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, 2023

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)

Registrant’s telephone number, including area code: (603) 772-0775

Securities registered pursuant to Section 12(b) of the Act:

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.

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.

UNITIL CORPORATION AND SUBSIDIARY COMPANIES

FORM 10-Q

For the Quarter Ended September 30, 2023

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:

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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 2022 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:

Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as the “distribution utilities.” Together, the distribution utilities serve approximately 108,100 electric customers and 87,500 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 $1.4 billion at September 30, 2023. 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 owns land for future use in Kingston, 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.

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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 generally 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, qualifying storm expenses and enhanced reliability and vegetation management programs, through annual step adjustments or cost tracking rate mechanisms.

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 has been subject to revenue decoupling since June 1, 2022. As of June 1, 2022, revenue decoupling applied to substantially all of Unitil’s total annual electric sales volumes. As a result of the order in Northern Utilities’ most recent base rate case in New Hampshire, substantially all of Northern Utilities’ gas sales volumes in New Hampshire were subject to decoupling as of August 1, 2022. As of August 1, 2022, the Company estimated that revenue decoupling applied to approximately 43% of Unitil’s total annual gas sales volumes. The Company's electric and gas sales in New Hampshire and Massachusetts are now largely decoupled. The following table shows the estimated percentages of electric and gas sales that are subject to revenue decoupling for the periods presented.

RESULTS OF OPERATIONS

The following section of MD&A compares the results of operations for each of the two fiscal periods ended September 30, 2023 and September 30, 2022 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).

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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.

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.

Electric GAAP Gross Margin was $22.6 million in the three months ended September 30, 2023, an increase of $1.1 million compared to the same period in 2022. Electric GAAP Gross Margin was $60.6 million in the nine months ended September 30, 2023, an increase of $3.3 million compared to the same period in 2022. The increase in the three month period was driven by higher rates and customer

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growth of $0.8 million and lower depreciation and amortization expense of $0.3 million. The increase in the nine month period was driven by higher rates and customer growth of $3.5 million, partially offset by higher depreciation and amortization expense of $0.2 million.

Gas GAAP Gross Margin was $12.3 million in the three months ended September 30, 2023, an increase of $1.4 million compared to the same period in 2022. Gas GAAP Gross Margin was $76.6 million in the nine months ended September 30, 2023, an increase of $2.9 million compared to the same period in 2022. The increase in the three month period was driven by higher rates and customer growth of $1.8 million, partially offset by higher depreciation and amortization of $0.4 million. The increase in the nine month period was driven by higher rates and customer growth of $9.3 million, partially offset by the unfavorable effects of warmer winter weather in 2023 of $1.1 million, higher depreciation and amortization of $2.9 million, and the recognition, in the second quarter of 2022, of $2.4 million in higher rates resulting from the Company's base rate case in New Hampshire.

Earnings Overview

The Company’s Net Income was $1.4 million, or $0.09 in Earnings Per Share (EPS) for the third quarter of 2023, an increase of $0.9 million in Net Income, or $0.06 in EPS, compared to the third quarter of 2022. The Company’s earnings in the third quarter of 2023 reflect higher Electric and Gas Adjusted Gross Margins (a non-GAAP financial measure), offset by higher operating expenses and higher interest expense, net.

The Company’s Net Income was $29.7 million, or $1.85 in Earnings Per Share (EPS) for the first nine months of 2023, an increase of $2.8 million in Net Income, or $0.17 in EPS, compared to the first nine months of 2022. The Company’s earnings in the first nine months of 2023 reflect higher Electric and Gas Adjusted Gross Margins (a non-GAAP financial measure), partially offset by higher operating expenses and higher interest expense, net.

The Company’s nine months results for 2022, including Electric and Gas GAAP Gross Margins, reflect the effects of base rate case orders in New Hampshire, which were issued in the second quarter of 2022 (See Note 6, Regulatory Matters, to the accompanying Consolidated Financial Statements).

Electric Adjusted Gross Margin (a non-GAAP financial measure) was $29.2 million and $80.1 million in the three and nine months ended September 30, 2023, respectively, increases of $0.8 million and $3.5 million, respectively, compared to the same periods in 2022. These increases reflect higher rates and customer growth.

Electric kilowatt-hour (kWh) sales decreased 4.9% and 5.0% in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. Sales to Residential and C&I customers decreased 7.3% and 3.1%, respectively, in the three months ended September 30, 2023, compared to the same period in 2022, reflecting milder summer weather in the third quarter of 2023 compared to the same period in 2022, partially offset by customer growth. Sales to Residential and C&I customers decreased 6.8% and 3.7%, respectively, in the nine months ended September 30, 2023, compared to the same period in 2022, reflecting warmer winter weather and milder summer weather in 2023 compared to 2022 and lower average usage, partially offset by customer growth. Based on weather data collected in the Company’s electric service areas, on average there were 12.2% fewer Cooling Degree Days (CDD) in the third quarter of 2023 compared to the same period in 2022. As of September 30, 2023, the number of electric customers increased by approximately 50 over the previous year.

Gas Adjusted Gross Margin (a non-GAAP financial measure) was $22.2 million and $106.4 million in the three and nine months ended September 30, 2023, respectively, increases of $1.8 million and $5.8 million, respectively, compared to the same periods in 2022. These increases reflect higher rates and customer growth of $1.8 million and $9.3 million for the three and nine month periods, respectively, and, for the nine month period, the unfavorable effects of warmer winter weather in 2023 of $1.1 million and the recognition, in the second quarter of 2022, of $2.4 million in higher rates resulting from the Company's base rate case in New Hampshire.

