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
(Exact name of registrant as specified in its charter)
|
|
|
|
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
|
|
|
|
|
(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
|
||
|
|
|
|
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
Yes
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).
☒
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.
|
|
☒
|
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
|
|
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
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; |
3
| • |
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
4
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.
5
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 –
Northern Utilities – Targeted Infrastructure Replacement Adjustment (TIRA) – Maine –
Northern Utilities – Base Rates – New Hampshire –
Unitil Energy – Base Rates –
6
Fitchburg – Base Rates – Electric –
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 –
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 –
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,
7
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 –
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.
8
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,
9
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.
10
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 $1.50 per share, representing an unbroken record of quarterly dividend payments since trading began in Unitil’s common stock.
A more detailed discussion of the Company’s results of operations for the three months ended March 31, 2020 is presented below.
Gas Sales, Revenues and Adjusted Gross Margin
Therm Sales –
The following table details total firm therm sales for the three months ended March 31, 2020 and 2019, by major customer class:
|
Therm Sales
(millions)
|
||||||||||||||||
|
|
Three Months Ended March 31,
|
|||||||||||||||
|
|
2020
|
|
2019
|
Change
|
% Change
|
|||||||||||
|
Residential
|
|
22.1
|
|
24.0
|
(1.9
|
) |
(7.9
|
%) | ||||||||
|
Commercial / Industrial
|
|
67.6
|
|
72.1
|
(4.5
|
) |
(6.2
|
%) | ||||||||
|
Total
|
|
89.7
|
|
96.1
|
(6.4
|
) |
(6.7
|
%) | ||||||||
Gas Operating Revenues and Gas Adjusted Gross Margin
|
Gas Operating Revenues and Adjusted Gross Margin
($ 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.
11
The decrease in Total Gas Operating Revenues of $16.2 million in the first quarter of 2020 reflects lower cost of gas sales, which are tracked and reconciled costs that are passed through directly to customers, and lower gas sales volumes.
Electric Sales, Revenues and Adjusted Gross Margin
Kilowatt-hour Sales
The following table details total kWh sales for the three months ended March 31, 2020 and 2019 by major customer class:
|
kWh Sales
(millions)
|
||||||||||||||||
|
|
Three Months Ended March 31,
|
|||||||||||||||
|
|
2020
|
|
2019
|
Change
|
% Change
|
|||||||||||
|
Residential
|
|
179.1
|
|
181.5
|
(2.4
|
) |
(1.3
|
%) | ||||||||
|
Commercial / Industrial
|
|
241.9
|
|
236.0
|
5.9
|
2.5
|
% | |||||||||
|
Total
|
|
421.0
|
|
417.5
|
3.5
|
0.8
|
% | |||||||||
Electric Operating Revenues and Electric Adjusted Gross Margin
|
Electric Operating Revenues and Adjusted Gross Margin
($ 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
12
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 Electric Sales
Operation and Maintenance
13
Depreciation and Amortization -
Taxes Other Than Income Taxes -
Other Expense (Income), Net –
pre-tax
gain of $13.4 million on the Company’s divestiture of Usource in the first quarter of 2019 and $0.2 million of higher retirement benefit costs in 2020.
Provision for Income Taxes
pre-tax
earnings in the current period.
Interest Expense, Net
Interest expense is presented in the financial statements net of interest income. Interest expense is mainly comprised of interest on long-term debt and short-term borrowings. In addition, certain reconciling rate mechanisms used by the Company’s distribution operating utilities give rise to regulatory assets and regulatory liabilities on which interest is accrued.
Unitil’s utility subsidiaries operate a number of reconciling rate mechanisms to recover specifically identified costs on a pass-through basis. These reconciling rate mechanisms track costs and revenue on a monthly basis. In any given month, this monthly tracking and reconciling process will produce either an under-collected or an over-collected balance of costs. In accordance with the distribution utilities’ rate tariffs, interest is accrued on these balances and will produce either interest income or interest expense. Consistent with regulatory precedent, interest income is recorded on an under-collection of costs which creates a regulatory asset to be recovered in future periods when rates are reset. Interest expense is recorded on an over-collection of costs, which creates a regulatory liability to be refunded in future periods when rates are reset.
|
Interest Expense, Net ($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.
14
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
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.
16
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.
17
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.
18
|
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
|
$
|
|
|
$ |
|
|||
|
Electric
|
|
|
|
|
||||
|
Other
|
|
—
|
|
|
||||
|
Total Operating Revenues
|
|
|
|
|
||||
|
Operating Expenses
|
|
|
|
|
|
|
||
|
Cost of Gas Sales
|
|
|
|
|
||||
|
Cost of Electric Sales
|
|
|
|
|
||||
|
Operation and Maintenance
|
|
|
|
|
||||
|
Depreciation and Amortization
|
|
|
|
|
||||
|
Taxes Other than Income Taxes
|
|
|
|
|
||||
|
Total Operating Expenses
|
|
|
|
|
||||
|
Operating Income
|
|
|
|
|
||||
|
Interest Expense, Net
|
|
|
|
|
||||
|
Other Expense (Income), Net
|
|
|
|
(
|
) | |||
|
Income Before Income Taxes
|
|
|
|
|
||||
|
Provision For Income Taxes
|
|
|
|
|
||||
|
Net Income
|
$
|
|
|
$ |
|
|||
|
Net Income Per Common Share (Basic and Diluted)
|
$
|
|
|
$ |
|
|||
|
Weighted Average Common Shares Outstanding – (Basic and Diluted)
|
|
|
|
|
||||
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
19
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Millions)
(UNAUDITED)
|
|
March 31,
|
December 31,
|
||||||||||
|
|
2020
|
|
2019
|
2019
|
||||||||
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|||
|
Current Assets
|
|
|
|
|||||||||
|
Cash and Cash Equivalents
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Accounts Receivable, Net
|
|
|
|
|
|
|||||||
|
Accrued Revenue
|
|
|
|
|
|
|||||||
|
Exchange Gas Receivable
|
|
|
|
|
|
|||||||
|
Gas Inventory
|
|
|
|
|
|
|||||||
|
Materials and Supplies
|
|
|
|
|
|
|||||||
|
Prepayments and Other
|
|
|
|
|
|
|||||||
|
Total Current Assets
|
|
|
|
|
|
|||||||
|
Utility Plant:
|
|
|
|
|
|
|
|
|
|
|||
|
Gas
|
|
|
|
|
|
|||||||
|
Electric
|
|
|
|
|
|
|||||||
|
Common
|
|
|
|
|
|
|||||||
|
Construction Work in Progress
|
|
|
|
|
|
|||||||
|
Total Utility Plant
|
|
|
|
|
|
|||||||
|
Less: Accumulated Depreciation
|
|
|
|
|
|
|||||||
|
Net Utility Plant
|
|
|
|
|
|
|||||||
|
Other Noncurrent Assets:
|
|
|
|
|
|
|
|
|
|
|||
|
Regulatory Assets
|
|
|
|
|
|
|||||||
|
Operating Lease Right of Use Assets
|
|
|
|
|
|
|||||||
|
Other Assets
|
|
|
|
|
|
|||||||
|
Total Other Noncurrent Assets
|
|
|
|
|
|
|||||||
|
TOTAL ASSETS
|
$
|
|
|
$ |
|
$ |
|
|||||
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
20
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Cont.)
