The increase in 2008 net income was due principally to the combined effects of the higher utility operating revenues described above, an after-tax gain of around $2.3 million from the sale of the company’s interests in three commercial office buildings in Merrimack, New Hampshire, and lower eminent domain costs. Going the other way in 2008 were increased utility operating expenses and increased interest expense. Also, 2007 results benefited from an after-tax gain of around $749,000 from the sale of eight cell tower leases.
In April 2008, the NHPUC issued an order to our Pennichuck East utility subsidiary approving an annualized permanent increase in revenues of around $712,000, or 17.19%, for service rendered from May 29, 2007. This replaced an annualized temporary rate increase of around $501,000, or 11.99%, that had been in effect since the same service rendered date. In December 2008, the NHPUC issued an order to our Pennichuck Water utility subsidiary approving an annualized temporary increase in revenues of around $2.4 million, or 11%, effective for service rendered from July 28, 2008. Also in December 2008, the NHPUC issued an order to our Pittsfield Aqueduct utility subsidiary approving an annualized temporary increase in revenues of around $666,000 effective for service rendered from June 6, 2008.
The temporary rate relief described above for both Pennichuck Water and Pittsfield Aqueduct does not necessarily reflect the ultimate outcome of the underlying requests for permanent rate relief. Any difference between the temporary rates currently in effect and the permanent rates ultimately approved by the NHPUC for these utilities will be reconciled upon the approval of such permanent rates.
Rainfall levels in southern New Hampshire during the third quarter of 2008 were the highest on record since we began keeping such data in the late 1880s. During the quarter, rainfall levels at our Nashua, New Hampshire treatment plant totaled 25 inches compared to the prior record of 20 inches in 1991 and the long term average of 10 inches. Furthermore, third quarter 2008 rainfall was spread relatively evenly over each of the three months in the quarter, thereby maximizing the negative effect on demand throughout the third quarter and into the fourth quarter of the year. We estimate that 2008 water utility operating revenues and operating income would have been around $1.7 million and $1.5 million higher, respectively, if rainfall levels in the third quarter were in line with the historical average.
Consolidated revenues for the fourth quarter of 2008 were $7.9 million, as compared to $7.1 million for the same quarter in 2007. Around $.7 million of this increase resulted from the net effect of the higher temporary water rates described above and the lower water usage volumes for the quarter, the October component of which was principally attributable to the record high third quarter rainfall levels described above. The remaining increase resulted from revenue growth in our non-regulated water services business.
The company’s net income for its fourth quarter ended December 31, 2008 was $526,000, or $.12 per share (diluted), as compared to $457,000, or $.11 per share (diluted), for the same quarter in 2007. Current year fourth quarter net income was higher due principally to the combined effects of the higher utility operating revenues described above, offset in significant part by higher pension and utility chemical costs.
The company is continuing to pursue the current Pennichuck Water rate case despite the July 2008 eminent domain order from the NHPUC that the taking of the operating assets of Pennichuck Water by the City of Nashua is in the public interest and that it must pay $203 million for such assets. We believe that the NHPUC’s order contains a number of significant legal errors that undermine its validity. We also believe that this outcome would not be in the best interests of our shareholders. Consequently, in response to this order, we have filed a motion for rehearing or reconsideration before the NHPUC and we have publicly stated that, if necessary, we will consider an appeal to the New Hampshire Supreme Court. The city has also filed a motion for rehearing arguing, among other things, that the amounts it is required to pay are too high. The NHPUC has not yet responded to these motions and there is no mandatory deadline by which it must do so.
Notwithstanding the foregoing, the company has stated publicly that it remains open to engaging in settlement discussions with the City aimed at resolving this dispute outside of eminent domain. In November 2008, Nashua announced that it was then hiring an investment banking firm to assist it in exploring all possible ways that it might acquire Pennichuck Water outside of eminent domain. In February 2009, we announced that we have engaged the investment banking firm of Boenning & Scattergood, Inc. (www.boenninginc.com) to advise us regarding possible settlement with the City. A settlement could involve Nashua’s acquisition of some or all of the assets of Pennichuck or one or more of its subsidiaries or, alternatively, the shares of Pennichuck stock.
Commenting on the results for the 2008 calendar year and the eminent domain situation, Duane C. Montopoli, Pennichuck’s president and chief executive officer, said, “While I am pleased that we received year-end temporary rate relief for both our Pennichuck Water and Pittsfield Aqueduct utility subsidiaries, the impact of those increases was substantially negated by the drop in third and fourth quarter water usage volumes due to the record rainfall levels in our third quarter. Our water utility operating costs are predominately fixed in nature and so a decrease in water usage volumes results in a revenue decrease that almost entirely drops to the pre-tax bottom line. As we move into 2009, we look forward to more normal weather patterns, continued diligent management of our business, and the completion of the two rate cases we presently have before the NHPUC. We also hope to resolve our eminent domain dispute with the City of Nashua outside of continued litigation.”
