UNITIL CORP [UTL] Filings

10-Q 1 utl-20230930.htm 10-Q 10-Q

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

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-8858

UNITIL CORPORATION

(Exact name of registrant as specified in its charter)



New Hampshire	02-0381573
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



6 Liberty Lane West, Hampton, New Hampshire	03842-1720
(Address of principal executive office)	(Zip Code)

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

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



Title of each class	Trading Symbol	Name of each exchange of which registered
Common Stock, no par value	UTL	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



Class	Outstanding at November 3, 2023
Common Stock, no par value	16,098,244 Shares

UNITIL CORPORATION AND SUBSIDIARY COMPANIES

FORM 10-Q

For the Quarter Ended September 30, 2023

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, 2023 and 2022	14

	Consolidated Balance Sheets, September 30, 2023, September 30, 2022 and December 31, 2022	15-16

	Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2023 and 2022	17

	Consolidated Statements of Changes in Common Stock Equity – Three and Nine Months Ended September 30, 2023 and 2022	18

	Notes to Consolidated Financial Statements	19-40

Item 2.	Management’s Discussion and Analysis (MD&A) of Financial Condition and Results of Operations	3-13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

Part II. Other Information

Item 1.	Legal Proceedings	41

Item 1A.	Risk Factors	41

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41-42

Item 3.	Defaults Upon Senior Securities	Inapplicable

Item 4.	Mine Safety Disclosures	Inapplicable

Item 5.	Other Information	42

Item 6.	Exhibits	42-43

Signatures		44

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;

•

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;

•

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;

•

Employee workforce factors, including the ability to attract and retain key personnel;

•

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 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 Systems, Inc. (Unitil Energy), which provides electric service in the southeastern seacoast and state capital regions of New Hampshire, including the capital city of Concord;

ii)

Fitchburg Gas and Electric Light Company (Fitchburg), which provides both electric and gas service in the greater Fitchburg area of north central Massachusetts; and

iii)

Northern Utilities, Inc. (Northern Utilities), which provides gas service in southeastern New Hampshire and portions of southern and central Maine, including the city of Portland, which is the largest city in northern New England.

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.

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.


Revenue Decoupling
Estimated Percentage of Decoupled Sales
For Periods Presented
Electric
Before June 1, 2022	27%
After June 1, 2022	Substantially All
Gas
Before August 1, 2022	11%
After August 1, 2022	43%

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).

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.


Three Months Ended September 30, 2023 (millions)
	Electric			Gas			Other			Total
Total Operating Revenue	$	72.1		$	31.8		$	—		$	103.9
Less: Cost of Sales		(42.9	)		(9.6	)		—			(52.5	)
Less: Depreciation and Amortization		(6.6	)		(9.9	)		(0.3	)		(16.8	)
GAAP Gross Margin		22.6			12.3			(0.3	)		34.6
Depreciation and Amortization		6.6			9.9			0.3			16.8
Adjusted Gross Margin	$	29.2		$	22.2		$	—		$	51.4


Three Months Ended September 30, 2022 (millions)
	Electric			Gas			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


Nine Months Ended September 30, 2023 (millions)
	Electric			Gas			Other			Total
Total Operating Revenue	$	244.8		$	182.7		$	—		$	427.5
Less: Cost of Sales		(164.7	)		(76.3	)		—			(241.0	)
Less: Depreciation and Amortization		(19.5	)		(29.8	)		(0.8	)		(50.1	)
GAAP Gross Margin		60.6			76.6			(0.8	)		136.4
Depreciation and Amortization		19.5			29.8			0.8			50.1
Adjusted Gross Margin	$	80.1		$	106.4		$	—		$	186.5


Nine Months Ended September 30, 2022 (millions)
	Electric			Gas			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

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

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.

