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Table of Contents
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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 September
30, 2022
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 file
s
).    
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 October 28, 2022
Common Stock, no par value   16,039,938 Shares
 
 
 


Table of Contents

UNITIL CORPORATION AND SUBSIDIARY COMPANIES

FORM 10-Q

For the Quarter Ended September 30, 2022

Table of Contents

 

     Page No.  

Cautionary Statement

     2-3  

Part I. Financial Information

  

Item 1.

 

Financial Statements—Unaudited

  
 

Consolidated Statements of Earnings—Three and Nine Months Ended September 30, 2022 and 2021

     18  
 

Consolidated Balance Sheets, September 30, 2022, September 30, 2021 and December 31, 2021

     19-20  
 

Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2022 and 2021

     21  
 

Consolidated Statements of Changes in Common Stock Equity – Three and Nine Months Ended September 30, 2022 and 2021

     22-23  
 

Notes to Consolidated Financial Statements

     24-51  
Item 2.  

Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations

     3-17  
Item 3.  

Quantitative and Qualitative Disclosures About Market Risk

     51  
Item 4.  

Controls and Procedures

     51  

Part II. Other Information

  
Item 1.   Legal Proceedings      51  
   Item 1A.   Risk Factors      51  
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds      51-52  
Item 3.   Defaults Upon Senior Securities      Inapplicable  
Item 4.   Mine Safety Disclosures      Inapplicable  
Item 5.   Other Information      52  
Item 6.   Exhibits      52-53  
Signatures      54  

 


Table of Contents

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 Part II, Item 1A (Risk Factors) and the following:

 

   

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;

 

   

fluctuations in the supply of, demand for, and the prices of, electric and gas energy commodities and transmission and transportation capacity and the Company’s ability to recover energy supply costs in its rates;

 

   

catastrophic events;

 

   

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 factors could disrupt the Company’s operations and cause the Company to incur unanticipated losses and expense;

 

   

outsourcing of services to third parties could expose the Company 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;

 

   

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 natural gas, or by reducing the supply of electricity or natural gas;

 

   

unforeseen or changing circumstances, which could adversely affect the reduction of Company-wide direct greenhouse gas emissions;

 

   

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;

 

   

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;

 

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increases in interest rates, which could increase the Company’s interest expense;

 

   

declines in capital market 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;

 

   

restrictive covenants contained in the terms of the Company’s and its subsidiaries’ indebtedness, which restrict certain aspects of the Company’s business operations;

 

   

customers’ preferred energy sources;

 

   

severe storms and the Company’s ability to recover storm costs in its rates;

 

   

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;

 

   

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

See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Unitil Corporation’s 2021 Annual Report on 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

 

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  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.

Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as the “distribution utilities.” Together, the distribution utilities serve approximately 107,700 electric customers and 86,600 gas customers.

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 $1,303.8 million at September 30, 2022. 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’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.

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 historical test years, and earn a return on their capital investment in utility assets. The Company’s distribution utilities and its gas transmission pipeline company also may recover certain base rate costs, including capital project spending and enhanced reliability and vegetation management programs, through annual step adjustments or cost tracking rate mechanisms.

 

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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 and NHPUC. Fitchburg has been subject to revenue decoupling since 2011. Unitil Energy is subject to revenue decoupling as of June 1, 2022. As a result of Unitil Energy now being subject to revenue decoupling, as of June 1, 2022, revenue decoupling now applies to substantially all of Unitil’s total annual electric sales volumes. As a result of the recently received final order in Northern Utilities’ base rate case in New Hampshire, substantially all of Northern Utilities’ gas sales volumes in New Hampshire are subject to decoupling as of August 1, 2022. As of August 1, 2022, the Company estimates that revenue decoupling applies to approximately 43% of Unitil’s total annual gas sales volumes.

RESULTS OF OPERATIONS

The following section of MD&A compares the results of operations for each of the two fiscal periods ended September 30, 2022 and September 30, 2021 and should be read in conjunction with the accompanying unaudited Consolidated Financial Statements and the accompanying Notes to 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 continues to respond to the coronavirus pandemic by taking steps to mitigate the potential risks posed by its spread. The Company’s electric and gas 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 the 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 for 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, that 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, by (i) disrupting the Company’s employees and contractors ability to provide ongoing services to the Company, (ii) reducing customer demand for electricity or gas, or (iii) 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 historically have reflected 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 are historically most favorable in the first and fourth quarters. Fluctuations in seasonal weather conditions may have a significant effect on the results of operations. Sales of electricity are generally less sensitive to weather than gas sales, but also may be affected by the weather conditions in both the winter and summer seasons. As a result of recent rate cases, the Company’s electric and gas GAAP gross margins and electric and gas adjusted gross margins (a non-GAAP financial measure) are derived from a higher percentage of fixed billing components, including customer charges. As of June 1, 2022, substantially all of Unitil’s total annual electric sales volumes are decoupled and changes in sales to existing customers do not affect GAAP gross margin and adjusted gross margin. As a result of the recently received final order in Northern Utilities’ base rate case in New Hampshire, substantially all of Northern Utilities’ gas sales volumes in New Hampshire are subject to decoupling as of August 1, 2022. As of August 1, 2022, the Company estimates that revenue decoupling applies to approximately 43% of Unitil’s total annual gas sales volumes.

 

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On August 6, 2021, the Company issued and sold 800,000 shares of its common stock at a price of $50.80 per share in a registered public offering (Offering). The Company’s net increase to Common Equity and Cash proceeds from the Offering was approximately $38.6 million. The proceeds were used to make capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes.

As part of the Offering, the Company granted the underwriters a 30-day option to purchase additional shares. The underwriters exercised the option and purchased an additional 120,000 shares of the Company’s common stock on September 8, 2021. The Company’s net increase to Common Equity and Cash proceeds from the exercise of the option was approximately $5.9 million. The proceeds were used to make equity capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes. Overall, the results of operations and earnings for the three and nine months ended September 30, 2022 reflect the higher number of average shares outstanding.

