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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, 1999
Commission File Number 1-8858
Unitil Corporation
(Exact name of registrant as specified in its charter)
New Hampshire 02-0381573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 Liberty Lane West, Hampton, New Hampshire 03842
(Address of principal executive office) (Zip Code)
(603) 772-0775
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at November 1, 1999
Common Stock, No par value 4,706,140 Shares
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
INDEX
Part I. Financial Information Page No.
Consolidated Statements of Earnings - Three and Nine
Months Ended September 30, 1999 and 1998 3
Consolidated Balance Sheets, September 30, 1999,
September 30, 1998 and December 31, 1998 4-5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-9
Management's Discussion and Analysis of Results of
Operations and Financial Condition 10-16
Exhibit 11 - Computation of Earnings per Average
Common Share Outstanding 17
Part II. Other Information 18
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,
1999 1998 1999 1998
Operating Revenues
Electric $39,818 $37,875 $115,053 $113,734
Gas 2,820 2,433 12,648 12,094
Other 100 7 145 22
Total Operating Revenues 42,738 40,315 127,846 125,850
Operating Expenses
Fuel and Purchased Power 26,564 24,932 75,470 75,719
Gas Purchased for Resale 1,620 1,583 6,902 7,222
Operation and Maintenance 6,413 5,808 18,683 17,562
Depreciation and Amortization 2,598 2,609 8,447 7,510
Provisions for Taxes:
Local Property and Other 1,389 1,362 4,214 4,199
Federal and State Income 762 624 2,785 2,513
Total Operating Expenses 39,346 36,918 116,501 114,725
Operating Income 3,392 3,397 11,345 11,125
Non-Operating Expense, Net 29 35 79 106
Income Before Interest Expense 3,363 3,362 11,266 11,019
Interest Expense, Net 1,654 1,645 5,215 5,202
Net Income 1,709 1,717 6,051 5,817
Less Dividends on
Preferred Stock 66 68 201 206
Net Income Applicable to
Common Stock $1,643 $1,649 $5,850 $5,611
Average Common
Shares Outstanding 4,703,069 4,508,648 4,673,318 4,494,580
Basic Earnings Per Share $0.35 $0.37 $1.25 $1.25
Diluted Earnings Per Share $0.35 $0.36 $1.25 $1.22
Dividends Declared per Share
of Common Stock (Note 1) $0.345 $0.34 $1.38 $1.36
(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,
1999 1998 1998
ASSETS
Utility Plant
Electric $161,994 $172,371 $152,940
Gas 33,394 31,314 32,622
Common 21,890 20,655 20,876
Construction Work in Progress 2,338 5,096 3,024
Total Utility Plant 219,616 229,436 209,462
Less: Accumulated Depreciation 67,376 72,824 63,428
Net Utility Plant 152,240 156,612 146,034
Current Assets
Cash 3,150 4,375 4,083
Accounts Receivable -
Less Allowance
for Doubtful Accounts
of $519, $662 and $646 15,469 15,578 15,999
Materials and Supplies 2,829 3,453 2,962
Prepayments 667 534 1,147
Accrued Revenue 5,246 3,816 5,322
Total Current Assets 27,361 27,756 29,513
Noncurrent Assets
Regulatory Assets 161,746 27,086 163,034
Prepaid Pension Costs 8,888 8,483 8,591
Debt Issuance Costs 1,367 1,308 1,320
Other Noncurrent Assets 23,668 20,296 27,287
Total Noncurrent Assets 195,669 57,173 200,232
TOTAL $375,270 $241,541 $375,779
(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,
1999 1998 1998
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stock Equity $76,177 $72,320 $75,351
Preferred Stock, Non-Redeemable,
Non-Cumulative 225 225 225
Preferred Stock, Redeemable,
Cumulative 3,532 3,618 3,618
Long-Term Debt, Less Current Portion 85,015 74,152 74,047
Total Capitalization 164,949 150,315 153,241
Current Liabilities
Long-Term Debt, Current Portion 1,187 1,175 1,175
Capitalized Leases, Current Portion 813 1,046 907
Accounts Payable 14,777 14,244 11,382