(Millions, except number of shares)
(UNAUDITED)
|
|
March 31,
|
December 31,
|
||||||||||
|
|
2020
|
|
2019
|
2019
|
||||||||
|
LIABILITIES AND CAPITALIZATION:
|
|
|
|
|
|
|
|
|
|
|||
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|||
|
Accounts Payable
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Short-Term Debt
|
|
|
|
|
|
|||||||
|
Long-Term Debt, Current Portion
|
|
|
|
|
|
|||||||
|
Regulatory Liabilities
|
|
|
|
|
|
|||||||
|
Energy Supply Obligations
|
|
|
|
|
|
|||||||
|
Interest Payable
|
|
|
|
|
|
|||||||
|
Environmental Obligations
|
|
|
|
|
|
|||||||
|
Other Current Liabilities
|
|
|
|
|
|
|||||||
|
Total Current Liabilities
|
|
|
|
|
|
|||||||
|
Noncurrent Liabilities:
|
|
|
|
|
|
|
|
|
|
|||
|
Retirement Benefit Obligations
|
|
|
|
|
|
|||||||
|
Deferred Income Taxes, Net
|
|
|
|
|
|
|||||||
|
Cost of Removal Obligations
|
|
|
|
|
|
|||||||
|
Regulatory Liabilities
|
|
|
|
|
|
|||||||
|
Environmental Obligations
|
|
|
|
|
|
|||||||
|
Other Noncurrent Liabilities
|
|
|
|
|
|
|||||||
|
Total Noncurrent Liabilities
|
|
|
|
|
|
|||||||
|
Capitalization:
|
|
|
|
|
|
|
|
|
|
|||
|
Long-Term Debt, Less Current Portion
|
|
|
|
|
|
|||||||
|
Stockholders’ Equity:
|
|
|
|
|
|
|||||||
|
Common Equity (Authorized:
|
|
|
|
|
|
|||||||
|
Retained Earnings
|
|
|
|
|
|
|||||||
|
Total Common Stock Equity
|
|
|
|
|
|
|||||||
|
Preferred Stock
|
|
|
|
|
|
|||||||
|
Total Stockholders’ Equity
|
|
|
|
|
|
|||||||
|
Total Capitalization
|
|
|
|
|
|
|||||||
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|||||
|
TOTAL LIABILITIES AND CAPITALIZATION
|
$
|
|
|
$ |
|
$ |
|
|||||
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
21
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions)
(UNAUDITED)
|
|
Three Months Ended
March 31,
|
|||||||
|
|
2020
|
|
2019
|
|||||
|
Operating Activities:
|
|
|
|
|
|
|
||
|
Net Income
|
$
|
|
|
$ |
|
|||
|
Adjustments to Reconcile Net Income to Cash
|
|
|
|
|
||||
|
Provided by Operating Activities:
|
|
|
|
|
||||
|
Depreciation and Amortization
|
|
|
|
|
||||
|
Deferred Tax Provision
|
|
|
|
|
||||
|
Gain on Divestiture, Net (See Note 1)
|
|
—
|
|
(
|
) | |||
|
Changes in Working Capital Items:
|
|
|
|
|
||||
|
Accounts Receivable
|
|
(
|
)
|
(
|
) | |||
|
Accrued Revenue
|
|
|
|
|
||||
|
Exchange Gas Receivable
|
|
|
|
|
||||
|
Regulatory Liabilities
|
|
|
|
|
||||
|
Accounts Payable
|
|
(
|
)
|
(
|
) | |||
|
Other Changes in Working Capital Items
|
|
(
|
)
|
|
||||
|
Deferred Regulatory and Other Charges
|
|
(
|
)
|
(
|
) | |||
|
Other, Net
|
|
(
|
)
|
|
||||
|
Cash Provided by Operating Activities
|
|
|
|
|
||||
|
Investing Activities:
|
|
|
|
|
|
|
||
|
Property, Plant and Equipment Additions
|
|
(
|
)
|
(
|
) | |||
|
Proceeds from Divestiture, Net (See Note 1)
|
|
—
|
|
|
||||
|
Cash Provided by (Used in) Investing Activities
|
|
(
|
)
|
|
||||
|
Financing Activities:
|
|
|
|
|
|
|
||
|
Proceeds from (Repayment of) Short-Term Debt, Net
|
|
|
|
(
|
) | |||
|
Repayment of Long-Term Debt
|
|
(
|
)
|
(
|
) | |||
|
Increase (Decrease) in Capital Lease Obligations
|
|
|
|
(
|
) | |||
|
Net Decrease in Exchange Gas Financing
|
|
(
|
)
|
(
|
) | |||
|
Dividends Paid
|
|
(
|
)
|
(
|
) | |||
|
Proceeds from Issuance of Common Stock
|
|
|
|
|
||||
|
Cash (Used in) Financing Activities
|
|
(
|
)
|
(
|
) | |||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
|
|
|
(
|
) | |||
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
|
|
||||
|
Cash and Cash Equivalents at End of Period
|
$
|
|
|
$ |
|
|||
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
||
|
Interest Paid
|
$
|
|
|
$ |
|
|||
|
Income Taxes Paid
|
$
|
|
|
$ |
|
|||
|
Payments on Capital Leases
|
$
|
|
|
$ |
|
|||
|
Non-cash
Investing Activity:
|
|
|
|
|
||||
|
Capital Expenditures Included in Accounts Payable
|
$
|
|
|
$ |
|
|||
|
Right-of-Use
Assets Obtained in Exchange for Lease Obligations
|
$
|
|
|
$ |
|
|||
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
22
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(Millions, except number of shares)
(UNAUDITED)
|
|
Common
Equity
|
Retained
Earnings |
Total
|
|||||||||
|
Balance at January 1, 2020
|
$ |
|
$ |
|
$
|
|
|
|||||
|
Net Income
|
|
|
|
|
|
|||||||
|
Dividends on Common Shares ($
|
|
(
|
) |
|
(
|
)
|
||||||
|
Stock Compensation Plans
|
|
|
|
|
|
|||||||
|
Issuance of
|
|
|
|
|
|
|||||||
|
Balance at March 31, 2020
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Balance at January 1, 2019
|
$ |
|
$ |
|
$
|
|
|
|||||
|
Net Income
|
|
|
|
|
|
|||||||
|
Dividends on Common Shares ($
|
|
(
|
) |
|
(
|
)
|
||||||
|
Stock Compensation Plans
|
|
|
|
|
|
|||||||
|
Issuance of
|
|
|
|
|
|
|||||||
|
Balance at March 31, 2019
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
23
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1
–
Summary of Significant Accounting Policies
Nature of Operations
non-regulated
business unit Unitil Resources, Inc. (Unitil Resources).
The Company’s earnings are seasonal and are typically higher in the first and fourth quarters when customers use gas for heating purposes.
Unitil’s principal business is the local distribution of electricity in the southeastern seacoast and capital city areas of New Hampshire and the greater Fitchburg area of north central Massachusetts and the local distribution of gas in southeastern New Hampshire, portions of southern Maine to the Lewiston-Auburn area and in the greater Fitchburg area of north central Massachusetts. Unitil has three distribution utility subsidiaries, Unitil Energy, which operates in New Hampshire; Fitchburg, which operates in Massachusetts; and Northern Utilities, which operates in New Hampshire and Maine (collectively referred to as the “distribution utilities”).
Granite State is an interstate gas transmission pipeline company, operating
86
miles of underground gas transmission pipeline primarily located in Maine and New Hampshire. Granite State provides Northern Utilities with interconnection to
three
major gas pipelines and access to domestic gas supplies in the south and Canadian gas supplies in the north. Granite State derives its revenues principally from the transportation services provided to Northern Utilities and, to a lesser extent, third-party marketers.
A fifth utility subsidiary, Unitil Power, formerly functioned as the full requirements wholesale power supply provider for Unitil Energy. In connection with the implementation of electric industry restructuring in New Hampshire, Unitil Power ceased being the wholesale supplier of Unitil Energy on May 1, 2003 and divested of its long-term power supply contracts through the sale of the entitlements to the electricity associated with various electric power supply contracts it had acquired to serve Unitil Energy’s customers.
Unitil also has
three
other wholly-owned subsidiaries: Unitil Service, Unitil Realty and Unitil Resources. Unitil Service provides, at cost, a variety of administrative and professional services, including regulatory, financial, accounting, human resources, engineering, operations, technology, energy management and management services on a centralized basis to its affiliated Unitil companies. Unitil Realty owns and manages the Company’s corporate office in Hampton, New Hampshire and leases this facility to Unitil Service under a long-term lease arrangement. 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 energy brokering and advisory services to large commercial and industrial customers in the northeastern United States.
See additional discussion in “Divestiture of
Non-Regulated
Business Subsidiary” below.
Basis of Presentation –
10-Q
and include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of results to be expected for the year ending December 31, 2020. For further information, please refer to Note 1 of Part II
to the Consolidated Financial Statements – “Summary of Significant Accounting Policies” of the Company’s Form
10-K
for the year ended December 31, 2019, as filed with the Securities and Exchange Commission (SEC) on January 30, 2020, for a description of the Company’s Basis of Presentation.
24
Divestiture of Non-Regulated Business Subsidiary –
non-regulated
energy brokering and advisory business subsidiary, Usource. The Company recognized an
after-tax
net gain of approximately $
pre-tax
net gain of approximately $
Utility Revenue Recognition –
Billed and unbilled revenue is recorded when service is rendered or energy is delivered to customers. However, the determination of energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each calendar month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenues are calculated. These unbilled revenues are estimated each month based on estimated customer usage by class and applicable customer rates, taking into account current and historical weather data, assumptions pertaining to metering patterns, billing cycle statistics, and other estimates and assumptions, and are then reversed in the following month when billed to customers.
A majority of the Company’s revenue from contracts with customers continues to be recognized on a monthly basis based on applicable tariffs and customer monthly consumption. Such revenue is recognized using the invoice practical expedient which allows an entity to recognize revenue in the amount that directly corresponds to the value transferred to the customer.
The Company’s billed and unbilled revenue meets the definition of “revenues from contracts with customers” as defined in Accounting Standards Codification (ASC) 606.
980-605-25-3,
as the Company has the ability to adjust rates in the future as a result of past activities or completed events. The rate adjustment mechanisms meet the criteria within ASC
980-605-25-4.
In cases where allowable costs are greater than operating revenues billed in the current period for the individual rate adjustment mechanism additional operating revenue is recognized. In cases where allowable costs are less than operating revenues billed in the current period for the individual rate adjustment mechanism, operating revenue is reduced. AS
C
606
In the following tables, revenue is classified by the types of goods/services rendered and market/customer type.
25
|
|
Three Months Ended March 31, 2020
|
|||||||||||
|
Gas and Electric Operating Revenues ($ millions):
|
|
Gas
|
|
|
Electric
|
|
|
Total
|
|
|||
|
Billed and Unbilled Revenue:
|
|
|
|
|||||||||
|
Residential
|
$ |
|
$ |
|
$ |
|
||||||
|
C&I
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
Total Billed and Unbilled Revenue
|
|
|
|
|||||||||
|
Rate Adjustment Mechanism Revenue
|
(
|
) |
(
|
) |
(
|
) | ||||||
|
Total Gas and Electric Operating Revenues
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
|
Three Months Ended March 31, 2019
|
|||||||||||
|
Gas and Electric Operating Revenues ($ millions):
|
|
Gas
|
|
|
Electric
|
|
|
Total
|
|
|||
|
Billed and Unbilled Revenue:
|
|
|
|
|||||||||
|
Residential
|
$ |
|
$ |
|
$ |
|
||||||
|
C&I
|
|
|
|
|||||||||
|
Other
|
|
|
|
|||||||||
|
Total Billed and Unbilled Revenue
|
|
|
|
|||||||||
|
Rate Adjustment Mechanism Revenue
|
(
|
) |
|
(
|
) | |||||||
|
Total Gas and Electric Operating Revenues
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
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 recorded 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 that the Company files with the MDPU.
Other Operating Revenue – Non-regulated –
non-regulated
subsidiary, which, as discussed previously, the Company divested of on March 1, 2019. Usource conducted its business activities as a broker of competitive energy services. Usource did not take title to the electric and gas commodities which were the subject of the brokerage contracts. The Company recorded energy brokering revenues based upon the amount of electricity and gas delivered to customers through the end of the accounting period. Usource partnered with certain entities to facilitate these brokerage services and paid these entities a fee under revenue sharing agreements.
Income Taxes –
Provisions for income taxes are calculated in each of the jurisdictions in which the Company operates for each period for which a statement of earnings is presented. The Company accounts for income taxes in accordance with the FASB Codification guidance on Income Taxes, which requires an asset and liability approach for the financial accounting and reporting of income taxes. Significant judgments and estimates
26
are required in determining the current and deferred tax assets and liabilities. The Company’s deferred tax assets and liabilities reflect its best assessment of estimated future taxes to be paid. In accordance with the FASB Codification, the Company periodically assesses the realization of its deferred tax assets and liabilities and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts and circumstances which gave rise to the revision become known.
