachusetts Legislature enacted landmark electric industry restructuring legislation (the

Act). The Act required all electric utilities to file a restructuring plan with the Massachusetts Department of Telecommunications and Energy (MDTE) by December 31, 1997. The filing of its Restructuring Plan (the Plan) by Unitil's Massachusetts operating subsidiary, Fitchburg Gas and Electric Light Company (FG&E) marked an unprecedented turning point in FG&E's 150 year history. Among other things, the Act required all Massachusetts electric utilities to sell all of their electric generation assets and to restructure their utility operations to provide direct retail access to their customers by all generation suppliers.

The MDTE conditionally approved FG&E's Plan in February 1998, and started an investigation and evidentiary hearings into FG&E's proposed recovery of regulatory assets related to stranded generation asset costs and expenses related to the formulation and implementation of its Plan. In January 1999, the MDTE approved FG&E's Plan, which included provisions for the recovery of stranded costs through a Transition Charge in the Company's electric rates. In September 1999, FG&E filed its first annual reconciliation of stranded generation asset costs and expenses and associated Transition Charge revenues and the MDTE initiated a lengthy investigation and hearing process in docket DTE 99-110.

During October 2001, the MDTE issued a series of regulatory orders in several long-pending cases involving FG&E. These orders complete the review and disposition of issues related to the Company's recovery of transition costs due to the restructuring of the electric industry in Massachusetts, which was mandated by the state legislature in November 1997. The orders determined the final treatment of regulatory assets that FG&E has sought to recover, in its original Restructuring Plan, from its Massachusetts electric customers over the multi-year transition period that began in 1998. FG&E has now been authorized to recover approximately $150 million of regulatory assets attributable to stranded generation assets, purchased power costs, and related expenses.

As a result of the industry restructuring-related Orders, FG&E recorded a non-cash adjustment to regulatory assets of $5.3 million, which resulted in the recognition of an extraordinary charge of $3.9 million after taxes. The Company recognized the extraordinary charge of $0.82 per share as of September 2001 as a subsequent event.

As a result of all of these orders, the Company has been granted recovery of substantially all of its stranded costs, less the amount noted above.

 

NOTE 3 - ELECTRIC DISTRIBUTION RATE DECREASE

One of the orders issued by the MDTE was a final decision in DTE 99-118, an investigation into the overall earnings level of FG&E's electric distribution operations. In this order, the MDTE reduced FG&E's allowed return on equity to 10.5% and directed the Company to reduce its base electric distribution rates prospectively by $1.17 million, or approximately 8.4%. In compliance with the MDTE's order, FG&E filed and received approval for a reduction in its electric distribution rates, effective October 19, 2001. 

 

NOTE 4 - DIVIDENDS DECLARED PER SHARE

 

Shareholder of

Dividend

Declaration Date

Date Paid (Payable)

Record Date

Amount

09/28/01

11/15/01

11/01/01

$ 0.345

06/28/01

08/15/01

08/01/01

0.345

03/15/01

05/15/01

05/01/01

0.345

01/16/01

02/15/01

02/01/01

0.345

09/29/00

11/15/00

11/01/00

0.345

06/21/00

08/15/00

08/01/00

0.345

03/16/00

05/15/00

05/01/00

0.345

01/19/00

02/15/00

02/01/00

0.345

NOTE 5 - COMMON STOCK:  STOCK BUYBACK

During the third quarter of 2001, the Company did not sell any additional shares of Common Stock in connection with its Dividend Reinvestment and Stock Purchase Plan.

During the third quarter of 2000, the Company sold 5,768 shares of Common Stock, at an average price of $28.00 per share, in connection with its Dividend Reinvestment and Stock Purchase Plan. Net proceeds of $161,481 were used to reduce short-term borrowings.

At the end of the third quarter of 2001, the Company instituted an interim Common Stock repurchase program during the temporary suspension of certain conditions of Rule 10b-18, as modified by the SEC's emergency order, following the tragic events of September 11, 2001. As a result, the Company repurchased 2,500 shares of its Common Stock at market price.

