Q3 2019 Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2019 Unitil earnings Conference call.

At this time all participants on in listen only mode.

The speakers presentation, there will be a question.

The asked the question doing, especially when you wouldn't be surprised SAR and one on your telephone.

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You touched on telephone.

I'd now like to hand, the conference over to your speaker today.

<unk> director of Fannie you may begin.

Good afternoon, and thank you for joining us to discuss capital Corporation's third quarter 2019 financial results.

With me today, or Tom Eisner, Chairman, President and Chief Executive Officer, Kristine Bond Senior Vice President Chief Financial Officer in Treasurer every Brock Chief Accounting Officer, and controller and talk Black Senior Vice President external affairs and customer relations.

We will discuss financial and other information about a third quarter results on school.

As you mentioned the press release announcing the call we have posted that information, including your <unk> presentation to the Investor section of our web site.

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We refer to that information during this call.

Before we start as you can see on slide to the comments made today about future operating results or future events are forward looking statements under the safe Harbor provision of the price Securities Litigation Reform Act of 1995 forward looking statements inherently involve risks and uncertainties that could cause <unk> actual results to differ materially from those predictable.

Things, we'd always call should be considered together with the cautionary statements and other information contained in our most recent annual report on Form 10-K , and other documents filed with or furnished to the securities and Exchange Commission.

Forward looking statements speak only as of today, and we assume no duty to update them, but that said I will turn the call over to Tom.

Thank you Todd Thanks, everyone for joining us today.

I'm going to begin on slide four where today, we announced net income of 2.3 million or 15 cents per share for the third quarter of 2019.

Which is a decrease of a half a million or four cents per share over the third quarter 2018.

The decrease in net income is primarily a result of milder summer weather this year compared to 2018.

Through the first three quarters of 2019 net income is 32.8 million or 220 per share, which has an increase of 10.8 million or 71 cents per share compete compared to 2018.

As a reminder, in Q1, we announced divestiture of our unregulated energy brokerage Advisory service you source.

That's sale generated a net gain of 9.8 million or 66 cents per share.

The proceeds of the device divestiture were invested in our regulate our regulated subsidiaries and should become accretive in 2020, when the investment is reflected in distribution rate.

You source kind of historically contributed between two and three cents per share to earnings each quarter. So Keith Please keep in mind as we review the results today.

Excluding the onetime you source gain our year to date net income, it's up 1 million or five cents per share over 2018.

The increase in net income from our core utility operations is attributed to higher sales margins.

Next on slide five because we have discussed before the stronger economy in our service areas is a fundamental driver of customer growth.

The graphic provided on this slide illustrates the population growth occurring in our service areas, particularly along the new Hampshire in Southern Maine Sea Coast.

This growth is supported by new residential and commercial construction, we have identified $7.8 billion, a planned or ongoing new construction in our service areas, which is an additional 1 billion or 15% more than we had previously identified at this time in 2018.

This is an indication of the population growth in economic expansion that is occurring in our territories and that will continue to support customer growth in the years ahead.

Approximately 25% of the new construction is residential oral will include a residential component.

On slide six we introduced the primary are the key priorities of our sustainability goals.

In 2019, the company published its inaugural corporate sustainability and responsibility report.

This report is designed to communicate our views on the value of sustainability to our shareholders.

We define sustainability is our ability to achieve our mission and create value over the long term, we firmly believe that financial success, environmental stewardship, and social responsibility or the hallmarks of a healthy thriving business.

Embedding sustainability into our business strategies is essential to achieving our long term operational and financial goals, we will provide updates on our corporate sustainability initiatives on an ongoing basis.

Now I will turn the call over to Christine bond for discuss our financial results for the quarter Christine right. Thanks, Tom I'm. Good afternoon, everyone I beginning on slide seven our natural gas sales margin for the third quarter of 2019.

Were 18.7 million, an increase of 1.1 million over 2018.

To date gas margin at 85.5 million, which is an increase of 5.1 million over 2018.

Year to date increase was due to higher natural gas distribution rate of 4.6 million and 1.7 million as a result of higher therms down reflecting customer growth and increased average consumption by 59 residential customers.

This increase was partially offset by the absence of a $1.2 million nonreoccurring adjustment in conjecture I'm convinced section with a rate case that occurred in the second quarter of 2018.

