Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Q4 2019 Unitil Corporation earnings Conference call. At this time, all participant lines on a listen only mode. After the speakers presentation. There will be a question answer session. That's the question during the session you'll need to press star one on your telephone. Please do you.
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Not like the hand, the conference over to your speaker today.
Diggins Director Finance. Thank you. Please go ahead Sir.
Good afternoon. Thank you for joining us discuss Newton corporations fourth quarter 2019 financial results with me today, or Tom Meissner, Chairman, President and Chief Executive Officer.
Steve on senior Vice President Chief Financial Officer, and Treasurer every Brock Chief Accounting Officer controller and taught Black Senior Vice President external affairs and customer relations.
We will discuss financial and other information about our fourth quarter results on this call as you mentioned in the press release announcing the call we have pulled that information, including a presentation to the investor section of our website at Www Dot Unitil Dot com.
We will refer to that information during this call.
Before we started since you have like to come with me today about future operating results for future events are forward looking statements under the Safe Harbor provisions of the private Securities Litigation Reform Act like 95 forward looking statements are inherently involve risks and uncertainties that could cause <unk> actual results could differ materially from those predicted.
Beams made on this call should be considered together cautionary statements and other information contained in our most recent annual report on Form 10-K , and other documents, we filed with or furnished tooth Securities and Exchange Commission.
Forward looking statements speak only as of today, we assume no duty to update though.
With that said I'll now turn the call over to chairman President and CEO Tom nicely.
Thank you Todd and thanks, everyone for joining us today.
We're happy to report that 2019 was another great year for the company.
We're going to begin today on slide four where today, we announced net income of 11.4 million, where 77 cents per share for the fourth quarter of 2019, which was an increase of point 4 million or three cents per share over the fourth quarter of the prior year.
For the year net income was 44.2 million or $2.97 per share, which was an increase of 11.2 million or 74 cents per share compared to 2018.
Excluding the Q1 divestiture of our unregulated energy Brokering business you source net income was 34.4 million four to $2 from 31 cents per share an increase of 1.4 million or eight cents per share compared to 2018.
This increase was largely a result of our continued growth in customer base.
Turning to slide five 2019 was the seventh consecutive year of increasing earnings per share.
EPS growth has averaged 7.1% annually since 2012, driven by strong margin growth, averaging 5.4% each year over the same time period.
Our sales margins continue to grow was the company expansive distribution system to serve new customers and execute on its regulatory strategy.
Our investments in system expansion in infrastructure modernization, resulting in a 7.2% increase in net plant compared to prior year.
This increase was funded in part by the proceeds from the sale of you source.
On slide six we've provided some operational highlights for the year.
We're proud of the success, we had operationally in 2019.
It was our best year ever for electric reliability with performance ranking in the top quartile of the industry.
This continues our improving trend over the last 10 years.
In fact over the past five years, our customers have experienced about 35% reduction in annual outage time compared to the prior five years.
The company also continues to emphasize safety and emergency response.
In 2019, we again responded to over 99.9% of gas safety calls within 60 minutes.
In addition, the company added 23 miles of new gas mains and construct in conjunction with customer growth initiatives will also replacing and modernizing 12 miles of outdated gas mains in Massachusetts and Maine.
I would like to add that these replacements will be recovered through existing accelerated capital recovery mechanisms.
Slide seven recaps the strong returns we've delivered to our investors as we outpaced both the S&P 500 in the Dow Jones utility average over the past five and 10 year periods.
We're also pleased to have been recognized with an ERP Index Award for outstanding stock performance by the Edison Electric Institute.
Unitil had the highest total shareholder return in the small cap category among the index companies for the five year period, ending September Thirtyth 2019.
Slide eight summarizes the key investment themes, we offer to our investors. We are a pure play regulated utility with strong growth customer growth prospects in a significant opportunity for continued investment.
We believe this growth potential combined with our low risk business profile offers investors a rare opportunity.