 

NOTE 6 - PREFERRED STOCK

Details on preferred stock at September 30, 2001, September 30, 2000 and December 31, 2000 are shown below:

(Amounts in Thousands)

 

 

September 30,

 

December 31,

 

2001

 

2000

 

2000

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

 

333

 

333

    8.25% Dividend Series

385

 

385

 

385

    5.125% Dividend Series

973

 

973

 

973

    8% Dividend Series

1,300

 

1,300

 

1,300

      Total Redeemable Preferred Stock

3,465

 

3,465

 

3,465

        Total Preferred Stock

$3,690

 

$3,690

 

$3,690

 

NOTE 7 - LONG-TERM DEBT

Details on long-term debt at September 30, 2001, September 30, 2000 and December 31, 2000 are shown below:

(Amounts in Thousands)

 

 

 

September 30,

 

December 31,

 

2001

 

2000

 

2000

           

Concord Electric Company:

         

  First Mortgage Bonds:

         

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

 

10,000

Series K, 8.00%, due May 1, 2031

7,500

 

---

 

---

           

Exeter & Hampton Electric Company:

         

  First Mortgage Bonds:

         

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

 

10,000

Series M, 8.00%, due May 1, 2031

7,500

 

---

 

---

           

Fitchburg Gas and Electric Light Company:

         

  Promissory Notes:

         

8.55% Notes due March 31, 2004

9,000

 

12,000

 

12,000

6.75% Notes due November 30, 2023

19,000

 

19,000

 

19,000

7.37% Notes due January 15, 2029

12,000

 

12,000

 

12,000

7.98% Notes due June 1, 2031

14,000

 

---

 

---

           

Unitil Realty Corp.

         

  Senior Secured Notes:

         

8.00% Notes Due August 1, 2017

6,748

 

7,014

 

6,902

           
           

Total

110,748

 

85,014

 

84,902

Less: Installments due within one year

3,220

 

3,203

 

3,207

           

Total Long-term Debt

$107,528

 

$81,811

 

$81,695

 

NOTE 8 - SEGMENT INFORMATION

The following table provides significant segment financial data for the three and nine months ended September 30, 2001 and 2000:

Three Months Ended September 30, 2001 (000's)

Electric

Gas

Common

Usource

Eliminations

Total

Revenues

           

    External Customers

$46,726

$2,492

$210

$56

 

$49,484

    Intersegment

----

----

4,719

----

(4,719)

----

Depreciation and Amortization

2,583

407

433

50

 

3,473

Interest, net

1,222

425

214

(14)

 

1,847

Income Taxes

981

(330)

(57)

(100)

 

494

Segment Profit (Loss) after     Extraordinary Item

(1,820)

(629)

1

(135)

 

(2,583)

Identifiable Segment Assets

288,748

87,205

28,577

1,464

(30,397)

375,597

Capital Expenditures

3,683

977

----

----

 

4,660

             

Three Months Ended September 30, 2000 (000's)

            

Revenues

           

    External Customers

$41,190

$3,252

$6

$16

 

$44,464

    Intersegment

----

----

4,740

----

(4,740)

----

Depreciation and Amortization

2,202

364

251

48

 

2,865

Interest, net

1,148

374

183

(18)

 

1,687

Income Taxes

943

(255)

63

(390)

 

361

Segment Profit (Loss) after     Extraordinary Item

2,032

(413)

(75)

(477)

 

1,067

Identifiable Segment Assets

278,471

86,750

26,595

1,162

(22,245)

370,733

Capital Expenditures

3,714

845

1,011

476

 

6,046

             

Nine Months Ended September 30, 2001 (000's)

            

Revenues

           

    External Customers

$141,627

$17,526

$225

$215

 

$159,593

    Intersegment

----

----

14,791

----

(14,791)

----

Depreciation and Amortization

7,386

1,209

1,272

175

 

10,042

Interest, net

3,402

1,200

663

(17)

 

5,248

Income Taxes

2,477

125

38

(465)

 

2,175

Segment Profit (Loss) after     Extraordinary Item

1,608

(172)

142

(834)

 

744

Identifiable Segment Assets

288,748

87,205

28,577

1,464

(30,397)

375,597

Capital Expenditures

10,695

2,638

337

535

 

14,205

             

Nine Months Ended September 30, 2000 (000's)

            

Revenues

           

    External Customers

$118,926

$14,677

$21

$65

 

$133,689

    Intersegment

----

----

14,256

----

(14,256)

----

Depreciation and Amortization

6,636

1,118

1,003

169

 

8,926

Interest, net

3,548

1,123

474

6

 