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:


kWh Sales (millions)
	Three Months Ended September 30,										Nine Months Ended September 30,
	2023		2022		Change			% Change			2023		2022		Change			% Change
Residential		187.0		201.7		(14.7	)		(7.3	)%		501.7		538.2		(36.5	)		(6.8	%)
Commercial / Industrial		253.2		261.4		(8.2	)		(3.1	)%		696.0		722.6		(26.6	)		(3.7	)%
Total		440.2		463.1		(22.9	)		(4.9	)%		1,197.7		1,260.8		(63.1	)		(5.0	)%

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:


Electric Operating Revenues and Electric Adjusted Gross Margin (millions)
	Three Months Ended September 30,										Nine Months Ended September 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change		% Change
Electric Operating Revenue:
Residential	$	43.7	$	44.2	$	(0.5	)		(1.1	)%	$	149.7	$	129.5	$	20.2		15.6	%
Commercial / Industrial		28.4		31.5		(3.1	)		(9.8	)%		95.1		89.7		5.4		6.0	%
Total Electric Operating Revenue		72.1		75.7		(3.6	)		(4.8	)%		244.8		219.2		25.6		11.7	%
Cost of Electric Sales		42.9		47.3		(4.4	)		(9.3	)%		164.7		142.6		22.1		15.5	%
Electric Adjusted Gross Margin	$	29.2	$	28.4	$	0.8			2.8	%	$	80.1	$	76.6	$	3.5		4.6	%

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.

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:


Therm Sales (millions)
	Three Months Ended September 30,									Nine Months Ended September 30,
	2023		2022		Change		% Change			2023		2022		Change			% Change
Residential		2.5		2.5		—		—			32.6		35.1		(2.5	)		(7.1	%)
Commercial / Industrial		25.3		24.3		1.0		4.1	%		132.1		136.0		(3.9	)		(2.9	)%
Total		27.8		26.8		1.0		3.7	%		164.7		171.1		(6.4	)		(3.7	)%

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:


Gas Operating Revenues and Gas Adjusted Gross Margin (millions)
	Three Months Ended September 30,										Nine Months Ended September 30,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Gas Operating Revenue:
Residential	$	11.9	$	12.1	$	(0.2	)		(1.7	)%	$	74.1	$	72.3	$	1.8			2.5	%
Commercial / Industrial		19.9		22.4		(2.5	)		(11.2	)%		108.6		110.2		(1.6	)		(1.5	)%
Total Gas Operating Revenue		31.8		34.5		(2.7	)		(7.8	)%		182.7		182.5		0.2			0.1	%
Cost of Gas Sales		9.6		14.1		(4.5	)		(31.9	)%		76.3		81.9		(5.6	)		(6.8	)%
Gas Adjusted Gross Margin	$	22.2	$	20.4	$	1.8			8.8	%	$	106.4	$	100.6	$	5.8			5.8	%

Total Gas Operating Revenue decreased $2.7 million, or 7.8%, and increased $0.2 million, or 0.1%, 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 gas sales, which are tracked and reconciled costs that are passed through directly to customers, partially offset by higher gas distribution rates. The increase in the nine month period reflects higher gas distribution rates, partially offset by lower costs of gas sales.

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 decreased $4.4 million, or 9.3%, and increased $22.1 million, or 15.5%, 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 sales of electricity and an increase in the amount of electricity purchased by customers directly from third-party suppliers, partially offset by higher wholesale electricity commodity prices. The increase in the nine month period reflects higher wholesale electricity commodity prices, partially offset by lower sales of electricity and an increase in the amount of electricity purchased by customers directly from third-party suppliers. 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 decreased $4.5 million, or 31.9%, and $5.6 million, or 6.8%, 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 wholesale gas commodity prices, partially offset by higher gas sales. The decrease in the nine month period reflects lower gas sales and lower wholesale gas commodity prices, partially offset by a decrease in the amount of gas purchased by customers directly from third-party suppliers. Because the Company reconciles and recovers the approved Cost of Gas Sales in its rates at cost on a pass-through basis, changes in approved expenses do not affect earnings.