Gas therm sales increased 3.7% and decreased 3.7% in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. In the third quarter of 2023, sales to Residential customers were essentially unchanged and sales to C&I customers increased 4.1%, compared to the same period in 2022. In the first nine months of 2023, sales to Residential and C&I customers decreased 7.1% and 2.9%, respectively, compared to the same period in 2022, reflecting warmer winter weather in 2023 compared to 2022, partially offset by customer growth. Based on weather data collected in the Company’s gas service areas, on average there were 9.2% fewer Effective Degree Days (EDD) in the first nine months of 2023 compared to the same period in 2022. The Company estimates weather-normalized gas therm sales for Northern Utilities’ Maine division, the Company’s only non-decoupled gas service area, increased 3.0% in the first nine months of 2023 compared to the same period in 2022. As of September 30, 2023, the number of gas customers increased by approximately 800 over the previous year.

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Operation and Maintenance (O&M) expenses increased $1.0 million and $0.5 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increase in the three month period reflects higher labor costs of $0.7 million, higher utility operating costs of $0.2 million and higher professional fees of $0.1 million. The increase in the nine month period reflects higher utility operating costs of $0.8 million, partially offset by lower labor costs of $0.3 million. The lower labor costs in the nine month period primarily reflect lower service costs for retirement benefits and lower restricted stock compensation.

Depreciation and Amortization expense increased $0.2 million and $3.2 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The increase in the three month period reflects additional depreciation associated with higher levels of utility plant in service, partially offset by lower amortization of rate case costs. The increase in the nine month period reflects additional depreciation associated with higher levels of utility plant in service and higher amortization of rate case and other deferred costs.

Taxes Other Than Income Taxes increased $0.6 million and $1.2 million in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, reflecting higher local property taxes on higher utility plant in service and higher payroll taxes.

Interest Expense, Net increased $0.4 million and $2.0 million, in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, primarily reflecting higher interest expense on short-term borrowings, partially offset by higher interest income on regulatory assets and other, and, for the nine month period, lower interest expense on long-term debt.

Other Expense (Income), Net decreased $0.6 million and $2.0 million, in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022, reflecting lower retirement benefit costs.

Federal and State Income Taxes for the three and nine months ended September 30, 2023 increased $0.1 million and $1.6 million, respectively, compared with the same periods in 2022, reflecting higher pre-tax earnings in 2023 and higher flow back, in 2022, of excess Accumulated Deferred Income Taxes per regulatory orders in New Hampshire.

In January 2023, April 2023, July 2023 and October 2023, the Unitil Corporation Board of Directors declared quarterly dividends on the Company’s common stock of $0.405 per share. These quarterly dividends result in a current effective annualized dividend rate of $1.62 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 decreased 4.9% and 5.0% in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. Sales to Residential and C&I customers decreased 7.3% and 3.1%, respectively, in the three months ended September 30, 2023, compared to the same period in 2022, reflecting milder summer weather in the third quarter of 2023 compared to the same period in 2022, partially offset by customer growth. Sales to Residential and C&I customers decreased 6.8% and 3.7%, respectively, in the nine months ended September 30, 2023, compared to the same period in 2022, reflecting warmer winter weather and milder summer weather in 2023 compared to 2022 and lower average usage, partially offset by customer growth. Based on weather data collected in the Company’s electric service areas, on average there were 12.2% fewer CDD in the third quarter of 2023 compared to the same period in 2022. As of September 30, 2023, the number of electric customers increased by approximately 50 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.

The following table details total kWh sales for the three and nine months ended September 30, 2023 and 2022 by major customer class:

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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 months ended September 30, 2023 and 2022:

Total Electric Operating Revenue decreased $3.6 million, or 4.8%, and increased $25.6 million, or 11.7%, in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. The decrease in the three month period reflects lower costs of electric sales, which are tracked and reconciled to costs that are passed through directly to customers, partially offset by higher electric distribution rates. The increase in the nine month period reflects higher costs of electric sales and higher electric distribution rates.

Electric Adjusted Gross Margin (a non-GAAP financial measure) was $29.2 million and $80.1 million in the three and nine months ended September 30, 2023, respectively, increases of $0.8 million and $3.5 million, respectively, compared to the same periods in 2022. These increases reflect higher rates and customer growth.

Gas Sales, Revenues and Adjusted Gross Margin

Therm Sales - Unitil’s total gas therm sales increased 3.7% and decreased 3.7% in the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022. In the third quarter of 2023, sales to Residential customers were essentially unchanged and sales to C&I customers increased 4.1%, compared to the same period in 2022. In the first nine months of 2023, sales to Residential and C&I customers decreased 7.1% and 2.9%, respectively, compared to the same period in 2022, reflecting warmer winter weather in 2023 compared to 2022, partially offset by customer growth. Based on weather data collected in the Company’s gas service areas, on average there were 9.2% fewer EDD in the first nine months of 2023 compared to the same period in 2022. The Company estimates weather-normalized gas therm sales for Northern Utilities’ Maine division, the Company’s only non-decoupled gas service area, increased 3.0% in the first nine months of 2023 compared to the same period in 2022. As of September 30, 2023, the number of gas customers increased by approximately 800 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, 2023 and 2022 by major customer class:

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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, 2023 and 2022: