Unitil Corporation

1852–1999

Unitil Corporation is a public utility holding company system. It is the parent company of eight wholly owned subsidiaries, known as the Unitil System, in New Hampshire and Massachusetts. These subsidiaries form a fully integrated system of energy and service companies that supply some 100,000 customers in New Hampshire and Massachusetts. Unitil's principal business is the purchase, transmission, distribution, and sale of electricity, as well as the distribution and sale of natural gas through its three retail subsidiaries, Concord Electric Company, Exeter & Hampton Electric Company, and Fitchburg Gas and Electric Light Company. Unitil Power Corp. provides wholesale power and transmission services to the system's retail subsidiaries. Unitil Resources Inc. (URI) markets energy, consulting, and other energy-related services to nonaffiliates. Unitil Corporation owns real estate to support the utility business of its affiliates. Until Service Corp. provides centralized support to the system's companies. Usource L.L.C. (a subsidiary of URI) Internet-based energy procurement supplies services to large commercial, industrial, and institutional customers throughout New York and New England. In 1999, Electric Light & Power magazine ranked Unitil's three distribution subsidiaries as first (Exeter & Hampton Electric Company), seventh, and 17th in its list of the nation's 100 lowest-cost distribution companies.

1852--75: Pioneering Electric and Gas Services

Unitil's history is rooted in its three retail distribution utilities--Fitchburg G & E, Concord Electric, and Exeter & Hampton--three independent, investor-owned utility systems formed through a significant ownership by the Tenney family. More than 100 years after the founding and development of these companies, Unitil emerged as the holding company of a retail electric and gas distribution utility in Massachusetts and of two retail electric distribution utilities in New Hampshire.

In 1852, before the Civil War, the Fitchburg Gas Company began to supply customers in central Massachusetts. Shortly a practical version of the incandescent lamp was invented, Fitchburg Gas bought the Wachusett Electric Light Company and in 1895 changed its company name to Fitchburg Gas and Electric Light Company (Fitchburg G & E).

Concord Land and Power Company--incorporated in Concord, New Hampshire in 1892--became the Concord Electric Company (Concord Electric) in 1901 and acquired Penacook Electric Light Company in 1918. Exeter and Hampton Electric (Exeter & H)--established in 1908--began by serving customers in 13 towns in Rockingham County, New Hampshire, and then extended its lines to Hampton Falls, Newton, East Kingston, and South Hampton. These companies functioned as private, investor-owned firms to supply electricity in their respective New Hampshire markets. Fitchburg G & E, also a private, investor-owned company, supplied its Massachusetts market with electricity and gas.

Electricity was relatively inexpensive, but the need to save energy would soon arise. While serving as a minister to France, Benjamin Franklin had suggested Daylight Saving Time (DST) as a way of conserving the cost of lighting for shops. Although close to 150 years passed before his suggestion was adopted, when England became involved in World War I, Parliament responded to the need to save energy with the 1916 act that introduced British Summer Time. The act mandated that clocks be advanced one hour during the summer months. During World War II, England again recognized the saving aspects of British Summer Time and instituted Double Summer Time, which was two hours ahead of Greenwich Mean Time.

In 1918, to conserve resources for the war effort, the U.S. Congress placed the country on DST for the remainder of World War I. The law was observed for seven months but proved to be so unpopular--especially with farmers--that President Woodrow Wilson had it repealed in March 1919. What had become obvious, however, was that DST did save energy and fuel. When America entered World War II, Congress reinstated DST year-round basis, which remained in effect until September 30, 1945. For the next 21 years, no U.S. law enforced DST. States and localities were free to choose whether they would observe DST; any area could exempt itself from DST by passing a local ordinance. The resulting confusion was not resolved until Congress passed the Uniform Time Act of 1966. Following the 1973 Arab Oil Embargo, Congress put most of the country on extended DST in hopes of saving additional energy. The experiment worked, but opposition, mostly from the farming states, caused Congress to end the experiment in 1975. The Uniform Time Act of 1966 was amended in 1986. From then on, DST began the first Sunday of April and ended the last Sunday of October.

1935-84: Regulation, Deregulation, Re-Regulation

For fiscal 1999, total operating revenues rose to $172.37 million, compared to $166.68 million in 1998.

1935–1994

During these early years, Fitchburg G & E, Concord Electric, and Exeter & H operated in a relatively unregulated environment; they competed mostly on the basis of price and personal service, especially during the economic depression of the 1930s.

During the 1980s research economists realized that the early electricity market 'was remarkably competitive.' Across America, consumers could choose from more than one electric company. In that environment, production quadrupled and prices fell 26 percent.' When competition began to erode their profits, the oldest companies considered the advantages of consolidation. 'States passed laws guaranteeing exclusive franchises to those utilities and propping up their prices,' Ryan Oprea reported in a study published in Reason. 'The federal government's response was passage of interstate legislation, known as the 1935 Public Utility Holding Company Act, which kept utilities from entering other energy-related businesses and seriously limited their capacity for expansion.'

