Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2020 Unitil Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Mr. Todd Diggins, you may begin, sir.

Good afternoon, and thank you for joining us to discuss Unitil Corporation's third quarter 2020 financial results. Speaking on the call today will be Tom Meissner, Chairman, President and Chief Executive Officer; Bob Hevert, Senior Vice President, Chief Financial Officer and Treasurer. We will discuss financial and other information about our third quarter results on this call. As we mentioned in the press release announcing the call, we have posted that information, including your presentation to the Investors section of our website at www.unitil.com. We will refer to that information during this call. On Slide 2, the comments made today about future operating results or future events are forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause our actual results to differ materially from those predicted. Statements made on this call should be considered together with cautionary statements and other information contained in our most recent annual report on Form 10-K and other documents we have 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. This presentation contains non-GAAP measures. The accompanying supplemental information more fully describes these non-GAAP measures and includes a reconciliation to the nearest GAAP measure. The Company believes these non-GAAP measures are useful in evaluating its performance. Turning to Slide 4. We provide an outline for topics to be covered in today's call. Tom will begin the business and strategy update, and Bob will cover our financial and regulatory update, and then Tom will wrap things up with a quick summary before we turn the call over to the operator for questions. And with that, I will now turn the call over to Chairman, President and CEO, Tom Meissner.

Thank you, Todd. Good afternoon, everyone. Beginning on Slide 5. Today, we announced net income of $0.3 million or $0.02 per share for the third quarter of 2020. The Company estimates that the ongoing COVID-19 pandemic unfavorably impacted third quarter net income by approximately $0.01 per share. Through the first 3 quarters of 2020, net income is $18.6 million or $1.25 per share. For comparison purposes, recall that in the first quarter of 2019, the Company recognized a onetime net gain of $9.8 million, or $0.66 per share, on the Company's divestiture of its non-regulated business subsidiary, Usource. Adjusting for this onetime gain, net income is down about $4.4 million or $0.29 per share compared to 2019. The year-to-date decrease in earnings is primarily due to the warmer than normal winter weather in Q1, which unfavorably affected net income by approximately $3.1 million or $0.20 per share. In addition to the warmer winter weather, we estimate that net income has been unfavorably impacted by approximately $0.04 per share due to the COVID-19 pandemic. Turning to Slide 6. And similar to last quarter, I'd like to recap the Company's response to the COVID-19 pandemic. Our highest priority continues to be the safety of our customers and of our employees. In response to the ongoing pandemic, we implemented our crisis response plan to help execute preventive and proactive measures during which are during this unprecedented time and have also enacted a phased reopening plan. The Company is currently in its limited reopening phase and is still requiring all office employees to work remotely wherever possible. The Company also employed a large number of field workers to construct and maintain its energy infrastructure. These workers have adopted new policies and personal protective equipment to ensure the health and well-being of themselves and of…

Thank you, Tom, and good afternoon, everyone. I'll begin with the sales and margin discussion on Slide 10. Year-to-date 2020, our electric gross margin was $70 million, a decrease of $0.6 million compared to 2019. The decrease in electric margin reflects lower C&I demand sales related to the economic slowdown caused by the COVID-19 pandemic. Lower average usage per customer associated with energy efficiency and warmer winter weather. We estimate the COVID-19 pandemic unfavorably affected electric margin by approximately $0.7 million. Through the first 9 months of 2020, total electric kilowatt hour sales increased 1.2% relative to 2019. Residential sales increased 8.2% primarily reflecting stay at home orders and continuing remote work, along with warmer summer weather relative to the prior year. C&I sales decreased 3.6%, reflecting lower usage due to the COVID-19 pandemic. Moving to Slide 11. For the first nine months of 2020, our gross gas margin was $83.3 million, a decrease of $2.2 million over 2019. That decrease was driven principally by the historically warm winter weather in the first quarter, which we have discussed in the past. The Company estimates that year-to-date gas margin was lower by $3.2 million due to warmer weather. We also estimate that the COVID-19 pandemic unfavorably affected gas margin by $1.3 million due to lower commercial and industrial usage. Those unfavorable variances were partially offset by higher distribution rates and customer growth of $2.3 million. Through the first nine months of 2020 natural gas therm sales decreased 7.1% compared to 2019. We attribute the decline in gas sales to the historically warm winter weather and the COVID-19 pandemic. The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were down 1.9% year-over-year. I also note, we currently are serving 2.9% more gas customers than in the same time in 2019,…