5,151

Income Taxes

2,672

238

(41)

(592)

 

2,277

Segment Profit (Loss) after     Extraordinary Item

5,959

97

(67)

(1,164)

 

4,825

Identifiable Segment Assets

278,471

86,750

26,595

1,162

(22,245)

370,733

Capital Expenditures

10,733

2,133

1,236

2,025

 

16,127

 

NOTE 9 - REGULATORY MATTERS

The Unitil System of Companies is regulated by various federal and state agencies, including the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), and state regulatory authorities with jurisdiction over the utility industry, including the New Hampshire Public Utilities Commission (NHPUC) and the Massachusetts Department of Telecommunications and Energy (MDTE). In recent years, there has been significant legislative and regulatory activity to restructure the utility industry to introduce greater competition in the supply and sale of electricity and gas, while continuing to regulate the delivery and distribution operations of our utility subsidiaries.

Massachusetts enacted the Electric Restructuring Act of 1997 (the "Restructuring Act") requiring the comprehensive restructuring of the electric utility industry in the state. Since March 1, 1998, all electric consumers in Massachusetts served by investor-owned utilities have had the ability to choose their electric energy supplier. FG&E, the Company's Massachusetts utility operating subsidiary, continues to implement its comprehensive electric Restructuring Plan and has completed the divestiture of its entire regulated power supply business, including its nuclear investment.

Since 1997, FG&E has worked in collaboration with the other Massachusetts gas distribution utilities and various other stakeholders to develop and implement the infrastructure to offer gas customers choice of their competitive gas energy supplier and to complete the restructuring of gas service provided by gas utilities. FG&E filed with the MDTE new gas tariffs to implement natural gas unbundling in accordance with Model Terms and Conditions resulting from these collaborative efforts. The MDTE issued an Order approving these tariffs and final regulations effective November 1, 2000.

In New Hampshire, CECo and E&H, the Company's electric distribution operating subsidiaries, and Unitil Power Corp., the Company's wholesale power supply company, continue to prepare for the transition to a new market structure. The Company has also been an active participant in the restructuring of the wholesale power market and transmission system in New England. New wholesale markets have been implemented in the New England Power Pool (NEPOOL) under the general supervision of an Independent System Operator (ISO).

Massachusetts Electric Restructuring  - On January 15, 1999, the MDTE approved the provisions of FG&E's Electric Restructuring Plan with certain modifications. The Restructuring Plan provides customers with: a) the ability to choose a competitive energy supplier; b) an option to purchase Standard Offer Service or Default Service provided by FG&E; and c) a cumulative 15% rate reduction adjusted for inflation. The Order also approved FG&E's power supply divestiture plan for its interest in three generating units and four long-term power supply contracts.

As a result of restructuring and divestiture of FG&E's entire generation and purchased power portfolio, FG&E has accelerated the amortization of its electric generation assets and its abandoned investment in Seabrook Station. The MDTE established the return to be earned on the unamortized balance of FG&E's generation plant, reducing FG&E's earnings on those assets. In 2000, Unitil's earnings from this business segment represented approximately 16% of the earnings from utility operations. As this portfolio is amortized over the next 9 years, earnings from this segment of FG&E's utility business will continue to decline and ultimately cease.

On December 22, 1999, FG&E filed with the MDTE the annual reconciliation and adjustment of its electric rates, for effect January 1, 2000, in accordance with its Restructuring Plan (the "1999 Restructuring Reconciliation Filing"). The revised rates maintain the required inflation-adjusted 15% rate discount. The MDTE approved the rates on January 5, 2000, subject to an examination of the Company's filing in which it reconciles its estimated and actual transition costs and other unbundled rate components.

On February 2, 2000, the MDTE initiated a proceeding to examine FG&E's 1999 Restructuring Reconciliation Filing and the consistency of the proposed charges and adjustments with the methods approved in FG&E's Restructuring Plan. The MDTE held four days of hearings in May 2000. During the hearings, the Massachusetts Attorney General challenged FG&E's recovery of certain transition costs and other cost reconciliation calculations.