Cash and Cash Equivalents –
(ISO-NE)
Financial Assurance Policy (Policy), Unitil’s subsidiaries Unitil Energy, Fitchburg and Unitil Power are required to provide assurance of their ability to satisfy their obligations to
ISO-NE.
Under this Policy, Unitil’s subsidiaries provide cash deposits covering approximately
2-1/2
months of outstanding obligations, less credit amounts that are based on the Company’s credit rating. As of March 31, 2020, March 31, 2019 and December 31, 2019, the Unitil subsidiaries had deposited $
ISO-NE
obligations.
Financial Instruments –
2016-13,
“Financial Instruments—Credit Losses (Topic 326)”, which provides a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Under the new guidance, immediate recognition of all credit losses expected over the life of a financial instrument is required. The Company adopted this standard on the accounting for credit losses on its financial instruments, including accounts receivable, on January 1, 2020, and it did not have a material impact on the financial statements.
Allowance for Doubtful Accounts –
The Company recognizes a provision for doubtful accounts that reflects the Company’s estimate of expected credit losses for electric and gas utility service accounts receivable. The allowance for doubtful accounts is calculated by applying a historical loss rate, which is adjusted for current conditions, customer trends, or other factors such as macroeconomic conditions, to customer account balances. The Company also calculates the amount of
written-off
receivables that are recoverable through regulatory rate reconciling mechanisms. The Company’s distribution utilities are authorized by regulators to recover the costs of their energy commodity portion of bad debts through rate mechanisms. Also, the electric and gas divisions of Fitchburg are authorized to recover through rates past due amounts associated with protected hardship accounts. Evaluating the adequacy of the allowance for doubtful accounts requires judgment about the assumptions used in the analysis. The Company’s experience has been that the assumptions used in evaluating the adequacy of the allowance for doubtful accounts have proven to be reasonably accurate.
The Allowance for Doubtful Accounts as of March 31, 2020, March 31, 2019 and December 31, 2019,
was as follows:
|
($ millions)
|
|
|
|
|||||||||
|
|
March 31,
|
December 31,
|
||||||||||
|
|
2020
|
|
2019
|
2019
|
||||||||
|
Allowance for Doubtful Accounts
|
$
|
|
|
$ |
|
$ |
|
|||||
Accounts Receivable, Net includes $
1.7
million, $
1.7
million, and $
1.0
million of the Allowance for Doubtful Accounts at March 31, 2020, March 31, 2019 and December 31, 2019, respectively. Unbilled Revenues, net (a component of Accrued Revenue, shown in the table below) includes $
0.1
million of the Allowance for Doubtful Accounts at March 31, 2020.
Accrued Revenue
–
27
|
|
March 31,
|
December 31,
|
|
|||||||||
|
Accrued Revenue ($ millions)
|
2020
|
|
2019
|
2019
|
||||||||
|
Regulatory Assets – Current
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Unbilled Revenues
, net
|
|
|
|
|
|
|||||||
|
Total Accrued Revenue
|
$ |
|
$ |
|
$ |
|
||||||
Exchange Gas Receivable –
shows
the components of Exchange Gas Receivable as of March 31, 2020, March 31, 2019 and December 31, 2019.
|
|
March 31,
|
December 31,
|
||||||||||
|
Exchange Gas Receivable ($ millions)
|
2020
|
|
2019
|
2019
|
||||||||
|
Northern Utilities
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Fitchburg
|
|
|
|
|
|
|||||||
|
Total Exchange Gas Receivable
|
$ |
|
$ |
|
$ |
|
||||||
Gas Inventory
|
|
|
March 31,
|
|
|
December 31,
|
|
||||||
|
Gas Inventory ($ millions)
|
|
2020
|
|
|
2019
|
|
|
2019
|
|
|||
|
Natural Gas
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
Propane
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquefied Natural Gas & Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gas Inventory
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utility Plant –
pitaliz
ed. Cost consists of labor, materials, services and certain indirect construction costs, including an allowance for funds used during construction (AFUDC). The costs of current repairs and minor replacements are charged to appropriate operating expense accounts. The original cost of utility plant retired or otherwise disposed of is charged to the accumulated provision for depreciation. The Company includes in its mass asset depreciation rates, which are periodically reviewed as part of its ratemaking proceedings, cost of removal amounts to provide for future negative salvage value. At March 31, 2020, March 31, 2019 and December 31, 2019, the Company estimates that the cost of removal amounts, which are recorded on the Consolidated Balance Sheets in Cost of Removal Obligations are $
Leases –
28
Regulatory Accounting –
The Company’s principal business is the distribution of electricity and gas by the three distribution utilities: Unitil Energy, Fitchburg and Northern Utilities. Unitil Energy and Fitchburg are subject to regulation by the FERC. Fitchburg is also regulated by the Massachusetts Department of Public Utilities (MDPU), Unitil Energy is regulated by the New Hampshire Public Utilities Commission (NHPUC) and Northern Utilities is regulated by the Maine Public Utilities Commission (MPUC) and NHPUC. Granite State, the Company’s gas transmission pipeline, is regulated by the FERC. Accordingly, the Company uses the Regulated Operations guidance as set forth in the FASB Codification. The Company has recorded Regulatory Assets and Regulatory Liabilities which will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.
|
|
March 31,
|
December 31,
|
||||||||||
|
Regulatory Assets consist of the following ($ millions)
|
2020
|
|
2019
|
2019
|
||||||||
|
Retirement Benefits
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Energy Supply & Other Rate Adjustment Mechanisms
|
|
|
|
|
|
|||||||
|
Deferred Storm Charges
|
|
|
|
|
|
|||||||
|
Environmental
|
|
|
|
|
|
|||||||
|
Income Taxes
|
|
|
|
|
|
|||||||
|
Other Deferred Charges
|
|
|
|
|
|
|||||||
|
Total Regulatory Assets
|
|
|
|
|
|
|||||||
|
Less: Current Portion of Regulatory Assets
(1)
|
|
|
|
|
|
|||||||
|
Regulatory Assets – noncurrent
|
$
|
|
|
$ |
|
$ |
|
|||||
|
(1)
|
Reflects amounts included in the Accrued Revenue on the Company’s Consolidated Balance Sheets. |
|
|
March 31,
|
December 31,
|
||||||||||
|
Regulatory Liabilities consist of the following ($ millions)
|
2020
|
|
2019
|
2019
|
||||||||
|
Income Taxes (Note 8)
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Rate Adjustment Mechanisms
|
|
|
|
|
|
|||||||
|
Other
|
|
|
|
|
|
|||||||
|
Total Regulatory Liabilities
|
|
|
|
|
|
|||||||
|
Less: Current Portion of Regulatory Liabilities
|
|
|
|
|
|
|||||||
|
Regulatory Liabilities—noncurrent
|
$
|
|
|
$ |
|
$ |
|
|||||
Generally, the Company receives a return on investment on its regulat
7.5
million of environmental costs, rate case costs and other expenditures to be recovered over varying periods in the next seven years. Regulators have authorized recovery of these expenditures, but without a return. Regulatory commissions can reach different conclusions about the recovery of costs, which can have a material impact on the Company’s Consolidated Financial Statements. The Company believes it is probable that its regulated distribution and transmission utilities will recover their investments in long-lived assets, including regulatory assets. If the Company, or a portion of its assets or operations, were to cease meeting the criteria for application of these accounting rules, accounting standards for businesses in general would become applicable and immediate recognition of any previously deferred costs, or a portion of deferred costs, would be required in the year in which the criteria are no longer met, if such deferred costs were not recoverable in the portion of the business that continues to meet the criteria for application of the FASB Codification topic on Regulated Operations. If unable to continue to apply the FASB Codification provisions for Regulated Operations, the Company would be required to apply the provisions for the Discontinuation of Rate-Regulated Accounting included in the FASB Codification. In the Company’s opinion, its regulated operations will be subject to the FASB Codification provisions for Regulated Operations for the foreseeable future.
ory
assets for which a cash outflow has been made. Included in Regulatory Assets as of March 31, 2020 are $
29
Derivatives –
As discussed below in the “Fitchburg – Massachusetts RFP’s” section of Note 6 to the
Consolidated Financial Statements
, Fitchburg has entered into power purchase agreements for which contingencies exist. Until these contingencies are satisfied, these contracts will not qualify for derivative accounting. The Company believes that the power purchase obligations under these long-term contracts will have a material i
mpa
ct on the contractual obligations and regulatory assets of Fitchburg, once they qualify for derivative accounting.
Investments in Marketable Securities
At March 31, 2020, March 31, 2019 and December 31, 2019, the fair value of the Company’s investments in these trading securities, which are recorded on the Consolidated Balance Sheets in Other Assets, were $
5.5
million, $
5.1
and $
5.6
million, respectively, as shown in the table below. These investments are valued based on quoted prices from active markets and are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
Changes in the fair value of these investments are recorded in Other Expense, Net.
|
|
March 31,
|
December 31,
|
||||||||||
|
Fair Value of Marketable Securities ($ millions)
|
2020
|
|
2019
|
2019
|
||||||||
|
Money Market Funds
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Total Marketable Securities
|
$
|
|
|
$ |
|
$ |
|
|||||
The Company also sponsors the Unitil Corporation Deferred Compensation Plan (the “DC Plan”). The DC Plan is a
non-qualified
deferred compensation plan that provides a vehicle for participants to accumulate
tax-deferred
savings to supplement retirement income. The DC Plan, which was effective January 1, 2019, is open to senior management or other highly compensated employees as determined by the Company’s Board of Directors, and may also be used for recruitment and retention purposes for newly hired senior executives. The DC Plan design mirrors the Company’s Tax Deferred Savings and Investment Plan formula, but provides for contributions on compensation above the IRS limit, which will allow participants to defer up to 85% of base salary, and up to 85% of any cash incentive for retirement. The Company may also elect to make discretionary contributions on behalf of any participant in an amount determined by the Company’s Board of Directors. A trust has been established to invest the funds associated with the DC Plan.