The Company analyzes operating results using Electric and Gas Adjusted Gross Margins, which are non-GAAP financial measures. Electric Adjusted Gross Margin is calculated as Total Electric Operating Revenue less Cost of Electric Sales. Gas Adjusted Gross Margin is calculated as Total Gas Operating Revenues less Cost of Gas Sales. The Company’s management believes Electric and Gas Adjusted Gross Margins provide useful information to investors regarding profitability. Also, the Company’s management believes Electric and Gas Adjusted Gross Margins are important financial measures to analyze revenue from the Company’s ongoing operations because the approved cost of electric and gas sales are tracked, reconciled and passed through directly to customers in electric and gas tariff rates, resulting in an equal and offsetting amount reflected in Total Electric and Gas Operating Revenue.

In the following tables the Company has reconciled Electric and Gas Adjusted Gross Margin to GAAP Gross Margin, which we believe to be the most comparable GAAP financial measure. GAAP Gross Margin is calculated as Revenue less Cost of Sales, and Depreciation and Amortization. The Company calculates Electric and Gas Adjusted Gross Margin as Revenue less Cost of Sales. The Company believes excluding Depreciation and Amortization, which are period costs and not related to volumetric sales, is a meaningful measure to inform investors of the Company’s profitability from electric and gas sales in the period.

 

Three Months Ended September 30, 2022 ($ millions)

 
     Electric      Gas      Non-
Regulated
and Other
     Total  

Total Operating Revenue

   $ 75.7      $ 34.5      $ —        $  110.2  

Less: Cost of Sales

     (47.3      (14.1      —          (61.4

Less: Depreciation and Amortization

     (6.9      (9.5      (0.2      (16.6
  

 

 

    

 

 

    

 

 

    

 

 

 

GAAP Gross Margin

     21.5        10.9        (0.2      32.2  

Depreciation and Amortization

     6.9        9.5        0.2        16.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Gross Margin

   $ 28.4      $ 20.4      $  —        $ 48.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Three Months Ended September 30, 2021 ($ millions)

 
     Electric      Gas      Non-
Regulated
and Other
     Total  

Total Operating Revenue

   $ 65.5      $ 32.6      $ —        $ 98.1  

Less: Cost of Sales

     (40.1      (13.2      —          (53.3

Less: Depreciation and Amortization

     (6.5      (8.1      (0.2      (14.8
  

 

 

    

 

 

    

 

 

    

 

 

 

GAAP Gross Margin

     18.9        11.3        (0.2      30.0  

Depreciation and Amortization

     6.5        8.1        0.2        14.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Gross Margin

   $ 25.4      $ 19.4      $  —        $ 44.8  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Nine Months Ended September 30, 2022 ($ millions)

 
     Electric      Gas      Non-
Regulated
and Other
     Total  

Total Operating Revenue

   $ 219.2      $  182.5      $ —        $ 401.7  

Less: Cost of Sales

     (142.6      (81.9      —          (224.5

Less: Depreciation and Amortization

     (19.3      (26.9      (0.7      (46.9
  

 

 

    

 

 

    

 

 

    

 

 

 

GAAP Gross Margin

     57.3        73.7        (0.7      130.3  

Depreciation and Amortization

     19.3        26.9        0.7        46.9  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Gross Margin

   $ 76.6      $ 100.6      $  —        $ 177.2  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

Nine Months Ended September 30, 2021 ($ millions)

 
     Electric      Gas      Non-
Regulated
and Other
     Total  

Total Operating Revenue

   $ 182.2      $  151.3      $ —        $ 333.5  

Less: Cost of Sales

     (108.8      (59.1      —          (167.9

Less: Depreciation and Amortization

     (19.4      (24.5      (0.6      (44.5
  

 

 

    

 

 

    

 

 

    

 

 

 

GAAP Gross Margin

     54.0        67.7        (0.6      121.1  

Depreciation and Amortization

     19.4        24.5        0.6        44.5  
  

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted Gross Margin

   $ 73.4      $ 92.2      $  —        $ 165.6  
  

 

 

    

 

 

    

 

 

    

 

 

 

Electric GAAP Gross Margin was $21.5 million and $57.3 million in the three and nine months ended September 30, 2022, respectively, increases of $2.6 million and $3.3 million, respectively compared to the same periods in 2021. For the three month period, the increase was driven by higher rates and customer growth of $3.0 million, partially offset by higher depreciation and amortization expense of $0.4 million. The increase in the nine month period was driven by higher rates and customer growth of $3.7 million and lower depreciation and amortization expense of $0.1 million, partially offset by the unfavorable effect on sales from cooler spring weather of $0.5 million when rates were not yet decoupled.

Gas GAAP Gross Margin was $10.9 million in the three months ended September 30, 2022, a decrease of $0.4 million compared to the same period in 2021. Gas GAAP Gross Margin was $73.7 million in the nine months ended September 30, 2022, an increase of $6.0 million compared to the same period in 2021. The decrease in the three month period was primarily driven by higher depreciation and amortization expense of $1.4 million, partially offset by higher rates of $1.0 million. The increase in the nine month period was driven by higher rates of $7.0 million and the favorable effect on sales from customer growth and colder weather of $1.4 million, partially offset by higher depreciation and amortization expense of $2.4 million.

 

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Earnings Overview

The Company’s Net Income was $0.5 million, or $0.03 in Earnings Per Share (EPS) for the third quarter of 2022, an increase of $0.5 million in Net Income, or $0.03 in EPS, compared to the third quarter of 2021. The Company’s earnings in the third quarter of 2022 reflect higher Electric and Gas Adjusted Gross Margins (a non-GAAP financial measure), partially offset by higher operating expenses.