Short-Term Debt 2,500 12,575 20,000
Dividends Declared and Payable 1,838 1,803 232
Refundable Customer Deposits 1,248 1,346 1,293
Taxes (Refundable) Payable (1,914) 402 (1,056)
Interest Payable 1,378 1,765 841
Other Current Liabilities 4,035 2,702 2,776
Total Current Liabilities 25,862 37,058 37,550
Deferred Income Taxes 43,255 41,729 43,027
Noncurrent Liabilities
Power Supply Contract Obligations 128,651 --- 128,651
Capitalized Leases,
Less Current Portion 3,820 4,163 4,287
Other Noncurrent Liabilities 8,733 8,276 9,023
Total Noncurrent Liabilities 141,204 12,439 141,961
TOTAL $375,270 $241,541 $375,779
(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,
1999 1998
Net Cash Flow from Operating Activities:
Net Income $6,051 $5,817
Adjustments to Reconcile Net Income to Cash
Provided by Operating Activities:
Depreciation and Amortization 8,447 7,510
Deferred Tax Provisions 535 (42)
Amortization of Investment Tax Credit (251) (327)
Amortization of Debt Issuance Costs 45 46
Changes in Working Capital:
Accounts Receivable 530 1,312
Materials and Supplies 133 (790)
Prepayments 183 (463)
Accrued Revenue 76 2,980
Accounts Payable 3,395 (490)
Refundable Customer Deposits (45) (841)
Taxes and Interest Payable (321) 1,634
Other, Net 804 (1,043)
Net Cash Provided by
Operating Activities 19,582 15,303
Net Cash Flows from Investing Activities:
Acquisitions of Property,
Plant and Equipment (11,916) (10,785)
Proceeds from Sale of Electric
Generation Assets 5,288 ---
Acquisition of Other Property
and Investments (3,271) ---
Net Cash Used in
Investing Activities (9,899) (10,785)
Cash Flows from Financing Activities:
Net Decrease in Short-Term Debt (17,500) (5,425)
Proceeds From Issuance of Long-Term Debt 12,000 20,000
Repayment of Long-Term Debt (1,019) (13,039)
Dividends Paid (5,037) (4,728)
Issuance of Common Stock 1,780 1,166
Retirement of Preferred Stock (86) (47)
Repayment of Capital Lease Obligations (754) (407)
Net Cash Flows Used In
Financing Activities (10,616) (2,480)
Net (Decrease) Increase in Cash (933) 2,038
Cash at Beginning of Year 4,083 2,337
Cash at September 30, $3,150 $4,375
Supplemental Cash Flow Information:
Cash Paid for:
Interest $5,153 $5,289
Federal Income Taxes $3,133 $1,990
Non-Cash Financing Activities:
Capital Leases Incurred $193 $365
(The accompanying notes are an integral part of these statements.)
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Dividends:
Four regular quarterly common stock dividends were declared during the nine
month periods ended September 30, 1999 and 1998.
On September 23, 1999, the Company's Board of Directors declared its regular
quarterly dividend on the Company's Common Stock of $0.345 per share which
is payable on November 15, 1999 to shareholders of record as of
November 1, 1999.
On June 24, 1999, the Company's Board of Directors declared its regular
quarterly dividend on the Company's Common Stock of $0.345 per share which
was payable on August 13, 1999 to shareholders of record as of July 30, 1999.
On March 18, 1999, the Company's Board of Directors declared its regular
quarterly dividend on the Company's Common Stock of $0.345 per share which
was payable on May 14, 1999 to shareholders of record as of April 30, 1999.
On January 19, 1999 the Company's Board of Directors approved a 1.5%
increase to the dividend rate on its common stock. The new regular dividend
rate of $0.345 per share was payable February 15, 1999 to shareholders of
record as of February 1, 1999.
Note 2. Common Stock:
During the third quarter of 1999, the Company sold 6,764 shares of Common
Stock, at an average price of $23.40 per share, in connection with its
Dividend Reinvestment and Stock Purchase Plan. Net proceeds of $158,255 were
used to reduce short-term borrowings.