Great. Turning to Slide 17. We believe that our long-term capital investment goals remain intact with ample investment opportunities in modernizing and expanding our utility system. We believe we are well positioned to continue executing our growth strategies, while pursuing our sustainability goals, all while maintaining excellent service to customers throughout these unprecedented times. Lastly, we expect to provide any updates to our capital spending plan during our Q4 earnings call.

Great. Thanks, Tom. And with that, thank you for attending today's call. I will now turn the call over to the operator, who will coordinate questions.

[Operator Instructions] And our first question comes from Harry Pollans with Bank of America. If you have your line on mute. Please unmute your line. Pardon me, Mr. Pollans, if you have your line on mute, could you please unmute your line. It appears we do not have any further questions in queue. Our next question comes from Shelby Tucker with RBC Capital Markets.

A quick question about your results. Your electric volumes were up, gross margins were down for the quarter. I was wondering if some of that could, might have also come from decoupling. So if you could maybe just go through the government mechanism, how it works, particularly between residential and C&I?

Shelby, this is Bob Hevert. And yes, we do attribute a portion of that to decoupling the fact that the volumes are up in margins, not the decoupling mechanism is, does what it's intended to do, of course, which is to ensure that revenues are not affected by volumes. It is a full revenue per customer type structure. So we were not surprised to see this type of result. When we looked at the units and then we looked at margin. But you're right, we do attribute a portion of the disconnects between margins and volumes to decoupling.

And is there a separate treatment between residential and C&I?

No, there's not. We would attribute effectively the same, excuse me, the same effect to both.

Okay. Because actually, your overall volumes were, if you take the 2 together, we're up. And now we have thought that the gross margin would have been somewhat up to mirror that? I guess...

We, well, we, correct. And partially, that was due to decoupling, partially, it was due to the result, excuse me, to a decrease in demand volumes, which offset some of the increase in unit volumes. So the decrease in demand volumes, the effect of decoupling, to the some extent, the loss of fee revenues, we think, can be attributed to the difference between increase in volumes and the decrease in margins.

Got it. And then as you look at decoupling in New Hampshire, would that decoupling mechanism be similar to what you have in Massachusetts? Or is it somewhat different?

No, we would look for it to be fundamentally the same, although we do not yet have the structure actually finalized. In principle, it would be the same. We would be looking for a revenue per customer decoupling structure, which would be sure that the revenue requirement is filed per customer would be Medicare. So fundamentally, the same.

Next question comes from Harry Pollans with Bank of America.

Can you guys hear me?

Yes. Go ahead, Harry.

Sorry about that. I'm not sure what happened. Yes. So just, you guys talked about advancing the grid towards the beginning of the presentation. I was wondering if you could elaborate more on the electrification opportunities associated with that advancement of the grid and across your jurisdictions and what sort of your utilities, you think you would see the most opportunity in terms of electrification?

Sure. This is Tom Meissner. In regards to the last part of your question, probably the greatest opportunity would be in New Hampshire that we're currently seeing. And in terms of the opportunity itself, we do expect to advance some proposals to help advance charging infrastructure in the state. But I think the real opportunity is going to be the long-term opportunity represented by the significant load represented in electrifying what's now fueled by gasoline. So we're currently incorporating the expected increase in demand and sales associated with electric vehicles into our forward-looking demand forecast. And over time, I would expect that's going to drive increased investment as we have to prepare for the increased load we will see on our system over time.