For the nine months ended September 30, 2022, the Company reported Net Income of $26.9 million, or $1.68 per share, an increase of $5.3 million, or $0.26 per share, compared to the same nine month period in 2021. The Company’s earnings in the first nine months of 2022 reflect higher Electric and Gas Adjusted Gross Margins (a non-GAAP financial measure), partially offset by higher operating expenses.

Electric Adjusted Gross Margin (a non-GAAP financial measure) was $28.4 million and $76.6 million in the three and nine months ended September 30, 2022, respectively, increases of $3.0 million and $3.2 million, respectively, compared with the same periods in 2021. The increase in the three month period was driven by higher rates and customer growth. The increase in the nine month period was driven by higher rates and customer growth of $3.7 million, partially offset by the unfavorable effect on sales from cooler spring weather of $0.5 million when rates were not yet decoupled.

Total electric kilowatt-hour (kWh) sales increased 1.0% and 0.4% in the three and nine month periods ended September 30, 2022, respectively, compared to the same periods in 2021. Sales to Residential customers increased 1.0% and sales to C&I customers increased 1.0% in the three month period ended September 30, 2022, compared to the same period in 2021. For the nine month period ended September 30, 2022, sales to Residential customers decreased 0.6% while sales to C&I customers increased 1.1%, compared to the same period in 2021. The changes in sales to Residential and C&I customers reflect warmer summer weather in 2022 compared to 2021, and customer growth, partially offset by cooler spring weather in 2022 compared to 2021. Based on weather data collected in the Company’s electric service areas, on average there were 1.4% fewer Cooling Degree Days (CDD) in the first nine months of 2022 compared to the same period in 2021. As of September 30, 2022, the number of electric customers increased by 734 over the previous year.

Gas Adjusted Gross Margin (a non-GAAP financial measure) was $20.4 million and $100.6 million in the three and nine months ended September 30, 2022, respectively, increases of $1.0 million and $8.4 million, respectively, compared to the same periods in 2021. These increases reflect higher rates of $1.0 million and $7.0 million in the three and nine month periods, respectively, while the remainder of the increase in the nine month period is attributable to the favorable effect on sales of customer growth and colder weather.

Gas therm sales decreased 1.8% in the three month period ended September 30, 2022, compared to the same period in 2021. In the third quarter of 2022, sales to Residential and C&I customers decreased 3.8% and 1.6%, respectively, compared to the same period in 2021, reflecting lower average usage. Total gas therm sales increased 2.5% in the nine month period ended September 30, 2022, compared to the same period in 2021. For the nine months ended September 30, 2022, sales to Residential and C&I customers increased 2.3% and 2.5%, respectively, compared to the same period in 2021. The increase in gas therm sales for the first nine months of 2022 reflects colder winter weather in the first quarter of 2022 compared to the same period in 2021, and customer growth. Based on weather data collected in the Company’s gas service areas, on average there were 3.9% more Effective Degree Days (EDD) in the first nine months of 2022 compared to the same period in 2021, although 2.4% fewer EDD compared to normal. The Company estimates weather-normalized gas therm sales, excluding decoupled sales, increased 0.7% in the first nine months of 2022 compared to the same period in 2021. As of September 30, 2022, the number of gas customers increased by 1,154 over the previous year.

 

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Operation and Maintenance (O&M) expenses increased $1.9 million, or 11.4%, and $4.3 million, or 8.4%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The increase in the three month period reflects higher utility operating costs of $1.0 million, higher labor costs of $0.8 million and higher professional fees of $0.1 million. The increase in the nine month period reflects higher labor costs of $2.5 million, higher professional fees of $1.3 million and higher utility operating costs of $0.5 million.

Depreciation and Amortization expense increased $1.8 million and $2.4 million in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, reflecting additional depreciation associated with higher levels of utility plant in service and higher amortization of rate case costs.

Taxes Other Than Income Taxes increased $0.3 million and $1.4 million in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The increase in the three month period reflects higher local property taxes on higher utility plant in service. The increase in the nine month period reflects higher local property taxes on higher utility plant in service and higher payroll taxes.

Interest Expense, Net increased $0.1 million in the three months ended September 30, 2022, compared to the same period in 2021, primarily reflecting higher interest expense on short-term borrowings, partially offset by lower interest expense on long-term debt. For the nine months ended September 30, 2022, Interest Expense, Net decreased $0.4 million compared to the same period in 2021, primarily reflecting lower interest expense on long-term debt and higher interest income on regulatory assets, partially offset by higher interest expense on short-term borrowings.

Other Expense (Income), Net decreased $0.4 million and $1.5 million in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, reflecting lower retirement benefit costs.

Federal and State Income Taxes for the three months ended September 30, 2022 decreased $0.2 million compared with the same period in 2021, primarily resulting from the flow back of excess Accumulated Deferred Income Taxes. For the nine months ended September 30, 2022, Federal and State Income Taxes increased $0.1 million compared to the same period in 2021, reflecting higher pre-tax earnings in the current period, partially offset by the flow back of excess Accumulated Deferred Income Taxes.

At its January 2022, April 2022, July 2022 and October 2022 meetings, the Unitil Corporation Board of Directors declared quarterly dividends on the Company’s common stock of $0.39 per share. These quarterly dividends result in a current effective annualized dividend rate of $1.56 per share, representing an unbroken record of quarterly dividend payments since trading began in Unitil’s common stock.

