Unitil(UTL) - 2023 Q3 - Quarterly Report

Cautionary Statement This section outlines inherent risks and uncertainties in forward-looking statements, which could cause actual results to differ - The report contains forward-looking statements subject to inherent risks and uncertainties that could cause actual results to differ materially[6][7] - Key risks include numerous hazards and operating risks in electric and natural gas distribution, fluctuations in energy commodity prices, catastrophic events, cyber-attacks, regulatory and legislative environment changes, general economic conditions, and the ability to obtain financing[8] Part I. Financial Information Item 2. Management's Discussion and Analysis (MD&A) of Financial Condition and Results of Operations This section provides management's perspective on Unitil Corporation's financial condition and results of operations for the three and nine months ended September 30, 2023, compared to the same periods in 2022, covering business overview, regulatory environment, operational performance, capital requirements, and critical accounting policies Overview Unitil Corporation operates as a public utility holding company distributing electricity and gas across three states - Unitil is a public utility holding company distributing electricity and gas in New Hampshire, Massachusetts, and Maine[11][12] - The company serves approximately 108,100 electric customers and 87,500 gas customers[12] - Unitil had an investment in Net Utility Plant of $1.4 billion at September 30, 2023[14] - Earnings are primarily from return on investment in utility assets, and the reconciling rate structure means earnings are not directly affected by changes in purchased electricity and gas costs[14] Rates and Regulation The company's rates, securities, accounting, and operations are subject to federal and state regulatory oversight - Unitil is regulated by FERC and state public utility commissions (NHPUC, MDPU, MPUC) regarding rates, securities, accounting, and operations[17] - Distribution utilities recover service costs and earn a return on capital investment, with certain base rate costs recoverable through annual step adjustments or cost tracking mechanisms[18] Revenue Decoupling Revenue decoupling mechanisms reduce the impact of sales volume fluctuations on the company's distribution revenue - Revenue decoupling eliminates the dependency of a utility's distribution revenue on the volume of electricity or gas sales[19] - As of June 1, 2022, substantially all of Unitil's total annual electric sales volumes were decoupled[19] - As of August 1, 2022, approximately 43% of Unitil's total annual gas sales volumes were subject to decoupling[19] Estimated Percentage of Decoupled Sales | Category | Before June 1, 2022 | After June 1, 2022 | | :------- | :------------------ | :----------------- | | Electric | 27% | Substantially All | | Gas | 11% | 43% | Results of Operations This section details the company's financial performance, covering adjusted gross margins, net income, and segment sales Adjusted Gross Margins (Non-GAAP) Adjusted Gross Margins, a non-GAAP measure, are used to assess the profitability of electric and gas operations - Electric and Gas Adjusted Gross Margins are non-GAAP measures used to analyze profitability, calculated as Total Operating Revenue less Cost of Sales[23][24] - These measures are considered important because approved energy supply costs are tracked, reconciled, and passed through directly to customers, resulting in equal and offsetting revenue[23] Adjusted Gross Margin (Millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Electric Adjusted Gross Margin | $29.2 | $28.4 | $80.1 | $76.6 | | Gas Adjusted Gross Margin | $22.2 | $20.4 | $106.4 | $100.6 | | Total Adjusted Gross Margin | $51.4 | $48.8 | $186.5 | $177.2 | Earnings Overview Net income and EPS increased, driven by higher adjusted gross margins despite rising operating and net interest expenses Net Income and EPS (Millions, except per share data) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net Income | $1.4 | $0.5 | $29.7 | $26.9 |\n| EPS | $0.09 | $0.03 | $1.85 | $1.68 | - The increase in earnings for both periods reflects higher Electric and Gas Adjusted Gross Margins, partially offset by higher operating expenses and net interest expense[28][29] Electric Sales, Revenues and Adjusted Gross Margin Electric sales declined due to weather, while adjusted gross margin saw an increase from rate adjustments Electric kWh Sales (Millions) | Customer Class | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Residential | 187.0 | 201.7 | (7.3)% | 501.7 | 538.2 | (6.8)% |\n| C&I | 253.2 | 261.4 | (3.1)% | 696.0 | 722.6 | (3.7)% |\n| Total | 440.2 | 463.1 | (4.9)% | 1,197.7 | 1,260.8 | (5.0)% | - Electric sales decreased due to milder summer weather (12.2% fewer Cooling Degree Days in Q3 2023) and warmer winter weather, partially offset by customer growth (approx. 