In 1935, Congress also founded the Federal Power Commission (later restructured as the Federal Energy Regulatory Commission), which established 'the complex rate and merger regulations that delayed and contorted changes within the industry.' In 1936, the three independent public utilities that eventually became subsidiaries of the Unitil System--Fitchburg G & E, Concord Electric, and Exeter & H--began to test the advantages of cooperation when Charles H. Tenney opened an office in Boston to offer centralized services to these companies.

Concord Electric extended its services to Concord, New Hampshire, and the greater Concord area. Fitchburg G & E converted to natural gas in 1952 and in 1969 acquired the Gardner, Massachusetts-based Gardner Gas Company. The three retail utilities continued to accept shared services from an office based in Bedford, New Hampshire. 'In the late 1970s,' Oprea wrote, 'the new Department of Energy wanted to develop environmentally sound, renewable resources. To that end, Congress passed the Public Utility Regulatory Policies Act (PURPA), which required utilities to purchase a portion of their electricity from environmentally friendly producers.' PURPA forced the dominating, vertically integrated electric firms to let small, independent nonutility generators sell energy to other producers over the large companies' transmission grid (vast networks of electric lines). Suddenly, the wholesale market was available to hundreds of companies that could produce and sell their electricity.

1984--97: Birth of the Unitil System, Competition, Development Strategy

In 1984 Concord Electric and Exeter & H agreed on a stock-exchange plan that became effective in 1985 for the creation of the Unitil Power Corporation, a wholesale electric power utility. They became subsidiaries of Unitil Corporation (Unitil) in 1985; Fitchburg G & E merged into Unitil in 1992. Unitil Service Corporation (Unitil Service) was established in 1984 to provide, at cost, centralized management, accounting, planning, procurement, and other services to the Unitil System companies. Unitil Realty Corporporation was established in 1986 to own and manage the company's corporate office building and property. Thus, the three independent retail electric and gas distribution utilities that had been sharing centralized administrative services became wholly owned subsidiaries of Unitil Corporation.

The management of Unitil System developed a growth strategy based on foresight, dependability, stability, and sophistication. According to Unitil's 1994 Annual Report, the Unitil companies' historic strategy had been 'to preserve efficiencies and enhance cost savings through strategic alliances.' This strategy allowed the distribution utilities to maintain the lowest per-customer operating costs of all major investor-owned utilities in New England. About 75 percent of total costs for Unitil's distribution companies were related to energy supply. Unitil focused on finding the best wholesale terms and prices and made it a point to participate in the market at regular intervals to participate in the latest products and services.

Unitil was dependable in that it provided its customers with quality energy services at competitive prices. During the system's first ten years of operation, its distribution utilities were in the mid-to-low range among their peers. Unitil's ability to maintain its competitive position was based on conservative financial management practices and a diversified power-supply portfolio. As the need arose, Unitil could quickly realign its power-supply resources through selected contract terms and conditions. Years of shared services had brought Unitil's distribution companies to a level of marketing sophistication that few other investor-owned utilities employed.

1985–1999

Additionally, for more than a decade, the three Unitil retail utilities benefited from the company's pursuit of power supply solicitations, bidding and negotiation programs. Consequently, when Order 636 of the Federal Energy Regulatory Commission became effective during 1993 and revolutionized the way gas distribution companies were to buy their natural gas, Unitil welcomed the prospect of open access as an opportunity for growth. Although many in the industry were upset by the coming of competitive bidding in gas supply, Unitil found itself in an improved competitive position. Indeed, Unitil had been among the first in the industry to purchase almost all its electrical power by competitive bid from a wide variety of suppliers. The company could readily adapt its expertise to the natural gas industry.

Unitil Resources Inc. (URI) was established in 1993 as Unitil's wholly owned nonutility subsidiary to engage in business transactions as a competitive marketer of electricity, gas, and other energy commodities in wholesale and retail markets. URI was also meant to provide energy brokering, consulting, and management-related services within the United States. Unitil's earnings were $1.83 per average common share outstanding for fiscal 1994, compared to 1993's record earnings per share of $1.75; 1992's earnings of $1.50 per share; 1990's earnings of $1.26 per share; and 1985's earnings of $.26 per share.

Unitil intensified its focus on customers' needs and on meeting these needs with appropriate products and services, dependably, and at the lowest price possible. By the end of fiscal 1997 Concord Electric's principal business was the distribution and sale of electricity at retail prices to approximately 26,400 customers in the City of Concord and 12 surrounding towns, all in New Hampshire. The State of New Hampshire's government operations were within Concord Electric's service area, including the executive, legislative, judicial branches and offices, and facilities for all major state government services. Concord Electric's service area was also a retail trading center for the north-central part of the state and for more than 60 diversified businesses relating to insurance, printing, electronics, granite, belting, plastic yarns, furniture, machinery, sportswear, and lumber.