Electric Sales, Revenues and Adjusted Gross Margin

Kilowatt-hour Sales - Unitil’s total electric kWh sales increased 1.0% and 0.4% in the three and nine month periods ended September 30, 2022, respectively, compared to the same periods in 2021. Sales to Residential customers increased 1.0% and sales to C&I customers increased 1.0% in the three month period ended September 30, 2022, compared to the same period in 2021. For the nine month period ended September 30, 2022, sales to Residential customers decreased 0.6% while sales to C&I customers increased 1.1%, compared to the same period in 2021. The changes in sales to Residential and C&I customers reflect warmer summer weather in 2022 compared to 2021, and customer growth, partially offset by cooler spring weather in 2022 compared to 2021. Based on weather data collected in the Company’s electric service areas, on average there were 1.4% fewer CDD in the first nine months of 2022 compared to the same period in 2021. As of September 30, 2022, the number of electric customers increased by 734 over the previous year. Sales margins derived from decoupled unit sales are not sensitive to changes in electric kWh sales. As of June 1, 2022, substantially all of the Company’s electric kWh sales volumes are decoupled. Prior to June 1, 2022, approximately 27% of the Company’s total annual electric kWh sales volumes were decoupled.

 

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The following table details total kWh sales for the three and nine months ended September 30, 2022 and 2021 by major customer class:

 

kWh Sales (millions)

 
     Three Months Ended September 30,     Nine Months Ended September 30,  
     2022      2021      Change      % Change     2022      2021      Change     % Change  

Residential

     201.7        199.7        2.0        1.0     538.2        541.4        (3.2     (0.6 %) 

Commercial / Industrial

     261.4        258.7        2.7        1.0     722.6        714.6        8.0       1.1
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

   

Total

     463.1        458.4        4.7        1.0     1,260.8        1,256.0        4.8       0.4
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

   

Electric Operating Revenues and Electric Adjusted Gross Margin - The following table details Total Electric Operating Revenues and Electric Adjusted Gross Margin for the three and nine month periods ended September 30, 2022 and 2021:

 

Electric Operating Revenues and Electric Adjusted Gross Margin ($ millions)

 
     Three Months Ended September 30,     Nine Months Ended September 30,  
     2022      2021      $ Change      % Change     2022      2021      $ Change      % Change  

Electric Operating Revenue:

                      

Residential

   $  44.2      $  37.6      $ 6.6        17.6   $  129.5      $  105.3      $  24.2        23.0

Commercial / Industrial

     31.5        27.9        3.6        12.9     89.7        76.9        12.8        16.6
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Total Electric Operating Revenue

   $ 75.7      $ 65.5      $  10.2        15.6   $ 219.2      $ 182.2      $ 37.0        20.3
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Cost of Electric Sales

   $ 47.3      $ 40.1      $ 7.2        18.0   $ 142.6      $ 108.8      $ 33.8        31.1
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Electric Adjusted Gross Margin

   $ 28.4      $ 25.4      $ 3.0        11.8   $ 76.6      $ 73.4      $ 3.2        4.4
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Electric Adjusted Gross Margin (a non-GAAP financial measure) was $28.4 million and $76.6 million in the three and nine months ended September 30, 2022, respectively, increases of $3.0 million and $3.2 million, respectively, compared with the same periods in 2021. The increase in the three month period was driven by higher rates and customer growth. The increase in the nine month period was driven by higher rates and customer growth of $3.7 million, partially offset by the unfavorable effect on sales from cooler spring weather of $0.5 million when rates were not yet decoupled.

Total Electric Operating Revenue increased $10.2 million and $37.0 million in the three and nine months ended September 30, 2022, compared to the same periods in 2021 reflecting higher costs of electric sales, which are tracked and reconciled to costs that are passed through directly to customers, and higher sales of electricity.

Gas Sales, Revenues and Adjusted Gross Margin

Therm Sales - Unitil’s total gas therm sales decreased 1.8% in the three month period ended September 30, 2022, compared to the same period in 2021. In the third quarter of 2022, sales to Residential and C&I customers decreased 3.8% and 1.6%, respectively, compared to the same period in 2021, reflecting lower average usage. Total gas therm sales increased 2.5% in the nine month period ended September 30, 2022, compared to the same

 

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period in 2021. For the nine months ended September 30, 2022, sales to Residential and C&I customers increased 2.3% and 2.5%, respectively, compared to the same period in 2021. The increase in gas therm sales for the first nine months of 2022 reflects colder winter weather in the first quarter of 2022 compared to the same period in 2021, and customer growth. Based on weather data collected in the Company’s gas service areas, on average there were 3.9% more EDD in the first nine months of 2022 compared to the same period in 2021, although 2.4% fewer EDD compared to normal. The Company estimates weather-normalized gas therm sales, excluding decoupled sales, increased 0.7% in the first nine months of 2022 compared to the same period in 2021. As of September 30, 2022, the number of gas customers increased by 1,154 over the previous year. Sales margins derived from decoupled unit sales (currently representing approximately 43% of total annual therm sales volume) are not sensitive to changes in gas therm sales.

The following table details total firm therm sales for the three and nine months ended September 30, 2022 and 2021, by major customer class:

 

Therm Sales (millions)

 
     Three Months Ended September 30,     Nine Months Ended September 30,  
     2022      2021      Change     % Change     2022      2021      Change      % Change  

Residential

     2.5        2.6        (0.1     (3.8 %)      35.1        34.3        0.8        2.3

Commercial / Industrial

     24.3        24.7        (0.4     (1.6 %)      136.0        132.7        3.3        2.5
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

Total

     26.8        27.3        (0.5     (1.8 %)      171.1        167.0        4.1        2.5
  

 

 

    

 

 

    

 

 

     

 

 

    

 

 

    

 

 

    

Gas Operating Revenues and Adjusted Gross Margin - The following table details Total Gas Operating Revenues and Gas Adjusted Gross Margin for the three and nine months ended September 30, 2022 and 2021:

 

Gas Operating Revenues and Gas Adjusted Gross Margin ($ millions)

 
     Three Months Ended September 30,     Nine Months Ended September 30,  
     2022      2021      $ Change      % Change     2022      2021      $ Change      % Change  

Gas Operating Revenue:

                      

Residential

   $  12.1      $  12.0      $  0.1        0.8   $ 72.3      $ 61.4      $  10.9        17.8