With that said I will now turn the call over to Christine.
Thanks, Tom and good afternoon, everyone I'd like to begin by reviewing a gas and electric sales activity beginning on slide nine at 2019 gas margin is 122.2 million, which is an increase of 5.3 million over 2018.
This increase was due to higher natural gas distribution rate of 5.6 million and point 9 million as a result of higher therm sales, reflecting customer growth and increased average can.
Assumption by both residential and see an eye customers.
This increase is partially offset by the absence of a 1.2 million nonreoccurring adjustment in connection with two rate case, which occurred in the second quarter 2018.
Natural gas therm sales increased 0.4% compared to 2018.
Given the milder winter.
Milder winter weather in 2019, the company estimate that weather normalized gasser therm sales, excluding decouple sales were up 4.2% year over year.
The increase in gas therm sales was largely driven by customer growth and strong commercial industrial usage.
We are currently serving 1150% to 1.4% more gas customers and that the same time in 2018.
I'd like to point out that weather normal.
Unit sales growth is currently outpacing our customer growth rate and the company partly attribute this to non heating residential customers transitioning to natural gas is the heating sorry.
Additionally, we see strong see an eye usage that correlates to the robust economies within our service area.
Next on slide 10 for the year electric sales margins are 91.9 million, which is flat to 2018.
Patrick sales margins were positively affected by higher electric distribution rate of 1.6 million, but fully offset as a result of lower kilowatt hour sales.
Total electric kilowatt hour sales decreased 4.8% compared to 2018.
Milder summer weather compared to 2018 had a significant impact on sales and when normalizing. This weather in both 18 and 19, the customer estimate that weather normalized sales were down 2.7% in new Hampshire.
And this weather normalized sales as a result of lower usage per customer as a result of energy efficiency initiatives and somewhat offset by higher customer count.
Just as a reminder of the company is fully de coupled in Massachusetts.
And in New Hampshire, the company has regulatory mechanisms like regulatory mechanism in place and these mechanisms to provide recover from Los kilowatt hour usage, you company sponsored energy efficiency measures and displays revenue associated with net metering.
And if we excluded the recoverable net metering and company sponsored energy efficiency decreases we estimate that weather normalized sales are down about one point what percent in new Hampshire.
Turning to slide 11, we provide an earning variance analysis.
I'd like to point out that this lay out a slightly different from the Form 10-K is we isolate the impact of the after tax gain of the USAT yours you source divestiture.
As I mentioned previously gas and electric combined sales margin is higher than 2018 by 5.3 million offset by 3.8 million of you source revenue realized in 2008.
Operation and maintenance expenses decreased 2.3 million compared to the same period. In 2018. This includes 1.2 million less owing to them as a result of a 2018 nonreoccurring adjustment to own M. In connection with our New Hampshire 8-K.
When I am also lower by 2.4 million as a result of expense not incurred due to the users divestiture.
Excluding these nonrecurring adjustments Oh, one am increased 1.3 million or 2%, which is primarily a result in higher labor costs.
Depreciation amortization trended higher with higher utility plant and service slightly offset by lower amortization expense.
Taxes other than income taxes increased point 3 million compared to 2018, primarily reflecting higher local property tax rates on higher level of utility plant assets and service. However, this was partially offset by favorable property tax abatements realized in 2019.
Interest expense of flat due to lower interest I'm on long term debt offset by higher short term borrowings.
[noise] other expenses decreased 1 million problem at primarily related to lower retirement benefit costs.
And next we've isolated that $9.8 million related to the after tax gain on the sale of the divestiture of you source.
Excluding the tax associated with the gain on the divestiture income tax increased 1.8 million as a result of higher pre tax income.
Moving onto slide 12.
In December you, a Unitil Corporation closed and received funding on 10 year notes.
With a principle of 30 million and an interest rate of 3.4%.