Natural gas or themselves have increased 2.5% your today compared to 2018. This increase in gas themselves into a company service territory with largely driven by customer growth.

Given the milder winter weather in 2019, but definitely a company estimates that weather normalized gas them sales. Excluding decouple sales were up 5.5 present in the first three quarters of 19 compared to the same period in 2018.

We are currently serving 1468 more customers are 1.8% more gas customers I've been at the same time last year and I want to point out that our weather normalized weather normal unit sales growth is currently outpacing our customer growth both rate and the company attributed in part.

Non heating residential customers are paying a transition to natural gas is the heating sorry.

Additionally, we see strong see an eye usage that is representative of our service or service areas economic strength that Tom talk to you earlier about.

Next on slide eight I'll discuss the electric units and sales margin.

Electric sales margins were 25.1 million in the third quarter, a decrease of <unk> point 8 million compared to the same period in 2018. The decrease in electric sales margins in the third quarter was due to lower kilowatt hour sales, reflecting milder summer weather in 2019 and overall lower average.

You said <unk>, partially offset by customer growth.

Year to date electric sales margins were 70.6 million, an increase of point 1 million compared to last year.

Electric sales margins in the first nine months of 2019 were positively affected by the higher electric distribution rates of 1.4 million.

Offset by a decrease of 1.3 million from lower kilowatt hour sales for the reasons, we just mentioned.

Year to date kilowatt hour sales decreased 5.2% compared to 2018.

The milder summer weather compared to 2018 had a significant impact on sales.

When normalizing whether in both 18 and 19 that accompany estimate a estimates at weather normalized sales were down 2.7%.

And the weather normalized sales decline as a result of lower usage per customer as a result of energy efficiency initiatives somewhat offset by higher customer count.

And just as a reminder, the companys fully de coupled in Massachusetts, and while in New Hampshire. The company has regulatory mechanisms in place that would provide recovery for a lot kilowatt hour usage due to company supported energy efficiency measures in display revenue associated with net metering.

Turning to slide nine we roll forward. The first nine months of 2018 net income through year to date.

Having a 19 and actually lead off I'd like to note that this lay out a slightly different from the Form 10-Q , and we isolate the impact of the after tax gain of the resource divestiture.

Gas and electric sales margin is higher than 2018 by 5.2 million slightly offset by the $2.6 million of gift can can you do source revenue realized from 2018 as a result at the divestiture.

Year to date, Olin and expenses decreased 1.6 million compared to the same period in 2018.

It includes a $1.2 million less Olin and as a result, but 2018 nonreoccurring adjustment to Olin EM in connection with up a new Hampshire rate case.

I went out and also lower by 1.7 million as a result of expenses not incurred due to the you source divestiture.

Excluding the nonrecurring 2018 adjustment to owing in that you source related expenses no longer incurred core utility Olin M. increased 1.3 million or 2.7%, which is primarily a result of higher labor costs.

Depreciation and amortization trended higher with higher utility plant and service slightly offset by lower amortization expense.

Taxes other than income taxes increased half a million and the nine months ended September thirtyth 2019, compared to the same period last year.

Primarily result.

Selecting higher local property tax rates on higher levels.

Of utility plant assets in service.

Interest expense was flat due to lower interest on a long term debt offset by higher short term borrowings.

And other expense decrease half a million primarily related to lower retirement benefit.

Next we've isolated the $9.8 million related to the after tax gain on the divestiture of you source.

Finally income taxes increased 1.6 million, excluding the gain on the Divesture as a result higher pretax.

Echo.

[noise] on slide 10, we recap quarterly updates regarding financing and regulatory activity in September Northern utilities closed and received funding for a 30 year note with the principal 40 million and this financing was used to pay off short term borrowings and lessen the company overall exposure.

Sure to variable short term interest rate.

Northern utilities General base rate case filed with the main PC is progressing as planned as mentioned last quarter. The filing includes a revenue deficiency request of $7 million with a tenant a half percent are we the equity ratio included in the filing is 52.9% after and incorporating an.

Equity infusion of the proceeds generated by these source divestiture as well as other corporate funds and 40 million dollar debt issuance at northern will not affect the companies at Bob equity ratio of 52.9%.

The company anticipates, new based distribution make to become effective by the second quarter of next year.

On September 15, Fitchburg submitted with the Massachusetts Department of utility a letter of intent to file a general increase in base distribution rates for but it's both gas and electric division and we anticipate filing of the full case in the fourth quarter of 2019.

And we'll provide more details about the filing and our next year in Oh.

On slide 11. It provides the trailing 12 months actual earned returns on each of our regulatory jurisdiction.

Unitil on a consolidated basis earned a total return on equity of 12.2% in the last 12 months ending September Thirtyth 2019.

Excluding the onetime gain from you source.

Message or that the company earned a consolidated return on equity of 9.5%.

Finally on slide 12, as we typically do we've provided a summary of <unk> distribution rate relief and that has not significantly changed since last quarter. We have precedent for a long term rate plans or class trackers across all of our utility subsidiaries accelerated cost because.

Sorry mechanism or focal point of our regulatory strategies, they allow for smoother margin growth and reduce regulatory lag.

We've been awarded over $4 million of rate relief outside of rate cases in 2019.

This concludes a summary of our financial performance for the period I will turn the call over to the operator, who will coordinate questions on the audience.

Thank you, ladies and gentlemen, as a reminder to ask the question you would need to press Star then one on your telephone.

To withdraw your question. Please press the Pankey again saw wants to ask the question.

Please standby, while we compile the Q1 I roster.

Our first question comes from the line.

Julien.

Smith with Bank of America. Your line is open.

Hi, Good afternoon. This is Alex Morgan, calling in for Julianne How're you doing today.

Good how are you Alex.

Thank you I just had one quick question I was wondering if we could just talk a little bit more in detail about the fitchburg gas versus electric are we I see that you provided the last 12 months.

6.1 blended but I was wondering if you could break those two out for us.

Thank you.

Yeah, I'll take that so Alex.

Pine on filing with the 2018 test year.

General the electric Division was earned a in that test year period about 7.8% our away the gap division 3.9%.

That's on a about as a combined rate base is that 165 million little more on the gas I'd doesn't electric but 54% on gas and 46% on electric.

Thank you very much.

Thank you.

Our next question comes from the line up Shelby Tucker with RBC capital markets. Your line is though.

Great. Thank you good at good afternoon, two questions one for Christine regarding the the last question you had are there any unknown.

Assets that we should be thinking about for the Pittsburgh rate case, it will be added to a terrific.

Keep you up pretty good estimation of the rate base and so that would include those.

Got it been but none of those are controversial assets. That's I'm, just trying to get a sense of.

Oh I thought controversy.

Yeah.

I think it's fairly straight forward I'm pretty confident going forward with that.

Okay and then.

Tom I'm one of the topics that has been.

Quite prevalent in the last six months is being a de carbonization, even renewable natural gas would you mind sharing with us kind of.

How you think about that topic, how it may affect your your strategies going forward.

It is a a topic that we're spending a lot of time internally discussing and trying to determine our pathways forward.

We do recognize that in the areas that we serve their policies. The primary the primary one of which is to achieve an 80% reduction by 2050.

And in order to achieve that there's gonna have to be de carbonization throughout both gas and electric business.

The flip side of that is we see gas is being in a central fuel in the areas that we service, especially in a cold weather climate and made in new Hampshire and to date gas is still being seen as part of the solution not part of the problem. So I would anticipate that we're going to develop strategies, where conversions to natural gas.

Enable some of the public policy objectives in the states, we serve and I think other policy objectives, such as heat pumps or electrification are gonna, primarily targeting fuel oil propane and other fossil fuels besides natural gas.

Got it and one of the the trends we've seen a among your larger neighbors and new England, that's been a investing in offshore wind or or those types of assets any any opportunity for you to do to get involved in that those type of investments or just two large.

Balance sheet.

I think the ones to date have been too large for us to participate in there has been talk about possibly new Hampshire pursuing similar strategies.

And depending on where that goes we would of course investigate and see if there's an opportunity for us but.

To date, I think it's been probably too large for us to consider.

Great. Thanks very much.

Thank you Shelby.

Thank you.

And gentlemen.

Asked the question.

I'm showing no further questions at this time.

And gentlemen, this concludes todays conference. Thank you for participating.

<unk>, everyone have a wonderful day.