Unitil Corp (UTL) 2014 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the First Quarter 2014 Unitil Corporate Earnings Conference Call. My name is [Janeda] and I will be your operator for today.

At this time all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. David Chong, Director of Finance. Please proceed.

Good afternoon, and thank you for joining us to discuss Unitil Corporation's first quarter 2014 financial results. With me today are Bob Schoenberger, Chairman, President and Chief Executive Officer; Mark Collin, Senior Vice President, Chief Financial Officer and Treasurer; Tom Meissner, Senior Vice President and Chief Operating Officer; and Larry Brock, Chief Accounting Officer and Controller.

We will discuss financial and other information about our first quarter on this call. As we mentioned in the press release announcing the call we have posted that information, including a presentation to the Investor section of our Website at www.unitil.com. We will refer to that information during this call.

Before we start please note that comments made on this conference call may contain statements that are commonly referred to as forward-looking statements, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding the company's financial condition, results of operations, capital expenditures and other expenses, regulatory environment and strategy, market opportunities and other plans and objectives.

In some cases forward-looking statements can be identified by terminology such as may, will, should, estimate, expect or believe, the negative of such terms or other comparable terminology. These forward-looking statements are neither promises nor guarantees, but involve risks and uncertainties and the company's actual results could differ materially.

Those risks and uncertainties include those listed or referred to on slide 1 of the presentation and those detailed in the company's filings with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2013. Forward-looking statements speak only as of the date they are made. The company undertakes no obligation to update any forward-looking statements.

With that said, I'll now turn the call over to Bob.

Thanks, David. I'll begin by giving a summary of the highlights of our past quarter. If you turn to our presentation on slide 4, today, we announced net income of $12.6 million for the first quarter of 2014, an increase of $1.8 million or 17% over the first quarter of 2013.

A strong first quarter financial results reflect the combination of the colder winter weather in 2014, and the positive impact of steady increases in the number of customers we serve.

If you turn to slide 5, we have achieved significant growth and steadily improved financial performance over the past few years by focusing our core strategies.

In our Natural Gas division, we are aggressively adding new customers and investing in the modernization and expansion of our distribution system.

Our gas expansion plan has been designed to increase our gas sales by 4% to 6% annually and reach a doubling of our gas rate base by 2016.

In our Electric division, we continue to make system capacity, reliability, and customer service related investments. And as Mark will discuss later, we have implemented cost tracker distribution grade adjustments and recently completed two base rate cases for our natural gas utility in Maine and New Hampshire.

In those two rate cases, we achieved $8.4 million in annualized distribution revenue increases. And importantly, we entered into a long term rate plan in both states providing for future annual step adjustments to revenue including adjustments we will be making this year for effect on May 1st.

We believe that the execution of our growth strategies will continue to drive the growth in our financial results into the future.

On slide 6, Natural Gas continues to offer our customer the best choice of value in terms of it's superior efficiency, convenience, and low cost compared to competing fuel such as oil and propane.

We achieved an industry leading rate of growth in the first quarter of 2014 where we saw an increase of over 3% in net new customer additions which is well above the New England Gas LDC average growth rate of about 1%.

This customer growth in addition to the colder winter weather this year, contributed to increased gas unit sales of 15% year-over-year.

We are making the investments on our gas delivery system to meet the energy needs of a new and rapidly expanding customer base.

We provide an update on new source on slide 7, on non-regulated energy brokering subsidiary. Usource has grown it's revenue to 8% annually over the past few years.

In addition, Usource continues to demonstrate high customer retention rates, and has a forward book of revenues of $8.3 million as of 2013 yearend which represents contracts -- revenues under contract to be recognized in future periods.

We expect Usource to continue to make an important contribution to our financial results.

Now I will turn the call over to Mark, who will discuss our financial results for the quarter in more detail and our current rate case proceedings. Mark?

Thanks, Bob. Good afternoon, everyone. As Bob stated earlier, net income increased by $1.8 million or 17% for the first quarter of 2014.

On a per share basis, earnings were $0.91 for the quarter, compared to $0.79 in the first quarter of 2013. Results were positively affected by the combination of colder winter weather in 2014 and the positive impact of steady customer growth.

Turning to slide 8, Natural Gas sales margins were 36.5 million in the quarter, an increase of $6 million, or 20% compared to the first quarter of 2013.

Natural Gas sales margins were positively affected by higher Therm unit sales, a growing customer base and recently approved gas distribution rates.

Therm sales of Natural Gas were up almost 15%. There were 12% more heating degree days in the first quarter of 2014 compared to 2013 which we estimate positively impacted earnings per share by about $0.07.

Excluding the effect of weather on sales, weather normalized gas Therm sales were estimated to be up 6.4% in the quarter.

In addition, as of March 31, 2014, total Natural Gas customers served, had grown by 3.1% in the last 12 months.

Slide 9 highlights our Electric business sales and margin. Electric sales margins were $19.2 million in the first quarter of 2014, an increase of $0.8 million, or 4% compared to 2013. Electric sales margins reflect higher electric kilowatt hour sales, and recently approved electric based distribution rates. Electric kilowatt hour sales increased 5% compared to the first quarter of 2013.

Turning to slide 10, Usource, the company's non-regulated energy brokering business, recorded revenues of $1.6 million in the quarter, an increase of $0.1 million, or 7% compared to the first quarter of 2013.

Operation and maintenance expenses increased 1.9 million in the quarter, compared to the same period in 2013.

The change in O&M expenses reflects higher compensation cost of $0.9 million, higher employee and retiree benefit costs of $0.6 million, and higher utility operating cost of $0.5 million partially offset by lower all other operating cost net of $0.1 million.

