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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
Commission File Number 1-8858
Unitil Corporation
(Exact name of registrant as specified in its charter)
New Hampshire 02-0381573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Liberty Lane West, Hampton, New Hampshire 03842
(Address of principal executive office) (Zip Code)
(603) 772-0775
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 1, 1998
Common Stock, No par value 4,515,649 Shares
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
INDEX
Part I. Financial Information Page No.
Consolidated Statements of Earnings - Three and Nine
Months Ended September 30, 1998 and 1997 3
Consolidated Balance Sheets, September 30, 1998,
September 30, 1997 and December 31, 1997 4-5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-8
Management's Discussion and Analysis of Results of
Operations and Financial Condition 9-14
Exhibit 11 - Computation of Earnings per Average
Common Share Outstanding 15
Part II. Other Information 16
PART 1. FINANCIAL INFORMATION
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Amounts in Thousands, except Shares and Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Operating Revenues:
Electric $37,875 $37,840 $113,734 $112,798
Gas 2,433 2,824 12,094 13,792
Other 7 8 22 29
Total Operating Revenues 40,315 40,672 125,850 126,619
Operating Expenses:
Fuel and Purchased Power 24,932 25,298 75,719 75,414
Gas Purchased for Resale 1,583 1,911 7,222 8,505
Operation and Maintenance 5,808 5,785 17,562 17,333
Depreciation and Amortization 2,609 2,272 7,510 6,798
Provisions for Taxes:
Local Property and Other 1,362 1,333 4,199 4,057
Federal and State Income 624 696 2,513 3,088
Total Operating Expenses 36,918 37,295 114,725 115,195
Operating Income 3,397 3,377 11,125 11,424
Non-Operating Expense 35 52 106 69
Income Before Interest Expense 3,362 3,325 11,019 11,355
Interest Expense, Net 1,645 1,838 5,202 5,298
Net Income 1,717 1,487 5,817 6,057
Less Dividends on Preferred Stock 68 69 206 207
Net Income Applicable to
Common Stock $1,649 $1,418 $5,611 $5,850
Average Common Shares
Outstanding 4,508,648 4,419,431 4,494,580 4,404,518
Basic Earnings Per Share $0.37 $0.32 $1.25 $1.33
Diluted Earnings Per Share $0.36 $0.31 $1.22 $1.29
Dividends Declared per Share
of Common Stock (Note 1) $0.34 $0.335 $1.36 $1.34
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(Unaudited) (Audited)
September 30, December 31,
1998 1997 1997
ASSETS:
Utility Plant:
Electric $172,371 $164,265 $166,636
Gas 31,314 29,766 30,473
Common 20,655 18,873 19,689
Construction Work in Progress 5,096 2,635 2,677
Total Utility Plant 229,436 215,539 219,475
Less: Accumulated Depreciation 72,824 67,432 68,360
Net Utility Plant 156,612 148,107 151,115
Other Property & Investments 42 42 42
Cash 4,375 2,235 2,337
Accounts Receivable - Less Allowance
for Doubtful Accounts
of $662, $660 and $677 15,578 16,632 16,890
Materials and Supplies 3,453 2,726 2,663
Prepayments 534 548 434
Accrued Revenue 3,816 6,096 6,796
Total Current Assets 27,756 28,237 29,120
Deferred Assets:
Debt Issuance Costs 1,308 934 918
Cost of Abandoned Properties 22,550 24,290 23,885
Prepaid Pension Costs 8,483 7,926 8,120
Other Deferred Assets 24,790 24,829 24,777
Total Deferred Assets 57,131 57,979 57,700
TOTAL $241,541 $234,365 $237,977
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
(Unaudited) (Audited)
September 30, December, 31
1998 1997 1997
CAPITALIZATION AND LIABILITIES:
Capitalization:
Common Stock Equity $72,319 $68,970 $71,644
Preferred Stock, Non-Redeemable,
Non-Cumulative 225 225 225
Preferred Stock, Redeemable,
Cumulative 3,619 3,666 3,666
Long-Term Debt, Less Current Portion 74,152 64,078 63,896
Total Capitalization 150,315 136,939 139,431
Capitalized Leases,
Less Current Portion 4,163 4,286 4,733
Current Liabilities:
Long-Term Debt, Current Portion 1,175 4,432 4,470
Capitalized Leases, Current Portion 1,046 851 883
Accounts Payable 14,244 16,539 14,734
Short-Term Debt 12,575 13,250 18,000
Dividends Declared and Payable 1,803 1,686 212
Refundable Customer Deposits 1,346 2,435 2,187
Taxes Payable (Refundable) 402 187 (554)
Interest Payable 1,765 1,144 1,087
Other Current Liabilities 2,702 2,633 2,635
Total Current Liabilities 37,058 43,157 43,654
Deferred Liabilities:
Investment Tax Credits 1,111 1,478 1,437
Other Deferred Liabilities 8,276 7,890 7,864
Total Deferred Liabilities 9,387 9,368 9,301
Deferred Income Taxes 40,618 40,615 40,858
TOTAL $241,541 $234,365 $237,977
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in Thousands)
Nine Months Ended September 30,
1998 1997
Net Cash Flow from Operating Activities:
Net Income $5,817 $6,057
Adjustments to Reconcile Net Income
to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 7,510 6,799
Deferred Taxes (42) 269
Amortization of Investment Tax Credit (327) (132)
Provision of Doubtful Accounts 537 575
Amortization of Debt Issuance Costs 46 44
Changes in Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable, net 775 (823)
Materials and Supplies (790) (247)
Prepayments and Prepaid Pension (463) (645)
Accrued Revenue 2,980 2,763
Increase (Decrease) in:
Accounts Payable (490) 1,435
Refundable Customer Deposits (841) 850
Taxes and Interest Accrued 1,634 (6)
Other, Net (1,043) (1,789)
Net Cash Provided by
Operating Activities 15,303 15,150
Net Cash Flows from Investing Activities:
Capital Expenditures (10,785) (9,614)
Other --- ---
Net Cash Used in
Investing Activities (10,785) (9,614)
Cash Flows from Financing Activities:
Net (Decrease) Increase in Short-Term Debt (5,425) (8,150)
Proceeds From Issuance of Long-Term Debt 20,000 7,500
Repayment of Long-Term Debt (13,039) (1,201)
Dividends Paid (4,728) (4,610)
Issuance of Common Stock 1,166 794
Retirement of Preferred Stock (47) ---
Repayment of Capital Lease Obligations (407) (537)
Net Cash Flows Used In
Financing Activities (2,480) (6,204)
Net Increase (Decrease) in Cash 2,038 (668)
Cash at Beginning of Year 2,337 2,903
Cash at September 30, $4,375 $2,235
Supplemental Cash Flow Information:
Cash Paid for:
Interest $5,289 $5,624
Income Taxes $1,990 $2,640
Non-Cash Financing Activities:
Capital Leases Incurred $365 ---
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Dividends:
Four regular quarterly common stock dividends were declared during
the nine month periods ended September 30, 1998 and 1997.
On September 10, 1998, the Company's Board of Directors declared its
regular quarterly dividend on the Company's Common Stock of $0.34 per share
which is payable on November 13, 1998 to shareholders of record as of
October 30, 1998.
On June 18, 1998, the Company's Board of Directors declared its
regular quarterly dividend on the Company's Common Stock of $0.34 per share
which was payable on August 14, 1998 to shareholders of record as of July 31,
1998.
On March 5, 1998, the Company's Board of Directors declared its
regular quarterly dividend on the Company's Common Stock of $0.34 per share
which was payable on May 15, 1998 to shareholders of record as of May 1,
1998.
On January 20, 1998, the Company's Board of Directors approved a 1.5%
increase to the dividend rate on its common stock. The new regular dividend
rate of $0.34 per share was payable February 13, 1998 to shareholders of
record as of January 30, 1998.
Note 2. Common Stock:
During the third quarter of 1998, the Company sold 11,833 shares of
Common Stock, at an average price of $22.01 per share, in connection with its
Dividend Reinvestment and Stock Purchase Plan, 401(k) plan and Key Employee
Stock Option Plan. Net proceeds of $260,490 were used to reduce short-term
borrowings.
Note 3. Preferred Stock:
Details on preferred stock at September 30, 1998, September 30, 1997
and December 31, 1997 are shown below:
(Amounts in Thousands)
(Unaudited) (Audited)
September 30, December 31,
1998 1997 1997
Preferred Stock:
Non-Redeemable, Non-Cumulative,
6%, $100 Par Value $225 $225 $225
Redeemable, Cumulative,
$100 Par Value:
8.70% Series 215 215 215
5% Dividend Series 91 91 91
6% Dividend Series 168 168 168
8.75% Dividend Series 344 344 344
8.25% Dividend Series 395 406 406
5.125% Dividend Series 999 1,035 1,035
8% Dividend Series 1,407 1,407 1,407
Total Redeemable Preferred Stock 3,619 3,666 3,666
Total Preferred Stock $3,844 $3,891 $3,891
Note 4. Long-term Debt:
Details on long-term debt at September 30, 1998, September 30, 1997
and December 31, 1997 are shown below:
(Amounts in Thousands)
(Unaudited) (Audited)
September 30, December 31,
1998 1997 1997
Concord Electric Company:
First Mortgage Bonds:
Series C, 6 3/4%, due January 15, 1998 --- $1,520 $1,520
Series H, 9.43%, due September 1, 2003 --- 5,200 5,200
Series I, 8.49%, due October 14, 2024 6,000 6,000 6,000
Series J, 6.96%, due September 1, 2028 10,000 --- ---
Exeter & Hampton Electric Company:
First Mortgage Bonds:
Series E, 6 3/4%, due January 15, 1998 --- 498 498
Series J, 9.43%, due September 1, 2003 --- 4,000 4,000
Series K, 8.49%, due October 14, 2024 9,000 9,000 9,000
Series L, 6.96%, due September 1, 2028 10,000 --- ---
Fitchburg Gas and Electric Light Company:
Promissory Notes:
8.55% Notes due March 31, 2004 14,000 15,000 15,000
6.75% Notes due November 30, 2023 19,000 19,000 19,000
Unitil Realty Corp.
Senior Secured Notes:
8.00% Notes Due August 1, 2017 7,327 7,487 7,448
Total 75,327 68,510 68,366
Less: Installments due within one year 1,175 4,432 4,470
Total Long-term Debt $74,152 $64,078 $63,896
Note 5.
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the consolidated
financial position as of September 30, 1998 and 1997; and results of
operations for the three and nine months ended September 30, 1998 and 1997;
and consolidated statements of cash flows for the nine months ended September
30, 1998 and 1997. Reclassifications of amounts are made periodically to
previously issued financial statements to conform with the current year
presentation.
The results of operations for the nine months ended September 30,
1998 and 1997 are not necessarily indicative of the results to be expected
for the full year.
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
EARNINGS
The Company recorded basic earnings per average common share of $0.37
for the third quarter of 1998, an increase of $0.05 compared to the $0.32
earned in the third quarter of 1997. The increase of $0.05 per share
primarily reflects stronger electric energy sales in a robust regional
economy and hotter summer weather in 1998, as well as the positive impact on
earnings of lower interest-related costs.
On a year-to-date basis, basic earnings per average common share
were $1.25 for the nine months ended September 30, 1998, a decrease of $0.08
compared to the $1.33 earned in the first three quarters of 1997. Although
Company earnings rebounded strongly in the third quarter, year-to-date
earnings still lag prior year, due to the unseasonably warm winter weather
earlier in the year. In addition, the Company is still absorbing the impact
of the restructuring of the electric utility industry in Massachusetts,
which took effect March 1, 1998.
Unitil's local distribution operating companies experienced hotter
summer temperatures in their service territories during the third quarter of
this year, compared to last year. The Energy Sales table on the next page
shows energy consumption by customer class for the three- and nine-month
periods ended September 30, 1998 and 1997. Consumption of electricity by
residential, commercial and industrial customers for the three months ended
September 30 improved significantly in 1998 by 7.5%, 8.3% and 10.9%,
respectively, over the same period last year. Overall, electric
kilowatt-hour sales for the quarter were up 9.0% compared to last year.
Also, electric sales to all customer classes are 4.0% higher than last year
on a year-to-date basis.
This trend marks a significant recovery from the first quarter of
1998 when our three local distribution companies experienced the warmest
winter on record in their service territories, which depressed peak seasonal
sales of electricity and gas. Winter temperatures were the warmest in over
100 years since such data has been kept. Gas firm therm sales, which are at
their highest during the winter months, were down 5.4% through the end of
the third quarter of 1998 compared to the same nine-month period last year.
Electric utility industry restructuring in Massachusetts became
effective on March 1, 1998, ("Choice Date"). On that date, Fitchburg Gas
and Electric Light Company (FG&E), Unitil's Massachusetts subsidiary,
implemented retail open access, and all of FG&E's customers gained the right
to choose their electric energy supplier. Customers continue to have the
delivery of their electric energy provided by FG&E over its local
distribution system. Also on Choice Date, FG&E's customers received a 10%
retail rate discount on their total bill (energy supply and distribution
services) under a statewide legislated mandate. FG&E is Unitil's largest
local distribution operating company.
Total Operating Revenues for the Unitil System of companies were
$125.8 million in the first nine months of 1998, compared to $126.6 million
in the first nine months of 1997. Total Operating Revenues for the Unitil
System of companies were $40.3 million in the three months ended September
30, 1998 compared to $40.7 million for the same period of 1997.
Total Operating Expenses decreased during the third quarter of
1998 - to $36.9 million from $37.3 million in the third quarter of 1997 -
primarily due to lower Fuel and Purchased Power and Gas Purchased for Resale
expenses. These lower energy supply costs were partially offset by higher
Depreciation and Amortization expense in the current period. Depreciation
and Amortization expense is higher in the current period due to the
accelerated write-off, in 1998, of electric generating assets, in accordance
with FG&E's restructuring plan.
The increase in Operation and Maintenance expenses compared to last
year reflects higher administrative costs associated with filing and
implementation of FG&E's restructuring plan and energy supply portfolio
divestiture efforts. These additional expenses related to industry
restructuring in Massachusetts are partially offset by revenues accrued to
be recovered, in the future, upon divestiture of the energy supply portfolio,
or through other rate cost reconciliation mechanisms.
In addition, the Company is experiencing lower effective income tax
rates, due to favorable tax timing differences and higher amortization of
flow through Investment Tax Credits in 1998. During the third quarter, the
Company completed a refinancing of long-term debt, which significantly
lowered the effective interest rate on its borrowings and thereby reduced
interest expense.
Basic earnings per average common share for the twelve months ended
September 30, 1998 and 1997, were $1.72 and $1.86, respectively.
Energy Sales(000's)
Three Months Ended Nine Months Ended
KWH Sales 9/30/98 9/30/97 Change 9/30/98 9/30/97 Change
Residential 140,336 130,539 7.5% 412,159 403,847 2.1%
Commercial 117,731 108,689 8.3% 317,703 303,803 4.6%
Industrial 160,986 145,173 10.9% 441,652 419,239 5.3%
Total KWH Sales 419,053 384,401 9.0% 1,171,514 1,126,889 4.0%
Total Electric
Revenues $37,875 $37,840 .1% $113,734 $112,798 .8%
Firm Therm Sales
Residential 923 933 (1.1)% 8,912 9,739 (8.5)%
Commercial 170 188 (9.6)% 3,105 3,597 (13.7)%
Industrial 973 652 49.2 % 4,259 3,866 10.2 %
Total Firm
Therm Sales 2,066 1,773 16.5 % 16,276 17,202 (5.4)%
Total Gas Revenues $2,433 $2,824 (13.8)% $12,094 $13,792 (12.3)%
RESTRUCTURING AND COMPETITION - ELECTRIC UTILITY INDUSTRY
Regulatory activity in both New Hampshire and Massachusetts continues
to focus on deregulating the retail sale of electric energy. March 1, 1998
was the "Retail Access Date" or the beginning of competition in Massachusetts,
while New Hampshire's "Choice Date" slipped past the proposed date of January
1, 1998, and did not make the legislature's mandated July 1, 1998. Both
states' restructuring efforts have focused on allowing customers to choose
their supplier of electricity from the competitive market, and have their
local utility deliver that electricity over its distribution systems at
regulated rates for the distribution service.
Massachusetts
On December 31, 1997, FG&E filed its restructuring plan (the "Plan")
with the Massachusetts Department of Telecommunications and Energy (MDTE) as
required by the Massachusetts restructuring law enacted in November, 1997.
The Plan provides customers with: a) a choice of energy supplier; b) an
option to purchase transition energy service provided by FG&E at regulated
rates for up to seven years; and c) a 10% price decrease. In the Plan, FG&E
has proposed to divest of owned and leased generation units and its
portfolio of purchased power contracts by year end 1998. Also under the
Plan, to the extent that the divestiture fails to recoup the full cost of
electric supply resources, the Company will be afforded full recovery of any
shortfall through non-bypassable retail access charges.
The MDTE conditionally approved the Plan for effect on March 1, 1998.
Several days of evidentiary hearings were held followed by rounds of legal
briefs. The Company currently expects to receive final approval of the Plan
by the MDTE in November, 1998.
Pursuant to the Company's restructuring plan, on October 30, 1998,
the Company filed with the MDTE a proposed contract with Constellation Power
Source Inc. for provision of Standard Offer Service commencing January 1,
1999. This contract is the result of the first successful Standard Offer
auction so far conducted in Massachusetts. Contracts for the sale of the
Company's generating assets and purchased power contracts are expected to be
filed with the MDTE in the near future. All such contracts are subject to
MDTE approval.
On November 3, 1998, voters in Massachusetts defeated a referendum
proposal which would have repealed the state restructuring law.
When the Company receives a Final Order from the MDTE on its Plan,
the Company will be able to determine, in sufficient detail, the impact of
such order on the generation portion of its business that will no longer be
regulated and on the distribution portion of its business that will remain
regulated. As a result, the Company may be required to stop applying the
provisions of Statement of Financial Accounting Standards 71, "Accounting
for the Effects of Certain Types of Regulation," to a portion of its
business. Upon receiving the Final Order, the Company will review the
measurement and recording of Regulatory Assets and Liabilities arising from
the Final Order. Based upon settlements already reached between other
electric utilities and the MDTE in Massachusetts, the Company believes it
will recover its generation investments and the above market portion of its
power contract commitments through regulated cash flows to be realized from
the distribution portion of FG&E's business.
New Hampshire
On February 28, 1997, the New Hampshire Public Utilities Commission
(NHPUC) issued its Final Plan for transition to a competitive electric market
in New Hampshire. The order allowed Concord Electric Company (CECo) and
Exeter & Hampton Electric Company (E&H), Unitil's New Hampshire based retail
distribution utilities, to recover 100% of costs which will be "stranded"
due to this restructuring, but the NHPUC also took certain positions
undermining the legal basis for such recovery in the future. Northeast
Utilities' affiliate, Public Service Company of New Hampshire, appealed the
decision in Federal Court, which issued a temporary restraining order. In
June 1997, Unitil was admitted as a Plaintiff Intervenor in this proceeding.
The Judge has indicated that this case will go to trial in November of 1998.
On March 20, 1998, the NHPUC issued Order No. 22,875 affirming in
part and modifying in part its February 28, 1997 Final Plan. The March 20
NHPUC order required CECo, E&H and all other New Hampshire electric utilities
except the Public Service Company of New Hampshire to submit a compliance
filing by May 1, 1998. CECo and E&H submitted a response to the NHPUC's
March 20 order on May 1, 1998 which included: a) unbundled delivery service
rates; b) plans to implement the NHPUC affiliate rules when promulgated,
mitigate stranded costs, implement low-income customer policies, meet the
energy needs of special contract customers and implement data transfers
electronically with suppliers; c) proposed tariffs for delivery services;
and d) proposed terms and conditions for interfacing with competitive
suppliers. The NHPUC has taken no action on the Company's submittal, and
Competition has been delayed beyond the original legislative timetable of
July 1, 1998. Unitil continues to participate actively in all proceedings
and in several NHPUC-established working groups which will define the
details of the transition to competition and customer choice.
On September 8, 1998 the Company filed a comprehensive settlement
agreement of all restructuring issues with the NHPUC which was jointly
sponsored by eight parties from a broad constituency group of industry
and consumer representatives including: The New Hampshire Public Utilities
Commission Staff, The New Hampshire Consumer Advocate Office, Enron Energy
Services, Inc., a major national providor of energy services, The New
Hampshire Business and Industry Association, The New Hampshire Retail
Merchants Association, as well as several other groups and representatives.
That settlement was amended on October 19, and the base of
support was widened to include an additional five parties. The settlement
provides for: a) choice of energy supplier for all the Company's retail
customers beginning on March 1, 1999; b) full recovery by the Company of all
stranded costs; c) divestiture of the Unitil Power Corp.
power supply portfolio by July 1, 1999; d) the provision of Transition
Service by the Company from March 1, 1999 through April 30,
2002 from power supplies acquired from the market through a competitive bid
process, and at prices set by that market; e) the Company's competitive
marketing affiliate to conduct business anywhere in New Hampshire, and (f)
withdrawal by the Company from the Federal Court proceeding on restructuring.
Evidentiary hearings were held before the NHPUC on October 21, 22 and 23,
1998, and briefs were filed on October 29. No one opposed the settlement,
although one party urged the Commission to make certain improvements. The
Commission issued a conditional approval in oral deliberations on November 2.
The Company expects that final Commission approval will be achieved shortly.
Unitil Resources, Inc., the Company's competitive market subsidiary,
will continue to participate in the New Hampshire Retail Competition Pilot
Program (Pilot Program), in which up to 3% of New Hampshire electric
customers are allowed to choose from competing electric suppliers, and have
this supply delivered across the local utility system. This program began in
May 1996 and will terminate on Choice Date.
OTHER REGULATORY MATTERS
On May 15, 1998, FG&E filed a base rate case with the MDTE seeking
an increase of $1.55 million or nine percent in annual revenues from firm
gas customers. This is the first requested base rate increase in 14 years.
The Company has requested an 11.25 percent return on common equity and is
seeking to modernize its rate structures for commercial and industrial
accounts. The Company is also unbundling its rates into delivery and
supplier charges to prepare for customer choice of gas supplier which is now
expected to be initiated on April 1, 1999. To provide time for a thorough
investigation including several days of evidentiary hearings, the filing was
routinely suspended by the MDTE. New rates will become effective on
December 1, 1998, after a final ruling by the MDTE. The Company is also
participating in a statewide collaborative that, in concert with MDTE
efforts, will resolve issues and establish rules for providing customers
with choice of gas supplier. After choice date, FG&E will continue to own
and operate its natural gas distribution system and deliver gas to its
customers at regulated rates for distribution services.
MILLSTONE UNIT NO. 3
Unitil's Massachusetts operating subsidiary, Fitchburg Gas and
Electric Light Company, has a 0.217% nonoperating ownership in the Millstone
Unit No. 3 (Millstone 3) nuclear generating unit which supplies it with 2.49
megawatts (MW) of electric capacity. In January 1996 the Nuclear Regulatory
Commission (NRC) placed Millstone 3 on its watch list as a Category 2
facility, which calls for increased NRC inspection attention. In March 1996,
the NRC requested additional information about the operation of the unit
from Northeast Utilities companies (NU), which operate the unit. As a result
of an engineering evaluation completed by NU, Millstone 3 was taken out of
service on March 30, 1996. The NRC later informed NU, in a letter dated June
28, 1996, that it had reclassified Millstone 3 as a Category 3 facility. The
NRC assigns this rating to plants which it deems to have significant
weaknesses that warrant maintaining the plant in shutdown condition until the
operator demonstrates that adequate programs have been established and
implemented to ensure substantial improvement in the operation of the plant.
The NRC's letter also informed NU that this designation would require the
NRC staff to obtain NRC approval by vote prior to a restart of the unit. On
June 15, 1998 the NRC redesignated Millstone 3 as a Category 2 facility and
allowed the NRC's Executive Director for Operations to determine when
Millstone 3 was ready for restart. Authorization for restart was given on
June 29, 1998. Millstone 3 began producing electric power in early
July, 1998 and reached full output on July 15, 1998. As a Category 2
facility, the unit remains on the NRC's Watch List. Millstone 2 remains out
of service with a Category 3 designation. NU has determined that Millstone 1
will be retired and, therefore, has been removed from the NRC's Watch List.
The Company has no ownership or contract interests in Millstone Units 1and 2.
During the period that Millstone 3 was out of service, FG&E continued
to incur its proportionate share of the unit's ongoing Operations and
Maintenance (O&M) costs, and may incur additional O&M costs and capital
expenditures to meet NRC requirements. FG&E also incurred costs to replace
the power that was expected to be generated by the unit. During the outage,
FG&E had been incurring approximately $35,000 per month in replacement power
costs, and had been recovering those costs through its fuel adjustment
clause, which will be subject to review and approval by the MDTE. In August
1997, FG&E, in concert with other nonoperating joint owners, filed a demand
for arbitration in Connecticut and a lawsuit in Massachusetts, in an effort
to recover costs associated with the extended unplanned shutdown and the
associated costs. The arbitration and legal cases are proceeding.
CAPITAL REQUIREMENTS
Capital expenditures for the nine months ended September 30, 1998
were approximately $10.8 million. This compares to $9.6 million during the
same period last year. Capital expenditures for the year 1998 are estimated
to be approximately $16.1 million as compared to $15.4 million for 1997.
This projection reflects capital expenditures for utility system expansions,
replacements and other improvements.
LEGAL PROCEEDINGS
The Company is involved in legal and administrative proceedings and
claims of various types which arise in the ordinary course of business. In
the opinion of the Company's management, based upon information furnished by
counsel and others, the ultimate resolution of these claims will not have a
material impact on the Company's financial position.
YEAR 2000 COMPLIANCE ISSUES
The Company recognizes the need to ensure its operations are not
adversely affected by software or device failures related to the Year 2000
date recognition problem, (the "Y2K Issues"). Specifically, Y2K Issues would
arise when software applications, or devices with embedded chips, fail to
correctly recognize and process the year 2000 and beyond. Certain software
applications and devices are certified to recognize and process date
references to the year 2000 and beyond and they are deemed to be Year 2000
compliant, ("Year 2000 Compliance"). Potential software failures could
create incorrect calculations, among other errors, and they present a risk
to the integrity of our Company's financial systems and the reliability of
our operating systems. In order to minimize the risk of disruption to our
business operations, the Company is taking the actions described below,
including communicating with suppliers, dealers, financial institutions and
others with which it does business, to coordinate the identification,
evaluation, remediation and testing of possible Y2K Issues wh
ich may affect the Company.
The Company has established a centralized task force to identify and
implement necessary changes to the Company's internal computer systems,
controlling hardware devices and software applications in order to achieve
Year 2000 compliance for those systems. The remediation of Y2K Issues and
testing of all critical components of the Company's internal systems is
scheduled to be completed by June 30, 1999.
