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Table of Contents
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM
10-Q
 
 
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2021
or
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
                          
to  
    
                    
Commission File Number
1-8858
 
 
UNITIL CORPORATION
(Exact name of registrant as specified in its charter)
 
New Hampshire
 
02
-0381573
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
6 Liberty Lane West, Hampton,
New Hampshire
 
03842-1720
(Address of principal executive office)
 
(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
 
Trading Symbol
 
Name of each exchange of which registered
Common Stock , no par value
 
UTL
 
New York Stock Exchange
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  
☒     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  ☒    No  ☐
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      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 Exchange Act).    Yes  
☐     No
  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding at April 30, 2021
Common Stock, no par value    15,042,678 Shares
 
 
 

Table of Contents
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
FORM
10-Q
For the Quarter Ended March 31, 2021
Table of Contents
 
    
Page No.
 
     3  
Part I. Financial Information
  
Item 1.
    
       17  
      
18-19
 
       20  
       21  
      
22-46
 
Item 2.       
4-16
 
Item 3.        46  
Item 4.        46  
Part II. Other Information
  
Item 1.   Legal Proceedings      47  
Item 1A.   Risk Factors      47  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      47  
Item 3.   Defaults Upon Senior Securities      Inapplicable  
Item 4.   Mine Safety Disclosures      Inapplicable  
Item 5.   Other Information      47  
Item 6.   Exhibits      48  
Signatures        49  
 
2

Table of Contents
In this Quarterly Report on Form
10-Q,
the “Company”, “Unitil”, “we”, “us”, “our” and similar terms refer to Unitil Corporation and its subsidiaries, unless the context requires otherwise.
CAUTIONARY STATEMENT
This report and the documents incorporated by reference into this report contain statements that constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), 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 Company’s future operations, 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 Item 1A (Risk Factors) and the following:
 
   
the coronavirus
(COVID-19)
pandemic (the coronavirus pandemic) could adversely affect the Company’s business, financial condition, results of operations and cash flows, including by disrupting the Company’s employees’ and contractors’ ability to provide ongoing services to the Company, by reducing customer demand for electricity or gas, or by reducing the supply of electricity or gas;
 
   
the Company’s regulatory and legislative environment (including laws and regulations relating to climate change, greenhouse gas emissions and other environmental matters), could affect the rates the Company is able to charge, the Company’s authorized rate of return, the Company’s ability to recover costs in its rates, the Company’s financial condition, results of operations and cash flows and the scope of the Company’s regulated activities;
 
   
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 capital markets valuations, 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 gas distribution services;
 
3

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cyber-attacks, acts of terrorism, acts of war, severe weather, a solar event, an electromagnetic event, a natural disaster, the age and condition of information technology assets, human error, or other reasons could disrupt the Company’s operations and cause the Company to incur unanticipated losses and expense;
 
   
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 affect our results of operations;
 
   
numerous hazards and operating risks relating to the Company’s electric and 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;
 
   
increased competition; and
 
   
other presently unknown or unforeseen factors.
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 such factors, nor can the Company assess the effect 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.
PART I. FINANCIAL INFORMATION
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Unitil Corporation’s 2020 Form
10-K
for additional information.
OVERVIEW
Unitil Corporation (Unitil or the Company) is a public utility holding company headquartered in Hampton, New Hampshire. 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 gas 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 Systems, Inc. (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 Gas and Electric Light Company (Fitchburg), which provides both electric and gas service in the greater Fitchburg area of north central Massachusetts; and
 
  iii)
Northern Utilities, Inc. (Northern Utilities), which provides 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.
 
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Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as the “distribution utilities.” Together, the distribution utilities serve approximately 107,100 electric customers and 85,600 gas customers in their service territory.
In addition, Unitil is the parent company of Granite State Gas Transmission, Inc. (Granite State), an interstate 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 major gas pipelines and access to domestic gas supplies in the south and Canadian gas supplies in the north.
Unitil had an investment in Net Utility Plant of $1,192.3 million at March 31, 2021. Unitil’s total operating revenue includes revenue to recover the approved cost of purchased electricity and gas in rates on a fully reconciling basis. As a result of this reconciling rate structure, the Company’s earnings are not directly affected by changes in the cost of purchased electricity and gas. Earnings from Unitil’s utility operations are derived primarily from the return on investment in the utility assets of the three distribution utilities and Granite State.
Unitil Resources is the Company’s wholly-owned
non-regulated
subsidiary. The Company’s other subsidiaries include Unitil Service Corp., which provides, at cost, a variety of administrative and professional services to Unitil’s affiliated companies; Unitil Realty Corp., which owns and manages Unitil’s corporate office building and property located in Hampton, New Hampshire; and Unitil Power Corp., which formerly functioned as the full requirements wholesale power supply provider for Unitil Energy. Unitil’s consolidated net income includes the earnings of the holding company and these subsidiaries.
RATES AND REGULATION
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 New Hampshire Public Utilities Commission (NHPUC); Fitchburg is subject to regulation by the Massachusetts Department of Public Utilities (MDPU); and Northern Utilities is regulated by the NHPUC and the Maine Public Utilities Commission (MPUC). Granite State, Unitil’s interstate gas transmission pipeline, is subject to regulation by 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 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 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 tracking 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 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 gas sales volumes, respectively.
 
