Unitil Corporation
6 Liberty Lane West
Hampton, NH 03842-1720
unitil.com
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002CSN9B19
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Bringing
Energy
to Life
2
0
1
8
A
N
N
U
A
L
R
E
P
O
R
T
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2 0 1 8 A N N U A L R E P O R T
3
states with operations
105k+
electric customers
82k+
natural gas customers
150+
years of service
500+
employees
At Unitil our mission is to safely and reliably deliver energy
for life and provide our customers with affordable and
sustainable energy solutions.
We are committed to the communities we serve and to
developing people, business practices and technologies
that lead to the delivery of dependable, more effi cient
energy. Unitil Corporation is a public utility holding
company with operations in Maine, New Hampshire and
Massachusetts. Together, Unitil’s operating utilities serve
approximately 105,600 electric customers and 82,700
natural gas customers. For more information about our
people, technologies and community involvement, please
visit unitil.com.
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2 0 1 8 A N N U A L R E P O R T
03
Financial Highlights
Financial Data (millions)
Total Operating Revenues
$444.1
$406.2
$383.4
2018
2017
2016
Total Operating Income
Earnings Applicable to Common Shares
Capital Expenditures
Net Utility Plant
Common Share Data
Diluted Earnings Per Share
Dividends Paid Per Common Share
$71.2
$33.0
$75.4
$29.0
$70.2
$27.1
$102.4
$119.3
$98.1
$1,036.8
$971.5
$883.4
$2.23
$1.46*
$2.06
$1.44
$1.94
$1.42
Book Value Per Share (Year-End)
$23.60
$22.72
$20.82
Market Price (Year-End)
$50.64
$45.62
$45.34
Average Common Shares Outstanding (000s)
14,829
14,102
13,996
Operating Data
Electric Distribution Sales (Millions of kWh)
1,675.8
1,624.1
1,628.8
Firm Gas Distribution Sales (Millions of Therms)
231.1
213.8
205.7
Customers Served (Year-End)
188,330
186,287
184,210
Electric Customers Served (Year-End)
105,571
104,978
104,272
Gas Customers Served (Year-End)
82,759
81,309
79,938
*On January 30, 2019, the Board of Directors raised the quarterly dividend to $0.37 per share, increasing the annualized dividend from $1.46 to $1.48 per share.
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04
2 0 1 8 A N N U A L R E P O R T
To Our
Shareholders
I am pleased to report that 2018
was another outstanding year for
our Company.
We delivered top-tier customer service,
invested in safety and reliability,
executed on our growth plans and
achieved record earnings. Net income
rose 14% to $33 million and we fi nished
2018 with earnings per share of $2.23,
compared to $2.06 per share the year
before. We also took important steps
to address corporate sustainability and
succession, ensuring that your Company
is well positioned to achieve its mission
and create value over the long term.
We strengthened our commitment to
sustainability – a principle integral
to our mission. Our commitment
to sustainable practices includes a
responsibility to the environment as we
work to expand clean energy choices
for our customers, while also ensuring a
reliable and secure energy supply.
To better inform all of our stakeholders,
we are presenting our inaugural
sustainability report this year. We
intend to add value for our shareholders
through determined leadership in the
technology, skills, and practices that
anticipate the demands of the future
while meeting the needs of the present.
Recognizing that customers are looking
for more options and better control
of their energy usage, our business is
8%
increase in earnings per share
14%
growth in net income
88%
overall customer satisfaction
shifting to one of increased customer
engagement and empowerment. Energy
affordability remains just as important
to our customers as the reliability and
sustainability of their energy supply.
We quickly implemented the new lower
tax rate from the Tax Cuts and Jobs Act
across all of our jurisdictions in 2018,
resulting in reduced rates benefi tting
customers. As a national leader in
energy effi ciency, we also invested
more than $13 million to help
customers use their energy more
effi ciently, reducing overall bills.
Responding to increased demand for
natural gas, we continued our gas
expansion projects into new towns and
cities in Maine and New Hampshire. We
completed the third year of our Targeted
Area Buildout (TAB) in Saco, Maine, and
started the fi rst year of our buildout of
Sanford, Maine, installing almost 7 miles
of new mains in the downtown of that
city. In New Hampshire we targeted the
expansion of our franchise to three new
towns to meet customer demand for
natural gas service in Atkinson, Kingston
and Epping, New Hampshire.
Safety and reliability remain core to
our mission as we continue to invest in
upgrades and technologies to improve
reliability and modernize our gas
and electric utility infrastructure. On
the electric side of our business, our
innovative Storm Resiliency Program
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2 0 1 8 A N N U A L R E P O R T
05
has reduced tree-related outages by
74 percent and grid modernization
investments are expected to further
improve reliability. On the gas side of
our business, we continue to invest in
upgrading our pipeline infrastructure.
Our pipe replacement programs remain
ahead of schedule with 93 percent of
our system now fully modernized.
Furthermore, our commitment to deliver
‘energy for life’ extends beyond our
infrastructure and operational practices.
Day in and day out our employees
deliver top-notch service to customers,
ensure the safety and reliability of
our gas and electric systems, and
contribute back to our communities. Our
partnerships with the United Way, the
Shoals Marine Lab and the American Red
Cross, combined with the tremendous
volunteerism of our employees, position
our Company as a leading corporate
citizen. Our support of STEM education
contributes to the development of
tomorrow’s workforce. Our employees
overwhelmingly express pride in their
company, and believe we are a good
corporate citizen that cares about our
communities. I am equally proud to
work with them.
While new to this offi ce, I have worked
hand in hand with the men and women
of Unitil for the past 25 years “Bringing
Energy to Life” for our customers
across New England. I want to thank
our employees for everything they do
to better serve our customers and our
communities. In a time of rapid change
and opportunity, I believe we are
well-positioned to achieve our vision of
transforming the way people meet their
evolving energy needs to create a clean
and sustainable future. I look forward
to working with our people to deliver
safe, affordable and reliable gas and
electric energy to our thousands of New
England customers. This is how we bring
Energy to Life.
In a time of rapid
change and opportunity,
I believe we are well-
positioned to achieve our
vision of transforming
the way people meet
their evolving energy
needs to create a clean
and sustainable future.
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Bringing
Energy
to Life
Energy delivery approaches a new dawn
New beginnings are rare, exciting opportunities. We all remember the moments in our lives where everything changes.
A wedding. The birth of a child. That fi rst day at a new, career-defi ning job. These moments represent the dawning of a new
era in one’s life, and their impact cannot be understated.
Utilities like Unitil currently fi nd themselves on the cusp of such a moment, as a new era of bringing energy to life is dawning.
Customers have an ever-increasing array of choices regarding how they wish to meet their energy needs. Renewable and
cleaner energy options are increasingly desirable to a broad cross section of consumers, including those concerned about the
environment and those who see an opportunity for cost savings through new technologies and effi ciencies. Entire regions
have engaged in an ongoing conversation about how to create a smarter, more reliable, more resilient energy infrastructure to
meet these expanding needs. The signs of change are all around us.
While change creates uncertainty for some, those who arrive prepared at these crucial moments fi nd great opportunity.
Thanks to years of planning and a staff dedicated to the safe and reliable delivery of Energy for Life, Unitil is positioned
exactly where it needs to be to take full advantage of the exciting growth this new era of energy delivery will bring. Our
vision as a Company is to transform the way people meet their evolving energy needs in this new environment, and to help
create a clean and sustainable future for us all. Here are some examples of how Unitil prepared for this new dawn in 2018.
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Focusing on
Our Customers
and Community
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10
2 0 1 8 A N N U A L R E P O R T
Ready to Rise
One great example of working to help a
And, when the businesses we serve
customer meet unique energy needs is
thrive, Unitil thrives as well.
Great Wolf Lodge, a family indoor water
In 2018, Unitil again placed in the top
quartile regionally in terms of customer
service, but as an ever-expanding array
resort in Fitchburg, Massachusetts,
which opened its doors in 2017.
Great Wolf Lodge renovated the hotel
As part of its strategic planning
process, Unitil identifi ed the values of
Respect, Integrity, Stewardship and
of choices for meeting energy needs
previously on the lot and subsequently
Excellence (RISE) as central values to
become available, it is paramount
helped launch a variety of development
the Company. Unitil’s RISE values have
that Unitil maintains a superior
in the area. An indoor water park
long been part of Unitil’s core identity,
customer experience.
requires large amounts of energy to
but refocusing and emphasizing
Key to providing a superior experience
have effi cient and reliable energy. To
stakeholders will ensure our Company’s
is to ensure that energy remains
help accommodate these requirements,
focus will remain squarely on the
affordable for our customers. To that
Unitil partnered with Great Wolf Lodge
customer’s needs.
operate, so it’s crucial for the resort to
what they mean to all of our external
end, Unitil has historically been a
to create a combined heat and power
national leader, on a per-capita basis,
(CHP) system. A CHP system allows
in helping customers maximize energy
Great Wolf Lodge to capture heat
effi ciency opportunities. This year was
that would otherwise be lost in the
no exception, with Unitil investing
more than $85 per customer in 2018.
Whether aiding a family in converting
generation of power to operate the
facility. By recapturing this energy, the
resort can operate more effi ciently. This
Community
Partnerships
to a cleaner, more effi cient natural gas
project represents a larger push in the
We believe giving back to the
furnace or helping a business keep its
industry to operate electrical systems
communities we serve is a core element
competitive edge by cutting energy
more effi ciently, an example of the
within our RISE values. For many years,
costs, Unitil works daily to make
changing energy times we live in. When
Unitil has given time and resources
sure energy delivered goes as far as
a business like Great Wolf Lodge is
to local non-profi ts and community
possible for the customer. That’s part
successful, it can become an economic
institutions; it is central to our identity
of how we ensure the customer is
driver for the region it serves, which in
as a company. Our goal is to give back
getting good value on Energy for Life.
turn benefi ts all of our customers.
to our region and provide education
Unitil again placed in the top quartile regionally in terms
of customer service. Here are a few of the reasons why.
Real customer investment
Energy that goes further
Unmatched responsiveness
In 2018, we invested more than $13 million in
Helping residents and businesses convert to
electric and natural gas effi ciency programs.
That’s an average of $85 per customer.
more effi cient sources and systems means
real cost savings for our customers.
were satisfi ed with their phone experience.
Out of 22,247 surveys (conducted after
speaking to a live agent), 98.5% of customers
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2 0 1 8 A N N U A L R E P O R T
11
and safety programs to support the
The Company also partners with
communities we serve. Unitil’s record
the Shoals Marine Lab. Located
of philanthropy speaks for itself.
on Appledore Island in the Isles of
Shoals, the Shoals Marine Lab gives a
Take Unitil’s partnership with the Red
graduate-level research environment
Cross, for example. The Company
to undergraduates interested in marine
works with the Red Cross on several
biology and sustainable energy.
different initiatives; whether hosting
Students interested in engineering
blood drives, providing the public with
work with Unitil employees to get
information about summer and winter
hands-on experience in operating an
storm safety, or providing their team
electric microgrid, which utilizes diverse
with resources to help those in need
energy resources. New this year was a
during a disaster, the partnership is
communications intern on the Isles of
a perfect representation of Unitil’s
Shoals Marine Lab. This intern, for the
education and safety initiatives.
fi rst time, documented the engineering
work of the students for the sole
Unitil also believes in STEM education
purpose of teaching the public about
and giving students the resources
the programs and bringing attention to
they require to pursue STEM-
the benefi ts of energy effi ciency.
related activities. Massachusetts
Comprehensive Assessment System
The organizations described above
(MCAS) provides a good example.
represent just a few of the Company’s
The Company has created a curriculum
community partners. The overarching
on electricity and magnetism for
goal of each partnership is to invest in
fi fth-grade students preparing for the
people. The investment, big or small, is
MCAS test. Unitil has presented to
4,000 students since the program’s
inception, and educated 575 students
this year in twenty-fi ve classes. In
addition, the Unitil Scholarship Fund
has awarded $240,000 in scholarship
money to well-rounded students since
its inception in 2011.
more about impact. A positive impact
makes the Company more sustainable
for growth, as it is more easily seen as
a partner in the community.
575
students educated on STEM
curriculum in preparation
for the MCAS test
$240k
awarded to students by the
Unitil Scholarship Fund
The overarching goal
of each partnership is
to invest in people. The
investment, big or small,
is more about impact.
SUSTAINABILITY STEWARDSHIP
A Shoals Marine Lab engineering intern
works on the microgrid on Appledore Island.
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Delivering Safe
and Reliable Service
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14
2 0 1 8 A N N U A L R E P O R T
93%
of gas infrastructure
fully modernized
75
miles of gas pipe replaced
over last 5 years
Integrity of Gas
Infrastructure
There is no priority more important
or meaningful to us than protecting
the lives and well-being of those we
serve. Because of this, safety is a
cornerstone of Unitil’s natural gas
pipeline system operation. Through a
variety of replacement and upgrade
projects, this year saw several advances
demonstrating the Company’s dedication
to safe and reliable natural gas for the
communities we serve.
Updating the cast iron natural gas
pipes is a crucial modernization
project where Unitil is ahead of its
peers thanks to years of proactive
replacement work. Unitil entered 2018
with a fully modernized system in New
Hampshire, with its cast iron/bare
steel replacement program completed
in December of 2017. Approximately
45 miles of unprotected bare steel
and cast iron pipe were replaced with
a high-density polyethylene plastic.
Meanwhile, Unitil operations in
Massachusetts and Maine continued to
make progress in 2018 upgrading and
replacing gas distribution lines in our
service territories. In Massachusetts,
replacement of cast iron pipe has been
underway since 2000, and in 2015 a
state mandate required all utilities in
Massachusetts to replace cast iron
pipe by 2035. Thanks to our proactive
work the decade prior, the Company
had a large head start and will have
its program fi nished well in advance of
the twenty-year requirement. Maine’s
System Upgrade for Reliable Energy
(SURE), a fourteen-year project, reached
its halfway point this year and is ahead
of schedule.
Pipeline safety is in our DNA at Unitil.
We have been at the forefront of many
important safety measures for years
now. Throughout the last decade,
Unitil has been among the pioneers
using GPS and barcoding to tag and
document all new gas infrastructure
put into the ground. This innovative
program gives our technicians in the
fi eld an information edge when
working our system, allowing them
to know the exact age and pin-point
location of what they may be standing
above before getting in the ground
to work on a specifi c project. This,
combined with an aggressive, industry-
leading leak detection and management
plan, ensures that Unitil maximizes
modern technology to maintain a safe,
reliable system.
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2 0 1 8 A N N U A L R E P O R T
15
on SRP-affected areas of the grid
saw reduced restoration times. When
restoration times are down, fewer crews
are required and storm restoration
costs go down.
This year, the Company started
experimenting with laser-based
measurement tools to create a more
complete picture than often seen by the
naked eye in order to assess potential
fi eld hazards. As technology advances
and new procedures are rolled out,
the grid will continue to become more
reliable and less expensive to maintain.
Storm Resiliency:
More Than
Tree Trimming
One crucial way Unitil shows its
commitment to excellence is in ensuring
the reliability of its system.
In New England, that means preparing
for storms and severe weather.
Lightning, high winds, heavy snow
and ice all present threats to trees
that can affect Unitil’s electric grid.
A damaged branch with heavy snow is
likely to break and should it be over
a power line, it has the potential to
disrupt service.
As part of its Storm Resiliency Program
(SRP), the Company has worked
to minimize the disruption to its
customers, even as the frequency of
severe weather events has increased.
The main goal of the SRP is to prevent
damage and reduce restoration
time. When the Company can restore
energy services more quickly, we not
only minimize the disruption to our
customers’ lives, but the overall cost
of the storm is reduced.
A large part of the SRP is composed
of vegetation management. This
can include trimming potentially
hazardous tree limbs, but it is more
comprehensive than simple trimming.
In fact, the Company has one of the
most holistic vegetation management
operations for a utility in the U.S.
Its leader, Sara Sankowich, served
as President of the Utility Arborist
Association and she puts effi ciency
at the center of the SRP. In addition
to removing hazardous trees, the
SRP looks for ways to maintain the
health of the trees along the electric
right-of-way corridor. When trees are
healthy and properly maintained, they
coexist alongside power lines without
compromises to the environment or
energy distribution.
Now in its seventh year, the SRP has
seen remarkable returns. In areas
worked on by the SRP, tree-related
outages were reduced by 74%. When
outages did occur, restoration times
74%
reduction in
tree-related outages
The SRP works to encourage tree growth while reducing their impact to the electric grid.
These efforts have brought down restoration times, which means fewer crews deployed
and lower storm costs.
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Powering
Growth
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2 0 1 8 A N N U A L R E P O R T
17
$6.8
billion in planned economic
development in existing
service areas
10k
new electric and gas
customers added
over last fi ve years
100
miles of new gas main
installed over last fi ve years
New England is buzzing with economic
activity, with approximately $6.8 billion
in new development projects identifi ed
as in the works for our service
region alone.
To capitalize on this growth, Unitil
continues to push out into new
communities, expanding our service
territory, giving more customers access
to cleaner, more affordable energy
options. This past year, we completed
our third and fi nal phase on our
Targeted Area Buildout (TAB) in Saco,
Maine, offering an estimated 1,000
homes and businesses the opportunity
to convert to natural gas for the fi rst
time. The success of our TAB program
in Saco led to the launching of a similar
program in growing Sanford, Maine,
where seven miles of new gas main
were installed as part of the fi rst phase
of bringing gas to the downtown area.
In 2018, Unitil secured the franchise
rights to two additional communities in
New Hampshire, Kingston and Atkinson,
and we plan to continue to expand our
system organically into neighboring
communities where there is a growing
demand for natural gas. New England
is one of the few areas in the country
where oil is still the primary heating
fuel. This presents the opportunity for
further growth by delivering a cleaner,
more affordable alternative of natural
gas to new customers.
3new
communities
served
Our continued growth allows us to provide energy to more communities, powering the
everyday lives of our residents and enabling businesses to thrive.
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Ensuring
Our
Energy
Supply
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2 0 1 8 A N N U A L R E P O R T
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Renewables will have a growing role in
our energy supply going forward.
Unitil’s Solarway, a 1.3-MW facility
in Fitchburg, Massachusetts, enjoyed
its fi rst full year of operation in 2018.
Solarway marks the Company’s fi rst
large-scale renewable energy project.
The site of Solarway has a history
dating back to the 1850s of gas and
electric energy production; most
recently, the site had been the location
of a fossil fuel-burning power plant,
a plant that was shuttered as part
of the Electric Industry Restructuring
Act of the late-1990s. Today, 20 years
later, the property has undergone a
full transformation while remaining
faithful to the historic use of the land
in support of Massachusetts’s Green
Communities Act.
On a larger scale, Unitil was an active
participant in multiple Massachusetts
initiatives to bring more renewable
power to the region. The Company,
along with Eversource and National
Grid, entered into long-term agreements
to collectively buy 9.5 TWH annually
of electric energy from hydroelectric
facilities in Quebec and 800 MW from
offshore wind plants by 2022. Together,
these two large-scale renewable energy
procurements will lower the region’s
reliance on fossil fuels, diversifying
New England’s energy portfolio.
Still, while renewables will continue
to gain importance, an adequate and
reliable natural gas supply is needed
in order to ensure 24/7 reliability. Over
the past four years, the Company has
made multiple long-term commitments
to strengthen its access to robust
sources of gas supply for the future.
By securing vital new pipeline and
underground storage capacity, the
Company will improve availability
and cost of supply throughout the
year in order to meet the demands
of its growing customer base for
years to come.
New England’s electricity is generated by various types
of power plants — from wind to solar and nuclear.
Here is the breakdown.
The Company has
made multiple long-
term commitments to
strengthen its access
to robust sources of gas
supply for the future.
Coal
7.0%
Other Renewables
.04%
Year ending 9/30/18
Hydro
6.4%
Nuclear
29.3%
Oil
7.9%
Wind
3.1%
Natural Gas
35.6%
Solar
2.8%
Biomass
7.6%
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Employee Pride
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2 0 1 8 A N N U A L R E P O R T
21
700+
employee volunteer
hours in 2018
5%
employee turnover shows a
continued decreasing trend
With a strong economy comes low
unemployment, which can also create
a very competitive market for qualifi ed
employees. Recruiting and retaining
talented employees also becomes
challenging as employee needs and
expectations change. Unitil has worked
to anticipate these challenges and
refocused its hiring and employee
culture strategies to better respond to
a changing workforce and industry.
An employee survey, answered by both
salary and union employees, showed
evidence of a passionate staff. Employees
overwhelmingly said they were proud to
work at Unitil. Our surveyors attribute
this employee pride to our leadership
team. The Company has seen more
employee engagement when its leaders
are engaged and communicative.
With 500 employees at work, the
Company sees the value each employee
contributes to the success of its
operations. When the Company is able
to inspire pride and passion among
employees, it is able to retain talented
individuals who improve customer
satisfaction, make operations more
effective and effi cient, fi nd new solutions
to problems and lower expenses.
An Operations
Facility Built for
the Future
For years, Unitil’s Massachusetts
gas and electric operations ran out
of a modest facility in Fitchburg.
As operations continued to expand,
the facility strained to meet the
needs of the gas and electric crews
working there. After a multi-year
search for a new facility, a lot was
purchased a little over a mile from
the current facility in the adjacent
town of Lunenburg.
The state-of-the-art facility allows the
Company to grow operations, secure
reliable and safe energy distribution,
train for emergency response and
consolidate communications in an
effi cient and productive way, placing
Unitil in prime position to continue to
meet customers’ needs going forward.
Having gas and electric operations
teams, business development and
municipal liaisons under one roof has
led to more effi cient communications
and a more cohesive team.
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Investing in
Our Future
A new day is coming for energy companies, and the unique regulatory and geographic conditions in New England are going
to ensure that our region will remain at the forefront of some of the most interesting and complex issues our industry faces
in the years ahead. Thanks to forethought, planning and constant preparation, Unitil is poised to not only capitalize on this
changing energy environment, but also provide the reliability and stability our stakeholders have come to expect. Initiatives
to further integrate smart technology and sustainable practices will be a source of growth in 2019 and beyond.
Unitil has the people, expertise, and commitment to Respect,
Integrity, Stewardship and Excellence to ensure that as this
new energy dawn arrives, Unitil will RISE.
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24
2 0 1 8 A N N U A L R E P O R T
Media Reference
Our public media libraries are
constantly being expanded and
updated. To access or reference
Unitil Corporation’s libraries, go
to the following websites:
youtube.com/unitilenergy
unitil.photoshelter.com
Social Media
We’re in constant contact with
our stakeholders in real time
through various means of social
media. Get up-to-date information
about us and our projects in the
following places:
facebook.com/unitil
twitter.com/unitil
linkedin.com/company/unitil
instagram.com/unitilenergy
Information for Shareholders
2019 Annual Meeting
The Annual Meeting of Shareholders is scheduled to be held at the offi ce of the
Company, 6 Liberty Lane West, Hampton, New Hampshire, on Wednesday, April 24,
2019, at 11:30 a.m.
Transfer Agent
The Company’s Transfer Agent, Computer share Investor Services (“Computershare”),
is responsible for all shareholder records, including Common Stock issuance and
transfer; and the distribution of dividends, tax documents and annual meeting
materials to registered holders. Shareholder requests regarding these and other
matters can be addressed by corresponding directly with Computershare at:
Mail: P.O. Box 505000
Louisville, KY 40233
Telephone: 800-736-3001
URL: computershare.com/investor
Contact Us
For information about the Company and your investment, you may also call
the Company directly, toll-free, at: 800-999-6501 and ask for the Shareholder
Representative; or visit the Investor Relations page at unitil.com; or contact us
at InvestorRelations@unitil.com.
Programs and Plans
Dividend Reinvestment Plan
A Dividend Reinvestment and Stock Purchase Plan is available to registered
holders of the Company’s Common Stock. This Plan provides shareholders with an
economical means to increase their investment in the Company each quarter by
reinvesting their dividends without broker fees. A Plan prospectus is available on
the Investor Relations page at unitil.com. For additional information or enrollment,
please contact the Company or Computershare.
Dividend Direct Deposit
Dividend Direct Deposit Service is available without charge to shareholders of
record of the Company’s Common Stock. For further information or enrollment in
this service, please contact the Company or Computershare.
This Annual Report contains forward-looking statements, which are subject to the inherent uncertainties in predicting
future results and conditions. All statements, other than statements of historical fact, are forward-looking statements.
Certain factors that could cause the actual results to differ materially from those projected in these forward-looking
statements include, but are not limited to the following: the Company’s regulatory environment (including regulations
relating to climate change, greenhouse gas emissions and other environmental matters); fl uctuations in the supply of,
demand for, transmission capacity and the prices of energy commodities and the Company’s ability to recover energy
commodity costs in rates; customers’ preferences on energy sources; severe storms and the Company’s ability to recover
storm costs in its rates; general economic conditions; variations in weather; long-term global climate change; the
Company’s ability to retain its existing customers and attract new customers; the Company’s energy brokering customers;
increasing competition; and other risks and uncertainties described in the section entitled Risk Factors in the enclosed
Annual Report on Form 10-K and Unitil Corporations other fi lings with the Securities and Exchange Commission. Forward-
looking statements speak only as of the date made, and the Company undertakes no obligation to update any forward-
looking statements. Please also see Cautionary Statement beginning on page i of the enclosed Form 10-K.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
OR
‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-8858
UNITIL CORPORATION
(Exact name of registrant as specified in its charter)
New Hampshire
(State or other jurisdiction of
incorporation or organization)
6 Liberty Lane West, Hampton, New Hampshire
(Address of principal executive offices)
02-0381573
(I.R.S. Employer
Identification No.)
03842-1720
(Zip Code)
Registrant’s telephone number, including area code: (603) 772-0775
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, No Par Value
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes È No ‘
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of
the Act. Yes ‘ No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes È No ‘
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to
be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit such files). Yes È No ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. È
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,
“accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer È Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘
Emerging growth company ‘
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act). Yes ‘ No È
Based on the closing price of the registrant’s common stock on June 30, 2018, the aggregate market value of
common stock held by non-affiliates of the registrant was $749,186,923
The number of shares of the registrant’s common stock outstanding was 14,878,075 as of January 28, 2019.
Documents Incorporated by Reference:
Portions of the Proxy Statement relating to the Annual Meeting of Shareholders to be held on April 24, 2019 are
incorporated by reference into Part III of this Report.
UNITIL CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 2018
Table of Contents
Item
Description
Page
1.
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unitil Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rates and Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Natural Gas Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electric Power Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
Mine Safety Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.
PART II
5.
6.
7.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . .
9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10.
11.
12.
13.
14.
15.
PART III
Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
3
4
6
9
10
12
12
13
13
14
20
20
21
22
23
26
27
42
43
91
91
91
92
92
92
92
92
93
99
(cid:2)
[THIS PAGE INTENTIONALLY LEFT BLANK]
CAUTIONARY STATEMENT
This report and the documents incorporated by reference into this report contain statements that may
constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933,
as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of historical fact, included or
incorporated by reference into this report, including, without limitation, statements regarding the financial
position, business strategy and other plans and objectives for the future operations of the Company (as such
term is defined in Part I, Item I (Business)), are forward-looking statements.
These statements include declarations regarding the Company’s beliefs and current expectations. In
some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,”
“expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the
negative of such terms or other comparable terminology. These forward-looking statements are subject to
inherent risks and uncertainties in predicting future results and conditions that could cause the actual results
to differ materially from those projected in these forward-looking statements. Some, but not all, of the risks
and uncertainties include those described in Part I, Item 1A (Risk Factors) and the following:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the Company’s regulatory environment (including regulations relating to climate change,
greenhouse gas emissions and other environmental matters), which could affect the rates the
Company is able to charge, the Company’s authorized rate of return and the Company’s ability to
recover costs in its rates;
fluctuations in the supply of, demand for, and the prices of, gas and electric energy commodities
and transmission and transportation capacity and the Company’s ability to recover energy supply
costs in its rates;
customers’ preferred energy sources;
severe storms and the Company’s ability to recover storm costs in its rates;
declines in the valuation of capital markets, which could require the Company to make substantial
cash contributions to cover its pension obligations, and the Company’s ability to recover pension
obligation costs in its rates;
general economic conditions, which could adversely affect (i) the Company’s customers and,
consequently, the demand for the Company’s distribution services, (ii) the availability of credit and
liquidity resources and (iii) certain of the Company’s counterparty’s obligations (including those of
its insurers and lenders);
the Company’s ability to obtain debt or equity financing on acceptable terms;
increases in interest rates, which could increase the Company’s interest expense;
restrictive covenants contained in the terms of the Company’s and its subsidiaries’ indebtedness,
which restrict certain aspects of the Company’s business operations;
variations in weather, which could decrease demand for the Company’s distribution services;
long-term global climate change, which could adversely affect customer demand or cause extreme
weather events that could disrupt the Company’s electric and natural gas distribution services;
numerous hazards and operating risks relating to the Company’s electric and natural gas
distribution activities, which could result in accidents and other operating risks and costs;
catastrophic events;
the Company’s ability to retain its existing customers and attract new customers; and
increased competition.
1
Many of these risks are beyond the Company’s control. Any forward-looking statements speak only as
of the date of this report, and the Company undertakes no obligation to update any forward-looking
statements to reflect events or circumstances after the date on which such statements are made or to reflect
the occurrence of unanticipated events, except as required by law. New factors emerge from time to time,
and it is not possible for the Company to predict all of these factors, nor can the Company assess the impact
of any such factor on its business or the extent to which any factor, or combination of factors, may cause
results to differ materially from those contained in any forward-looking statements.
2
Item 1.
Business
UNITIL CORPORATION
PART I
In this Annual Report on Form 10-K, the “Company”, “Unitil”, “we”, and “our” refer to Unitil
Corporation and its subsidiaries, unless the context requires otherwise. Unitil is a public utility holding
company and was incorporated under the laws of the State of New Hampshire in 1984. The following
companies are wholly-owned subsidiaries of Unitil:
Company Name
State and Year of
Organization
Principal Business
Unitil Energy Systems, Inc. (Unitil Energy)
NH - 1901
Electric Distribution Utility
Fitchburg Gas and Electric Light Company (Fitchburg)
MA - 1852
Electric & Natural Gas Distribution Utility
Northern Utilities, Inc. (Northern Utilities)
NH - 1979
Natural Gas Distribution Utility
Granite State Gas Transmission, Inc. (Granite State)
NH - 1955
Natural Gas Transmission Pipeline
Unitil Power Corp. (Unitil Power)
NH - 1984
Wholesale Electric Power Utility
Unitil Service Corp. (Unitil Service)
NH - 1984
Utility Service Company
Unitil Realty Corp. (Unitil Realty)
NH - 1986
Real Estate Management
Unitil Resources, Inc. (Unitil Resources)
NH - 1993
Non-regulated Energy Services
Usource, Inc. and Usource, L.L.C. (collectively Usource) DE - 2000
Energy Brokering Services
Unitil and its subsidiaries are subject to regulation as a holding company system by the Federal Energy
Regulatory Commission (FERC) under the Energy Policy Act of 2005.
Unitil’s principal business is the local distribution of electricity and natural gas to 188,330 customers
throughout its service territories in the states of New Hampshire, Massachusetts and Maine. Unitil is the
parent company of three wholly-owned distribution utilities: i) Unitil Energy, which provides electric
service in the southeastern seacoast and state capital regions of New Hampshire, including the capital city of
Concord, ii) Fitchburg, which provides both electric and natural gas service in the greater Fitchburg area of
north central Massachusetts, and iii) Northern Utilities, which provides natural gas service in southeastern
New Hampshire and portions of southern and central Maine, including the city of Portland, which is the
largest city in northern New England. In addition, Unitil is the parent company of Granite State, an
interstate natural gas transmission pipeline company that provides interstate natural gas pipeline access and
transportation services to Northern Utilities in its New Hampshire and Maine service territory. Together,
Unitil’s three distribution utilities serve 105,571 electric customers and 82,759 natural gas customers.
Customers Served as of December 31, 2018
Residential
Commercial &
Industrial (C&I)
Total
Electric:
Unitil Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fitchburg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Natural Gas:
Northern Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fitchburg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Natural Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . .
64,934
25,603
90,537
50,335
14,269
64,604
Total Customers Served . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155,141
11,127
3,907
15,034
16,451
1,704
18,155
33,189
76,061
29,510
105,571
66,786
15,973
82,759
188,330
Unitil had an investment in Net Utility Plant of $1,036.8 million at December 31, 2018. Unitil’s total
operating revenue was $444.1 million in 2018. Unitil’s operating revenue is substantially derived from
regulated natural gas and electric distribution utility operations. A fifth utility subsidiary, Unitil Power,
3
formerly functioned as the full requirements wholesale power supply provider for Unitil Energy, but
currently has limited business and operating activities. In connection with the implementation of electric
industry restructuring in New Hampshire, Unitil Power ceased being the wholesale supplier of Unitil
Energy in 2003 and divested of substantially all of its long-term power supply contracts through the sale of
the entitlements to the electricity associated with those contracts.
Unitil also has three other wholly-owned non-utility subsidiaries: Unitil Service, Unitil Realty and
Unitil Resources. Unitil Service provides, at cost, a variety of administrative and professional services,
including regulatory, financial, accounting, human resources, engineering, operations, technology and
energy supply management services on a centralized basis to its affiliated Unitil companies. Unitil Realty
owns and manages the Company’s corporate office in Hampton, New Hampshire. Unitil Resources is the
Company’s wholly-owned non-regulated subsidiary. Usource, Inc. and Usource L.L.C. (collectively,
Usource) are indirect subsidiaries that are wholly-owned by Unitil Resources. Usource provides energy
brokering and advisory services to a national client base of large commercial and industrial customers. For
segment information relating to each segment’s revenue, earnings and assets, see Note 3 (Segment
Information) to the Consolidated Financial Statements included in Part II, Item 8 (Financial Statements and
Supplementary Data) of this report. All of the Company’s revenues are attributable to customers in the
United States of America and all its long-lived assets are located in the United States of America.
OPERATIONS
Natural Gas Operations
Unitil’s natural gas operations include gas distribution utility operations and interstate gas transmission
pipeline operations, discussed below. Revenue from Unitil’s gas operations was $216.1 million for 2018,
which represents about 49% of Unitil’s total operating revenue.
Natural Gas Distribution Utility Operations
Unitil’s natural gas distribution operations are conducted through two of the Company’s operating
utilities, Northern Utilities and Fitchburg. The primary business of Unitil’s natural gas utility operations is
the local distribution of natural gas to customers in its service territories in New Hampshire, Massachusetts
and Maine. Northern Utilities’ C&I customers and Fitchburg’s residential and C&I customers are entitled to
purchase their natural gas supply from third-party competitive suppliers, while Northern Utilities or
Fitchburg remains their gas distribution company. Both Northern Utilities and Fitchburg supply gas to those
customers who do not obtain their supply from third-party competitive suppliers, with the approved costs
associated with this gas supply being recovered on a pass-through basis through regulated reconciling rate
mechanisms that are periodically adjusted.
Natural gas is distributed by Northern Utilities to 66,786 customers in 44 New Hampshire and southern
Maine communities, from Plaistow, New Hampshire in the south to the city of Portland, Maine and then
extending to Lewiston-Auburn, Maine in the north. Northern Utilities has a diversified customer base both
in Maine and New Hampshire. Commercial businesses include healthcare, education, government and retail.
Northern Utilities’ industrial base includes manufacturers in the auto, housing, rubber, printing, textile,
pharmaceutical, electronics, wire and food production industries as well as a military installation. Northern
Utilities’ 2018 gas operating revenue was $174.4 million, of which approximately 38% was derived from
residential firm sales and 62% from C&I firm sales.
Natural gas is distributed by Fitchburg to 15,973 customers in the communities of Fitchburg,
Lunenburg, Townsend, Ashby, Gardner and Westminster, all located in Massachusetts. Fitchburg’s
industrial customers include paper manufacturing and paper products companies, rubber and plastics
manufacturers, chemical products companies and printing, publishing and associated industries. Fitchburg’s
2018 gas operating revenue was $35.1 million, of which approximately 58% was derived from residential
firm sales and 42% from C&I firm sales.
Gas Transmission Pipeline Operations
Granite State is an interstate natural gas transmission pipeline company, operating 86 miles of
underground gas transmission pipeline primarily located in Maine and New Hampshire. Granite State
4
provides Northern Utilities with interconnection to major natural gas pipelines and access to domestic
natural gas supplies in the south and Canadian natural gas supplies in the north. Granite State had operating
revenue of $6.6 million for 2018. Granite State derives its revenues principally from the transportation
services provided to Northern Utilities and to third-party suppliers.
Electric Distribution Utility Operations
Unitil’s electric distribution operations are conducted through two of the Company’s utilities, Unitil
Energy and Fitchburg. Revenue from Unitil’s electric utility operations was $223.3 million for 2018, which
represents about 50% of Unitil’s total operating revenue.
The primary business of Unitil’s electric utility operations is the local distribution of electricity to
customers in its service territory in New Hampshire and Massachusetts. All of Unitil Energy’s and
Fitchburg’s electric customers are entitled to choose to purchase their supply of electricity from third-party
competitive suppliers, while Unitil Energy or Fitchburg remains their electric distribution company. Both
Unitil Energy and Fitchburg supply electricity to those customers who do not obtain their supply from third-
party competitive suppliers, with the approved costs associated with electricity supply being recovered on a
pass-through basis through regulated reconciling rate mechanisms that are periodically adjusted.
Unitil Energy distributes electricity to 76,061 customers in New Hampshire in the capital city of
Concord as well as parts of 12 surrounding towns and all or part of 18 towns in the southeastern and
seacoast regions of New Hampshire, including the towns of Hampton, Exeter, Atkinson and Plaistow. Unitil
Energy’s service territory consists of approximately 408 square miles. In addition, Unitil Energy’s service
territory encompasses retail trading and recreation centers for the central and southeastern parts of the state
and includes the Hampton Beach recreational area. These areas serve diversified commercial and industrial
businesses, including manufacturing firms engaged in the production of electronic components, wire and
plastics, healthcare and education. Unitil Energy’s 2018 electric operating revenue was $158.6 million, of
which approximately 56% was derived from residential sales and 44% from C&I sales.
Fitchburg is engaged in the distribution of both electricity and natural gas in the greater Fitchburg area
of north central Massachusetts. Fitchburg’s service territory encompasses approximately 170 square miles.
Electricity is distributed by Fitchburg to 29,510 customers in the communities of Fitchburg, Ashby,
Townsend and Lunenburg. Fitchburg’s industrial customers include paper manufacturing and paper
products companies, rubber and plastics manufacturers, chemical products companies, printing, publishing
and associated industries and educational institutions. Fitchburg’s 2018 electric operating revenue was
$64.7 million, of which approximately 59% was derived from residential sales and 41% from C&I sales.
Seasonality
The Company’s results of operations are expected to reflect the seasonal nature of the natural gas
business. Annual gas revenues are substantially realized during the colder weather seasons of the year as a
result of higher sales of natural gas used for heating related purposes. Accordingly, the results of operations
are historically most favorable in the first and fourth quarters. Fluctuations in seasonal weather conditions
may have a significant effect on the result of operations. Sales of electricity are generally less sensitive to
weather than natural gas sales, but may also be affected by the weather conditions and the temperature in
both the winter and summer seasons.
Unitil Energy, Fitchburg and Northern Utilities are not dependent on a single customer or a few
customers for their electric and natural gas sales.
Non-Regulated and Other Non-Utility Operations
Unitil’s non-regulated operations are conducted through Usource, a subsidiary of Unitil Resources.
Usource provides energy brokering and advisory services to a national client base of large commercial and
industrial customers. Revenue from Unitil’s non-regulated operations was $4.7 million in 2018.
The results of Unitil’s other non-utility subsidiaries, Unitil Service and Unitil Realty, and the holding
company, are included in the Company’s consolidated results of operations. The results of these non-utility
5
operations are principally derived from income earned on short-term investments and real property owned
for Unitil’s and its subsidiaries’ use and are reported, after intercompany eliminations, in Other segment
income. For segment information, see Note 3 (Segment Information) to the Consolidated Financial
Statements included in Part II, Item 8 (Financial Statements and Supplementary Data) of this report.