50 new electric customers)[32][42] Electric Operating Revenues and Adjusted Gross Margin (Millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | $ Change | % Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | $ Change | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :------- | :------- | :-------------------------- | :-------------------------- | :------- | :------- | | Total Electric Operating Revenue | $72.1 | $75.7 | $(3.6) | (4.8)% | $244.8 | $219.2 | $25.6 | 11.7% |\n| Electric Adjusted Gross Margin | $29.2 | $28.4 | $0.8 | 2.8% | $80.1 | $76.6 | $3.5 | 4.6% | Gas Sales, Revenues and Adjusted Gross Margin Gas sales decreased year-to-date due to weather, offset by customer growth, leading to higher adjusted gross margins Gas Therm Sales (Millions) | Customer Class | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | % Change (YoY) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | % Change (YoY) | | :------------- | :-------------------------- | :-------------------------- | :------------- | :-------------------------- | :-------------------------- | :------------- | | Residential | 2.5 | 2.5 | 0.0% | 32.6 | 35.1 | (7.1)% |\n| C&I | 25.3 | 24.3 | 4.1% | 132.1 | 136.0 | (2.9)% |\n| Total | 27.8 | 26.8 | 3.7% | 164.7 | 171.1 | (3.7)% | - Gas sales decreased YTD due to warmer winter weather (9.2% fewer Effective Degree Days YTD 2023), partially offset by customer growth (approx. 800 new gas customers)[34][48] Gas Operating Revenues and Adjusted Gross Margin (Millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | $ Change | % Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | $ Change | % Change | | :-------------------------- | :-------------------------- | :-------------------------- | :------- | :------- | :-------------------------- | :-------------------------- | :------- | :------- | | Total Gas Operating Revenue | $31.8 | $34.5 | $(2.7) | (7.8)% | $182.7 | $182.5 | $0.2 | 0.1% |\n| Gas Adjusted Gross Margin | $22.2 | $20.4 | $1.8 | 8.8% | $106.4 | $100.6 | $5.8 | 5.8% | Operating Expenses Operating expenses increased across O&M, depreciation, and taxes, partially offset by lower gas sales costs - Cost of Electric Sales decreased $4.4 million (9.3%) in Q3 but increased $22.1 million (15.5%) YTD, reflecting lower sales and increased third-party purchases in Q3, and higher wholesale prices YTD[53] - Cost of Gas Sales decreased $4.5 million (31.9%) in Q3 and $5.6 million (6.8%) YTD, driven by lower wholesale gas commodity prices and lower sales[54] - O&M expenses increased $1.0 million (5.4%) in Q3 due to higher labor, utility operating costs, and professional fees, and $0.5 million (0.9%) YTD due to higher utility operating costs, partially offset by lower labor costs[35][55] - Depreciation and Amortization expense increased $0.2 million (1.2%) in Q3 and $3.2 million (6.8%) YTD, primarily due to higher utility plant in service[36][56][57] - Taxes Other Than Income Taxes increased $0.6 million (9.4%) in Q3 and $1.2 million (6.0%) YTD, reflecting higher local property taxes and payroll taxes[37][58] Interest Expense, Net Net interest expense rose due to increased short-term borrowing costs, partially offset by higher interest income on regulatory assets Interest Expense, Net (Millions) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | :-------------------------- | :-------------------------- | :----- | | Interest Expense | $8.7 | $7.3 | $1.4 | $25.4 | $20.6 | $4.8 |\n| Interest (Income) | $(1.7) | $(0.7) | $(1.0) | $(4.3) | $(1.5) | $(2.8) |\n| Total Interest Expense, Net | $7.0 | $6.6 | $0.4 | $21.1 | $19.1 | $2.0 | - The increase was primarily driven by higher interest expense on short-term borrowings, partially offset by higher interest income on regulatory assets[38][63] Capital Requirements This section outlines the company's capital structure, funding sources, and debt arrangements Sources of Capital The company primarily funds its capital needs through internally generated cash flows and external borrowings - Capital is primarily derived from internally generated funds (cash flows from operating activities)[64] - Funds are supplemented by short-term bank borrowings under its