Note 3. Preferred Stock:
Details on preferred stock at September 30, 1999, September 30, 1998 and
December 31, 1998 are shown below:
(Amounts in Thousands)
(Unaudited) (Audited)
September 30, December 31,
1999 1998 1998
Preferred Stock:
Non-Redeemable, Non-Cumulative,
6%, $100 Par Value $225 $225 $225
Redeemable, Cumulative,
$100 Par Value:
8.70% Series 215 215 215
5% Dividend Series 91 91 91
6% Dividend Series 168 168 168
8.75% Dividend Series 333 344 344
8.25% Dividend Series 385 395 395
5.125% Dividend Series 987 998 998
8% Dividend Series 1,353 1,407 1,407
Total Redeemable Preferred Stock 3,532 3,618 3,618
Total Preferred Stock $3,757 $3,843 $3,843
Note 4. Long-term Debt:
Details on long-term debt at September 30, 1999, September 30, 1998 and
December 31, 1998 are shown below:
(Amounts in Thousands)
(Unaudited) (Audited)
September 30, December 31,
1999 1998 1998
Concord Electric Company:
First Mortgage Bonds:
Series I, 8.49%, due October 14, 2024 6,000 6,000 6,000
Series J, 6.96%, due September 1, 2028 10,000 10,000 10,000
Exeter & Hampton Electric Company:
First Mortgage Bonds:
Series K, 8.49%, due October 14, 2024 9,000 9,000 9,000
Series L, 6.96%, due September 1, 2028 10,000 10,000 10,000
Fitchburg Gas and Electric Light Company:
Promissory Notes:
8.55% Notes due March 31, 2004 13,000 14,000 14,000
6.75% Notes due November 30, 2023 19,000 19,000 19,000
7.37% Notes due January 15, 2028 12,000 --- --
Unitil Realty Corp.
Senior Secured Notes:
8.00% Notes Due August 1, 2017 7,202 7,327 7,222
Total 86,202 75,327 75,222
Less: Installments due within one year 1,187 1,175 1,175
Total Long-term Debt $85,015 $74,152 $74,047
Note 5.
Contingencies:
The Company is currently undergoing an audit of the 1992 and 1993 Federal
income tax returns by the Internal Revenue Service (IRS). Although the IRS
has not completed its examination of these returns, it has proposed
adjustments relating to the timing of tax deductions taken by Unitil in
those years. The Company strongly disagrees with the IRS' position and will
vigorously contest it. If the IRS prevails with its position, the Company
may be required to pay additional taxes and interest. However, those taxes
will be recovered in future years. Although the outcome cannot be predicted
with certainty, the Company's management does not expect it to have a
material adverse impact on the Company's results of operations.
Note 6.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the consolidated financial
position as of September 30, 1999 and 1998; and results of operations for
the three and nine months ended September 30, 1999 and 1998; and
consolidated statements of cash flows for the nine months ended
September 30, 1999 and 1998. Reclassifications of amounts are made
periodically to previously issued financial statements to conform with the
current year presentation.
The results of operations for the nine months ended September 30, 1999
and 1998 are not necessarily indicative of the results to be expected for
the full year.
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
EARNINGS
Net income for the third quarter of 1999 was $1.6 million, which was on par
with net income for the third quarter of 1998. However, basic earnings per
average common share decreased $0.02 from the third quarter of 1998 to $0.35,
as there were 4.7 million average common shares outstanding in 1999,
compared to only 4.5 million average common shares in 1998. The increased
shares outstanding is the result of the issuance of shares to the Company's
Dividend Reinvestment, Stock Purchase and Stock Option plans over the last
twelve months. The dilutive effect of these plans on earnings per share will
decline, as the Company moves to open market purchases to meet its share
issuance obligations. Basic earnings per average common share were $1.25 for
both the nine months ended September 30 in both 1999 and 1998, on net income
of $5.8 million in 1999 and $5.6 million in 1998.
Third quarter Total Operating Revenues grew by 6.0%, from $40.3 million to
$42.7 million in 1999 compared to the same period last year. Higher electric
revenues were driven by unusually hot summer weather during the quarter and
the continuing beneficial effects of the strong regional economy. In the
Company's utility service territories, average cooling degree days were well
above normal during the third quarter. These high summer season revenues
helped offset lower revenues in the first quarter, reflecting the
unseasonably mild winter weather. On a year-to-date basis, Total Operating
Revenues were $127.8 million in the first nine months of 1999, compared to
$125.8 million in the first nine months of 1998.