On December 28, 2000, FG&E filed its second annual reconciliation and adjustment of its electric rates, for effect January 1, 2001, in accordance with its Restructuring Plan (the "2000 Restructuring Reconciliation Filing"). The new rates maintained the required inflation-adjusted 15% rate discount. The MDTE conditionally approved new rates on December 29, 2000, which resulted in an upward inflation adjustment in total electric rates of 3.5%. These rates were subject to reconciliation in the future pursuant to the MDTE's pending investigation of the 1999 Restructuring Reconciliation Fling and its review of the of actual and estimated transition costs included in the 2000 Restructuring Reconciliation Filing.

On October 18, 2001 and October 19 2001, the MDTE issued a series of regulatory orders in several long-pending cases involving FG&E, including a final order on FG&E's 1999 Restructuring Reconciliation Filings discussed above. Those orders included the review and deposition of issues related to the Company's recovery of transition costs due to the restructuring of the electric industry in Massachusetts. The orders determined the final treatment of regulatory assets that FG&E has sought to recover from its Massachusetts electric customers over a multi-year transition period that began in 1998. FG&E has now determined that it is authorized to recover approximately $150 million of regulatory assets attributable to stranded generation assets, purchased power costs and related expenses. As a result of the industry restructuring related orders, FG&E recorded a non-cash adjustment to regulatory assets of $5.3 million in the third quarter of 2001, which resulted in the recognition of an ext raordinary charge of $3.9 million after taxes.

Massachusetts Gas Restructuring  - 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 filed with, and approved by, the MDTE and implemented in November 1998.

On February 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. This order also set forth the MDTE's decision requiring mandatory assignment by LDCs of their pipeline capacity contracts to competitive marketers.

On November 1999, the Massachusetts LDCs filed Model Terms and Conditions for Gas Service, including provisions for capacity assignment, peaking service, and Default Service. In accordance with the MDTE's approval of these Model Terms and Conditions in January 2000, FG&E filed Company-specific tariffs that implement natural gas unbundling. The MDTE also opened a rulemaking proceeding on proposed regulations that would govern the unbundling of services related to the provision of natural gas. The MDTE issued an order approving the tariffs and final regulations effective November 1, 2000.

New Hampshire Electric Restructuring  - On February 28, 1997, the NHPUC issued its Final Plan for New Hampshire electric utilities to transition to a competitive electric market in the state (the "Final Plan"). The Final Plan linked the interim recovery of stranded cost by the state's utilities to a comparison of their existing rates with the regional average utility rates. CECo's and E&H's rates are below the regional average; thus, the NHPUC found that CECo and E&H were entitled to full interim stranded cost recovery, as defined by the NHPUC. However, the NHPUC also made certain legal rulings, which could affect CECo's and E&H's long-term ability to recover all of their stranded costs.

Northeast Utilities' affiliate Public Service Company of New Hampshire (PSNH) filed suit in U.S. District Court for protection from the Final Plan and related orders and was granted an indefinite stay. In June 1997, Unitil, and other utilities in New Hampshire, intervened as plaintiffs in the federal court proceeding. In June 1998, the federal court clarified that the injunctions issued by the court in 1997 had effectively frozen the NHPUC's efforts to implement restructuring. This amended injunction has been challenged by the NHPUC, and affirmed by the First Circuit Court of Appeals. Unitil continues to be a plaintiff-intervenor in federal district court.

Unitil has continued to work actively to explore settlement options and to seek a fair and reasonable resolution of key restructuring policies and issues in New Hampshire. The Company is also monitoring the regulatory and legislative proceedings dealing with electric restructuring in the state. In October 2000, the NHPUC approved a settlement for the restructuring of PSNH, which settlement was implemented on May 1, 2001. Unitil continues to work on a new restructuring proposal for its New Hampshire companies that will pave the way for competition in its service areas.

Rate Proceedings  - The last formal regulatory filings to increase base electric rates for Unitil's three retail operating subsidiaries occurred in 1985 for CECo, 1984 for FG&E, and 1981 for E&H. A majority of the Company's operating revenues are collected under various periodic rate adjustment mechanisms including fuel, purchased power, cost of gas, energy efficiency, and restructuring-related cost recovery mechanisms. Industry restructuring will continue to change the methods of how certain costs are recovered through the Company's regulated rates and tariffs.