RATES AND REGULATION
Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law. Among other
things, the TCJA substantially reduced the corporate income tax rate to 21 percent, effective January 1,
2018. Each state public utility commission, with jurisdiction over the areas that are served by Unitil’s
electric and gas subsidiary companies, has issued procedural orders directing how the tax law changes are to
be reflected in rates, including requiring that the companies provide certain filings and calculations. Unitil
has complied with these orders and has made the required changes to its rates as directed by the
commissions. The FERC has opened a rulemaking proceeding on this matter which has been addressed in a
rate settlement filing by Granite State (described below). More recently, on November 15, 2018, the FERC
issued a Notice of Proposed Rulemaking and a Policy Statement to address the TCJA’s effects on the
Accumulated Deferred Income Taxes (ADIT) on transmission rates. Under the proposed rules all public
utilities with transmission formula rates, including Fitchburg, would be required to: (1) include mechanisms
to deduct any excess ADIT from or add any deficient ADIT to their rate bases; (2) include mechanisms in
those rates that would raise or lower their income tax allowances by any amortized excess or deficient
ADIT; and (3) incorporate a new permanent worksheet into their rates that will annually track information
related to excess or deficient ADIT. The Company believes that these matters are substantially resolved and
will not have a material impact on its financial position, operating results, or cash flows.
In Maine, Northern Utilities’ Maine division recently completed a base rate case (described below).
The Maine Public Utilities Commission’s (MPUC) final order in that docket incorporated the lower tax
rates in the calculation of rates for the Company.
Similarly, in New Hampshire, Northern Utilities’ New Hampshire division recently completed a base
rate case proceeding (described below). The New Hampshire Public Utilities Commission’s (NHPUC) final
order in that docket approved a comprehensive settlement agreement among the Company, the Staff of the
Public Utilities Commission and the Office of Consumer Advocate which included the effect of the tax
changes in the calculation of the revenue requirement. With respect to Unitil Energy, on April 30, 2018 the
NHPUC approved the Company’s annual step increase pursuant to the provisions of its last base rate case,
which included adjustments to account for the TCJA’s income tax changes.
In Massachusetts, the Massachusetts Department of Public Utilities (MDPU) issued an order opening
an investigation into the effect on rates of the decrease in the federal corporate income tax rate on the
MDPU’s regulated utilities, and required each utility subject to its jurisdiction to submit proposals to
address the effects of the TCJA and to reduce its rates as of January 1, 2018. The MDPU consolidated an
earlier petition filed by the Attorney General requesting such an investigation into its order. On June 29,
2018, the MDPU issued an order accepting Fitchburg’s proposal to decrease the annual revenue requirement
of both its gas and electric divisions by $0.8 million each. On December 21, 2018 the MDPU issued an
order addressing the refund of excess ADIT in phase two of its investigation. Fitchburg was ordered to
make a filing by January 4, 2019, for rates effective February 1, 2019, to refund $10.1 million for the
electric division amortized over 15 years and $10.4 million for the gas division amortized over 14 years.
The filing establishes a “Tax Act Credit Factor” for Fitchburg’s gas and electric divisions effective
February 1, 2019 in accordance with the order. To the extent any of the regulatory liability above includes
excess ADIT amounts specifically associated with reconciling mechanisms, Fitchburg shall return those
amounts through the respective reconciling mechanism and adjust the regulatory liability amount
accordingly. The MDPU approved this filing on January 16, 2019.
On May 2, 2018, Granite State filed an uncontested rate settlement with FERC which accounted for the
effects of the TCJA in its rates. The settlement was approved by FERC on June 27, 2018, and complies with
and satisfies the FERC Notice of Proposed Rulemaking concerning the justness and reasonableness of rates
in light of the corporate income tax reduction under the TCJA.
6
Base Rate Activity
Unitil Energy—Base Rates—On April 20, 2017 the NHPUC approved a permanent increase of
$4.1 million in electric base rates, and a three year rate plan with an additional rate step adjustment,
effective May 1, 2017, of $0.9 million, followed by two rate step adjustments in May of 2018 and 2019 to
recover the revenue requirements associated with annual capital expenditures. On April 30, 2018, the
NHPUC approved Unitil Energy’s step adjustment filing. The filing incorporated the revenue requirement
of $3.3 million for 2017 plant additions, a reduction of $2.2 million for the effect of the federal tax decrease
pursuant to the TCJA, along with the termination of the one-year $1.4 million reconciliation adjustment
which had recouped the difference between temporary rates and final rates. The net effect of the three
adjustments resulted in a revenue decrease of $0.3 million.
Fitchburg—Base Rates—Electric—Fitchburg’s last base rate order from the MDPU, issued in April
2016, included the approval of an annual capital cost recovery mechanism to recover the revenue
requirement associated with certain capital additions. While a number of the capital cost recovery filings
may remain pending from year-to-year in any given year, the Company considers these to be routine
regulatory proceedings and there are no material issues outstanding. On June 28, 2018, Fitchburg filed its
compliance report of capital investments for calendar year 2017. On November 1, 2018, Fitchburg filed its
cumulative revenue requirement associated with the Company’s 2015, 2016 and 2017 capital expenditures
and associated Capital Cost Adjustment Factors to become effective on January 1, 2019. On December 27,
2018, the Capital Cost Adjustment Factors were approved subject to further investigation and reconciliation.
This matter remains pending.
Fitchburg—Electric Grid Modernization—On May 10, 2018, the MDPU issued an order approving
a three year grid modernization investment plan for Fitchburg for the period 2018 through 2020 with a
spending cap of $4.4 million. The order provides for a cost recovery mechanism for incremental capital
investments and operation and maintenance (O&M) expenses. The electric distribution companies in
Massachusetts jointly filed compliance filings in August 2018 including 1) revised proposed performance
metrics designed to address pre-authorized grid-facing investments, 2) a proposed evaluation plan for the
three-year investment term, and 3) a model tariff for cost recovery including proposed protocol for
identifying and tracking incremental O&M expenses. Approval of these filings is pending. The next three
year investment plan is due July 1, 2020 for the period 2021 through 2023, and is required to include a five
year strategic plan for 2021 – 2025.
Fitchburg—Solar Generation—On November 9, 2016, the MDPU approved Fitchburg’s petition to
develop a 1.3 MW solar generation facility located on Company property in Fitchburg, Massachusetts.
Construction of the solar generating facility was completed and the facility began generating power on
November 22, 2017. On April 2, 2018, Fitchburg submitted its first filing pursuant to its Solar Cost
Adjustment tariff, by which the Company recovers its annual revenue requirement related to its investment
in the solar generation facility. The filing sought a net amount of approximately $0.3 million for recovery
effective June 1, 2018. The recovery of this amount in rates was approved by the MDPU on May 31, 2018,
subject to further investigation and reconciliation. A final order is pending.
Fitchburg—Base Rates—Gas—Pursuant to the Company’s revenue decoupling adjustment clause
tariff, as approved in its last base rate case, the Company is allowed to modify, on a semi-annual basis, its
base distribution rates to an established revenue per customer target in order to mitigate economic, weather
and energy efficiency impacts to the Company’s revenues. The MDPU has consistently found that the
Company’s filings are in accord with its approved tariffs, applicable law and precedent, and that they result
in just and reasonable rates.
Fitchburg—Gas System Enhancement Program—Pursuant to statute and MDPU order, Fitchburg
has an approved Gas System Enhancement Plan (GSEP) tariff through which it may recover certain gas
infrastructure replacement and safety related investment costs, subject to an annual cap. Under the plan, the
Company is required to make two annual filings with the MDPU: a forward-looking filing for the
subsequent construction year, to be filed on or before October 31; and a filing, submitted on or before
May 1, of final project documentation for projects completed during the prior year, demonstrating
substantial compliance with its plan in effect for that year and showing that project costs were reasonably
7
and prudently incurred. While a number of the filings under the GSEP tariff may remain pending from
year-to-year in any given year, the Company considers these to be routine regulatory proceedings and there
are no material issues outstanding. Under this tariff, a revenue increase of $0.9 million went into effect on
May 1, 2018, subject to the annual cap and reconciliation. On October 31, 2018, the MDPU approved the
Company’s request for a waiver of the annual cap in order to recover its reconciliation adjustment of
$0.4 million effective November 1, 2018 associated with its actual 2017 revenue requirement.
Northern Utilities—Base Rates—Maine—On February 28, 2018, the MPUC issued its Final Order
(Order) in Northern Utilities’ pending base rate case. The Order provided for an annual revenue increase of
$2.1 million before a reduction of $2.2 million to incorporate the effect of the lower federal income tax rate
under the TCJA. The MPUC Order approved a return on equity of 9.5 percent and a capital structure
reflecting 50 percent equity and 50 percent long-term debt. The Order also provides for a reduction in
annual depreciation expense, reducing the Company’s annual operating costs by approximately
$0.5 million, and addressed a number of other issues, including a change to therm billing, increases in other
delivery charges, and cost recovery under the Company’s Targeted Area Build-out (TAB) program and
Targeted Infrastructure Replacement Adjustment (TIRA) mechanism. The new rates and other changes
became effective on March 1, 2018.
Northern Utilities—Targeted Infrastructure Replacement Adjustment—Maine—The settlement
in Northern Utilities’ Maine division’s 2013 rate case allowed the Company to implement a TIRA rate
mechanism to adjust base distribution rates annually to recover the revenue requirements associated with
targeted investments in gas distribution system infrastructure replacement and upgrade projects, including
the Company’s Cast Iron Replacement Program (CIRP). The TIRA had an initial term of four years and
covered targeted capital expenditures in 2013 through 2016. In its Order in the current base rate case (see
above), the MPUC approved an extension of the TIRA mechanism, with adjustment, for an additional eight-
year period, which will allow for annual rate adjustments through the end of the CIRP program. On May 7,
2018, the MPUC approved the Company’s request to increase its annual base rates by 2.4%, or $1.1 million,
to recover the revenue requirements for 2017 eligible facilities.
Northern Utilities—Targeted Area Build-out Program—Maine—In December 2015, the MPUC
approved a TAB program and associated rate surcharge mechanism. This program is designed to allow the
economic extension of natural gas mains to new, targeted service areas in Maine. It allows customers in the
targeted area the ability to pay a rate surcharge, instead of a large upfront payment or capital contribution to
connect to the natural gas delivery system. The initial pilot of the TAB program was approved for the City
of Saco, and is being built out over a period of three years, with the potential to add 1,000 new customers
and approximately $1 million in annual distribution revenue in the Saco area. A second TAB program was
approved for the Town of Sanford, and has the potential to add 2,000 new customers and approximately
$2 million in annual distribution revenue in the Sanford area. In its base rate case Order (described above),
the MPUC approved the inclusion of Saco TAB investments in rate base along with a cost recovery
incentive mechanism for future TAB investments.
Northern Utilities—Base Rates—New Hampshire—On May 2, 2018, the NHPUC approved a
settlement agreement providing for an annual revenue increase of $2.6 million, a reduction of annual
revenue of $1.7 million to reflect the effect of the TCJA, and a step increase of $2.3 million to recover post-
test year capital investments, all effective May 1, 2018 (with the revenue increase of $2.6 million
reconciling to the date of temporary rates of August 1, 2017 and the revenue decrease for TCJA reconciling
to January 1, 2018), for a net increase of approximately $3.2 million. Under the agreement, the Company
may file for a second step increase for effect May 1, 2019 to recover eligible capital investments in 2018, up
to a revenue requirement cap of $2.2 million. If the Company chooses the option to implement the second
step increase, the next distribution base rate case will be based on an historic test year of no earlier than
twelve months ending December 31, 2020.
Northern Utilities—Franchise Extensions—New Hampshire—On October 3, 2018, the NHPUC
granted Northern Utilities authority to expand its natural gas service territory in the Towns of Kingston,
New Hampshire and Atkinson, New Hampshire (where the Company already had a limited franchise) to
serve new industrial, commercial and residential customers. Northern Utilities has also petitioned the
NHPUC to extend its franchise into the Town of Epping, New Hampshire, where new commercial and
residential developments present the Company with opportunities for growth. The franchise petition for
service to the Town of Epping remains pending.
8
Granite State—Base Rates—On May 2, 2018, Granite State filed an uncontested rate settlement with
FERC which provided for no change in rates, and accounted for the effects of a capital step adjustment
offset by the effect of the TCJA. The settlement was approved by FERC on June 27, 2018, and complies
with the FERC Notice of Proposed Rulemaking concerning the justness and reasonableness of rates in light
of the corporate income tax reductions under the TCJA. The settlement also provides that Granite State may
not file a general (Section 4) rate case prior to April 30, 2019.
Regulation
Unitil is subject to comprehensive regulation by federal and state regulatory authorities. Unitil and its
subsidiaries are subject to regulation as a holding company system by the FERC under the Energy Policy
Act of 2005 with regard to certain bookkeeping, accounting and reporting requirements. Unitil’s utility
operations related to wholesale and interstate energy business activities are also regulated by the FERC.
Unitil’s distribution utilities are subject to regulation by the applicable state public utility commissions, with
regard to their rates, issuance of securities and other accounting and operational matters: Unitil Energy is
subject to regulation by the NHPUC; Fitchburg is subject to regulation by the MDPU; and Northern
Utilities is regulated by the NHPUC and MPUC. Granite State, Unitil’s interstate natural gas transmission
pipeline, is subject to regulation by the FERC with regard to its rates and operations. Because Unitil’s
primary operations are subject to rate regulation, the regulatory treatment of various matters could
significantly affect the Company’s operations and financial position.
Unitil’s distribution utilities deliver electricity and/or natural gas to all customers in their service
territory, at rates established under cost of service regulation. Under this regulatory structure, Unitil’s
distribution utilities recover the cost of providing distribution service to their customers based on a
historical test year, and earn a return on their capital investment in utility assets. In addition, the Company’s
distribution utilities and its natural gas transmission pipeline company may also recover certain base rate
costs, including capital project spending and enhanced reliability and vegetation management programs,
through annual step adjustments and cost tracker rate mechanisms.
Fitchburg is subject to revenue decoupling. Revenue decoupling is the term given to the elimination of
the dependency of a utility’s distribution revenue on the volume of electricity or natural gas sales. The
difference between distribution revenue amounts billed to customers and the targeted revenue decoupling
amounts is recognized as an increase or a decrease in Accrued Revenue which forms the basis for resetting
rates for future cash recoveries from, or credits to, customers. These revenue decoupling targets may be
adjusted as a result of rate cases and other authorized adjustments that the Company files with the MDPU.
The Company estimates that revenue decoupling applies to approximately 27% and 11% of Unitil’s total
annual electric and natural gas sales volumes, respectively.
Also see Regulatory Matters in Part II, Item 7 (Management’s Discussion and Analysis of Financial
Condition and Results of Operations) and Note 8 (Commitments and Contingencies) to the accompanying
Consolidated Financial Statements for additional information on rates and regulation.
NATURAL GAS SUPPLY
Unitil purchases and manages gas supply for customers served by Northern Utilities in Maine and New
Hampshire as well as customers served by Fitchburg in Massachusetts.
Northern Utilities’ C&I customers are entitled to purchase their natural gas supply from third-party gas
suppliers. Many of Northern Utilities’ largest and some medium C&I customers purchase their gas supply
from third-party suppliers, while most small C&I customers, as well as all residential customers, purchase
their gas supply from Northern Utilities under regulated rates and tariffs. As of December 2018, 79% of
Unitil’s largest New Hampshire gas customers, representing 37% of Unitil’s New Hampshire gas therm
sales and 68% of Unitil’s largest Maine customers, representing 23% of Unitil’s Maine gas therm sales, are
purchasing gas supply from a third-party supplier.
Fitchburg’s residential and C&I business customers are entitled to purchase their natural gas supply
from third-party gas suppliers. Many large and some medium C&I customers purchase their gas supply
9
from third-party suppliers while most of Fitchburg’s residential and small C&I customers continue to
purchase their supplies at regulated rates from Fitchburg. As of December 2018, 85% of Unitil’s largest
Massachusetts gas customers, representing 26% of Unitil’s Massachusetts gas therm sales, are purchasing
gas supply from third-party suppliers. The approved costs associated with natural gas supplied to customers
who do not contract with third-party suppliers are recovered on a pass-through basis through periodically
adjusted rates and are included in Cost of Gas Sales in the Consolidated Statements of Earnings.
Regulated Natural Gas Supply
Northern Utilities purchases a majority of its natural gas from U.S. domestic and Canadian suppliers
largely under contracts of one year or less, and on occasion from producers and marketers on the spot
market. Northern Utilities arranges for gas transportation and delivery to its system through its own long-
term contracts with various interstate pipeline and storage facilities, through peaking supply contracts
delivered to its system, or in the case of liquefied natural gas (LNG), via over the road trucking of supplies
to storage facilities within Northern Utilities’ service territory.
Northern Utilities has available under firm contract 115,000 million British Thermal Units (MMbtu)
per day of year-round and seasonal transportation capacity to its distribution facilities, and 4.3 billion cubic
feet (BCF) of underground storage. As a supplement to pipeline natural gas, Northern Utilities owns an
LNG storage and vaporization facility. This plant is used principally during peak load periods to augment
the supply of pipeline natural gas.
Fitchburg purchases natural gas under contracts from producers and marketers largely under contracts
of one year or less, and occasionally on the spot market. Fitchburg arranges for gas transportation and
delivery to its system through its own long-term contracts with Tennessee Gas Pipeline, through peaking
supply contracts delivered to its system, or in the case of LNG or liquefied propane gas (LPG), via trucking
of supplies to storage facilities within Fitchburg’s service territory.
Fitchburg has available under firm contract 14,057 MMbtu per day of year-round transportation and
0.33 BCF of underground storage capacity to its distribution facilities. As a supplement to pipeline natural
gas, Fitchburg owns a propane air gas plant and an LNG storage and vaporization facility. These plants are
used principally during peak load periods to augment the supply of pipeline natural gas.
ELECTRIC POWER SUPPLY
Fitchburg, Unitil Energy, and Unitil Power each are members of the New England Power Pool
(NEPOOL) and participate in the Independent System Operator—New England (ISO-NE) markets for the
purpose of facilitating wholesale electric power supply transactions, which are necessary to serve Unitil’s
electric customers with their supply of electricity Unitil’s customers in both New Hampshire and
Massachusetts are entitled to purchase their electric supply from competitive third-party suppliers. As of
December 2018, 77% of Unitil’s largest New Hampshire customers, representing 24% of Unitil’s New
Hampshire electric kilowatt-hour (kWh) sales and 81% of Unitil’s largest Massachusetts customers,
representing 32% of Unitil’s Massachusetts electric kWh sales, are purchasing their electric power supply in
the competitive market. Additionally, cities and towns in Massachusetts may, with approval from the
MDPU, implement municipal aggregations whereby the municipality purchases electric power on behalf of
all citizens and businesses that do not opt out of the aggregation. The Towns of Lunenburg and Ashby have
active municipal aggregations. Customers in Lunenburg comprise about 17% of Fitchburg’s customer base
and customers in Ashby comprise another 4%. Buoyed by the municipal aggregations, 31% of Unitil’s
residential customers in Massachusetts purchase their electricity from a third-party supplier as of December
2018.
In New Hampshire, the percentage of residential customers purchasing electricity from a third-party
supplier stands at 10%, down slightly relative to prior years when 13% of Unitil’s residential customers in
New Hampshire purchased their supply from third-party suppliers. Most residential and small commercial
customers continue to purchase their electric supply through Unitil’s electric distribution utilities under
regulated energy rates and tariffs.
10
Regulated Electric Power Supply
In order to provide regulated electric supply service to their customers, Unitil’s electric distribution
utilities enter into load-following wholesale electric power supply contracts to purchase electric supply from
various wholesale suppliers.
Unitil Energy currently has power supply contracts with various wholesale suppliers for the provision
of Default Service to its customers. Currently, with approval of the NHPUC, Unitil Energy purchases
Default Service power supply contracts for small, medium and large customers every six months for 100%
of the supply requirements.
Fitchburg has power supply contracts with various wholesale suppliers for the provision of Basic
Service electric supply. MDPU policy dictates the pricing structure and duration of each of these contracts.
Basic Service power supply contracts for residential and for small and medium general service customers
are acquired every six months, are 12 months in duration and provide 50% of the supply requirements. On
June 13, 2012, the MDPU approved Fitchburg’s request to discontinue the procurement process for
Fitchburg’s large customers and become the load-serving entity for these customers. Currently, all Basic
Service power supply requirements for large accounts are assigned to Fitchburg’s ISO-NE settlement
account where Fitchburg procures electric supply through ISO-NE’s real-time market.
The NHPUC and MDPU regularly review alternatives to their procurement policy, which may lead to
future changes in this regulated power supply procurement structure.
Regional Electric Transmission and Power Markets
Fitchburg, Unitil Energy and Unitil Power, as well as virtually all New England electric utilities, are
participants in the ISO-NE markets. ISO-NE is the Regional Transmission Organization (RTO) in New
England. The purpose of ISO-NE is to assure reliable operation of the bulk power system in the most
economical manner for the region. Substantially all operation and dispatching of electric generation and
bulk transmission capacity in New England are performed on a regional basis. The ISO-NE tariff imposes
generating capacity and reserve obligations, and provides for the use of major transmission facilities and
support payments associated therewith. The most notable benefits of the ISO-NE are coordinated, reliable
power system operation and a supportive business environment for the development of competitive electric
markets.
Electric Power Supply Divestiture
In connection with the implementation of retail choice, Unitil Power, which formerly functioned as the
wholesale power supply provider for Unitil Energy, and Fitchburg divested their long-term power supply
contracts through the sale of the entitlements to the electricity sold under those contracts. Unitil Energy and
Fitchburg recover in their rates all the costs associated with the divestiture of their power supply portfolios
and have secured regulatory approval from the NHPUC and MDPU, respectively, for the recovery of power
supply-related stranded costs and other restructuring-related regulatory assets. The companies have a
continuing obligation to submit regulatory filings that demonstrate their compliance with regulatory
mandates and provide for timely recovery of costs in accordance with their approved restructuring plans.
Long-Term Renewable Contracts
Fitchburg has entered into long-term renewable contracts for the purchase of clean energy and/or
renewable energy certificates (RECs) pursuant to Massachusetts legislation, specifically, An Act Relative to
Green Communities (“Green Communities Act”, 2008), An Act Relative to Competitively Priced Electricity
in the Commonwealth (2012) and An Act to Promote Energy Diversity (“Energy Diversity Act”, 2016). The
generating facilities associated with four of these contracts have been constructed and are now operating.
Since 2017, the Company has participated in two major statewide procurements which resulted in contracts
for imported hydroelectric power and associated transmission and for offshore wind generation. The
contracts were filed with MDPU in 2018 and approvals remain pending.
11
Additional long-term clean energy contracts are expected in compliance with the Energy Diversity Act
and An Act to Promote a Clean Energy Future (2018). Fitchburg recovers the costs associated with
long-term renewable contracts on a fully reconciling basis through a MDPU-approved cost recovery
mechanism.
ENVIRONMENTAL MATTERS
The Company’s past and present operations include activities that are generally subject to extensive
and complex federal and state environmental laws and regulations. The Company is in material compliance
with applicable environmental and safety laws and regulations and, as of December 31, 2018, has not
identified any material losses reasonably likely to be incurred in excess of recorded amounts. However, the
Company cannot assure that significant costs and liabilities will not be incurred in the future. It is possible
that other developments, such as increasingly stringent federal, state or local environmental laws and
regulations could result in increased environmental compliance costs. Based on the Company’s current
assessment of its environmental responsibilities, existing legal requirements and regulatory policies, the
Company does not believe that these environmental costs will have a material adverse effect on the
Company’s consolidated financial position or results of operations.
Northern Utilities Manufactured Gas Plant Sites—Northern Utilities has an extensive program to
identify, investigate and remediate former manufactured gas plant (MGP) sites, which were operated from
the mid-1800s through the mid-1900s. In New Hampshire, MGP sites were identified in Dover, Exeter,
Portsmouth, Rochester and Somersworth. In Maine, Northern Utilities has documented the presence of
MGP sites in Lewiston and Portland, and a former MGP disposal site in Scarborough.
Northern Utilities has worked with the Maine Department of Environmental Protection and New
Hampshire Department of Environmental Services to address environmental concerns with these sites.
Northern Utilities or others have substantially completed remediation of all sites, though on site monitoring
continues and it is possible that future activities may be required.
The NHPUC and MPUC have approved regulatory mechanisms for the recovery of MGP
environmental costs. For Northern Utilities’ New Hampshire division, the NHPUC has approved the
recovery of MGP environmental costs over succeeding seven-year periods. For Northern Utilities’ Maine
division, the MPUC has authorized the recovery of environmental remediation costs over succeeding
five-year periods.
The Environmental Obligations table below shows the amounts accrued for Northern Utilities related
to estimated future cleanup costs associated with Northern Utilities’ environmental remediation obligations
for former MGP sites. Corresponding Regulatory Assets were recorded to reflect that the future recovery of
these environmental remediation costs is expected based on regulatory precedent and established practices.
Fitchburg’s Manufactured Gas Plant Site—Fitchburg has worked with the Massachusetts
Department of Environmental Protection to address environmental concerns with the former MGP site at
Sawyer Passway, and has substantially completed remediation activities, though on site monitoring will
continue and it is possible that future activities may be required.
Fitchburg recovers the environmental response costs incurred at this former MGP site in gas rates
pursuant to the terms of a cost recovery agreement approved by the MDPU. Pursuant to this agreement,
Fitchburg is authorized to amortize and recover environmental response costs from gas customers over
succeeding seven-year periods.
Also, see Environmental Matters in Part II, Item 7 (Management’s Discussion and Analysis of
Financial Condition and Results of Operations) and Note 8 (Commitments and Contingencies) to the
accompanying Consolidated Financial Statements for additional information on Environmental Matters.
EMPLOYEES
As of December 31, 2018, the Company and its subsidiaries had 520 employees. The Company
considers its relationship with employees to be good and has not experienced any major labor disruptions.
12
As of December 31, 2018, a total of 165 employees of certain of the Company’s subsidiaries were
represented by labor unions. The following table details by subsidiary the employees covered by a collective
bargaining agreement (CBA) as of December 31, 2018:
Fitchburg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northern Utilities NH Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northern Utilities ME Division . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granite State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unitil Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unitil Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
47
34
39
4
36
5
05/31/2019
06/05/2020
03/31/2021
03/31/2021
05/31/2023
05/31/2023
Employees Covered
CBA Expiration
The CBAs provide discrete salary adjustments, established work practices and uniform benefit
packages. The Company expects to negotiate new agreements prior to their expiration dates.
AVAILABLE INFORMATION
The Internet address for the Company’s website is www.unitil.com. On the Investors section of the
Company’s website, the Company makes available, free of charge, its Securities and Exchange Commission
(SEC) reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and other reports, as well as amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practical after the Company electronically
files such material with, or furnishes such material to, the SEC.
The Company’s current Code of Ethics was approved by Unitil’s Board of Directors on January 15,
2004. This Code of Ethics, along with any amendments or waivers, is also available on Unitil’s website.
Unitil’s common stock is listed on the New York Stock Exchange under the ticker symbol “UTL”.
INVESTOR INFORMATION
Annual Meeting
The Company’s annual meeting of shareholders is scheduled to be held at the offices of the Company,
6 Liberty Lane West, Hampton, New Hampshire, on Wednesday, April 24, 2019, at 11:30 a.m.
Transfer Agent
The Company’s transfer agent, Computershare Investor Services, is responsible for shareholder
records, issuance of common stock, administration of the Dividend Reinvestment and Stock Purchase Plan,
and the distribution of Unitil’s dividends and IRS Form 1099-DIV. Shareholders may contact
Computershare at:
Computershare Investor Services
P.O. Box 30170
College Station, TX 77842-3170
Telephone: 800-736-3001
www.computershare.com/investor
Investor Relations
For information about the Company, you may call the Company directly, toll-free, at: 800-999-6501
and ask for the Investor Relations Representative; visit the Investors page at www.unitil.com; or contact the
transfer agent, Computershare, at the number listed above.
Special Services & Shareholder Programs Available to Holders of Record
If a shareholder’s shares of our common stock are registered directly in the shareholder’s name with
the Company’s transfer agent, the shareholder is considered a holder of record of the shares. The following
services and programs are available to shareholders of record:
•
Internet Account Access is available at www.computershare.com/investor.
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• Dividend Reinvestment and Stock Purchase Plan:
To enroll, please contact the Company’s Investor Relations Representative or Computershare.
• Dividend Direct Deposit Service:
To enroll, please contact the Company’s Investor Relations Representative or Computershare.
• Direct Registration:
For information, please contact Computershare at 800-935-9330 or the Company’s Investor
Relations Representative at 800-999-6501.
Item 1A. Risk Factors
Risks Relating to Our Business
The Company is subject to comprehensive regulation, which could adversely impact the rates it is able to
charge, its authorized rate of return and its ability to recover costs. In addition, certain regulatory
authorities have the statutory authority to impose financial penalties and other sanctions on the
Company, which could adversely affect the Company’s financial condition and results of operations.
The Company is subject to comprehensive regulation by federal regulatory authorities (including the
FERC) and state regulatory authorities (including the NHPUC, MDPU and MPUC). These authorities
regulate many aspects of the Company’s operations, including the rates that the Company can charge
customers, the Company’s authorized rates of return, the Company’s ability to recover costs from its
customers, construction and maintenance of the Company’s facilities, the Company’s safety protocols and
procedures, including environmental compliance, the Company’s ability to issue securities, the Company’s
accounting matters, and transactions between the Company and its affiliates. The Company is unable to
predict the impact on its financial condition and results of operations from the regulatory activities of any of
these regulatory authorities. Changes in regulations, the imposition of additional regulations or regulatory
decisions particular to the Company could adversely affect the Company’s financial condition and results of
operations.
The Company’s ability to obtain rate adjustments to maintain its current authorized rates of return
depends upon action by regulatory authorities under applicable statutes, rules and regulations. These
regulatory authorities are authorized to leave the Company’s rates unchanged, to grant increases in such
rates or to order decreases in such rates. The Company may be unable to obtain favorable rate adjustments
or to maintain its current authorized rates of return, which could adversely affect its financial condition and
results of operations.
Regulatory authorities also have authority with respect to the Company’s ability to recover its
electricity and natural gas supply costs, as incurred by Unitil Power, Unitil Energy, Fitchburg, and Northern
Utilities. If the Company is unable to recover a significant amount of these costs, or if the Company’s
recovery of these costs is significantly delayed, then the Company’s financial condition and results or
operations could be adversely affected.
In addition, certain regulatory authorities have the statutory authority to impose financial penalties and
other sanctions on the Company if the Company is found to have violated statutes, rules or regulations
governing its utility operations. Any such penalties or sanctions could adversely affect the Company’s
financial condition and results of operations.
The Company’s electric and natural gas sales and revenues are highly correlated with the economy, and
national, regional and local economic conditions may adversely affect the Company’s customers and
correspondingly the Company’s financial condition and results of operations.
The Company’s business is influenced by the economic activity within its service territory. The level
of economic activity in the Company’s electric and natural gas distribution service territories directly affects
the Company’s business. As a result, adverse changes in the economy may adversely affect the Company’s
financial condition and results or operations. Economic downturns or periods of high electric and gas supply
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costs typically can lead to the development of legislative and regulatory policy designed to promote
reductions in energy consumption and increased energy efficiency and self-generation by customers. This
focus on conservation, energy efficiency and self-generation may result in a decline in electricity and gas
sales in our service territories. If any such declines were to occur without corresponding adjustments in
rates, then our revenues would be reduced and our future growth prospects would be limited. In addition, a
period of prolonged economic weakness could impact customers’ ability to pay bills in a timely manner and
increase customer bankruptcies, which may lead to increased bad debt expenses or other adverse effects on
our financial position, results of operations and/or cash flows.
The Company may not be able to obtain financing, or may not be able to obtain financing on acceptable
terms, which could adversely affect the Company’s financial condition and results of operations.
The Company requires capital to fund utility plant additions, working capital and other utility
expenditures. While the Company derives the capital necessary to meet these requirements primarily from
internally-generated funds, the Company supplements internally-generated funds by incurring short-term
and long-term debt, as needed. Additionally, from time to time, the Company has accessed the public capital
markets through public offerings of equity securities. A downgrade of our credit rating or events beyond our
control, such as a disruption in global capital and credit markets, could increase our cost of borrowing and
cost of capital or restrict our ability to access the capital markets and negatively affect our ability to
maintain and to expand our businesses.
The Company’s short-term debt revolving credit facility typically has variable interest rates. Therefore,
an increase or decrease in interest rates will increase or decrease the Company’s interest expense associated
with its revolving credit facility. An increase in the Company’s interest expense could adversely affect the
Company’s financial condition and results of operations. As of December 31, 2018, the Company had
approximately $82.8 million in short-term debt outstanding under its revolving credit facility. Additionally,
if the lending counterparties under the Company’s current credit facility are unwilling or unable to meet
their funding obligations, then the Company may be unable to, or limited in its ability to, incur short-term
debt under its credit facility. This could hinder or prevent the Company from meeting its current and future
capital needs, which could correspondingly adversely affect the Company’s financial condition and results
or operations.
Also, from time to time, the Company repays portions of its short-term debt with the proceeds it
receives from long-term debt financings or equity financings. General economic conditions, conditions in
the capital and credit markets and the Company’s operating and financial performance could negatively
affect the Company’s ability to obtain such financings or the terms of such financings, which could
correspondingly adversely affect the Company’s financial condition and results of operations. The
Company’s long-term debt typically has fixed interest rates. Therefore, changes in interest rates will not
affect the Company’s interest expense associated with its presently outstanding fixed rate long-term debt.
However, an increase or decrease in interest rates may increase or decrease the Company’s interest expense
associated with any new fixed rate long-term debt issued by the Company, which could adversely affect the
Company’s financial condition and results of operations.
In addition, the Company may need to use a significant portion of its cash flow to repay its short-term
debt and long-term debt, which would limit the amount of cash it has available for working capital, capital
expenditures and other general corporate purposes and could adversely affect its financial condition and
results of operations.
Changes in taxation and the ability to quantify such changes could adversely affect the Company’s
financial results.
The Company is subject to taxation by the various taxing authorities at the federal, state and local
levels where it does business. See “Tax Cuts and Jobs Act of 2017” in “Rates and Regulation” above.
Legislation or regulation which could affect the Company’s tax burden could be enacted by any of these
governmental authorities. The Company cannot predict the timing or extent of such tax-related
developments which could have a negative impact on the financial results. Additionally, the Company uses
its best judgment in attempting to quantify and reserve for these tax obligations. However, a challenge by a
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taxing authority, the Company’s ability to utilize tax benefits such as carryforwards or tax credits, or a
deviation from other tax-related assumptions may cause actual financial results to deviate from previous
estimates. (See Note 9 to the Consolidated Financial Statements).
Declines in the valuation of capital markets could require the Company to make substantial cash
contributions to cover its pension and other post-retirement benefit obligations. If the Company is unable
to recover a significant amount of pension and other post-retirement benefit obligation costs in its rates,
or if the Company’s recovery of these costs in its rates is significantly delayed, then the Company’s
financial condition and results of operations could be adversely affected.
The amount of cash contributions the Company is required to make in respect of its pension and other
post-retirement benefit obligations is dependent upon the valuation of the capital markets. Adverse changes
in the valuation of the capital markets could result in the Company being required to make substantial cash
contributions in respect to these obligations. These cash contributions could have an adverse effect on the
Company’s financial condition and results of operations if the Company is unable to recover such costs in
rates or if such recovery is significantly delayed. Please see the section entitled Critical Accounting
Policies—Retirement Benefit Obligations in Part II, Item 7 (Management’s Discussion and Analysis of
Financial Condition and Results of Operations) and Note 10 (Retirement Benefit Plans) to the
accompanying Consolidated Financial Statements for a more detailed discussion of the Company’ pension
obligations.
The terms of the Company’s and its subsidiaries’ indebtedness restrict the Company’s and its
subsidiaries’ business operations (including their ability to incur material amounts of additional
indebtedness), which could adversely affect the Company’s financial condition and results of operations.
The terms of the Company’s and its subsidiaries’ indebtedness impose various restrictions on the
Company’s business operations, including the ability of the Company and its subsidiaries to incur additional
indebtedness. These restrictions could adversely affect the Company’s financial condition and results of
operations. See the sections entitled Liquidity, Commitments and Capital Requirements in Part II, Item 7
(Management’s Discussion and Analysis of Financial Condition and Results of Operations) and Note 5
(Debt and Financing Arrangements) to the accompanying Consolidated Financial Statements for a more
detailed discussion of these restrictions.
A significant amount of the Company’s sales are temperature sensitive. Because of this, mild winter and
summer temperatures could decrease the Company’s sales, which could adversely affect the Company’s
financial condition and results of operations. Also, the Company’s sales may vary from year to year
depending on weather conditions, and the Company’s results of operations generally reflect seasonality.
The Company estimates that approximately 70% of its annual natural gas sales are temperature
sensitive. Therefore, mild winter temperatures could decrease the amount of natural gas sold by the
Company, which could adversely affect the Company’s financial condition and results of operations. The
Company’s electric sales also are temperature sensitive, but less so than its natural gas sales. The highest
usage of electricity typically occurs in the summer months (due to air conditioning demand) and the winter
months (due to heating-related and lighting requirements). Therefore, mild summer temperatures and mild
winter temperatures could decrease the amount of electricity sold by the Company, which could adversely
affect the Company’s financial condition and results of operations. Also, because of this temperature
sensitivity, sales by the Company’s distribution utilities vary from year to year, depending on weather
conditions.
The Company’s results of operations are expected to reflect the seasonal nature of the natural gas
business. Annual gas revenues are substantially realized during the colder weather seasons of the year as a
result of higher sales of natural gas used for heating related purposes. Accordingly, the results of operations
are historically most favorable in the first and fourth quarters. Fluctuations in seasonal weather conditions
may have a significant effect on the result of operations. Sales of electricity are generally less sensitive to
weather than natural gas sales, but may also be affected by the weather conditions and the temperature in
both the winter and summer seasons.
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Unitil is a public utility holding company and has no operating income of its own. The Company’s ability
to pay dividends on its common stock is dependent on dividends and other payments received from its
subsidiaries and on factors directly affecting Unitil, the parent corporation. The Company cannot assure
that its current annual dividend will be paid in the future.
The ability of the Company’s subsidiaries to pay dividends or make distributions to Unitil depends on,
among other things:
•
•
•
•
the actual and projected earnings and cash flow, capital requirements and general financial
condition of the Company’s subsidiaries;
the prior rights of holders of existing and future preferred stock, mortgage bonds, long-term notes
and other debt issued by the Company’s subsidiaries;
the restrictions on the payment of dividends contained in the existing loan agreements of the
Company’s subsidiaries and that may be contained in future debt agreements of the Company’s
subsidiaries, if any; and
limitations that may be imposed by New Hampshire, Massachusetts and Maine state regulatory
authorities.
In addition, before the Company can pay dividends on its common stock, it has to satisfy its debt
obligations and comply with any statutory or contractual limitations.
As of January 30, 2019, the Company’s current effective annualized dividend is $1.48 per share of
common stock, payable quarterly. The Company’s Board of Directors reviews Unitil’s dividend policy
periodically in light of a number of business and financial factors, including those referred to above, and the
Company cannot assure the amount of dividends, if any, that may be paid in the future.
A substantial disruption or lack of growth in interstate natural gas pipeline transmission and storage
capacity and electric transmission capacity may impair the Company’s ability to meet customers’ existing
and future requirements.
In order to meet existing and future customer demands for natural gas and electricity, the Company
must acquire sufficient supplies of natural gas and electricity. In addition, the Company must contract for
reliable and adequate upstream transmission and transportation capacity for its distribution systems while
considering the dynamics of the natural gas interstate pipelines and storage, the electric transmission
markets and its own on-system resources. The Company’s financial condition or results of operations may
be adversely affected if the future availability of natural gas and electric supply were insufficient to meet
future customer demands for natural gas and electricity.
The Company’s electric and natural gas distribution activities (including storing natural gas and
supplemental gas supplies) involve numerous hazards and operating risks that may result in accidents
and other operating risks and costs. Any such accident or costs could adversely affect the Company’s
financial position or results of operations.