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RESULTS OF OPERATIONS
The following section of MD&A compares the results of operations for each of the two fiscal periods ended March 31, 2021 and March 31, 2020 and should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and the accompanying Notes to the unaudited Consolidated Financial Statements included in Part I, Item 1 of this report, which are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).
The Company is responding to the coronavirus pandemic by taking steps to mitigate the potential risks posed by its spread. The Company’s electric and gas service utility distribution operating systems have continued to provide service to customers without disruption due to the coronavirus pandemic through the date of this filing. The Company has implemented its Crisis Response Plan to address specific aspects of the coronavirus pandemic. The Crisis Response Plan guides emergency response, business continuity, and precautionary measures being taken on behalf of employees and the public. The Company has initiated extra precautions to protect employees who work in the field, and employees who continue to work in operations, distribution and corporate facilities. The Company has implemented social distancing and work from home policies, where appropriate. The Company continues to implement strong physical and cyber-security measures to ensure that its systems remain functional in order to serve both operational needs with a remote workforce and to help ensure uninterrupted service to customers.
The extent to which the coronavirus pandemic affects the Company’s financial condition, results of operations, and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus pandemic, and the actions to contain the coronavirus pandemic or treat its effect, among others. In particular, the continued spread of the coronavirus could adversely affect the Company’s business, including (i) by disrupting the Company’s employees and contractors ability to provide ongoing services to the Company, (ii) by reducing customer demand for electricity or gas, or (iii) by reducing the supply of electricity or gas, each of which could have an adverse effect on the Company’s financial condition, results of operations, and cash flows.
The Company’s results of operations reflect the seasonal nature of the gas business. Annual gas revenues are substantially realized during the heating season as a result of higher sales of gas due to cold weather. Accordingly, the results of operations historically are 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 generally are less sensitive to weather than gas sales, but also may be affected by the weather conditions in both the winter and summer seasons. Also, as a result of recent rate cases, the Company’s gas GAAP gross margins and gas adjusted gross margins (a
non-GAAP
measure) are derived from a higher percentage of fixed billing components, including customer charges. Therefore, gas revenues and gas adjusted gross margin will be less affected by the seasonal nature of the gas business. In addition, approximately 27% and 11% of the Company’s total annual electric and gas sales volumes, respectively, are decoupled and changes in sales to existing customers do not affect GAAP gross margin and adjusted gross margin.
The Company analyzes operating results using Gas and Electric Adjusted Gross Margins, which are
non-GAAP
measures. Gas Adjusted Gross Margin is calculated as Total Gas Operating Revenue less Cost of Gas Sales. Electric Adjusted Gross Margin is calculated as Total Electric Operating Revenues less Cost of Electric Sales. The Company’s management believes Gas and Electric Adjusted Gross Margins provide useful information to investors regarding profitability. Company management also believes Gas and Electric Adjusted Gross Margins are important measures to analyze revenue from the Company’s ongoing operations because the approved cost of gas and electric sales are tracked, reconciled and passed through directly to customers in gas and electric tariff rates; resulting in an equal and offsetting amount reflected in Total Gas and Electric Operating Revenue.
The Company has reconciled Gas and Electric Adjusted Gross Margin to GAAP Gross Margin, which we believe to be the most comparable GAAP measure. GAAP Gross Margin is calculated as: Revenue less Cost of Sales and Depreciation and Amortization. The Company calculates Gas and Electric Adjusted Gross Margin as Revenue less Cost of Sales. The Company believes excluding Depreciation and
 
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Amortization, which are period costs not related to volumetric sales revenue, is a meaningful measure to inform investors of the Company’s profitability from gas and electric sales in the period.
 
Three Months Ended March 31, 2021 ($ in millions)
 
    
Gas
    
Electric
    
Non-

Regulated
and Other
    
Total
 
Total Operating Revenue
   $ 78.7      $ 60.1      $ —        $  138.8  
Less: Cost of Sales
     (30.9      (36.4      —          (67.3
Less: Depreciation and Amortization
     (8.2      (6.5      (0.2      (14.9
    
 
 
    
 
 
    
 
 
    
 
 
 
GAAP Gross Margin
     39.6        17.2        (0.2      56.6  
Depreciation and Amortization
     8.2        6.5        0.2        14.9  
    
 
 
    
 
 
    
 
 
    
 
 
 
Adjusted Gross Margin
   $ 47.8      $ 23.7      $ —        $ 71.5  
    
 
 
    
 
 
    
 
 
    
 
 
 
 
Three Months Ended March 31, 2020 ($ in millions)
 
    
Gas
    
Electric
    
Non-

Regulated
and Other
    
Total
 
Total Operating Revenue
   $ 70.2      $ 60.2      $ —        $  130.4  
Less: Cost of Sales
     (27.8      (37.1      —          (64.9
Less: Depreciation and Amortization
     (7.4      (5.9      (0.2      (13.5
    
 
 
    
 
 
    
 
 
    
 
 
 
GAAP Gross Margin
     35.0        17.2        (0.2      52.0  
Depreciation and Amortization
     7.4        5.9        0.2        13.5  
    
 
 
    
 
 
    
 
 
    
 
 
 
Adjusted Gross Margin
   $ 42.4      $ 23.1      $ —        $ 65.5  
    
 
 
    
 
 
    
 
 
    
 
 
 
Gas GAAP gross margin was $39.6 million in the first quarter of 2021, an increase of $4.6 million compared to the same period in 2020, driven largely by higher rates of $3.3 million. The remaining increase of $1.3 million reflects the favorable effects of colder winter weather and customer growth, partially offset by lower Commercial and Industrial (C&I) sales, and higher depreciation and amortization.
Electric GAAP gross margin was $17.2 million in the first quarter of 2021, on par with the same period in 2020, reflecting an increase of $0.6 million due to colder winter weather, customer growth, and the combined net effect of higher Residential sales and lower C&I sales associated with the coronavirus pandemic, offset by higher depreciation and amortization of $0.6 million.
Earnings Overview
The Company’s Net Income was $18.9 million, or $1.26 in Earnings Per Share (EPS), for the first quarter of 2021, an increase of $3.7 million in Net Income, or $0.24 per share, compared to the first quarter of 2020. The Company’s earnings in 2021 reflect higher Gas and Electric Adjusted Gross Margins (a
non-GAAP
measure).
Gas Adjusted Gross Margin (a
non-GAAP
measure) was $47.8 million in the first quarter of 2021, an increase of $5.4 million compared to the same period in 2020, driven largely by higher rates of $3.3 million. The remaining increase of $2.1 million reflects the favorable effects of colder winter weather and customer growth, partially offset by lower C&I sales.
Gas therm sales increased 6.1% in the first quarter of 2021 compared to the same period in 2020. The increase in gas therm sales in the Company’s service areas reflects colder winter weather in the first quarter of 2021 compared to the same period in 2020 and customer growth, partially offset by lower C&I sales. Based on weather data collected in the Company’s gas service areas, on average there were 8.1% more effective degree days (EDD) in the first quarter of 2021 compared to the same period in 2020, although
 