unsecured revolving Credit Facility and periodically by long-term debt or equity financings[64] Credit Facility The company maintains a $200 million revolving credit facility to supplement internal capital generation - The Credit Facility has a borrowing limit of $200 million, expiring September 29, 2027[68] Revolving Credit Facility (Millions) | Metric | Sep 30, 2023 | Sep 30, 2022 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Limit | $200.0 | $200.0 | $200.0 |\n| Short-Term Borrowings Outstanding | $129.5 | $72.0 | $116.0 |\n| Available | $70.5 | $128.0 | $84.0 | - The company was in compliance with its Funded Debt to Capitalization covenant (cannot exceed 65%) at September 30, 2023[69] Long-Term Debt Issuance Fitchburg issued $25 million in long-term notes to refinance existing debt and for general corporate purposes - 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%[70] - Proceeds were used to refinance existing debt and for general corporate purposes[70] Guarantees The company provides limited guarantees on energy and gas storage contracts, with no outstanding guarantees as of September 30, 2023 - The company provides limited guarantees on certain energy and gas storage management contracts[73] - As of September 30, 2023, there were no guarantees outstanding[73] Off-Balance Sheet Arrangements The company does not utilize off-balance sheet financing arrangements, conducting operations through leased facilities and equipment - The company does not use off-balance sheet financing arrangements like securitization or special purpose entities[75] - Operations are conducted in leased facilities and equipment under capital and operating lease arrangements[75] Critical Accounting Policies Critical accounting policies involve significant estimates and assumptions that could materially impact financial statements - Critical accounting policies require significant estimates and assumptions that could materially affect financial statements if actual results differ[76] - As of September 30, 2023, critical accounting policies and estimates had not changed significantly from December 31, 2022[76] Employees The company employs 530 individuals, with a portion represented by labor unions under collective bargaining agreements - As of September 30, 2023, Unitil and its subsidiaries had 530 employees[77] - 179 employees were represented by labor unions under collective bargaining agreements (CBAs) with various expiration dates[79] - The company provides competitive wages, health insurance, paid/unpaid leave, educational assistance, retirement plans, and life/disability coverage[78] Interest Rate Risk Market interest rate fluctuations impact the company's interest expense on variable-rate debt and new long-term debt issuances - Changes in market interest rates affect interest expense on variable-rate short-term debt and new long-term debt issuances[81] - A 1% change in interest rates on $25 million of short-term debt would result in an approximate $250,000 change in annual interest expense[81] Average Short-Term Borrowing Interest Rates | Period | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Average Interest Rate | 6.4% | 3.6% | 6.2% | 2.4% | Commodity Price Risk The company faces limited commodity price risk due to regulatory mechanisms allowing full cost pass-through to customers - Limited commodity price risk exists because regulatory frameworks allow full pass-through recovery of electric power and natural gas supply costs[82] - The company has further reduced its exposure to commodity risk by divesting its long-term power supply contracts[82] Regulatory Matters (MD&A) This section refers to Note 6 for detailed discussions on regulatory matters impacting the company's operations - Refer to Note 6 to the Consolidated Financial Statements for a discussion of Regulatory Matters[83] Environmental Matters (MD&A) This section refers to Note 7 for detailed discussions on environmental matters impacting the company's operations - Refer to Note 7 to the Consolidated Financial Statements for a discussion of Environmental Matters[84] Item 1. Financial Statements—Unaudited This section presents Unitil Corporation's unaudited consolidated financial statements, including statements of earnings, balance sheets, cash flows, and changes in common stock equity, along with detailed notes explaining significant accounting policies and financial statement items Consolidated Statements of Earnings This statement presents the company's revenues, expenses, and net income for the reported periods Consolidated