At March 31, 2020, March 31, 2019 and December 31, 2019, the fair value of the Company’s investments in these trading securities related to the DC Plan, which are recorded on the Consolidated Balance Sheets in Other Assets, were $
0.4
million, $
0.1
million and $
0.2
million, respectively, as shown in the table below. These investments are valued based on quoted prices from active markets and are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
Changes in the fair value of these investments are recorded in Other Expense, Net.
30
|
|
|
March 31,
|
|
|
December 31,
|
|
||||||
|
Fair Value of Marketable Securities ($ millions)
|
|
2020
|
|
|
2019
|
|
|
2019
|
|
|||
|
Equity Funds
|
|
$
|
|
|
|
$
|
—
|
|
|
$
|
|
|
|
Money Market Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Marketable Securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy Supply Obligations –
|
|
March 31,
|
December 31,
|
||||||||||
|
Energy Supply Obligations ($ millions)
|
2020
|
|
2019
|
2019
|
||||||||
|
Current:
|
|
|
|
|||||||||
|
Exchange Gas Obligation
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Renewable Energy Portfolio Standards
|
|
|
|
|
|
|||||||
|
Power Supply Contract Divestitures
|
|
|
|
|
|
|||||||
|
Total Energy Supply Obligations – Current
|
|
|
|
|
|
|||||||
|
Long-Term:
|
|
|
|
|
|
|||||||
|
Power Supply Contract Divestitures
|
|
|
|
|
|
|||||||
|
Total Energy Supply Obligations
|
$
|
|
|
$ |
|
$ |
|
|||||
Exchange Gas Obligation
As discussed in “Exchange Gas Receivable” above, Northern Utilities enters into gas exchange 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. The gas inventory related to these agreements is recorded in Exchange Gas Receivable on the Company’s Consolidated Balance Sheets while the corresponding obligations are recorded in Energy Supply Obligations.
Renewable Energy Portfolio Standards
Fitchburg has entered into long-term renewable contracts for the purchase of clean energy and/or RECs pursuant to Massachusetts legislation, specifically, An Act Relative to Green Communities (“Green Communities Act”, 2008), An Act Relative to Competitively Priced Electricity in the Commonwealth (2012) and An Act to Promote Energy Diversity (“Energy Diversity Act”, 2016). The generating facilities associated with four of these contracts have been constructed and are now operating. Since 2017, the Company has participated in two major statewide procurements which resulted in contracts for imported hydroelectric power and associated transmission and for offshore wind generation. The contracts were approved by the MDPU in the second quarter of 2019.
31
Additional long-term clean energy contracts are expected in compliance with the Energy Diversity Act and An Act to Promote a Clean Energy Future (2018). Fitchburg recovers the costs associated with long-term renewable contracts on a fully reconciling basis through a MDPU-approved cost recovery mechanism.
Power Supply Contract Divestitures –
Subsequent Events –
Note 2
–
Dividends Declared Per Share
|
Declaration
Date
|
|
Date
Paid
(Payable)
|
|
|
Shareholder of
Record Date
|
|
|
Dividend
Amount
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
32
note 3
–
Segment Information
The following table provides significant segment financial data for the three months ended March 31, 2020 and March 31, 2019:
|
|
Gas
|
|
Electric
|
|
Non-
Regulated
|
|
Other
|
|
Total
|
|
||||||||||
|
Three Months Ended March 31, 2020 ($ millions)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Revenues:
|
|
|
|
|
|
|||||||||||||||
|
Billed and Unbilled Revenue
|
$
|
|
|
$
|
|
|
$
|
—
|
|
$
|
—
|
|
$
|
|
|
|||||
|
Rate Adjustment Mechanism Revenue
|
|
(
|
)
|
|
(
|
)
|
|
—
|
|
|
—
|
|
|
(
|
)
|
|||||
|
Other Operating Revenue –
Non-Regulated
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|||||
|
Total Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|||||
|
Segment Profit (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Identifiable Segment Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Capital Expenditures
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|||||
|
Three Months Ended March 31, 2019 ($ millions)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Billed and Unbilled Revenue
|
$ |
|
$ |
|
$ |
—
|
$ |
—
|
$ |
|
||||||||||
|
Rate Adjustment Mechanism Revenue
|
(
|
) |
|
—
|
—
|
(
|
) | |||||||||||||
|
Other Operating Revenue –
Non-Regulated
|
—
|
—
|
|
—
|
|
|||||||||||||||
|
Total Operating Revenues
|
|
|
|
—
|
|
|||||||||||||||
|
Segment Profit (Loss)
|
|
|
|
|
|
|||||||||||||||
|
Identifiable Segment Assets
|
|
|
|
|
|
|||||||||||||||
|
Capital Expenditures
|
|
|
—
|
|
|
|||||||||||||||
33
Note 4
–
debt and financing arrangements
Details on long-term debt at March 31, 2020, March 31, 2019 and December 31, 2019 are shown below:
|
($ millions)
|
March 31,
|
December 31,
|
|
|||||||||
|
|
2020
|
|
2019
|
2019
|
||||||||
|
Unitil Corporation:
|
|
|
|
|
|
|
|
|
|
|||
|
|
$
|
|
|
$ |
|
$ |
|
|||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
—
|
|
|||||||
|
Unitil Energy First Mortgage Bonds:
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
Fitchburg:
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|||||||||
|
Northern Utilities:
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
—
|
|
|||||||
|
Granite State:
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||||||
|
Total Long-Term Debt
|
|
|
|
|
|
|||||||
|
Less: Unamortized Debt Issuance Costs
|
|
|
|
|
|
|||||||
|
Total Long-Term Debt, net of Unamortized Debt Issuance Costs
|
|
|
|
|
|
|||||||
|
Less: Current Portion
|
|
|
|
|
|
|||||||
|
Total Long-term Debt, Less Current Portion
|
$
|
|
|
$ |
|
$ |
|
|||||
Fair Value of Long-Term Debt
34
inputs other than quoted prices that are directly observable, and inputs derived principally from market data.) In estimating the fair value of the Company’s long-term debt, the assumed market yield reflects the Moody’s Baa Utility Bond Average Yield. Costs, including prepayment costs, associated with the early settlement of long-term debt are not taken into consideration in determining fair value.
|
($ millions)
|
March 31,
|
December 31,
|
|
|||||||||
|
|
2020
|
|
2019
|
2019
|
||||||||
|
Estimated Fair Value of Long-Term Debt
|
$
|
|
|
$ |
|
$ |
|
|||||
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
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
1.125
%. The Company may increase the borrowing limit under the Credit Facility by up to $
50
million under certain circumstances.
one-year
extensions under certain circumstances, and has a borrowing limit of $
one-month
London Interbank Offered Rate plus
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 30, 2019 and December 31, 2019:
|
|
Revolving Credit Facility
($ millions)
|
|||||||||||
|
|
March 31,
|
December 31,
|
||||||||||
|
|
2020
|
|
2019
|
2019
|
||||||||
|
Limit
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Short-Term Borrowings Outstanding
|
|
|
|
|
|
|||||||
|
Letter of Credit Outstanding
|
|
|
|
—
|
|
|||||||
|
Available
|
$
|
|
|
$ |
|
$ |
|
|||||
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 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.
The average interest rates on all short-term borrowings and intercompany money pool transactions were
2.6
% and
3.7
% for the three months ended March 31, 2020 and March 31, 2019, respectively. The average interest rate on all short-term borrowings for the twelve months ended December 31, 2019 was
3.4
%.
35
As discussed previously, the Company divested of its
9.8
million from this divestiture for general corporate purposes.
non-regulated
subsidiary business, Usource, in the first quarter of 2019. The Company used the net proceeds of $
On December 18, 2019, Unitil Corporation issued $
30
million of Notes due
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
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 off 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.
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.
Guarantees
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.
Leases
Unitil’s subsidiaries and also lease some of their vehicles, machinery and office equipment under both capital and operating lease arrangements.
Total rental expense under operating leases charged to operations for the three months ended March 31, 2020 and 2019 amounted to $
0.4
million and $
0.4
million, respectively.
36
The balance sheet classification of the Company’s lease obligations was as follows:
|
|
March 31,
|
December 31,
|
||||||||||
|
Lease Obligations ($ millions)
|
2020
|
|
2019
|
2019
|
||||||||
|
Operating Lease Obligations:
|
|
|
|
|||||||||
|
Other Current Liabilities (current portion)
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Other Noncurrent Liabilities (long-term portion)
|
|
|
|
|
|
|||||||
|
Total Operating Lease Obligations
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Capital Lease Obligations:
|
|
|
|
|||||||||
|
Other Current Liabilities (current portion)
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Other Noncurrent Liabilities (long-term portion)
|
|
|
|
|
|
|||||||
|
Total Capital Lease Obligations
|
$
|
|
|
$ |
|
$ |
|
|||||
|
Total Lease Obligations
|
$
|
|
|
$ |
|
$ |
|
|||||
Cash paid for amounts included in the measurement of operating lease obligations for the three months ended March 31, 2020 was $
0.4
million and was included in Cash Provided by Operating Activities on the Consolidated Statements of Cash Flows.
Assets under capital leases amounted to approximately $
1.2
million, $
14.9
million and $
1.2
million as of March 31, 2020, March 31, 2019 and December 31, 2019, respectively, less accumulated amortization of $
0.7
million, $
1.8
million and $
0.6
million, respectively and are included in Net Utility Plant on the Company’s Consolidated Balance Sheets.
The following table is a schedule of future operating lease payment obligations and future minimum lease payments under capital leases as of March 31, 2020. The payments for capital leases consist of $
0.2
million of current capital lease obligations, which are included in Other Current Liabilities and $
0.4
million of noncurrent capital lease obligations, which are included in Other Noncurrent Liabilities, on the Company’s Consolidated Balance Sheets as of March 31, 2020.