Inherent in the Company’s electric and natural gas distribution activities are a variety of hazards and
operating risks, including leaks, explosions, electrocutions, mechanical problems and aging infrastructure.
These hazards and risks could result in loss of human life, significant damage to property, environmental
pollution, damage to natural resources and impairment of the Company’s operations, which could adversely
affect the Company’s financial position or results of operations.
The Company maintains insurance against some, but not all, of these risks and losses in accordance
with customary industry practice. The location of pipelines, storage facilities and electric distribution
equipment near populated areas (including residential areas, commercial business centers and industrial
sites) could increase the level of damages associated with these hazards and operating risks. The occurrence
of any of these events could adversely affect the Company’s financial position or results of operations.
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The Company’s business is subject to environmental regulation in all jurisdictions in which it operates
and its costs of compliance are significant. New, or changes to existing, environmental regulation,
including those related to climate change or greenhouse gas emissions, and the incurrence of
environmental liabilities could adversely affect the Company’s financial condition and results of
operations.
The Company’s utility operations are generally subject to extensive federal, state and local
environmental laws and regulations relating to air quality, water quality, waste management, natural
resources, and the health and safety of the Company’s employees. The Company’s utility operations also
may be subject to new and emerging federal, state and local legislative and regulatory initiatives related to
climate change or greenhouse gas emissions including the U.S. Environmental Protection Agency’s
mandatory greenhouse gas reporting rule. Failure to comply with these laws and regulations may result in
the assessment of administrative, civil, and criminal penalties and other sanctions; imposition of remedial
requirements; and issuance of injunctions to ensure future compliance. Liability under certain
environmental laws and regulations is strict, joint and several in nature. Although the Company believes it is
in material compliance with all applicable environmental and safety laws and regulations, we cannot assure
you that the Company will not incur significant costs and liabilities in the future. Moreover, it is possible
that other developments, such as increasingly stringent federal, state or local environmental laws and
regulations, including those related to climate change or greenhouse gas emissions, could result in increased
environmental compliance costs.
Catastrophic events could adversely affect the Company’s financial condition and results of operations.
The electric and natural gas utility industries are from time to time affected by catastrophic events,
such as unusually severe weather and significant and widespread failures of plant and equipment. Other
catastrophic occurrences, such as terrorist attacks on utility facilities, may occur in the future. Such events
could inhibit the Company’s ability to deliver electric or natural gas to its customers for an extended period,
which could affect customer satisfaction and adversely affect the Company’s financial condition and results
of operations. If customers, legislators, or regulators develop a negative opinion of the Company, this could
result in increased regulatory oversight and could affect the returns on equity that the Company is allowed
to earn. Also, if the Company is unable to recover a significant amount of costs associated with catastrophic
events in its rates, or if the Company’s recovery of such costs in its rates is significantly delayed, then the
Company’s financial condition and results or operations may be adversely affected.
The Company’s operational and information systems on which it relies to conduct its business and serve
customers could fail to function properly due to technological problems, a cyber-attack, acts of terrorism,
severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of
information technology assets, human error, or other reasons, that could disrupt the Company’s
operations and cause the Company to incur unanticipated losses and expense.
The operation of the Company’s extensive electricity and natural gas systems rely on evolving
information technology systems and network infrastructures that are likely to become more complex as new
technologies and systems are developed. The Company’s business is highly dependent on its ability to
process and monitor, on a daily basis, a very large number of transactions, many of which are highly
complex. The failure of these information systems and networks could significantly disrupt operations;
result in outages and/or damages to the Company’s assets or operations or those of third parties on which it
relies; and subject the Company to claims by customers or third parties, any of which could have a material
effect on the Company’s financial condition, results of operations, and cash flows.
The Company’s information systems, including its financial information, operational systems,
metering, and billing systems, require constant maintenance, modification, and updating, which can be
costly and increases the risk of errors and malfunction. Any disruptions or deficiencies in existing
information systems, or disruptions, delays or deficiencies in the modification or implementation of new
information systems, could result in increased costs, the inability to track or collect revenues, the diversion
of management’s and employees’ attention and resources, and could negatively impact the effectiveness of
the Company’s control environment, and/or the Company’s ability to timely file required regulatory reports.
Despite implementation of security and mitigation measures, all of the Company’s technology systems are
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vulnerable to impairment or failure due to cyber-attacks, computer viruses, human errors, acts of war or
terrorism and other reasons. If the Company’s information technology systems were to fail or be materially
impaired, the Company might be unable to fulfill critical business functions and serve its customers, which
could have a material effect on the Company’s financial condition, results of operations, and cash flows.
In the ordinary course of its business, the Company collects and retains sensitive electronic data
including personal identification information about customers and employees, customer energy usage, and
other confidential information. The theft, damage, or improper disclosure of sensitive electronic data
through security breaches or other means could subject the Company to penalties for violation of applicable
privacy laws or claims from third parties and could harm the Company’s reputation and adversely affect the
Company’s financial condition and results of operations.
In addition, the Company’s electric and natural gas distribution and transmission delivery systems are
part of an interconnected regional grid and pipeline system. If these neighboring interconnected systems
were to be disrupted due to cyber-attacks, computer viruses, human errors, acts of war or terrorism or other
reasons, the Company’s operations and its ability to serve its customers would be adversely affected, which
could have a material effect on the Company’s financial condition, results of operations, and cash flows.
We outsource certain business functions to third-party suppliers and service providers, and substandard
performance by those third parties could harm our business, reputation and results of operations.
We outsource certain services to third parties in areas including information technology,
telecommunications, networks, transaction processing, human resources, payroll and payroll processing and
other areas. Outsourcing of services to third parties could expose us to substandard quality of service
delivery or substandard deliverables, which may result in missed deadlines or other timeliness issues,
non-compliance (including with applicable legal requirements and industry standards) or reputational harm,
which could negatively impact our results of operations. We also continue to pursue enhancements to
modernize our systems and processes. If any difficulties in the operation of these systems were to occur,
they could adversely affect our results of operations, or adversely affect our ability to work with regulators,
unions, customers or employees.
The inability to attract and retain a qualified workforce including, but not limited to, executive officers,
key employees and employees with specialized skills, could have an adverse effect on the Company’s
operations.
The success of our business depends on the leadership of our executive officers and other key
employees to implement our business strategies. The inability to maintain a qualified workforce including,
but not limited to, executive officers, key employees and employees with specialized skills, may negatively
affect our ability to service our existing or new customers, or successfully manage our business or achieve
our business objectives. There may not be sufficiently skilled employees available internally to replace
employees when they retire or otherwise leave active employment. Shortages of certain highly skilled
employees may also mean that qualified employees are not available externally to replace these employees
when they are needed. In addition, shortages in highly skilled employees coupled with competitive
pressures may require the Company to incur additional employee recruiting and compensation expenses.
The Company may be adversely impacted by work stoppages, labor disputes, and/or pandemic illness to
which it may not able to promptly respond.
Approximately one-third of the Company’s employees are represented by labor unions and are covered
by collective bargaining agreements. Disputes with the unions over terms and conditions of the agreements
could result in instability in the Company’s labor relationships and work stoppages that could impact the
timely delivery of natural gas and electricity, which could strain relationships with customers and state
regulators and cause a loss of revenues. The Company’s collective bargaining agreements may also increase
the cost of employing its union workforce, affect its ability to continue offering market-based salaries and
employee benefits, limit its flexibility in dealing with its workforce, and limit its ability to change work
rules and practices and implement other efficiency-related improvements to successfully compete in today’s
challenging marketplace, which may negatively affect the Company’s financial condition and results of
operations.
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Additionally, pandemic illness could result in part, or all, of the Company’s workforce being unable to
operate or maintain the Company’s infrastructure or perform other tasks necessary to conduct the
Company’s business. A slow or inadequate response to this type of event may adversely affect the
Company’s financial condition and results of operations.
The Company’s business could be adversely affected if it is unable to retain its existing customers or
attract new customers, or if customers’ demand for its current products and services significantly
decreases.
The success of the Company’s business depends, in part, on its ability to maintain and increase its
customer base and the demand that those customers have for the Company’s products and services. The
Company’s failure to maintain or increase its customer base and/or customer demand for its products and
services could adversely affect its financial condition and results of operations.
The natural gas and electric supply requirements of the Company’s customers are fulfilled by the
Company or, in some instances and as allowed by state regulatory authorities, by third-party suppliers who
contract directly with customers. In either scenario, significant increases in natural gas and electricity
commodity prices may negatively impact the Company’s ability to attract new customers and grow its
customer base.
Developments in distributed generation, energy conservation, power generation and energy storage
could affect the Company’s revenues and the timing of the recovery of the Company’s costs. Advancements
in power generation technology are improving the cost-effectiveness of customer self-supply of electricity.
Improvements in energy storage technology, including batteries and fuel cells, could also better position
customers to meet their around-the-clock electricity requirements. Such developments could reduce
customer purchases of electricity, but may not necessarily reduce the Company’s investment and operating
requirements due to the Company’s obligation to serve customers, including those self-supply customers
whose equipment has failed for any reason, to provide the power they need. In addition, since a portion of
the Company’s costs are recovered through charges based upon the volume of power delivered, reductions
in electricity deliveries will affect the timing of the Company’s recovery of those costs and may require
changes to the Company’s rate structures.
The financial performance of the Company’s non-regulated energy brokering business, Usource, may be
adversely affected if suppliers and/or customers default in their performance under multi-year energy
brokering contracts or by competition from other energy brokers.
Usource provides energy brokering and consulting services to a national client base of large
commercial and industrial customers. Revenues from this business are primarily derived from brokering
fees and charges billed to suppliers as customers take delivery of energy from these suppliers under term
contracts. Usource’s customers and/or the suppliers providing energy to Usource’s customers may default in
their performance under multi-year energy brokering contracts, which could adversely affect the Company’s
financial condition and results of operations. In addition, Usource may lose market share to other energy
brokers which could adversely affect the Company’s financial condition and results of operations.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
As of December 31, 2018, Unitil owned, through its natural gas and electric distribution utilities, five
utility operation centers located in New Hampshire, Maine and Massachusetts. In addition, the Company’s
real estate subsidiary, Unitil Realty, owns the Company’s corporate headquarters building and the land on
which it is located. In May 2018, Fitchburg relocated to its new operating center in Lunenburg on a 15 acre
property owned by Unitil.
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The following tables detail certain of the Company’s natural gas and electric operations properties.
Natural Gas Operations
Description
Northern Utilities
NH
ME
Fitchburg
Granite
State
Total
Underground Natural Gas Mains—Miles . . . . . . . . . . . . . . . . . . . . . . .
Natural Gas Transmission Pipeline—Miles . . . . . . . . . . . . . . . . . . . . .
Service Pipes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
544
—
23,642
589
—
22,481
274
—
11,074
1,407
—
86
86
— 57,197
Electric Operations
Description
Unitil Energy
Fitchburg
Total
Primary Transmission and Distribution Pole Miles—Overhead . . . . . . . . . . . . . . . .
Conduit Distribution Bank Miles—Underground . . . . . . . . . . . . . . . . . . . . . . . . . . .
Transmission and Distribution Substations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .
Transformer Capacity of Transmission and Distribution Substations (MVA)
1,278
231
34
549.5
445
67
16
608.2
1,723
298
50
1,157.7
The Company’s natural gas operations property includes two liquid propane gas plants and two liquid
natural gas plants. Northern Utilities also owns a propane air gas plant and an LNG storage and vaporization
facility. FG&E owns a propane air gas plant and an LNG storage and vaporization facility, both of which
are located on land owned by FG&E in north central Massachusetts.
Northern Utilities’ gas mains are primarily made up of polyethylene plastic (80%), coated and wrapped
cathodically protected steel (16%), cast/wrought iron (3%), and unprotected bare and coated steel (1%).
FG&E’s gas mains are primarily made up of coated steel (45%), bare steel (2%), polyethylene plastic
(36%), cast iron (16) and wrought and ductile iron (1%).
Granite State’s underground natural gas transmission pipeline, regulated by the FERC, is located
primarily in Maine and New Hampshire.
Unitil Energy’s electric substations are located on land owned by Unitil Energy or land occupied by
Unitil Energy pursuant to perpetual easements in the southeastern seacoast and state capital regions of New
Hampshire. Unitil Energy’s electric distribution lines are located in, on or under public highways or private
lands pursuant to lease, easement, permit, municipal consent, tariff conditions, agreement or license,
expressed or implied through use by Unitil Energy without objection by the owners. In the case of certain
distribution lines, Unitil Energy owns only a part interest in the poles upon which its wires are installed, the
remaining interest being owned by telecommunication companies.
The physical utility properties of Unitil Energy, with certain exceptions, and its franchises are subject
to its indenture of mortgage and deed of trust under which the respective series of first mortgage bonds of
Unitil Energy are outstanding.
FG&E’s electric substations, with minor exceptions, are located in north central Massachusetts on land
owned by FG&E or occupied by FG&E pursuant to perpetual easements. FG&E’s electric distribution lines
and gas mains are located in, on or under public highways or private lands pursuant to lease, easement,
permit, municipal consent, tariff conditions, agreement or license, express or implied through use by FG&E
without objection by the owners. FG&E owns full interest in the poles upon which its wires are installed.
The Company believes that its facilities are currently adequate for their intended uses.
Item 3.
Legal Proceedings
The Company is involved in legal and administrative proceedings and claims of various types, which
arise in the ordinary course of business. The Company believes, based upon information furnished by
counsel and others, that the ultimate resolution of these claims will not have a material impact on its
financial position, operating results or cash flows.
21
In early 2009, a putative class action complaint was filed against Unitil’s Massachusetts based utility,
Fitchburg, in Massachusetts’ Worcester Superior Court, (captioned Bellermann et al v. Fitchburg Gas and
Electric Light Company). The Complaint sought an unspecified amount of damages, including the cost of
temporary housing and alternative fuel sources, emotional and physical pain and suffering and property
damages allegedly incurred by customers in connection with the loss of electric service during the ice storm
in Fitchburg’s service territory in December 2008. The Massachusetts Supreme Judicial Court issued an
order denying class certification status in July 2016, though the plaintiffs’ individual claims remained
pending. The Company resolved this matter by settlement in the fall of 2018 and there was no material
impact on the Company’s financial position, operating results or cash flows.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “UTL.” As of
December 31, 2018, there were 1,350 shareholders of record of our common stock.
Common Stock Data
Dividends per Common Share
1st Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3rd Quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4th Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
$0.365
0.365
0.365
0.365
$0.360
0.360
0.360
0.360
Total for Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1.46
$ 1.44
See also “Dividends” in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition
and Results of Operations) below.
Information regarding securities authorized for issuance under our equity compensation plans, as of
December 31, 2018, is set forth in the table below.
Equity Compensation Plan Information
(a)
(b)
Number of securities
to be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
Plan Category
Equity compensation plans approved by
security holders(1) . . . . . . . . . . . . . . . . . . .
Equity compensation plans not approved by
security holders . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
—
305,449
—
305,449
NOTES: (also see Note 6 to the accompanying Consolidated Financial Statements)
(1) Consists of the Second Amended and Restated 2003 Stock Plan (the Plan). On April 19, 2012,
shareholders approved the Plan, and a total of 677,500 shares of our common stock were reserved for
issuance pursuant to awards of restricted stock, restricted stock units and common stock under the
Plan. A total of 380,161 shares of restricted stock have been awarded and 1,106 restricted stock units
have been settled and issued as shares of common stock by Plan participants through December 31,
2018. As of December 31, 2018, a total of 8,110 shares of restricted stock were forfeited and once
again became available for issuance under the Plan.
23
Stock Performance Graph
The following graph compares Unitil Corporation’s cumulative stockholder return since December 31,
2013 with the Peer Group index, comprised of the S&P 500 Utilities Index, and the S&P 500 index. The
graph assumes that the value of the investment in the Company’s common stock and each index (including
reinvestment of dividends) was $100 on December 31, 2013.
Comparative Five-Year Total Returns
Value of $100 invested after 5 years (1)
Unitil $198
Peer Group $167
S&P 500 $150
$240
$220
$200
$180
$160
$140
$120
$100
$80
2013
2014
2015
2016
2017
2018
NOTE:
(1)
The graph above assumes $100 invested on December 31, 2013, in each category and the reinvestment
of all dividends during the five-year period. The Peer Group is comprised of the S&P 500 Utilities
Index.
Unregistered Sales of Equity Securities and Uses of Proceeds
There were no sales of unregistered equity securities by the Company for the fiscal period ended
December 31, 2018.
Issuer Purchases of Equity Securities
Pursuant to the written trading plan under Rule 10b5-1 under the Securities Exchange Act of 1934, as
amended (the Exchange Act), adopted and announced by the Company on May 1, 2018, the Company will
periodically repurchase shares of its Common Stock on the open market related to Employee Length of
Service Awards and the stock portion of the Directors’ annual retainer for those Directors who elected to
receive common stock. There is no pool or maximum number of shares related to these purchases; however,
the trading plan will terminate when $92,700 in value of shares have been purchased or, if sooner, on
May 1, 2019.
The Company may suspend or terminate this trading plan at any time, so long as the suspension or
termination is made in good faith and not as part of a plan or scheme to evade the prohibitions of Rule
10b-5 under the Exchange Act, or other applicable securities laws.
24
The following table shows information regarding repurchases by the Company of shares of its common
stock pursuant to the trading plan for each month in the quarter ended December 31, 2018.
Period
10/1/18 – 10/31/18 . . . . . . . . . . . . . . . . . . . . . . . . .
11/1/18 – 11/30/18 . . . . . . . . . . . . . . . . . . . . . . . . .
12/1/18 – 12/31/18 . . . . . . . . . . . . . . . . . . . . . . . . .
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Number
of Shares
Purchased
—
—
319
319
Average
Price Paid
per Share
—
—
$50.330
$50.330
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares that
May Yet Be
Purchased Under the
Plans or Programs
—
—
319
319
$75,366
$75,366
$59,311
25
Item 6.
Selected Financial Data
For the Years Ended December 31,
(all data in millions except customers served, shares, %
and per share data)
2018
2017
2016
2015
2014
Customers Served (Year-End):
Electric:
Residential
Commercial & Industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
90,537
15,034
90,009
14,969
89,400
14,872
88,444
14,825
88,012
14,740
Total Electric . . . . . . . . . . . . . . . . . . . . . . . . .
105,571
104,978
104,272
103,269
102,752
Natural Gas:
Residential
Commercial & Industrial
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Total Natural Gas . . . . . . . . . . . . . . . . . . . . .
64,604
18,155
82,759
63,441
17,868
81,309
62,284
17,654
79,938
61,270
17,479
78,749
60,236
17,624
77,860
Total Customers Served . . . . . . . . . . . . . . . . . . . . . . . . . . .
188,330
186,287
184,210
182,018
180,612
Electric and Gas Sales:
Electric Distribution Sales (kWh) . . . . . . . . . . . . . . . . .
Firm Natural Gas Distribution Sales (Therms) . . . . . . .
1,675.8
231.1
1,624.1
213.8
1,628.8
205.7
1,667.7
219.4
1,679.0
216.2
Consolidated Statements of Earnings:
Operating Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . .
Other Expense (Income), net
Income Before Income Taxes . . . . . . . . . . . . . . . .
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends on Preferred Stock . . . . . . . . . . . . . . . . . . . .
Earnings Applicable to Common Shareholders . . . . . .
Earnings Per Average Share:
. . . . . . . . . . . . . . . . . . . . . .
Common Stock—(Diluted Weighted Average Outstanding,
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends Declared Per Share . . . . . . . . . . . . . . . . . . .
Book Value Per Share (Year-End) . . . . . . . . . . . . . . . .
000’s)
Balance Sheet Data (as of December 31,):
Utility Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Capital Lease Obligations(1)
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization:
Common Stock Equity . . . . . . . . . . . . . . . . . . . . .
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Debt, less current portion . . . . . . . . .
Total Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current Portion of Long-Term Debt . . . . . . . . . . . . . . .
Short-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Structure Ratios (as of December 31,):
$
$
$
$
$
444.1
71.2
24.0
5.8
41.4
8.4
33.0
—
33.0
2.23
14,829
1.46
23.60
$
$
$
$
$
406.2
75.4
23.1
5.8
46.5
17.5
29.0
—
29.0
2.06
14,102
1.44
22.72
$
$
$
$
$
383.4
70.2
22.5
5.2
42.5
15.4
27.1
—
27.1
1.94
13,996
1.42
20.82
$
$
$
$
$
426.8
68.0
21.9
4.4
41.7
15.4
26.3
—
26.3
1.89
13,920
1.40
20.20
$ 1,369.3
$
5.8
$ 1,298.3
$ 1,279.2
$
8.8
$ 1,241.9
$ 1,173.4
$
11.3
$ 1,128.2
$ 1,080.6
$
14.1
$ 1,038.8
$
$
$
$
351.1
0.2
387.4
738.7
18.4
82.8
$
$
$
$
336.6
0.2
376.3
713.1
29.8
38.3
$
$
$
$
292.9
0.2
316.8
609.9
16.8
81.9
$
$
$
$
282.6
0.2
305.5
588.3
17.1
42.0
$
$
$
$
$
$
$
$
$
$
$
$
425.8
63.5
20.9
3.9
38.7
14.0
24.7
—
24.7
1.79
13,847
1.38
19.62
988.8
8.0
997.0
273.1
0.2
326.0
599.3
3.7
29.3
Common Stock Equity . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Debt, less current portion . . . . . . . . . . . . .
48%
52%
47%
53%
48%
52%
48%
52%
46%
54%
(1)
Includes amounts due within one year.
26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
(MD&A) (Note references are to the Notes to the Consolidated Financial Statements
included in Item 8, below.)
OVERVIEW
Unitil is a public utility holding company headquartered in Hampton, New Hampshire. Unitil is subject
to regulation as a holding company system by the FERC under the Energy Policy Act of 2005.
Unitil’s principal business is the local distribution of electricity and natural gas to approximately
188,300 customers throughout its service territory in the states of New Hampshire, Massachusetts and
Maine. Unitil is the parent company of three wholly-owned distribution utilities:
i) Unitil Energy, which provides electric service in the southeastern seacoast and state capital
regions of New Hampshire;
ii) Fitchburg, which provides both electric and natural gas service in the greater Fitchburg area of
north central Massachusetts; and
iii) Northern Utilities, which provides natural gas service in southeastern New Hampshire and
portions of southern and central Maine, including the city of Portland and the Lewiston-Auburn
area.
Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as the “distribution
utilities.” Together, the distribution utilities serve approximately 105,600 electric customers and 82,700
natural gas customers in their service territory.
In addition, Unitil is the parent company of Granite State, a natural gas transmission pipeline, regulated
by the FERC, operating 86 miles of underground gas transmission pipeline primarily located in Maine and
New Hampshire. Granite State provides Northern Utilities with interconnection to three major natural gas
pipelines and access to North American pipeline supplies.
The distribution utilities are local “pipes and wires” operating companies, and Unitil had an investment
in Net Utility Plant of $1,036.8 million at December 31, 2018. Unitil’s total revenue was $444.1 million in
2018, which includes revenue to recover the approved cost of purchased electricity and natural gas in rates
on a fully reconciling basis. As a result of this reconciling rate structure, the Company’s earnings are not
affected by changes in the cost of purchased electricity and natural gas. Earnings from Unitil’s utility
operations are derived from the return on investment in the three distribution utilities and Granite State.
Unitil also conducts non-regulated operations principally through Usource, which is wholly-owned by
Unitil Resources. Usource provides energy brokering and advisory services to a national client base of large
commercial and industrial customers. Usource’s total revenues were $4.7 million in 2018. The Company’s
other subsidiaries include Unitil Service, which provides, at cost, a variety of administrative and
professional services to Unitil’s affiliated companies, and Unitil Realty, which owns and manages Unitil’s
corporate office building and property located in Hampton, New Hampshire. Unitil’s consolidated net
income includes the earnings of the holding company and these subsidiaries.
Regulation
Unitil is subject to comprehensive regulation by federal and state regulatory authorities. Unitil and its
subsidiaries are subject to regulation as a holding company system by the FERC under the Energy Policy
Act of 2005 with regard to certain bookkeeping, accounting and reporting requirements. Unitil’s utility
operations related to wholesale and interstate energy business activities are also regulated by the FERC.
Unitil’s distribution utilities are subject to regulation by the applicable state public utility commissions, with
regard to their rates, issuance of securities and other accounting and operational matters: Unitil Energy is
subject to regulation by the NHPUC; Fitchburg is subject to regulation by the MDPU; and Northern
Utilities is regulated by the NHPUC and MPUC. Granite State, Unitil’s interstate natural gas transmission
pipeline, is subject to regulation by the FERC with regard to its rates and operations. Because Unitil’s
primary operations are subject to rate regulation, the regulatory treatment of various matters could
significantly affect the Company’s operations and financial position.
27
Unitil’s distribution utilities deliver electricity and/or natural gas to all customers in their service
territory, at rates established under traditional cost of service regulation. Under this regulatory structure,
Unitil’s distribution utilities recover the cost of providing distribution service to their customers based on a
historical test year, and earn a return on their capital investment in utility assets. In addition, the Company’s
distribution utilities and its natural gas transmission pipeline company may also recover certain base rate
costs, including capital project spending and enhanced reliability and vegetation management programs,
through annual step adjustments and cost tracker rate mechanisms.
Most of Unitil’s customers have the opportunity to purchase their electricity or natural gas supplies
from third-party energy suppliers. Many of Unitil’s distribution utilities’ largest C&I customers purchase
their electricity or gas supply from third-party suppliers, while most small C&I customers, as well
residential customers, purchase their electricity or gas supply from the distribution utilities under regulated
rates and tariffs. Unitil’s distribution utilities purchase electricity or natural gas from unaffiliated wholesale
energy suppliers and recover the actual approved costs of these supplies on a pass-through basis, through
reconciling rate mechanisms that are periodically adjusted.
Also see Regulatory Matters shown below and Note 8 (Commitments and Contingencies) to the
accompanying Consolidated Financial Statements for additional information on rates and regulation.
Fitchburg is subject to revenue decoupling. Revenue decoupling is the term given to the elimination of
the dependency of a utility’s distribution revenue on the volume of electricity or natural gas sales. The
difference between distribution revenue amounts billed to customers and the targeted revenue decoupling
amounts is recognized as an increase or a decrease in Accrued Revenue which forms the basis for resetting
rates for future cash recoveries from, or credits to, customers. These revenue decoupling targets may be
adjusted as a result of rate cases that the Company files with the MDPU. The Company estimates that
revenue decoupling applies to approximately 27% and 11% of Unitil’s total annual electric and natural gas
sales volumes, respectively.
RESULTS OF OPERATIONS
The following discussion of the Company’s financial condition and results of operations should be
read in conjunction with the accompanying Consolidated Financial Statements and the accompanying Notes
to Consolidated Financial Statements included in Part II, Item 8 of this report.
The Company’s results of operations are expected to reflect the seasonal nature of the natural gas
business. Annual gas revenues are substantially realized during the colder weather seasons of the year as a
result of higher sales of natural gas used for heating related purposes. Accordingly, the results of operations
are historically most favorable in the first and fourth quarters. Fluctuations in seasonal weather conditions
may have a significant effect on the result of operations. Sales of electricity are generally less sensitive to
weather than natural gas sales, but may also be affected by the weather conditions and the temperature in
both the winter and summer seasons. Also, as a result of recent rate cases, the Company’s natural gas sales
margins are derived from a higher percentage of fixed billing components, including customer charges.
Therefore, natural gas revenues and margin will be less affected by the seasonal nature of the natural gas
business. In addition, as discussed above, approximately 27% and 11% of the Company’s total annual
electric and natural gas sales volumes, respectively, are decoupled and changes in sales to existing
customers do not affect sales margin on decoupled sales volumes.
Net Income and EPS Overview
2018 Compared to 2017—The Company’s Net Income was $33.0 million, or $2.23 per share, for the
year ended December 31, 2018, an increase of $4.0 million, or 13.8%, in Net Income, and $0.17, or 8.25%,
in Earnings Per Share, compared to 2017. The Company’s earnings for 2018 were driven by increases in
natural gas and electric sales margins.
Natural gas sales margin was $116.9 million in 2018, an increase of $7.2 million compared to 2017.
Gas sales margin in 2018 was positively affected by higher natural gas distribution rates of $7.1 million,
which was partially offset by the reduction in rates of $3.7 million due to the lower corporate income tax
rate of 21% under the TCJA. Gas margin in 2018 reflects the positive effect of colder winter weather and
customer growth on sales volume of $3.8 million.
28
Natural gas therm sales increased 8.1% in 2018 compared to 2017. The increase in gas therm sales in
the Company’s service areas was driven by customer growth and colder winter weather in 2018 compared
to 2017. Based on weather data collected in the Company’s natural gas service areas, there were 12.2%
more Heating Degree Days in 2018 compared to 2017. As of December 31, 2018 the number of natural gas
customers served has increased by 1,450 over the last year.
Electric sales margin was $91.9 million in 2018, a decrease of $0.3 million compared to 2017. Electric
sales margin in 2018 was positively affected by higher electric distribution rates of $2.9 million, partially
offset by the reduction in rates of $2.6 million in 2018 due to the lower corporate income tax rate of 21%
under the TCJA. Electric sales margin in the current period was also positively affected by warmer-than-
average summer temperatures and customer growth of $0.8 million. These positive impacts on electric sales
margin were offset by the absence in the current period of a one-year $1.4 million temporary rate
reconciliation adjustment recognized in 2017 Electric Operating Revenues by the Company’s New
Hampshire electric utility.
Electric kilowatt-hour (kWh) sales increased 3.2% in 2018 compared to 2017 reflecting customer
growth and warmer-than-average summer temperatures in 2018. Based on weather data collected in the
Company’s electric service areas, there were 42.2% more Cooling Degree Days in 2018 compared to 2017.
As of December 31, 2018, the number of electric customers served has increased by 593 over the last year.
O&M expenses increased $5.0 million in 2018 compared to 2017. The change in O&M expense
reflects higher labor costs of $1.8 million and higher utility operating costs of $4.0 million, partially offset
by lower professional fees of $0.8 million. The higher utility operating costs include a non-recurring
temporary rate adjustment which increased O&M expenses by $1.2 million in the second quarter of 2018,
which was offset by a corresponding increase in gas revenue, and also includes higher bad debt expense of
$0.8 million and higher storm-related and other distribution and transmission systems maintenance costs of
$2.0 million.
Depreciation and Amortization expense increased $3.5 million in 2018 compared to 2017, reflecting
higher depreciation on higher utility plant in service and higher amortization of information technology
costs, partially offset by lower amortization of deferred major storm costs which were amortized for
recovery over multi-year periods.
Taxes Other Than Income Taxes increased $1.3 million in 2018 compared to 2017, primarily reflecting
higher local property tax rates on higher levels of utility plant in service and higher payroll taxes.
Interest Expense, net increased $0.9 million, or 3.9%, in 2018 compared to 2017 reflecting interest on
higher short-term debt rates and higher levels of long-term debt.
Other Expense (Income) was essentially unchanged in 2018 compared to 2017.
Income Taxes decreased $9.1 million in 2018 compared to 2017 reflecting $6.3 million from the lower
tax rate on pre-tax earnings in 2018 and the current tax benefit of $2.8 million of book/tax temporary
differences turning at the lower income tax rate from the TCJA in 2018.
In 2018, Unitil’s annual common dividend was $1.46 per share, representing an unbroken record of
quarterly dividend payments since trading began in Unitil’s common stock. At its January 2019 meeting, the
Unitil Corporation Board of Directors declared a quarterly dividend on the Company’s common stock of
$0.37 per share, an increase of $0.005 per share on a quarterly basis, resulting in an increase in the effective
annualized dividend rate to $1.48 per share from $1.46 per share.
2017 Compared to 2016—The Company’s Net Income was $29.0 million, or $2.06 per share, for the
year ended December 31, 2017, an increase of $1.9 million in Net Income, and $0.12 in Earnings Per Share,
compared to 2016. The Company’s earnings for 2017 were driven by increases in natural gas and electric
sales margins.
A more detailed discussion of the Company’s 2018 and 2017 results of operations and a year-to-year
comparison of changes in financial position are presented below.
29
Gas Sales, Revenues and Margin
Therm Sales—Unitil’s total therm sales of natural gas increased 8.1% in 2018 compared to 2017.
Sales to residential and C&I customers increased 12.2% and 7.0%, respectively, in 2018 compared to 2017.
The increase in gas therm sales in the Company’s service areas was driven by customer growth and colder
winter weather in 2018 compared to 2017. Based on weather data collected in the Company’s natural gas
service areas, there were 12.2% more HDD in 2018 compared to 2017. The Company estimates that
weather-normalized gas therm sales, excluding decoupled sales, were up 3.3% in 2018 compared to 2017.
As of December 31, 2018 the number of natural gas customers served has increased by 1,450 over the last
year. As previously discussed, sales margin derived from decoupled unit sales (representing approximately
11% of total annual therm sales volume) is not sensitive to changes in gas therm sales.
Unitil’s total therm sales of natural gas increased 3.9% in 2017 compared to 2016. Sales to residential
and C&I customers increased 6.9% and 3.2%, respectively, in 2017 compared to 2016. The increase in gas
therm sales in the Company’s service areas was driven by customer growth and colder winter weather in
2017 compared to 2016. Based on weather data collected in the Company’s natural gas service areas, there
were 5% more HDD in 2017 compared to 2016. The Company estimates that weather-normalized gas therm
sales, excluding decoupled sales, were up 1.7% in 2017 compared to 2016. As of December 31, 2017 the
total number of natural gas customers served increased by 1,371 compared to the prior year.
The following table details total therm sales for the last three years, by major customer class:
Therm Sales (millions)
Change
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
Therms % Therms %
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
48.7
182.4
43.4
170.4
40.6
165.1
Total Therm Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
231.1
213.8
205.7
5.3
12.0
17.3
12.2% 2.8
7.0% 5.3
8.1% 8.1
6.9%
3.2%
3.9%
Gas Operating Revenues and Sales Margin—The following table details total Gas Operating Revenue
and Sales Margin for the last three years by major customer class:
Gas Operating Revenues and Sales Margin (millions)
Change
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
$
%
$
%
Gas Operating Revenue:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & Industrial . . . . . . . . . . . . . . . . . . . . . . . .
$ 86.0
130.1
$ 77.3
116.7
$ 71.0
110.2
$ 8.7
13.4
11.3% $ 6.3
11.5% 6.5
8.9%
5.9%
Total Gas Operating Revenue . . . . . . . . . . . . . . . . . . . . . . . .
$216.1
$194.0
$181.2
$22.1
11.4% $12.8
7.1%
Cost of Gas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 99.2
$ 84.3
$ 77.6
$14.9
17.7% $ 6.7
8.6%
Gas Sales Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$116.9
$109.7
$103.6
$ 7.2
6.6% $ 6.1
5.9%
The Company analyzes operating results using Gas Sales Margin, a non-GAAP measure. Gas Sales
Margin is calculated as Total Gas Operating Revenue less Cost of Gas Sales. The Company believes Gas
Sales Margin is an important measure to analyze profitability because the approved cost of sales are tracked
and reconciled to costs that are passed through directly to customers, resulting in an equal and offsetting
amount reflected in Total Gas Operating Revenue. Sales margin can be reconciled to Operating Income, a
GAAP measure, by including Operation and Maintenance, Depreciation and Amortization and Taxes Other
Than Income Taxes for each segment in the analysis.
Natural gas sales margin was $116.9 million in 2018, an increase of $7.2 million compared to 2017.
Gas sales margin in 2018 was positively affected by higher natural gas distribution rates of $7.1 million,
which was partially offset by the reduction in rates of $3.7 million due to the lower corporate income tax
rate of 21% under the TCJA. As a result of the final base rate award in the Company’s New Hampshire gas
30
utility, the Company recognized concurrent non-recurring adjustments to increase both Gas Operating
Revenues and O&M expenses by $1.2 million in the second quarter of 2018 to reconcile permanent rates
and deferred costs to the temporary rates which were effective July 1, 2017. Gas margin in 2018 reflects the
positive effect of colder winter weather and customer growth on sales volume of $3.8 million.
The increase in Total Gas Operating Revenues of $22.1 million, or 11.4%, in 2018 compared to 2017
reflects higher natural gas distribution rates, customer growth and higher cost of gas sales, which are
tracked and reconciled costs as a pass-through to customers.
Natural gas sales margin was $109.7 million in 2017, an increase of $6.1 million compared to 2016,
driven by higher natural gas distribution rates of $3.3 million and the positive impact of colder weather and
customer growth of $2.8 million.
The increase in Total Gas Operating Revenues of $12.8 million, or 7.1%, in 2017 compared to 2016
reflects higher natural gas distribution rates, customer growth and higher cost of gas sales, which are
tracked and reconciled costs as a pass-through to customers.
Electric Sales, Revenues and Margin
Kilowatt-hour Sales—Unitil’s total electric kWh sales increased 3.2% in 2018 compared to 2017.
Sales to residential customers and C&I customers increased 5.6% and 1.6%, respectively, in 2018 compared
to 2017, reflecting customer growth and warmer-than-average summer temperatures in 2018. Based on
weather data collected in the Company’s electric service areas, there were 42.2% more Cooling Degree
Days in 2018 compared to 2017. As of December 31, 2018, the number of electric customers served has
increased by 593 over the last year. As previously discussed, sales margins derived from decoupled unit
sales (representing approximately 27% of total annual sales volume) are not sensitive to changes in kWh
sales.
Unitil’s total electric kWh sales decreased 0.3% in 2017 compared to 2016. Sales to residential
customers and C&I customers decreased 0.3% and 0.3%, respectively, in 2017 compared to 2016, reflecting
milder summer weather in 2017, largely offset by customer growth. Based on weather data collected in the
Company’s electric service areas, there were 21% fewer Cooling Degree Days in 2017 compared to 2016.
As of December 31, 2017, the number of electric customers served increased by 706 compared to the prior
year.
The following table details total kWh sales for the last three years by major customer class:
kWh Sales (millions)
Change
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
kWh %
kWh %
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . .
685.5
990.3
649.4
974.7
651.3
977.5
Total kWh Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,675.8
1,624.1
1,628.8
36.1
15.6
51.7
5.6% (1.9)
1.6% (2.8)
(0.3%)
(0.3%)
3.2% (4.7)
(0.3%)
Electric Operating Revenues and Sales Margin—The following table details Total Electric Operating
Revenue and Sales Margin for the last three years by major customer class:
Electric Operating Revenues and Sales Margin (millions)
Change
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
$
%
$
%
Electric Operating Revenue:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & Industrial . . . . . . . . . . . . . . . . . . . . . .
$127.2
96.1
$115.5
90.7
$110.6
85.5
$11.7
5.4
10.1% $ 4.9
5.2
6.0%
Total Electric Operating Revenue . . . . . . . . . . . . . . . . . . .
$223.3
$206.2
$196.1
$17.1
8.3% $10.1
Cost of Electric Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$131.4
$114.0
$108.0
$17.4
15.3% $ 6.0
Electric Sales Margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 91.9
$ 92.2
$ 88.1
$ (0.3)
(0.3%) $ 4.1
4.4%
6.1%
5.2%
5.6%
4.7%
31
The Company analyzes operating results using Electric Sales Margin, a non-GAAP measure. Electric
Sales Margin is calculated as Total Electric Operating Revenues less Cost of Electric Sales. The Company
believes Electric Sales Margin is an important measure to analyze profitability because the approved cost of
sales are tracked and reconciled to costs that are passed through directly to customers resulting in an equal
and offsetting amount reflected in Total Electric Operating Revenues. Sales margin can be reconciled to
Operating Income, a GAAP measure, by including Operation and Maintenance, Depreciation and
Amortization and Taxes Other Than Income Taxes for each segment in the analysis.
Electric sales margin was $91.9 million in 2018, a decrease of $0.3 million compared to 2017. Electric
sales margin in 2018 was positively affected by higher electric distribution rates of $2.9 million, partially
offset by the reduction in rates of $2.6 million in 2018 due to the lower corporate income tax rate of 21%
under the TCJA. Electric sales margin in the current period was also positively affected by warmer-than-
average summer temperatures and customer growth of $0.8 million. These positive impacts on electric sales
margin were offset by the absence in the current period of a one-year $1.4 million temporary rate
reconciliation adjustment recognized in 2017 Electric Operating Revenues by the Company’s New
Hampshire electric utility.