Commercial / Industrial

     22.4        20.6        1.8        8.7     110.2        89.9        20.3        22.6
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Total Gas Operating Revenue

   $ 34.5      $ 32.6      $ 1.9        5.8   $  182.5      $  151.3      $ 31.2        20.6
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Cost of Gas Sales

   $ 14.1      $ 13.2      $ 0.9        6.8   $ 81.9      $ 59.1      $ 22.8        38.6
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Gas Adjusted Gross Margin

   $ 20.4      $ 19.4      $ 1.0        5.2   $ 100.6      $ 92.2      $ 8.4        9.1
  

 

 

    

 

 

    

 

 

      

 

 

    

 

 

    

 

 

    

Gas Adjusted Gross Margin (a non-GAAP financial measure) was $20.4 million and $100.6 million in the three and nine months ended September 30, 2022, respectively, increases of $1.0 million and $8.4 million, respectively, compared to the same periods in 2021. These increases reflect higher rates of $1.0 million and $7.0 million in the three and nine month periods, respectively, while the remainder of the increase in the nine month period is attributable to the favorable effect on sales of customer growth and colder weather.

 

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The increases in Total Gas Operating Revenue of $1.9 million and $31.2 million in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, reflect higher costs of gas sales, which are tracked and reconciled costs that are passed through directly to customers, and, for the nine month period, higher gas sales volumes.

Operating Expenses

Cost of Electric Sales - Cost of Electric Sales includes the cost of electric supply and spending on energy efficiency programs. Cost of Electric Sales increased $7.2 million, or 18.0%, and $33.8 million, or 31.1% in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. These increases reflect higher wholesale electricity prices and higher sales of electricity. Because the 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.

Cost of Gas Sales - Cost of Gas Sales includes the cost to supply the Company’s total gas requirements and spending on energy efficiency programs. Cost of Gas Sales increased $0.9 million, or 6.8%, and $22.8 million, or 38.6%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. These increases reflect higher wholesale gas commodity prices and, in the nine month period, higher sales of gas. 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.

Operation and Maintenance (O&M) - O&M expense includes electric and gas utility operating costs, and the operating cost of the Company’s corporate and other business activities. O&M expense increased $1.9 million, or 11.4%, and $4.3 million, or 8.4%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The increase in the three month period reflects higher utility operating costs of $1.0 million, higher labor costs of $0.8 million and higher professional fees of $0.1 million. The increase in the nine month period reflects higher labor costs of $2.5 million, higher professional fees of $1.3 million and higher utility operating costs of $0.5 million.

Depreciation and Amortization - Depreciation and Amortization expense increased $1.8 million, or 12.2%, and $2.4 million, or 5.4%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, reflecting additional depreciation associated with higher levels of utility plant in service and higher amortization of rate case costs.

Taxes Other Than Income Taxes - Taxes Other Than Income Taxes increased $0.3 million, or 4.9%, and $1.4 million, or 7.6% in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021. The increase in the three month period reflects higher local property taxes on higher utility plant in service. The increase in the nine month period reflects higher local property taxes on higher utility plant in service and higher payroll taxes.

Other Expense (Income), Net - Other Expense (Income), Net decreased $0.4 million, or 40.0%, and $1.5 million, or 44.1%, in the three and nine months ended September 30, 2022, respectively, compared to the same periods in 2021, reflecting lower retirement benefit costs.

Provision for Income Taxes - Federal and State Income Taxes for the three months ended September 30, 2022 decreased $0.2 million compared with the same period in 2021, primarily resulting from the flow back of excess Accumulated Deferred Income Taxes. For the nine months ended September 30, 2022, Federal and State Income Taxes increased $0.1 million compared to the same period in 2021, reflecting higher pre-tax earnings in the current period, partially offset by the flow back of excess Accumulated Deferred Income Taxes.

 

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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. 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 accrued.

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 tracking and reconciling process will produce either an under-collected or an over-collected position. 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.

 

Interest Expense, Net

($ millions)

   Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
     2022     2021     Change     2022     2021     Change  

Interest Expense

            

Long-term Debt

   $ 6.2     $ 6.5     $  (0.3   $ 18.6     $ 19.8     $  (1.2

Short-term Debt

     1.0       0.2       0.8       1.7       0.5       1.2  

Regulatory Liabilities

     0.1       0.1       —         0.3       0.3       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal Interest Expense

     7.3       6.8       0.5       20.6       20.6       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest (Income)

            

Regulatory Assets

     (0.2     —         (0.2     (0.6     (0.4     (0.2

AFUDC(1) and Other

     (0.5     (0.3     (0.2       (0.9     (0.7     (0.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal Interest (Income)

     (0.7     (0.3     (0.4     (1.5     (1.1     (0.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Interest Expense, Net

   $ 6.6     $ 6.5     $ 0.1     $  19.1     $  19.5     $  (0.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) 

AFUDC – Allowance for Funds Used During Construction.

Interest Expense, Net increased $0.1 million, or 1.5%, in the three months ended September 30, 2022, compared to the same period in 2021, primarily reflecting higher interest expense on short-term borrowings, partially offset by lower interest expense on long-term debt. For the nine months ended September 30, 2022, Interest Expense, Net decreased $0.4 million, or 2.1%, compared to the same period in 2021, primarily reflecting lower interest expense on long-term debt and higher interest income on regulatory assets, partially offset by higher interest expense on 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 debt financings more closely matched to the long-term nature of its utility assets. Additionally, from time to time the Company accesses the public capital markets through public offerings of equity securities. The Company’s utility operations have a seasonal component 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.

 

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On August 6, 2021, the Company issued and sold 800,000 shares of its common stock at a price of $50.80 per share in a registered public offering (Offering). The Company’s net increase to Common Equity and Cash proceeds from the Offering was approximately $38.6 million and was used to make equity capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes.