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6.6% fewer EDD compared to normal. The Company estimates weather-normalized gas therm sales, excluding decoupled sales, increased 0.1% in the first quarter of 2021 compared to the same period in 2020. As of March 31, 2021, the number of gas customers served increased by 1,602 over the previous year.
Electric Adjusted Gross Margin (a
non-GAAP
measure) was $23.7 million in the first quarter of 2021, an increase of $0.6 million compared to the same period in 2020. This increase reflects colder winter weather, customer growth, and the combined net effect of higher Residential sales and lower C&I sales associated with the coronavirus pandemic.
Total electric kilowatt-hour (kWh) sales increased 0.7% in the first quarter of 2021 compared to the same period in 2020. Sales to Residential customers increased 7.3% while sales to C&I customers decreased 4.1% in the first quarter of 2021 compared to the same period in 2020. The increase in sales to Residential customers reflects higher consumption and customer growth. The decrease in sales to C&I customers reflects lower usage, partially offset by customer growth. As of March 31, 2021, the number of electric customers served increased by 984 over the previous year.
Operation and Maintenance (O&M) expenses decreased $0.9 million in the three months ended March 31, 2021 compared to the same period in 2020. The change in O&M expenses reflects lower labor costs of $0.8 million and lower professional fees of $0.4 million, partially offset by higher utility operating costs of $0.3 million. The lower labor costs reflect lower restricted stock expense, partially offset by higher salaries expense.
Depreciation and Amortization expense increased $1.4 million in the three months ended March 31, 2021 compared to the same period in 2020, primarily reflecting additional depreciation associated with higher utility plant in service.
Taxes Other Than Income Taxes decreased $0.3 million in the three months ended March 31, 2021 compared to the same period in 2020, reflecting lower payroll taxes, partially offset by higher local property taxes on higher levels of utility plant in service.
Other Expense (Income), Net decreased $0.2 million in the three months ended March 31, 2021 compared to the same period in 2020, reflecting lower retirement benefit and other costs.
Interest Expense, Net increased $0.5 million compared to the same period in 2020, reflecting higher interest on long-term debt and higher net interest on regulatory assets and liabilities, partially offset by lower rates on lower levels of short-term borrowings.
Provision for Income Taxes Federal and State Income Taxes increased $1.8 million for the three months ended March 31, 2021 compared to the same period in 2020, primarily reflecting higher
pre-tax
earnings in the current period.
At its January 2021 and April 2021 meetings, the Unitil Corporation Board of Directors declared quarterly dividends on the Company’s common stock of $0.38 per share. These quarterly dividends result in a current effective annualized dividend rate of $1.52 per share, representing an unbroken record of quarterly dividend payments since trading began in Unitil’s common stock.
Gas Sales, Revenues and Adjusted Gross Margin
Therm Sales –
Unitil’s total gas therm sales increased 6.1% in the first quarter of 2021 compared to the same period in 2020, reflecting increases of 6.8% and 5.9% in sales to Residential and Commercial and Industrial (C&I) customers, respectively. The increase in gas therm sales in the Company’s service areas reflects colder winter weather in the first quarter of 2021 compared to the same period in 2020 and customer growth, partially offset by
lower C&I sales
. Based on weather data collected in the Company’s gas service areas, on average there were 8.1% more EDD in the first quarter of 2021 compared to the same period in 2020, although 6.6% fewer EDD compared to normal. The Company estimates weather-normalized gas therm sales, excluding decoupled sales, increased 0.1% in the first quarter of 2021 compared to the same period in 2020. As of March 31, 2021, the number of gas customers served increased by 1,602 over the previous year. Sales margin from decoupled unit sales (representing approximately 11% of total annual therm sales volume) is not sensitive to changes in gas therm sales.
 
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The following table details total firm therm sales for the three months ended March 31, 2021 and 2020, by major customer class:
 
Therm Sales (millions)
      
     Three Months Ended March 31,  
    
2021
     2020      Change      % Change  
Residential
  
 
23.6
       22.1        1.5        6.8
Commercial / Industrial
  
 
71.6
       67.6        4.0        5.9
    
 
 
    
 
 
    
 
 
          
Total
  
 
95.2
       89.7        5.5        6.1
    
 
 
    
 
 
    
 
 
          
Gas Operating Revenues and Gas Adjusted Gross Margin
– The following table details total Gas Operating Revenues and Gas Adjusted Gross Margin for the three months ended March 31, 2021 and 2020:
 
Gas Operating Revenues and Adjusted Gross Margin ($ in millions)
 
     Three Months Ended March 31,  
    
2021
     2020      $ Change      % Change  
Gas Operating Revenues:
                                   
Residential
  
$
 33.4
 
   $  29.5      $  3.9        13.2
Commercial / Industrial
  
 
45.3
 
     40.7        4.6        11.3
    
 
 
    
 
 
    
 
 
          
Total Gas Operating Revenues
  
$
78.7
 
   $ 70.2      $ 8.5        12.1
    
 
 
    
 
 
    
 
 
          
Cost of Gas Sales
  
$
30.9
 
   $ 27.8      $ 3.1        11.2
    
 
 
    
 
 
    
 
 
          
Gas Adjusted Gross Margin
  
$
47.8
 
   $ 42.4      $ 5.4        12.7
    
 
 
    
 
 
    
 
 
          
Gas Adjusted Gross Margin (a
non-GAAP
measure) was $47.8 million in the first quarter of 2021, an increase of $5.4 million compared to the same period in 2020, driven largely by higher rates of $3.3 million. The remaining increase of $2.1 million reflects the favorable effects of colder winter weather and customer growth, partially offset by lower C&I sales.
The increase in Total Gas Operating Revenues of $8.5 million in the first quarter of 2021 was driven by higher gas sales volumes and higher cost of gas sales, which are tracked and reconciled costs that are passed through directly to customers.
Electric Sales, Revenues and Adjusted Gross Margin
Kilowatt-hour Sales
-
In the first quarter of 2021, Unitil’s total electric kWh sales increased 0.7% compared to the first quarter of 2020. Sales to Residential customers increased 7.3% while sales to C&I customers decreased 4.1% in the first quarter of 2021 compared to the same period in 2020. The increase in sales to Residential customers reflects higher consumption due to the coronavirus pandemic, and customer growth. The decrease in sales to C&I customers reflects lower usage as a result of the economic slowdown caused by the coronavirus pandemic, partially offset by customer growth. As of March 31, 2021, the number of electric customers served increased by 984 over the previous year. Sales margins from decoupled unit sales (representing approximately 27% of total annual kWh sales volume) are not sensitive to changes in electric kWh sales.
 