During FG&E's 1998 gas base rate case proceeding, the Massachusetts Attorney General alleged that FG&E had overcollected fuel inventory finance charges, and requested that the MDTE require FG&E to refund approximately $1.6 million of charges collected since 1987. The Company believes that the Attorney General's claim is without merit and that a refund was not justified or warranted. On November 1, 1999, the MDTE issued an Order of Notice initiating an investigation of this matter. Hearings were held in 2000 and following the evidentiary portion of this proceeding the Company and the Attorney General filed legal briefs during March 2001. On May 31, 2001, the MDTE issued its order in this proceeding finding that FG&E had over-collected the costs in its CGAC mechanism and ordered FG&E to return these costs, in the amount of $675,052 plus accumulated and future interest, to customers over the same length period they were collected. On June 20, 2001, FG&E filed a Motion to Stay Enforc ement of the Department's Order and a Petition and Notice of Appeal. On October 10, 2001, FG&E filed a Motion for Stay and Memorandum of Law in Support with the Supreme Judicial Court. This case is currently pending. Management is unable to predict the outcome of this proceeding but an unfavorable result could have an adverse impact on the Company's consolidated financial position.

On December 31, 1999, the Massachusetts Attorney General filed a complaint against FG&E requesting that the MDTE investigate the distribution rates, rate of return, and depreciation accrual rates for FG&E's electric operations in calendar year 1999. The MDTE opened a proceeding in November 2000, held a public hearing and procedural conference in December 2000, and subsequently issued a procedural schedule covering the period January through July 2001. On October 18, 2001, the MDTE issued an Order in this proceeding. Based on its analysis, the MDTE concluded that FG&E's current electric distribution base rates produce an excess of $1,170,426 and accordingly, ordered FG&E to reduce its electric base rates by that amount, effective that same day. FG&E submitted compliance filing on October 19, 2001 and received approval of its filing on October 24, 2001.

Performance Based Ratemaking - On October 29, 1999, the MDTE initiated a proceeding to establish guidelines for service quality standards to be included in Performance Based Ratemaking (PBR) plans for all electric and gas distribution utilities in Massachusetts. PBR is a method of setting regulated distribution rates that provide incentives for utilities to control costs while maintaining a high level of service quality. Under PBR, a company's earnings are tied to performance targets, and penalties can be imposed for deterioration of service quality. The MDTE issued an order in this proceeding on June 29, 2001. The order establishes guidelines for implementation of service quality measurement programs by gas and electric companies operating under PBR. On October 29, 2001, FG&E filed its Service Quality Plan for its Gas and Electric Divisions as required by the MDTE, consistent with these guidelines. FG&E's Gas Division will be filing a PBR plan on April 15, 2002. The requirement to file a PBR plan for the Gas Division stems from FG&E's 1998 gas rate case. FG&E will be required to file a PBR plan for its Electric Division in its next electric rate case.

 

 

 

 

Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition

 

 

SAFE HARBOR CAUTIONARY STATEMENT

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.

 

EXTRAORDINARY ITEM

During October 2001, the MDTE issued a series of regulatory orders in several long-pending cases involving Unitil's Massachusetts subsidiary, Fitchburg Gas and Electric Light Company (FG&E). These orders completed the review and disposition of issues related to the Company's recovery of transition costs due to the restructuring of the electric industry in Massachusetts, mandated by the state legislature in November 1997. The orders determined the final treatment of regulatory assets that FG&E has sought to recover from its Massachusetts electric customers over a multi-year transition period that began in 1998. FG&E has now been authorized to recover approximately $150 million of regulatory assets attributable to stranded generation assets, purchased power costs, and related expenses. As a result of the industry restructuring-related orders, FG&E recorded a non-cash adjustment to regulatory assets of $5.3 million, which resulted in the recognition of an extraordinary charge of $3.9 mill ion after taxes. The Company recognized the extraordinary charge of $0.82 per share as of September 2001 as a subsequent event.

ELECTRIC DISTRIBUTION RATE DECREASE

One of the orders issued by the MDTE was a final decision in DTE 99-118, an investigation into the overall earnings level of FG&E's electric distribution operations. In this order, the MDTE reduced FG&E's allowed return on equity to 10.5% and directed the Company to reduce its base electric distribution rates prospectively by $1.17 million, or approximately 8.4%. In compliance with the MDTE's order, FG&E filed and received approval for a reduction in its electric distribution rates, effective October 19, 2001.