The payments for operating leases consist of $
1.4
million of current operating lease obligations, which are included in Other Current Liabilities and $
3.5
million of noncurrent operating lease obligations, which are included in Other Noncurrent Liabilities, on the Company’s Consolidated Balance Sheets as of March 31, 2020.
|
Lease Payments ($000’s)
Year Ending December 31,
|
Operating
Leases |
|
Capital
Leases |
|
||||
|
Rest of 2020
|
$ |
|
$ |
|
||||
|
2021
|
|
|
||||||
|
2022
|
|
|
||||||
|
2023
|
|
|
||||||
|
2024
|
|
|
||||||
|
2025-2029
|
|
|
||||||
|
Total Payments
|
|
|
|
|
|
|
||
|
Less: Interest
|
|
|
||||||
|
Amount of Lease Obligations Recorded on Consolidated Balance Sheets
|
$
|
|
|
$
|
|
|
||
Operating lease obligations are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used the interest rate stated in each lease agreement. As of March 31, 2020, the weighted average remaining lease term is
3.9
years and the weighted average operating discount rate used to determine the operating lease obligations was
4.9
%.
37
Note 5
–
Common Stock and preferred stock
Common Stock
The Company’s common stock trades on the New York Stock Exchange under the symbol, “UTL.”
The Company had
14,916,044
,
14,930,170
and
14,963,444
shares of common stock outstanding at March 31, 2019, December 31, 2019 and March 31, 2020, respectively.
Dividend Reinvestment and Stock Purchase Plan –
Stock Plan
-
The maximum number of shares available for awards to participants under the Stock Plan is
677,500
. The maximum number of shares that may be awarded in any one calendar year to any one participant is
20,000
. In the event of any change in capitalization of the Company, the Compensation Committee is authorized to make an equitable adjustment to the number and kind of shares of common stock that may be delivered under the Stock Plan and, in addition, may authorize and make an equitable adjustment to the Stock Plan’s annual individual award limit.
Restricted Shares
Outstanding awards of Restricted Shares fully vest over a period of
four years
at a rate of
25
% each year. During the vesting period, dividends on Restricted Shares underlying the award may be credited to a participant’s account. The Company may deduct or withhold, or require a participant to remit to the Company, an amount sufficient to satisfy any taxes required by federal, state, or local law or regulation to be withheld with respect to any taxable event arising in connection with an Award. For purposes of compensation expense, Restricted Shares vest immediately upon a participant becoming eligible for retirement, as defined in the Stock Plan. Prior to the end of the vesting period, the restricted shares are subject to forfeiture if the participant ceases to be employed by the Company other than due to the participant’s death.
On January 28, 2020,
28,630
Restricted Shares were issued in conjunction with the Stock Plan with an aggregate market value at the date of issuance of approximately $
1.8
million. There were
56,813
and
60,496
54.88
and $
46.23
, respectively. The compensation expense associated with the issuance of shares under the Stock Plan is being recognized over the vesting period and was $
1.8
million and $
1.7
million for the three months ended March 31, 2020 and 2019, respectively. At March 31, 2020, there was approximately $
1.1
million of total unrecognized compensation cost under the Stock Plan which is expected to be recognized over approximately
3.0
years. During the three months ended March 31, 2020 there were
zero
restricted shares forfeited and
zero
restricted shares cancelled under the Stock Plan.
non-vested
shares under the Stock Plan as of March 31, 2020 and 2019, respectively. The weighted average grant date fair value of these shares was $
38
Restricted Stock Units
Restricted Stock Units earn dividend equivalents and will generally be settled by payment to each Director as soon as practicable following the Director’s separation from service to the Company. The Restricted Stock Units will be paid such that the Director will receive (i)
70
% of the shares of the Company’s common stock underlying the restricted stock units and (ii) cash in an amount equal to the fair market value of
30
% of the shares of the Company’s common stock underlying the Restricted Stock Units.
The equity portion of Restricted Stock Units activity during the three months ended March 31, 2020 in conjunction with the Stock Plan are presented in the following table:
|
Restricted Stock Units (Equity Portion)
|
||||||||
|
|
Units
|
Weighted
Average
Stock
Price
|
||||||
|
Restricted Stock Units as of December 31, 2019
|
|
$ |
|
|||||
|
Restricted Stock Units Granted
|
|
|
||||||
|
Dividend Equivalents Earned
|
|
$ |
|
|||||
|
Restricted Stock Units Settled
|
|
|
||||||
|
Restricted Stock Units as of March 31, 2020
|
|
$ |
|
|||||
There were
62,206
Restricted Stock Units outstanding as of March 31, 2019 with a weighted average stock price of $
38.36
. Included in Other Noncurrent Liabilities on the Company’s Consolidated Balance Sheets as of March 31, 2020, March 31, 2019 and December 31, 2019 is $
1.6
million, $
1.4
million and $
1.9
million, respectively, representing the fair value of liabilities associated with the portion of fully vested RSUs that will be settled in cash.
Preferred Stock
There was $
0.2
million, or
1,887
shares, of Unitil Energy’s
6.00
% Series Preferred Stock outstanding as of March 31, 2020. There was $
0.2
million, or
1,893
shares, of Unitil Energy’s
6.00
% Series Preferred Stock outstanding as of March 31, 2019. There were less than $
0.1
million of total dividends declared on Preferred Stock in each of the three month periods ended March 31, 2020 and March 31, 2019, respectively.
Note 6 – REgulatory Matters
Unitil’s Regulatory matters are described in Note 8 to the Financial Statements in Item 8 of Part II of Unitil Corporation’s Form 10-K for December 31, 2019 as filed with the Securities and Exchange Commission on january 30, 2020.
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
39
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 –
%
, and a hypothetical capital structure of
%
equity and
%
debt.
Northern Utilities – Targeted Infrastructure Replacement Adjustment (TIRA) – Maine –
facilities was approved by the MPUC on April 29, 2020
.
Northern Utilities – Base Rates – New Hampshire –
Unitil Energy – Base Rates –
Fitchburg – Base Rates – Electric –
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.
40
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
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.
%
and a capital structure reflecting
Fitchburg – Base Rates – Gas –
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
4.6
million to be
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
9.7
52.45
% equity and
47.55
% long-term debt.
the
Attorney General. The agreement provides for an annual distribution revenue increase of $
phased-in
over two years: (1) an increase of $
thousand
. The agreement provides for a return on equity of
%
and a capital structure reflecting
Fitchburg – Gas System Enhancement Program –
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, 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 –
41
Other Matters
Fitchburg – Independent Statewide Examination of the Safety of the Commonwealth’s Gas Distribution System –
Northern Utilities / Granite State – Firm Capacity Contract
one-year
extension of its
12-month
contract for firm pipeline capacity reservation, with an evergreen provision and three-month termination notification requirement. On July 11, 2019, the MPUC approved Northern Utilities’ request to extend its contract for firm transmission on its affiliate Granite State pipeline for another year, extending the current contract for the period of November 1, 2019 through October 31, 2020. On April 2, 2020, Northern submitted the annual information report for the period of November 1, 2020 through October 31, 2021.
Reconciliation Filings –
Fitchburg – Massachusetts RFPs –
The EDCs issued the RFP for Section 83D Long-Term Contracts for Qualified Clean Energy Projects in March 2017, and after selection of final projects and negotiation, final contracts for
9,554,940
MWh of Qualified Clean Energy and associated Environmental Attributes from hydroelectric generation were filed in July 2018 for approval by the MDPU. On June 25, 2019, the MDPU approved the power purchase agreements, including the EDCs’ proposal to sell the energy procured under the contract into the
2.75
% is reasonable and in the public interest.
ISO-NE
wholesale market and to credit or charge the difference between the contract costs and the
ISO-NE
market costs to customers. The MDPU also determined that the EDCs’ request for remuneration equal to
Also, the MDPU approved the EDCs’ proposal to amend their respective tariffs to include the recovery of costs associated with the contracts. The Company believes that the power purchase obligations under these long-term contracts will have a material impact on the contractual obligations and regulatory assets of Fitchburg, once certain conditions and contingencies are met.
42
The EDCs issued the RFP pursuant to Section 83C for Long-Term Contracts for Offshore Wind Energy Generation in June 2017. Final selection of projects was made in May 2018, contracts were signed in July 2018 and on July 23, 2018, the EDCs, including Fitchburg, filed two long-term contracts, each for
400
MW of offshore wind energy generation with the MDPU for approval. On April 12, 2019, the MDPU approved the Offshore Wind Energy Generation power purchase agreements, including the EDCs’ proposal to sell the energy procured under the contract into the
2.75
% is reasonable and in the public interest. Also, the MDPU approved the EDCs’ proposal to amend their respective tariffs to include the recovery of costs associated with the contracts. The Company believes that the power purchase obligations under these long-term contracts will have a material impact on the contractual obligations of Fitchburg, once certain conditions and contingencies are met.
ISO-NE
wholesale market and to credit or charge the difference between the contract costs and the
ISO-NE
market costs to customers. The MDPU also determined that the EDCs’ request for remuneration equal to
The EDCs issued an RFP pursuant to Section 83C for Long-Term Contracts for Offshore Wind Energy Generation on May 23, 2019. This is the second solicitation pursuant to Section 83C and with the MDPU’s approval of the Vineyard Wind contracts for
800
MW of offshore wind energy generation as a result of the first solicitation, the remaining obligation under 83C is to procure an additional
800
MW of offshore wind energy generation. The EDCs selected an
800
MW project submitted by Mayflower Wind and contracts were executed on January 10, 2020. A filing with the MDPU for approval of two long-term contracts, each for 400 MW of offshore wind energy generation, was made on February 10, 2020.
FERC Transmission Formula Rate Proceedings –
ISO-New
England, Inc. Participating Transmission Owners’ Regional Network Service and Local Network Service formula rates. On April 14, 2017, the U.S. Court of Appeals for the D.C. Circuit issued an opinion vacating a decision of the FERC with respect to the ROE, and remanded it for further proceedings. The FERC had found that the Transmission Owners existing ROE was unlawful, and had set a new ROE. The Court found that the FERC had failed to articulate a satisfactory explanation for its orders. At this time, the ROE set in the vacated order will remain in place until further FERC action is taken. Separately, on March 15, 2018, the Transmission Owners filed a petition for review with the Court of certain orders of the FERC setting for hearing other complaints challenging the allowed return on equity component of the formula rates. On November 21, 2019 the FERC issued an order in
EL14-12,
Midcontinent Independent System Operator ROE, in which FERC outlined a new methodology for calculating the ROE. In response to the FERC order in EL
14-12,
the New England Transmission Owners (NETOs) filed a motion to reopen the record, which has been granted. This matter remains pending.