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The following table details total kWh sales for the three months ended March 31, 2021 and 2020 by major customer class:
 
kWh Sales (millions)
      
     Three Months Ended March 31,  
    
2021
     2020      Change      % Change  
Residential
  
 
192.2
       179.1        13.1        7.3
Commercial / Industrial
  
 
231.9
       241.9        (10.0      (4.1 %) 
    
 
 
    
 
 
    
 
 
          
Total
  
 
424.1
       421.0        3.1        0.7
    
 
 
    
 
 
    
 
 
          
Electric Operating Revenues and Electric Adjusted Gross Margin
-
The following table details total Electric Operating Revenues and Electric Adjusted Gross Margin for the three months ended March 31, 2021 and 2020:
 
Electric Operating Revenues and Adjusted Gross Margin ($ in millions)
 
     Three Months Ended March 31,  
    
2021
     2020      $ Change      % Change  
Electric Operating Revenues:
                                   
Residential
  
$
 36.2
 
   $  35.9      $ 0.3        0.8
Commercial / Industrial
  
 
23.9
 
     24.3        (0.4      (1.6 %) 
    
 
 
    
 
 
    
 
 
          
Total Electric Operating Revenues
  
$
60.1
 
   $ 60.2      $ (0.1      (0.2 %) 
    
 
 
    
 
 
    
 
 
          
Total Cost of Electric Sales
  
$
36.4
 
   $ 37.1      $ (0.7      (1.9 %) 
    
 
 
    
 
 
    
 
 
          
Electric Sales Margin
  
$
23.7
 
   $ 23.1      $ 0.6        2.6
    
 
 
    
 
 
    
 
 
          
Electric Adjusted Gross Margin (a
non-GAAP
measure) was $23.7 million in the first quarter of 2021, an increase of $0.6 million compared to the same period in 2020. This increase reflects colder winter weather, customer growth, and the combined net effect of higher Residential sales and lower C&I sales associated with the coronavirus pandemic.
The decrease in Total Electric Operating Revenues of $0.1 million in the first quarter of 2021 reflects lower cost of electric sales, which are tracked and reconciled costs that are passed through directly to customers, partially offset by higher sales of electricity.
Operating Expenses
Cost of Gas Sales
-
Cost of Gas Sales includes the cost of gas purchased to supply the Company’s total gas supply requirements and spending on energy efficiency programs. Cost of Gas Sales increased $3.1 million, or 11.2%, in the three months ended March 31, 2021 compared to the same period in 2020. This increase reflects higher sales of gas and higher wholesale gas prices, partially offset by an increase in the amount of gas purchased by customers directly from third-party suppliers. Because the Company reconciles and recovers the approved Cost of Gas Sales in its rates at cost on a pass-through basis, changes in approved expenses do not affect earnings.
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 decreased $0.7 million, or 1.9%, in the three months ended March 31, 2021 compared to the same period in 2020. This decrease reflects lower wholesale electricity prices, partially offset by higher sales of electricity, and a decrease in the amount of electricity purchased by customers directly from third-party suppliers. Because Company reconciles and recovers the approved Cost of Electric Sales in its rates at cost on a pass-through basis, changes in approved expenses do not affect earnings.
 
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Operation and Maintenance -
O&M expense includes electric and gas utility operating costs, and the operating costs of the Company’s other business activities. O&M expenses decreased $0.9 million, or 5.0%, in the three months ended March 31, 2021 compared to the same period in 2020. The change in O&M expenses reflects lower labor costs of $0.8 million and lower professional fees of $0.4 million, partially offset by higher utility operating costs of $0.3 million. The lower labor costs reflect lower restricted stock expense, partially offset by higher salaries expense.
Depreciation and Amortization -
Depreciation and Amortization expense increased $1.4 million, or 10.4%, in the three months ended March 31, 2021 compared to the same period in 2020, primarily reflecting additional depreciation associated with higher utility plant in service.
Taxes Other Than Income Taxes -
Taxes Other Than Income Taxes decreased $0.3 million, or 4.6%, in the three months ended March 31, 2021 compared to the same period in 2020, reflecting lower payroll taxes, partially offset by higher local property taxes on higher levels of utility plant in service.
Other Expense (Income), Net -
Other Expense (Income), Net decreased $0.2 million, or 13.3% in the three months ended March 31, 2021 compared to the same period in 2020, reflecting lower retirement benefit and other costs.
Provision for Income Taxes
-
Federal and State Income Taxes increased $1.8 million for the three months ended March 31, 2021 compared to the same period in 2020, primarily reflecting higher
pre-tax
earnings in the current period.
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.
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. In accordance with the distribution utilities’ rate tariffs, interest is calculated for 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.
 
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Interest Expense, Net
($ in millions)
  
Three Months

Ended March 31,
 
    
2021
    2020     Change  
Interest Expense
      
Long-term Debt
  
$
6.6
 
  $ 6.1     $ 0.5  
Short-term Debt
  
 
0.2
 
    0.6       (0.4
Regulatory Liabilities
  
 
0.1
 
    0.1       —    
  
 
 
   
 
 
   
 
 
 
Subtotal Interest Expense
  
 
6.9
 
    6.8       0.1  
  
 
 
   
 
 
   
 
 
 
Interest (Income)
      
Regulatory Assets
  
 
(0.1
    (0.3     0.2  
AFUDC and Other
  
 
(0.1
    (0.3     0.2  
  
 
 
   
 
 
   
 
 
 
Subtotal Interest (Income)
  
 
(0.2
    (0.6     0.4  
  
 
 
   
 
 
   
 
 
 
Total Interest Expense, Net
  
$
6.7
 
  $ 6.2     $ 0.5  
  
 
 
   
 
 
   
 
 
 
Interest Expense, Net in the three months ended March 31, 2021 increased $0.5 million compared to the same period in 2020, reflecting higher interest on long-term debt and higher net interest on regulatory assets and liabilities, partially offset by lower rates on lower levels of short-term borrowings.
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 therefore are 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 (as defined). At March 31, 2021, March 31, 2020 and December 31, 2020, 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 and related documents (collectively, the Credit Facility) with a syndicate of lenders, which amended and restated in its entirety the Company’s prior credit facility. The Credit Facility extends to July 25, 2023, subject to two
one-year
extensions under certain circumstances, 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%. The Company may increase the borrowing limit under the Credit Facility by up to $50 million under certain circumstances.
 