The increase in Total Electric Operating Revenue of $17.1 million, or 8.3%, in 2018 compared to 2017
reflects higher electric distribution rates, customer growth and higher cost of electric sales, which are
tracked and reconciled costs as a pass-through to customers.
Electric sales margin was $92.2 million in 2017, an increase of $4.1 million compared to 2016. Electric
sales margin in 2017 was positively affected by higher electric distribution rates of $5.4 million and
customer growth of $1.0 million, partially offset by lower sales volumes due to the net impact of milder
summer weather of $0.5 million and lower transmission revenues of $1.8 million. The higher electric
distribution rates in 2017 include $1.4 million from a one-year $1.4 million temporary rate reconciliation
adjustment, discussed above, recognized in 2017 Electric Operating Revenues by the Company’s New
Hampshire electric utility.
The increase in Total Electric Operating Revenue of $10.1 million, or 5.2%, in 2017 compared to 2016
reflects higher electric distribution rates and higher cost of electric sales, which are tracked and reconciled
costs as a pass-through to customers.
Operating Revenue—Other
Total Other Operating Revenue (See “Other Operating Revenue – Non-regulated” in Note 1 to the
accompanying Consolidated Financial Statements) is comprised of revenues from the Company’s
non-regulated energy brokering business, Usource. Usource’s revenues are primarily derived from fees and
charges billed to suppliers as customers take delivery of energy from those suppliers under term contracts
brokered by Usource.
Usource’s revenues decreased $1.3 million, or 21.7%, in 2018 compared to 2017 and $0.1 million, or
1.6%, in 2017 compared to 2016. The decrease in 2018 compared to 2017 is primarily the result of the
adoption of a new accounting standard.
In the first quarter of 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, and
its subsequent clarifications and amendments outlined in ASU 2015-14, ASU 2016-08, ASU 2016-10 and
ASU 2017-13, on a modified retrospective basis, which requires application to contracts with customers
effective January 1, 2018. ASU 2014-09 requires that payments made by Usource to third parties (“Channel
Partners”) for revenue sharing agreements are recognized as a reduction from revenue, where those
payments were previously recognized as an operating expense. Therefore, beginning in 2018 and going
forward, payments made by Usource to third parties for revenue sharing agreements are reported as “Other”
in the “Operating Revenues” section of the Consolidated Statements of Earnings, along with Usource’s
revenues. Prior to the adoption of ASU 2014-09, payments by Usource to Channel Partners for revenue
sharing agreements are included as “Operation and Maintenance” in the “Operating Expenses” section of
the Consolidated Statements of Earnings. Those Channel Partner payments were $1.0 million, $1.1 million
and $1.0 million in 2018, 2017 and 2016, respectively.
32
If ASU 2014-09 had been in effect for 2017 and 2016, the result would have been corresponding
reductions of $1.1 million and $1.0 million, respectively, in both “Other” in the “Operating Revenues”
section of the Consolidated Statements of Earnings and “Operation and Maintenance” in the “Operating
Expenses” section of the Company’s Consolidated Statements of Earnings.
The following table details total Other Revenue for the last three years:
Other Revenue (millions)
Usource . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Other Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change
2018 vs. 2017
2017 vs. 2016
2018
2017
2016
$
%
$
%
$4.7
$4.7
$6.0
$6.1
$(1.3)
(21.7%) $(0.1)
(1.6%)
$6.0
$6.1
$(1.3)
(21.7%) $(0.1)
(1.6%)
Operating Expenses
Cost of Gas Sales—Cost of Gas Sales includes the cost of natural gas purchased and manufactured to
supply the Company’s total gas supply requirements and spending on energy efficiency programs. Cost of
Gas Sales increased $14.9 million, or 17.7%, in 2018 compared to 2017. This increase reflects higher sales
of natural gas and higher wholesale natural gas prices. The Company reconciles and recovers the approved
Cost of Gas Sales in its rates at cost on a pass through basis and therefore changes in approved expenses do
not affect earnings.
In 2017, Cost of Gas increased $6.7 million, or 8.6%, compared to 2016. This increase reflects higher
sales of natural gas and higher wholesale natural gas prices, partially offset by an increase in the amount of
natural gas purchased by customers directly from third-party suppliers.
Cost of Electric Sales—Cost of Electric Sales includes the cost of electric supply as well as other
energy supply related restructuring costs, including power supply buyout costs, and spending on energy
efficiency programs. Cost of Electric Sales increased $17.4 million, or 15.3%, in 2018 compared to 2017.
This increase reflects higher wholesale electricity prices and a decrease in the amount of electricity
purchased by customers directly from third-party suppliers. The Company reconciles and recovers the
approved Cost of Electric Sales in its rates at cost on a pass through basis and therefore changes in approved
expenses do not affect earnings.
In 2017, Cost of Electric Sales increased $6.0 million, or 5.6%, compared to 2016. This increase
reflects higher wholesale electricity prices and a decrease in the amount of electricity purchased by
customers directly from third-party suppliers.
Operation and Maintenance—O&M expense includes electric and gas utility operating costs, and the
operating costs of the Company’s non-regulated business activities. Total O&M expenses increased
$5.0 million, or 7.8%, in 2018 compared to 2017. The change in O&M expense reflects higher labor costs
of $1.8 million and higher utility operating costs of $4.0 million, partially offset by lower professional fees
of $0.8 million. The higher utility operating costs include a non-recurring temporary rate adjustment which
increased O&M expenses by $1.2 million in the second quarter of 2018, which was offset by a
corresponding increase in gas revenue, and also includes higher bad debt expense of $0.8 million and higher
storm-related and other distribution and transmission systems maintenance costs of $2.0 million.
In 2017, total O&M expenses increased $3.1 million, or 5.0%, compared to 2016. The change in O&M
expenses reflects higher compensation and benefit costs of $1.2 million and higher utility operating costs of
$1.9 million. Utility operating costs include higher pass-through regulatory and vegetation management
costs of $1.1 million, which are recovered on a reconciling basis in sales margins.
Depreciation and Amortization—Depreciation and Amortization expense increased $3.5 million, or
7.5%, in 2018 compared to 2017, reflecting higher depreciation on higher utility plant in service and higher
amortization of information technology costs, partially offset by lower amortization of deferred major storm
costs which were amortized for recovery over multi-year periods.
33
In 2017, Depreciation and Amortization expense increased $0.3 million, or 0.6%, compared to 2016,
reflecting higher utility plant assets in service, partially offset by lower amortization of deferred major storm
costs which were amortized for recovery over multi-year periods.
Taxes Other Than Income Taxes—Taxes Other Than Income Taxes increased $1.3 million, or 6.2%,
in 2018 compared to 2017, primarily reflecting higher local property tax rates on higher levels of utility
plant in service and higher payroll taxes.
In 2017, Taxes Other Than Income Taxes increased $1.5 million, or 7.7%, compared to 2016,
primarily reflecting higher local property tax rates on higher levels of utility plant assets in service.
Interest Expense, net
Interest expense is presented in the Consolidated Financial Statements net of interest income. Interest
expense is mainly comprised of interest on long-term debt and short-term borrowings. Certain reconciling
rate mechanisms used by the Company’s distribution utilities give rise to regulatory assets (and regulatory
liabilities) on which interest is calculated (See Note 5 to the accompanying Consolidated Financial
Statements).
Interest Expense, net increased $0.9 million, or 3.9%, in 2018 compared to 2017 reflecting interest on
higher short-term debt rates and higher levels of long-term debt.
In 2017, Interest Expense, increased $0.6 million, or 2.7%, compared to 2016 reflecting interest on
higher levels of short-term debt, partially offset by higher net interest income on regulatory assets/liabilities
and repayment of higher cost long-term debt.
Other Expense (Income), net
Other Expense, net was essentially unchanged in 2018 compared to 2017 and increased $0.6 million in
2017 compared to 2016. The increase in 2017 reflects higher retirement benefit costs in 2017 compared to
2017. In 2018, the Company adopted ASU No. 2017-07, “Compensation – Retirement Benefits (Topic
715)” which amends the existing guidance relating to the presentation of net periodic pension cost and net
periodic other post-retirement benefit costs. On a retrospective basis, the amendment requires an employer
to separate the service cost component from the other components of net benefit cost and provides explicit
guidance on how to present the service cost component and other components in the income statement.
Accordingly, for all periods presented in the Consolidated Financial Statements in this Form 10-K for
the year ended December 31, 2018, the service cost component of the Company’s net periodic benefit costs
is reported in “Operations and Maintenance” in the “Operating Expenses” section of the Consolidated
Statements of Earnings while the other components of net periodic benefit costs are reported in the “Other
Expense (Income), net” section of the Consolidated Statements of Earnings. Prior to adoption, the Company
reported all components of its net periodic benefit costs in “Operations and Maintenance” in the “Operating
Expenses” section of the Consolidated Statements of Earnings. There are $5.5 million, $5.7 million and
$4.9 million of non-service cost net periodic benefit costs reported in “Other Expense (Income), net” for
2018, 2017 and 2018, respectively, net of amounts deferred as regulatory assets for future recovery.
Income Taxes
Federal and State Income Taxes decreased $9.1 million in 2018 compared to 2017 reflecting
$6.3 million from the lower tax rate on pre-tax earnings in 2018 and the current tax benefit of $2.8 million
of book/tax temporary differences turning at the lower income tax rate from the TCJA in 2018. (See Note 9
to the accompanying Consolidated Financial Statements).
In 2017, Income Taxes increased $2.1 million compared to 2016 reflecting higher pre-tax earnings in
2017.
34
LIQUIDITY, COMMITMENTS AND CAPITAL REQUIREMENTS
Sources of Capital
Unitil requires capital to fund utility plant additions, working capital and other utility expenditures
recovered in subsequent periods through regulated rates. The capital necessary to meet these requirements is
derived primarily from internally-generated funds, which consist of cash flows from operating activities.
The Company initially supplements internally-generated funds through short-term bank borrowings, as
needed, under its unsecured revolving Credit Facility. Periodically, the Company replaces portions of its
short-term debt with long-term financings more closely matched to the long-term nature of its utility assets.
Additionally, from time to time, the Company has accessed the public capital markets through public
offerings of equity securities. The Company’s utility operations are seasonal in nature and are therefore
subject to seasonal fluctuations in cash flows. The amount, type and timing of any future financing will vary
from year to year based on capital needs and maturity or redemptions of securities.
The Company and its subsidiaries are individually and collectively members of the Unitil Cash Pool
(the “Cash Pool”). The Cash Pool is the financing vehicle for day-to-day cash borrowing and investing. The
Cash Pool allows for an efficient exchange of cash among the Company and its subsidiaries. The interest
rates charged to the subsidiaries for borrowing from the Cash Pool are based on actual interest costs from
lenders under the Company’s revolving Credit Facility. At December 31, 2018 and December 31, 2017, the
Company and all of its subsidiaries were in compliance with the regulatory requirements to participate in
the Cash Pool.
On July 25, 2018, the Company entered into a Second Amended and Restated Credit Agreement (the
“Credit Facility”) with a syndicate of lenders, which amended and restated in its entirety the Company’s
prior credit agreement, dated as of October 4, 2013, as amended. The Credit Facility extends to July 25,
2023, subject to two one-year extensions and has a borrowing limit of $120 million, which includes a
$25 million sublimit for the issuance of standby letters of credit. The Credit Facility provides the Company
with the ability to elect that borrowings under the Credit Facility bear interest under several options,
including at a daily fluctuating rate of interest per annum equal to one-month London Interbank Offered
Rate plus 1.125%. Provided there is no event of default, the Company may increase the borrowing limit
under the Credit Facility by up to $50 million.
The Company utilizes the Credit Facility for cash management purposes related to its short-term
operating activities. Total gross borrowings were $265.6 million and $234.9 million for the years ended
December 31, 2018 and December 31, 2017, respectively. Total gross repayments were $221.1 million and
$278.5 million for the years ended December 31, 2018 and December 31, 2017, respectively. The following
table details the borrowing limits, amounts outstanding and amounts available under the revolving Credit
Facility as of December 31, 2018 and December 31, 2017:
Revolving Credit Facility (millions)
Limit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Borrowings Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letters of Credit Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$120.0
$ 82.8
$ — $
$ 37.2
$120.0
$ 38.3
0
$ 81.7
The Credit Facility contains customary terms and conditions for credit facilities of this type, including
affirmative and negative covenants. There are restrictions on, among other things, Unitil’s and its
subsidiaries’ ability to permit liens or incur indebtedness, and restrictions on Unitil’s ability to merge or
consolidate with another entity or change its line of business. The affirmative and negative covenants under
the Credit Facility shall apply to Unitil until the Credit Facility terminates and all amounts borrowed under
the Credit Facility are paid in full (or with respect to letters of credit, they are cash collateralized). The only
financial covenant in the Credit Facility provides that Unitil’s Funded Debt to Capitalization (as each term
is defined in the Credit Facility) cannot exceed 65%, tested on a quarterly basis. At December 31, 2018 and
December 31, 2017, the Company was in compliance with the covenants contained in the Credit Facility in
effect on that date. (See also “Credit Arrangements” in Note 5.)
35
Issuance of Long-Term Debt—On November 30, 2018 Unitil Energy issued $30 million of First
Mortgage Bonds due November 30, 2048 at 4.18%. Unitil Energy used the net proceeds from this offering
to repay short-term debt and for general corporate purposes. Approximately $0.5 million of costs associated
with these issuances have been netted against long-term debt for presentation purposes on the Consolidated
Balance Sheets.
On November 1, 2017, Northern Utilities issued $20 million of Notes due 2027 at 3.52% and
$30 million of Notes due 2047 at 4.32%. Fitchburg issued $10 million of Notes due 2027 at 3.52% and
$15 million of Notes due 2047 at 4.32%. Granite State issued $15 million of Notes due 2027 at 3.72%.
Northern Utilities, Fitchburg and Granite State used the net proceeds from these offerings to refinance
higher cost long-term debt that matured in 2017, to repay short-term debt and for general corporate
purposes. Approximately $0.7 million of costs associated with these issuances have been netted against
Long-Term Debt for presentation purposes on the Consolidated Balance Sheets.
Unitil Corporation and its utility subsidiaries, Fitchburg, Unitil Energy, Northern Utilities, and Granite
State are currently rated “BBB+” by Standard & Poor’s Ratings Services. Unitil Corporation and Granite
State are currently rated “Baa2”, and Fitchburg, Unitil Energy and Northern Utilities are currently rated
“Baa1” by Moody’s Investors Services.
In April 2014, Unitil Service Corp. entered into a financing arrangement for various information
systems and technology equipment. The financing arrangement is structured as a capital lease obligation.
Final funding under this capital lease occurred on October 30, 2015, resulting in total funding of
$13.4 million. The capital lease matures on September 30, 2020. As of December 31, 2018, there are
$2.8 million of current and $2.3 million of noncurrent obligations under this capital lease on the Company’s
Consolidated Balance Sheets.
The continued availability of various methods of financing, as well as the choice of a specific form of
security for such financing, will depend on many factors, including, but not limited to: security market
conditions; general economic climate; regulatory approvals; the ability to meet covenant issuance
restrictions; the level of earnings, cash flows and financial position; and the competitive pricing offered by
financing sources.
Contractual Obligations
The table below lists the Company’s known specified contractual obligations as of December 31, 2018.
Contractual Obligations (millions) as of December 31, 2018
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest on Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gas Supply Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electric Supply Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . .
Other (Including Capital and Operating Lease Obligations)
Total
2019
$ 409.3
303.9
489.9
14.1
10.4
$18.8
22.3
41.2
1.7
4.5
Payments Due by Period
2020—
2021
2022—
2023
$ 28.4
41.4
69.1
2.7
4.7
$ 34.9
36.7
70.5
2.2
1.1
2024 &
Beyond
$327.2
203.5
309.1
7.5
0.1
Total Contractual Cash Obligations . . . . . . . . . . . . . . . . . . . . . . . .
$1,227.6
$88.5
$146.3
$145.4
$847.4
The Company and its subsidiaries have material energy supply commitments that are discussed in Note
7 to the accompanying Consolidated Financial Statements. Cash outlays for the purchase of electricity and
natural gas to serve customers are subject to reconciling recovery through periodic changes in rates, with
carrying charges on deferred balances. From year to year, there are likely to be timing differences associated
with the cash recovery of such costs, creating under- or over-recovery situations at any point in time. Rate
recovery mechanisms are typically designed to collect the under-recovered cash or refund the over-collected
cash over subsequent periods of less than a year.
The Company provides limited guarantees on certain energy and natural gas storage management
contracts entered into by the distribution utilities. The Company’s policy is to limit the duration of these
guarantees. As of December 31, 2018, there were approximately $4.3 million of guarantees outstanding.
36
Northern Utilities enters into asset management agreements under which Northern Utilities releases
certain natural gas pipeline and storage assets, resells the natural gas storage inventory to an asset manager
and subsequently repurchases the inventory over the course of the natural gas heating season at the same
price at which it sold the natural gas inventory to the asset manager. There was $8.4 million and
$8.5 million of natural gas storage inventory at December 31, 2018 and 2017, respectively, related to these
asset management agreements. The amount of natural gas inventory released in December 2018, which was
payable in January 2019, was $0.9 million and recorded in Accounts Payable at December 31, 2018. The
amount of natural gas inventory released in December 2017, which was payable in January 2018, was
$3.1 million and recorded in Accounts Payable at December 31, 2017.
Benefit Plan Funding
The Company, along with its subsidiaries, made cash contributions to its Pension Plan in the amounts
of $16.6 million and $4.1 million in 2018 and 2017, respectively. The Company, along with its subsidiaries,
contributed $4.0 million to Voluntary Employee Benefit Trusts (VEBTs) in each of 2018 and 2017. The
Company, along with its subsidiaries, expects to continue to make contributions to its Pension Plan and the
VEBTs in 2019 and future years at minimum required and discretionary funding levels consistent with the
amounts recovered in the distribution utilities’ rates for these benefit plans. See Note 10 (Retirement Benefit
Plans) to the accompanying Consolidated Financial Statements.
Off-Balance Sheet Arrangements
The Company and its subsidiaries do not currently use, and are not dependent on the use of,
off-balance sheet financing arrangements such as securitization of receivables or obtaining access to assets
or cash through special purpose entities or variable interest entities. Unitil’s subsidiaries conduct a portion
of their operations in leased facilities and also lease some of their vehicles, machinery and office equipment
under both capital and operating lease arrangements. Additionally, as of December 31, 2018, there were
approximately $4.3 million of guarantees on certain energy and natural gas storage management contracts
entered into by the distribution utilities outstanding. See Note 5 (Debt and Financing Arrangements) to the
accompanying Consolidated Financial Statements.
Cash Flows
Unitil’s utility operations, taken as a whole, are seasonal in nature and are therefore subject to seasonal
fluctuations in cash flows. The tables below summarize the major sources and uses of cash (in millions) for
2018 and 2017.
Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$78.5
$86.2
2018
2017
Cash Provided by Operating Activities—Cash Provided by Operating Activities was $78.5 million
in 2018, a decrease of $7.7 million compared to 2017.
Cash flow from net income, adjusted for the total of non-cash charges to depreciation, amortization and
deferred taxes, was $91.4 million in 2018 compared to $93.4 million in 2017, reflecting a decrease of
$2.0 million. The increase in net income of $4.0 million in 2018 compared to 2017 is primarily attributable
to increases in natural gas margins and customer growth. The increase in depreciation and amortization of
$3.5 million in 2018 compared to 2017 reflects higher utility depreciation from higher net utility plant in
service, partially offset by decreases in amortization of prior storm costs. The decrease in the deferred tax
provision of $9.5 million in 2018 compared to 2017 is primarily a result of decreased tax depreciation
deductions and due to the reduction of the corporate income tax rate per the TCJA.
Changes in working capital items resulted in a $3.9 million source of cash in 2018 compared to a
($9.7) million use of cash in 2017, representing an increase of $13.6 million. The change in working capital
in 2018 compared to 2017 is reflective of normal fluctuations in business and operating conditions.
37
Deferred Regulatory and Other Charges decreased by $5.2 million in 2018 compared to 2017. The
change in Other, net in 2018 compared to 2017 was ($14.1) million, primarily driven by increased
contributions to the Company’s retirement plans.
Cash (Used in) Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(102.4)
$(119.3)
2018
2017
Cash (Used in) Investing Activities—Cash Used in Investing Activities was ($102.4) million in 2018
compared to ($119.3) million in 2017. The actual capital spending in both 2018 and 2017 is related to utility
capital expenditures for electric and gas utility system additions. The lower spending in 2018 is largely
attributable to special major information technology investments and the construction of a new distribution
operations center for Fitchburg, which were in addition to the normal level of utility capital expenditures.
The Company’s projected capital spending range for 2019 is $120 million to $130 million.
Cash Provided by Financing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$22.8
$36.2
2018
2017
Cash Provided by Financing Activities—Cash Provided by Financing Activities was $22.8 million in
2018 compared to $36.2 million in 2017. The lower cash provided by financing activities in 2018 compared
to 2017 is primarily attributable to the repayment of long-term debt of ($12.9) million. Other changes in
financing activities in 2018 compared to 2017 total ($0.5) million.
FINANCIAL COVENANTS AND RESTRICTIONS
The agreements under which the Company and its subsidiaries issue long-term debt contain various
covenants and restrictions. These agreements do not contain any covenants or restrictions pertaining to the
maintenance of financial ratios or the issuance of short-term debt. These agreements do contain covenants
relating to, among other things, the issuance of additional long-term debt, cross-default provisions, business
combinations and covenants restricting the ability to (i) pay dividends, (ii) incur indebtedness and liens,
(iii) merge or consolidate with another entity or (iv) sell, lease or otherwise dispose of all or substantially all
assets. See Note 5 (Debt and Financing Arrangements) to the accompanying Consolidated Financial
Statements.
Unitil’s Credit Facility contains customary terms and conditions for credit facilities of this type,
including affirmative and negative covenants. There are restrictions on, among other things, Unitil’s and its
subsidiaries’ ability to permit liens or incur indebtedness, and restrictions on Unitil’s ability to merge or
consolidate with another entity or change its line of business. The affirmative and negative covenants under
the Credit Facility shall apply to Unitil until the Credit Facility terminates and all amounts borrowed under
the Credit Facility are paid in full (or with respect to letters of credit, they are cash collateralized). The only
financial covenant in the Credit Facility provides that Unitil’s Funded Debt to Capitalization (as each term
is defined in the Credit Facility) cannot exceed 65%, tested on a quarterly basis. At December 31, 2018 and
December 31, 2017, the Company was in compliance with the covenants contained in the Credit Facility in
effect on that date.
The Company and its subsidiaries are currently in compliance with all such covenants in these debt
instruments.
DIVIDENDS
Unitil’s annual common dividend was $1.46 per common share in 2018, $1.44 per common share in
2017, and $1.42 per share in 2016. Unitil’s dividend policy is reviewed periodically by the Board of
Directors. Unitil has maintained an unbroken record of quarterly dividend payments since trading began in
Unitil’s common stock. At its January 2019 meeting, the Unitil Corporation Board of Directors declared a
quarterly dividend on the Company’s common stock of $0.370 per share, an increase of $0.005 per share on
a quarterly basis, resulting in an increase in the effective annualized dividend rate to $1.48 from $1.46. The
amount and timing of all dividend payments are subject to the discretion of the Board of Directors and will
38
depend upon business conditions, results of operations, financial conditions and other factors. In addition,
the ability of the Company’s subsidiaries to pay dividends or make distributions to Unitil, and, therefore,
Unitil’s ability to pay dividends, depends on, among other things:
•
•
•
•
the actual and projected earnings and cash flow, capital requirements and general financial
condition of the Company’s subsidiaries;
the prior rights of holders of existing and future preferred stock, mortgage bonds, long-term notes
and other debt issued by the Company’s subsidiaries;
the restrictions on the payment of dividends contained in the existing loan agreements of the
Company’s subsidiaries and that may be contained in future debt agreements of the Company’s
subsidiaries, if any; and
limitations that may be imposed by New Hampshire, Massachusetts and Maine state regulatory
agencies.
In addition, before the Company can pay dividends on its common stock, it has to satisfy its debt
obligations and comply with any statutory or contractual limitations. See Financial Covenants and
Restrictions, above, as well as Note 5 (Debt and Financing Arrangements) to the accompanying
Consolidated Financial Statements.
LEGAL PROCEEDINGS
The Company is involved in legal and administrative proceedings and claims of various types, which
arise in the ordinary course of business. The Company believes, based upon information furnished by
counsel and others, that the ultimate resolution of these claims will not have a material impact on its
financial position, operating results or cash flows. Refer to “Legal Proceedings” in Note 8 of the
Consolidated Financial Statements for a discussion of legal proceedings.
REGULATORY MATTERS
See Note 8 to the Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
The preparation of the Company’s Consolidated Financial Statements in conformity with generally
accepted accounting principles in the United States of America requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting period. In making those estimates and assumptions, the Company is sometimes required to
make difficult, subjective and/or complex judgments about the impact of matters that are inherently
uncertain and for which different estimates that could reasonably have been used could have resulted in
material differences in its financial statements. If actual results were to differ significantly from those
estimates, assumptions and judgment, the financial position of the Company could be materially affected
and the results of operations of the Company could be materially different than reported. The following is a
summary of the Company’s most critical accounting policies, which are defined as those policies where
judgments or uncertainties could materially affect the application of those policies. For a complete
discussion of the Company’s significant accounting policies, refer to the financial statements and Note 1:
Summary of Significant Accounting Policies.
Regulatory Accounting—The Company’s principal business is the distribution of electricity and
natural gas by the three distribution utilities: Unitil Energy, Fitchburg and Northern Utilities. Unitil Energy
and Fitchburg are subject to regulation by the FERC. Fitchburg is also regulated by the MDPU, Unitil
Energy is regulated by the NHPUC and Northern Utilities is regulated by the MPUC and NHPUC. Granite
State, the Company’s natural gas transmission pipeline, is regulated by the FERC. Accordingly, the
Company uses the Regulated Operations guidance as set forth in the Financial Accounting Standards Board
Accounting Standards Codification (FASB Codification). In accordance with the FASB Codification, the
Company has recorded Regulatory Assets and Regulatory Liabilities which will be recovered from
customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable
public utility regulatory commission.
39
The FASB Codification specifies the economic effects that result from the cause and effect relationship
of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a
regulated enterprise. Revenues intended to cover some costs may be recorded either before or after the costs
are incurred. If regulation provides assurance that incurred costs will be recovered in the future, these costs
would be recorded as deferred charges or “regulatory assets.” If revenues are recorded for costs that are
expected to be incurred in the future, these revenues would be recorded as deferred credits or “regulatory
liabilities.”
The Company’s principal regulatory assets and liabilities are included on the Company’s Consolidated
Balance Sheet and a summary of the Company’s Regulatory Assets is provided in Note 1 thereto.
Generally, the Company receives a return on investment on its regulated assets for which a cash outflow has
been made. Regulatory commissions can reach different conclusions about the recovery of costs, which can
have a material impact on the Company’s consolidated financial statements.
The Company believes it is probable that its regulated distribution and transmission utilities will
recover their investments in long-lived assets, including regulatory assets. If the Company, or a portion of
its assets or operations, were to cease meeting the criteria for application of these accounting rules,
accounting standards for businesses in general would become applicable and immediate recognition of any
previously deferred costs, or a portion of deferred costs, would be required in the year in which the criteria
are no longer met, if such deferred costs were not recoverable in the portion of the business that continues to
meet the criteria for application of the FASB Codification topic on Regulated Operations. If unable to
continue to apply the FASB Codification provisions for Regulated Operations, the Company would be
required to apply the provisions for the Discontinuation of Rate-Regulated Accounting included in the
FASB Codification. In the Company’s opinion, its regulated operations will be subject to the FASB
Codification provisions for Regulated Operations for the foreseeable future.
Utility Revenue Recognition—Utility revenues are recognized according to regulations and are based
on rates and charges approved by federal and state regulatory commissions. Revenues related to the sale of
electric and gas service are recorded when service is rendered or energy is delivered to customers. However,
the determination of energy sales to individual customers is based on the reading of their meters, which
occurs on a systematic basis throughout the month. At the end of each calendar month, amounts of energy
delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled
revenues are calculated. These unbilled revenues are calculated each month based on estimated customer
usage by class and applicable customer rates.
Fitchburg is subject to revenue decoupling. Revenue decoupling is the term given to the elimination of
the dependency of a utility’s distribution revenue on the volume of electricity or natural gas sales. The
difference between distribution revenue amounts billed to customers and the targeted revenue decoupling
amounts is recognized as an increase or a decrease in Accrued Revenue which forms the basis for resetting
rates for future cash recoveries from, or credits to, customers. These revenue decoupling targets may be
adjusted as a result of rate cases that the Company files with the MDPU. The Company estimates that
revenue decoupling applies to approximately 27% and 11% of Unitil’s total annual electric and natural gas
sales volumes, respectively.
Allowance for Doubtful Accounts—The Company recognizes a provision for doubtful accounts each
month based upon the Company’s experience in collecting electric and gas utility service accounts
receivable in prior years. At the end of each month, an analysis of the delinquent receivables is performed
which takes into account an assumption about the cash recovery of delinquent receivables. The analysis also
calculates the amount of written-off receivables that are recoverable through regulatory rate reconciling
mechanisms. The Company’s distribution utilities are authorized by regulators to recover the costs of their
energy commodity portion of bad debts through rate mechanisms. Also, the electric and gas divisions of
Fitchburg are authorized to recover through rates past due amounts associated with hardship accounts that
are protected from shut-off. Evaluating the adequacy of the Allowance for Doubtful Accounts requires
judgment about the assumptions used in the analysis. It has been the Company’s experience that the
assumptions it has used in evaluating the adequacy of the Allowance for Doubtful Accounts have proven to
be reasonably accurate.
40
Retirement Benefit Obligations—The Company sponsors the Unitil Corporation Retirement Plan
(Pension Plan), which is a defined benefit pension plan covering substantially all of its employees. The
Company also sponsors a non-qualified retirement plan, the Unitil Corporation Supplemental Executive
Retirement Plan (SERP), covering certain executives of the Company, and an employee 401(k) savings
plan. Additionally, the Company sponsors the Unitil Employee Health and Welfare Benefits Plan (PBOP
Plan), primarily to provide health care and life insurance benefits to retired employees.
The FASB Codification requires companies to record on their balance sheets as an asset or liability the
overfunded or underfunded status of their retirement benefit obligations (RBO) based on the projected
benefit obligation. The Company has recognized a corresponding Regulatory Asset, to recognize the future
collection of these obligations in electric and gas rates. The Company’s RBO and reported costs of
providing retirement benefits are dependent upon numerous factors resulting from actual plan experience
and assumptions of future experience. The Company has made critical estimates related to actuarial
assumptions, including assumptions of expected returns on plan assets, future compensation, health care
cost trends, and appropriate discount rates. The Company’s RBO are affected by actual employee
demographics, the level of contributions made to the plans, earnings on plan assets, and health care cost
trends. Changes made to the provisions of these plans may also affect current and future costs. If these
assumptions were changed, the resultant change in benefit obligations, fair values of plan assets, funded
status and net periodic benefit costs could have a material impact on the Company’s financial statements.
The discount rate assumptions used in determining retirement plan costs and retirement plan obligations are
based on an assessment of current market conditions using high quality corporate bond interest rate indices
and pension yield curves. For the year ended December 31, 2018, a change in the discount rate of 0.25%
would have resulted in an increase or decrease of approximately $589,000 in the Net Periodic Benefit Cost
for the Pension Plan. Similarly, a change of 0.50% in the expected long-term rate of return on plan assets
would have resulted in an increase or decrease of approximately $502,000 in the Net Periodic Benefit Cost
for the Pension Plan. (See Note 10 to the accompanying Consolidated Financial Statements).
Income Taxes—The Company is subject to Federal and State income taxes as well as various other
business taxes. This process involves estimating the Company’s current tax liabilities as well as assessing
temporary and permanent differences resulting from the timing of the deductions of expenses and
recognition of taxable income for tax and book accounting purposes. These temporary differences result in
deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets. The
Company accounts for income tax assets, liabilities and expenses in accordance with the FASB Codification
guidance on Income Taxes. The Company classifies penalty and interest expense related to income tax
liabilities as income tax expense and interest expense, respectively, in the Consolidated Statements of
Earnings.
Provisions for income taxes are calculated in each of the jurisdictions in which the Company operates
for each period for which a statement of earnings is presented. The Company accounts for income taxes in
accordance with the FASB Codification guidance on Income Taxes, which requires an asset and liability
approach for the financial accounting and reporting of income taxes. Significant judgments and estimates
are required in determining the current and deferred tax assets and liabilities. The Company’s deferred tax
assets and liabilities reflect its best assessment of estimated future taxes to be paid. Periodically, the
Company assesses the realization of its deferred tax assets and liabilities and adjusts the income tax
provision, the current tax liability and deferred taxes in the period in which the facts and circumstances that
gave rise to the revision become known.
Commitments and Contingencies—The Company’s accounting policy is to record a nd/or disclose
commitments and contingencies in accordance with the FASB Codification as it applies to an existing
condition, situation, or set of circumstances involving uncertainty as to possible loss that will ultimately be
resolved when one or more future events occur or fail to occur. As of December 31, 2018, the Company is
not aware of any material commitments or contingencies other than those disclosed in the Significant
Contractual Obligations table in the Contractual Obligations section above and the Commitments and
Contingencies footnote to the Company’s consolidated financial statements below.
Refer to “Recently Issued Pronouncements” in Note 1 of the Notes of Consolidated Financial
Statements for information regarding recently issued accounting standards.
41
For further information regarding the foregoing matters, see Note 1 (Summary of Significant
Accounting Policies), Note 9 (Income Taxes), Note 7 (Energy Supply), Note 10 (Retirement Benefit
Plans) and Note 8 (Commitment and Contingencies) to the Consolidated Financial Statements.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Please also refer to Part I, Item 1A. “Risk Factors”.
INTEREST RATE RISK
As discussed above, Unitil meets its external financing needs by issuing short-term and long-term debt.
The majority of debt outstanding represents long-term notes bearing fixed rates of interest. Changes in
market interest rates do not affect interest expense resulting from these outstanding long-term debt
securities. However, the Company periodically repays its short-term debt borrowings through the issuance
of new long-term debt securities. Changes in market interest rates may affect the interest rate and
corresponding interest expense on any new issuances of long-term debt securities. In addition, short-term
debt borrowings bear a variable rate of interest. As a result, changes in short-term interest rates will increase
or decrease interest expense in future periods. For example, if the average amount of short-term debt
outstanding was $25 million for the period of one year, a change in interest rates of 1% would result in a
change in annual interest expense of approximately $250,000. The average interest rate on short-term
borrowings and intercompany money pool transactions was 3.3%, 2.4%, and 1.8% during 2018, 2017, and
2016, respectively.
COMMODITY PRICE RISK
Although Unitil’s three distribution utilities are subject to commodity price risk as part of their
traditional operations, the current regulatory framework within which these companies operate allows for
full collection of electric power and natural gas supply costs in rates on a pass-through basis. Consequently,
there is limited commodity price risk after consideration of the related rate-making. Additionally, as
discussed in the section entitled Rates and Regulation in Part I, Item 1 (Business) and in Note 8
(Commitments and Contingencies) to the accompanying Consolidated Financial Statements, the Company
has divested its commodity-related contracts and therefore, further reduced its exposure to commodity risk.
42
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Unitil Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Unitil Corporation and subsidiaries
(the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of earnings,
changes in common stock equity, and cash flows, for each of the three years in the period ended
December 31, 2018, and the related notes (collectively referred to as the “financial statements”). We also
have audited the Company’s internal control over financial reporting as of December 31, 2018, based on
criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2018, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued
by COSO.
Basis for Opinions
The Company’s management is responsible for these financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the
Company’s internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.
Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures to
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists,
and testing and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of
43
records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Boston, MA
January 31, 2019
We have served as the Company’s auditor since 2014.
44
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions, except per share data)
Year Ended December 31,
Operating Revenues:
2018
2017
2016
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $216.1 $194.0 $181.2
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
223.3
206.2
196.1
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.7
6.0
6.1
Total Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
444.1
406.2
383.4
Operating Expenses:
Cost of Gas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99.2
84.3
77.6
Cost of Electric Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
131.4
114.0
108.0
Operation and Maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes Other Than Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69.5
50.4
22.4
64.5
46.9
21.1
61.4
46.6
19.6
Total Operating Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
372.9
330.8
313.2
Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Expense (Income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
71.2
24.0
5.8
41.4
8.4
75.4
23.1
5.8
46.5
17.5
70.2
22.5
5.2
42.5
15.4
Net Income Applicable to Common Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33.0 $ 29.0 $ 27.1
Earnings per Common Share—Basic and Diluted . . . . . . . . . . . . . . . . . . . . . . . . . $ 2.23 $ 2.06 $ 1.94
Weighted Average Common Shares Outstanding—(Basic and Diluted)
. . . . . . .
14.8
14.1
14.0
(The accompanying Notes are an integral part of these consolidated financial statements.)
45
CONSOLIDATED BALANCE SHEETS (Millions)
ASSETS
December 31,
Current Assets:
2018
2017
Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7.8 $
8.9
Accounts Receivable, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange Gas Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gas Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Materials and Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayments and Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
66.8
54.7
8.1
0.8
7.0
7.0
67.4
53.3
5.8
0.6
6.9
8.4
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
152.2
151.3
Utility Plant:
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction Work in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
760.6
500.1
83.1
25.5
699.6
476.7
67.4
35.5
Utility Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,369.3
1,279.2
Less: Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
332.5
307.7
Net Utility Plant
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,036.8
971.5
Other Noncurrent Assets:
Regulatory Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
99.0
10.3
109.6
9.5
Total Other Noncurrent Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
109.3
119.1
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,298.3 $1,241.9
(The accompanying Notes are an integral part of these consolidated financial statements.)
46
CONSOLIDATED BALANCE SHEETS (cont.) (Millions, except number of shares)
LIABILITIES AND CAPITALIZATION
December 31,
Current Liabilities:
2018
2017
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
42.6 $
Short-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Debt, Current Portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Supply Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82.8
18.4
11.5
13.4
0.6
3.1
20.1
41.5
38.3
29.8
9.2
9.7
0.5
3.1
18.9
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
192.5
151.0
Noncurrent Liabilities:
Retirement Benefit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
121.5
150.1
Deferred Income Taxes, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of Removal Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
97.8
90.7
47.0
2.7
1.4
6.0
82.9
84.3
48.9
5.7
1.6
4.3
Total Noncurrent Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
367.1
377.8
Capitalization:
Long-Term Debt, Less Current Portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
387.4
376.3
Stockholders’ Equity:
Common Equity (Outstanding 14,876,955 and 14,815,585 Shares)
. . . . . . .
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
279.1
72.0
275.8
60.8
Total Common Stock Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
351.1
336.6
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
0.2
Total Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
351.3
336.8
Total Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
738.7
713.1
Commitments and Contingencies (Note 8)
TOTAL LIABILITIES AND CAPITALIZATION . . . . . . . . . . . . . . $1,298.3 $1,241.9
(The accompanying Notes are an integral part of these consolidated financial statements.)
47
CONSOLIDATED STATEMENTS OF CASH FLOWS (Millions)
Year Ended December 31,
Operating Activities:
2018
2017
2016
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 33.0 $ 29.0 $ 27.1
Adjustments to Reconcile Net Income to Cash Provided by Operating
Activities:
Depreciation and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50.4
8.0
46.9
17.5
46.6
15.4
Changes in Working Capital Items:
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exchange Gas Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Changes in Working Capital Items . . . . . . . . . . . . . . . . . . . . . .
Deferred Regulatory and Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net
Cash Provided by Operating Activities . . . . . . . . . . . . . . . . . . . . . . . .
0.6
(1.4)
2.3
(2.3)
1.1
3.6
(11.3)
(5.5)
78.5
(14.5)
(3.8)
(1.2)
2.5
9.1
(1.8)
(6.1)
8.6
(5.4)
(11.1)
(5.2)
2.8
(0.9)
(1.0)
(5.0)
5.0
86.2
68.3
Investing Activities:
Property, Plant and Equipment Additions . . . . . . . . . . . . . . . . . . . . . . . . . .