Also pending at FERC is a Section 206 proceeding concerning the justness and reasonableness of
ISO-New
England, Inc. Participating Transmission Owners’ Regional Network Service and Local Network Service formula rates and to develop formula rate protocols for these rates. On August 17, 2018 a joint settlement agreement among a number of the parties was filed with the FERC. FERC rejected the settlement agreement on May 22, 2019 and remanded the proceeding to the Chief Administrative Law Judge to resume hearing procedures. On May 24, 2019 the judge appointed a Dispute Resolution Facilitator to aid parties in settlement negotiations. The procedural schedule was suspended September 24, 2019 in order to allow participants to focus on settlement negotiations. On October 24, 2019, the NETO’s filed an unopposed motion to suspend the procedural schedule and waiver of answer period indicating that the NETO’s, Municipal PTF Owners and the Commission Trial Staff have reached agreement in principle on the terms of a settlement to resolve all open issues in the proceeding. Work towards a final settlement continues. Fitchburg and Unitil Energy are Participating Transmission Owners, although Unitil Energy does not own transmission plant. To the extent that these proceedings result in any changes to the rates being charged, a retroactive reconciliation may be required. The Company does not believe that these proceedings will have a material adverse impact on the Company’s financial condition or results of operations.
43
Legal Proceedings
The Company is involved in legal and administrative proceedings and claims of various types, including those which arise in the ordinary course of business. The Company believes, based upon information furnished by counsel and others, that the ultimate resolution of these claims will not have a material impact on its financial position, operating results or cash flows.
note 7 – eNVIRONMENTAL MATTERS
Unitil’s Environmental matters are described in Note 8 to the Financial Statements in Item 8 of Part II of Unitil Corporation’s Form 10-K for December 31, 2019 as filed with the Securities and Exchange Commission on january 30, 2020.
The Company’s past and present operations include activities that are generally subject to extensive and complex federal and state environmental laws and regulations. The Company is in material compliance with applicable environmental and safety laws and regulations and, as of March 31,
2020
, has not identified any material losses reasonably likely to be incurred in excess of recorded amounts. However, the Company cannot assure that significant costs and liabilities will not be incurred in the future. It is possible that other developments, such as increasingly stringent federal, state or local environmental laws and regulations could result in increased environmental compliance costs. Based on the Company’s current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, the Company does not believe that these environmental costs will have a material adverse effect on the Company’s consolidated financial position or results of operations.
Northern Utilities Manufactured Gas Plant Sites –
mid-1800s
through the
mid-1900s.
In New Hampshire, MGP sites were identified in Dover, Exeter, Portsmouth, Rochester and Somersworth. In Maine, Northern Utilities has documented the presence of MGP sites in Lewiston and Portland, and a former MGP disposal site in Scarborough.
Northern Utilities has worked with the Maine Department of Environmental Protection and New Hampshire Department of Environmental Services (NH DES) to address environmental concerns with these sites. Northern Utilities or others have completed remediation activities at all sites; however, on site monitoring continues at several sites which may result in future remedial actions as directed by the applicable regulatory agency. In July 2019,
June 2020
0.8
the NH DES requested that Northern Utilities review modeled expectations for groundwater contaminants against observed data at the Rochester site. Due to delays associated with the novel coronavirus
(
COVID-19
)
pandemic, the results of the review, along with recommendations regarding remedial action, will be submitted to the NH DES in
. While any recommendation is subject to approval by the NH DES, the Company has accrued $
million for estimated costs to complete the remediation at the Rochester site, which is included in the Environmental Obligations table below.
The NHPUC and MPUC have approved regulatory mechanisms for the recovery of MGP environmental costs. For Northern Utilities’ New Hampshire division, the NHPUC has approved the recovery of MGP environmental costs over succeeding
-year periods. For Northern Utilities’ Maine division, the MPUC has authorized the recovery of environmental remediation costs over succeeding
-year periods.
The Environmental Obligations table below shows the amounts accrued for Northern Utilities related to estimated future cleanup costs associated with Northern Utilities’ environmental remediation obligations for former MGP sites. Corresponding Regulatory Assets were recorded to reflect that the future recovery of these environmental remediation costs is expected based on regulatory precedent and established practices.
Fitchburg’s Manufactured Gas Plant Site –
44
Fitchburg recovers the environmental response costs incurred at this former MGP site in gas rates pursuant to the terms of a cost recovery agreement approved by the MDPU. Pursuant to this agreement, Fitchburg is authorized to amortize and recover environmental response costs from gas customers over succeeding seven-year periods.
The following table sets forth a summary of changes in the Company’s liability for Environmental Obligations for the three months ended March 31, 2020 and 2019.
|
Environmental Obligations
|
|
|
|
|||||||||||||||||||||
|
|
($ millions)
|
|||||||||||||||||||||||
|
|
Fitchburg
|
Northern
Utilities |
Total
|
|||||||||||||||||||||
|
|
Three months ended March 31,
|
|||||||||||||||||||||||
|
|
2020
|
|
2019
|
2020
|
|
2019
|
2020
|
|
2019
|
|||||||||||||||
|
Total Balance at Beginning of Period
|
$
|
|
|
$ |
—
|
$
|
|
|
$ |
|
$
|
|
|
$ |
|
|||||||||
|
Additions
|
|
|
|
—
|
|
—
|
|
|
|
—
|
|
|
||||||||||||
|
Less: Payments / Reductions
|
|
|
|
—
|
|
|
|
|
|
|
|
|
||||||||||||
|
Total Balance at End of Period
|
|
|
|
—
|
|
|
|
|
|
|
|
|
||||||||||||
|
Less: Current Portion
|
|
|
|
—
|
|
|
|
|
|
|
|
|
||||||||||||
|
Noncurrent Balance at End of Period
|
$
|
|
|
$ |
—
|
$
|
|
|
$ |
|
$
|
|
|
$ |
|
|||||||||
Note 8: INCOME TAXES
In March 2020
the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law. The CARES Act included several tax changes as part of its economic package. These changes principally related to expanded Net Operating Loss (NOL) carryback periods, increases to interest deductibility limitations, and accelerated Alternative Minimum Tax (AMT) refunds. The Company has evaluated these items and included them in its tax computation as
of March 31, 2020.
Income tax filings for the year ended December 31, 2018 have been filed with the IRS, Massachusetts Department of Revenue, the Maine Revenue Service, and the New Hampshire Department of Revenue Administration. The Company evaluated its tax positions at March 31, 2020 in accordance with the FASB Codification, and has concluded that no adjustment for recognition,
de-recognition,
settlement and foreseeable future events to any tax liabilities or assets as defined by the FASB Codification is required. The Company remains subject to examination by Maine, Massachusetts, and New Hampshire tax authorities for the tax periods ended December 31, 2016; December 31, 2017; and December 31, 2018.
In December 2017, the Tax Cuts and Jobs Act (TCJA), which included a reduction to the corporate federal income tax rate to
21
% effective January 1, 2018, was signed into law. In accordance with GAAP Accounting Standard 740, the Company revalued its Accumulated Deferred Income Taxes (ADIT) at the new
21
% tax rate at which the ADIT will be reversed in future periods. The Company recorded a net Regulatory Liability in the amount of $
48.9
million at December 31, 2017 as a result of the ADIT revaluation.
In March 2020
12.3
million to gas ratepayers over approximately
20
years.
,
the MPUC approved Northern Utilities’ base rate increase effective April 1, 2020. Part of the base rate increase is the flow back of excess ADIT through base rates. Northern Utilities was ordered to begin flowing back to customer excess ADIT of $
The MDPU issued a multi-utility Order D.P.U.
18-15-E
(the “Order”) on December 21, 2018. The Order clarified the categories of Excess ADIT for Massachusetts ratemaking: 1) Excess protected ADIT directly related to utility plant fixed assets (rate base), 2) other
non-plant
excess ADIT amounts (unprotected), and 3) excess ADIT created through reconciling mechanisms. In the Order, all Massachusetts utilities were ordered to begin flow back of protected and unprotected excess ADIT on February 1, 2019 and to
45
reconcile excess ADIT amounts previously collected from ratepayers through reconciliation mechanisms in the next filing of each of those individual reconciling mechanisms. Fitchburg was ordered to begin flowing back to customers excess
D.P.U.18-15-E
on January 4, 2019 for rates effective February 1, 2019. The MDPU approved this filing on January 16, 2019. The filing will be updated and the balances of excess ADIT will be reconciled annually.
On November 15, 2018 the FERC issued two pronouncements regarding the accounting for income taxes due to the TCJA; 1) Notice of Proposed Rulemaking Docket No. RM
19-5-000
and 2) Policy Statement PL
19-2-000
providing specific guidance on the flow back of excess ADIT created by the implementation of the TCJA.
According to the FERC guidance; the amount of the reduction to ADIT that was previously collected from customers but is no longer payable to the IRS is excess ADIT and should be flowed back to ratepayers under general ratemaking principles. On November 21, 2019 the FERC issued a final order Docket No.
RM19-5-000
regarding the 2018 Notice of Proposed Rulemaking and Policy Statement (“Notice”) and affirmed the regulatory treatment outlined in the 2018 Notice.
Based on communications received by the Company from its state regulators in rate cases and other regulatory proceedings in the first quarter of 2018 and as prescribed in the TCJA, the recent FERC guidance noted above and IRS normalization rules; the benefit of these protected excess ADIT amounts will be subject to flow back to customers in future utility rates according to the Average Rate Assumption Method (ARAM). ARAM reconciles excess ADIT at the reversal rate of the underlying book/tax temporary timing differences. The Company estimates the ARAM flow back period for protected and unprotected excess ADIT to be between fifteen and twenty years, over the remaining life of the related utility plant. Subject to regulatory approval, the Company expects to flow back to customers a net $
47.1
million of protected excess ADIT created as a result of the lowering of the statutory tax rate by the TCJA over periods estimated to be fifteen to twenty years.
In addition to the protected excess $
47.1
million ADIT amounts the Company expects to flow through to customers in utility rates, as noted above, there is approximately $
1.8
million of excess ADIT created through reconciling mechanisms at December 31, 2017, related to the implementation of the new federal tax rate of the TCJA, which had not been previously collected from customers through utility rates. The Company will reconcile these excess ADIT amounts through the specific reconciliation mechanisms in the next filing of each of those individual reconciling mechanisms which will be subject to the review of state regulators.
