Unitil Corp (UTL) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2015 Unitil conference call. My name is Latoya and I will be your operator for today. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for be played services. I would now like to turn the call over to the Director of Finance, Mr. David Chong. Please proceed, sir.

Good afternoon and thank you for joining us to discuss Unitil Corporation's second-quarter 2015 financial results. With me today are Bob Schoenberger, Chairman, President and Chief Executive Officer; Mark Collin, Senior Vice President and Chief Financial Officer and Treasurer; Tom Meissner, Senior Vice President and Chief Operating Officer; and Larry Broad, Chief Accounting Officer and Controller.

We will discuss financial and other information about our second quarter on this call.

As we mentioned in the press release announced in 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 position, results of operations, capital expenditures and other expenses, regulatory environment strategy, market opportunities, and other plans and objectives. In some cases, forward-looking statements can be identified by terminology such as may, will, should, estimates, effect, 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, 2014.

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 will now turn the call over to Bob.

Thanks, David. Thanks for joining us today. If you turn to slide 4 of our presentation, today we announced net income of $1.7 million or $0.12 per share for the second quarter of 2015, an increase of $0.6 million or $0.04 per share compared to the second quarter of 2014.

For the first half of this year, we reported net income of $15.3 million or $1.10 per share, an increase of $1.6 million or 12% and $0.11 per share compared to prior year. 12% increase in net income for the first half of this year was primarily driven by customer growth and higher natural gas sales. Our regulatory agenda and growing investment in our gas and electric distribution systems will continue to drive our earnings in the years ahead.

Turning to slide 5, the graph showed that our financial results have increased sharply over the past few years with net income growing at an annual rate of 16% since 2012. Our financial results have been driven by the strong demand for natural gas in the areas we serve, our growing investment in our gas and electric utility distribution system and the successful execution of our regulatory strategy. As part of our regulatory strategy, in the second quarter we filed gas and electric base rate cases for our Massachusetts utility, requesting a total of $6.8 million in rate relief. Mark will discuss these rate cases in more detail later in the presentation.

Moving to slide 6, natural gas remains a cost-competitive fuel choice and offers all our customers the best choice of value, efficiency and convenience of a competing fuel such as oil and propane. As a result of historical and economic factors somewhat unique to northern New England, which I have discussed many times in the past, we currently have a customer penetration rate of only 60% on our existing distribution system. We are working hard to change that.

The relatively low customer penetration on our existing system provides us with low-cost opportunities to add customers along or near our distribution radius. Additionally, we recently filed a regulatory mechanism in Maine requesting approval to replace upfront customer contributions often required to expand into new areas with the rate surcharge mechanism for a period of time in certain targeted areas. We expect that offering customers the ability to pay a rate surcharge rather than an upfront payment will help facilitate customer conversions and will help us target new areas of geographic expansion beyond our existing distribution system.

Slide 7 highlights the growth we have achieved on our natural gas business. Our gas customer base grew 3% in 2014. In addition, natural gas unit sales have grown over 4% annually on a weather normalized basis of 2012, which is right in line with our goal to grow our gas and sales between 4% to 6% annually.

Moving on to slide 8, our utility rate base continues to grow as we had to customers and improve both the gas and electric distribution system. Over the past three years our gas -- our rate base has grown at an annual rate of 10% driven by customer additions and our infrastructure replacement and improvement programs.

Our electric rate base has grown 4% over the past few years. We believe that rate base will continue to grow around these levels for the foreseeable future.

Finally, slide 9 highlights our return on equity, which has steadily increased over the past three years, reflecting strong customer and sales growth combined with instructors rate case results. Our regulatory strategy has helped us to achieve approximately $60 million in rate relief since 2010, which equates to a 50% increase in sales margin. This rate relief has enabled our earnings to match and exceed our rapid rate base growth and provides us with the opportunity to earn within our allowed rate of return.

Now I will turn the call over to Mark to discover financial results and our current rate case proceedings. Mark?

Thanks, Bob, and good afternoon, everyone. Turning to the next slide, slide 10, natural gas utility sales margins were $18.1 million and $56.9 million for the second quarter and six-month periods, reflecting increases of $1.8 million and $4.1 million, or up 8% for the year so far compared to prior year. Natural gas sales margins was positively affected by higher therm unit sales, a growing customer base, and higher distribution rates.

Therm sales of natural gas increased 4% in the first six months of 2015, compared to 2014, driven by colder winter weather and new customer additions. There are 3% more heating degree days in the first six month of 2015 compared to the same period in 2014, which we estimate positively impacted earnings per share by about $0.02. Compared to normal, there were 13% more heating degree days in the first six months of 2015, which we estimate positively impacted earnings per share by about $0.09.

Excluding the effect of weather on sales, weather-normalized gas therm sales are estimated to be up 3% for the first half of this year compared to last year.

Turning to slide 11, this highlights our electric utilities sales margin. Electric sales margins were $20.5 million and $41.7 million for the second quarter and the six-month period, reflecting increases of $1.6 million and $3.6 million or up 9% for the year so far compared to prior year. Electric sales margins reflects higher electric-based distribution rates and slightly higher sales volumes. Electric kilowatt hours sales increased slightly by 2.2% compared to the first half of 2014.

Turning to slide 12, Usource, the Company's nonregulated energy brokering business, recorded revenues of $3.1 million for the six-month period, an increase of $0.1 million compared to the same period of 2014. Operating and maintenance expenses increased $1 million and $0.8 million for the second quarter and six-month periods compared to prior year. The year-to-date change in O&M expenses reflects higher compensation and benefit costs of $1.2 million and higher all other utility O&M costs net of $0.3 million, which were partially offset by lower professional fees of $0.7 million in the current period.

Depreciation and amortization increased $1.1 million and $2.3 million for the second quarter and six-month periods compared to prior year. These increases reflect higher depreciation on normal utility plant assets in service, higher amortization of major storm restoration costs and increase in other amortization costs.

Taxes other than income taxes decreased $0.4 million and $0.1 million for the second quarter and the six-month periods compared to prior year, reflecting lower local property tax expenses. Net interest expense increased $0.7 million and $1.3 million for the second quarter and the six-month periods, reflecting higher levels of long-term debt and lower interest income on regulatory assets.

Now, turning to slide 13, 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. Unitil, on a consolidated basis, earned a total return on equity of 9.6% in the last 12 months ended June 30, 2015.

Also, as we have discussed in the past and as shown in the table on the right, we have long-term capital contractors in place to recover a significant portion of the current and future capital spending, which we expect will help to maintain a level of earnings across our subsidiaries.

Slide 14 highlights our recent electric and gas rate case filings in Massachusetts for our Fitchburg subsidiary. Both filings reflect a 2014 test year, a capital structure with a 53% equity ratio, and a 10.25% requested return on equity. The electric division filing reflects a rate base of $57.3 million, a revenue deficiency of $3.8 million and includes a multi-year rate plan for recovery of future capital additions.

Gas division filing reflects a rate base of $57.5 million and a revenue deficiency of $3 million. We currently expect in order from the Massachusetts Department of Public Utilities on these rate cases in the second quarter of 2016.

Lastly, slide 15 details the settlement agreement which we recently filed with the Federal Energy Regulatory Commission in June of 2015 for Granite State, our interstate transmission pipeline. The settlement extends the long-term rate plan currently in place, and provides for an additional three years of a capital tracker mechanism to recover spending on several major projects. The first rate adjustment of $0.4 million is expected to become effective on August 1, 2015, and future rate adjustment in the range of $0.3 million to $0.4 million are expected to take place in 2016 and 2017. The settlement agreement is subject to approval from the FERC, which is expected in the third quarter of 2015.

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

(Operator Instructions) Michael Gaugler, Janney.

Just one question on gas conversions. I know we have seen the price of oil come down, prices of other fuels come down as well. Just wondering if you're seeing any slowdown in demand for conversions, given that pull back in energy prices.

Mike, I think it's more a question of timing. I myself just converted to natural gas, so if that gives you any idea. I saw the economic value of doing it.

We actually still see strong growth. I would say it's probably a little bit off what we saw a couple of years ago, but I think that is temporary because people tell us -- these are the customers what they are telling us at least, that they see that as a temporary phenomena and they expect that long-term natural gas will be a better buy than home heating oil. So we expect to see that growth continue.

Given our new approach to serving unserved areas, we are getting a lot of strong support from town officials, say in Saco, Maine, that see the benefit of natural gas long term.

That's all I had. Congrats on a really nice quarter.

Shelby Tucker, RBC Capital Markets.

A quick question on gas demand. For the second quarter I know with weather, residential demand was down [3.4], commercial industrial, down [0.8]. If you were to weather normalize, do you have a sense where the sales growth would have been for both segments?

The second quarter isn't, as you know, as a shareholder period, Shelby, so there is not a lot of -- and weather, while it plays a role, is relatively minor impact on sales during the period. I think what we talked about from a financial perspective, we think weather contributed about $0.02 to earnings per share in the period.

Got it. Okay, thank you.

(Operator Instructions) There are no further questions. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect. Have a great day.