Statements of Earnings (Millions except per share data) | Metric (Millions) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | $103.9 | $110.2 | $427.5 | $401.7 |\n| Total Operating Expenses | $95.9 | $103.0 | $368.2 | $346.8 |\n| Operating Income | $8.0 | $7.2 | $59.3 | $54.9 |\n| Net Income | $1.4 | $0.5 | $29.7 | $26.9 |\n| Net Income Per Common Share (Basic and Diluted) | $0.09 | $0.03 | $1.85 | $1.68 | Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheets (Millions) | Metric (Millions) | Sep 30, 2023 | Sep 30, 2022 | Dec 31, 2022 | | :---------------- | :----------- | :----------- | :----------- | | Total Current Assets | $156.4 | $150.6 | $194.8 |\n| Net Utility Plant | $1,390.1 | $1,303.8 | $1,331.7 |\n| Total Assets | $1,620.2 | $1,578.9 | $1,590.4 |\n| Total Current Liabilities | $243.4 | $193.6 | $260.1 |\n| Total Noncurrent Liabilities | $388.0 | $433.4 | $373.6 |\n| Total Stockholders' Equity | $479.8 | $458.8 | $467.6 |\n| Total Liabilities and Capitalization | $1,620.2 | $1,578.9 | $1,590.4 | Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows (Millions) | Metric (Millions) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :---------------- | :-------------------------- | :-------------------------- | | Cash Provided by Operating Activities | $78.7 | $82.7 |\n| Cash (Used in) Investing Activities | $(93.4) | $(82.5) |\n| Cash Provided by Financing Activities | $11.7 | $1.2 |\n| Net (Decrease) Increase in Cash and Cash Equivalents | $(3.0) | $1.4 |\n| Cash and Cash Equivalents at End of Period | $6.0 | $7.9 | Consolidated Statements of Changes in Common Stock Equity This statement outlines changes in common stock equity, including net income, dividends, and stock issuances Consolidated Statements of Changes in Common Stock Equity (Millions, except per share data and number of shares) | Metric (Millions) | Sep 30, 2023 (3 Months) | Sep 30, 2022 (3 Months) | Sep 30, 2023 (9 Months) | Sep 30, 2022 (9 Months) | | :---------------- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | Balance at Beginning of Period | $484.2 | $464.1 | $467.4 | $448.3 |\n| Net Income | $1.4 | $0.5 | $29.7 | $26.9 |\n| Dividends Paid | $(6.5) | $(6.3) | $(19.6) | $(18.9) |\n| Stock Compensation Plans | $0.2 | $0.1 | $1.3 | $1.5 |\n| Issuance of Common Shares | $0.3 | $0.2 | $0.8 | $0.8 |\n| Balance at End of Period | $479.6 | $458.6 | $479.6 | $458.6 | Notes to Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the consolidated financial statements Note 1 - Summary of Significant Accounting Policies This note describes the key accounting principles and methods used in preparing the financial statements - Unitil is a public utility holding company with subsidiaries distributing electricity and gas in New Hampshire, Massachusetts, and Maine, and an interstate gas transmission pipeline[97][99][100] - Earnings are historically seasonal, with higher results in the first and fourth quarters due to gas heating demand[98] - Revenue recognition includes billed/unbilled revenue and rate adjustment mechanisms, with a majority recognized monthly based on tariffs and consumption[104][106] Estimated Percentage of Decoupled Sales | Category | Before June 1, 2022 | After June 1, 2022 | | :------- | :------------------ | :----------------- | | Electric | 27% | Substantially All |\n| Gas | 11% | 43% | - The company uses regulated operations guidance, recording regulatory assets and liabilities for future recovery or customer benefit[124] Regulatory Assets (Millions) | Category | Sep 30, 2023 | Sep 30, 2022 | Dec 31, 2022 | | :-------------------------------- | :----------- | :----------- | :----------- | | Retirement Benefits | $26.5 | $87.4 | $29.1 |\n| Energy Supply and Other Rate Adjustment Mechanisms | $51.0 | $40.9 | $63.0 |\n| Deferred Storm Charges | $9.0 | $2.7 | $3.4 |\n| Environmental | $6.1 | $4.5 | $5.9 |\n| Income Taxes | $1.2 | $2.0 | $1.8 |\n| Other Deferred Charges | $10.6 | $12.0 | $11.1 |\n| Total Regulatory Assets | $104.4 | $149.5 | $114.3 |\n| Less: Current Portion | $53.5 | $44.0 | $66.5 |\n| Regulatory Assets – noncurrent | $50.9 | $105.5 | $47.8 | Energy Supply Obligations (Millions) | Category | Sep 30, 2023 | Sep 30, 2022 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Exchange Gas Obligation | $13.1 | $23.1 | $16.3 |\n| Renewable Energy Portfolio Standards | $5.6 | $6.7 | $7.8 |\n| Total Energy Supply Obligations | $18.7 | $29.8 | $24.1 | Note 2 - Dividends Declared Per Share This note details the quarterly dividends declared per common share, including declaration and