As part of the Offering, the Company granted the underwriters a 30-day over-allotment option to purchase additional shares. The underwriters exercised the over-allotment option and purchased an additional 120,000 shares of the Company’s common stock on September 8, 2021. The Company’s net increase to Common Equity and Cash proceeds from the over-allotment sales was approximately $5.9 million and was used to make capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes.

The Company and its subsidiaries are individually and collectively members of the Unitil Cash Pool (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 below). At September 30, 2022, September 30, 2021 and December 31, 2021, the Company and all of its subsidiaries were in compliance with the regulatory requirements to participate in the Cash Pool.

On September 29, 2022, the Company entered into a Third Amended and Restated Credit Agreement with a syndicate of lenders (collectively, the “Credit Facility”), which amended and restated in its entirety the prior credit facility. Unitil may borrow under the Credit Facility until September 29, 2027, subject to two one-year extensions under certain circumstances. The Credit Facility terminates and all amounts outstanding thereunder are due and payable on September 29, 2027, subject to the potential extension discussed in the prior sentence.

The Credit Facility has a borrowing limit of $200 million, which includes a $25 million sublimit for the issuance of standby letters of credit. Unitil may increase the borrowing limit under the Credit Facility by up to $75 million under certain circumstances. The Credit Facility generally provides Unitil with the ability to elect that borrowings under the Credit Facility bear interest under several options, including a daily fluctuating rate equal to (a) the forward-looking secured overnight financing rate (as administered by the Federal Reserve Bank of New York) term rate with a term equivalent to one month beginning on that date, plus (b) 0.1000%, plus (c) a margin of 1.125% to 1.375% (based on Unitil’s credit rating). As of the close of business on September 29, 2022, Unitil’s aggregate borrowings under the Credit Facility were approximately $65.5 million at an interest rate per annum of approximately 4.272% (which interest rate was based on the lowest end of the margin range discussed above).

 

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The Company uses the Credit Facility for cash management purposes related to its short-term operating activities. Total gross borrowings were $214.0 million for the nine months ended September 30, 2022. Total gross repayments were $206.1 million for the nine months ended September 30, 2022. The following table details the borrowing limits, amounts outstanding and amounts available under the Credit Facility as of September 30, 2022 and the prior credit facility as of September 31, 2021 and December 31, 2021:

 

     Revolving Credit Facility ($ millions)  
     September 30,      December 31,  
     2022      2021      2021  

Limit

   $  200.0      $  120.0      $  120.0  

Short-Term Borrowings Outstanding

     72.0        30.5        64.1  
  

 

 

    

 

 

    

 

 

 

Available

   $ 128.0      $ 89.5      $ 55.9  
  

 

 

    

 

 

    

 

 

 

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 incur 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 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 September 30, 2022, September 30, 2021 and December 31, 2021, the Company was in compliance with the covenants contained in the Credit Facility or the prior credit facility, as applicable, in effect on those dates.

The Company is monitoring the coronavirus pandemic, including any effect on planned capital expenditures. The Company does not believe the pandemic will adversely affect its access to capital and funding sources. 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.

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.

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 September 30, 2022, there were approximately $1.6 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, sells to an asset manager and subsequently repurchases the gas over the course of the gas heating season at the same price at which it sold the gas to the asset manager. There was $23.4 million, $9.7 million and $8.3 million of gas obligations at September 30, 2022, September 30, 2021 and December 31, 2021, respectively, related to these asset management agreements. The amount of gas released in September 2022 and payable in October 2022 is $0.3 million and is recorded in Accounts Payable at September 30, 2022. The amount of gas released in September 2021 and payable in October 2021 was $0.1 million and was recorded in Accounts Payable at September 30, 2021. The amount of gas released in December 2021 and payable in January 2022 was $1.6 million and was recorded in Accounts Payable at December 31, 2021.

 

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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 September 30, 2022, there were approximately $1.6 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 September 30, 2022, the Company’s critical accounting policies and estimates had not changed significantly from December 31, 2021. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s 2021 Annual Report on Form 10-K for additional information.

EMPLOYEES

Unitil’s commitment to excellence begins with its employees. As of September 30, 2022, the Company and its subsidiaries had 517 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.

The Company strives to be the employer of choice in the communities it serves – regardless of race, religion, color, gender, 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.

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.

 

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As of September 30, 2022, a total of 171 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 September 30, 2022:

 

     Employees Covered      CBA Expiration  

Fitchburg

     41        05/31/2027  

Northern Utilities NH Division

     36        06/07/2025  

Northern Utilities ME Division

     40        03/31/2026  

Granite State

     4        03/31/2026  

Unitil Energy

     41        05/31/2023  

Unitil Service – Gas Control

     4        03/31/2024  

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 by issuing short-term and long-term debt. The majority of debt outstanding represents long-term notes or bonds 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 September 30, 2022 and September 30, 2021 were 3.6% and 1.2%, respectively. The average interest rates on the Company’s short-term borrowings for the nine months ended September 30, 2022 and September 30, 2021 were 2.4% and 1.2%, respectively. The average interest rate on the Company’s short-term borrowings for the twelve months ended December 31, 2021 was 1.2%.

COMMODITY PRICE RISK

Although Unitil’s three distribution utilities are subject to commodity price variations 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. 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.

REGULATORY MATTERS

Please refer to Note 6 to the Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of Regulatory Matters.

ENVIRONMENTAL MATTERS    

Please refer to Note 7 to the Consolidated Financial Statements in Part I, Item 1 of this report for a discussion of Environmental Matters.

