Unitil Energy Systems, Inc., 080620 NHPUC, 26, 391

Docket Nº:Order 26, 391
Opinion Judge:DIANNE MARTIN CHAIRWOMAN
Judge Panel:Kathryn M. Bailey Commissioner Michael S. Giaimo Commissioner
Case Date:August 06, 2020
 
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UNITIL ENERGY SYSTEMS, INC.

Order No. 26, 391

DE 20-076

New Hampshire Public Utilities Commission

August 6, 2020

Petition for Authority to Issue Securities

Order Approving Financing Petition

DIANNE MARTIN CHAIRWOMAN

This order approves a request by Unitil Energy Systems, Inc., to borrow up to $35 million, and to issue corresponding long-term debt in the form of first mortgage bonds. Unitil Energy Systems intends to use the money to pay off short-term debt incurred to complete capital projects and to fund 2020 capital expenditures.

I.

BACKGROUND

Unitil Energy Systems, Inc., (UES or the Company), is a public utility that supplies electric service to approximately 77, 000 customers in the capital district and seacoast region of New Hampshire. The Company filed a petition on May 20, 2020, pursuant to RSA 369 seeking Commission approval to borrow up to $35 million from institutional investors. UES proposed issuance of long-term debt in the form of first mortgage bonds with a long-term maturity of 1 to 30 years and a coupon rate not to exceed two hundred eighty basis points (2.80 percent) above the then applicable U.S. Treasury Bond Rate, to be determined at the time of closing. In no event would the coupon rate exceed 5.25 percent. If the Company borrows the entire $35 million, UES projects the financing costs to be approximately $500, 000. UES proposed to issue the securities from the date of this order through December 31, 2020.

The petition and subsequent docket filings, other than any information for which confidential treatment is requested of or granted by the Commission, are posted at http://www.puc.nh.gov/Regulatory/Docketbk/2020/20-076.html.

II.

POSITIONS

A. UES

1. Finance

UES supported its petition with the pre-filed testimony of Todd R. Diggins, the Treasurer and Director of Finance for Unitil Service Corp (USC). Like UES, USC is a subsidiary of Unitil Corporation (Unitil); it provides services to Unitil's subsidiaries. See Petition (May 20, 2020), Testimony of Diggins at Bates 10. UES also supported its petition with information required by the applicable parts of N.H. Admin R., Puc 308; and with a description of UES's authorized and outstanding long-term debt, capital stock, and short-term debt. The Company also investigated credit ratings from S&P, and Moody's, and reviewed the National Association of Insurance Commissioners (NAIC) rating, NAIC-1.1

UES said it will use the loan proceeds to: (i) refinance existing short-term debt; (ii) fund, in part, planned capital expenditures for 2020; and (iii) fund issuance costs. Remaining funds, if any, shall be used for appropriate general corporate expenses. UES also attached its proposed 2020 construction budget to the petition totaling $30.56 million. The Company asserted that the purpose of the financing is in the public good and, therefore, should be authorized under RSA 369.

To implement the financing, UES proposes to sell up to $35 million in aggregate principal amount of long-term debt in the form of first mortgage bonds (Bonds), with a maturity ranging from 1 to 30 years, during the period from the date of the Commission's order through December 31, 2020. Approximately $25 million of the proposed debt securities issuance would be used to refinance existing debt and approximately $10 million (including approximately $500, 000 in estimated issuance costs) would represent new indebtedness.

To achieve favorable financing terms, UES seeks flexibility. The Company requested authority to use the private debt market, with the following parameters: (1) the aggregate principle amount of long-term debt issued during the authorization period will not exceed $35 million; (ii) the long-term debt will be in the form of secured Bonds; (iii) debt maturity will range from 1 to 30 years; and (iv) the coupon rate will be consistent with market rates for an instrument of similar maturity and risk at the time of the issuance, limited to no more than a fixed coupon of 5.25 percent.

The Company proposed to price the Bonds at a fixed rate to be determined at the time of closing, based on either the 10- or 30-year U.S. Treasury Rate plus the proposed credit spread of two hundred eighty basis points (2.80 percent). UES said that the proposed maximum fixed coupon rate of 5.25 percent would provide the Company with sufficient flexibility in the event of an unanticipated increase in rates due to uncertainty or volatility in the capital market. Consequently, UES said that the final terms and conditions, amounts, documentation, and rate would be determined at the time of issuance.

UES calculated, on a pro forma basis, that the new debt of approximately $10 million (including approximately $500, 000 in estimated issuance costs), plus the refinance of the current $25 million in short-term debt as of a target date of September 15, 2020, would result in an increase in annual interest expense.2

UES asserted that the proposed financing would not have a significant impact on the Company's current capital structure. UES's current capital structure is 53 percent debt and 47 percent equity. After the financing, the capital structure will be 55 percent debt and 45 percent equity. UES expects a favorable reception by the private placement market for its proposed debt issuance. See Petition (May 20, 2020) Testimony of Diggins at Bates 20.

The Company also asserted that the proposed transaction is consistent with the public good and is therefore authorized under the provisions of Chapter 369. Petition at 4 (May 20, 2020).

2. Motions for Confidential Treatment

UES requested confidential treatment for several Company exhibits and responses to Staff data requests pursuant to RSA 91-A and N.H. Admin R., Puc 203.08. The Company contends that the documents at issue constitute confidential, and in some cases commercial, financial, or proprietary, information.

In its first motion for confidential treatment, UES requested confidential treatment for Exhibit UES-4, the Company's unaudited balance sheet as of March 31, 2020, and Exhibit UES-5, the Company's unaudited income statement for the twelve months ending March 31, 2020, because the documents have not been...

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