In addition to the $
48.9
million of net excess ADIT noted above, as of December 31, 2018, there was $
2.0
million of remaining excess ADIT created by the recognition of Net Operating Loss Carryforward assets (NOLC), discussed below, and related to the implementation of the new federal tax rate of the TCJA, which had not been previously included in utility rates. The Company is recognizing the benefit of this excess ADIT in accordance with the regulatory treatment of excess ADIT for each of jurisdiction. As of December 31, 2019 there was $
0.3
million remaining; of which, $
0.2
million was recognized as of March 31, 2020. The remaining $
0.1
million will be recognized in 2020.
The Company has received regulatory orders in its Massachusetts and Maine jurisdictions regarding the flow-back of excess deferred income taxes. The Company’s New Hampshire regulators are expected to issue additional ratemaking guidance in future periods that will determine the final disposition of the
re-measurement
of regulatory deferred income tax balances. At this time, the Company has applied a reasonable interpretation of the TCJA and a reasonable estimate of the regulatory resolution. Future clarification of TCJA matters with the Company’s regulators may change the amounts estimated.
Under the Company’s Tax Sharing Agreement (the “Agreement”) which was approved upon the formation of Unitil as a public utility holding company; the Company files consolidated Federal and State tax returns and Unitil Corporation and each of its utility operating subsidiaries recognize the results of their operations in its tax returns as if it were a stand-alone taxpayer. The Agreement provides that the Company will account for income taxes in compliance with U.S. GAAP and regulatory accounting principles. The Company filed its tax returns for the year ended December 31, 2018 with the IRS in September 2019 and utilized federal NOLC assets of $
5.7
million principally due to pension cost deductions, tax repair deductions, tax depreciation and research and development deductions. For the
46
tax year ended December 31, 2019, the Company used $
3.5
million of the NOLC in calculating the 2019 federal tax provision. As of December 31, 2019, the Company had recorded cumulative federal NOLC assets of $
1.6
million to offset against taxes payable in future periods. If unused, the Company’s NOLC carryforward assets will begin to expire in 2029. The Company received $
0.9
million of the Alternative Minimum Tax (AMT) credits in 2019 and will receive $
0.9
million of the AMT credits in 2020
In addition, at December 31, 2019, the Company had $
1.9
million of cumulative alternative minimum tax credits, general business tax credit and other state tax credit carryforwards to offset future income taxes payable.
In assessing the near-term use of NOLCs and tax credits, the Company evaluates the expected level of future taxable income, available tax planning strategies, reversals of existing taxable temporary differences and taxable income available in carryback years. Based on all available evidence, both positive and negative, and the weight of that evidence to the extent such evidence can be objectively verified, the Company expects to utilize all of its NOLCs by December 31, 2020 prior to their expiration in 2029.
The Company bills its customers for sales tax in Massachusetts and Maine. These taxes are remitted to the appropriate departments of revenue in each state and are excluded from revenues on the Company’s unaudited Consolidated Statements of Earnings.
Note 9: Retirement Benefit obligations
The Company
co-sponsors
the Unitil Corporation Retirement Plan (Pension Plan), the Unitil Retiree Health and Welfare Benefits Plan (PBOP Plan), and the Unitil Corporation Supplemental Executive Retirement Plan (SERP) to provide certain pension and postretirement benefits for its retirees and current employees. Please see Note 10 to the Consolidated Financial Statements in the Company’s Form
10-K
for the year ended December 31, 2019 as filed with the SEC on January 30, 2020 for additional information regarding these plans.
The following table includes the key weighted average assumptions used in determining the Company’s benefit plan costs and obligations:
|
Used to Determine Plan Costs
|
2020
|
|
2019
|
|||||
|
Discount Rate
|
|
|
%
|
|
% | |||
|
Rate of Compensation Increase
|
|
|
%
|
|
% | |||
|
Expected Long-term rate of return on plan assets
|
|
|
%
|
|
% | |||
|
Health Care Cost Trend Rate Assumed for Next Year
|
|
|
%
|
|
% | |||
|
Ultimate Health Care Cost Trend Rate
|
|
|
%
|
|
% | |||
|
Year that Ultimate Health Care Cost Trend Rate is reached
|
|
|
|
|
||||
47
The following table provides the components of the Company’s Retirement plan costs ($000’s):
|
|
Pension Plan
|
PBOP Plan
|
SERP
|
|||||||||||||||||||||
|
Three Months Ended March 31,
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
||||||||||||
|
Service Cost
|
$
|
|
|
$ |
|
$
|
|
|
$ |
|
$
|
|
|
$ |
|
|||||||||
|
Interest Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Expected Return on Plan Assets
|
|
(
|
)
|
(
|
) |
|
(
|
)
|
(
|
) |
|
—
|
|
—
|
||||||||||
|
Prior Service Cost Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Actuarial Loss Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Sub-total
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
Amounts Capitalized and Deferred
|
|
(
|
)
|
(
|
) |
|
(
|
)
|
(
|
) |
|
(
|
)
|
(
|
) | |||||||||
|
Net Periodic Benefit Cost Recognized
|
$
|
|
|
$ |
|
$
|
|
|
$ |
|
$
|
|
|
$ |
|
|||||||||
Employer Contributions
As of March 31, 2020, the Company had not made any contributions to its Pension Plan and PBOP Plan, respectively, in 2020. The Company, along with its subsidiaries, expects to continue to make contributions to its Pension and PBOP Plans in 2020 and future years at minimum required and discretionary funding levels consistent with the amounts recovered in the distribution utilities’ rates for these Pension and PBOP Plan costs.
As of March 31, 2020, the Company had made $
0.2
million of benefit payments under the SERP Plan in 2020. The Company presently anticipates making an additional $
0.5
million of benefit payments under the SERP Plan in 2020.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Reference is made to the “Interest Rate Risk” and “Commodity Price Risk” sections of Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (above).
Item 4
Controls and Procedures
Management of the Company, under the supervision and with the participation of the Company’s Chief Executive Officer, Chief Financial Officer and Controller, carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of March 31, 2020. Based upon this evaluation, the Company’s Chief Executive Officer, Chief Financial Officer and Controller concluded as of March 31, 2020 that the Company’s disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15(d)-15(e))
are effective.
There have been no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f)
and
15(d)-15(f))
during the fiscal quarter covered by this Form
10-Q
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in legal and administrative proceedings and claims of various types, including those which arise in the ordinary course of business. Certain specific matters are discussed in Notes 6 and 7 to the unaudited Consolidated Financial Statements. In the opinion of 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.
48
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in the Company’s Form
10-K
for the year-ended December 31, 2019 as filed with the SEC on January 30, 2019, except for the following, which was disclosed on a Current Report on Form
8-K,
filed with the SEC on March 26, 2020.
The novel coronavirus outbreak could adversely impact Unitil’s business, financial conditions, results of operations and cash flows.
In December 2019, a novel strain of coronavirus
(COVID-19)
emerged in Wuhan, Hubei Province, China. While initially the outbreak was largely concentrated in China and caused significant disruptions to its economy, it has now spread to several other countries and infections have been reported globally. The extent to which the coronavirus impacts Unitil’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, and the actions to contain the coronavirus or treat its impact, among others. In particular, the continued spread of the coronavirus could adversely impact Unitil’s business, including (i) by disrupting Unitil’s employees and contractors ability to provide ongoing services to Unitil, (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 Unitil’s financial condition, results of operations, and cash flows.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Recent Sales of Unregistered Securities
There were no sales of unregistered equity securities by the Company during the fiscal quarter ended March 31, 2020.
Issuer Purchases of Equity Securities
Pursuant to the written trading plan under Rule
10b5-1
under the Securities Exchange Act of 1934, as amended (the Exchange Act), adopted and announced by the Company on May 1, 2019, the Company will periodically repurchase shares of its Common Stock on the open market related to the stock portion of the Directors’ annual retainer for those Directors who elected to receive common stock. There is no pool or maximum number of shares related to these purchases; however, the trading plan will terminate when $195,000 in value of shares have been purchased or, if sooner, on May 1, 2020.
The Company may suspend or terminate this trading plan at any time, so long as the suspension or termination is made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule
10b-5
under the Exchange Act, or other applicable securities laws.
The following table shows information regarding repurchases by the Company of shares of its common stock pursuant to the trading plan for each month in the quarter ended March 31, 2020.
|
|
Total
Number of Shares Purchased |
|
Average
Price Paid per Share |
|
Total Number of
Shares Purchased as Part of Publicly Announced Plans or Programs |
|
Approximate Dollar
Value of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||||||
|
1/1/20 – 1/31/20
|
—
|
—
|
—
|
$ |
10,034
|
|||||||||||
|
2/1/20 – 2/29/20
|
—
|
—
|
—
|
$ |
10,034
|
|||||||||||
|
3/1/20 – 3/31/20
|
—
|
—
|
—
|
$ |
10,034
|
|||||||||||
|
Total
|
—
|
—
|
—
|
|
||||||||||||
49
Item 5. Other Information
On April 30, 2020 the Company issued a press release announcing its results of operations for the three-month period ended March 31, 2020. The press release is furnished with this Quarterly Report on Form
10-Q
as
Exhibit
99.1.
50
Item 6. Exhibits
(a) Exhibits
|
Exhibit
No.
|
Description of Exhibit
|
Reference
|
||||||
|
10.1
|
Exhibit 10.1 to
Form
8-K
dated
March 19, 2020
(SEC File No.