This financing immediately risk reduce the short term borrowings and lessen the company's overall exposure to variable short term interest rate.
A portion of these proceeds in addition to corporate general fines were invested into the company's regulated subsidiary.
The company is also considering youd utilizing a prepayment option to pay 20 million of corporate notes in the second quarter of 2020 and these notes are currently carried at an interest rate of 6.33%.
Tell is well positioned to continue refinancing high cost long term debt at lower interest rates in the near future with over 50 million of debt maturing in the next three years at an average rate 6.5%.
Next on slide 13, we provide an update to the company's regulatory activity in December we filed a gas and electric rate case from Massachusetts subsidiary. Both filings include a 52.5% equity ratio and we expect to have new distribution rates to become effective in the fourth quarter of 2020.
The as filed base revenue deficiency on the gas side is 7.3 million and 2.7 million on the electric side.
I'd like to note that these based revenue deficiencies include roughly 5 million of combined tracker revenue that is already being recovered via other rates that will shift to base rates. After the rate case becomes effective.
The electric rate case filing also seeks approval of performance base rate to take the places the existing tracker capital tracker mechanism.
The northern utilities General base rate case filed with the company with the main PC is progressing as planned the company is anticipates news based distribution rates to become effective on April 1st 2020.
The company's also monitoring the recent update from FERC on the adoption of a new base rate base, our OE methodology for transmission rate base. Our exposure is very limited with the electric transmission, representing less than 1% of the company's total rate base.
Finally, the company's pleased to announce that we received regulatory approval.
For a new long term pipeline capacity agreement back to Union storage, and Don, Ontario, increasing our gas supply by 11% in New Hampshire in Maine through a project called Westbrook Express and this helps ensure that we have the capacity to serve our growing customer base.
Slide 14 provides as 2019 actual earned return on equity in each of our regulatory jurisdictions.
Until on a consolidated basis earned a total return on equity of 12.2% in the last 12 months.
Excluding the onetime gain from you source divestiture the company earned a consolidated return on equity of 9.5%.
Finally on slide 15, we've provided a summary of our distribution rate relief that affected 2019, we have a precedent for long term rate plans or cost trackers across all our utility subsidiaries.
Accelerated cost recovery mechanisms are a focal point of our regulatory strategy as they allow for smoother margin growth reduce let regulatory lag and help minimize rate shot for customers.
We have been rewarded over $4 million of rate relief outside of rate cases in 2019.
This concludes our summary of our financial performance for the period I'll now turn the call back over to Tom to discuss our updated investment program and some other topic.
Great. Thank you Christine.
On slide 16, we've summarized our current five your investment plan.
We expect to invest over 680 million in our gas and electric systems over the next five years, which has an increase of over 25% compared to the previous five years.
This investment will continue to fund gas infrastructure modernization gas system expansion in electric grid modernization.
It's worth noting that this outlook does not including any incremental spending for grid modernization in new Hampshire electric vehicle charging infrastructure or gas supply, peaking projects.
Slide 17 highlights our forecast for rate base growth over the same time period.
We expect to continue our historical rate base growth of 7.5% to 8.5% over the next five years.
This growth could be accelerated of significant projects materialize, such as the grid modernization in new Hampshire electric vehicle infrastructure or gas supply, peaking projects.
We do not expect our five year investment plan to materially alter the investment mix between gas and electric operations with two thirds of investment directed towards the gas distribution system.
Under the current plan, we expect gas rate base to grow slightly faster than electric.
On slide 18, we provide detail on the funding sources from investment program.
The primary source of funding will be internally generated cash flow, which is expected to fund approximately 64% of our five year investment program.
The company has strategically reduced its payout ratio over the past several years and is well positioned to reinvest earnings and reduced external financing requirements.
The remaining 36% will consist of external financing through a combination of long term debt and equity.
About 6% of the investment program will be funded by common equity which include shares issued under the company's dividend reinvestment in for a one k. programs.