(102.4)
(119.3)
(98.1)
Cash Used In Investing Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(102.4)
(119.3)
(98.1)
Financing Activities:
Proceeds from (Repayment of) Short-Term Debt, net . . . . . . . . . . . . . . . . .
Issuance of Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayment of Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in Capital Lease Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Increase (Decrease) in Exchange Gas Financing . . . . . . . . . . . . . . . . .
Dividends Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from Issuance of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . .
44.5
29.9
(30.1)
(3.0)
2.1
(21.8)
1.2
(43.6)
89.3
(17.2)
(2.5)
(2.4)
(20.4)
33.0
39.9
30.0
(19.0)
(2.8)
(2.5)
(20.0)
1.3
Cash Provided by Financing Activities . . . . . . . . . . . . . . . . . . . .
22.8
36.2
26.9
Net (Decrease) Increase in Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash at Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1.1)
8.9
3.1
5.8
(2.9)
8.7
Cash at End of Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
7.8 $
8.9 $ 5.8
Supplemental Information:
Interest Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 24.6 $ 23.0 $ 22.1
0.4 $ — $ 1.6
Income Taxes Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.3 $
Payments on Capital Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
3.3 $ 3.4
0.5 $
Capital Expenditures Included in Accounts Payable . . . . . . . . . . . . . . . . . . $
1.1 $ 0.3
. . . . . . . . . . . . . . . $ — $ — $ 3.5
Non-Cash Additions to Property, Plant and Equipment
(The accompanying Notes are an integral part of these consolidated financial statements.)
48
CONSOLIDATED STATEMENTS OF
CHANGES IN COMMON STOCK EQUITY (Millions, except shares data)
Common
Equity
Retained
Earnings
Total
Balance at January 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$237.5
$ 45.1
$282.6
Net Income for 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27.1
27.1
Dividends ($1.42 per Common Share)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20.0)
(20.0)
Shares Issued Under Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 32,095 Common Shares (See Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.9
1.3
1.9
1.3
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
240.7
52.2
292.9
Net Income for 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
29.0
29.0
Dividends ($1.44 per Common Share)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(20.4)
(20.4)
Shares Issued Under Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 26,256 Common Shares (See Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.1
1.3
Issuance of 690,000 Common Shares (See Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
31.7
2.1
1.3
31.7
Balance at December 31, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
275.8
60.8
336.6
Net Income for 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33.0
33.0
Dividends ($1.46 per Common Share)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(21.8)
(21.8)
Shares Issued Under Stock Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of 25,932 Common Shares (See Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.1
1.2
2.1
1.2
Balance at December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$279.1
$ 72.0
$351.1
(The accompanying Notes are an integral part of these consolidated financial statements.)
49
Note 1: Summary of Significant Accounting Policies
Nature of Operations—Unitil Corporation (Unitil or the Company) is a public utility holding
company. Unitil and its subsidiaries are subject to regulation as a holding company system by the Federal
Energy Regulatory Commission (FERC) under the Energy Policy Act of 2005. The following companies
are wholly-owned subsidiaries of Unitil: Unitil Energy Systems, Inc. (Unitil Energy), Fitchburg Gas and
Electric Light Company (Fitchburg), Northern Utilities, Inc. (Northern Utilities), Granite State Gas
Transmission, Inc. (Granite State), Unitil Power Corp. (Unitil Power), Unitil Realty Corp. (Unitil Realty),
Unitil Service Corp. (Unitil Service) and its non-regulated business unit Unitil Resources, Inc. (Unitil
Resources). Usource, Inc. and Usource L.L.C. are wholly-owned subsidiaries of Unitil Resources.
The Company’s earnings are seasonal and are typically higher in the first and fourth quarters when
customers use natural gas for heating purposes.
Unitil’s principal business is the local distribution of electricity in the southeastern seacoast and capital
city areas of New Hampshire and the greater Fitchburg area of north central Massachusetts and the local
distribution of natural gas in southeastern New Hampshire, portions of southern Maine to the Lewiston-
Auburn area and in the greater Fitchburg area of north central Massachusetts. Unitil has three distribution
utility subsidiaries, Unitil Energy, which operates in New Hampshire; Fitchburg, which operates in
Massachusetts; and Northern Utilities, which operates in New Hampshire and Maine (collectively referred
to as the “distribution utilities”).
Granite State is an interstate natural gas transmission pipeline company, operating 86 miles of
underground gas transmission pipeline primarily located in Maine and New Hampshire. Granite State
provides Northern Utilities with interconnection to three major natural gas pipelines and access to domestic
natural gas supplies in the south and Canadian natural gas supplies in the north. Granite State derives its
revenues principally from the transportation services provided to Northern Utilities and, to a lesser extent,
third-party marketers.
A fifth utility subsidiary, Unitil Power, formerly functioned as the full requirements wholesale power
supply provider for Unitil Energy. In connection with the implementation of electric industry restructuring
in New Hampshire, Unitil Power ceased being the wholesale supplier of Unitil Energy on May 1, 2003 and
divested of its long-term power supply contracts through the sale of the entitlements to the electricity
associated with various electric power supply contracts it had acquired to serve Unitil Energy’s customers.
Unitil also has three other wholly-owned subsidiaries: Unitil Service, Unitil Realty and Unitil
Resources. Unitil Service provides, at cost, a variety of administrative and professional services, including
regulatory, financial, accounting, human resources, engineering, operations, technology, energy
management and management services on a centralized basis to its affiliated Unitil companies. Unitil Realty
owns and manages the Company’s corporate office in Hampton, New Hampshire and leases this facility to
Unitil Service under a long-term lease arrangement. Unitil Resources is the Company’s wholly-owned
non-regulated subsidiary. Usource, Inc. and Usource L.L.C. (collectively, Usource) are wholly- owned
subsidiaries of Unitil Resources. Usource provides brokering and advisory services to a national client base
of large commercial and industrial customers.
Basis of Presentation
Principles of Consolidation—The Company’s consolidated financial statements include the accounts
of Unitil and all of its wholly-owned subsidiaries and all intercompany transactions are eliminated in
consolidation. Certain reclassifications of prior year data were made in the accompanying financial
statements. These reclassifications were made to conform to the current year presentation related to the
adoption of new accounting standards.
Use of Estimates—The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities, and requires disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those estimates.
50
Fair Value—The Financial Accounting Standards Board (FASB) Codification defines fair value, and
establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical
assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3
measurements). The three levels of the fair value hierarchy under the FASB Codification are described
below:
Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities
that the reporting entity has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices in markets that are not active or for which all
significant inputs are observable, either directly or indirectly.
Level 3—Prices or valuations that require inputs that are both significant to the fair value
measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the
market, the determination of fair value requires more judgment. Accordingly, the degree of judgment
exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A
financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement.
Fair value is a market-based measure considered from the perspective of a market participant rather
than an entity-specific measure. Therefore, even when market assumptions are not readily available, the
Company’s own assumptions are set to reflect those that market participants would use in pricing the asset
or liability at the measurement date. The Company uses prices and inputs that are current as of the
measurement date, including during periods of market dislocation. In periods of market dislocation, the
observability of prices and inputs may be reduced for many instruments. This condition could cause an
instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3.
There have been no changes in the valuation techniques used during the current period.
Utility Revenue Recognition—Gas Operating Revenues and Electric Operating Revenues consist of
billed and unbilled revenue and revenue from rate adjustment mechanisms. Billed and unbilled revenue
includes delivery revenue and pass-through revenue, recognized according to tariffs approved by federal
and state regulatory commissions which determine the amount of revenue the Company will record for
these items. Revenue from rate adjustment mechanisms is accrued revenue, recognized in connection with
rate adjustment mechanisms, and authorized by regulators for recognition in the current period for future
cash recoveries from, or credits to, customers.
Billed and unbilled revenue is recorded when service is rendered or energy is delivered to customers.
However, the determination of energy sales to individual customers is based on the reading of their meters,
which occurs on a systematic basis throughout the month. At the end of each calendar month, amounts of
energy delivered to customers since the date of the last meter reading are estimated and the corresponding
unbilled revenues are calculated. These unbilled revenues are calculated each month based on estimated
customer usage by class and applicable customer rates and are then reversed in the following month when
billed to customers.
In the first quarter of 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, and
its subsequent clarifications and amendments outlined in ASU 2015-14, ASU 2016-08, ASU 2016-10 and
ASU 2017-13, on a modified retrospective basis, which requires application to contracts with customers
effective January 1, 2018, with the cumulative impact on contracts not yet completed as of December 31,
2017 recognized as an adjustment to the opening balance of Retained Earnings on the Company’s
Consolidated Balance Sheets. There was no cumulative effect of adoption to be recognized as an adjustment
to the opening balance of Retained Earnings on the Company’s Consolidated Balance Sheets. The adoption
of this guidance did not have a material impact on the Consolidated Financial Statements as of the adoption
date or for the twelve months ended December 31, 2018. A majority of the Company’s revenue from
contracts with customers continues to be recognized on a monthly basis based on applicable tariffs and
51
customer monthly consumption. Such revenue is recognized using the invoice practical expedient which
allows an entity to recognize revenue in the amount that directly corresponds to the value transferred to the
customer.
As discussed below, the Company plans to disclose billed and unbilled revenue separately from rate
adjustment mechanism revenue in the Notes to the Consolidated Financial Statements for periods in 2018
going forward, and will also provide this disclosure for prior periods for informational purposes.
The Company’s billed and unbilled revenue meets the definition of “revenues from contracts with
customers” as defined in ASU 2014-09. Revenue recognized in connection with rate adjustment
mechanisms is consistent with the definition of alternative revenue programs in Accounting Standards
Codification (ASC) 980-605-25-3, as the Company has the ability to adjust rates in the future as a result of
past activities or completed events. ASU 2014-09 requires the Company to disclose separately the amount
of revenues from contracts with customers and alternative revenue program revenues.
In the following tables, revenue is classified by the types of goods/services rendered and market/
customer type. The lower revenues reported in the twelve months ended December 31, 2018 to account for
the reduction in the corporate income tax rate under the Tax Cuts and Jobs Act of 2017 (TCJA) are shown
separately in the tables below for informational purposes.
Gas and Electric Operating Revenues ($ millions):
Billed and Unbilled Revenue:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue Reductions—TCJA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Billed and Unbilled Revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Rate Adjustment Mechanism Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve Months Ended
December 31, 2018
Gas
Electric
Total
$ 81.4
119.7
13.3
(3.7)
210.7
5.4
$123.6
96.4
11.3
(2.6)
228.7
(5.4)
$205.0
216.1
24.6
(6.3)
439.4
—
Total Gas and Electric Operating Revenues . . . . . . . . . . . . . . . .
$216.1
$223.3
$439.4
Gas and Electric Operating Revenues ($ millions):
Billed and Unbilled Revenue:
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total Billed and Unbilled Revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Rate Adjustment Mechanism Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Twelve Months Ended
December 31, 2017
Gas
Electric
Total
$ 71.2
102.8
13.5
187.5
6.5
$107.9
87.7
6.0
201.6
4.6
$179.1
190.5
19.5
389.1
11.1
Total Gas and Electric Operating Revenues . . . . . . . . . . . . . . . .
$194.0
$206.2
$400.2
Gas and Electric Operating Revenues ($ millions):
Billed and Unbilled Revenue:
Twelve Months Ended
December 31, 2016
Electric
Gas
Total
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial & Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Total Billed and Unbilled Revenue . . . . . . . . . . . . . . . . . . . . . . . . .
Rate Adjustment Mechanism Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 61.5
92.7
11.2
165.4
15.8
$101.9
81.5
4.9
188.3
7.8
$163.4
174.2
16.1
353.7
23.6
Total Gas and Electric Operating Revenues . . . . . . . . . . . . . . . .
$181.2
$196.1
$377.3
Fitchburg is subject to revenue decoupling. Revenue decoupling is the term given to the elimination of
the dependency of a utility’s distribution revenue on the volume of electricity or natural gas sales. The
52
difference between distribution revenue amounts billed to customers and the targeted revenue decoupling
amounts is recorded as an increase or a decrease in Accrued Revenue, which forms the basis for resetting
rates for future cash recoveries from, or credits to, customers. These revenue decoupling targets may be
adjusted as a result of rate cases that the Company files with the MDPU. The Company estimates that
revenue decoupling applies to approximately 27% and 11% of Unitil’s total annual electric and natural gas
sales volumes, respectively.
Other Operating Revenue—Non-regulated—Usource, Unitil’s non-regulated subsidiary, conducts
its business activities as a broker of competitive energy services. Usource does not take title to the electric
and gas commodities which are the subject of the brokerage contracts. The Company records energy
brokering revenues based upon the amount of electricity and gas delivered to customers through the end of
the accounting period. Usource partners with certain entities to facilitate these brokerage services and pays
these entities a fee under revenue sharing agreements.
As discussed above, the Company adopted ASU 2014-09 in the first quarter of 2018. There was no
cumulative effect of adoption to be recognized as an adjustment to the opening balance of Retained
Earnings on the Company’s Consolidated Balance Sheets. ASU 2014-09 requires that payments made by
Usource to third parties (Channel Partners) for revenue sharing agreements are recognized net, as a
reduction from revenue, where those payments were previously recognized gross as an operating expense.
Therefore, beginning in 2018 and going forward, payments made by Usource to Channel Partners for
revenue sharing agreements are reported as “Other” in the “Operating Revenues” section of the
Consolidated Statements of Earnings, along with Usource’s revenues. Prior to the adoption of ASU
2014-09, payments by Usource to third parties for revenue sharing agreements are included as “Operation
and Maintenance” in the “Operating Expenses” section of the Consolidated Statements of Earnings. Those
Channel Partner payments were $1.0 million, $1.1 million and $1.0 million in 2018, 2017 and 2016,
respectively.
If ASU 2014-09 had been in effect for 2017 and 2016, the result would have been corresponding
reductions of $1.1 million and $1.0 million, respectively, in both “Other” in the “Operating Revenues”
section of the Consolidated Statements of Earnings and “Operation and Maintenance” in the “Operating
Expenses” section of the Company’s Consolidated Statements of Earnings as shown in the tables below.
Other Operating Revenues ($ millions):
Twelve Months Ended December 31
Usource Contract Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Revenue Sharing Payments
Total Other Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
As Reported
2018
$ 5.7
(1.0)
$ 4.7
If ASU 2014-09
Had Been
in Effect
2017
2016
$ 6.0
(1.1)
$ 6.1
(1.0)
$ 4.9
$ 5.1
Operation and Maintenance Expense ($ millions):
Twelve Months Ended December 31
Operation and Maintenance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As Reported
2018
$69.5
If ASU 2014-09
Had Been
in Effect
2017
2016
$63.4
$60.4
Retirement Benefit Costs—The Company sponsors the Unitil Corporation Retirement Plan (Pension
Plan), the Unitil Employee Health and Welfare Benefits Plan (PBOP Plan) and the Unitil Corporation
Supplemental Executive Retirement Plan (SERP).The net periodic benefit costs associated with these
benefit plans consist of service cost and other components (See Note 10 to the Consolidated Financial
Statements). In the first quarter of 2018, the Company adopted ASU No. 2017-07, “Compensation—
Retirement Benefits (Topic 715) which amends the existing guidance relating to the presentation of net
periodic pension cost and net periodic other post-retirement benefit costs. On a retrospective basis, the
amendment requires an employer to separate the service cost component from the other components of net
53
benefit cost and provides explicit guidance on how to present the service cost component and other
components in the income statement.
Accordingly, for all periods presented in the Consolidated Financial Statements in this Form 10-K for
the twelve months ended December 31, 2018, the service cost component of the Company’s net periodic
benefit costs is reported in “Operations and Maintenance” in the “Operating Expenses” section of the
Consolidated Statements of Earnings while the other components of net periodic benefit costs are reported
in the “Other Expense (Income), net” section of the Consolidated Statements of Earnings. Prior to adoption,
the Company reported all components of its net periodic benefit costs in “Operations and Maintenance” in
the “Operating Expenses” section of the Consolidated Statements of Earnings. The change in presentation
for the twelve months ended December 31, 2018 resulted in a reduction of “Operations and Maintenance”
and an increase in “Other Expense (Income), net” on the Consolidated Statements of Earnings for the prior
periods. There are $5.5 million, $5.7 million and $4.9 million of non-service cost net periodic benefit costs
reported in “Other Expense (Income), net” for the twelve months ended December 31, 2018, 2017 and
2016, respectively, net of amounts deferred as regulatory assets for future recovery.
Depreciation and Amortization—Depreciation expense is calculated on a group straight-line basis
based on the useful lives of assets, and judgment is involved when estimating the useful lives of certain
assets. The Company conducts independent depreciation studies on a periodic basis as part of the regulatory
ratemaking process and considers the results presented in these studies in determining the useful lives of the
Company’s fixed assets. A change in the estimated useful lives of these assets could have a material impact
on the Company’s consolidated financial statements. Provisions for depreciation were equivalent to the
following composite rates, based on the average depreciable property balances at the beginning and end of
each year: 2018 – 3.38%, 2017 – 3.45% and 2016 – 3.49%.
Stock-based Employee Compensation—Unitil accounts for stock-based employee compensation
using the fair value-based method (See Note 6).
Sales and Consumption Taxes—The Company bills its customers sales tax in Massachusetts and
Maine and consumption tax in New Hampshire. These taxes are remitted to the appropriate departments of
revenue in each state and are excluded from revenues on the Company’s Consolidated Statements of
Earnings. The consumption tax in New Hampshire has been repealed effective January 1, 2019.
Income Taxes—The Company is subject to Federal and State income taxes as well as various other
business taxes. This process involves estimating the Company’s current tax liabilities as well as assessing
temporary and permanent differences resulting from the timing of the deductions of expenses and
recognition of taxable income for tax and book accounting purposes. These temporary differences result in
deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets. The
Company accounts for income tax assets, liabilities and expenses in accordance with the FASB Codification
guidance on Income Taxes. The Company classifies penalty and interest expense related to income tax
liabilities as income tax expense and interest expense, respectively, in the Consolidated Statements of
Earnings.
Provisions for income taxes are calculated in each of the jurisdictions in which the Company operates
for each period for which a statement of earnings is presented. The Company accounts for income taxes in
accordance with the FASB Codification guidance on Income Taxes, which requires an asset and liability
approach for the financial accounting and reporting of income taxes. Significant judgments and estimates
are required in determining the current and deferred tax assets and liabilities. The Company’s deferred tax
assets and liabilities reflect its best assessment of estimated future taxes to be paid. In accordance with the
FASB Codification, the Company periodically assesses the realization of its deferred tax assets and
liabilities and adjusts the income tax provision, the current tax liability and deferred taxes in the period in
which the facts and circumstances which gave rise to the revision become known.
Dividends—The Company’s dividend policy is reviewed periodically by the Board of Directors. The
amount and timing of all dividend payments is subject to the discretion of the Board of Directors and will
depend upon business conditions, results of operations, financial conditions and other factors. For the year
ended December 31, 2018 the Company paid quarterly dividends of $0.365 per share, resulting in an
54
annualized dividend rate of $1.46 per common share. For the years ended December 31, 2017 and 2016, the
Company paid quarterly dividends of $0.36 and $0.355 per common share, respectively, resulting in
annualized dividend rates of $1.44 and $1.42 per common share, respectively. At its January 2019 meeting,
the Unitil Corporation Board of Directors declared a quarterly dividend on the Company’s common stock of
$0.37 per share, an increase of $0.005 per share on a quarterly basis, resulting in an increase in the effective
annualized dividend rate to $1.48 per share from $1.46 per share.
Cash and Cash Equivalents—Cash and Cash Equivalents includes all cash and cash equivalents to
which the Company has legal title. Cash equivalents include short-term investments with original maturities
of three months or less and interest bearing deposits. The Company’s cash and cash equivalents are held at
financial institutions and at times may exceed federally insured limits. The Company has not experienced
any losses in such accounts. Under the Independent System Operator—New England (ISO-NE) Financial
Assurance Policy (Policy), Unitil’s subsidiaries Unitil Energy, Fitchburg and Unitil Power are required to
provide assurance of their ability to satisfy their obligations to ISO-NE. Under this Policy, Unitil’s
subsidiaries provide cash deposits covering approximately 2-1/2 months of outstanding obligations, less
credit amounts that are based on the Company’s credit rating. On December 31, 2018 and 2017, the Unitil
subsidiaries had deposited $3.5 million and $2.9 million, respectively to satisfy their ISO-NE obligations. In
addition, Northern Utilities maintains an account used to implement its natural gas hedging program. There
were no cash margin deposits at Northern Utilities as of December 31, 2018 and 2017.
Allowance for Doubtful Accounts—The Company recognizes a provision for doubtful accounts each
month based upon the Company’s experience in collecting electric and gas utility service accounts
receivable in prior years. At the end of each month, an analysis of the delinquent receivables is performed
which takes into account an assumption about the cash recovery of delinquent receivables. The analysis also
calculates the amount of written-off receivables that are recoverable through regulatory rate reconciling
mechanisms. The Company’s distribution utilities are authorized by regulators to recover the costs of their
energy commodity portion of bad debts through rate mechanisms. Also, the electric and gas divisions of
Fitchburg are authorized to recover through rates past due amounts associated with hardship accounts that
are protected from shut-off. Evaluating the adequacy of the Allowance for Doubtful Accounts requires
judgment about the assumptions used in the analysis. It has been the Company’s experience that the
assumptions it has used in evaluating the adequacy of the Allowance for Doubtful Accounts have proven to
be reasonably accurate.
Accrued Revenue—Accrued Revenue includes the current portion of Regulatory Assets (see
“Regulatory Accounting” below) and unbilled revenues (see “Utility Revenue Recognition” above.) The
following table shows the components of Accrued Revenue as of December 31, 2018 and 2017.
Accrued Revenue (millions)
Regulatory Assets—Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Accrued Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$41.3
13.4
$54.7
$39.5
13.8
$53.3
Exchange Gas Receivable—Northern Utilities and Fitchburg have gas exchange and storage
agreements whereby natural gas purchases during the months of April through October are delivered to a
third-party. The third-party delivers natural gas back to the Company during the months of November
through March. The exchange and storage gas volumes are recorded at weighted average cost. The
following table shows the components of Exchange Gas Receivable as of December 31, 2018 and 2017.
Exchange Gas Receivable (millions)
Northern Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fitchburg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Exchange Gas Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
$7.5
0.6
$8.1
2017
$5.4
0.4
$5.8
55
Gas Inventory—The Company uses the weighted average cost methodology to value natural gas
inventory. The following table shows the components of Gas Inventory as of December 31, 2018 and 2017.
Gas Inventory (millions)
Natural Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Propane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquefied Natural Gas & Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Gas Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
$0.3
0.4
0.1
$0.8
2017
$0.4
0.1
0.1
$0.6
Utility Plant—The cost of additions to Utility Plant and the cost of renewals and betterments are
capitalized. Cost consists of labor, materials, services and certain indirect construction costs, including an
allowance for funds used during construction (AFUDC). The average interest rates applied to AFUDC were
2.70%, 2.90% and 2.18% in 2018, 2017 and 2016, respectively. The costs of current repairs and minor
replacements are charged to appropriate operating expense accounts. The original cost of utility plant retired
or otherwise disposed of is charged to the accumulated provision for depreciation. The Company includes in
its mass asset depreciation rates, which are periodically reviewed as part of its ratemaking proceedings, cost
of removal amounts to provide for future negative salvage value. At December 31, 2018 and 2017, the
Company estimates that the cost of removal amounts, which are recorded on the Consolidated Balance
Sheets in Cost of Removal Obligations are $90.7 million and $84.3 million, respectively.
Regulatory Accounting—The Company’s principal business is the distribution of electricity and
natural gas by the three distribution utilities: Unitil Energy, Fitchburg and Northern Utilities. Unitil Energy
and Fitchburg are subject to regulation by the FERC. Fitchburg is also regulated by the Massachusetts
Department of Public Utilities (MDPU), Unitil Energy is regulated by the New Hampshire Public Utilities
Commission (NHPUC) and Northern Utilities is regulated by the Maine Public Utilities Commission
(MPUC) and NHPUC. Granite State, the Company’s natural gas transmission pipeline, is regulated by the
FERC. Accordingly, the Company uses the Regulated Operations guidance as set forth in the FASB
Codification. The Company has recorded Regulatory Assets and Regulatory Liabilities which will be
recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by
the applicable public utility regulatory commission.
Regulatory Assets consist of the following (millions)
Retirement Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Energy Supply & Other Rate Adjustment Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred Storm Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Environmental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Deferred Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Regulatory Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Current Portion of Regulatory Assets(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$ 72.0
38.4
6.3
7.9
5.7
10.0
$140.3
41.3
$ 84.5
36.0
7.2
9.5
6.5
5.4
$149.1
39.5
Regulatory Assets—noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 99.0
$109.6
(1) Reflects amounts included in Accrued Revenue on the Company’s Consolidated Balance Sheets
and in the Accrued Revenue table shown above.
Regulatory Liabilities consist of the following (millions)
Rate Adjustment Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gas Pipeline Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Taxes (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Regulatory Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Current Portion of Regulatory Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$11.5
—
47.0
58.5
11.5
$ 6.9
2.3
48.9
58.1
9.2
Regulatory Liabilities—noncurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$47.0
$48.9
56
Generally, the Company receives a return on investment on its regulated assets for which a cash
outflow has been made. Included in Regulatory Assets as of December 31, 2018 are $6.0 million of
environmental costs, rate case costs and other expenditures to be recovered over varying periods in the next
seven years. Regulators have authorized recovery of these expenditures, but without a return. Regulatory
commissions can reach different conclusions about the recovery of costs, which can have a material impact
on the Company’s Consolidated Financial Statements. The Company believes it is probable that its
regulated distribution and transmission utilities will recover their investments in long-lived assets, including
regulatory assets. If the Company, or a portion of its assets or operations, were to cease meeting the criteria
for application of these accounting rules, accounting standards for businesses in general would become
applicable and immediate recognition of any previously deferred costs, or a portion of deferred costs, would
be required in the year in which the criteria are no longer met, if such deferred costs were not recoverable in
the portion of the business that continues to meet the criteria for application of the FASB Codification topic
on Regulated Operations. If unable to continue to apply the FASB Codification provisions for Regulated
Operations, the Company would be required to apply the provisions for the Discontinuation of Rate-
Regulated Accounting included in the FASB Codification. In the Company’s opinion, its regulated
operations will be subject to the FASB Codification provisions for Regulated Operations for the foreseeable
future.
Derivatives—The Company’s regulated energy subsidiaries enter into energy supply contracts to serve
their electric and gas customers. The Company follows a procedure for determining whether each contract
qualifies as a derivative instrument under the guidance provided by the FASB Codification on Derivatives
and Hedging. For each contract, the Company reviews and documents the key terms of the contract. Based
on those terms and any additional relevant components of the contract, the Company determines and
documents whether the contract qualifies as a derivative instrument as defined in the FASB Codification.
The Company has determined that none of its energy supply contracts qualify as a derivative instrument
under the guidance set forth in the FASB Codification.
The Company previously operated a regulatory approved hedging program for Northern Utilities
designed to fix or cap a portion of its gas supply costs for the coming years of service, which included use
of derivative instruments. The hedging program was terminated in 2018.
Under the hedging program previously operated by Northern Utilities, any gains or losses resulting
from the change in the fair value of these derivatives were passed through to ratepayers directly through
Northern Utilities’ Cost of Gas Clause. The fair value of these derivatives was determined using Level 2
inputs (valuations based on quoted prices in markets that are not active or for which all significant inputs are
observable, either directly or indirectly), specifically based on the NYMEX closing prices for outstanding
contracts as of the balance sheet date. As a result of the ratemaking process, the Company recorded gains
and losses resulting from the change in fair value of the derivatives as regulatory liabilities or assets, then
reclassified these gains or losses into Cost of Gas Sales when the gains and losses were passed through to
customers through the Cost of Gas Clause.
As of December 31, 2018 and December 31, 2017, the Company had zero and 0.6 billion cubic feet
(BCF), respectively, outstanding in natural gas purchase contracts under its hedging program. The Company
had no derivative assets or liabilities recorded on its Consolidated Balance Sheets as of December 31, 2018
and December 31, 2017. There was zero and $0.4 million of losses / (gains) recognized in Regulatory
Assets / Liabilities for the years ended December 31, 2018 and 2017, respectively. There were no losses /
(gains) reclassified into the Consolidated Statements of Earnings for the years ended December 31, 2018
and 2017.
Investments in Marketable Securities—The Company maintains a trust through which it invests in a
variety of equity and fixed income mutual funds. These funds are intended to satisfy obligations under the
Company’s Supplemental Executive Retirement Plan (SERP) (See further discussion of the SERP in Note
10).
At December 31, 2018 and 2017, the fair value of the Company’s investments in these trading
securities, which are recorded on the Consolidated Balance Sheets in Other Assets, were $4.8 million and
$3.6 million, respectively, as shown in the table below. These investments are valued based on quoted
57
prices from active markets and are categorized in Level 1 as they are actively traded and no valuation
adjustments have been applied. Changes in the fair value of these investments are recorded in Other
Expense, net.
Fair Value of Marketable Securities (millions)
Equity Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed Income Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Money Market Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$ — $2.1
1.5
—
—
4.8
Total Marketable Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4.8
$3.6
Energy Supply Obligations—The following discussion and table summarize the nature and amounts
of the items recorded as Energy Supply Obligations (current portion) and Other Noncurrent Liabilities
(noncurrent portion) on the Company’s Consolidated Balance Sheets.
Energy Supply Obligations consist of the following: (millions)
Current:
Exchange Gas Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Renewable Energy Portfolio Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Power Supply Contract Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Energy Supply Obligations—Current
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncurrent:
Power Supply Contract Divestitures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Energy Supply Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$ 7.5
5.6
0.3
$13.4
$ 0.6
$14.0
$ 5.4
4.0
0.3
$ 9.7
$ 0.9
$10.6
Exchange Gas Obligation—As discussed above, Northern Utilities enters into gas exchange
agreements under which Northern Utilities releases certain natural gas pipeline and storage assets, resells
the natural gas storage inventory to an asset manager and subsequently repurchases the inventory over the
course of the natural gas heating season at the same price at which it sold the natural gas inventory to the
asset manager. The gas inventory related to these agreements is recorded in Exchange Gas Receivable on
the Company’s Consolidated Balance Sheets while the corresponding obligations are recorded in Energy
Supply Obligations.
Renewable Energy Portfolio Standards—Renewable Energy Portfolio Standards (RPS) require retail
electricity suppliers, including public utilities, to demonstrate that required percentages of their sales are met
with power generated from certain types of resources or technologies. Compliance is demonstrated by
purchasing and retiring Renewable Energy Certificates (REC) generated by facilities approved by the state
as qualifying for REC treatment. Unitil Energy and Fitchburg purchase RECs in compliance with RPS
legislation in New Hampshire and Massachusetts for supply provided to default service customers. RPS
compliance costs are a supply cost that is recovered in customer default service rates. Unitil Energy and
Fitchburg collect RPS compliance costs from customers throughout the year and demonstrate compliance
for each calendar year on the following July 1. Due to timing differences between collection of revenue
from customers and payment of REC costs to suppliers, Unitil Energy and Fitchburg typically maintain
accrued revenue for RPS compliance which is recorded in Accrued Revenue with a corresponding liability
in Energy Supply Obligations on the Company’s Consolidated Balance Sheets.
Fitchburg has entered into long-term renewable contracts for the purchase of clean energy and/or
renewable energy certificates (RECs) pursuant to Massachusetts legislation, specifically, An Act Relative to
Green Communities (“Green Communities Act”, 2008), An Act Relative to Competitively Priced Electricity
in the Commonwealth (2012) and An Act to Promote Energy Diversity (“Energy Diversity Act”, 2016). The
generating facilities associated with four of these contracts have been constructed and are now operating.
Since 2017, the Company has participated in two major statewide procurements which resulted in contracts
for imported hydroelectric power and associated transmission and for offshore wind generation. The
contracts were filed with MDPU in 2018 and approvals remain pending.
58
Additional long-term clean energy contracts are expected in compliance with the Energy Diversity Act
and An Act to Promote a Clean Energy Future (2018). Fitchburg recovers the costs associated with long-
term renewable contracts on a fully reconciling basis through a MDPU-approved cost recovery mechanism.
Power Supply Contract Divestitures—Unitil Energy’s and Fitchburg’s customers are entitled to
purchase their electric or natural gas supplies from third-party suppliers. In connection with the
implementation of retail choice, Unitil Power, which formerly functioned as the wholesale power supply
provider for Unitil Energy, and Fitchburg divested their long-term power supply contracts through the sale
of the entitlements to the electricity sold under those contracts. Unitil Energy and Fitchburg recover in their
rates all the costs associated with the divestiture of their power supply portfolios and have secured
regulatory approval from the NHPUC and MDPU, respectively, for the recovery of power supply-related
stranded costs. The obligations related to these divestitures are recorded in Energy Supply Obligations
(current portion) and Other Noncurrent Liabilities (noncurrent portion) on the Company’s Consolidated
Balance Sheets with corresponding regulatory assets recorded in Accrued Revenue (current portion) and
Regulatory Assets (noncurrent portion).
Retirement Benefit Obligations—The Company sponsors the Unitil Corporation Retirement Plan
(Pension Plan), which is a defined benefit pension plan. Effective January 1, 2010, the Pension Plan was
closed to new non-union employees. For union employees, the Pension Plan was closed on various dates
between December 31, 2010 and June 1, 2013, depending on the various Collective Bargaining Agreements
of each union. The Company also sponsors a non-qualified retirement plan, the Unitil Corporation
Supplemental Executive Retirement Plan (SERP), covering certain executives of the Company, and an
employee 401(k) savings plan. Additionally, the Company sponsors the Unitil Employee Health and
Welfare Benefits Plan (PBOP Plan), primarily to provide health care and life insurance benefits to retired
employees.
The Company records on its balance sheets as an asset or liability the overfunded or underfunded
status of its retirement benefit obligations (RBO) based on the projected benefit obligations. The Company
has recognized a corresponding Regulatory Asset, to recognize the future collection of these obligations in
electric and gas rates (See Note 10).
Off-Balance Sheet Arrangements—As of December 31, 2018, the Company does not have any
significant arrangements that would be classified as Off-Balance Sheet Arrangements. In the ordinary
course of business, the Company does contract for certain office equipment, vehicles and other equipment
under operating leases (See Note 5).
Commitments and Contingencies—The Company’s accounting policy is to record and/or disclose
commitments and contingencies in accordance with the FASB Codification as it applies to an existing
condition, situation, or set of circumstances involving uncertainty as to possible loss that will ultimately be
resolved when one or more future events occur or fail to occur. As of December 31, 2018, the Company is
not aware of any material commitments or contingencies other than those disclosed in the Commitments
and Contingencies footnote to the Company’s consolidated financial statements below (See Note 8).
Environmental Matters—The Company’s past and present operations include activities that are
generally subject to extensive federal and state environmental laws and regulations. The Company has
recovered or will recover substantially all of the costs of the environmental remediation work performed to
date from customers or from its insurance carriers. The Company believes it is in compliance with all
applicable environmental and safety laws and regulations, and the Company believes that as of
December 31, 2018, there are no material losses that would require additional liability reserves to be
recorded other than those disclosed in Note 8, Commitments and Contingencies. Changes in future
environmental compliance regulations or in future cost estimates of environmental remediation costs could
have a material effect on the Company’s financial position if those amounts are not recoverable in
regulatory rate mechanisms.
Recently Issued Pronouncements— In August 2018, the FASB issued Accounting Standards Update
(ASU) No. 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Sutopic
715-20)” which amends existing guidance to add, remove and clarify disclosure requirements related to
59
defined benefit pension and other postretirement plans. The ASU is effective for fiscal years ending after
December 15, 2020, with early adoption permitted. The Company adopted this ASU in the fourth quarter of
2018 and it did not have a material impact on the Company’s Consolidated Financial Statements.
In June 2018, the FASB issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic
718)” which amends the existing guidance relating to the accounting for nonemployee share-based
payments. Under this ASU, most of the guidance on share-based payments to nonemployees will be aligned
with the requirements for share-based payments granted to employees. The ASU is effective for fiscal years
beginning after December 15, 2018, with early adoption permitted. The Company adopted this ASU in the
second quarter of 2018 and it did not have a material impact on the Company’s Consolidated Financial
Statements.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation—Retirement Benefits (Topic
715)” which amends the existing guidance relating to the presentation of net periodic pension cost and net
periodic other post-retirement benefit costs. On a retrospective basis, the amendment requires an employer
to separate the service cost component from the other components of net benefit cost and provides explicit
guidance on how to present the service cost component and other components in the income statement. In
addition, on a prospective basis, the ASU limits the component of net benefit cost eligible to be capitalized
to service costs. The ASU became effective for the Company on January 1, 2018. The change in
capitalization of retirement benefits did not have a material impact on the Company’s Consolidated
Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”. The new standard
requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12
months. Leases will be classified as either finance or operating, with classification affecting the pattern of
expense recognition in the income statement. The Company plans to adopt the standard as of January 1,
2019. The Company will elect the package of practical expedients permitted under the transition guidance
within the new standard, which among other things, allows the Company to carryforward the historical lease
classification. The Company will also elect the practical expedient related to land easements, allowing the
Company to carry forward its current accounting treatment for land easements on existing agreements. The
Company will make an accounting policy election to keep leases with an initial term of 12 months or less
off of the balance sheet. The Company will recognize those lease payments in the Consolidated Statements
of Earnings on a straight-line basis over the lease term. The Company expects that adoption of the standard
will result in recognition of approximately $4.2 million of lease assets and lease liabilities as of January 1,
2019 on the Company’s Consolidated Balance Sheets. The Company does not believe the standard will
have a material effect on its Consolidated Statements of Earnings and Consolidated Statements of Cash
Flows.
In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic
606)”, which amends existing revenue recognition guidance, effective January 1, 2018. The objective of the
new standard is to provide a single, comprehensive revenue recognition model for all contracts with
customers to improve comparability across entities, industries, jurisdictions, and capital markets and to
provide more useful information to users of financial statements through improved and expanded disclosure
requirements.
The majority of the Company’s revenue, including energy provided to customers, is from tariff
offerings that provide natural gas or electricity without a defined contractual term. For such arrangements,
the Company generally expects that the revenue from contracts with these customers will continue to be
equivalent to the electricity or natural gas supplied and billed in that period (including unbilled revenues)
and the adoption of the new guidance will not result in a significant shift in the timing of revenue
recognition for such sales.
The Company used the modified retrospective method when adopting the new standard on January 1,
2018. The new guidance did not have a material impact to the Consolidated Financial Statements. (See
“Utility Revenue Recognition” and “Other Operating Revenue—Non-regulated” above.)
In January 2016, the FASB issued Accounting Standards Update (ASU) 2016-01 which addresses
certain aspects of recognition, measurement, presentation and disclosure of financial instruments. A
60
financial instrument is defined as cash, evidence of ownership interest in a company or other entity, or a
contract that both: (i) imposes on one entity a contractual obligation either to deliver cash or another
financial instrument to a second entity or to exchange other financial instruments on potentially unfavorable
terms with the second entity and (ii) conveys to that second entity a contractual right either to receive cash
or another financial instruments from the first entity or to exchange other financial instruments on
potentially favorable terms with the first entity. The ASU became effective for the Company on January 1,
2018 and it did not have a material impact on the Company’s Consolidated Financial Statements.
Other than the pronouncements discussed above, there are no recently issued pronouncements that the
Company has not already adopted or that have a material impact on the Company.
Subsequent Events—The Company evaluates all events or transactions through the date of the related
filing. During the period through the date of this filing, the Company did not have any material subsequent
events that would result in adjustment to or disclosure in its Consolidated Financial Statements.
Note 2: Quarterly Financial Information (unaudited; millions, except per share data)
Quarterly earnings per share may not agree with the annual amounts due to rounding and the impact of
additional common share issuances. Basic and Diluted Earnings per Share are the same for the periods
presented.
Three Months Ended
March 31,
June 30,
September 30,
December 31,
2018
2017
2018
2017
2018
2017
2018
2017
Total Operating Revenues . . . . . . . . . . . . . .