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The Company utilizes the Credit Facility for cash management purposes related to its short-term operating activities. Total gross borrowings were $58.0 million for the three months ended March 31, 2021. Total gross repayments were $75.4 million for the three months ended March 31, 2021. The following table details the borrowing limits, amounts outstanding and amounts available under the Credit Facility as of March 31, 2021, March 31, 2020 and December 31, 2020:
 
    
Revolving Credit Facility ($ in millions)
 
    
March 31,
     December 31,  
    
2021
     2020      2020  
Limit
  
$
120.0
 
   $ 120.0      $ 120.0  
Short-Term Borrowings Outstanding
  
 
37.3
 
     71.6        54.7  
Letter of Credit Outstanding
  
 
—  
 
     0.1        0.1  
  
 
 
    
 
 
    
 
 
 
Available
  
$
82.7
 
   $ 48.3      $ 65.2  
  
 
 
    
 
 
    
 
 
 
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, the Company’s and its subsidiaries’ ability to permit liens or incur indebtedness, and restrictions on the Company’s ability to merge or consolidate with another entity or change its line of business. The affirmative and negative covenants under the Credit Facility apply 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 Funded Debt to Capitalization (as each term is defined in the Credit Facility) cannot exceed 65%, tested on a quarterly basis. At March 31, 2021, March 31, 2020 and December 31, 2020, the Company was in compliance with the covenants contained in the Credit Facility in effect on those dates.
The Company is monitoring the coronavirus pandemic, and does not believe the pandemic will adversely affect its access to capital and funding sources, or its planned capital expenditures. The Company believes its future operating cash flows, its available borrowing capacity, and its access to private and public capital markets for the issuance of long-term debt and equity securities will be sufficient to meet its working capital and capital investment needs.
On December 18, 2020, Unitil Realty Corp. entered into a loan agreement in the amount of $4.7 million at 2.64%, with a maturity date of December 18, 2030. Less than $0.1 million of costs associated with this loan have been recorded as a reduction to the proceeds. Unitil Realty Corp. used the net proceeds from this loan for general corporate purposes.
On September 15, 2020, Northern Utilities issued $40 million of Notes due 2040 at 3.78%. Fitchburg issued $27.5 million of Notes due 2040 at 3.78%. Unitil Energy issued $27.5 million of Bonds due 2040 at 3.58%. Northern Utilities, Fitchburg and Unitil Energy used the net proceeds from these offerings to repay short-term debt and for general corporate purposes. Approximately $0.5 million of costs associated with these issuances have been recorded as a reduction to 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 currently are rated “BBB+” by Standard & Poor’s Ratings Services. Unitil Corporation and Granite State currently are rated “Baa2”, and Fitchburg, Unitil Energy and Northern Utilities are currently rated “Baa1” by Moody’s Investors Services.
 
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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.
The Company provides limited guarantees on certain energy and gas storage management contracts entered into by the distribution utilities. The Company’s policy is to limit the duration of these guarantees. As of March 31, 2021, there were approximately $0.7 million of guarantees outstanding with a duration less than one year.
Northern Utilities enters into asset management agreements under which Northern Utilities releases certain gas pipeline and storage assets, resells the gas storage inventory to an asset manager and subsequently repurchases the inventory over the course of the gas heating season at the same price at which it sold the gas inventory to the asset manager. There was $1.5 million, $2.5 million and $5.4 million of gas storage inventory at March 31, 2021, March 31, 2020 and December 31, 2020, respectively, related to these asset management agreements. The amount of gas inventory released in March 2021 and payable in April 2021 is $0.5 million and is recorded in Accounts Payable at March 31, 2021. The amount of gas inventory released in March 2020 and payable in April 2020 was $0.6 million and was recorded in Accounts Payable at March 31, 2020. The amount of gas inventory released in December 2020 and payable in January 2021 was $1.0 million and was recorded in Accounts Payable at December 31, 2020.
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 Corporation’s subsidiaries conduct a portion of their operations in leased facilities, and lease some of their vehicles, machinery and office equipment under both capital and operating lease arrangements. As of March 31, 2021, there were approximately $0.7 million of guarantees on certain energy and gas storage management contracts entered into by the distribution utilities outstanding. See Note 4 (Debt and Financing Arrangements) to the accompanying Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
The preparation of the Company’s 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 sometimes is required to make difficult, subjective and/or complex judgments about the effect 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. As of March 31, 2021, the Company’s critical accounting policies and estimates had not changed significantly from December 31, 2020. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s 2020 Form
10-K
for additional information.
EMPLOYEES
Unitil’s commitment to excellence begins with its employees. As of March 31, 2021, the Company and its subsidiaries had 506 employees. The Company considers its relationship with employees to be good and has not experienced any major labor disruptions. Unitil’s employees are focused on the Company’s mission to safely and reliably deliver “energy for life” and provide customers with affordable and sustainable energy solutions.
 
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The Company strives to be the employer of choice in the communities it serves – regardless of race, religion, color, gender identification, or sexual orientation. The Company works diligently to attract the best talent from a diverse range of sources to meet the current and future demands of our business.
To attract and retain a talented workforce, Unitil provides employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic location. All employees are eligible for health insurance, paid and unpaid leave, educational assistance, retirement plan and life and disability/accident coverage.
Employees at Unitil have the opportunity to be heard. Feedback from employees is collected annually in the Company’s Employee Opinion survey. This feedback helps create action plans to improve the engagement of employees consistent with the Company’s culture of continuous improvement.
As of March 31, 2021, a total of 163 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 March 31, 2021:
 
    
Employees Covered
    
CBA Expiration
 
Fitchburg
     43        05/31/2022  
Northern Utilities NH Division
     36        06/07/2025  
Northern Utilities ME Division
     36        03/31/2026  
Granite State
       4        03/31/2026  
Unitil Energy
     39        05/31/2023  
Unitil Service
       5        05/31/2023  
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.
INTEREST RATE RISK
Unitil meets its external financing needs in part 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 rates on the Company’s short-term borrowings and intercompany money pool transactions for the three months ended March 31, 2021 and March 31, 2020 were 1.3% and 2.6%, respectively. The average interest rate on the Company’s short-term borrowings for the twelve months ended December 31, 2020 was 1.7%.
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 gas supply costs in rates on a pass-through basis. Consequently, there is limited commodity price risk after consideration of the related rate-making. As discussed in Note 6 (Regulatory Matters), the Company has divested its long-term power supply contracts and therefore, further reduced its exposure to commodity risk.
 
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REGULATORY MATTERS
Refer to Note 6 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of Regulatory Matters.
ENVIRONMENTAL MATTERS
Refer to Note 7 to the unaudited Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of Environmental Matters.
 