1-8858)
|
|||||||
|
11
|
Filed herewith
|
|||||||
|
31.1
|
Filed herewith
|
|||||||
|
31.2
|
Filed herewith
|
|||||||
|
31.3
|
Filed herewith
|
|||||||
|
32.1
|
Filed herewith
|
|||||||
|
99.1
|
Filed herewith
|
|||||||
|
101.INS
|
Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
|
Filed herewith
|
||||||
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document.
|
Filed herewith
|
||||||
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document.
|
Filed herewith
|
||||||
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
Filed herewith
|
||||||
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document.
|
Filed herewith
|
||||||
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document.
|
Filed herewith
|
||||||
|
104
|
Cover Page Interactive Data File – The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
|
Filed herewith
|
||||||
51
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: April 30, 2020
|
|
/s/ Laurence M. Brock
|
||
|
|
|
Laurence M. Brock
|
||
|
|
|
Chief Financial Officer
|
||
|
Date: April 30, 2020
|
|
/s/ Daniel J. Hurstak
|
||
|
|
|
Daniel J. Hurstak
|
||
|
|
|
Controller
|
52
EXHIBIT 11
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
($ Millions, except for per share data)
(UNAUDITED)
|
Three Months Ended
March 31, |
||||||||
| 2020 | 2019 | |||||||
|
Net Income |
$ | 15.2 | $ | 26.5 | ||||
|
Less: Dividend Requirements on Preferred Stock |
— | — | ||||||
|
|
|
|
|
|||||
|
Net Income Applicable to Common Stock |
$ | 15.2 | $ | 26.5 | ||||
|
|
|
|
|
|||||
|
Weighted Average Number of Common Shares Outstanding – Basic (000’s) |
14,934 | 14,875 | ||||||
|
Dilutive Effect of Stock Options and Restricted Stock (000’s) |
4 | 5 | ||||||
|
Weighted Average Number of Common Shares Outstanding – Diluted (000’s) |
14,938 | 14,880 | ||||||
|
Earnings Per Share – Basic |
$ | 1.02 | $ | 1.78 | ||||
|
Earnings Per Share – Diluted |
$ | 1.02 | $ | 1.78 | ||||
Exhibit 31.1
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas P. Meissner, Jr., certify that:
| 1) |
I have reviewed this quarterly report on Form 10-Q of Unitil Corporation; |
| 2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have: |
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) |
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal controls over financial reporting; and |
| 5) |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 30, 2020 |
|
/s/ Thomas P. Meissner, Jr. |
| Thomas P. Meissner, Jr. |
| Chief Executive Officer and President |
Exhibit 31.2
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Laurence M. Brock, certify that:
| 1) |
I have reviewed this quarterly report on Form 10-Q of Unitil Corporation; |
| 2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) |
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal controls over financial reporting; and |
| 5) |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 30, 2020 |
|
/s/ Laurence M. Brock |
| Laurence M. Brock |
| Chief Financial Officer |
Exhibit 31.3
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel J. Hurstak, certify that:
| 1) |
I have reviewed this quarterly report on Form 10-Q of Unitil Corporation; |
| 2) |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3) |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4) |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) |
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant’s internal controls over financial reporting; and |
| 5) |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: April 30, 2020 |
|
/s/ Daniel J. Hurstak |
| Daniel J. Hurstak |
| Controller |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Unitil Corporation (the “Company”) on Form 10-Q for the period ending March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned Thomas P. Meissner, Jr., Chief Executive Officer and President, Laurence M. Brock, Chief Financial Officer and Daniel J. Hurstak, Controller, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
|
Signature |
Capacity |
Date |
||
|
/s/ Thomas P. Meissner, Jr |
||||
| Thomas P. Meissner, Jr. | Chief Executive Officer and President | April 30, 2020 | ||
|
/s/ Laurence M. Brock |
||||
| Laurence M. Brock | Chief Financial Officer | April 30, 2020 | ||
|
/s/ Daniel J. Hurstak |
||||
| Daniel J. Hurstak | Controller | April 30, 2020 | ||
Exhibit 99.1
Page 1 of 6
FOR RELEASE
Unitil Reports First Quarter Earnings
HAMPTON, N.H., APRIL 30, 2020 — Unitil Corporation (the “Company”) (NYSE: UTL) ( www.unitil.com ) today announced Net Income of $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.
“Despite the warm winter weather’s effect on our first quarter results, we continue to be well-positioned for future growth in our gas and electric businesses,” said Thomas P. Meissner, Jr., Unitil’s Chairman and Chief Executive Officer. “I am proud that we are continuing to serve our customers without any interruptions in service to date associated with the coronavirus pandemic.”
Gas GAAP gross margin and gas adjusted gross margin (a non-GAAP measure 1 ) 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, 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
| 1 |
The accompanying Supplemental Information more fully describes the non-GAAP measures used in this press release and includes a reconciliation of the non-GAAP measures to what the Company’s management believes are the most comparable GAAP measures. |
6 Liberty Lane West
Hampton, NH 03842
T 603.772.0775
www.unitil.com
Page 2 of 6
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 measure 1 ) 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.
6 Liberty Lane West
Hampton, NH 03842
T 603.772.0775
www.unitil.com
Page 3 of 6
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.
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 to $1.50 per share, representing an unbroken record of quarterly dividend payments since trading began in Unitil’s common stock.
The Company’s earnings are seasonal and are typically higher in the first and fourth quarters when customers use gas for heating purposes.
The Company will hold a quarterly conference call to discuss first quarter 2020 results on Thursday, April 30, 2020, at 2:00 p.m. Eastern Time. This call is being webcast. This call, financial and other statistical information contained in the Company’s presentation on this call, and information required by Regulation G regarding non-GAAP financial measures can be accessed in the Investor Relations section of Unitil’s website, www.unitil.com .
6 Liberty Lane West
Hampton, NH 03842
T 603.772.0775
www.unitil.com
Page 4 of 6
About Unitil Corporation
Unitil Corporation provides energy for life by safely and reliably delivering natural gas and electricity in New England. We are committed to the communities we serve and to developing people, business practices, and technologies that lead to the delivery of dependable, more efficient energy. Unitil Corporation is a public utility holding company with operations in Maine, New Hampshire and Massachusetts. Together, Unitil’s operating utilities serve approximately 106,100 electric customers and 83,900 natural gas customers. Other subsidiaries include Usource, Unitil’s non-regulated business segment. For more information about our people, technologies, and community involvement please visit www.unitil.com .
Forward-Looking Statements
This press release may contain forward-looking statements. All statements, other than statements of historical fact, included in this press release are forward-looking statements. Forward-looking statements include declarations regarding Unitil’s beliefs and current expectations. These forward-looking statements are subject to the 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 the following: the coronavirus (COVID-19) pandemic, which could adversely impact the Company’s business, 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; Unitil’s regulatory environment (including regulations relating to climate change, greenhouse gas emissions and other environmental matters); fluctuations in the supply of, the demand for, and the prices of, gas and electric energy commodities and transmission and transportation capacity and Unitil’s ability to recover energy supply costs in its rates; customers’ preferred energy sources; severe storms and Unitil’s ability to recover storm costs in its rates; general economic conditions; variations in weather; long-term global climate change; Unitil’s ability to retain its existing customers and attract new customers; increased competition; and other risks detailed in Unitil’s filings with the Securities and Exchange Commission. These forward looking statements speak only as of the date they are made. Unitil undertakes no obligation, and does not intend, to update these forward-looking statements.
For more information please contact:
| Todd Diggins – Investor Relations |
Alec O’Meara – Media Relations |
|
| Phone: 603-773-6504 |
Phone: 603-773-6404 |
|
| Email: diggins@unitil.com |
Email: omeara@unitil.com |
6 Liberty Lane West
Hampton, NH 03842
T 603.772.0775
www.unitil.com
Page 5 of 6
Selected financial data for 2020 and 2019 is presented in the following table:
Unitil Corporation – Condensed Financial Data
(Millions, except Per Share and Shares Data) (Unaudited)
| Three Months Ended March 31, | ||||||||||||
| 2020 | 2019 | Change | ||||||||||
|
Gas Therm Sales: |
||||||||||||
|
Residential |
22.1 | 24.0 | (7.9 | %) | ||||||||
|
Commercial/Industrial |
67.6 | 72.1 | (6.2 | %) | ||||||||
|
|
|
|
|
|||||||||
|
Total Gas Therm Sales |
89.7 | 96.1 | (6.7 | %) | ||||||||
|
|
|
|
|
|||||||||
|
Electric kWh Sales: |
||||||||||||
|
Residential |
179.1 | 181.5 | (1.3 | %) | ||||||||
|
Commercial/Industrial |
241.9 | 236.0 | 2.5 | % | ||||||||
|
|
|
|
|
|||||||||
|
Total Electric kWh Sales |
421.0 | 417.5 | 0.8 | % | ||||||||
|
|
|
|
|
|
|
|||||||
|
Gas Revenues |
$ | 70.2 | $ | 86.4 | $ | (16.2 | ) | |||||
|
Cost of Gas Sales |
27.8 | 42.9 | (15.1 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
|
Gas Adjusted Gross Margin |
42.4 | 43.5 | (1.1 | ) | ||||||||
|
Electric Revenues |
60.2 | 64.8 | (4.6 | ) | ||||||||
|
Cost of Electric Sales |
37.1 | 41.7 | (4.6 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
|
Electric Adjusted Gross Margin |
23.1 | 23.1 | — | |||||||||
|
Other Revenues |
— | 0.9 | (0.9 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
|
Total Adjusted Gross Margin |
65.5 | 67.5 | (2.0 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
|
Operation & Maintenance Expenses |
17.9 | 18.5 | (0.6 | ) | ||||||||
|
Depreciation & Amortization |
13.5 | 13.8 | (0.3 | ) | ||||||||
|
Taxes Other Than Income Taxes |
6.5 | 6.4 | 0.1 | |||||||||
|
Other Expense (Income), Net |
1.5 | (12.1 | ) | 13.6 | ||||||||
|
Interest Expense, Net |
6.2 | 6.2 | — | |||||||||
|
|
|
|
|
|
|
|||||||
|
Income Before Income Taxes |
19.9 | 34.7 | (14.8 | ) | ||||||||
|
Provision for Income Taxes |
4.7 | 8.2 | (3.5 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
|
Net Income |
$ | 15.2 | $ | 26.5 | $ | (11.3 | ) | |||||
|
|
|
|
|
|
|
|||||||
|
Earnings Per Share |
$ | 1.02 | $ | 1.78 | $ | (0.76 | ) | |||||
6 Liberty Lane West
Hampton, NH 03842
T 603.772.0775
www.unitil.com
Page 6 of 6
Supplemental Information
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 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
6 Liberty Lane West
Hampton, NH 03842
T 603.772.0775
www.unitil.com