Total electric KWH sales volume improved 1.7% in the third quarter and 4.0%
on a year-to-date basis in 1999, compared to 1998. Residential KWH sales
were 7.4% higher in the third quarter of 1999 due to the hot summer weather.
Sales to commercial and industrial customers were down 1.2% compared to last
year, because a major customer filed bankruptcy and curtailed operations in
the second quarter of 1999. Gas firm therm sales, which suffered during the
mild winter, were lower in the third quarter of 1999 compared to 1998, but
are about even with last year on a year-to-date basis. Through nine months,
gas sales to commercial and industrial customers are up 6.1% over 1998,
while gas sales to residential customers are down 5.5%.
The increase in Electric Revenues in the third quarter of 1999 of 5.1% was
due to increased KWH sales and an increase in energy supply prices, which
are passed through to customers. Similarly, the 29.9% increase in Firm Gas
Revenues reflects higher rates for distribution service, and higher gas
supply costs which are also passed through to customers.
In addition to electric and gas supply costs, Operation and Maintenance
(O&M) expenses increased $0.6 million in the third quarter over the prior
year. Contributing to the increase in O&M costs were other charges that are
flowed through to customers via rate recovery mechanisms, including
Conservation and Load Management programs, as well as costs of customer
information, metering and billing systems and administrative systems needed
to implement electric and gas utility industry restructuring. Higher income
tax expense compared to last year reflects higher effective income tax
rates.
The third quarter of 1999 was the first full quarter of operations for
Usource, Unitil's Internet-based energy brokering business. As previously
reported, in March 1999, Unitil acquired a minority interest in
Enermetrix.com (formerly known as North American Power Brokers, Inc.),
through the purchase of Preferred Stock and Common Stock Warrants for
approximately $3.0 million in cash. In November 1999, the Company invested
an additional $1.0 million in Enermetrix.com through the purchase of
preferred stock. Also, Unitil Resources, Inc. (URI) purchased the New York
customer list of Enermetrix.com and now offers retail energy consumers the
price benefits of competitive energy supplier bidding, without URI or its
customers undertaking the financial risk of commodity ownership. The Company
has recorded Usource brokerage fee income, primarily on gas commodity sales
to customers in New York, of approximately $20,000 for the nine months ended
September 30, 1999.
The Company's Balance Sheet continues to reflect the recording at
December 31, 1998, of significant Regulatory Assets, estimated at $140
million, related to electric utility industry restructuring in
Massachusetts.
Sales and Revenues (000's)
Three Months Ended Nine Months Ended
KWH Sales 9/30/99 9/30/98 Change 9/30/99 9/30/98 Change
Residential 150,755 140,336 7.4% 429,892 412,159 4.3%
Commercial/Industrial 275,382 278,717 (1.2)% 788,639 759,355 3.9%
Total KWH Sales 426,137 419,053 1.7% 1,218,531 1,171,514 4.0%
Electric Revenue
Residential $14,837 $14,004 5.9% $43,398 $43,658 (0.6)%
Commercial/Industrial 24,981 23,871 4.6% 71,655 70,076 2.3%
Total Electric
Revenue $39,818 $37,875 5.1% $115,053 $113,734 1.2%
Firm Therm Sales
Residential 796 923 (13.8)% 8,425 8,912 (5.5)%
Commercial/Industrial 1,168 1,143 2.2% 8,088 7,625 6.1%
Total Firm
Therm Sales 1,964 2,066 (4.9)% 16,513 16,537 (0.1)%
Gas Revenue
Residential $1,132 $ 984 15.0% $6,063 $6,246 (2.9)%
Commercial/Industrial 1,142 767 48.9% 4,987 4,287 16.3%
Total Firm
Gas Revenue 2,274 1,751 29.9% 11,050 10,533 4.9%
Interruptible Gas
Revenue 546 682 (19.9)% 1,598 1,561 2.4%
Total Gas Revenues $2,820 $2,433 15.9% $12,648 $12,094, 4.6%
RESTRUCTURING AND COMPETITION
Regulatory activity surrounding restructuring and competition continues in
both Massachusetts and New Hampshire. March 1, 1998 was "Choice Date" or the
beginning of competition for all electric consumers in Massachusetts, while
New Hampshire's "Choice Date" slipped past the legislature's mandated date
of July 1, 1998 and is currently the subject of a federal court injunction
(see below).