 

RESULTS OF OPERATIONS

Diluted earnings per average common share were $0.28, before the Extraordinary Item, for the third quarter of 2001, an increase of $0.05 per share over the third quarter of 2000. The Utility Operations segment contributed $0.31 per share to consolidated results, while the Usource segment lost $0.03 per share. Third quarter losses from the Usource segment decreased by $0.07 per share over the same period of 2000. The reduction in Usource losses reflects the Company's refocused operating plan and increased brokerage sales in the Northeast.

 

Sales (000's)

Three Months Ended

Nine Months Ended

kWh Sales

09/30/01

09/30/00

Change

09/30/01

09/30/00

Change

Residential

156,015

142,794

9.3%

457,903

429,892

5.1%

Commercial/Industrial

266,285

265,154

0.4%

761,322

788,639

-0.5%

   Total kWh Sales

422,300

407,948

3.5%

1,219,225

1,218,531

1.5%

Firm Therm Sales            

Residential

795

884

-10.1%

8,975

8,823

1.7%

Commercial/Industrial

1,065

1,215

-12.3%

9,311

8,714

6.9%

   Total Firms Therm Sales

1,860

2,099

-11.4%

18,286

17,537

4.3%

               
Segment Information
($000's except per share data)

Three Months Ended - 9/30/01

Nine Months Ended - 9/30/01

Utility

Utility

Operations

Usource

Total

Operations

Usource

Total

Revenues

$49,428

$56 $49,484 $159,378 $215 $159,593
Segment Profit (Loss)
  before Extraordinary Item

1,489

(135) 1,354 5,515 (834) 4,681
Extraordinary Item

(3,937)

---   (3,937) (3,937)

---  

(3,937)
Segment Profit (Loss) after     Extraordinary Item

(2,448)

(135) (2,583) 1,578 (834) 744

Diluted Earnings per Share:

  Before Extraordinary Item

0.31 

(0.03) 0.28 1.16 (0.18) 0.98

  After Extraordinary Item

(0.51)

(0.03) (0.54) 0.34 (0.18) 0.16
           

Three Months Ended - 9/30/00

Nine Months Ended - 9/30/00

Utility

Utility

Operations

Usource

Total

Operations

Usource

Total

Revenues

$44,448 $16 $44,464 $133,624 $65 $133,689

Segment Profit

1,544 (477) 1,067 5,989 (1,164) 4,825

Diluted Earnings per Share

0.33 (0.10) 0.23 1.27 (0.25) 1.02

 

On a year to date basis, diluted earnings were $0.98 per share, before the Extraordinary Item, a $0.04 decrease from the same period in 2000. This reflects an $0.11 decrease in earnings from Utility Operations and a $0.07 decrease in losses related to Usource. The reduction in Utility Operations earnings primarily reflects higher system maintenance costs and the increased Depreciation and Amortization related to capital additions and Regulatory Assets.

Total electric kilowatt-hour (kWh) sales volume increased 3.5% in the third quarter and 1.5% on a year-to-date basis. Residential sales increased 9.3% in the third quarter and 5.1% for the nine months ended September 30, a result of strong customer growth and hotter summer weather than the pervious year. Commercial and Industrial sales increased 0.4% for the quarter and decreased 0.5% for the nine-month period, reflecting continued strong Commercial sales offset by a decrease in Industrial sales. The decrease in Industrial sales was due to the impact of a slowing economy and a major customer discontinuing operations at the end of the first quarter of 2000. Electric revenues increased 13.8% and 19.2% for the three- and nine-month periods of 2001, as compared to 2000. The change in electric revenues was a result of increases in unit sales and, as discussed below, an increase in fuel prices compared to the prior year.

Total Firm Therm gas sales decreased 11.4% and increased 4.3% in the three- and nine-month periods, respectively. The year-to-date increase reflects continued growth in our service territories and a colder winter heating season compared to the prior year. Gas revenues decreased by 23.4% in the third quarter compared to the prior year, but increased 19.4% on a year-to-date basis, reflecting higher unit sales, and increased gas supply prices.

During the first nine months of 2001, Fuel and Purchased Power and Gas Purchased for Resale expenses increased 28% collectively over the prior year, reflecting changes in sales volume and higher unit costs. Both electric and gas supply costs are collected from customers through periodic cost recovery mechanisms, and therefore, changes in these costs do not affect the Company's net income.