Operating Income . . . . . . . . . . . . . . . . . . . .
Net Income Applicable to Common . . . . . .
$145.8
$ 28.1
$ 15.6
$126.0
$ 27.7
$ 12.4
$ 84.5
$ 10.6
3.6
$
$ 80.8
$ 11.6
3.1
$
$ 88.2
$ 10.3
2.8
$
$ 84.0
$ 10.4
2.3
$
$125.6
$ 22.2
$ 11.0
$115.4
$ 25.7
$ 11.2
Earnings Per Common Share . . . . . . . . . . .
Dividends Paid Per Common Share . . . . . .
$ 1.06
$0.365
$ 0.88
$0.360
$ 0.24
$0.365
$ 0.23
$0.360
$ 0.19
$0.365
$ 0.16
$0.360
$ 0.74
$0.365
$ 0.79
$0.360
Per Share Data:
Note 3: Segment Information
Unitil reports three segments: utility gas operations, utility electric operations and non-regulated.
Unitil’s principal business is the local distribution of electricity in the southeastern seacoast and state capital
regions of New Hampshire and the greater Fitchburg area of north central Massachusetts and the local
distribution of natural gas in southeastern New Hampshire, portions of southern Maine to the Lewiston-
Auburn area and in the greater Fitchburg area of north central Massachusetts. Unitil has three distribution
utility subsidiaries, Unitil Energy, which operates in New Hampshire, Fitchburg, which operates in
Massachusetts and Northern Utilities, which operates in New Hampshire and Maine.
Granite State is an interstate natural gas transmission pipeline company, operating 86 miles of
underground gas transmission pipeline primarily located in Maine and New Hampshire. Granite State
provides Northern Utilities with interconnection to three major natural gas pipelines and access to domestic
natural gas supplies in the south and Canadian natural gas supplies in the north. Granite State derives its
revenues principally from the transmission services provided to Northern Utilities and, to a lesser extent,
third-party marketers.
Unitil Resources is the Company’s wholly-owned non-regulated subsidiary. Usource, Inc. and Usource
L.L.C. (collectively, Usource) are wholly-owned subsidiaries of Unitil Resources. Usource provides brokering
and advisory services to a national client base of large commercial and industrial customers. Unitil Realty and
Unitil Service provide centralized facilities, operations and administrative services to support the affiliated Unitil
companies. Unitil Resources and Usource are included in the Non-Regulated column below.
Unitil Realty, Unitil Service and the holding company are included in the “Other” column of the table
below. Unitil Service provides centralized management and administrative services, including information
systems management and financial record keeping. Unitil Realty owns certain real estate, principally the
Company’s corporate headquarters. The earnings of the holding company are principally derived from
income earned on short-term investments and real property owned for Unitil and its subsidiaries’ use.
61
The segments follow the same accounting policies as described in the Summary of Significant
Accounting Policies. Intersegment sales take place at cost and the effects of all intersegment and/or
intercompany transactions are eliminated in the consolidated financial statements. Segment profit or loss is
based on profit or loss from operations after income taxes and preferred stock dividends. Expenses used to
determine operating income before taxes are charged directly to each segment or are allocated based on cost
allocation factors included in rate applications approved by the FERC, NHPUC, MDPU, and MPUC. Assets
allocated to each segment are based upon specific identification of such assets provided by Company records.
The following table provides significant segment financial data for the years ended December 31,
2018, 2017 and 2016 (millions):
Year Ended December 31, 2018
Revenues:
Gas
Electric
Regulated Other
Total
Non-
Billed and Unbilled Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . .
$210.7
$228.7
$ —
$ — $ 439.4
Rate Adjustment Mechanism Revenue . . . . . . . . . . . . . . . . . . . .
Other Operating Revenue—Non-Regulated . . . . . . . . . . . . . . . .
5.4
—
(5.4)
—
—
4.7
—
—
—
4.7
Total Operating Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$216.1
$223.3
$4.7
$ — $ 444.1
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & Amortization Expense . . . . . . . . . . . . . . . . . . . . . . . .
Income Tax Expense (Benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.8
14.2
24.9
7.1
18.8
0.8
9.0
23.1
4.2
11.4
Segment Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
764.1
484.2
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
70.8
28.4
0.2
—
0.1
0.5
1.3
6.9
—
0.6
3.2
2.3
(3.4)
1.5
2.4
26.4
50.4
8.4
33.0
43.1
1,298.3
3.2
102.4
Year Ended December 31, 2017
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$194.0
$206.2
$6.0
$ — $ 406.2
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & Amortization Expense . . . . . . . . . . . . . . . . . . . . . . . .
Income Tax Expense (Benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.7
13.7
22.4
10.7
16.4
1.0
8.8
23.4
7.5
11.9
Segment Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
714.3
476.9
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
72.1
33.7
0.1
—
0.1
0.7
1.2
6.7
—
0.6
3.0
1.0
(1.4)
(0.5)
44.0
13.5
2.4
25.5
46.9
17.5
29.0
1,241.9
119.3
Year Ended December 31, 2016
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$181.2
$196.1
$6.1
$ — $ 383.4
Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation & Amortization Expense . . . . . . . . . . . . . . . . . . . . . . . .
Income Tax Expense (Benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Segment Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
0.2
13.3
21.9
9.2
14.5
0.7
8.3
23.8
6.6
11.1
Segment Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
645.2
441.1
Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
57.0
30.1
0.1
—
0.1
0.8
1.1
6.8
—
0.2
2.1
0.8
(1.2)
0.4
35.1
11.0
1.2
23.7
46.6
15.4
27.1
1,128.2
98.1
62
Note 4: Allowance for Doubtful Accounts
Unitil’s distribution utilities are authorized by regulators to recover the costs of their energy
commodity portion of bad debts through rate mechanisms. In 2018, 2017 and 2016, the Company recorded
provisions for the energy commodity portion of bad debts of $2.6 million, $1.3 million and $1.6 million,
respectively. These provisions were recognized in Cost of Gas Sales and Cost of Electric Sales expense as
the associated electric and gas utility revenues were billed. Cost of Gas Sales and Cost of Electric Sales
costs are recovered from customers through periodic rate reconciling mechanisms. Also, the electric and gas
divisions of Fitchburg are authorized to recover through rates past due amounts associated with hardship
accounts that are protected from shut-off.
The following table shows the balances and activity in the Company’s Allowance for Doubtful
Accounts for 2016—2018 (millions):
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Balance at
Beginning
of Period
Provision Recoveries
Accounts
Written
Off
Balance at
End of
Period
Year Ended December 31, 2018
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2017
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31, 2016
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.9
0.6
0.1
$1.6
$0.8
0.2
0.1
$1.1
$0.6
0.5
0.1
$1.2
$ 3.2
2.9
(0.1)
$ 6.0
$ 1.8
1.9
—
$ 3.7
$ 2.9
1.7
—
$ 4.6
$0.3
0.3
—
$0.6
$0.3
0.3
—
$0.6
$0.3
0.3
—
$0.6
$3.9
3.0
—
$6.9
$2.0
1.8
—
$3.8
$3.0
2.3
—
$5.3
$0.5
0.8
—
$1.3
$0.9
0.6
0.1
$1.6
$0.8
0.2
0.1
$1.1
Note 5: Debt and Financing Arrangements
The Company funds a portion of its operations through the issuance of long-term debt and through
short-term borrowings under its revolving Credit Facility. The Company’s subsidiaries conduct a portion of
their operations in leased facilities and also lease some of their machinery, vehicles and office equipment.
Details regarding long-term debt, short-term debt and leases follow:
Long-Term Debt and Interest Expense
Long-Term Debt Structure and Covenants—The agreements under which the long-term debt of
Unitil and its utility subsidiaries, Unitil Energy, Fitchburg, Northern Utilities, and Granite State, were issued
contain various covenants and restrictions. These agreements do not contain any covenants or restrictions
pertaining to the maintenance of financial ratios or the issuance of short-term debt. These agreements do
contain covenants relating to, among other things, the issuance of additional long-term debt, cross-default
provisions and business combinations, as described below.
The long-term debt of Unitil is issued under Unsecured Promissory Notes with negative pledge
provisions. The long-term debt’s negative pledge provisions contain restrictions which, among other things,
limit the incursion of additional long-term debt. Accordingly, in order for Unitil to issue new long-term
debt, the covenants of the existing long-term agreement(s) must be satisfied, including that Unitil have total
funded indebtedness less than 70% of total capitalization, and earnings available for interest equal to at least
two times the interest charges for funded indebtedness. Each future senior long-term debt issuance of Unitil
will rank pari passu with all other senior unsecured long-term debt issuances. The Unitil long-term debt
63
agreement requires that if Unitil defaults on any other future long-term debt agreement(s), it would
constitute a default under its present long-term debt agreement. Furthermore, the default provisions are
triggered by the defaults of certain Unitil subsidiaries or certain other actions against Unitil subsidiaries.
Substantially all of the property of Unitil Energy is subject to liens of indenture under which First
Mortgage Bonds (FMB) have been issued. In order to issue new FMB, the customary covenants of the
existing Unitil Energy Indenture Agreement must be met; including that Unitil Energy have sufficient
available net bondable plant to issue the securities and earnings available for interest charges equal to at
least two times the annual interest requirement. The Unitil Energy agreements further require that if Unitil
Energy defaults on any Unitil Energy FMB, it would constitute a default for all Unitil Energy FMB. The
Unitil Energy default provisions are not triggered by the actions or defaults of Unitil or its other
subsidiaries.
All of the long-term debt of Fitchburg, Northern Utilities and Granite State are issued under Unsecured
Promissory Notes with negative pledge provisions. Each issue of long-term debt ranks pari passu with its
other senior unsecured long-term debt within that subsidiary. The long-term debt’s negative pledge
provisions contain restrictions which, among other things, limit the incursion of additional long-term debt.
Accordingly, in order for Fitchburg, Northern Utilities or Granite State to issue new long-term debt, the
covenants of the existing long-term agreements of that subsidiary must be satisfied, including that the
subsidiary have total funded indebtedness less than 65% of total capitalization. Additionally, to issue new
long-term debt, Fitchburg must maintain earnings available for interest equal to at least two times the
interest charges for funded indebtedness. As with the Unitil Energy agreements, the Fitchburg, Northern
Utilities and Granite State long-term debt agreements each require that if that subsidiary defaults on any of
its own long-term debt agreements, it would constitute a default under all of that subsidiary’s long-term debt
agreements. None of the Fitchburg, Northern Utilities and Granite State default provisions are triggered by
the actions or defaults of Unitil or any of its other subsidiaries.
The Unitil, Unitil Energy, Fitchburg, Northern Utilities and Granite State long-term debt instruments
and agreements contain covenants restricting the ability of each company to incur liens and to enter into sale
and leaseback transactions, and restricting the ability of each company to consolidate with, to merge with or
into, or to sell or otherwise dispose of all or substantially all of its assets.
Unitil Energy, Fitchburg, Northern Utilities and Granite State pay common dividends to their sole
common shareholder, Unitil Corporation and these common dividends are the primary source of cash for
the payment of dividends to Unitil’s common shareholders. The long-term debt issued by the Company and
its subsidiaries contains certain covenants that determine the amount that the Company and each of these
subsidiary companies has available to pay for dividends. As of December 31, 2018, in accordance with the
covenants, these subsidiary companies had a combined amount of $249.2 million available for the payment
of dividends and Unitil Corporation had $137.4 million available for the payment of dividends. As of
December 31, 2018, the Company’s balance in Retained Earnings was $72.0 million. Therefore, there were
no restrictions on the Company’s Retained Earnings at December 31, 2018 for the payment of dividends.
Issuance of Long-Term Debt—On November 30, 2018 Unitil Energy issued $30 million of First
Mortgage Bonds due November 30, 2048 at 4.18%. Unitil Energy used the net proceeds from this offering
to repay short term debt and for general corporate purposes. Approximately $0.5 million of costs associated
with these issuances have been netted against long-term debt for presentation purposes on the Consolidated
Balance Sheets.
On November 1, 2017, Northern Utilities issued $20 million of Notes due 2027 at 3.52% and
$30 million of Notes due 2047 at 4.32%. Fitchburg issued $10 million of Notes due 2027 at 3.52% and
$15 million of Notes due 2047 at 4.32%. Granite State issued $15 million of Notes due 2027 at 3.72%.
Northern Utilities, Fitchburg and Granite State used the net proceeds from these offerings to refinance
higher cost long-term debt that matured in 2017, to repay short-term debt and for general corporate
purposes. Approximately $0.7 million of costs associated with these issuances have been netted against
Long-Term Debt for presentation purposes on the Consolidated Balance Sheets.
Debt Repayment—The total aggregate amount of debt repayments relating to bond issues and normal
scheduled long-term debt repayments amounted to $30.1 million, $17.2 million and $19.0 million in 2018,
2017, and 2016, respectively.
64
The aggregate amount of bond repayment requirements and normal scheduled long-term debt
repayments for each of the five years following 2018 is: 2019 – $18.8 million; 2020 – $19.8 million; 2021 –
$8.6 million; 2022 – $28.2 million; 2023 – $6.7 million and thereafter $327.2 million.
Fair Value of Long-Term Debt—Currently, the Company believes that there is no active market in
the Company’s debt securities, which have all been sold through private placements. If there were an active
market for the Company’s debt securities, the fair value of the Company’s long-term debt would be
estimated based on the quoted market prices for the same or similar issues, or on the current rates offered to
the Company for debt of the same remaining maturities. The fair value of the Company’s long-term debt is
estimated using Level 2 inputs (valuations based on quoted prices available in active markets for similar
assets or liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, inputs other
than quoted prices that are directly observable, and inputs derived principally from market data.) In
estimating the fair value of the Company’s long-term debt, the assumed market yield reflects the Moody’s
Baa Utility Bond Average Yield. Costs, including prepayment costs, associated with the early settlement of
long-term debt are not taken into consideration in determining fair value.
Estimated Fair Value of Long-Term Debt (millions)
December 31,
2018
2017
Estimated Fair Value of Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$422.0
$457.1
65
Details on long-term debt at December 31, 2018 and 2017 are shown below:
Long-Term Debt (millions)
Unitil Corporation:
December 31,
2018
2017
6.33% Senior Notes, Due May 1, 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.70% Senior Notes, Due August 1, 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 20.0
30.0
$ 20.0
30.0
Unitil Energy First Mortgage Bonds:
5.24% Senior Secured Notes, Due March 2, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.49% Senior Secured Notes, Due October 14, 2024 . . . . . . . . . . . . . . . . . . . . . . . . . .
6.96% Senior Secured Notes, Due September 1, 2028 . . . . . . . . . . . . . . . . . . . . . . . . .
8.00% Senior Secured Notes, Due May 1, 2031 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.32% Senior Secured Notes, Due September 15, 2036 . . . . . . . . . . . . . . . . . . . . . . . .
4.18% Senior Secured Notes, Due November 30, 2048 . . . . . . . . . . . . . . . . . . . . . . . .
Fitchburg:
6.75% Senior Notes, Due November 30, 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.79% Senior Notes, Due October 15, 2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.52% Senior Notes, Due November 1, 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.37% Senior Notes, Due January 15, 2029 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.90% Senior Notes, Due December 15, 2030 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.98% Senior Notes, Due June 1, 2031 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.32% Senior Notes, Due November 1, 2047 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Northern Utilities:
6.95% Senior Notes, Due December 3, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.29% Senior Notes, Due March 2, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.52% Senior Notes, Due November 1, 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.72% Senior Notes, Due December 3, 2038 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.42% Senior Notes, Due October 15, 2044 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.32% Senior Notes, Due November 1, 2047 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granite State:
10.0
6.0
20.0
15.0
15.0
30.0
5.7
10.0
10.0
12.0
15.0
14.0
15.0
—
16.6
20.0
50.0
50.0
30.0
15.0
7.5
20.0
15.0
15.0
—
7.6
10.0
10.0
12.0
15.0
14.0
15.0
10.0
25.0
20.0
50.0
50.0
30.0
7.15% Senior Notes, Due December 15, 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.72% Senior Notes, Due November 1, 2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Unamortized Debt Issuance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Long-Term Debt, net of Unamortized Debt Issuance Costs . . . . . . . . . . . . . . . .
Less: Current Portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
15.0
409.3
3.5
405.8
18.4
3.3
15.0
409.4
3.3
406.1
29.8
Total Long-Term Debt, Less Current Portion . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$387.4
$376.3
Interest Expense, net—Interest expense is presented in the financial statements net of interest income.
Interest expense is mainly comprised of interest on long-term debt and short-term borrowings. In addition,
certain reconciling rate mechanisms used by the Company’s distribution operating utilities give rise to
regulatory assets (and regulatory liabilities) on which interest is calculated.
66
Unitil’s utility subsidiaries operate a number of reconciling rate mechanisms to recover specifically
identified costs on a pass-through basis. These reconciling rate mechanisms track costs and revenue on a
monthly basis. In any given month, this monthly tracking and reconciling process will produce either an
under-collected or an over-collected balance of costs. In accordance with the distribution utilities’ rate
tariffs, interest is accrued on these balances and will produce either interest income or interest expense.
Consistent with regulatory precedent, interest income is recorded on an under-collection of costs, which
creates a regulatory asset to be recovered in future periods when rates are reset. Interest expense is recorded
on an over-collection of costs, which creates a regulatory liability to be refunded in future periods when
rates are reset. A summary of interest expense and interest income is provided in the following table:
Interest Expense, net (millions)
Interest Expense
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-Term Debt
Short-Term Debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtotal Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest Income
Regulatory Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AFUDC(1) and Other
Subtotal Interest Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
2016
$23.1
2.6
0.7
26.4
$21.8
2.5
1.2
25.5
$21.8
1.4
0.5
23.7
(0.8)
(1.6)
(2.4)
(0.7)
(1.7)
(2.4)
(0.3)
(0.9)
(1.2)
Total Interest Expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24.0
$23.1
$22.5
(1) AFUDC—Allowance for Funds Used During Construction
Credit Arrangements
On July 25, 2018, the Company entered into a Second Amended and Restated Credit Agreement (the
“Credit Facility”) with a syndicate of lenders, which amended and restated in its entirety the Company’s
prior credit agreement, dated as of October 4, 2013, as amended. The Credit Facility extends to July 25,
2023, subject to two one-year extensions and has a borrowing limit of $120 million, which includes a
$25 million sublimit for the issuance of standby letters of credit. The Credit Facility provides the Company
with the ability to elect that borrowings under the Credit Facility bear interest under several options,
including at a daily fluctuating rate of interest per annum equal to one-month London Interbank Offered
Rate plus 1.125%. Provided there is no event of default, the Company may increase the borrowing limit
under the Credit Facility by up to $50 million.
The Company utilizes the Credit Facility for cash management purposes related to its short-term
operating activities. Total gross borrowings were $265.6 million and $234.9 million for the years ended
December 31, 2018 and December 31, 2017, respectively. Total gross repayments were $221.1 million and
$278.5 million for the years ended December 31, 2018 and December 31, 2017, respectively. The following
table details the borrowing limits, amounts outstanding and amounts available under the revolving Credit
Facility as of December 31, 2018 and December 31, 2017:
Revolving Credit Facility (millions)
Limit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-Term Borrowings Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Letters of Credit Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Available . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2018
2017
$120.0
$120.0
$ 82.8
$ 38.3
$ — $ —
$ 37.2
$ 81.7
The Credit Facility contains customary terms and conditions for credit facilities of this type, including
affirmative and negative covenants. There are restrictions on, among other things, Unitil’s and its
subsidiaries’ ability to permit liens or incur indebtedness, and restrictions on Unitil’s ability to merge or
67
consolidate with another entity or change its line of business. The affirmative and negative covenants under
the Credit Facility shall apply to Unitil until the Credit Facility terminates and all amounts borrowed under
the Credit Facility are paid in full (or with respect to letters of credit, they are cash collateralized). The only
financial covenant in the Credit Facility provides that Unitil’s Funded Debt to Capitalization (as each term
is defined in the Credit Facility) cannot exceed 65%, tested on a quarterly basis. At December 31, 2018 and
December 31, 2017, the Company was in compliance with the covenants contained in the Credit Facility in
effect on that date.
The weighted average interest rates on all short-term borrowings were 3.3%, 2.4%, and 1.8% during
2018, 2017, and 2016, respectively.
Unitil Corporation and its utility subsidiaries, Fitchburg, Unitil Energy, Northern Utilities, and Granite
State are currently rated “BBB+” by Standard & Poor’s Ratings Services. Unitil Corporation and Granite
State are currently rated “Baa2”, and Fitchburg, Unitil Energy and Northern Utilities are currently rated
“Baa1” by Moody’s Investors Services.
In April 2014, Unitil Service Corp. entered into a financing arrangement for various information
systems and technology equipment. The financing arrangement is structured as a capital lease obligation.
Final funding under this capital lease occurred on October 30, 2015, resulting in total funding of
$13.4 million. The capital lease matures on September 30, 2020. As of December 31, 2018, there are
$2.8 million of current and $2.3 million of noncurrent obligations under this capital lease on the Company’s
Consolidated Balance Sheets.
Northern Utilities enters into asset management agreements under which Northern Utilities releases
certain natural gas pipeline and storage assets, resells the natural gas storage inventory to an asset manager
and subsequently repurchases the inventory over the course of the natural gas heating season at the same
price at which it sold the natural gas inventory to the asset manager. There was $8.4 million and
$8.5 million of natural gas storage inventory at December 31, 2018 and 2017, respectively, related to these
asset management agreements. The amount of natural gas inventory released in December 2018, which was
payable in January 2019, was $0.9 million and recorded in Accounts Payable at December 31, 2018. The
amount of natural gas inventory released in December 2017, which was payable in January 2018, was
$3.1 million and recorded in Accounts Payable at December 31, 2017.
Leases
Unitil’s subsidiaries conduct a portion of their operations in leased facilities and also lease some of
their vehicles, machinery and office equipment under both capital and operating lease arrangements.
Total rental expense under operating leases charged to operations for the years ended December 31,
2018, 2017 and 2016 amounted to $2.2 million, $2.0 million and $1.8 million respectively.
Assets under capital leases amounted to approximately $15.0 million and $15.0 million as of
December 31, 2018 and 2017, respectively, less accumulated amortization of $1.7 million and $0.7 million,
respectively and are included in Net Utility Plant on the Company’s Consolidated Balance Sheets.
68
The following table is a schedule of future operating lease payment obligations and future minimum
lease payments under capital leases as of December 31, 2018. The payments for capital leases consist of
$3.1 million of current Capital Lease Obligations and $2.7 million of noncurrent Capital Lease Obligations
on the Company’s Consolidated Balance Sheets as of December 31, 2018. $2.8 million of the current
Capital Lease Obligations and $2.3 million of the noncurrent Capital Lease Obligations reflect amounts
under a financing arrangement entered into in April 2014 for various information systems and technology
equipment. The financing arrangement is structured as a capital lease obligation.
Year Ending December 31, (000’s)
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2024 – 2028 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating
Leases
$1,372
1,138
969
689
390
120
$4,678
Capital
Leases
$3,069
2,535
93
32
14
—
$5,743
Guarantees
The Company provides limited guarantees on certain energy and natural gas storage management
contracts entered into by the distribution utilities. The Company’s policy is to limit the duration of these
guarantees. As of December 31, 2018, there were approximately $4.3 million of guarantees outstanding.
Note 6: Equity
The Company has common stock outstanding and one of our subsidiaries has preferred stock
outstanding. Details regarding these forms of capitalization follow:
Common Stock
The Company’s common stock trades on the New York Stock Exchange under the symbol “UTL”. The
Company had 14,815,585 and 14,876,955 shares of common stock outstanding at December 31, 2017 and
December 31, 2018, respectively. The Company has 25,000,000 shares of common stock authorized as of
December 31, 2017 and December 31, 2018.
Unitil Corporation Common Stock Offering—On December 14, 2017, the Company issued and sold
690,000 shares of its common stock at a price of $48.30 per share in a registered public offering (Offering).
The Company’s net increase to Common Equity and Cash proceeds from the Offering was approximately
$31.7 million and was used to make equity capital contributions to the Company’s regulated utility
subsidiaries, repay short-term debt and for general corporate purposes.
Dividend Reinvestment and Stock Purchase Plan—During 2018, the Company sold 25,932 shares
of its common stock, at an average price of $47.78 per share, in connection with its Dividend Reinvestment
and Stock Purchase Plan (DRP) and its 401(k) plans resulting in net proceeds of $1.2 million. The DRP
provides participants in the plan a method for investing cash dividends on the Company’s common stock
and cash payments in additional shares of the Company’s common stock. During 2017 and 2016, the
Company raised $1.3 million and $1.3 million, respectively, through the issuance of 26,256 and 32,095
shares, respectively, of its common stock in connection with its DRP and 401(k) plans.
Common Shares Repurchased, Cancelled and Retired—Pursuant to the written trading plan under
Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the Exchange Act), adopted by the
Company on May 1, 2014, the Company may periodically repurchase shares of its common stock on the
open market related to Employee Length of Service Awards and the stock portion of the Directors’ annual
retainer. (See Part II, Item 5, for additional information). During 2018, 2017 and 2016, the Company
repurchased 791, 1,686 and 1,949 shares of its common stock, respectively, pursuant to the Rule 10b5-1
trading plan. The expense recognized by the Company for these repurchases was less than $0.1 million,
$0.1 million and $0.1 million in 2018, 2017 and 2016, respectively.
69
During 2018, 2017 and 2016, the Company did not cancel or retire any of its common stock.
Stock-Based Compensation Plans—Unitil maintains a stock plan. The Company accounts for its
stock-based compensation plan in accordance with the provisions of the FASB Codification and measures
compensation costs at fair value at the date of grant. Details of the plan are as follows:
Stock Plan—The Company maintains the Unitil Corporation Second Amended and Restated 2003
Stock Plan (the Stock Plan). Participants in the Stock Plan are selected by the Compensation Committee of
the Board of Directors to receive awards under the Stock Plan, including awards of restricted shares
(Restricted Shares), or of restricted stock units (Restricted Stock Units). The Compensation Committee has
the authority to determine the sizes of awards; determine the terms and conditions of awards in a manner
consistent with the Stock Plan; construe and interpret the Stock Plan and any agreement or instrument
entered into under the Stock Plan as they apply to participants; establish, amend, or waive rules and
regulations for the Stock Plan’s administration as they apply to participants; and, subject to the provisions of
the Stock Plan, amend the terms and conditions of any outstanding award to the extent such terms and
conditions are within the discretion of the Compensation Committee as provided for in the Stock Plan. On
April 19, 2012, the Company’s shareholders approved an amendment to the Stock Plan to, among other
things, increase the maximum number of shares of common stock available for awards to plan participants.
The maximum number of shares available for awards to participants under the Stock Plan is 677,500.
The maximum number of shares that may be awarded in any one calendar year to any one participant is
20,000. In the event of any change in capitalization of the Company, the Compensation Committee is
authorized to make an equitable adjustment to the number and kind of shares of common stock that may be
delivered under the Stock Plan and, in addition, may authorize and make an equitable adjustment to the
Stock Plan’s annual individual award limit.
Restricted Shares
Outstanding awards of Restricted Shares fully vest over a period of four years at a rate of 25% each
year. During the vesting period, dividends on Restricted Shares underlying the award may be credited to a
participant’s account. The Company may deduct or withhold, or require a participant to remit to the
Company, an amount sufficient to satisfy any taxes required by federal, state, or local law or regulation to
be withheld with respect to any taxable event arising in connection with an Award.
Prior to the end of the vesting period, the restricted shares are subject to forfeiture if the participant
ceases to be employed by the Company other than due to the participant’s death.
Restricted Shares issued for 2016 – 2018 in conjunction with the Stock Plan are presented in the
following table:
Issuance Date
1/26/16
4/19/16
1/30/17
1/29/18
Shares
43,220
800
34,930
37,510
Aggregate
Market Value (millions)
$1.6
<$0.1
$1.6
$1.6
There were 29,252 and 89,326 non-vested shares under the Stock Plan as of December 31, 2018 and
2017, respectively. The weighted average grant date fair value of these shares was $42.86 per share and
$39.54 per share, respectively. The compensation expense associated with the issuance of shares under the
Stock Plan is being recorded over the vesting period and was $2.2 million, $2.7 million and $2.2 million in
2018, 2017 and 2016, respectively. At December 31, 2018, there was approximately $0.8 million of total
unrecognized compensation cost under the Stock Plan which is expected to be recognized over
approximately 2.3 years. There were 2,072 restricted shares forfeited and zero restricted shares cancelled
under the Stock Plan during 2018. On January 29, 2019, there were 33,150 Restricted Shares issued under
the Stock Plan with an aggregate market value of $1.6 million.
70
Restricted Stock Units
Restricted Stock Units, which are issued to members of the Company’s Board of Directors, earn
dividend equivalents and will generally be settled by payment to each Director as soon as practicable
following the Director’s separation from service to the Company. The Restricted Stock Units will be paid
such that the Director will receive (i) 70% of the shares of the Company’s common stock underlying the
restricted stock units and (ii) cash in an amount equal to the fair market value of 30% of the shares of the
Company’s common stock underlying the Restricted Stock Units.
The equity portion of Restricted Stock Units activity during 2018 and 2017 in conjunction with the
Stock Plan are presented in the following table:
Restricted Stock Units (Equity Portion)
Beginning Restricted Stock Units . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock Units Granted . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend Equivalents Earned . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted Stock Units Settled . . . . . . . . . . . . . . . . . . . . . . . . . .
Ending Restricted Stock Units . . . . . . . . . . . . . . . . . . . . . . . . .
2018
2017
Weighted
Average
Stock
Price
$36.22
$49.63
$47.85
—
$38.25
Units
52,224
7,892
1,673
—
61,789
Weighted
Average
Stock
Price
$33.40
$50.23
$48.57
—
$36.22
Units
43,345
7,522
1,357
—
52,224
Included in Other Noncurrent Liabilities on the Company’s Consolidated Balance Sheets as of
December 31, 2018 and 2017 is $1.3 million and $1.0 million, respectively, representing the fair value of
liabilities associated with the portion of fully vested RSUs that will be settled in cash.
Preferred Stock
There was $0.2 million, or 1,893 shares, of Unitil Energy’s 6.00% Series Preferred Stock outstanding
as of December 31, 2018 and December 31, 2017. There were less than $0.1 million of total dividends
declared on Preferred Stock in each of the twelve month periods ended December 31, 2018 and
December 31, 2017, respectively.
Earnings Per Share
The following table reconciles basic and diluted earnings per share (EPS).
(Millions except shares and per share data)
2018
2017
2016
Earnings Available to Common Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
33.0
$
29.0
$
27.1
Weighted Average Common Shares Outstanding—Basic (000’s) . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plus: Diluted Effect of Incremental Shares (000’s)
14,824
5
14,095
7
13,990
6
Weighted Average Common Shares Outstanding—Diluted (000’s) . . . . . . . . . . . . . . . .
14,829
14,102
13,996
Earnings per Share—Basic and Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2.23
$
2.06
$
1.94
The following table shows the number of weighted average non-vested restricted shares that were not
included in the above computation of EPS because the effect would have been antidilutive.
Weighted Average Non-Vested Restricted Shares Not Included in EPS Computation . . . . . . . . .
6,102
8,733
600
2018
2017
2016
Note 7: Energy Supply
NATURAL GAS SUPPLY
Unitil purchases and manages gas supply for customers served by Northern Utilities in Maine and New
Hampshire as well as customers served by Fitchburg in Massachusetts.
71
Northern Utilities’ C&I customers are entitled to purchase their natural gas supply from third-party gas
suppliers. Many of Northern Utilities’ largest and some medium C&I customers purchase their gas supply
from third-party suppliers, while most small C&I customers, as well as all residential customers, purchase
their gas supply from Northern Utilities under regulated rates and tariffs. As of December 2018, 79% of
Unitil’s largest New Hampshire gas customers, representing 37% of Unitil’s New Hampshire gas therm
sales and 68% of Unitil’s largest Maine customers, representing 23% of Unitil’s Maine gas therm sales, are
purchasing gas supply from a third-party supplier.
Fitchburg’s residential and C&I business customers are entitled to purchase their natural gas supply
from third-party gas suppliers. Many large and some medium C&I customers purchase their gas supply
from third-party suppliers while most of Fitchburg’s residential and small C&I customers continue to
purchase their supplies at regulated rates from Fitchburg. As of December 2018, 85% of Unitil’s largest
Massachusetts gas customers, representing 26% of Unitil’s Massachusetts gas therm sales, are purchasing
gas supply from third-party suppliers. The approved costs associated with natural gas supplied to customers
who do not contract with third-party suppliers are recovered on a pass-through basis through periodically
adjusted rates and are included in Cost of Gas Sales in the Consolidated Statements of Earnings.
Regulated Natural Gas Supply
Northern Utilities purchases a majority of its natural gas from U.S. domestic and Canadian suppliers
largely under contracts of one year or less, and on occasion from producers and marketers on the spot
market. Northern Utilities arranges for gas transportation and delivery to its system through its own long-
term contracts with various interstate pipeline and storage facilities, through peaking supply contracts
delivered to its system, or in the case of liquefied natural gas (LNG), via over the road trucking of supplies
to storage facilities within Northern Utilities’ service territory.
Northern Utilities has available under firm contract 115,000 million British Thermal Units (MMbtu)
per day of year-round and seasonal transportation capacity to its distribution facilities, and 4.3 billion cubic
feet (BCF) of underground storage. As a supplement to pipeline natural gas, Northern Utilities owns an
LNG storage and vaporization facility. This plant is used principally during peak load periods to augment
the supply of pipeline natural gas.
Fitchburg purchases natural gas under contracts from producers and marketers largely under contracts
of one year or less, and occasionally on the spot market. Fitchburg arranges for gas transportation and
delivery to its system through its own long-term contracts with Tennessee Gas Pipeline, through peaking
supply contracts delivered to its system, or in the case of LNG or liquefied propane gas (LPG), via trucking
of supplies to storage facilities within Fitchburg’s service territory.
Fitchburg has available under firm contract 14,057 MMbtu per day of year-round transportation and
0.33 BCF of underground storage capacity to its distribution facilities. As a supplement to pipeline natural
gas, Fitchburg owns a propane air gas plant and an LNG storage and vaporization facility. These plants are
used principally during peak load periods to augment the supply of pipeline natural gas.
ELECTRIC POWER SUPPLY
Fitchburg, Unitil Energy, and Unitil Power each are members of the New England Power Pool
(NEPOOL) and participate in the Independent System Operator—New England (ISO-NE) markets for the
purpose of facilitating wholesale electric power supply transactions, which are necessary to serve Unitil’s
electric customers with their supply of electricity Unitil’s customers in both New Hampshire and
Massachusetts are entitled to purchase their electric supply from competitive third-party suppliers. As of
December 2018, 77% of Unitil’s largest New Hampshire customers, representing 24% of Unitil’s New
Hampshire electric kilowatt-hour (kWh) sales and 81% of Unitil’s largest Massachusetts customers,
representing 32% of Unitil’s Massachusetts electric kWh sales, are purchasing their electric power supply in
the competitive market. Additionally, cities and towns in Massachusetts may, with approval from the
MDPU, implement municipal aggregations whereby the municipality purchases electric power on behalf of
all citizens and businesses that do not opt out of the aggregation. The Towns of Lunenburg and Ashby have
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active municipal aggregations. Customers in Lunenburg comprise about 17% of Fitchburg’s customer base
and customers in Ashby comprise another 4%. Buoyed by the municipal aggregations, 31% of Unitil’s
residential customers in Massachusetts purchase their electricity from a third-party supplier as of December
2018.
In New Hampshire, the percentage of residential customers purchasing electricity from a third-party
supplier stands at 10%, down slightly relative to prior years when 13% of Unitil’s residential customers in
New Hampshire purchased their supply from third-party suppliers. Most residential and small commercial
customers continue to purchase their electric supply through Unitil’s electric distribution utilities under
regulated energy rates and tariffs.
Regulated Electric Power Supply
In order to provide regulated electric supply service to their customers, Unitil’s electric distribution
utilities enter into load-following wholesale electric power supply contracts to purchase electric supply from
various wholesale suppliers.
Unitil Energy currently has power supply contracts with various wholesale suppliers for the provision
of Default Service to its customers. Currently, with approval of the NHPUC, Unitil Energy purchases
Default Service power supply contracts for small, medium and large customers every six months for 100%
of the supply requirements.
Fitchburg has power supply contracts with various wholesale suppliers for the provision of Basic
Service electric supply. MDPU policy dictates the pricing structure and duration of each of these contracts.
Basic Service power supply contracts for residential and for small and medium general service customers
are acquired every six months, are 12 months in duration and provide 50% of the supply requirements. On
June 13, 2012, the MDPU approved Fitchburg’s request to discontinue the procurement process for
Fitchburg’s large customers and become the load-serving entity for these customers. Currently, all Basic
Service power supply requirements for large accounts are assigned to Fitchburg’s ISO-NE settlement
account where Fitchburg procures electric supply through ISO-NE’s real-time market.
The NHPUC and MDPU regularly review alternatives to their procurement policy, which may lead to
future changes in this regulated power supply procurement structure.
Regional Electric Transmission and Power Markets
Fitchburg, Unitil Energy and Unitil Power, as well as virtually all New England electric utilities, are
participants in the ISO-NE markets. ISO-NE is the Regional Transmission Organization (RTO) in New
England. The purpose of ISO-NE is to assure reliable operation of the bulk power system in the most
economical manner for the region. Substantially all operation and dispatching of electric generation and
bulk transmission capacity in New England are performed on a regional basis. The ISO-NE tariff imposes
generating capacity and reserve obligations, and provides for the use of major transmission facilities and
support payments associated therewith. The most notable benefits of the ISO-NE are coordinated, reliable
power system operation and a supportive business environment for the development of competitive electric
markets.
Electric Power Supply Divestiture
In connection with the implementation of retail choice, Unitil Power, which formerly functioned as the
wholesale power supply provider for Unitil Energy, and Fitchburg divested their long-term power supply
contracts through the sale of the entitlements to the electricity sold under those contracts. Unitil Energy and
Fitchburg recover in their rates all the costs associated with the divestiture of their power supply portfolios
and have secured regulatory approval from the NHPUC and MDPU, respectively, for the recovery of power
supply-related stranded costs and other restructuring-related regulatory assets. The companies have a
continuing obligation to submit regulatory filings that demonstrate their compliance with regulatory
mandates and provide for timely recovery of costs in accordance with their approved restructuring plans.
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Long-Term Renewable Contracts
Fitchburg has entered into long-term renewable contracts for the purchase of clean energy and/or
renewable energy certificates (RECs) pursuant to Massachusetts legislation, specifically, An Act Relative to
Green Communities (“Green Communities Act”, 2008), An Act Relative to Competitively Priced Electricity
in the Commonwealth (2012) and An Act to Promote Energy Diversity (“Energy Diversity Act”, 2016). The
generating facilities associated with four of these contracts have been constructed and are now operating.
Since 2017, the Company has participated in two major statewide procurements which resulted in contracts
for imported hydroelectric power and associated transmission and for offshore wind generation. The
contracts were filed with MDPU in 2018 and approvals remain pending.
Additional long-term clean energy contracts are expected in compliance with the Energy Diversity Act
and An Act to Promote a Clean Energy Future (2018). Fitchburg recovers the costs associated with long-
term renewable contracts on a fully reconciling basis through a MDPU-approved cost recovery mechanism.
Note 8: Commitments and Contingencies
Regulatory Matters
Overview—Unitil’s distribution utilities deliver electricity and/or natural gas to customers in the
Company’s service territories at rates established under traditional cost of service regulation. Under this
regulatory structure, Unitil Energy, Fitchburg, and Northern Utilities recover the cost of providing
distribution service to their customers based on a representative test year, in addition to earning a return on
their capital investment in utility assets. Fitchburg’s electric and gas divisions also operate under revenue
decoupling mechanisms.