Massachusetts gas industry restructuring plans continue to be under
development. The Massachusetts Department of Telecommunications and Energy
(MDTE), gas utilities and other stakeholders began a collaborative effort in
late 1997 to develop solutions to the many issues that surround
restructuring the local natural gas distribution business.
Unitil has been preparing for electric and gas industry restructuring by
developing transition plans that will move its utility subsidiaries into
this new market structure in a way that will ensure fairness in the
treatment of the Company's assets and obligations that are dedicated to the
current regulated franchises and, at the same time, provide choice for all
customers.
Massachusetts (Electric)- On January 15, 1999, the MDTE gave final approval
to Fitchburg Gas and Electric Light Company's (FG&E) restructuring plan with
certain modifications. The Plan provides customers with: a) a choice of
energy supplier; b) an option to purchase Standard Offer Service (i.e.
state-mandated energy service) provided by FG&E at regulated rates for up to
seven years; and c) a cumulative 15% rate reduction. The Plan also provides
for FG&E to divest generation assets and its portfolio of purchased power
contracts. The Company will be afforded full recovery of any transition
costs through a non-bypassable retail Transition Charge.
Pursuant to the Plan, on October 30, 1998, FG&E filed with the MDTE a
proposed contract with Constellation Power Services Inc. for provision of
Standard Offer Service. The MDTE's January 15, 1999 Order approves the
FG&E/Constellation contract, and service thereunder commenced on March 1,
1999, and is scheduled to continue through February 28, 2005. This contract
is the result of the first successful Standard Offer auction conducted in
Massachusetts.
The January 15 Order also approved FG&E's power supply divestiture plan for
its interest in three generating units and four long-term power supply
contracts. A contract for the sale of FG&E's interest in the New Haven
Harbor plant was filed with the MDTE on November 20, 1998. The MDTE approved
the contract on March 31, 1999 and the deal closed on April 14, 1999. A
contract for the sale of the entire output from FG&E's remaining generating
assets and purchased power contracts was filed with the MDTE on June 11,
1999. MDTE approval is pending. Also as a result of the Order, the Company
accelerated the write off of certain electric assets - including the
Company's abandoned investment in Seabrook Station.
FG&E filed a 1.3% electric rate decrease effective September 1, 1999 with
the MDTE. This rate decrease was provided for by the 1997 Massachusetts
Electric Restructuring Act, and includes both a restructuring related rate
reduction and an inflation adjustment. The Act mandated a 10% rate reduction
in March 1998, to be followed by an additional 5% rate reduction by
September 1, 1999, when most utilities will have completed the divestiture
of their power supply resources. The filing completes FG&E's compliance with
this requirement by reducing electric rates 5%. The rate decrease reflects
FG&E's divestiture of its generation assets and purchased power portfolio.
The second element of this rate filing is an upward adjustment for inflation
over the last two years. On average, taking both factors into account, FG&E
customers will see a 1.3% decrease from current rates.
As a result of restructuring and divestiture of FG&E's generation and
purchased power portfolio, FG&E has accelerated the write-off of its
electric generation assets. The MDTE Order fixed the return to be earned on
the unamortized balance of this portfolio. The new fixed return reduced
FG&E's earnings from its generation assets. As this portfolio amortizes
over the next 10 years, earnings from this segment of FG&E's utility
business will continue to decline and ultimately cease. Currently, Unitil's
earnings from this business segment represented approximately 10% of total
earnings.
On October 29, 1999, the MDTE initiated a proceeding designed to result in
the eventual implementation of Performance Based Ratemaking (PBR) for all
electric and gas distribution utilities in Massachusetts. PBR is a method
of setting regulated distribution rates that provide incentives for
utilities to control costs while maintaining a high level of service quality.
This proceeding is expected to take several months to be completed. The
Company is currently evaluating the impact, if any, this decision would have
on the Company's ability to continue applying the standards of Statement of
Financial Accounting Standards No.71 "Accounting for the Effects of Certain
Types of Regulation."
Massachusetts (Gas) -In mid-1997, the MDTE directed all Massachusetts
natural gas Local Distribution Companies (LDCs) to form a collaborative with
other stakeholders to develop common principles and appropriate regulations
for the unbundling of gas service, and directed FG&E and four other LDCs to
file unbundled gas rates for its review. FG&E's unbundled gas rates were
approved by the MDTE and implemented in November 1998.