Depreciation and amortization expense increased $0.7 million in the quarter reflecting higher depreciation on normal utility plant additions of $0.5 million and higher amortization of previously deferred major storm restoration costs of $0.2 million which is recovered in electric margin through cost [structures].

Taxes other than income taxes increased by $0.8 million in the quarter compared to the same period in 2013 reflecting higher property taxes on higher levels of utility plant in service. Last, net interest expense increased $0.6 million in the quarter reflecting lower interest income on regulatory assets.

Now turning to slide 11, we have provided an update on our financial results at the utility operating company level. The chart shows the trailing 12 months actual earned return on equity in each of our regulatory jurisdictions.

As we've indicated in the past, we have long term capital cost structures in place to recover a significant portion of current and future capital spending.

For our New Hampshire and Maine gas operations which I will discuss in more detail on the next slide, we expect annualized increased in gas distribution revenue effective May 1st of this year of approximately $1.4 million and $1.3 million respectively.

Also on May 1st of this year, we expect an annualized increase in electric distribution revenue of approximately $1.5 million for our New Hampshire electric operations to recover a substantial portion of last year's change in that plan.

Similarly, Unitil's FERC regulated gas pipeline has an annual rate adjustment mechanism which we project to result in an annualized increase in pipeline revenues of approximately $0.6 million effective August 1st of this year. This will recover capital spending on several gas transmission pipeline upgrade and replacement projects.

Turning to slide 12, Bob mentioned earlier we recently completed a base rate case in Maine providing for a permanent increase in annual revenue of $3.8 million effective January 1, 2014.

Importantly, this rate case allows for an implementation of a capital tracker mechanism which allows us to recover additions to our growing rate base without the need and cost to find a full rate case.

The first step adjustment under this capital tracker, is anticipated to go into effect May 1st of this year for an annual revenue increase of $1.3 million and we estimate that a future step adjustments will in the range of approximately $1 million annually.

In New Hampshire, we recently completed base rate case providing for a permanent increase in revenue of $4.6 million which we have been largely recognizing in temporary rates that were effective as of July 1, 2013.

The New Hampshire rate case also provides for a long term rate plan including the capital tracker mechanism with the first step adjustment anticipated to go in effect May 1st of this year for an annual revenue increase of $1.4 million.

Turning to slide 13, in the recently completed Maine and New Hampshire rate cases, the rate design was adjusted in both jurisdictions to increase the amount of base revenue collected through fixed customer charged, thereby reducing the amount that otherwise would have been collected through [volumetric] charges.

Although we will continue to see higher gas margins in the first and fourth quarter, and lower gas margins in the second and third quarters, this difference will be narrowed some by the change in rate design.

For example, in the first quarter with the new rate design at both jurisdictions, the fixed customer chart represents 16% of total gas margin compared to 9% in the prior period.

As a result, margins in the summer period when volumetric usage is typically at it's lowest level are expected to increase as the higher fixed customer charge will make up a larger percentage of customer bills.

Slide 14 summarizes our distribution base rate case filing in Massachusetts for Fitchburg's electric division. Expect to have the decision on this rate case in the second quarter of this year. The filing contained a revenue deficiency of $6.7 million which includes an annual collection of $2.1 million to recover major deferred storm cost that occurred in 2011 and 2012.

Additionally, the filing includes a major storm reserve fund of $2.8 million to address the cost of future danger storms. This requested increase in rates will be offset by a decrease of about $13 million to the transition charge by the end of 2014 which will offset the requested rate increases on customer bills.

Now this concludes our summary of our financial performance for the period. I will turn the call over to the operator who will coordinate your questions. Thank you.

(Operator Instructions). You first question comes from the line of Liam Burke with Janney Capital Markets. Please proceed.

Thank you. Good afternoon. Directionally, could you give us a sense as to where CapEx is going? And how the return profile on your incremental projects are looking?

Yes, in terms of CapEx, in our financial disclosures, we've indicated that our projection for the current year is about $91 million of total capital spending. In terms of our tracker mechanisms that we've talked about, a good percentage of that is related to either net plan additions at our electric utility in New Hampshire where we get a large portion of that recovered through a tracker mechanism, or in the case of the gas expenditures, we have the -- we [cast] our own replacement and some Maine expansions related to customer growth where we're going to be getting capital recovery.

And all that capital recover is essential at our full cost of capital. So we get -- without the need for rate case, we're able to earn a full cost of capital on that rate base addition of those capital expenditures.

Okay. And what does the runway look like for future projects? Are you going to be -- I mean for the foreseeable future, do you see a continued growth there?

We do, particularly in the gas business, I think we've talked quite a bit about the gas business and you know, we continue to do, to ramp up our customer ads and adding a number of, not only a number of customers, but a number of large customers and large loads which are -- really given us an opportunity to add margin and sales faster than the number of customer we're adding because the size, the average size of the customers that we're adding are fairly large and are significant addition.

In addition on the electric side, we have some major projects planned relative to system capacity and reliability improvements that will continue to grow that rate base at a fairly good [clip].

And Liam if your question is, what is our total expenditure outlook look like, I'd say the current capital budget is about where we think we'd be, maybe a little lower. We do have a number of one-time projects in the capital plan for the next couple of years including two substation projects that Mark talked about, plus our new CIS system.

So in terms of total spending, about where we -- we'll be about where we are this year.

Okay. Thank you very much.

Thank you.

(Operator Instructions). And at this time, it seems we have no further questions. I would now like to turn the call back over to Mr. David Chong for any closing remarks.

Well, thank you very much for joining us for our first quarter conference call. We look forward to discussing our next quarter, with you in a couple of months. Thank you.

Ladies and gentlemen, that concludes today's conference, thank you for your participation. You may now disconnect. Have a great day.