 

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P15Y
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Millions except per share data)
(UNAUDITED)
 
 
  
Three Months Ended

September 30,
 
 
Nine Months Ended

September 30,
 
 
  
2022
 
 
2021
 
 
2022
 
  
2021
 
Operating Revenues
  
 
 
  
Electric
  
$
75.7
 
  $ 65.5    
$
219.2
 
   $ 182.2  
Gas
  
 
34.5
 
    32.6    
 
182.5
 
     151.3  
    
 
 
   
 
 
   
 
 
    
 
 
 
Total Operating Revenues
  
 
110.2
 
    98.1    
 
401.7
 
     333.5  
    
 
 
   
 
 
   
 
 
    
 
 
 
Operating Expenses
                                 
Cost of Electric Sales
  
 
47.3
 
    40.1    
 
142.6
 
     108.8  
Cost of Gas Sales
  
 
14.1
 
    13.2    
 
81.9
 
     59.1  
Operation and Maintenance
  
 
18.6
 
    16.7    
 
55.5
 
     51.2  
Depreciation and Amortization
  
 
16.6
 
    14.8    
 
46.9
 
     44.5  
Taxes Other Than Income Taxes
  
 
6.4
 
    6.1    
 
19.9
 
     18.5  
    
 
 
   
 
 
   
 
 
    
 
 
 
Total Operating Expenses
  
 
103.0
 
    90.9    
 
346.8
 
     282.1  
    
 
 
   
 
 
   
 
 
    
 
 
 
Operating Income
  
 
7.2
 
    7.2    
 
54.9
 
     51.4  
Interest Expense, Net
  
 
6.6
 
    6.5    
 
19.1
 
     19.5  
Other Expense (Income), Net
  
 
0.6
 
    1.0    
 
1.9
 
     3.4  
    
 
 
   
 
 
   
 
 
    
 
 
 
Income (Loss) Before Income Taxes
  
 
  
 
    (0.3  
 
33.9
 
     28.5  
Provision (Benefit) for Income Taxes
  
 
(0.5
    (0.3  
 
7.0
 
     6.9  
    
 
 
   
 
 
   
 
 
    
 
 
 
Net Income
  
$
0.5
 
  $       
$
26.9
 
   $ 21.6  
    
 
 
   
 
 
   
 
 
    
 
 
 
Net Income Per Common Share (Basic and Diluted)
  
$
0.03
 
  $       
$
1.68
 
   $ 1.42  
Weighted Average Common Shares Outstanding – (Basic and Diluted)
  
 
16.0
 
    15.5    
 
16.0
 
     15.2  
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
18

Table of Contents
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(Millions)
(UNAUDITED)
 
 
  
September 30,
 
  
December 31,
 
 
  
2022
 
  
2021
 
  
2021
 
ASSETS:
  
  
  
Current Assets
:
  
  
  
Cash and Cash Equivalents
  
$
7.9
 
   $ 8.8      $ 6.5  
Accounts Receivable, Net
  
 
51.7
 
     46.3        66.9  
Accrued Revenue
  
 
46.9
 
     38.6        61.2  
Exchange Gas Receivable
  
 
25.1
 
     10.5        7.4  
Gas Inventory
  
 
1.7
 
     0.9        1.0  
Materials and Supplies
  
 
10.1
 
     8.6        8.6  
Prepayments and Other
  
 
7.2
 
     7.3        8.1  
    
 
 
    
 
 
    
 
 
 
Total Current Assets
  
 
150.6
 
     121.0        159.7  
    
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Utility Plant:
                          
Electric
  
 
612.7
 
     581.0        602.4  
Gas
  
 
995.7
 
     932.8        972.6  
Common
  
 
66.7
 
     64.8        66.4  
Construction Work in Progress
  
 
81.9
 
     84.8        47.5  
    
 
 
    
 
 
    
 
 
 
Utility Plant
  
 
1,757.0
 
     1,663.4        1,688.9  
Less: Accumulated Depreciation
  
 
453.2
 
     426.1        431.7  
    
 
 
    
 
 
    
 
 
 
Net Utility Plant
  
 
1,303.8
 
     1,237.3        1,257.2  
    
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Noncurrent Assets:
                          
Regulatory Assets
  
 
105.5
 
     132.4        108.9  
Operating Lease Right of Use Assets
  
 
4.6
 
     5.1        4.7  
Other Assets
  
 
14.4
 
     13.2        9.8  
    
 
 
    
 
 
    
 
 
 
Total Other Noncurrent Assets
  
 
124.5
 
     150.7        123.4  
    
 
 
    
 
 
    
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL ASSETS
  
$
1,578.9
 
   $ 1,509.0      $ 1,540.3  
    
 
 
    
 
 
    
 
 
 
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
19

Table of Contents
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS (Cont.)
(Millions, except number of shares)
(UNAUDITED)
 
 
  
September 30,
 
  
December 31,
 
 
  
2022
 
  
2021
 
  
2021
 
LIABILITIES AND CAPITALIZATION:
  
  
  
Current Liabilities:
  
  
  
Accounts Payable
  
$
35.2
 
   $ 29.5      $ 52.4  
Short-Term Debt
  
 
72.0
 
     30.5        64.1  
Long-Term Debt, Current Portion
  
 
8.2
 
     10.1        8.2  
Regulatory Liabilities
  
 
20.8
 
     13.1        9.5  
Energy Supply Obligations
  
 
29.8
 
     16.1        14.5  
Interest Payable
  
 
6.5
 
     6.7        4.8  
Environmental Obligations
  
 
0.6
 
     0.7        0.5  
Other Current Liabilities
  
 
20.5
 
     19.9        19.5  
    
 
 
    
 
 
    
 
 
 
Total Current Liabilities
  
 
193.6
 
     126.6        173.5  
    
 
 
    
 
 
    
 
 
 
Noncurrent Liabilities:
                          
Retirement Benefit Obligations
  
 
135.2
 
     166.2        133.9  
Deferred Income Taxes, net
  
 
136.1
 
     115.7        127.7  
Cost of Removal Obligations
  
 
115.4
 
     108.2        107.5  
Regulatory Liabilities
  
 
37.9
 
     42.9        42.6  
Environmental Obligations
  
 
2.2
 
     1.7        2.2  
Other Noncurrent Liabilities
  
 
6.6
 
     6.8        6.6  
    
 
 
