Business Overview A Legacy of Reliability and Innovation
Unitil Corporation (UTL) is a public utility holding company that provides electric and natural gas distribution services to customers in New Hampshire, Massachusetts, and Maine. The company has a long and storied history, having been founded in 1984 through the merger of three regional utility companies. Today, Unitil operates as a diversified energy provider, serving approximately 108,500 electric customers and 88,400 gas customers across its service territories.
Unitil Corporation, headquartered in Hampton, New Hampshire, has established itself as a prominent player in the utility sector. The company and its subsidiaries are subject to regulation as a holding company system by the Federal Energy Regulatory Commission (FERC) under the Energy Policy Act of 2005, ensuring compliance with federal energy policies and regulations.
Unitil’s operations extend beyond its three primary distribution utilities. The company is also the parent of Granite State Gas Transmission, Inc. (Granite State), an interstate gas transmission pipeline company. Granite State operates 85 miles of underground gas transmission pipeline, primarily located in Maine and New Hampshire, providing Northern Utilities with crucial interconnection to major gas pipelines and access to both domestic and Canadian gas supplies.
The company’s journey has not been without challenges. In the early 2000s, Unitil underwent a significant restructuring process to separate its electric and gas utility operations into distinct subsidiaries. This strategic move was made to comply with industry restructuring and deregulation initiatives in the Northeast, allowing Unitil to sharpen its focus on core utility operations and adapt to the changing regulatory landscape.
Throughout its history, Unitil has successfully navigated numerous regulatory proceedings to secure approval for infrastructure investments and rate changes. These efforts have been crucial in allowing the company to recover its costs, earn a fair return on investments, and continue providing reliable service to its customers.
Financial Strength and Operational Efficiency
Unitil’s financial performance has been consistently strong, with the company reporting net income of $45.2 million and total revenue of $557.1 million in the most recent fiscal year. The company’s balance sheet is equally robust, with a debt-to-capitalization ratio of 48.2% as of December 31, 2023, providing ample financial flexibility to fund its capital investment program.
Unitil’s operational efficiency is also a key differentiator, with the company maintaining a strong focus on cost management and process optimization. This is reflected in the company’s operating margin of 15.6% in the most recent fiscal year, which is well above the industry average.
Regulatory Tailwinds and Growth Opportunities
Unitil’s success is also driven by its strong relationships with regulatory bodies in its service territories. The company has consistently received constructive rate outcomes, which have enabled it to invest in critical infrastructure and pass along the benefits to its customers.
One such example is Unitil’s recent regulatory win in New Hampshire, where the company received approval for a 6.3% increase in distribution rates, effective June 1, 2022. This decision not only allowed Unitil to recover its operating costs and earn a fair return on its investments, but also paved the way for the implementation of a multi-year rate plan and a revenue decoupling mechanism – initiatives that will support the company’s long-term growth and financial stability.
Beyond its core utility operations, Unitil is also exploring strategic growth opportunities, such as its recent acquisition of Bangor Natural Gas, a natural gas distribution company in Maine. This acquisition, which is expected to close in the first quarter of 2025, will strengthen Unitil’s foothold in the Northeast and provide additional avenues for future expansion.
Environmental Stewardship and Sustainability Initiatives
Unitil’s commitment to environmental sustainability is a core tenet of its business strategy. The company has set ambitious goals to reduce greenhouse gas emissions by 50% by 2030 and achieve net-zero emissions by 2050, and it is actively investing in initiatives to support these targets.
One such initiative is Unitil’s Advanced Mobile Leak Detection Program, which utilizes state-of-the-art Picarro Leak Detection technology to accurately measure and mitigate methane emissions from its natural gas distribution systems. This program has already yielded significant reductions in the company’s scope 1 emissions and serves as a testament to its dedication to environmental stewardship.
Additionally, Unitil is making substantial investments in grid modernization and renewable energy integration, including the development of a 4.88 MW utility-scale solar facility in New Hampshire. These initiatives not only support the clean energy transition, but also enhance the resilience and reliability of Unitil’s electric grid, ultimately benefiting its customers.
Financials
Unitil’s financial performance has been consistently strong, with the company reporting net income of $45.2 million and total revenue of $557.1 million in the most recent fiscal year. The company’s operating margin of 15.6% in the most recent fiscal year is well above the industry average, reflecting its operational efficiency and cost management strategies.
For the most recent quarter (Q3 2024), Unitil reported revenue of $92.90 million, a decrease of 10.6% from $103.90 million in Q3 2023. Net income for the quarter was $0.01 million, down from $1.40 million in the same period last year. Operating cash flow (OCF) for Q3 2024 was $26.10 million, a decrease from $18.70 million in Q3 2023. Free cash flow (FCF) for the quarter was -$31.30 million, compared to -$16.50 million in Q3 2023.