On February 1, 1999, the MDTE issued an order in which it determined
that the LDCs would continue to have an obligation to provide gas supply and
delivery services for another five years, with a review after three years.
That order also set forth the MDTE's decision regarding release by LDCs of
their pipeline capacity contracts to competitive marketers. On March 24,
1999 the LDCs and other stakeholders filed a settlement with the MDTE which
set forth rules for implementing an interim firm transportation service
through October 31, 2000. The interim service will ultimately be superseded
by the permanent transportation service, beginning as early as November 1,
1999. The MDTE approved the settlement on April 2, 1999. On May 17, 1999,
FG&E made a compliance filing with the MDTE to implement the interim firm
gas transportation service for its largest general service customers
effective June 1, 1999. On May 28, 1999, the MDTE approved FG&E's Interim
Firm Transportation filing. On June 11, 1999, FG&E filed a Firm Gas Peaking
Service with the MDTE to complement the Interim Firm Transportation Service.
The MDTE approved that filing on September 8, 1999. On October 18, 1999,
FG&E filed amendments to its Firm Transportation tariffs to extend the
sign-up period to March 31, 2000. MDTE approval was granted on October 29,
1999. FG&E continues to work with the other Massachusetts LDCs and various
stakeholders to develop and implement the infrastructure to complete the
restructuring of gas service for all customers in Massachusetts.
As mentioned in the "Massachusetts (Electric)" section, on October 29, 1999,
the MDTE initiated a proceeding designed to result in the eventual
implementation of Performance Based Ratemaking for all electric and gas
distribution utilities in Massachusetts. This proceeding is expected to take
several months to be completed. The Company is currently evaluating the
impact, if any, this decision would have on the Company's ability to
continue applying the standards of Statement of Financial Accounting
Standards No.71 "Accounting for the Effects of Certain Types of Regulation."
New Hampshire - On February 28, 1997, the New Hampshire Public Utilities
Commission (NHPUC) issued its Final Plan for transition to a competitive
electric market in New Hampshire. The order allowed Concord Electric Company
and Exeter & Hampton Electric Company, Unitil's New Hampshire retail
distribution utilities, to recover 100% of "stranded" costs for a two-year
period, but excluded recovery of certain administrative-related charges.
Northeast Utilities' affiliate, Public Service Company of New Hampshire
(PSNH), appealed the NHPUC order in Federal District Court. A temporary
restraining order was issued on March 10, 1997. In June 1997, Unitil was
admitted as a Plaintiff Intervenor in the Federal Court proceeding. On June
9, 1998, the Federal Court issued an injunction continuing the freeze on
NHPUC efforts to implement restructuring. Various interlocutory appeals and
pretrial disputes have delayed this proceeding and no date has been
scheduled for a trial. At a preliminary hearing on April 7, 1999, the Judge
reiterated the continuing injunction against implementation by the NHPUC.
In October, 1999, the Judge held a hearing on Motions for Summary
Disposition and objections thereto which had been filed by the Company, by
Connecticut Valley Electric, another Plaintiff Intervenor, and the State of
New Hampshire. The Company argued that the 1997 NHPUC order is a flagrant
violation of established law and should be overturned. A ruling in expected
in the near future.
In September 1998, the Company reached a comprehensive restructuring
settlement with key parties and filed this voluntary Agreement with the
NHPUC. The Agreement was modified on October 20, 1998. In oral deliberations
on November 2 and November 18, 1998, the NHPUC imposed conditions to
approval of the Settlement which were unacceptable to the Company, and the
Settlement was subsequently withdrawn. The component of the Agreement
dealing with wholesale rates was filed with the Federal Energy Regulatory
Commission ("FERC") in September 1998, and approved by the FERC in early
November. However, implementation will not occur, as the changes were
conditioned upon approval by the NHPUC. Unitil has continued to work
actively to explore additional settlement opportunities. In June 1999, the
Governor of New Hampshire announced a Memorandum of Understanding (MOU) with
PSNH intended to lead to a comprehensive settlement of all restructuring
issues for PSNH. A settlement between PSNH and the State of New Hampshire
was subsequently filed with the NHPUC on August 2, 1999 for review and
approval. An extensive proceeding on this settlement proposal is now
underway before the NHPUC.