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Item 1. Financial Statements
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions, except per share data) (UNAUDITED)
 
    
Three Months Ended
March 31,
 
    
2021
     2020  
Operating Revenues
                 
Gas
  
$
78.7
 
   $ 70.2  
Electric
  
 
60.1
 
     60.2  
    
 
 
    
 
 
 
Total Operating Revenues
  
 
138.8
 
     130.4  
    
 
 
    
 
 
 
Operating Expenses
                 
Cost of Gas Sales
  
 
30.9
 
     27.8  
Cost of Electric Sales
  
 
36.4
 
     37.1  
Operation and Maintenance
  
 
17.0
 
     17.9  
Depreciation and Amortization
  
 
14.9
 
     13.5  
Taxes Other than Income Taxes
  
 
6.2
 
     6.5  
    
 
 
    
 
 
 
Total Operating Expenses
  
 
105.4
 
     102.8  
    
 
 
    
 
 
 
Operating Income
  
 
33.4
 
     27.6  
Interest Expense, Net
  
 
6.7
 
     6.2  
Other Expense (Income), Net
  
 
1.3
 
     1.5  
    
 
 
    
 
 
 
Income Before Income Taxes
  
 
25.4
 
     19.9  
Provision For Income Taxes
  
 
6.5
 
     4.7  
    
 
 
    
 
 
 
Net Income
  
$
18.9
 
   $ 15.2  
    
 
 
    
 
 
 
Net Income Per Common Share (Basic and Diluted)
  
$
1.26
 
   $ 1.02  
Weighted Average Common Shares Outstanding – (Basic and Diluted)
  
 
15.0
 
     14.9  
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
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UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Millions) (UNAUDITED)
 
    
March 31,
     December 31,  
    
2021
     2020      2020  
ASSETS:
                          
       
Current Assets:
                          
Cash and Cash Equivalents
  
$
6.1
 
   $ 6.2      $ 6.0  
Accounts Receivable, Net
  
 
73.2
 
     62.6        62.0  
Accrued Revenue
  
 
34.7
 
     38.6        50.9  
Exchange Gas Receivable
  
 
1.2
 
     2.2        4.9  
Gas Inventory
  
 
0.4
 
     0.4        0.6  
Materials and Supplies
  
 
9.2
 
     9.2        8.5  
Prepayments and Other
  
 
7.9
 
     6.6        6.4  
    
 
 
    
 
 
    
 
 
 
Total Current Assets
  
 
132.7
 
     125.8        139.3  
    
 
 
    
 
 
    
 
 
 
       
Utility Plant:
                          
Gas
  
 
922.4
 
     869.7        920.2  
Electric
  
 
576.8
 
     538.4        575.9  
Common
  
 
64.5
 
     62.8        64.1  
Construction Work in Progress
  
 
38.3
 
     43.3        34.8  
    
 
 
    
 
 
    
 
 
 
Total Utility Plant
  
 
1,602.0
 
     1,514.2        1,595.0  
Less: Accumulated Depreciation
  
 
409.7
 
     389.1        401.8  
    
 
 
    
 
 
    
 
 
 
Net Utility Plant
  
 
1,192.3
 
     1,125.1        1,193.2  
    
 
 
    
 
 
    
 
 
 
       
Other Noncurrent Assets:
                          
Regulatory Assets
  
 
128.7
 
     105.3        127.4  
Operating Lease Right of Use Assets
  
 
5.4
 
     4.9        5.2  
Other Assets
  
 
17.9
 
     17.3        12.8  
    
 
 
    
 
 
    
 
 
 
Total Other Noncurrent Assets
  
 
152.0
 
     127.5        145.4  
    
 
 
    
 
 
    
 
 
 
       
TOTAL ASSETS
  
$
1,477.0
 
   $ 1,378.4      $ 1,477.9  
    
 
 
    
 
 
    
 
 
 
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
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UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Cont.)
(Millions, except number of shares) (UNAUDITED)
 
    
March 31,
     December 31,  
    
2021
     2020      2020  
LIABILITIES AND CAPITALIZATION:
                          
Current Liabilities:
                          
Accounts Payable
  
$
28.7
 
   $ 26.5      $ 33.2  
Short-Term Debt
  
 
37.3
 
     71.6        54.7  
Long-Term Debt, Current Portion
  
 
8.5
 
     6.3        8.5  
Regulatory Liabilities
  
 
14.7
 
     10.5        5.5  
Energy Supply Obligations
  
 
7.7
 
     7.9        10.4  
Interest Payable
  
 
6.8
 
     7.2        5.0  
Environmental Obligations
  
 
0.3
 
     0.3        0.3  
Other Current Liabilities
  
 
18.9
 
     16.8        18.5  
    
 
 
    
 
 
    
 
 
 
Total Current Liabilities
  
 
122.9
 
     147.1        136.1  
    
 
 
    
 
 
    
 
 
 
Noncurrent Liabilities:
                          
Retirement Benefit Obligations
  
 
164.8
 
     145.4        162.3  
Deferred Income Taxes, Net
  
 
115.4
 
     108.7        109.0  
Cost of Removal Obligations
  
 
102.5
 
     98.8        105.2  
Regulatory Liabilities
  
 
43.5
 
     45.1        44.3  
Environmental Obligations
  
 
1.8
 
     1.9        1.8  
Other Noncurrent Liabilities
  
 
7.0
 
     7.2        6.9  
    
 
 
    
 
 
    
 
 
 
Total Noncurrent Liabilities
  
 
435.0
 
     407.1        429.5  
    
 
 
    
 
 
    
 
 
 
Capitalization:
                          
Long-Term Debt, Less Current Portion
  
 
515.8
 
     436.3        523.1  
Stockholders’ Equity:
                          
Common Equity (Authorized: 25,000,000 and Outstanding:15,041,629, 14,963,444 and 15,012,310 Shares)
  
 
286.3
 
     284.0        285.3  
Retained Earnings
  
 
116.8
 
     103.7        103.7  
    
 
 
    
 
 
    
 
 
 
Total Common Stock Equity
  
 
403.1
 
     387.7        389.0  
Preferred Stock
  
 
0.2
 
     0.2        0.2  
    
 
 
    
 
 
    
 
 
 
Total Stockholders’ Equity
  
 
403.3
 
     387.9        389.2  
    
 
 
    
 
 
    
 
 
 
Total Capitalization
  
 
919.1
 
     824.2        912.3  
    
 
 
    
 
 
    
 
 
 
Commitments and Contingencies
(Notes 6 & 7)
                        
TOTAL LIABILITIES AND CAPITALIZATION
  
$
1,477.0
 
   $ 1,378.4      $ 1,477.9  
    
 
 
    
 
 
    
 
 
 
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
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UNITIL CORPORATION AND SUBSIDIARY COMPANIES
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions) (UNAUDITED)
 
    
Three Months Ended

March 31,
 
    
2021
    2020  
Operating Activities:
                
Net Income
  
$
18.9
 
  $ 15.2  
Adjustments to Reconcile Net Income to Cash
                
Provided by Operating Activities:
                
