Unitil puts ice storm costs at $10m

Friday, January 16, 2009

Unitil Inc. estimates that it will incur $10 million in costs for replacement and repair of its electric distribution system in the wake of damage caused by the December ice storm, the Hampton, N.H.-based utility disclosed in a filing with the U.S. Securities and Exchange Commission.

The company didn’t estimate the cost of investigations - both its own internal probe and its response to regulators in both Massachusetts and New Hampshire - into why the utility took so long to restore service to customers.

The disclosure also revealed that the company has received a $15 million increase in its line of credit thanks to the successful completion of the $160 million acquisition of Northern Utilities and Granite State Gas Transmission on Dec. 1.

The added capital could help in offsetting the ice storm-related costs, although Mark Collin, Unitil’s chief financial officer, said the two announcements in the same filing “was totally a coincidence.”

The ice storm was followed by a storm of criticism aimed at the company and the long delays in repairing electrical lines. The delays lasted for weeks in some cases, though the more common outer limit was 12 days in Massachusetts and nine in New Hampshire, according to the utility.

Nevertheless, several communities - including its home town of Hampton — are

now considering dropping Unitil. The Hampton Board of Selectmen voted Dec. 21 to investigate the possibility of setting up a town-owned utility to replace Unitil, with the town manger recommending a warrant in March.

And more than 2,000 residents of Lunenburg, Mass., signed a petition asking their town to follow suit, even after the company issued a public apology in a letter to its customers at the end of the year.

However, changing utility franchise boundaries is a long, complex process, said George Gantz, senior vice president.

“Some communities are dissatisfied,” said Gantz. “That’s understandable. The delays were unacceptable. We don’t object that they are looking at our options. That’s a normal thing to do. But our first focus has to be our internal investigation — what we can learn from this and to make sure we do better next time.”

The company has hired Bob Yardley, former chairman of the Massachusetts Department of Public Utilities, to spearhead its investigation and response to his former agency as well as the New Hampshire Public Utilities Commission, which have opened up inquiries into the matter.

The controversy erupting over the company’s service to electrical customers came two weeks after it added 52,000 more gas customers though the Northern Utilities acquisition, increasing Unitil’s customer base by about 50 percent.

But Gantz said that merger didn’t stretch the company thin at the time of the storm. Indeed, Gantz said, the company had access to a larger workforce that “would not have been available that would be before the acquisition. It would have been even more difficult without it.”

The extra capital through the increased line of credit could come in handy. Unitil ended up raising some $40 million by issuing 2.1 million shares of stock, but it did fall short due to the recession, and the company had to dip in to some $34.2 million in short-term bridge capital from the Royal Bank of Canada.

Unitil eventually plans to issue more stock when the market approves to pay back the acquisition loan.

None of the added capital could be used for the ice storm or its aftermath.

However, the merger also affected the company’s line of credit with Bank of America, since a larger company theoretically necessitates more working capital. BofA had already increased Unitil’s credit line by about $10 million to $45 million, but wanted to hold off going to $60 million until the merger was complete and the company showed that it raised enough capital. On Jan. 2, the bank agreed that Unitil did just that, and expanded its credit line to $60 million.

“It’s not directly raised for the storm, but if we need it for the storm, we can use it,” Collin said. - BOB SANDERS

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