The Company has also established processes for evaluating and
managing the risks and possible costs associated with Y2K Issues which may
exist in systems external to the Company's operations, but could affect the
Company's operations indirectly. The Company has already directed efforts
to notify our critical vendors and suppliers about Y2K Issues which may
affect our operations, and most are already providing important information
about the Year 2000 readiness of their organizations. Testing of certain
critical systems has already begun, in conjunction with our key suppliers
and vendors and the Company is planning to develop contingency plans in
circumstances where assurance of Year 2000 compliance cannot be obtained.
The Company currently estimates it will invest in the range of
$250,000 to $500,000 plus internal costs, over the cost of normal software
upgrades and replacements to achieve Year 2000 Compliance. These additional
capital outlays include costs to replace certain devices and software, and
the costs for consultants to assist us with software programming and testing.
Unitil relies on the proper operation of a regional network of
systems and devices to transport and distribute electricity and gas to its
customers. Any disruption in those systems caused by Y2K Issues could
interrupt the reliable delivery of electric and gas service through our
Distribution Operating Companies. Some of these software systems and devices
belong to other companies and are beyond the control of Unitil to ensure
that they are properly remediated for Year 2000. However, several agencies,
including the Department of Energy, The New England ISO, and The
National Electricity Reliability Council, have active Year 2000 programs in
place. These programs will ensure that member companies are actively and
comprehensively dealing with any Year 2000 issues in their supply,
generation, transportation and distribution facilities and systems. Unitil
participates in these groups and currently believes that satisfactory
progress is being made and will continue to be made to ensure a reliable
supply and delivery of energy. Furthermore, these groups plan to establish
contingency plans to cover delivery difficulties during key Year 2000 dates.
The Company also plans to work with local, state and regional agencies and
other utility companies to ensure that appropriate contingency plans are in
place for energy supply and delivery systems which could be affected by Year
2000 difficulties.
FORWARD-LOOKING INFORMATION
This report contains forward-looking statements which are subject to
the inherent uncertainties in predicting future results and conditions.
Certain factors that could cause the actual results to differ materially
from those projected in these forward-looking statements include, but are
not limited to; variations in weather, changes in the regulatory environment,
customers' preferences on energy sources, general economic conditions,
increased competition and other uncertainties, all of which are difficult to
predict, and many of which are beyond the control of the Company.
PART I. EXHIBIT 11.
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF EARNINGS PER AVERAGE COMMON SHARE OUTSTANDING
(UNAUDITED)
(Amounts in Thousands, except Shares and Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
BASIC EARNINGS PER SHARE 1998 1997 1998 1997
Net Income $1,717 $1,487 $5,817 $6,057
Less: Dividend Requirement
on Preferred Stock 68 69 206 207
Net Income Applicable
to Common Stock $1,649 $1,418 $5,611 $5,850
Average Number of Common
Shares Outstanding 4,508,648 4,419,431 4,494,580 4,404,518
Basic Earnings Per
Common Share $0.37 $0.32 $1.25 $1.33
Three Months Ended Nine Months Ended
September 30, September 30,
DILUTED EARNINGS PER SHARE 1998 1997 1998 1997
Net Income $1,717 $1,487 $5,817 $6,057
Less: Dividend Requirement
on Preferred Stock 68 69 206 207
Net Income Applicable
to Common Stock $1,649 $1,418 $5,611 $5,850
Average Number of Common
Shares Outstanding 4,620,994 4,540,774 4,610,155 4,525,861
Diluted Earnings Per
Common Share $0.35 $0.31 $1.22 $1.29
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No. Description of Exhibit Reference
11 Computation in Support of
Earnings Per Average Common Share Filed herewith
(b) Reports on Form 8-K
During the quarter ended September 30, 1998, the Company did not
file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITIL CORPORATION
(Registrant)
Date: November 16, 1998 /s/ Anthony Baratta
Anthony Baratta
Chief Financial Officer
Date: November 16,1998 /s/ Mark H. Collin
Mark H. Collin
Treasurer
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNITIL CORPORATION
(Registrant)
Date: November 16, 1998 /s/ Anthony Baratta
Anthony Baratta
Chief Financial Officer
Date: November 16,1998 /s/ Mark H. Collin
Mark H. Collin
Treasurer