Depreciation and Amortization
  
 
14.9
 
    13.5  
Deferred Tax Provision
  
 
6.2
 
    4.7  
Changes in Working Capital Items:
                
Accounts Receivable
  
 
(11.2
    (7.5
Accrued Revenue
  
 
16.2
 
    11.4  
Exchange Gas Receivable
  
 
3.7
 
    3.9  
Regulatory Liabilities
  
 
9.2
 
    3.1  
Accounts Payable
  
 
(4.5
    (11.1
Other Changes in Working Capital Items
  
 
0.8
 
    (3.0
Deferred Regulatory and Other Charges
  
 
(7.7
    (0.4
Other, Net
  
 
1.2
 
    (1.9
    
 
 
   
 
 
 
Cash Provided by Operating Activities
  
 
47.7
 
    27.9  
    
 
 
   
 
 
 
Investing Activities:
                
Property, Plant and Equipment Additions
  
 
(14.1
    (16.8
    
 
 
   
 
 
 
Cash (Used in) Investing Activities
  
 
(14.1
    (16.8
    
 
 
   
 
 
 
Financing Activities:
                
(Repayment of) Proceeds from Short-Term Debt, Net
  
 
(17.4
    13.0  
Repayment of Long-Term Debt
  
 
(7.2
    (14.4
Increase in Capital Lease Obligations
  
 
0.1
 
    0.2  
Net Decrease in Exchange Gas Financing
  
 
(3.5
    (3.6
Dividends Paid
  
 
(5.8
    (5.6
Proceeds from Issuance of Common Stock
  
 
0.3
 
    0.3  
    
 
 
   
 
 
 
Cash (Used in) Financing Activities
  
 
(33.5
    (10.1
    
 
 
   
 
 
 
Net Increase in Cash and Cash Equivalents
  
 
0.1
 
    1.0  
Cash and Cash Equivalents at Beginning of Period
  
 
6.0
 
    5.2  
    
 
 
   
 
 
 
Cash and Cash Equivalents at End of Period
  
$
6.1
 
  $ 6.2  
    
 
 
   
 
 
 
Supplemental Cash Flow Information:
                
Interest Paid
  
$
4.9
 
  $ 3.6  
Income Taxes Paid
  
$
0.3
 
  $ —    
Payments on Capital Leases
  
$
0.1
 
  $ 0.1  
Non-cash
Investing Activity:
                
Capital Expenditures Included in Accounts Payable
  
$
4.1
 
  $ 0.5  
Right-of-Use
Assets Obtained in Exchange for Lease Obligations
  
$
0.2
 
  $ 0.9  
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
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UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(Millions, except number of shares)
(UNAUDITED)
 
 
     Common
Equity
     Retained
Earnings
    Total  
Balance at January 1, 2021
   $ 285.3      $ 103.7    
$
389.0
 
Net Income
              18.9    
 
18.9
 
Dividends on Common Shares ($0.38 per Common Share)
              (5.8  
 
(5.8
Stock Compensation Plans
     0.7             
 
0.7
 
Issuance of 6,179 Common Shares
     0.3             
 
0.3
 
    
 
 
    
 
 
   
 
 
 
Balance at March 31, 2021
  
$
286.3
 
  
$
116.8
 
 
$
403.1
 
    
 
 
    
 
 
   
 
 
 
Balance at January 1, 2020
   $ 282.5      $ 94.1    
$
376.6
 
Net Income
              15.2    
 
15.2
 
Dividends on Common Shares ($0.375 per Common Share)
              (5.6  
 
(5.6
Stock Compensation Plans
     1.2             
 
1.2
 
Issuance of 4,644 Common Shares
     0.3             
 
0.3
 
    
 
 
    
 
 
   
 
 
 
Balance at March 31, 2020
  
$
284.0
 
  
$
103.7
 
 
$
387.7
 
    
 
 
    
 
 
   
 
 
 
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
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UNITIL CORPORATION AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
Nature of Operations
-
Unitil Corporation (Unitil or the Com
p
any) 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).
The Company’s earnings are seasonal and typically are higher in the first and fourth quarters when customers use 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 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, including 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 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 gas pipelines and access to domestic gas supplies in the south and Canadian 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, on May 1, 2003 Unitil Power ceased being the wholesale supplier of Unitil Energy 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. In the period since, Unitil Power continued to flow revenues and expenses from remaining contracts to Unitil Energy under the Amended Unitil System Agreement. The last of those contracts expired October 31, 2020, and the Company no longer has material revenues or expenses associated with them. 
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.
Basis of Presentation -
The accompanying unaudited consolidated financial statements of Unitil have been prepared in accordance with the instructions to Form
10-Q
and include the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021. For additional information, refer to Note 1 of Part II to the Consolidated Financial Statements – “Summary of Significant Accounting Policies” of the Company’s Form
10-K
for the year ended December 31, 2020, as filed with the Securities and Exchange Commission (SEC) on February 2, 2021, for a description of the Company’s Basis of Presentation.
 
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Utility Revenue Recognition -
Gas Operati
n
g 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.
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 estimated each month based on estimated customer usage by class and applicable customer rates, taking into account current and historical weather data, assumptions pertaining to metering patterns, billing cycle statistics, and other estimates and assumptions, and are then reversed in the following month when billed to customers.
A majority of the Company’s revenue from contracts with customers continues to be recognized on a monthly basis based on applicable tariffs and 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.
The Company’s billed and unbilled revenue meets the definition of “revenues from contracts with customers” as defined in Accounting Standards Codification (ASC) 606. Revenue recognized in connection with rate adjustment mechanisms is consistent with the definition of alternative revenue programs in 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. The rate adjustment mechanisms meet the criteria within ASC
980-605-25-4.
In cases where allowable costs are greater than operating revenues billed in the current period for the individual rate adjustment mechanism, additional operating revenue is recognized. In cases where allowable costs are less than operating revenues billed in the current period for the individual rate adjustment mechanism, operating revenue is reduced. ASC 606 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.
 