The decreases in financial metrics were primarily due to lower gas and electric sales volumes and higher operating expenses. However, through the first nine months of 2024, Unitil reported net income of $31.5 million, or $1.96 per share, representing an increase of $0.11 per share over the same period in 2023, indicating they beat their previous guidance for that time period.
Liquidity
Unitil maintains a robust liquidity position, with a debt-to-capitalization ratio of 48.2% as of December 31, 2023. This strong balance sheet provides ample financial flexibility to fund the company’s capital investment program and pursue strategic growth opportunities.
As of September 30, 2024, Unitil had a debt-to-equity ratio of 1.40 and cash on hand of $6.30 million. The company has a $200 million revolving credit facility, with $135.70 million available as of September 30, 2024. Unitil’s current ratio stands at 0.91, while its quick ratio is 0.82, indicating a solid short-term liquidity position.
Segment Performance
Unitil operates through three wholly-owned distribution utility subsidiaries: Unitil Energy Systems, Inc. (Unitil Energy), Fitchburg Gas and Electric Light Company (Fitchburg), and Northern Utilities, Inc. (Northern Utilities).
Electric Segment: In the three months ended September 30, 2024, electric operating revenues decreased 13.3% to $62.5 million, primarily due to lower wholesale electricity prices and an increase in the amount of electricity purchased by customers directly from third-party suppliers, partially offset by higher electric distribution rates and higher sales of electricity. Electric Adjusted Gross Margin increased 1.7% to $29.7 million, reflecting higher rates and customer growth. Electric kWh sales increased 2.6% in the quarter, driven by a 4.1% increase in residential sales and a 1.5% increase in commercial and industrial sales, reflecting warmer weather for cooling purposes and customer growth.
Gas Segment: In the three months ended September 30, 2024, gas operating revenues decreased 4.4% to $30.4 million, reflecting lower wholesale gas commodity prices, lower gas therm sales, and an increase in the amount of gas purchased by customers directly from third-party suppliers, partially offset by higher gas distribution rates. Gas Adjusted Gross Margin increased 5.0% to $23.3 million, reflecting higher rates and customer growth. Total gas therm sales decreased 0.4% in the quarter, with a 0.4% decrease in commercial and industrial sales, partially offset by flat residential sales, reflecting lower average usage, partially offset by customer growth.
Other Segment: This segment includes the operations of Unitil’s non-regulated subsidiaries, such as Unitil Service Corp. and Unitil Realty Corp. It contributed $0.8 million to Unitil’s net income in the three months ended September 30, 2024.
Future Outlook and Guidance
Unitil has reaffirmed its long-term earnings growth guidance of 5% to 7%, supported by rate-base growth in the range of 6.5% to 8.5%, and a dividend payout ratio between 55% and 65%. For the full year 2024, the company remains confident that its earnings will be within the long-term guidance range.
Unitil expects its new Advanced Metering Infrastructure Upgrade project to cost approximately $40 million over the next three years. In Massachusetts, the costs associated with this project are eligible for accelerated recovery.
The company’s projected capital spending through 2028 totals approximately $910 million. This includes additional upside potential for electric sector modernization projects as they invest in supporting the clean energy transition.
Navigating Challenges and Looking Ahead
While Unitil has demonstrated impressive resilience and adaptability, the company is not immune to the challenges faced by the broader utility industry. Factors such as rising interest rates, supply chain disruptions, and ongoing regulatory uncertainties have the potential to impact Unitil’s financial performance and operating environment.
However, the company’s strong balance sheet, diversified revenue streams, and prudent risk management strategies position it well to navigate these headwinds. Unitil’s long-term growth strategy, which is underpinned by strategic investments, disciplined cost management, and a continued focus on sustainability, suggests that the company is poised to deliver sustainable value for its shareholders in the years to come.
The utility industry has seen a compound annual growth rate (CAGR) of 4-6% in recent years, driven by rate base growth and investment in grid modernization and renewable energy infrastructure. Unitil’s focus on these areas, combined with its strong regulatory relationships and commitment to sustainability, aligns well with these industry trends.
In conclusion, Unitil Corporation (UTL) is a well-established and financially sound utility company that has consistently demonstrated its ability to adapt to industry changes while maintaining a steadfast commitment to reliability, safety, and environmental stewardship. With its robust regulatory relationships, strategic growth initiatives, and ongoing sustainability efforts, Unitil is well-positioned to continue powering the communities it serves for generations to come.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.