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 $1.0 million, or 5.4%, and $0.5 million, or 0.9%, 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 - Depreciation and Amortization expense increased $0.2 million, or 1.2%, and $3.2 million, or 6.8%, 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 - Taxes Other Than Income Taxes increased $0.6 million, or 9.4%, and $1.2 million, or 6.0%, 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.

Other Expense (Income), Net - 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.

Provision for Income Taxes - 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.

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 revenues and costs 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,
	2023			2022			Change			2023			2022			Change
Interest Expense
Long-term Debt	$	6.3		$	6.2		$	0.1		$	18.4		$	18.6		$	(0.2	)
Short-term Debt		2.2			1.0			1.2			6.5			1.7			4.8
Regulatory Liabilities		0.2			0.1			0.1			0.5			0.3			0.2
Subtotal Interest Expense		8.7			7.3			1.4			25.4			20.6			4.8
Interest (Income)
Regulatory Assets		(0.9	)		(0.2	)		(0.7	)		(2.4	)		(0.6	)		(1.8	)
AFUDC(1) and Other		(0.8	)		(0.5	)		(0.3	)		(1.9	)		(0.9	)		(1.0	)
Subtotal Interest (Income)		(1.7	)		(0.7	)		(1.0	)		(4.3	)		(1.5	)		(2.8	)
Total Interest Expense, Net	$	7.0		$	6.6		$	0.4		$	21.1		$	19.1		$	2.0

(1)

AFUDC – Allowance for Funds Used During Construction.

Interest Expense, Net increased $0.4 million, or 6.1%, and $2.0 million, or 10.5%, 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.

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.

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, 2023, September 30, 2022 and December 31, 2022, 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).

The Company utilizes the Credit Facility for cash management purposes related to its short-term operating activities. Total gross borrowings were $256.1 million for the nine months ended September 30, 2023. Total gross repayments were $242.6 million for the nine months ended September 30, 2023. The following table details the borrowing limits, amounts outstanding and amounts available under the Credit Facility as of September 30, 2023, September 30, 2022 and December 31, 2022:


	Revolving Credit Facility ($ millions)
	September 30,				December 31,
	2023		2022		2022
Limit	$	200.0	$	200.0	$	200.0
Short-Term Borrowings Outstanding		129.5		72.0		116.0
Available	$	70.5	$	128.0	$	84.0

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, 2023, September 30, 2022 and December 31, 2022, the Company was in compliance with the covenants contained in the Credit Facility in effect on those dates.

On July 6, 2023, Fitchburg issued $12.0 million of Notes due July 2, 2033 at 5.70% and $13.0 million of Notes due July 2, 2053 at 5.96%. Fitchburg used the net proceeds from these offerings to refinance existing debt and for general corporate purposes. Approximately $0.2 million of costs associated with this issuance were recorded as a reduction of Long-Term Debt for presentation purposes on the Consolidated Balance Sheet in the third quarter of 2023.

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, 2023, there were no guarantees outstanding.

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 $13.3 million of natural gas storage inventory and corresponding obligations at September 30, 2023 related to these asset management agreements. The amount of natural gas inventory released in September 2023, which was payable in October 2023, was $0.2 million and was recorded in Accounts Payable at September 30, 2023.

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. 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 judgments, 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, 2023, the Company’s critical accounting policies and estimates had not changed significantly from December 31, 2022. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” in the Company’s 2022 Annual Report on Form 10-K for additional information.

EMPLOYEES

As of September 30, 2023, the Company and its subsidiaries had 530 employees. The Company considers its relationship with employees to be good and has not experienced any major labor disruptions.

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.

As of September 30, 2023, a total of 179 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, 2023:


	Employees Covered	CBA Expiration
Fitchburg	46	05/31/2027
Northern Utilities NH Division	36	06/07/2025
Northern Utilities ME Division	39	03/31/2026
Granite State	5	03/31/2026
Unitil Energy	43	05/31/2028
Unitil Service – Gas Control	5	03/31/2024
Unitil Service	5