    
Three Months Ended March 31, 2021
 
Gas and Electric Operating Revenues ($ millions):
  
Gas
    
Electric
    
Total
 
Billed and Unbilled Revenue:
        
Residential
   $ 37.7      $ 38.1      $ 75.8  
C&I
     50.1        25.9        76.0  
Other
     5.4        1.8        7.2  
    
 
 
    
 
 
    
 
 
 
Total Billed and Unbilled Revenue
     93.2        65.8        159.0  
Rate Adjustment Mechanism Revenue
     (14.5      (5.7      (20.2
    
 
 
    
 
 
    
 
 
 
Total Gas and Electric Operating Revenues
  
$
78.7
 
  
$
60.1
 
  
$
138.8
 
    
 
 
    
 
 
    
 
 
 
 
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Three Months Ended March 31, 2020
 
Gas and Electric Operating Revenues ($ millions):
  
Gas
    
Electric
    
Total
 
Billed and Unbilled Revenue:
                          
Residential
   $ 31.1      $ 34.4      $ 65.5  
C&I
     42.3        24.1        66.4  
Other
     3.0        2.0        5.0  
    
 
 
    
 
 
    
 
 
 
Total Billed and Unbilled Revenue
     76.4        60.5        136.9  
Rate Adjustment Mechanism Revenue
     (6.2      (0.3      (6.5
    
 
 
    
 
 
    
 
 
 
Total Gas and Electric Operating Revenues
  
$
70.2
 
  
$
60.2
 
  
$
130.4
 
    
 
 
    
 
 
    
 
 
 
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 gas sales. The 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.
Income Taxes -
The Company is subject to Federal and State income taxes and various other business taxes. The Company’s process for determining income tax amounts involves estimating the Company’s current tax liabilities, and 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 penalties 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 jurisdiction 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.
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. As of March 31, 2021, March 31, 2020 and December 31, 2020, the Unitil subsidiaries had deposited $2.2 million, $2.4 million and $2.4 million, respectively to satisfy their
ISO-NE
obligations.
Financial Instruments -
In June 2016, the Financial Accounting Standards Board issued ASU
2016-13,
“Financial Instruments—Credit Losses (Topic 326)”, which provides a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Under the new guidance, immediate recognition of all credit losses expected over the life of a financial instrument is required. The Company adopted this standard on the accounting for credit loss
e
s on its financial instruments, including accounts receivable, on January 1, 2020, and it did not have a material effect on the financial statements.
 
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Allowance for Doubtful Accounts -
The Company recognizes a provision for doubtful accounts that reflects the Company’s estimate of expected credit losses for electric and gas utility service accounts receivable. The allowance for doubtful accounts is calculated by applying a historical loss rate, which is adjusted for current conditions, customer trends, or other factors such as macroeconomic conditions, to customer account balances. The Company 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 protected hardship accounts. Evaluating the adequacy of the allowance for doubtful accounts requires judgment about the assumptions used in the analysis. The Company’s experience has been that the assumptions used in evaluating the adequacy of the allowance for doubtful accounts have proven to be reasonably accurate.
The Allowance for Doubtful Accounts as of March 31, 2021, March 31, 2020 and December 31, 2020, was as follows:
 
($ millions)
             
    
March 31,
     December 31,  
    
2021
     2020      2020  
Allowance for Doubtful Accounts
  
$
4.4
     $ 1.8      $ 3.3  
    
 
 
    
 
 
    
 
 
 
Accounts Receivable, Net includes $4.3 million, $1.7 million, and $3.1 million of the Allowance for Doubtful Accounts at March 31, 2021, March 31, 2020 and December 31, 2020, respectively. Unbilled Revenues, net (a component of Accrued Revenue) includes $0.1 million, $0.1 million and $0.2 million of the Allowance for Doubtful Accounts at March 31, 2021, March 31, 2020 and December 31, 2020, respectively.
Accrued Revenue -
Accrued Revenue includes the current portion of Regulatory Assets and unbilled revenues. The following table shows the components of Accrued Revenue as of March 31, 2021, March 31, 2020 and December 31, 2020.
 
    
March 31,
    
December 31,
 
Accrued Revenue ($ millions)
  
2021
     2020      2020  
Regulatory Assets – Current
  
$
24.0
 
   $ 28.4      $ 37.3  
Unbilled Revenues, net
  
 
10.7
 
     10.2        13.6  
    
 
 
    
 
 
    
 
 
 
Total Accrued Revenue
  
$
34.7
 
   $ 38.6      $ 50.9  
    
 
 
    
 
 
    
 
 
 
 
Exchange Gas Receivable -
Northern Utilities and Fitchburg have gas exchange and storage agreements whereby gas purchases during the months of April through October are delivered to a third party. The third party delivers 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 March 31, 2021, March 31, 2020 and December 31, 2020.  
 
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March 31,
    
December 31,
 
Exchange Gas Receivable ($ millions)
  
2021
     2020      2020  
Northern Utilities
  
$
1.0
 
   $ 1.9      $ 4.4  
Fitchburg
  
 
0.2
 
     0.3        0.5  
    
 
 
    
 
 
    
 
 
 
Total Exchange Gas Receivable
  
$
1.2
 
   $ 2.2      $ 4.9  
    
 
 
    
 
 
    
 
 
 
 
Gas Inventory
- The Company uses the weighted average cost methodology to value gas inventory. The following table shows the components of Gas Inventory as of March 31, 2021, March 31, 2020 and December 31, 2020.
 
    
March 31,
    
December 31,
 
Gas Inventory ($ millions)
  
2021
     2020      2020  
Natural Gas
  
$
—  
 
   $ —        $ 0.2  
Propane
  
 
0.3
 
     0.3        0.3  
Liquefied Natural Gas & Other
  
 
0.1
 
     0.1        0.1  
    
 
 
    
 
 
    
 
 
 
Total Gas Inventory
  
$
0.4
 
   $ 0.4      $ 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 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 March 31, 2021, March 31, 2020 and December 31, 2020, the cost of removal amounts, which are recorded on the Consolidated Balance Sheets in Cost of Removal Obligations, were estimated to be $102.5 million, $98.8 million, and $105.2 million, respectively.  
Leases
– The Company records assets and liabilities on the balance sheet for all leases with terms 
longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company has elected the practical expedient to not separate
non-lease
components from lease components and instead to account for both as a single lease component. The Company’s accounting policy election for leases with a lease term of 12 months or less is to recognize the lease payments as lease expense in the Consolidated Statements of Earnings on a straight-line basis over the lease term. See additional discussion in the “Leases” section of Note 4 (Debt and Financing Arrangements).
Regulatory Accounting -
The Company’s principal business is the distribution of electricity and 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 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.
 
 
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March 31,
     December 31,  
Regulatory Assets consist of the following ($ millions)
  
2021
     2020      2020  
Retirement Benefits
  
$
104.5
 
   $ 80.8      $ 103.7  
Energy Supply & Other Rate Adjustment Mechanisms
  
 
20.2
 
     25.7        34.1  
Deferred Storm Charges
  
 
3.7
 
     5.3        4.1  
Environmental
  
 
5.0
 
     6.4        5.2