Most of Unitil’s customers are entitled to purchase their electric or natural gas supplies from third-
party suppliers. For Northern Utilities, only business customers are entitled to purchase their natural gas
supplies from third-party suppliers at this time. Most small and medium-sized customers, however, continue
to purchase such supplies through Unitil Energy, Fitchburg and Northern Utilities as the providers of basic
or default service energy supply. Unitil Energy, Fitchburg and Northern Utilities purchase electricity or
natural gas for basic or default service from unaffiliated wholesale suppliers and recover the actual costs of
these supplies, without profit or markup, through reconciling, pass-through rate mechanisms that are
periodically adjusted. The MDPU, the NHPUC and the MPUC have each continued to approve these
reconciling rate mechanisms which allow Fitchburg, Unitil Energy and Northern Utilities to recover their
actual wholesale energy costs for electric power and natural gas.
In connection with the implementation of retail choice, Unitil Power and Fitchburg divested their long-
term power supply contracts through the sale of the entitlements to the electricity sold under those contracts.
Unitil Energy and Fitchburg recover in their rates all the costs associated with the divestiture of their power
supply portfolios and have secured regulatory approval from the NHPUC and MDPU, respectively, for the
recovery of power supply-related stranded costs and other restructuring-related regulatory assets. These
assets have been principally recovered as of December 31, 2017. The remaining balance of these assets is
$0.9 million as of December 31, 2018, including $0.3 million recorded in Current Assets as Accrued
Revenue on the Company’s Consolidated Balance Sheet projected to be recovered in the next year and
$0.6 million recorded in Regulatory Assets on the Company’s Consolidated Balance Sheet projected to be
recovered over the next two years. Unitil’s distribution companies have a continuing obligation to submit
filings in Massachusetts and New Hampshire that demonstrate their compliance with regulatory mandates
and provide for timely recovery of costs in accordance with their approved restructuring plans.
Tax Cuts and Jobs Act of 2017
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law. Among other
things, the TCJA substantially reduced the corporate income tax rate to 21 percent, effective January 1,
2018. Each state public utility commission, with jurisdiction over the areas that are served by Unitil’s
electric and gas subsidiary companies, has issued procedural orders directing how the tax law changes are to
be reflected in rates, including requiring that the companies provide certain filings and calculations. Unitil
has complied with these orders and has made the required changes to its rates as directed by the
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commissions. The FERC has opened a rulemaking proceeding on this matter which has been addressed in a
rate settlement filing by Granite State (described below). More recently, on November 15, 2018, the FERC
issued a Notice of Proposed Rulemaking and a Policy Statement to address the TCJA’s effects on the
Accumulated Deferred Income Taxes (ADIT) on transmission rates. Under the proposed rules all public
utilities with transmission formula rates, including Fitchburg, would be required to: (1) include mechanisms
to deduct any excess ADIT from or add any deficient ADIT to their rate bases; (2) include mechanisms in
those rates that would raise or lower their income tax allowances by any amortized excess or deficient
ADIT; and (3) incorporate a new permanent worksheet into their rates that will annually track information
related to excess or deficient ADIT. The Company believes that these matters are substantially resolved and
will not have a material impact on its financial position, operating results, or cash flows.
In Maine, Northern Utilities’ Maine division recently completed a base rate case (described below).
The MPUC’s final order in that docket incorporated the lower tax rates in the calculation of rates for the
Company.
Similarly, in New Hampshire, Northern Utilities’ New Hampshire division recently completed a base
rate case proceeding (described below). The NHPUC’s final order in that docket approved a comprehensive
settlement agreement among the Company, the Staff of the Public Utilities Commission and the Office of
Consumer Advocate which included the effect of the tax changes in the calculation of the revenue
requirement. With respect to Unitil Energy, on April 30, 2018 the NHPUC approved the Company’s annual
step increase pursuant to the provisions of its last base rate case, which included adjustments to account for
the TCJA’s income tax changes.
In Massachusetts, the MDPU issued an order opening an investigation into the effect on rates of the
decrease in the federal corporate income tax rate on the MDPU’s regulated utilities, and required each
utility subject to its jurisdiction to submit proposals to address the effects of the TCJA and to reduce its rates
as of January 1, 2018. The MDPU consolidated an earlier petition filed by the Attorney General requesting
such an investigation into its order. On June 29, 2018, the MDPU issued an order accepting Fitchburg’s
proposal to decrease the annual revenue requirement of both its gas and electric divisions by $0.8 million
each. On December 21, 2018 the MDPU issued an order addressing the refund of excess ADIT in phase two
of its investigation. Fitchburg was ordered to make a filing by January 4, 2019, for rates effective
February 1, 2019, to refund $10.1 million for the electric division amortized over 15 years and $10.4 million
for the gas division amortized over 14 years. The filing establishes a “Tax Act Credit Factor” for
Fitchburg’s gas and electric divisions effective February 1, 2019 in accordance with the order. To the extent
any of the regulatory liability above includes excess ADIT amounts specifically associated with reconciling
mechanisms, Fitchburg shall return those amounts through the respective reconciling mechanism and adjust
the regulatory liability amount accordingly. The MDPU approved this filing on January 16, 2019.
On May 2, 2018, Granite State filed an uncontested rate settlement with FERC which accounted for the
effects of the TCJA in its rates. The settlement was approved by FERC on June 27, 2018, and complies with
and satisfies the FERC Notice of Proposed Rulemaking concerning the justness and reasonableness of rates
in light of the corporate income tax reduction under the TCJA.
Base Rate Activity
Unitil Energy—Base Rates—On April 20, 2017 the NHPUC approved a permanent increase of
$4.1 million in electric base rates, and a three year rate plan with an additional rate step adjustment,
effective May 1, 2017, of $0.9 million, followed by two rate step adjustments in May of 2018 and 2019 to
recover the revenue requirements associated with annual capital expenditures. On April 30, 2018, the
NHPUC approved Unitil Energy’s step adjustment filing. The filing incorporated the revenue requirement
of $3.3 million for 2017 plant additions, a reduction of $2.2 million for the effect of the federal tax decrease
pursuant to the TCJA, along with the termination of the one-year $1.4 million reconciliation adjustment
which had recouped the difference between temporary rates and final rates. The net effect of the three
adjustments resulted in a revenue decrease of $0.3 million.
Fitchburg—Base Rates—Electric—Fitchburg’s last base rate order from the MDPU, issued in April
2016, included the approval of an annual capital cost recovery mechanism to recover the revenue
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requirement associated with certain capital additions. While a number of the capital cost recovery filings
may remain pending from year-to-year in any given year, the Company considers these to be routine
regulatory proceedings and there are no material issues outstanding. On June 28, 2018, Fitchburg filed its
compliance report of capital investments for calendar year 2017. On November 1, 2018, Fitchburg filed its
cumulative revenue requirement associated with the Company’s 2015, 2016 and 2017 capital expenditures
and associated Capital Cost Adjustment Factors to become effective on January 1, 2019. On December 27,
2018, the Capital Cost Adjustment Factors were approved subject to further investigation and reconciliation.
This matter remains pending.
Fitchburg—Electric Grid Modernization—On May 10, 2018, the MDPU issued an order approving
a three year grid modernization investment plan for Fitchburg for the period 2018 through 2020 with a
spending cap of $4.4 million. The order provides for a cost recovery mechanism for incremental capital
investments and operation and maintenance (O&M) expenses. The electric distribution companies in
Massachusetts jointly filed compliance filings in August 2018 including 1) revised proposed performance
metrics designed to address pre-authorized grid-facing investments, 2) a proposed evaluation plan for the
three-year investment term, and 3) a model tariff for cost recovery including proposed protocol for
identifying and tracking incremental O&M expenses. Approval of these filings is pending. The next three
year investment plan is due July 1, 2020 for the period 2021 through 2023, and is required to include a five
year strategic plan for 2021 – 2025.
Fitchburg—Solar Generation—On November 9, 2016, the MDPU approved Fitchburg’s petition to
develop a 1.3 MW solar generation facility located on Company property in Fitchburg, Massachusetts.
Construction of the solar generating facility was completed and the facility began generating power on
November 22, 2017. On April 2, 2018, Fitchburg submitted its first filing pursuant to its Solar Cost
Adjustment tariff, by which the Company recovers its annual revenue requirement related to its investment
in the solar generation facility. The filing sought a net amount of approximately $0.3 million for recovery
effective June 1, 2018. The recovery of this amount in rates was approved by the MDPU on May 31, 2018,
subject to further investigation and reconciliation. A final order is pending.
Fitchburg—Base Rates—Gas—Pursuant to the Company’s revenue decoupling adjustment clause
tariff, as approved in its last base rate case, the Company is allowed to modify, on a semi-annual basis, its
base distribution rates to an established revenue per customer target in order to mitigate economic, weather
and energy efficiency impacts to the Company’s revenues. The MDPU has consistently found that the
Company’s filings are in accord with its approved tariffs, applicable law and precedent, and that they result
in just and reasonable rates.
Fitchburg—Gas System Enhancement Program—Pursuant to statute and MDPU order, Fitchburg
has an approved Gas System Enhancement Plan (GSEP) tariff through which it may recover certain gas
infrastructure replacement and safety related investment costs, subject to an annual cap. Under the plan, the
Company is required to make two annual filings with the MDPU: a forward-looking filing for the
subsequent construction year, to be filed on or before October 31; and a filing, submitted on or before
May 1, of final project documentation for projects completed during the prior year, demonstrating
substantial compliance with its plan in effect for that year and showing that project costs were reasonably
and prudently incurred. While a number of the filings under the GSEP tariff may remain pending from
year-to-year in any given year, the Company considers these to be routine regulatory proceedings and there
are no material issues outstanding. Under this tariff, a revenue increase of $0.9 million went into effect on
May 1, 2018, subject to the annual cap and reconciliation. On October 31, 2018, the MDPU approved the
Company’s request for a waiver of the annual cap in order to recover its reconciliation adjustment of
$0.4 million effective November 1, 2018 associated with its actual 2017 revenue requirement.
Northern Utilities—Base Rates—Maine—On February 28, 2018, the MPUC issued its Final Order
(Order) in Northern Utilities’ pending base rate case. The Order provided for an annual revenue increase of
$2.1 million before a reduction of $2.2 million to incorporate the effect of the lower federal income tax rate
under the TCJA. The MPUC Order approved a return on equity of 9.5 percent and a capital structure
reflecting 50 percent equity and 50 percent long-term debt. The Order also provides for a reduction in
annual depreciation expense, reducing the Company’s annual operating costs by approximately
$0.5 million, and addressed a number of other issues, including a change to therm billing, increases in other
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delivery charges, and cost recovery under the Company’s Targeted Area Build-out (TAB) program and
Targeted Infrastructure Replacement Adjustment (TIRA) mechanism. The new rates and other changes
became effective on March 1, 2018.
Northern Utilities—Targeted Infrastructure Replacement Adjustment—Maine—The settlement
in Northern Utilities’ Maine division’s 2013 rate case allowed the Company to implement a TIRA rate
mechanism to adjust base distribution rates annually to recover the revenue requirements associated with
targeted investments in gas distribution system infrastructure replacement and upgrade projects, including
the Company’s Cast Iron Replacement Program (CIRP). The TIRA had an initial term of four years and
covered targeted capital expenditures in 2013 through 2016. In its Order in the current base rate case (see
above), the MPUC approved an extension of the TIRA mechanism, with adjustment, for an additional eight-
year period, which will allow for annual rate adjustments through the end of the CIRP program. On May 7,
2018, the MPUC approved the Company’s request to increase its annual base rates by 2.4%, or $1.1 million,
to recover the revenue requirements for 2017 eligible facilities.
Northern Utilities—Targeted Area Build-out Program—Maine—In December 2015, the MPUC
approved a TAB program and associated rate surcharge mechanism. This program is designed to allow the
economic extension of natural gas mains to new, targeted service areas in Maine. It allows customers in the
targeted area the ability to pay a rate surcharge, instead of a large upfront payment or capital contribution to
connect to the natural gas delivery system. The initial pilot of the TAB program was approved for the City
of Saco, and is being built out over a period of three years, with the potential to add 1,000 new customers
and approximately $1 million in annual distribution revenue in the Saco area. A second TAB program was
approved for the Town of Sanford, and has the potential to add 2,000 new customers and approximately
$2 million in annual distribution revenue in the Sanford area. In its base rate case Order (described above),
the MPUC approved the inclusion of Saco TAB investments in rate base along with a cost recovery
incentive mechanism for future TAB investments.
Northern Utilities—Base Rates—New Hampshire—On May 2, 2018, the NHPUC approved a
settlement agreement providing for an annual revenue increase of $2.6 million, a reduction of annual
revenue of $1.7 million to reflect the effect of the TCJA, and a step increase of $2.3 million to recover post-
test year capital investments, all effective May 1, 2018 (with the revenue increase of $2.6 million
reconciling to the date of temporary rates of August 1, 2017 and the revenue decrease for TCJA reconciling
to January 1, 2018), for a net increase of approximately $3.2 million. Under the agreement, the Company
may file for a second step increase for effect May 1, 2019 to recover eligible capital investments in 2018, up
to a revenue requirement cap of $2.2 million. If the Company chooses the option to implement the second
step increase, the next distribution base rate case will be based on an historic test year of no earlier than
twelve months ending December 31, 2020.
Northern Utilities—Franchise Extensions—New Hampshire—On October 3, 2018, the NHPUC
granted Northern Utilities authority to expand its natural gas service territory in the Towns of Kingston,
New Hampshire and Atkinson, New Hampshire (where the Company already had a limited franchise) to
serve new industrial, commercial and residential customers. Northern Utilities has also petitioned the
NHPUC to extend its franchise into the Town of Epping, New Hampshire, where new commercial and
residential developments present the Company with opportunities for growth. The franchise petition for
service to the Town of Epping remains pending.
Granite State—Base Rates—On May 2, 2018, Granite State filed an uncontested rate settlement with
FERC which provided for no change in rates, and accounted for the effects of a capital step adjustment
offset by the effect of the TCJA. The settlement was approved by FERC on June 27, 2018, and complies
with the FERC Notice of Proposed Rulemaking concerning the justness and reasonableness of rates in light
of the corporate income tax reductions under the TCJA. The settlement also provides that Granite State may
not file a general (Section 4) rate case prior to April 30, 2019.
Other Matters
NHPUC Energy Efficiency Resource Standard Proceeding—On August 2, 2016, the NHPUC
issued an order establishing an Energy Efficiency Resource Standard (EERS), an energy efficiency policy
with specific targets or goals for energy savings that New Hampshire electric and gas utilities must meet.
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The EERS includes a recovery mechanism to compensate the utilities for lost-revenue related to the EERS
programs, and performance incentives and processes for stakeholder involvement, evaluation, measurement
and verification, and oversight of the EERS programs. In accordance with the Order, on September 1, 2017,
the New Hampshire electric and gas utilities jointly filed a Statewide Energy Efficiency Plan for the period
2018-2020, which was approved on January 2, 2018. On September 14, 2018, the New Hampshire electric
and gas utilities jointly filed its 2019 update to the Statewide Energy Efficiency Plan. On December 31,
2018, the Commission approved a settlement agreement regarding the 2019 update to the plan.
Unitil Energy—Electric Grid Modernization—In July 2015, the NHPUC opened an investigation
into Grid Modernization to address a variety of issues related to Distribution System Planning, Customer
Engagement with Distributed Energy Resources, and Utility Cost Recovery and Financial Incentives. The
NHPUC engaged a consultant to direct a Working Group to investigate these issues and to prepare a final
report with recommendations for the Commission. The final report was filed on March 20, 2017. This
matter remains pending.
Unitil Energy—Net Metering—Pursuant to legislation that became effective in May 2016, the
NHPUC opened a proceeding to consider alternatives to the net metering tariffs currently in place. The
NHPUC issued an Order on June 23, 2017. The Order removes the cap on the total amount of generation
capacity which may be owned or operated by customer-generators eligible for net metering. The order also
adopts an alternative net metering tariff for small customer-generators (those with renewable energy
systems of 100 kW or less) which will remain in effect for a period of years while further data is collected
and analyzed, time-of-use and other pilot programs are implemented, and a distributed energy resource
valuation study is conducted. Systems that are installed or queued during this period will have their net
metering rate structure “grandfathered” until December 31, 2040. The Company does not believe that this
proceeding will have a material adverse impact on the Company’s financial position, operating results or
cash flows.
Unitil Energy—Recent Legislation—On September 13, 2018, the New Hampshire legislature voted
to override New Hampshire Governor Sununu’s veto of Senate Bill 365. The enacted legislation requires
Unitil Energy to enter into a power purchase agreement with a trash incinerator located in its service
territory to purchase the facility’s entire net electrical output for a period that is coterminous with Unitil
Energy’s next six default service procurements. The procurement is to be priced at the adjusted energy rate
derived from the default service rates approved by the NHPUC in each applicable default service supply
solicitation proceeding. The anticipated higher cost differential of the power purchase agreement is to be
recovered through a non-by-passable charge applicable to all customers.
Fitchburg—Independent Statewide Examination of the Safety of the Commonwealth’s Gas
Distribution System—On September 26, 2018, the Chairman of the MDPU directed the Department to
procure and contract with a third-party evaluator to conduct an independent statewide examination of the
safety of the gas distribution system to complement the investigation of the National Transportation Safety
Board which focuses on the gas incident on September 13, 2018 in the Merrimack Valley and its potential
causes. The evaluator will examine the following areas: (1) the physical integrity and safety of the gas
distribution system; and (2) the operation and maintenance policies and practices of the gas companies and
municipal gas companies, with respect to the Commonwealth’s gas distribution system, including
recommendations for improvements. The evaluator will issue a report that will include, but not be limited
to, potential opportunities for improvement in each of these areas. Effective November 14, 2018, the MDPU
engaged the evaluator to conduct the examination. On December 21, 2018, discovery was issued to the gas
and municipal distribution companies, including the Company, and the Company provided its responses on
January 9, 2019. The investigation is on-going.
Fitchburg—Electric Reconciliation Filing—The MDPU investigates and reviews Fitchburg’s annual
filings which reconcile the costs and revenues in the Company’s various reconciliation accounts. Typically,
the Reconciliation Filings are submitted during the fourth quarter for rates effective January 1 of the
following year, and the MDPU approves them subject to reconciliation and pending further investigation.
Subsequently, during the course of the year, the MDPU engages in more intensive review of these filings,
including discovery and, when deemed necessary, the scheduling of evidentiary hearings. While a number
of the Reconciling Filings may remain pending from year-to-year in any given year, the Company considers
these to be routine regulatory proceedings and there are no material issues outstanding.
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Fitchburg—Service Quality—On March 1, 2018, Fitchburg submitted its 2017 Service Quality
Reports for both its gas and electric divisions in accordance with new Service Quality Guidelines issued by
the MDPU in December 2015. Fitchburg reported that it met or exceeded its benchmarks for service quality
performance in all metrics for both its gas and electric divisions. The MDPU approved the gas division’s
filing on October 22, 2018. The electric division’s filing is pending approval.
Fitchburg—Energy Diversity—Massachusetts Governor Baker signed into law H.4568 “An Act to
Promote Energy Diversity” on August 8, 2016. Among many sections in the bill, the primary provision adds
new sections 83c and 83d to the 2008 Green Communities Act. Section 83c requires every electric
distribution company (EDC), including Fitchburg, to jointly and competitively solicit proposals for at least
400 MW’s of offshore wind energy generation by June 30, 2017, as part of a total of 1,600 MW of offshore
wind the EDCs are directed to procure by June 30, 2027. The procurement requirement is subject to a
determination by the MDPU that the proposed long-term contracts are cost-effective. Section 83d further
requires the EDCs to jointly seek proposals for cost effective clean energy (hydro and other) long-term
contracts via one or more staggered solicitations, the first of which shall be issued not later than April 1,
2017, for a total of 9,450,000 megawatt-hours by December 31, 2022. Emergency regulations implementing
these new provisions, 220 C.M.R. § 23.00 et seq. and 220 C.M.R. § 24.00 et seq. were adopted by the
MDPU on December 29, 2016, and adopted as final regulations on March 8, 2017. The EDCs issued the
RFP for Long-Term Contracts for Clean Energy Projects, pursuant to Section 83d on March 31, 2017 and
project proposals were received on July 27, 2017. Final selection of projects concluded in the first quarter of
2018, contracts were signed in June 2018 and on July 23, 2018, the EDCs, including Fitchburg, filed the
83d long-term contracts with MDPU for approval. This matter remains pending. The EDCs issued the RFP
for Long-Term Contracts for Offshore Wind Energy Projects pursuant to Section 83c on June 29, 2017 and
project proposals were received on December 20, 2017. Final selection of projects was made in late May
2018, contracts were signed in July 2018 and on July 23, 2018, the EDCs, including Fitchburg, filed the 83c
long-term contracts with MDPU for approval. This matter remains pending. A subsequent Section 83c
solicitation is expected to be issued in June 2019.
Fitchburg—Recent Legislation—On August 9, 2018, Massachusetts Governor Baker signed into law
H. 4857, “An Act to Advance Clean Energy.” The legislation contains numerous provisions, including: a
requirement that increases the pace at which the Class 1 Renewable Portfolio Standard requirement
increases, from the current pace of an additional 1 percent of sales each year to an additional 2 percent of
sales each year during the period from January 1, 2020 through December 31, 2029; Electric supply
contracts entered into after December 1, 2018 are required to provide a minimum percentage of kWh sales
with clean peak resources, subject to regulations to be promulgated by the MDPU; Authorizes electric
distribution companies to implement demand charges as part of a monthly minimum reliability charge
provided the demand charge is based on system peak demand during the peak hours of the day and if
affected customers are informed of the manner by which the demand charges are assessed and ways by
which customers may manage and reduce demand; requires all gas distribution companies to report to the
MDPU, in a uniform manner, lost and unaccounted for gas each year; Requires electric distribution
companies to annually file with the MDPU an Electric Distribution System Resiliency Report which must
include heat maps that show the electric load on the distribution system including loads during peak times,
highlight the most congested or constrained areas of the distribution system and identify areas of the system
most vulnerable to outages due to high electricity demand, lack of local generation, and extreme weather
events; Establishes an energy storage target of 1,000 megawatt (MW) hours to be achieved by
December 31, 2025, and requires each electric distribution company to submit a report to the Massachusetts
Department of Energy Resources (DOER) documenting the energy storage installation in their service
territory; Requires the DOER to investigate the necessity of requiring electric distribution companies to
jointly conduct additional offshore wind generation solicitations and procurement of up to 1,600 MW of
capacity in addition to the 1,600 MW required in H.4568 “An Act to Promote Energy Diversity”. Many of
these provisions require further development and implementation by the MDPU and DOER. Fitchburg
intends to actively participate in all such proceedings and will comply with all regulatory directives and
requirements resulting from these legislative changes.
Fitchburg—Clean Energy RFP—Pursuant to Section 83a of the Green Communities Act in
Massachusetts and similar clean energy directives established in Connecticut and Rhode Island, state
agencies and the electric distribution companies in the three states, including Fitchburg, issued an RFP for
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clean energy resources (including Class I renewable generation and large hydroelectric generation) in
November 2015. The RFP sought proposals for clean energy and transmission projects that can deliver new
renewable energy to the three states. Project proposals were received in January 2016. Selection of contracts
concluded during the fourth quarter of 2016 and contract negotiations concluded during the second quarter
of 2017. On September 20, 2017, Fitchburg, along with the other three EDCs, filed for approval of the
purchase power agreements which were negotiated as a result of the joint solicitation. A hearing on the
merits was held in February 2018. The MDPU approved the agreements on June 15, 2018.
Fitchburg—Other—On August 25, 2017, the Massachusetts Department of Energy Resources
(DOER) issued its final Solar Massachusetts Renewable Target (SMART) Program regulations. These
regulations were promulgated pursuant to Chapter 75 of the Acts of 2016, which required the DOER to
establish a new solar incentive program. The regulation is designed to support the continued development of
an additional 1,600 MW of solar renewable energy generating sources via a declining block compensation
mechanism. On September 12, 2017, the Massachusetts electric utilities jointly filed a model SMART tariff
with the MDPU to implement the program and propose a cost recovery mechanism. Hearings on the merits
were held in late March and early April 2018. The MDPU issued its Order on September 26, 2018 making
the program effective on that date. The MDPU approved a final model tariff on November 20, 2018 and
approved Fitchburg’s company specific tariff on December 21, 2018. On or before November 1 of each
year the Company is required to submit to the MDPU its annual SMART Factor cost recovery filing for
effect January 1 of the next year. On December 27, 2018, the MDPU approved Fitchburg’s proposed
SMART Factors for effect January 1, 2019, subject to investigation and reconciliation. This matter remains
pending.
FERC Transmission Formula Rate Proceedings—Pursuant to Section 206 of the Federal Power
Act, there are several pending proceedings before the FERC concerning the justness and reasonableness of
the Return on Equity (ROE) component of the ISO-New England, Inc. Participating Transmission Owners’
Regional Network Service and Local Network Service formula rates. On April 14, 2017, the U.S. Court of
Appeals for the D.C. Circuit issued an opinion vacating a decision of the FERC with respect to the ROE,
and remanded it for further proceedings. The FERC had found that the Transmission Owners existing ROE
was unlawful, and had set a new ROE. The Court found that the FERC had failed to articulate a satisfactory
explanation for its orders. At this time, the ROE set in the vacated order will remain in place until further
FERC action is taken. Separately, on March 15, 2018, the Transmission Owners filed a petition for review
with the Court of certain orders of the FERC setting for hearing other complaints challenging the allowed
return on equity component of the formula rates.
Also pending at FERC is a Section 206 proceeding concerning the justness and reasonableness of
ISO-New England, Inc. Participating Transmission Owners’ Regional Network Service and Local Network
Service formula rates and to develop formula rate protocols for these rates. On August 17, 2018 a joint
settlement agreement among a number of the parties was filed with the FERC and remains pending.
Fitchburg and Unitil Energy are Participating Transmission Owners, although Unitil Energy does not own
transmission plant. To the extent that these proceedings result in any changes to the rates being charged, a
retroactive reconciliation may be required. The Company does not believe that these proceedings will have
a material adverse impact on the Company’s financial condition or results of operations.
Legal Proceedings
The Company is involved in legal and administrative proceedings and claims of various types, which
arise in the ordinary course of business. The Company believes, based upon information furnished by
counsel and others, that the ultimate resolution of these claims will not have a material impact on its
financial position, operating results or cash flows.
In early 2009, a putative class action complaint was filed against Unitil’s Massachusetts based utility,
Fitchburg, in Massachusetts’ Worcester Superior Court, (captioned Bellermann et al v. Fitchburg Gas and
Electric Light Company). The Complaint sought an unspecified amount of damages, including the cost of
temporary housing and alternative fuel sources, emotional and physical pain and suffering and property
damages allegedly incurred by customers in connection with the loss of electric service during the ice storm
in Fitchburg’s service territory in December 2008. The Massachusetts Supreme Judicial Court issued an
80
order denying class certification status in July 2016, though the plaintiffs’ individual claims remained
pending. The Company resolved this matter by settlement in the fall of 2018 and there was no material
impact on the Company’s financial position, operating results or cash flows.
Environmental Matters
The Company’s past and present operations include activities that are generally subject to extensive
and complex federal and state environmental laws and regulations. The Company is in material compliance
with applicable environmental and safety laws and regulations and, as of December 31, 2018, has not
identified any material losses reasonably likely to be incurred in excess of recorded amounts. However, the
Company cannot assure that significant costs and liabilities will not be incurred in the future. It is possible
that other developments, such as increasingly stringent federal, state or local environmental laws and
regulations could result in increased environmental compliance costs. Based on the Company’s current
assessment of its environmental responsibilities, existing legal requirements and regulatory policies, the
Company does not believe that these environmental costs will have a material adverse effect on the
Company’s consolidated financial position or results of operations.
Northern Utilities Manufactured Gas Plant Sites—Northern Utilities has an extensive program to
identify, investigate and remediate former manufactured gas plant (MGP) sites, which were operated from
the mid-1800s through the mid-1900s. In New Hampshire, MGP sites were identified in Dover, Exeter,
Portsmouth, Rochester and Somersworth. In Maine, Northern Utilities has documented the presence of
MGP sites in Lewiston and Portland, and a former MGP disposal site in Scarborough.
Northern Utilities has worked with the Maine Department of Environmental Protection and New
Hampshire Department of Environmental Services to address environmental concerns with these sites.
Northern Utilities or others have substantially completed remediation of all sites, though on site monitoring
continues and it is possible that future activities may be required.
The NHPUC and MPUC have approved regulatory mechanisms for the recovery of MGP
environmental costs. For Northern Utilities’ New Hampshire division, the NHPUC has approved the
recovery of MGP environmental costs over succeeding seven-year periods. For Northern Utilities’ Maine
division, the MPUC has authorized the recovery of environmental remediation costs over succeeding
five-year periods.
The Environmental Obligations table below shows the amounts accrued for Northern Utilities related
to estimated future cleanup costs associated with Northern Utilities’ environmental remediation obligations
for former MGP sites. Corresponding Regulatory Assets were recorded to reflect that the future recovery of
these environmental remediation costs is expected based on regulatory precedent and established practices.
Fitchburg’s Manufactured Gas Plant Site—Fitchburg has worked with the Massachusetts
Department of Environmental Protection to address environmental concerns with the former MGP site at
Sawyer Passway, and has substantially completed remediation activities, though on site monitoring will
continue and it is possible that future activities may be required.
The Environmental Obligations table below shows the amounts accrued for Fitchburg related to
estimated and periodic, regulatory review costs for the completed permanent remediation of the Sawyer
Passway site. A corresponding Regulatory Asset was recorded to reflect that the recovery of these
environmental remediation costs is probable through the regulatory process. The amounts recorded do not
assume any amounts are recoverable from insurance companies or other third parties. Fitchburg recovers the
environmental response costs incurred at this former MGP site in gas rates pursuant to the terms of a cost
recovery agreement approved by the MDPU. Pursuant to this agreement, Fitchburg is authorized to
amortize and recover environmental response costs from gas customers over succeeding seven-year periods.
The following table sets forth a summary of changes in the Company’s liability for Environmental
Obligations for the years ended December 31, 2018 and 2017. The Company’s current and noncurrent
environmental obligations are recorded on the Company’s Consolidated Balance Sheets in Other Current
Liabilities and Other Noncurrent Liabilities, respectively.
81
Environmental Obligations
(millions)
Northern
Utilities
Total
Fitchburg
2018
2017
2018
2017
2018
2017
Total Balance at Beginning of Period . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2.0
Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 0.3
0.1 — 0.3
Less: Payments / Reductions
$0.1
$0.1
$1.8
0.4
0.2
$2.1
0.3
0.4
$1.9
0.4
0.2
Total Balance at End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $0.1
$2.0
$2.0
$2.0
$2.1
Less: Current Portion
— — 0.6
0.5
0.6
0.5
Noncurrent Balance at December 31,
. . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $0.1
$1.4
$1.5
$1.4
$1.6
Note 9: Income Taxes
Provisions for Federal and State Income Taxes reflected as operating expenses in the accompanying
consolidated statements of earnings for the years ended December 31, 2018, 2017 and 2016 are shown in
the table below:
2018
($000’s)
2017
2016
Current Income Tax Provision
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ — $ — $ —
—
355
—
Total Current Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 355
—
—
Deferred Income Provision
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,032
3,006
8,038
13,675
3,862
17,537
11,209
4,145
15,354
Total Income Tax Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$8,393
$17,537
$15,354
The differences between the Company’s provisions for Income Taxes and the provisions calculated at
the statutory federal tax rate, expressed in percentages, are shown below:
Statutory Federal Income Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income Tax Effects of:
2018
2017
2016
21% 34% 34%
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State Income Taxes, net
Utility Plant Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Credits and Other, net
6
(7)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
6
(1)
(1)
4
(1)
(1)
Effective Income Tax Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
20% 38% 36%
82
Temporary differences which gave rise to deferred tax assets and liabilities in 2018 and 2017 are
shown below:
Temporary Differences (000’s)
Deferred Tax Assets
2018
2017
Retirement Benefit Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Operating Loss Carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax Credit Carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 32,249
10,773
2,704
1,571
$ 38,915
12,686
3,536
1,155
Total Deferred Tax Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 47,297
$ 56,292
Deferred Tax Liabilities
Utility Plant Differences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Regulatory Assets & Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$132,682
6,429
5,964
$127,932
9,323
1,894
Total Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
145,075
139,149
Net Deferred Tax Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 97,778
$ 82,857
The Company is subject to federal and state income taxes as well as various other business taxes. The
Company accounts for income taxes in accordance with the FASB Codification guidance on Income Taxes
which requires an asset and liability approach for the financial accounting and reporting of income taxes. As
a regulated Public Utility Holding Company (PUHC) entity under the Energy Policy Act of 2005; the
Company follows income tax accounting guidance and regulations promulgated by the FERC for regulated
utility companies under its jurisdiction. Also, the MDPU, NHPUC and the MPUC have, from time to time,
issued specific income tax accounting rules for regulated utility companies in their respective jurisdictions.
Significant judgments and estimates are required in determining the current and deferred tax assets and
liabilities. The Company’s deferred tax assets and liabilities reflect its best assessment of estimated future
taxes to be paid. Periodically, the Company assesses the realization of its deferred tax assets and liabilities
and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the
facts and circumstances that gave rise to the revision become known.
In December 2017, the Tax Cuts and Jobs Act (TCJA), which included a reduction to the corporate
federal income tax rate to 21% effective January 1, 2018, was signed into law. In accordance with GAAP
Accounting Standard 740, the Company revalued its Accumulated Deferred Income Taxes (ADIT) at the new
21% tax rate at which the ADIT will be reversed in future periods. The Company recorded a net Regulatory
Liability in the amount of $48.9 million at December 31, 2017 as a result of the ADIT revaluation.
On November 15, 2018 the FERC issued two pronouncements regarding the accounting for income
taxes due to the TCJA; 1) Notice of Proposed Rulemaking Docket No. RM 19-5-000 and 2) Policy
Statement PL 19-2-000 providing specific guidance on the flow back of excess ADIT created by the
implementation of the TCJA. Final rules are expected to be issued in the first quarter of 2019. According to
the FERC guidance; the amount of the reduction to ADIT that was previously collected from customers but
is no longer payable to the IRS is excess ADIT and should be flowed back to ratepayers under general
ratemaking principles.
The MDPU issued a multi-utility Order D.P.U. 18-15-E (the “Order”) on December 21, 2018. The
Order clarified the categories of Excess ADIT for Massachusetts ratemaking: 1) Excess protected ADIT
directly related to utility plant fixed assets (rate base), 2) other non-plant excess ADIT amounts
(unprotected), and 3) excess ADIT created through reconciling mechanisms. In the Order, all Massachusetts
utilities were ordered to begin flow back of protected and unprotected excess ADIT on February 1, 2019
and to reconcile excess ADIT amounts previously collected from ratepayers through reconciliation
mechanisms in the next filing of each of those individual reconciling mechanisms. Fitchburg was ordered to
begin flowing back to customers excess ADIT of $10.1 million and $10.4 million to electric and gas
ratepayers, respectively, over approximately fifteen years. Fitchburg filed its compliance filing under
D.P.U.18-15-E on January 4, 2019 for rates effective February 1, 2019. The MDPU approved this filing on
January 16, 2019. The filing will be updated and the balances of excess ADIT will be reconciled annually.
Based on communications received by the Company from its state regulators in rate cases and other
regulatory proceedings in the first quarter of 2018 and as prescribed in the TCJA, the recent FERC guidance
83
noted above and IRS normalization rules; the benefit of these protected excess ADIT amounts will be
subject to flow back to customers in future utility rates according to the Average Rate Assumption Method
(ARAM). ARAM reconciles excess ADIT at the reversal rate of the underlying book/tax temporary timing
differences. The Company estimates the ARAM flow back period to be between fifteen and twenty years.
Subject to regulatory approval, the Company expects to flow back to customers a net $47.1 million of
protected excess ADIT created as a result of the lowering of the statutory tax rate by the TCJA over periods
estimated to be fifteen to twenty years.
In addition to the protected excess $47.1 million ADIT amounts the Company expects to flow through to
customers in utility rates, as noted above, there is approximately $1.8 million of excess ADIT created through
reconciling mechanisms at December 31, 2017, related to the implementation of the new federal tax rate of the
TCJA, which had not been previously collected from customers through utility rates. The Company will
reconcile these excess ADIT amounts through the specific reconciliation mechanisms in the next filing of each
of those individual reconciling mechanisms which will be subject to the review of state regulators.
In addition to the $48.9 million of net excess ADIT noted above; there is $5.8 million of excess ADIT
at December 31, 2017, created by the recognition of Net Operating Loss Carryforward assets (NOLC),
discussed below, and related to the implementation of the new federal tax rate of the TCJA, which had not
been previously included in utility rates. The Company is recognizing the benefit of this excess ADIT in
accordance with the regulatory treatment of excess ADIT for each of jurisdiction. In 2018 the Company
recognized $2.4 million of this tax benefit provision due to the turning of book/tax temporary differences
associated with this excess ADIT. The Company expects to recognize the remaining $3.4 million of this
excess ADIT in future periods in accordance with regulatory guidance as discussed above.
The Company has not yet received regulatory orders in all of its jurisdictions regarding the flow-back
of excess deferred taxes. The Company’s regulators are expected to issue additional ratemaking guidance in
future periods that will determine the final disposition of the re-measurement of regulatory deferred tax
balances. At this time, the Company has applied a reasonable interpretation of the TCJA and a reasonable
estimate of the regulatory resolution. Future clarification of TCJA matters with the Company’s regulators
may change the amounts estimated.
Under the Company’s Tax Sharing Agreement (the “Agreement”) which was approved upon the
formation of Unitil as a PUHC; the Company files consolidated Federal and State tax returns and Unitil
Corporation and each of its utility operating subsidiaries recognize the results of their operations in its tax
returns as if it were a stand-alone taxpayer. The Agreement provides that the Company will account for
income taxes in compliance with U.S. GAAP and regulatory accounting principles. The Company filed its
tax returns for the year ended December 31, 2017 with the Internal Revenue Service in September 2018 and
generated additional federal NOLC assets of $3.7 million principally due to pension cost deductions, tax
repair deductions, tax depreciation and research and development deductions. For the year ended
December 31, 2018, the Company calculated federal current tax of $7.7 million and offset it with a decrease
to the federal NOLC of $7.7 million, resulting in no federal current taxes payable for the period. As of
December 31, 2018, the Company had recorded cumulative federal and state NOLC assets of $10.8 million
to offset against taxes payable in future periods. If unused, the Company’s NOLC carryforward assets will
begin to expire in 2029. In addition, at December 31, 2017, the Company had $3.5 million of cumulative
alternative minimum tax credits, general business tax credit and other state tax credit carryforwards to offset
future income taxes payable.
In assessing the near-term use of NOLCs and tax credits, the Company evaluates the expected level of
future taxable income, available tax planning strategies, reversals of existing taxable temporary differences
and taxable income available in carryback years. Based on all available evidence, both positive and
negative, and the weight of that evidence to the extent such evidence can be objectively verified, the
Company expects to utilize all of its NOLCs by December 31, 2020 prior to their expiration in 2029.
In March 2018, Unitil Corporation received notice that its Federal Income Tax return filings for the
years ended December 31, 2015 and December 31, 2016 are under examination by the IRS. Currently, the
Company believes that the ultimate resolution of this examination will not have a material impact on the
Company’s financial statements. The Company remains subject to examination by New Hampshire tax
84
authorities for the tax periods ended December 31, 2015; December 31, 2016; and December 31, 2017.
Income tax filings for the year ended December 31, 2017 have been filed with the New Hampshire
Department of Revenue Administration. The State of Maine has concluded its review of the Company’s tax
returns for December 31, 2014, December 31, 2015, and December 31, 2016 which resulted in a small
additional refund to the Company.
The Company evaluated its tax positions at December 31, 2018 in accordance with the FASB
Codification, and has concluded that no adjustment for recognition, de-recognition, settlement and
foreseeable future events to any tax liabilities or assets as defined by the FASB Codification is required.
The Company remains subject to examination by Federal, Maine, Massachusetts, and New Hampshire tax
authorities for the tax periods ended December 31, 2015; December 31, 2016; and December 31, 2017.
Note 10: Retirement Benefit Plans
The Company sponsors the following retirement benefit plans to provide certain pension and post-
retirement benefits for its retirees and current employees as follows:
• The Unitil Corporation Retirement Plan (Pension Plan)—The Pension Plan is a defined benefit
pension plan. Under the Pension Plan, retirement benefits are based upon an employee’s level of
compensation and length of service.