Got it. That's helpful. That makes sense. And then one other one on similar subject, but on the gas side, you talked about an RNG, RFP that you put out. I was wondering what the size of that RFP is? And would this be incremental to your current capital program?

Harry, this is Bob Hebert. When we're looking at that RFP, it really is for supplies. And I, just to be clear, it's a request for expressions of interest, so it's fairly preliminary. But what we're looking for, yes, no, that's okay. What we're looking for here is expressions of people who may be able to provide renewable natural gas for our supply portfolio, principally in Maine to begin with. So at this point, it's not a capital issue. It's more a supply issue, but we are beginning the steps of really learning how to integrate renewable natural gas into our supply portfolio to really green the supply.

And I guess a follow-up on that, would you be interested in potentially investing in the associated infrastructure and facilities that lend themselves to RNG, like anaerobic digesters on that front, kind of thing?

I mean, I think we certainly would look at any investment that makes sense to us. So as we go through the process of evaluating proposals that we see pursuant to the RFEI that we set out. And as we think and learn more about it, we would always keep those options open.

And our next question comes from Wayne Archambo with Monarch Partners.

Do you have any sense of any in-migration to New Hampshire or Maine, getting really more material about people leaving New York, going up to Maine, just more affordable, quality of life, blah, blah, blah, do you have any sense of that the in-migration of those 2 states?

Wayne, this is Tom. To that point, yes, you're quite right. We've seen a lot of evidence of that. Over time, I think we've seen intense competition for existing residential housing inventory. There's been reports of people making above asking offer site unseen. And I can actually turn it over for a minute to our new CFO, Bob Hevert, who found himself in the position of having to find housing up here when he accepted the job here at Unitil.

Yes, Wayne, it was not easy. It's a very, very robust market here there. We found ourselves competing with a fair number of people for even just apartments in the Hampton Portsmouth area. So I would agree with you, just based on my own experience, there does seem to be quite a bit of demand for housing in this area.

Any sense in Maine at all?

Anecdotally, I think it's a similar situation in Maine to what we're seeing in New Hampshire. And a lot of it seems to be driven by people who are now working remotely during the pandemic, and are essentially getting out of the hotspot areas in the urban areas and seeking a different place to live, at least during the pandemic, we'll see how it translates over time after this pandemic is over.

And then looking at your stock today, and I've owned the stock for quite a few years. The XLU, which is the utility ETF is down 1% in the last year. Your stock is down 42%, pretty much where it was at the beginning of 2016. So with this massive underperformance, do you have any, you or the Board have any inclination to initiate a buyback or anything to enhance shareholder value here?

Well, clearly, our, the underperformance of our stock is certainly something that we're all very aware of and we're focused very much on in terms of trying to return to where we were previously. I guess, I would say that fundamentally, our outlook, we see is really unchanged. So we're really looking forward in terms of our fundamental outlook our opportunities for investment, our rate base growth and opportunities to improve our earned returns. And based on that, probably a stock buyback would be something that we couldn't consider because we would not then be able to fund our investment program. So, but we are looking at all options to try to address the uncertainty and the concern in the market that may be driving the current valuation.

You certainly have quite a bit of debt capacity on the balance sheet if I assume?

We did, yes. We do. We'll be careful, Wayne, in terms of how we capitalize the Company going forward, but I would agree, we've got some capacity.

And I would just think what the cost of debt being at the 60-year lows, and consolidation still continues in the industry, public service in Mexico was taken out in the last couple of weeks. And as you know, Central Vermont was acquired by the Canadian company back 7, 8, 6, 7 years ago. So I think you might be one of the last public utilities left in New England. So again, we got ultimately looking for value creation here and seeing your stock is where it was 4.5 years ago and significantly lagging the utility group, it's certainly, it's certainly caused my concern as a long-term shareholder.

I understand, and I think it's a cause for concern for all of us.

Last question. Have any of you been buying stock personally? Has there been any insider buying at all of these levels? Or...

Not that I'm currently aware of, Wayne.

Thank you. And I'm showing no further questions in the queue at this time. Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program, and you may now disconnect.