Rate Cases -The last formal regulatory hearings to increase base electric
rates for Unitil's three retail operating subsidiaries occurred in 1985 for
Concord Electric Company, 1984 for Fitchburg Gas and Electric Light Company
and 1981 for Exeter & Hampton Electric Company.
On May 15, 1998, FG&E filed a gas base rate case with the MDTE. After
evidentiary hearings, the MDTE issued an Order allowing FG&E to establish
new rates, effective November 30, 1998, that would produce an annual
increase of approximately $1.0 million in gas revenues. However, as part of
the proceeding, the Attorney General of the Commonwealth of Massachusetts
alleged that FG&E had double-collected fuel inventory finance charges, since
1987, and requested that the MDTE require FG&E to refund approximately $1.6
million to its customers. The Company believes that the Attorney General's
claim is without merit and that a refund is not justified or warranted. The
MDTE stated its intent to open a separate proceeding to investigate the
Attorney General's claim, and on November 1, 1999, the MDTE issued an Order
of Notice initiating an investigation. In its Gas Rate Case Order, the MDTE
also required that FG&E file a Performance Based Ratemaking (PBR) proposal
for its gas division by November 30, 1999. However, in the PBR Order of
October 29, 1999, the MDTE has rescinded this requirement and indicated that
FG&E would be required to file a Gas PBR within three months of the final
PBR orders of the MDTE.
A majority of the Company's operating revenues are collected under various
periodic rate adjustment mechanisms including fuel, purchased power, cost of
gas and energy efficiency program cost recovery mechanisms. Restructuring
will continue to change the methods of how certain costs are recovered from
customers and from suppliers. Transition costs, Standard Offer Service and
Default Service power supply costs, internal and external transmission
service costs and energy efficiency and renewable energy program costs for
FG&E are being recovered via fully reconciling rate adjustment mechanisms in
Massachusetts.
MILLSTONE UNIT NO. 3- FG&E has a 0.217% nonoperating ownership in the
Millstone Unit No. 3 (Millstone 3) nuclear generating unit which supplies it
with 2.49 megawatts (MW) of electric capacity. Due to various operating
problems and NRC oversight, Millstone 3 was out of service from March 30,
1996 until early July, 1998.
During the period that Millstone 3 was out of service, FG&E continued to
incur its proportionate share of the unit's ongoing Operations and
Maintenance (O&M) costs, and may incur additional O&M costs and capital
expenditures to meet NRC requirements. FG&E also incurred costs to replace
the power that was expected to be generated by the unit. During the outage,
FG&E had been incurring approximately $35,000 per month in replacement power
costs, and had been recovering those costs through its fuel adjustment
clause, which will be subject to review and approval by the MDTE.
In August 1997, FG&E, in concert with other non-operating joint owners,
filed a demand for arbitration in Connecticut and a lawsuit in
Massachusetts, in an effort to recover costs associated with the extended
unplanned shutdown. Several preliminary rulings have been issued in the
arbitration and legal cases and both cases are continuing. Nonoperating
owners representing 16% of Millstone 3 ownership have settled their claims
with Northeast Utilities while nonoperating owners, including FG&E,
representing 15% of Millstone 3 continue to pursue the arbitration and legal
cases.
INVESTING ACTIVITIES
Capital expenditures for the nine months ended September 30, 1999 were
approximately $11.9 million. This compares to $10.8 million during the same
period last year. Capital expenditures for the year 1999 are estimated to
be approximately $15.4 million as compared to $14.5 million for 1998. This
projection reflects capital expenditures for utility system expansions,
replacements and other improvements.
In March 1999, Unitil acquired a minority interest in Enermetrix.com
(formerly known as North American Power Brokers, Inc.), through the purchase
of Preferred Stock and Common Stock Warrants for approximately $3.0 million
in cash. In November, 1999 Unitil invested an additional $1.0 million in
Enermetrix.com through the purchase of preferred stock. Also, Unitil
Resources, Inc. (URI) purchased Enermetrix.com's New York customer list and
now, under the name "Usource", offers retail energy consumers the price
benefits of competitive energy supplier bidding, without URI or its
customers undertaking the financial risk of commodity ownership.