For the nine months ended September 30, 2001, Operation and Maintenance (O&M) expenses increased slightly. The 12.4% increase in Depreciation and Amortization expenses during the same period was due to the accelerated amortization of electric generating assets, as well as depreciation related to capital additions. Local Property and Other taxes decreased 5.2%, due to divestiture of generating assets and the impact of state and local property tax changes in New Hampshire. Interest expense, net, was 1.9% lower in the first nine months of 2001.

 

REGULATORY MATTERS

Regulatory Matters are fully discussed in Note 7 to Consolidated Financial Statements

 

CAPITAL REQUIREMENTS

Capital expenditures for the nine months ended September 30, 2001 were approximately $13.6 million. This compares to $15.5 million during the same period last year. Annual capital expenditures for the year 2001 are estimated to be approximately $18.5 million as compared to $22.2 million for 2000. This projection reflects normal capital expenditures for utility system expansions, replacements and other improvements.

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Although Unitil's utility operating companies 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 fuel and gas costs in rates. Consequently, there is limited commodity price risk after consideration of the related rate-making. As the utility industry deregulates, the Company will be divesting its commodity-related energy businesses and therefore will be further reducing its exposure to commodity-related risk. There were no material changes to the Company's exposure to interest rate risk from December 31, 2000.

 

 

 

PART II. OTHER INFORMATION

Item 1.  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. (See Note 9)

 

 

Item 6.  Exhibits and Reports on Form 8-K.

(a)  Exhibits

Exhibit No.

Description of Exhibit

Reference

     

11

Computation in Support of

Filed herewith

 

Earnings Per Average Common Share

 
     
     

(b)    Reports on Form 8-K

During the quarter ended September 30, 2001, 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:   November 14, 2001

         /s/ Anthony J. Baratta, Jr.

 

                Anthony J. Baratta, Jr.

 

                Chief Financial Officer

 

 

Date:   November 14, 2001

         /s/ Mark H. Collin

 

                Mark H. Collin

 

               Treasurer

 

 

 

 

 

EXHIBIT 11.

UNITIL CORPORATION AND SUBSIDIARY COMPANIES

COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
(000's except for per share data)
(UNAUDITED)

 

 

Three Months Ended September 30,

 

Nine Months Ended
September 30,

BASIC EARNINGS PER SHARE

2001

 

2000

 

2001

 

2000

               

Net Income before Extraordinary Item

$1,418 

 

$1,131

 

$4,876 

 

$5,022

Extraordinary Item

(3,937)

 

---   

 

(3,937)

 

---   

Net Income

($2,519)

 

$1,131

 

$939 

 

$5,022

Less: Dividend Requirement on Preferred Stock

64 

 

64

 

195 

 

197

Net Income Applicable to Common Stock

($2,583)

 

$1,067

 

$744 

 

$4,825

               

Average Number of Common Shares Outstanding

4,746,196 

 

4,725,989

 

4,742,441 

 

4,720,236

               

Basic Earnings Per Common Share:

             

    Before Extraordinary Item

$0.29 

 

$0.23

 

$0.99

 

$1.02

    After Extraordinary Item

($0.54)

 

$0.23

 

$0.16

 

$1.02

 

 

 

 

Three Months Ended September 30,

 

Nine Months Ended
September 30,

DILUTED EARNINGS PER SHARE

2001

 

2000

 

2001

 

2000

               

Net Income before Extraordinary Item

$1,418 

 

$1,131

 

$4,876 

 

$5,022

Extraordinary Item

(3,937)

 

---   

 

(3,937)

 

---   

Net Income

($2,519)

 

$1,131

 

$939 

 

$5,022

Less: Dividend Requirement on Preferred Stock

64 

 

64

 

195 

 

197

Net Income Applicable to Common Stock

($2,583)

 

$1,067

 

$744 

 

$4,825

               

Average Number of Common Shares Outstanding

4,746,196 

 

4,725,989

 

4,742,441 

 

4,720,236

               

Dilutive Effect of Stock Options

14,548 

 

14,122

 

17,115

 

23,652

               

Average Number of Dilutive
    Common Shares Outstanding

4,760,744 

 

4,740,111

 

4,759,556 

 

4,743,888

               

Diluted Earnings Per Common Share:

             

    Before Extraordinary Item

$0.28 

 

$0.23

 

$0.98 

 

$1.02

    After Extraordinary Item

($0.54)

 

$0.23

 

$0.16 

 

$1.02