• The Unitil Retiree Health and Welfare Benefits Plan (PBOP Plan)—The PBOP Plan provides
health care and life insurance benefits to retirees. The Company has established Voluntary
Employee Benefit Trusts (VEBT), into which it funds contributions to the PBOP Plan.
• The Unitil Corporation Supplemental Executive Retirement Plan (SERP)—The SERP is a
non-qualified retirement plan, with participation limited to executives selected by the Board of
Directors.
The following table includes the key assumptions used in determining the Company’s benefit plan
costs and obligations:
2018
2017
2016
Used to Determine Plan costs for years ended December 31:
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected Long-term rate of return on plan assets . . . . . . . . . . . . . . . . . . . . . . .
Health Care Cost Trend Rate Assumed for Next Year . . . . . . . . . . . . . . . . . . .
Ultimate Health Care Cost Trend Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year that Ultimate Health Care Cost Trend Rate is reached . . . . . . . . . . . . . .
Used to Determine Benefit Obligations at December 31:
Discount Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of Compensation Increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Health Care Cost Trend Rate Assumed for Next Year . . . . . . . . . . . . . . . . . . .
Ultimate Health Care Cost Trend Rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year that Ultimate Health Care Cost Trend Rate is reached . . . . . . . . . . . . . .
3.60% 4.10% 4.30%
3.00% 3.00% 3.00%
7.75% 7.75% 8.00%
7.50% 8.00% 7.00%
4.50% 4.00% 4.00%
2024
2025
2022
4.25% 3.60% 4.10%
3.00% 3.00% 3.00%
7.00% 7.50% 8.00%
4.50% 4.50% 4.00%
2024
2025
2024
The Discount Rate assumptions used in determining retirement plan costs and retirement plan
obligations are based on an assessment of current market conditions using high quality corporate bond
interest rate indices and pension yield curves. For 2018, a change in the discount rate of 0.25% would have
resulted in an increase or decrease of approximately $589,000 in the Net Periodic Benefit Cost (NPBC).
The Rate of Compensation Increase assumption used for 2018 was based on the expected long-term
increase in compensation costs for personnel covered by the plans.
85
The following table provides the components of the Company’s Retirement plan costs (000’s):
Pension Plan
PBOP Plan
2018
2017
2016
2018
2017
2016
2018
SERP
2017
2016
Service Cost . . . . . . . . . . . . . . $ 3,393 $ 3,295 $ 3,402 $ 2,933 $ 2,974 $ 2,610 $ 487 $ 460 $ 162
Interest Cost . . . . . . . . . . . . . .
5,878
6,057
5,945
3,404
3,913
3,232
404
392
386
Expected Return on Plan
Assets . . . . . . . . . . . . . . . . .
(7,785)
(7,306)
(7,257)
(1,635)
(1,347)
(1,205) —
—
—
Prior Service Cost
Amortization . . . . . . . . . . .
324
263
263
1,309
1,399
1,486
Actuarial Loss Amortization .
5,786
4,662
4,398
1,383
2,098
1,049
189
486
189
295
189
375
Sub-total . . . . . . . . . . . . .
7,596
6,971
6,751
7,394
9,037
7,172
1,566
1,336
1,112
Amounts Capitalized or
Deferred . . . . . . . . . . . . . . .
(3,465)
(3,122)
(3,008)
(3,416)
(4,515)
(3,351)
(451)
(397)
(290)
NPBC Recognized . . . . . . . . . $ 4,131 $ 3,849 $ 3,743 $ 3,978 $ 4,522 $ 3,821 $1,115 $ 939 $ 822
The Company bases the actuarial determination of pension expense on a market-related valuation of
assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or
losses over a three-year period from the year in which they occur. Investment gains or losses for this
purpose are the difference between the expected return calculated using the market-related value of assets
and the actual return based on the fair value of assets. Since the market-related value of assets recognizes
gains or losses over a three-year period, the future value of the market-related assets will be impacted as
previously deferred gains or losses are recognized. The Company’s pension expense for the years 2018,
2017 and 2016 before capitalization and deferral was $7.6 million, $7.0 million and $6.8 million,
respectively. Had the Company used the fair value of assets instead of the market-related value, pension
expense for the years 2018, 2017 and 2016 would have been $7.2 million, $7.6 million and $7.7 million
respectively, prior to amounts capitalized or deferred.
The following table represents information on the plans’ assets, projected benefit obligations (PBO),
and funded status (000’s):
Change in Plan Assets:
2018
2017
2018
2017
2018
2017
Pension Plan
PBOP Plan
SERP
Plan Assets at Beginning of Year . . . . . .
$102,315
$ 91,058
$ 20,234
$ 16,606
$
— $
Actual Return on Plan Assets . . . . .
Employer Contributions . . . . . . . . .
Participant Contributions . . . . . . . . .
(6,149)
16,628
—
12,731
4,100
—
(1,085)
4,000
153
1,907
4,000
126
—
401
—
Benefits Paid . . . . . . . . . . . . . . . . . .
(4,986)
(5,574)
(2,193)
(2,405)
(401)
Plan Assets at End of Year . .
$107,808
$102,315
$ 21,109
$ 20,234
$
— $
—
—
34
—
(34)
—
Change in PBO:
PBO at Beginning of Year . . . . . . . . . . . .
$166,921
$150,439
$ 94,122
$ 96,659
$ 11,723
$ 9,566
Service Cost . . . . . . . . . . . . . . . . . . .
Interest Cost . . . . . . . . . . . . . . . . . . .
Participant Contributions . . . . . . . . .
Plan Amendments . . . . . . . . . . . . . .
3,393
5,878
—
—
3,295
6,057
—
608
2,933
3,404
153
—
Benefits Paid . . . . . . . . . . . . . . . . . .
(4,986)
(5,574)
(2,193)
Actuarial (Gain) or Loss . . . . . . . . .
(15,009)
12,096
(17,414)
2,974
3,913
126
—
(2,405)
(7,145)
487
404
—
—
460
392
—
—
(401)
1,541
(34)
1,339
PBO at End of Year . . . . . . . .
$156,197
$166,921
$ 81,005
$ 94,122
$ 13,754
$ 11,723
Funded Status: Assets vs PBO . . . . .
$ (48,389)
$ (64,606)
$(59,896)
$(73,888)
$(13,754)
(11,723)
86
The decrease in the PBO for the Pension plan as of December 31, 2018 compared to December 31,
2017 reflects an increase in the assumed discount rate as of December 31, 2018. The decrease in the PBO
for the PBOP plan as of December 31, 2018 compared to December 31, 2017 reflects an increase in the
assumed discount rate as of December 31, 2018 and the rate of increase for medical premiums being less
than the assumed rate of medical inflation.
The funded status of the Pension, PBOP and SERP Plans is calculated based on the difference between
the benefit obligation and the fair value of plan assets and is recorded on the balance sheets as an asset or a
liability. Because the Company recovers the retiree benefit costs from customers through rates, regulatory
assets are recorded in lieu of an adjustment to Accumulated Other Comprehensive Income/(Loss).
The Company has recorded on its consolidated balance sheets as a liability the underfunded status of
its and its subsidiaries’ retirement benefit obligations based on the projected benefit obligation. The
Company has recognized Regulatory Assets, net of deferred tax benefits, of $72.0 million and $84.5 million
at December 31, 2018 and 2017, respectively, to account for the future collection of these plan obligations
in electric and gas rates.
The Accumulated Benefit Obligation (ABO) is required to be disclosed for all plans where the ABO is
in excess of plan assets. The difference between the PBO and the ABO is that the PBO includes projected
compensation increases. The ABO for the Pension Plan was $142.8 million and $150.6 million as of
December 31, 2018 and 2017, respectively. The ABO for the SERP was $10.8 million and $9.5 million as
of December 31, 2018 and 2017, respectively. For the PBOP Plan, the ABO and PBO are the same.
The Company, along with its subsidiaries, expects to continue to make contributions to its Pension
Plan in 2019 and future years at minimum required and discretionary funding levels consistent with the
amounts recovered in the distribution utilities’ rates for these Pension Plan costs.
The following table represents employer contributions, participant contributions and benefit payments
(000’s).
Pension Plan
PBOP Plan
SERP
2018
2017
2016
2018
2017
2016
2018
2017
2016
Employer Contributions . . . . . . . . . . . .
Participant Contributions . . . . . . . . . . . .
Benefit Payments . . . . . . . . . . . . . . . . . .
$4,100
$4,000
$16,628
$ — $ — $ — $ 153
$2,193
$ 4,986
$5,146
$5,574
$4,900
$4,000
$ 126
$2,405
$4,000
$
61
$2,421
$401
$34
$34
$— $— $—
$401
$34
$34
The following table represents estimated future benefit payments (000’s).
2019
2020
2021
2022
2022
2024 - 2028
Estimated Future Benefit Payments
Pension
PBOP
SERP
$ 5,888
6,484
6,949
6,853
7,588
46,942
$ 2,314
2,520
2,780
2,955
3,106
19,244
$ 522
521
681
678
675
4,904
87
The Expected Long-Term Rate of Return on Pension Plan assets assumption used by the Company is
developed based on input from actuaries and investment managers. The Company’s Expected Long-Term
Rate of Return on Pension Plan assets is based on target investment allocation of 53% in common stock
equities, 37% in fixed income securities and 10% in real estate securities. The Company’s Expected Long-
Term Rate of Return on PBOP Plan assets is based on target investment allocation of 55% in common stock
equities and 45% in fixed income securities. The actual investment allocations are shown in the tables below.
Pension Plan
Target
Allocation
2019
Actual Allocation at
December 31,
2018
2017
2016
Equity Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real Estate Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset Allocation Fund(1)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(2)
53%
37%
10%
—
—
49% 49% 46%
40% 34% 37%
10% 10% 10%
—
7%
6%
1% 1% —
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
(1) Represents investments in an asset allocation fund. This fund invests in both equity and debt
securities.
(2) Represents investments being held in cash equivalents as of December 31, 2018 pending payment
of benefits.
PBOP Plan
Target
Allocation
2019
Actual Allocation at
December 31,
2018
2017
2016
Equity Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other(1)
55%
45%
—
53% 56% 55%
47% 42% 43%
—
2%
2%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
100% 100% 100%
(1) Represents investments being held in cash equivalents as of December 31, 2017 and 2016 pending
transfer into debt and equity funds.
The combination of these target allocations and expected returns resulted in the overall assumed long-
term rate of return of 7.75% for 2018. The Company evaluates the actuarial assumptions, including the
expected rate of return, at least annually. The desired investment objective is a long-term rate of return on
assets that is approximately 5 – 6% greater than the assumed rate of inflation as measured by the Consumer
Price Index. The target rate of return for the Plans has been based upon an analysis of historical returns
supplemented with an economic and structural review for each asset class.
Following is a description of the valuation methodologies used for assets measured at fair value. There
have been no changes in the methodologies used at December 31, 2018 and 2017. Please also see Note 1 for
a discussion of the Company’s fair value accounting policy.
Equity, Fixed Income, Index and Asset Allocation Funds
These investments are valued based on quoted prices from active markets. These securities are
categorized in Level 1 as they are actively traded and no valuation adjustments have been applied.
Cash Equivalents
These investments are valued at cost, which approximates fair value, and are categorized in Level 1.
Real Estate Fund
These investments are valued at net asset value (NAV) per unit based on a combination of market- and
income-based models utilizing market discount rates, projected cash flows and the estimated value into
perpetuity. In accordance with FASB Codification Topic 820, “Fair Value Measurement”, these
88
investments have not been classified in the fair value hierarchy. The fair value amounts presented in the
tables below for the Real Estate Fund are intended to permit reconciliation of the fair value hierarchy to
the “Plan Assets at End of Year” line item shown in the “Change in Plan Assets” table above.
Assets measured at fair value on a recurring basis for the Pension Plan as of December 31, 2018 and
2017 are as follows (000’s):
Fair Value Measurements at Reporting Date Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
December 31,
Description
2018
Pension Plan Assets:
Mutual Funds:
Equity Funds . . . . . . . . . . . . . . . . . . . . .
Fixed Income Funds . . . . . . . . . . . . . . . .
Total Mutual Funds . . . . . . . . . . . . . . . . . . . .
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . .
$ 52,884
43,281
96,165
1,202
$52,884
43,281
96,165
1,202
Total Assets in the Fair Value
Hierarchy . . . . . . . . . . . . . . . . . .
$ 97,367
$97,367
Real Estate Fund–Measured at Net
Asset Value . . . . . . . . . . . . . . . . . . . .
10,441
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$107,808
2017
Pension Plan Assets:
Mutual Funds:
Equity Funds . . . . . . . . . . . . . . . . . . . . .
Fixed Income Funds . . . . . . . . . . . . . . . .
Asset Allocation Fund . . . . . . . . . . . . . .
Total Mutual Funds . . . . . . . . . . . . . . . . . . . .
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . .
Total Assets in the Fair Value
$ 50,373
34,757
6,398
91,528
1,200
$50,373
34,757
6,398
91,528
1,200
Hierarchy . . . . . . . . . . . . . . . . . .
$ 92,728
$92,728
Real Estate Fund–Measured at Net
Asset Value . . . . . . . . . . . . . . . . . . . .
9,587
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$102,315
$—
—
—
—
$—
$—
—
—
—
—
$—
$—
—
—
$—
$—
—
—
—
$—
Redemptions of the Real Estate Fund are subject to a sixty-five day notice period and the fund is
valued quarterly. There are no unfunded commitments.
89
Assets measured at fair value on a recurring basis for the PBOP Plan as of December 31, 2018 and
2017 are as follows (000’s):
Fair Value Measurements at Reporting Date Using
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Balance as of
December 31,
Description
2018
PBOP Plan Assets:
Mutual Funds:
Fixed Income Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,905
11,204
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21,109
$ 9,905
11,204
$21,109
$—
$—
$—
$—
2017
PBOP Plan Assets:
Mutual Funds:
Fixed Income Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,419
11,415
19,834
400
$ 8,419
11,415
19,834
400
$—
$—
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,234
$20,234
$—
$—
Employee 401(k) Tax Deferred Savings Plan—The Company sponsors the Unitil Corporation Tax
Deferred Savings and Investment Plan (the 401(k) Plan) under Section 401(k) of the Internal Revenue Code
and covering substantially all of the Company’s employees. Participants may elect to defer current
compensation by contributing to the plan. Employees may direct, at their sole discretion, the investment of
their savings plan balances (both the employer and employee portions) into a variety of investment options,
including a Company common stock fund.
The Company’s contributions to the 401(k) Plan were $2.7 million, $2.4 million and $2.3 million for
the years ended December 31, 2018, 2017 and 2016, respectively.
90
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Management of the Company, under the supervision and with the participation of the Company’s Chief
Executive Officer, Chief Financial Officer and Chief Accounting Officer, conducted an evaluation of the
effectiveness of the design and operation of the Company’s disclosure controls and procedures as of
December 31, 2018. Based on this evaluation, the Company’s Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer concluded as of December 31, 2018 that the Company’s disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Under the supervision and with the participation of management, including the Chief Executive
Officer, Chief Financial Officer and Chief Accounting Officer, Unitil management has evaluated the
effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, based
upon criteria established in the “Internal Control–Integrated Framework” (2013) issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, Unitil
management concluded that Unitil’s internal control over financial reporting was effective as of
December 31, 2018.
Deloitte & Touche LLP, an independent registered public accounting firm, has audited the
effectiveness of our internal control over financial reporting as of December 31, 2018, as stated in their
report which appears in Part II, Item 8 herein.
Changes in Internal Control over Financial Reporting
There have been no changes in Unitil’s internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended December 31, 2018 that have
materially affected, or are reasonably likely to materially affect, Unitil’s internal control over financial
reporting.
Item 9B. Other Information
On January 31, 2019, the Company issued a press release announcing its results of operations for the
quarter and year ended December 31, 2018. The press release is furnished with this Annual Report on
Form 10-K as Exhibit 99.1.
91
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item is set forth in the “Proposal 1: Election of Directors” section and the
“Description of Management” section of the Proxy Statement relating to the Annual Meeting of
Shareholders to be held April 24, 2019. Information regarding compliance with Section 16(a) of the
Securities Exchange Act of 1934, is set forth in the “Corporate Governance and Policies of the
Board—Section 16(a) Beneficial Ownership Reporting Compliance” section of the Proxy Statement relating
to the Annual Meeting of Shareholders to be held April 24, 2019. Information regarding the Company’s
Audit Committee is set forth in the “Committees of the Board—Audit Committee” section of the Proxy
Statement relating to the Annual Meeting of Shareholders to be held April 24, 2019. Information regarding
the Company’s Code of Ethics is set forth in the “Corporate Governance and Policies of the Board—Code
of Ethics” section of the Proxy Statement relating to the Annual Meeting of Shareholders to be held
April 24, 2019. Information regarding procedures by which shareholders may recommend nominees to the
Company’s Board of Directors is set forth in the “Corporate Governance and Policies of the
Board—Nominations” section of the Proxy Statement relating to the Annual Meeting of Shareholders to be
held April 24, 2019.
Item 11. Executive Compensation
Information required by this Item is set forth in the “Compensation Discussion and Analysis” and
“Compensation of Named Executive Officers” sections of the Proxy Statement relating to the Annual
Meeting of Shareholders to be held April 24, 2019.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
Information required by this Item is set forth in the “Beneficial Ownership” section of the Proxy
Statement relating to the Annual Meeting of Shareholders to be held April 24, 2019, as well as the Equity
Compensation Plan Information table in Part II, Item 5 of this Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this Item is set forth in the “Corporate Governance and Policies of the
Board—Transactions with Related Persons” and the “Corporate Governance and Policies of the Board—
Director Independence” sections of the Proxy Statement relating to the Annual Meeting of Shareholders to
be held April 24, 2019.
Item 14. Principal Accountant Fees and Services
Information required by this Item is set forth in the “Audit Committee Report—Principal Accountant
Fees and Services” and the “Audit Committee Report—Audit Committee Pre-Approval Policy” sections of
the Proxy Statement relating to the Annual Meeting of Shareholders to be held April 24, 2019.
92
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) (1) and (2)—LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
The following financial statements are included herein under Part II, Item 8, Financial Statements and
Supplementary Data:
• Report of Independent Registered Public Accounting Firm
• Consolidated Statements of Earnings for the years ended December 31, 2018, 2017 and 2016
• Consolidated Balance Sheets—December 31, 2018 and 2017
• Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016
• Consolidated Statements of Changes in Common Stock Equity for the years ended December 31,
2018, 2017 and 2016
• Notes to Consolidated Financial Statements
All other schedules for which provision is made in the applicable accounting regulation of the
Securities and Exchange Commission are not required under the related instructions, are not applicable, or
information required is included in the financial statements or notes thereto and, therefore, have been
omitted.
(3)—LIST OF EXHIBITS
Exhibit Number
Description of Exhibit
Reference*
3.1
Articles of Incorporation of Unitil Corporation.
3.2
3.3
3.4
Articles of Amendment to the Articles of Incorporation
Filed with the Secretary of State of the State of New
Hampshire on March 4, 1992.
Articles of Amendment to the Articles of Incorporation Filed
with the Secretary of State of the State of New Hampshire on
September 23, 2008.
Articles of Amendment to the Articles of Incorporation Filed
with the Secretary of State of the State of New Hampshire on
April 27, 2011.
Exhibit 3.1 to Form S-14
Registration Statement No.
2-93769 dated October 12,
1984 (P)
Exhibit 3.2 to Form 10-K
for 1991 (SEC File
No. 1-8858) (P)
Exhibit 3.3 to Form S-3/A
Registration Statement
No. 333-152823 dated
November 25, 2008
Exhibit 4.4 to Post-
Effective Amendment No. 1
to Form S-3 Registration
Statement No. 333-168394,
dated January 28, 2014
3.5
Third Amended and Restated By-Laws of Unitil Corporation. Exhibit 3.1 to Form 8-K
4.1
4.2
Twelfth Supplemental Indenture of Unitil Energy Systems,
Inc., successor to Concord Electric Company, dated as of
December 2, 2002, amending and restating the Concord
Electric Company Indenture of Mortgage and Deed of Trust
dated as of July 15, 1958.
Fitchburg Note Agreement dated November 1, 1993 for the
6.75% Notes due November 30, 2023.
93
dated December 12, 2013
(SEC File No. 1-8858)
Exhibit 4.1 to Form 10-K
for 2002 (SEC File
No. 1-8858)
Exhibit 4.18 to Form 10-K
for 1993 (SEC File
No. 1-8858) (P)
Exhibit Number
Description of Exhibit
Reference*
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
Fitchburg Note Agreement dated January 15, 1999 for the
7.37% Notes due January 15, 2029.
Fitchburg Note Agreement dated June 1, 2001 for the 7.98%
Notes due June 1, 2031.
Fitchburg Note Agreement dated October 15, 2003 for the
6.79% Notes due October 15, 2025.
Exhibit 4.25 to Form 10-K
for 1999 (SEC File
No. 1-8858)
Exhibit 4.6 to Form 10-Q
for June 30, 2001 (SEC File
No. 1-8858)
Exhibit 4.7 to Form 10-K
for 2003 (SEC File
No. 1-8858)
Fitchburg Note Agreement dated December 21, 2005 for the
5.90% Notes due December 15, 2030.
Thirteenth Supplemental Indenture of Unitil Energy Systems,
Inc., dated as of September 26, 2006.
Unitil Corporation Note Purchase Agreement, dated as of
May 2, 2007, for the 6.33% Senior Notes due May 1, 2022.
**
**
**
Northern Utilities Note Purchase Agreement, dated as of
December 3, 2008, for the 6.95% Senior Notes, Series A due
December 3, 2018 and the 7.72% Senior Notes, Series B due
December 3, 2038.
Exhibit 4.1 to Form 8-K
dated December 3, 2008
(SEC File No. 1-8858)
Granite State Note Purchase Agreement, dated as of
December 15, 2008, for the 7.15% Senior Notes due
December 15, 2018.
Northern Utilities Note Purchase Agreement, dated as of
March 2, 2010, for the 5.29% Senior Notes, due March 2,
2020.
Fourteenth Supplemental Indenture of Unitil Energy
Systems, Inc., dated as of March 2, 2010.
Exhibit 99.1 to Form 8-K
dated December 15, 2008
(SEC File No. 1-8858)
Exhibit 4.1 to Form 8-K
dated March 2, 2010 (SEC
File No. 1-8858)
Exhibit 4.4 to Form 8-K
dated March 2, 2010 (SEC
File No. 1-8858)
Northern Utilities form of Note Purchase Agreement, dated
as of October 15, 2014, for the 4.42% Senior Notes, due
October 15, 2044.
Exhibit 4.1 to Form 8-K
dated October 15, 2014
(SEC File No. 1-8858)
Northern Utilities form of Note issued pursuant to the Note
Purchase Agreement, dated as of October 15, 2014, for the
4.42% Senior Notes, due October 15, 2044.
Exhibit 4.2 to Form 8-K
dated October 15, 2014
(SEC File No. 1-8858)
Note Purchase Agreement dated August 1, 2016 by and
among Unitil Corporation and the several purchasers named
therein for the 3.70% Senior Notes, Series 2016, due
August 1, 2026.
Exhibit 4.1 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
3.70% Senior Note, Series 2016, dated as of August 1, 2016
purchased by Metropolitan Life Insurance Company in the
principal amount of $11,200,000.
Exhibit 4.2 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
3.70% Senior Note, Series 2016, dated as of August 1, 2016
purchased by Lincoln Benefit Life Company in the principal
amount of $4,000,000.
Exhibit 4.3 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
3.70% Senior Note, Series 2016, dated as of August 1, 2016
purchased by Lincoln Benefit Life Company in the principal
amount of $3,800,000.
Exhibit 4.4 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
94
Exhibit Number
Description of Exhibit
Reference*
4.19
4.20
4.21
4.22
4.23
4.24
4.25
4.26****
4.27****
4.28****
4.29****
4.30****
4.31
4.32
3.70% Senior Note, Series 2016, dated as of August 1, 2016
purchased by Lincoln Benefit Life Company in the principal
amount of $1,000,000.
Exhibit 4.5 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
3.70% Senior Note, Series 2016, dated as of August 1, 2016
purchased by United of Omaha Life Insurance Company in
the principal amount of $5,000,000.
Exhibit 4.6 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
3.70% Senior Note, Series 2016, dated as of August 1, 2016
purchased by United of Omaha Life Insurance Company in
the principal amount of $3,000,000.
Exhibit 4.7 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
3.70% Senior Note, Series 2016, dated as of August 1, 2016
purchased by Companion Life Insurance Company in the
principal amount of $2,000,000.
Exhibit 4.8 to Form 8-K
dated August 1, 2016 (SEC
File No. 1-8858)
Note Purchase Agreement dated July 14, 2017 by and among
Northern Utilities, Inc. and the several purchasers named
therein for the 3.52% Senior Notes, Series 2017A, due
November 1, 2027 and the 4.32% Senior Notes, Series
2017B, due November 1, 2047.
Note Purchase Agreement dated July 14, 2017 by and among
Fitchburg Gas and Electric Light Company and the several
purchasers named therein for the 3.52% Senior Notes, Series
2017A, due November 1, 2027 and the 4.32% Senior Notes,
Series 2017B, due November 1, 2047.
Exhibit 4.1 to Form 8-K
dated July 14, 2017 (SEC
File No. 1-8858)
Exhibit 4.2 to Form 8-K
dated July 14, 2017 (SEC
File No. 1-8858)
Note Purchase Agreement dated July 14, 2017 by and among
Granite State Gas Transmission, Inc. and the several
purchasers named therein for the 3.72% Senior Notes, Series
2017A, due November 1, 2027.
Exhibit 4.3 to Form 8-K
dated July 14, 2017 (SEC
File No. 1-8858)
3.52% Senior Note, Series 2017A, due November 1, 2027,
issued by Northern Utilities, Inc. to Great-West Life &
Annuity Insurance Company.
4.32% Senior Note, Series 2017B, due November 1, 2047,
issued by Northern Utilities, Inc. to The Canada Life
Insurance Company of Canada.
3.52% Senior Note, Series 2017A, due November 1, 2027,
issued by Fitchburg Gas and Electric Light Company to
Great-West Life & Annuity Insurance Company.
Exhibit 4.2 to Form 8-K
dated November 1, 2017
(SEC File No. 1-8858)
Exhibit 4.3 to Form 8-K
dated November 1, 2017
(SEC File No. 1-8858)
Exhibit 4.5 to Form 8-K
dated November 1, 2017
(SEC File No. 1-8858)
4.32% Senior Note, Series 2017B, due November 1, 2047,
issued by Fitchburg Gas and Electric Light Company to The
Great-West Life Assurance Company.
Exhibit 4.6 to Form 8-K
dated November 1, 2017
(SEC File No. 1-8858)
3.72% Senior Note, Series 2017A, due November 1, 2027,
issued by Granite State Gas Transmission, Inc. to Thrivent
Financial for Lutherans.
Exhibit 4.8 to Form 8-K
dated November 1, 2017
(SEC File No. 1-8858)
Bond Purchase Agreement dated November 30, 2018 by and
among Unitil Energy Systems, Inc. and the several
purchasers named therein for the $30,000,000 aggregate
principal amount of first mortgage bonds, Series Q, due
November 30, 2048.
Exhibit 4.1 to Form 8-K
dated November 30, 2018
(SEC File No. 1-8858)
Fifteenth Supplemental Indenture dated November 29, 2018
by and between Unitil Energy Systems, Inc. and U.S. Bank
National Association (as trustee).
Exhibit 4.2 to Form 8-K
dated November 30, 2018
(SEC File No. 1-8858)
95
Exhibit Number
4.33****
4.34
4.35
Description of Exhibit
Reference*
First Mortgage Bond, Series Q, 4.18%, due November 30,
2048, issued by Unitil Energy Systems, Inc. to United of
Omaha Life Insurance Company.
Exhibit 4.3 to Form 8-K
dated November 30, 2018
(SEC File No. 1-8858)
Second Amended and Restated Credit Agreement dated
July 25, 2018 among Unitil Corporation, Bank of America,
N.A., as administrative agent, and the Lenders.
Exhibit 4.1 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Amended and Restated Note issued to Bank of America,
N.A..
4.36
Amended and Restated Note issued to Citizens Bank, N.A.
4.37
Amended and Restated Note issued to TD Bank, N.A.
10.1***
10.2***
Amended and Restated Form of Severance Agreement
between the Company and the persons listed at the end of
such Agreement.
Amended and Restated Form of Severance Agreement
between the Company and the persons listed at the end of
such Agreement.
10.3***
Amended and Restated Form of Severance Agreement
(Three-Year Term)
10.4***
Amended and Restated Form of Severance Agreement
(Two-Year Term)
10.5***
Amended and Restated Form of Severance Agreement
(Two-Year Term; Non Pension)
Exhibit 4.2 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Exhibit 4.3 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Exhibit 4.4 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Exhibit 10.2 to Form 8-K
dated June 19, 2008 (SEC
File No. 1-8858)
Exhibit 10.3 to Form 8-K
dated June 19, 2008 (SEC
File No. 1-8858)
Exhibit 10.1 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Exhibit 10.2 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Exhibit 10.3 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
10.6***
Amended and Restated Unitil Corporation Supplemental
Executive Retirement Plan effective as of December 31,
2016.
Exhibit 10.1 to Form 10-Q
for March 31, 2017 (SEC
File No. 1-8858)
10.7***
Amended and Restated Supplemental Executive Retirement
Plan
10.8***
Unitil Corporation Deferred Compensation Plan
10.9***
Unitil Corporation Management Incentive Plan (amended and
restated as of June 5, 2013).
10.10***
Unitil Corporation Second Amended and Restated 2003
Stock Plan
Exhibit 10.5 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Exhibit 10.6 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
Exhibit 10.2 to Form 8-K
dated June 5, 2013 (SEC
File No. 1-8858)
Appendix 1 to the Proxy
Statement filed on Schedule
14A dated March 13, 2012
(SEC File No. 1-8858)
96
Exhibit Number
10.11***
Description of Exhibit
Form of Restricted Stock Unit Agreement under the Unitil
Corporation Second Amended and Restated 2003 Stock Plan
10.12***
Form of Restricted Stock Agreement under the Unitil
Corporation Second Amended and Restated 2003 Stock Plan
10.13***
Unitil Corporation Tax Deferred Savings and Investment
Plan—Trust Agreement.
10.14***
Unitil Corporation Tax Deferred Savings and Investment
Plan, as amended to date
10.15***
Employment Agreement effective November 1, 2015
between Unitil Corporation and Robert G. Schoenberger
10.16***
Employment Agreement effective April 25, 2018 between
Unitil Corporation and Thomas P. Meissner, Jr.
10.17***
Amended and Restated Employment Agreement between
Unitil Corporation and Thomas P. Meissner, Jr.
Reference*
Exhibit 4.7 to Form S-8
Registration Statement
No. 333-184849 dated
November 9, 2012
Exhibit 4.8 to Form S-8
Registration Statement
No. 333-184849 dated
November 9, 2012
Exhibit 10.1 to Form 10-Q
for September 30, 2004
(SEC File No. 1-8858)
Exhibit 10.13 to Form 10-K
for 2013 (SEC File
No. 1-8858)
Exhibit 10.1 to Form 8-K
dated October 21, 2015
(SEC File No. 1-8858)
Exhibit 10.1 to Form 8-K
dated March 1, 2018 (SEC
File No. 1-8858)
Exhibit 10.4 to Form 8-K
dated July 25, 2018 (SEC
File No. 1-8858)
10.18
10.19
Amended and Restated Credit Agreement dated as of
October 4, 2013 by and among Unitil Corporation and Bank
of America, N.A.
Exhibit 10.1 to Form 8-K
dated October 4, 2013 (SEC
File No. 1-8858)
First Amendment to Amended and Restated Credit
Agreement dated as of July 24, 2015 by and among Unitil
Corporation, Bank of America, N.A., and the other parties
thereto.
Exhibit 10.1 to Form 8-K
dated July 24, 2015 (SEC
File No. 1-8858)
10.20
Parent Guaranty of Unitil Corporation for the Granite State
7.15% Senior Notes due December 15, 2018.
10.21***
Unitil Corporation Incentive Plan (amended and restated as
of January 26, 2015)
10.22***
Unitil Corporation—Compensation of Directors.
Exhibit 10.1 to Form 8-K
dated December 15, 2008
(SEC File No. 1-8858)
Exhibit 10.1 to Form 10-Q
for March 31, 2015 (SEC
File No. 1-8858)
Exhibit 10.20 to Form 10-K
for 2016 (SEC File
No. 1-8858)
11.1
21.1
23.1
31.1
Statement Re: Computation in Support of Earnings per Share
for the Company.
Filed herewith
Statement Re: Subsidiaries of Registrant.
Filed herewith
Consent of Independent Registered Public Accounting Firm.
Filed herewith
Certification of Chief Executive Officer Pursuant to Rule
13a-14 of the Exchange Act, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith
97
Exhibit Number
Description of Exhibit
31.2
31.3
32.1
99.1
Certification of Chief Financial Officer Pursuant to Rule
13a-14 of the Exchange Act, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Accounting Officer Pursuant to Rule
13a-14 of the Exchange Act, as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certifications of Chief Executive Officer, Chief Financial
Officer and Chief Accounting Officer Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
Unitil Corporation Press Release Dated January 31, 2019
Announcing Earnings For the Quarter and Year Ended
December 31, 2018.
101.INS
XBRL Instance Document.
101.SCH
XBRL Taxonomy Extension Schema Document.
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
Document.
Reference*
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document.
Filed herewith
101.LAB
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
Document.
Filed herewith
Filed herewith
*
**
The exhibits referred to in this column by specific designations and dates have heretofore been filed
with the Securities and Exchange Commission under such designations and are hereby incorporated
by reference.
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K, the instrument defining the debt of the
Registrant and its subsidiary, described above, has been omitted but will be furnished to the
Commission upon request.
*** These exhibits represent a management contract or compensatory plan.
**** This Note or Bond (each, an “Instrument”) is substantially identical in all material respects to other
Instruments that are otherwise required to be filed as exhibits, except as to the registered payee of
such Instrument, the identifying number of such Instrument, and the principal amount of such
Instrument. In accordance with instruction no. 2 to Item 601 of Regulation S-K, the registrant has
filed a copy of only one of such Instruments, with a schedule identifying the other Instruments
omitted and setting forth the material details in which such Instruments differ from the Instrument that
was filed. The registrant acknowledges that the Securities and Exchange Commission may at any time
in its discretion require filing of copies of any Instruments so omitted.
Paper exhibit.
(P)
98
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
UNITIL CORPORATION
Date January 31, 2019
By
/S/ THOMAS P. MEISSNER, JR.
Thomas P. Meissner, Jr.
Chairman of the Board of Directors,
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Signature
Capacity
Date
/S/ THOMAS P. MEISSNER, JR.
Thomas P. Meissner, Jr.
/S/ MARK H. COLLIN
Mark H. Collin
/S/ LAURENCE M. BROCK
Laurence M. Brock
/S/ ALBERT H. ELFNER, III
Albert H. Elfner, III
/S/ M. BRIAN O’SHAUGHNESSY
M. Brian O’Shaughnessy
/S/ EBEN S. MOULTON
Eben S. Moulton
/S/ DAVID P. BROWNELL
David P. Brownell
/S/ EDWARD F. GODFREY
Edward F. Godfrey
/S/ MICHAEL B. GREEN
Michael B. Green
/S/ DR. ROBERT V. ANTONUCCI
Dr. Robert V. Antonucci
/S/ LISA CRUTCHFIELD
Lisa Crutchfield
/S/ DAVID A. WHITELEY
David A. Whiteley
Suzanne Foster
Justine Vogel
Principal Executive Officer; Director
January 31, 2019
Principal Financial Officer; Director
January 31, 2019
Principal Accounting Officer
January 31, 2019
January 31, 2019
January 31, 2019
January 31, 2019
January 31, 2019
January 31, 2019
January 31, 2019
January 31, 2019
January 31, 2019
January 31, 2019
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
99
[THIS PAGE INTENTIONALLY LEFT BLANK]
UNITIL CORPORATION
COMPUTATION IN SUPPORT OF EARNINGS PER SHARE
Exhibit 11.1
Year Ended December 31,
2018
2017
2016
EARNINGS PER SHARE (000’s, except per share data)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,041
$29,005
$27,124
Less: Dividend Requirements on Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . .
11
11
11
Net Income Applicable to Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$33,030
$28,994
$27,113
Average Number of Common Shares Outstanding—Basic . . . . . . . . . . . . . . . . . . . . . . .
14,824
14,095
13,990
Dilutive Effect of Stock Options and Restricted Stock . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
7
6
Average Number of Common Shares Outstanding—Diluted . . . . . . . . . . . . . . . . . . . . . .
14,829
14,102
13,996
Earnings Per Share—Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings Per Share—Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.23
2.23
$
$
2.06
$ 1.94
2.06
$
1.94
Exhibit 21.1
Subsidiaries of Registrant
The Company or the registrant has eight wholly-owned subsidiaries, seven of which are corporations
organized under the laws of the State of New Hampshire: Unitil Energy Systems, Inc., Northern Utilities,
Inc., Granite State Gas Transmission, Inc., Unitil Power Corp., Unitil Realty Corp., Unitil Resources, Inc.
and Unitil Service Corp. The eighth, Fitchburg Gas and Electric Light Company, is organized under the
laws of the Commonwealth of Massachusetts. Usource, Inc., which is a corporation organized under the
laws of the State of Delaware, is a wholly-owned subsidiary of Unitil Resources, Inc. Usource, Inc. is the
sole member of Usource L.L.C., which is a limited liability company formed under the laws of the State of
Delaware.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Registration Statement Nos. 333-168394, and 333-221333
on Form S-3 and Nos. 333-184849 and 333-42266 on Form S-8 of our report dated January 31, 2019,
relating to the consolidated financial statements of Unitil Corporation and subsidiaries and the effectiveness
of Unitil Corporation and subsidiaries’ internal control over financial reporting, appearing in this Annual
Report on Form 10-K of Unitil Corporation for the year ended December 31, 2018.
Exhibit 23.1
/s/ Deloitte and Touche LLP
January 31, 2019
Boston, Massachusetts
Exhibit 31.1
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas P. Meissner, Jr., certify that:
1)
I have reviewed this annual report on Form 10-K of Unitil Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any changes in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonable likely to
materially affect, the registrant’s internal controls over financial reporting; and
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: January 31, 2019
/s/ Thomas P. Meissner, Jr
Thomas P. Meissner, Jr.
Chief Executive Officer and President
Exhibit 31.2
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark H. Collin, certify that:
1)
I have reviewed this annual report on Form 10-K of Unitil Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any changes in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonable likely to
materially affect, the registrant’s internal controls over financial reporting; and
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: January 31, 2019
/s/ Mark H. Collin
Mark H. Collin
Chief Financial Officer
Exhibit 31.3
CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Laurence M. Brock, certify that:
1)
I have reviewed this annual report on Form 10-K of Unitil Corporation;
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this
report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))
for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over
financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in
this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any changes in the registrant’s internal control over financial reporting
that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonable likely to
materially affect, the registrant’s internal controls over financial reporting; and
5) The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of
internal control over financial reporting, to the registrant’s auditors and the audit committee of the
registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control
over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a
significant role in the registrant’s internal control over financial reporting.
Date: January 31, 2019
/s/ Laurence M. Brock
Laurence M. Brock
Chief Accounting Officer
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Unitil Corporation (the “Company”) on Form 10-K for the year ended
December 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”),
each of the undersigned Thomas P. Meissner, Jr., Chief Executive Officer and President, Mark H. Collin, Chief
Financial Officer and Laurence M. Brock, Chief Accounting Officer, certifies, to the best knowledge and belief
of the signatory, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.
Signature
Capacity
Date
/s/ Thomas P. Meissner, Jr
Thomas P. Meissner, Jr.
/s/ Mark H. Collin
Mark H. Collin
/s/ Laurence M. Brock
Laurence M. Brock
Chief Executive Officer and President
January 31, 2019
Chief Financial Officer
January 31, 2019
Chief Accounting Officer
January 31, 2019
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Unitil Corporation
6 Liberty Lane West
Hampton, NH 03842-1720
unitil.com
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