LEGAL PROCEEDINGS
The Company is involved in legal, regulatory 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 adverse 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, ("Y2K Issues"). Specifically, Y2K Issues would arise
when software applications, or devices with embedded chips, fail to
correctly recognize and process the year 2000 and beyond. Certain software
applications and devices are certified to recognize and process date
references to the year 2000 and beyond and they are deemed to be Year 2000
compliant, ("Year 2000 Compliance"). Potential software failures could
create incorrect calculations, among other errors, and they present a risk
to the integrity of our Company's financial systems and the reliability of
our operating systems. In order to minimize the risk of disruption to our
business operations, the Company is taking the actions described below,
including communicating with suppliers, dealers, financial institutions and
others with which it does business, to coordinate the identification,
evaluation, remediation and testing of possible Y2K Issues which may affect
the Company.
The Company has established a centralized task force to identify and
implement necessary changes to the Company's internal computer systems,
controlling hardware devices and software applications in order to achieve
Year 2000 Compliance for those systems. The remediation of Y2K Issues and
testing of all critical components of the Company's internal systems was
completed on June 30, 1999.
The Company has also established processes for evaluating and managing the
risks and possible costs associated with Y2K Issues which may exist in
systems external to the Company's operations, but could affect the Company's
operations indirectly. The Company has already directed efforts to notify
our critical vendors and suppliers about Y2K Issues which may affect our
operations, and most are already providing important information about the
Year 2000 readiness of their organizations. Testing of certain critical
systems has been completed, in conjunction with our key suppliers and
vendors, and the Company has developed contingency plans for circumstances
where assurance of Year 2000 Compliance cannot be obtained or where we
believe the greatest Y2K susceptibility exists.
The Company currently estimates it will invest in the range of $250,000 to
$350,000 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 have established contingency plans to cover
delivery difficulties during key Year 2000 dates. The Company also plans to
work with local, state and regional agencies and other utility companies to
ensure that appropriate contingency plans are in place for energy supply and
delivery systems which could be affected by Year 2000 difficulties.
In addition, while the Company currently believes that its own
mission-critical systems are Year 2000 Compliant, it cannot guarantee the
compliance of other systems operated by other companies upon which it
depends. For example, the Company's ability to provide electricity to its
customers depends upon the regional electric transmission grid which
connects the systems of neighboring utilities to provide electric power for
the region. If one company's system is not Year 2000 Compliant, then a
failure could impact all providers within the grid, including Unitil.
Similarly, the Company's gas operations depend upon natural gas pipelines
that it does not own or control, and any Year 2000 noncompliance associated
with these pipelines may affect the Company's ability to provide natural
gas to its customers. Failure to achieve Year 2000 readiness could have a
material effect on the Company's results of operations, financial position
and cash flows.
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 1999 1998 1999 1998
Net Income $1,709 $1,717 $6,051 $5,817
Less: Dividend Requirement
on Preferred Stock 66 68 201 206
Net Income Applicable
to Common Stock $1,643 $1,649 $5,850 $5,611
Average Number of Common
Shares Outstanding 4,703,069 4,508,648 4,673,318 4,494,580
Basic Earnings Per Common Share $0.35 $0.37 $1.25 $1.25
Three Months Ended Nine Months Ended
September 30, September 30,
DILUTED EARNINGS PER SHARE 1999 1998 1999 1998
Net Income $1,709 $1,717 $6,051 $5,817
Less: Dividend Requirement
on Preferred Stock 66 68 201 206
Net Income Applicable
to Common Stock $1,643 $1,649 $5,850 $5,611
Average Number of Common
Shares Outstanding 4,713,767 4,620,994 4,682,920 4,610,155
Diluted Earnings Per Common Share $0.35 $0.35 $1.25 $1.22
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, 1999, the Company did not
file any reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
UNITIL CORPORATION
(Registrant)
Date: November 10, 1999 /s/ Anthony J. Baratta, Jr.
Anthony J. Baratta, Jr.
Chief Financial Officer
Date: November 10,1999 /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 10, 1999 /s/ Anthony J. Baratta, Jr.
Anthony J. Baratta, Jr.
Chief Financial Officer
Date: November 10,1999 /s/ Mark H. Collin
Mark H. Collin
Treasurer