payment dates Quarterly Dividends Declared Per Share | Declaration Date | Paid (Payable) Date | Shareholder of Record Date | Dividend Amount | | :--------------- | :------------------ | :------------------------- | :-------------- | | 10/23/23 | 11/28/23 | 11/14/23 | $0.405 |\n| 07/26/23 | 08/28/23 | 08/14/23 | $0.405 |\n| 04/26/23 | 05/30/23 | 05/15/23 | $0.405 |\n| 01/25/23 | 02/28/23 | 02/14/23 | $0.405 |\n| 10/26/22 | 11/28/22 | 11/14/22 | $0.390 |\n| 07/27/22 | 08/26/22 | 08/12/22 | $0.390 |\n| 04/27/22 | 05/27/22 | 05/13/22 | $0.390 |\n| 01/26/22 | 02/25/22 | 02/11/22 | $0.390 | Note 3 - Segment Information This note provides financial data broken down by the company's electric, gas, and other operating segments Segment Financial Data (Millions) | Metric | Segment | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----- | :------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Operating Revenues | Electric | $72.1 | $75.7 | $244.8 | $219.2 |\n| | Gas | $31.8 | $34.5 | $182.7 | $182.5 |\n| | Other | $0.0 | $0.0 | $0.0 | $0.0 |\n| | Total | $103.9 | $110.2 | $427.5 | $401.7 |\n| Segment Profit (Loss) | Electric | $6.2 | $5.9 | $15.1 | $13.2 |\n| | Gas | $(4.3) | $(5.3) | $15.6 | $14.5 |\n| | Other | $(0.5) | $(0.1) | $(1.0) | $(0.8) |\n| | Total | $1.4 | $0.5 | $29.7 | $26.9 |\n| Capital Expenditures | Electric | $5.3 | $8.3 | $29.3 | $22.5 |\n| | Gas | $28.3 | $28.9 | $61.8 | $59.9 |\n| | Other | $2.2 | $0.0 | $2.3 | $0.1 |\n| | Total | $35.8 | $37.2 | $93.4 | $82.5 |\n| Segment Assets (9 Months) | Electric | N/A | N/A | $607.2 | $590.9 |\n| | Gas | N/A | N/A | $989.2 | $967.5 |\n| | Other | N/A | N/A | $23.8 | $20.5 |\n| | Total | N/A | N/A | $1,620.2 | $1,578.9 | Note 4 - Debt and Financing Arrangements This note details the company's debt obligations, credit facilities, and lease arrangements - 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% in July 2023 to refinance existing debt and for general corporate purposes[151] Revolving Credit Facility (Millions) | Metric | Sep 30, 2023 | Sep 30, 2022 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Limit | $200.0 | $200.0 | $200.0 |\n| Short-Term Borrowings Outstanding | $129.5 | $72.0 | $116.0 |\n| Available | $70.5 | $128.0 | $84.0 | - The company was in compliance with the Funded Debt to Capitalization covenant (not to exceed 65%) at September 30, 2023, September 30, 2022, and December 31, 2022[149] - Average interest rates on short-term borrowings increased significantly from 3.6% in Q3 2022 to 6.4% in Q3 2023, and from 2.4% in the first nine months of 2022 to 6.2% in the first nine months of 2023[150] Total Lease Obligations (Millions) | Lease Type | Sep 30, 2023 | Sep 30, 2022 | Dec 31, 2022 | | :-------------------------- | :----------- | :----------- | :----------- | | Operating Lease Obligations | $5.5 | $4.6 | $4.3 |\n| Capital Lease Obligations | $0.5 | $0.2 | $0.2 |\n| Total Lease Obligations | $6.0 | $4.8 | $4.5 | Note 5 - Common Stock and Preferred Stock This note provides information on the company's common stock, equity compensation plans, and outstanding shares - As of September 30, 2023, 16,097,182 common shares were outstanding[160] - The company issued 16,287 common shares through its Dividend Reinvestment and Stock Purchase Plan and 401(k) plans, generating approximately $854,100 in net proceeds during the first nine months of 2023[161] - Total unrecognized compensation cost for Time Restricted Shares was approximately $0.8 million, expected to be recognized over 2.4 years as of September 30, 2023[165] - Initial Performance Restricted Shares were granted on January 24, 2023, with 18,770 non-vested shares outstanding as of September 30, 2023, and an unrecognized compensation cost of approximately $0.9 million over 2.3 years[167] - Non-management directors can elect to receive equity portions of their retainer in Restricted Stock Units, with 44,848 units outstanding as of September 30, 2023[168][169] Note 6 - Regulatory Matters This note details significant regulatory approvals, rate cases, and ongoing proceedings affecting the company's operations - MPUC approved a $7.6 million increase in distribution revenues for Northern Utilities (Maine) effective October 1, 2023, with a 9.35% return on equity[171] - Northern Utilities (Maine) received approval for a $2.1 million annual base rate increase under the TIRA mechanism, effective May 1, 2023[172] - NHPUC approved a $6.1 million increase to permanent distribution rates for Northern Utilities (New Hampshire) effective August 1, 2022, including a revenue