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Unitil CEO sees natural gas surviving Northeast decarbonization push

U.S. Northeast electric and gas utility Unitil Corp. is bracing for a period of upheaval as states in its service territory pursue aggressive measures to cut greenhouse gas emissions, according to CEO Tom Meissner.

"It is a topic that we're spending a lot of time internally discussing and trying to determine our pathways forward," Meissner told an analyst during the company's Oct. 24 earnings conference call.

"We do recognize that in the areas that we serve, there are policies, the primary one of which is to achieve an 80% reduction [in greenhouse gas emissions] by 2050, and in order to achieve that, there's going to have to be deep decarbonization throughout both the gas and electric business," the CEO said.

Meissner fielded the question about the impact of regional climate policy on his company's strategy amid growing industry concern about measures aimed at reducing gas consumption in buildings. Converting energy customers in New England to natural gas for home heating and industrial power is critical to Unitil's continued earnings growth.

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While the decarbonization push raises concerns about that strategy, Unitil believes gas will be an essential fuel in cold weather climates such as Maine and New Hampshire, Meissner said. He anticipated that policies that encourage the adoption of home heat pumps and other measures to electrify buildings will primarily target fuel oil, propane and other nongas fossil fuels.

"[G]as is still being seen as part of the solution, not part of the problem," Meissner said. "So I would anticipate that we're going to develop strategies where conversion to natural gas enables some of the public policy objectives in the states we serve."

Unitil expected population growth and economic expansion to support efforts to add customers in the coming years. The company has identified $7.8 billion of new residential and commercial construction in its territory, 15% more than it was tracking a year ago, Meissner said. Growth prospects are particularly strong along the southern Maine and New Hampshire coasts, he added.

But Meissner indicated that Unitil may play a limited role, if any, in New England's emerging offshore wind market because the company's balance sheet likely could not support the type of investments typical of recent regional activity.

"I think the ones to date have been too large for us to participate in. There has been talk about possibly New Hampshire pursuing similar strategies, and depending on where that goes, we would, of course investigate and see if there's an opportunity for us," Meissner said.

Executives highlighted robust economic growth several times during the call, after linking a drop in electric power usage to weakening manufacturing activity in New Hampshire during its last conference call. Despite Unitil's outlook, the Federal Reserve Bank of Boston's latest Beige Book said reports from regional manufacturers were "mostly negative," mirroring its last release, which showed ongoing U.S. trade disputes weighing on manufacturing activity.

Still, customer growth and higher gas consumption among commercial and industrial users boosted Unitil's gas sales margins in the third quarter. That helped to offset a year-over-year drop in electric power sales margins and a decrease in electric kilowatt-hour sales, which Unitil attributed to milder summer weather.

The company added 1,468 gas customers and 554 electric customers for the year through Sept. 30.

Unitil reported third-quarter net income dropped about 18% to $2.3 million from the year-ago period. The company posted earnings per share of 15 cents.