Exeter & H was engaged principally in the distribution and sale of retail electricity to approximately 38,400 customers in the towns of Exeter and Hampton and in all or part of 16 nearby towns in New Hampshire. This utility's diversified customer base included retail stores, shopping centers, motels, farms, restaurants, apple orchards, and office buildings, as well as manufacturing firms that produced sportswear, automobile parts, and electronic components. An estimated 150,000 daily visitors came to Exeter & H's territory, which included several popular resorts and beaches along the Atlantic Ocean.

Fitchburg Gas & E distributed and sold both electricity and natural gas in Fitchburg, Massachusetts, and in several nearby communities. The company's service area encompassed close to 170 square miles in north-central Massachusetts. Electricity was supplied to some 27,200 residential and commercial customers; industrial customers included paper manufacturers, fabricators of rubber and plastics, chemical products companies, and printing and publishing companies, among others.

1998 and Beyond

Restructuring consisted of reorganizing three components: generation, which referred to the creation of electricity; transmission, which referred to the wires and associated facilities that transported electricity at high voltage levels from power plants to distribution substations; and distribution, which referred to the wires and associated facilities that transported electricity at lower voltage levels from distribution substations to customers' facilities and homes. Originally, electric companies offered these three components as bundled services, but new legislation obliged the industry to change its mode of operation. Restructuring of the electric industry became law in New Hampshire in May 1996 when the governor signed House Bill 1392 to establish principles, standards, and a timetable for the New Hampshire Public Utilities Commission (NHPUC) to implement full and open-access retail electric competition as early as January 1, 1998, but no later than July 1, 1998. The law also directed the NHPUC to set interim access charges for the recovery of above-market 'stranded' power supply costs and to make a final determination on these access charges within two years of implementation of full competition. (The words stranded costs refer to financial obligations that became unduly expensive as a result of restructuring; for example, investments in generation facilities, contractual obligations for power supplies, and the like.)

Unitil had in place transition plans to move its utility subsidiaries into this new market structure. The plan ensured fairness in the treatment of the company's assets and obligations and, at the same time, allowed customers to choose. The company positioned its competitive market subsidiary, Unitil Resources Inc., to pursue growth areas both within and beyond the company's traditional franchises in the emerging, competitive electric energy market. However, pending resolution of key restructuring policies and issues--especially recovery of 'stranded costs'--slowed the reconstruction of process for Concord Electric and Exeter & H. Meanwhile, taking advantage of the New Hampshire Retail Competition Pilot Program mandated by law in June 1996, Unitil Resources, Inc.--the company's nonutility subsidiary not subject to utility regulations--began selling. As of March 1, 1999, Unitil Resources marketed energy competitively to over 700 customers outside the Unitil companies' traditional franchise territories.

1998–1999

Unitil's third retail-distribution subsidiary, Fitchburg Gas and Electric Light Company, completed the divestiture of its electric generation and power supply portfolio, complied with legislatively mandated rate discounts for all customers, and provided systems and information for customers to choose their electric energy supplier. The company also expanded programs for energy efficiency and the protection of low-income customers.

By year-end 1999, Unitil had decided to abandon the business of competitive energy supply at the retail level. Energy marketing was a low-margin, high-risk business, and the retail level--due in large part to the hesitation of many regulators and policy-makers to trust competitive market forces--was developing more slowly than Unitil had anticipated. Unitil opted to act as an energy-procurement specialist; in March the company acquired a minority interest in Enermetrix.com, a Massachusetts-based technology company that had established a business conducting Internet-based energy-supply acquisitions for large gas consumers. Enermetrix.com also set up the country's first retail electricity transactions over the Internet.

In June 1999 Unitil launched Usource L.L.C. as a subsidiary of URI, its unregulated business unit. Usource ran on the transaction-based software and energy commodity Exchange (developed and licensed by Enermetrix.com.) and provided Internet-based energy procurement services to large commercial, industrial, and institutional customers throughout New York area and New England. Usource was launched in Philadelphia under the URL

. Other customers soon included MI Energy, L.L.C., a consortium of many of the largest industrial firms in New York State, and the New York City Housing Authority.

For fiscal 1999, total operating revenues rose to $172.37 million, compared to $166.68 million in 1998. The 1999 diluted earnings per share were $1.74, compared to $1.72 in 1998. The small gain was a major achievement, considering Unitil's transition into an unregulated market, New England's third consecutive warm winter, and severe summer storms&mdash¯ong other challenges. At the beginning of a new millennium, Unitil Corporation stood out as one of a small number of utility companies capable of repositioning its business to prosper in a changing marketplace.

Historically, innovation came from entrepreneurs and small companies that prospered by challenging the 'bigger is better' conventional wisdom: it was relatively easier for small entities to be swift and nimble enough to capitalize on emerging trends. Unitil was one of the swift and nimble small companies sensitive to a quickly changing market. As Unitil Chairman and Chief Executive Officer Robert B. Schoenberger said in the company's 1999 Annual Report, Unitil Corporation had positioned itself 'to take advantage of the far-reaching changes in one of the largest industry sectors of our national economy.' The company's future was bright with opportunities--and Unitil was ready to capitalize on them.