    
 
 
    
 
 
 
Total Noncurrent Liabilities
  
 
433.4
 
     441.5        420.5  
    
 
 
    
 
 
    
 
 
 
Capitalization:
                          
Long-Term Debt, Less Current Portion
  
 
493.1
 
     501.3        497.8  
Stockholders’ Equity:
                          
Common Equity (Authorized: 25,000,000 and Outstanding: 16,039,141 15,971,962 and 15,977,766 Shares)
  
 
334.4
 
     331.6        332.1  
Retained Earnings
  
 
124.2
 
     107.8        116.2  
    
 
 
    
 
 
    
 
 
 
 
Total Common Stock Equity
  
 
458.6
 
     439.4        448.3  
Preferred Stock
  
 
0.2
 
     0.2        0.2  
    
 
 
    
 
 
    
 
 
 
Total Stockholders’ Equity
  
 
458.8
 
     439.6        448.5  
    
 
 
    
 
 
    
 
 
 
Total Capitalization
  
 
951.9
 
     940.9        946.3  
    
 
 
    
 
 
    
 
 
 
Commitments and Contingencies (Notes 6 & 7)
                      
TOTAL LIABILITIES AND CAPITALIZATION
  
$
1,578.9
 
   $ 1,509.0      $ 1,540.3  
    
 
 
    
 
 
    
 
 
 
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
20

Table of Contents
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Millions) (UNAUDITED)
 

 
  
Nine Months Ended

September 30,
 
 
  
2022
 
 
2021
 
Operating Activities:
  
 
Net Income
  
$
26.9
 
  $ 21.6  
Adjustments to
Reconcile Net Income to Cash Provided by Operating Activities:
                
Depreciation and Amortization
  
 
46.9
 
    44.5  
Deferred Tax Provision
  
 
6.4
 
    5.5  
Changes in Working Capital Items:
                
Accounts Receivable
  
 
15.2
 
    15.7  
Accrued Revenue
  
 
14.3
 
    12.3  
Exchange Gas Receivable
  
 
(17.7
    (5.6
Regulatory Liabilities
  
 
11.3
 
    7.6  
Accounts Payable
  
 
(17.2
    (3.7
Other Changes in Working Capital Items
  
 
0.3
 
    2.7  
Deferred Regulatory and Other Charges
  
 
(8.3
    (8.0
Other, net
  
 
4.6
 
    3.3  
    
 
 
   
 
 
 
Cash Provided by Operating Activities
  
 
82.7
 
    95.9  
    
 
 
   
 
 
 
Investing Activities:
                
Property, Plant and Equipment Additions
  
 
(82.5
    (81.5
    
 
 
   
 
 
 
Cash (Used in) Investing Activities
  
 
(82.5
    (81.5
    
 
 
   
 
 
 
Financing Activities:
                
Proceeds from (Repayment of) Short-Term Debt, net
  
 
7.9
 
    (24.2
Repayment of Long-Term Debt
  
 
(4.9
    (20.3
Net Increase in Exchange Gas Financing
  
 
16.4
 
    5.2  
Decrease in Capital Lease Obligations
  
 
(0.1
    (0.1
Dividends Paid
  
 
(18.9
    (17.5
Proceeds from Issuance of Common Stock
  
 
0.8
 
    45.3  
    
 
 
   
 
 
 
Cash Provided by (Used in) Financing Activities
  
 
1.2
 
    (11.6
    
 
 
   
 
 
 
Net Increase in Cash and Cash Equivalents
  
 
1.4
 
    2.8  
Cash and Cash Equivalents at Beginning of Period
  
 
6.5
 
    6.0  
    
 
 
   
 
 
 
Cash and Cash Equivalents at End of Period
  
$
7.9
 
  $ 8.8  
    
 
 
   
 
 
 
Supplemental Cash Flow Information:
                
Interest Paid
  
$
17.7
 
  $ 17.9  
Income Taxes Paid
  
$
1.2
 
  $ 1.4  
Payments on Capital Leases
  
$
0.1
 
  $ 0.2  
Non-cash
Investing Activity:
                
Capital Expenditures Included in Accounts Payable
  
$
5.4
 
  $ 4.2  
Right-of-Use
Assets Obtained in Exchange for Lease Obligations
  
$
1.2
 
  $ 0.9  
(The accompanying notes are an integral part of these consolidated unaudited financial statements.)
 
21

Table of Contents
UNITIL CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK EQUITY
(Millions, except number of shares)
(UNAUDITED)
 
 
  
Common
Equity
 
  
Retained
Earnings
 
 
Total
 
Three Months Ended September 30, 2022
  
  
 
Balance at July 1, 2022
   $ 334.1      $ 130.0    
$
464.1
 
Net Income
              0.5    
 
0.5
 
Dividends on Common Shares ($0.39 per share)
              (6.3  
 
(6.3
Stock Compensation Plans
     0.1             
 
0.1
 
Issuance of 4,506 Common Shares
     0.2             
 
0.2
 
    
 
 
    
 
 
   
 
 
 
Balance at September 30, 2022
  
$
334.4
 
  
$
124.2
 
 
$
458.6
 
    
 
 
    
 
 
   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2021
                         
Balance at July 1, 2021
   $ 286.8      $ 113.8    
$
400.6
 
Net Income
                    
 
  
 
Dividends on Common Shares ($0.38 per share)
              (6.0  
 
(6.0
Stock Compensation Plans
     0.1             
 
0.1
 
Issuance of 925,493 Common Shares
     44.7             
 
44.7
 
    
 
 
    
 
 
   
 
 
 
Balance at September 30, 2021
  
$
331.6
 
  
$
107.8