Additional common equity offerings will be needed from time to time to maintain a balanced capital structure and support our investment grade credit metrics.
Finally on slide 19, this week, we announced that we're increasing our annual dividend by an additional two cents to $1.50 per share.
This is the six consecutive year that we have increased our common dividend, even as we have significantly lowered our our payout ratio.
In 2019, we achieved the upper end of our targeted dividend payout ratio range of 55% to 65%.
As a result, the board may consider gradually accelerating growth in the dividend beginning next year, even as our payout ratio continues to decline.
We will continue to strategically analyze our dividend policy subject to EPS growth and financing needs.
And with that thank you for attending today's call I will now turn the call over to the operator, who will coordinate questions from the audience.
Thank you.
A minor to ask the question you need to press Star one on your telephone to withdraw your question press the pound Keith Please stand by with the compiled acuity roster and again that is star one if you'd like to ask the question and first question comes from Shelby Tucker from RBC capital markets.
Not yet.
Sorry can you hear me.
Yes.
Okay, Great afternoon.
I would tell you doing.
Just had a question about the the financing that you Didnt on fourth quarter. You mentioned you made some in equity contribution to the utilities, where do your equity ratio stand now for Pittsburgh and North Northern utilities, Maine.
Yes.
Well have that on one second.
Just.
No actually looks that sorry go ahead.
[laughter] as.
52.8%.
The main remain yet and 52.6% for Pittsburgh.
Got it okay. So you actually your therefore relative to where you filed.
Yes, correct, Jeff and then as I look at the to the five your Capex program or can you remind me I'm kind of how much is.
No one in measure ROI in the plan versus.
Items that still needs to be sought bye bye.
For regulatory recovery.
When you say regulatory recovery do you mean approved by regulators before we can spend it.
Right, So I'm trying to get a sense of of especially in the latter part of the years as they are these.
Items that are our had been fully identified or is there and if so is there upside to do that plan or are there are elements there that may not be.
I have not been free identified it.
Now the plant itself is pretty well fully identified and as we indicated we did not include in the plan items, such as grid modernization in New Hampshire.
Which at this point, we don't really know the magnitude of the program or when we're going to get an order. So I would assume that the plan that we identified in our presentation as a pretty solid plan in if additional things.
Our approved by regulators that would represent upside to that plan.
Okay, great. Okay. Thank you.
Thank you.
Thank you.
And our next question comes from Julien Dumoulin Smith from Bank of America.
Your line is an open.
Thank you good afternoon, it's Alex Mark and calling in for Julien.
Good afternoon Alex.
Thanks, much for taking my question I only have one and it's largely about Oh nm, how should we be thinking about.
Any potential additional cost savings going forward now without you source.
I would think that no one ammo be roughly in line with inch station going forward.
We did isolate out the impact of you source in the presentation in indicated what the OEM growth would have been.
You source not been reflected.
Okay. Thank you so much.
Thank you and ladies and gentlemen, if you other question that is star one again, ladies and gentlemen, if you have a question that is star one.
And our next question comes from Michael Gaugler from Janney Montgomery Scott. Your line is now open.
Hi, good afternoon, everyone.
Good afternoon, Mike.
Just one question as well.
Looking at the new long term natural gas capacity agreement you signed.
How does how does that factor into your thinking in terms of any potential peaking projects that were under consideration did push those foreign were off into the future or does it make sense to look more towards peaking.
We definitely are looking I'm at peaking and are peaking needs.
That is something that came out of our IR key and we do have.
The main commission and the New Hampshire commissions understands that there is a need to look to see is if there's any cheaper alternative for our.
Peak area right now where served by Repsol. So that would be in addition, and we're looking at lots of different either internal or external HM.
Solution for that peaking.
Going forward.
Okay. Thanks, that's that's all I had.
Great. Thank you.
Thank you.
And I am showing no further questions.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.
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