decoupling mechanism and a 9.3% return on equity[173] - Unitil Energy received NHPUC approval for a $5.9 million increase to permanent distribution rates effective June 1, 2022, and subsequent step adjustments for capital investments[174] - Fitchburg filed petitions seeking approval for a $6.8 million increase to electric base distribution rates and a $10.9 million increase to gas base distribution rates, both anticipated to be effective July 1, 2024[176][177] - Fitchburg's Grid Modernization Plan (GMP) received budget caps and preliminary approvals for advanced metering infrastructure (AMI) and customer engagement investments through 2025[182][183] - Massachusetts EDCs (including Fitchburg) are required to jointly procure offshore wind and clean energy, with several long-term contracts approved and some termination agreements negotiated due to economic conditions[194][197][198] Note 7 - Environmental Matters This note outlines the company's environmental remediation programs and associated obligations - Northern Utilities has an extensive program for Manufactured Gas Plant (MGP) site remediation, with costs recoverable through regulatory mechanisms[206][209] - The company has accrued $2.5 million for estimated remediation costs at the Rochester MGP site, with a high-end estimate of $5.6 million, anticipating commencement in 2024[208] - Fitchburg is addressing environmental concerns at its former MGP site, with costs recoverable in gas rates[211][214] - Unitil Energy is conducting a supplemental site investigation at its Kensington Distribution Operations Center due to soil and groundwater contaminants, with remediation activities anticipated in 2025[215] Environmental Obligations (Millions) | Metric | Sep 30, 2023 | Sep 30, 2022 | | :-------------------------- | :----------- | :----------- | | Total Balance at Beginning of Period | $4.4 | $2.7 |\n| Additions | $0.7 | $0.4 |\n| Less: Payments / Reductions | $0.5 | $0.3 |\n| Total Balance at End of Period | $4.6 | $2.8 |\n| Less: Current Portion | $0.6 | $0.6 |\n| Noncurrent Balance at End of Period | $4.0 | $2.2 | Note 8 - Income Taxes This note provides details on the company's effective income tax rate, deferred taxes, and tax carryforwards Effective Income Tax Rate | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------------------- | :-------------------------- | :-------------------------- | | Statutory Federal Income Tax Rate | 21% | 21% |\n| State Income Taxes, net | 6% | 6% |\n| Utility Plant Differences | (5%) | (6%) |\n| Effective Income Tax Rate | 22% | 21% | - The company utilized $1.4 million in federal Net Operating Loss Carryforward (NOLC) assets and $0.2 million in federal tax credit carryforward in its 2022 federal tax returns[220] - As of December 31, 2022, the company had $4.4 million of NOLC assets and $1.7 million of federal tax credits available, plus $1.3 million of state tax credit carryforwards[220] - Recent tax legislation (CARES, CAA, ARPA, IRA) has been evaluated and determined not to have a material effect on the company's financial statements as of September 30, 2023[225] - The company is flowing back a net $47.1 million of protected excess Accumulated Deferred Income Taxes (ADIT) to customers over fifteen to twenty years, with $8.5 million flowed back as of September 30, 2023[226] Note 9 - Retirement Benefit Obligations This note details the company's pension and post-retirement benefit plans, including assumptions and costs Key Weighted Average Assumptions for Benefit Plan Costs | Assumption | 2023 | 2022 | | :-------------------------------- | :----- | :----- | | Discount Rate | 5.25% | 2.85% |\n| Rate of Compensation Increase | 3.00% | 3.00% |\n| Expected Long-term rate of return on plan assets | 7.50% | 7.50% | - For the nine months ended September 30, 2023, Net Periodic Benefit Cost Recognized was $0.625 million for the Pension Plan, $0.650 million for the PBOP Plan, and $0.549 million for the SERP[229] - As of September 30, 2023, the company contributed $3.9 million to its Pension Plan and $1.5 million to its PBOP Plan in 2023[230] - The company made $0.5 million in benefit payments under the SERP Plan in 2023 and anticipates an additional $0.2 million[231] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item refers to the 'Interest Rate Risk' and 'Market Risk' sections within Management's Discussion and Analysis for disclosures on market risk - Disclosures about market risk are referenced in the 'Interest Rate Risk' and 'Market Risk' sections of Item 2[232] Item 4. Controls and Procedures Management, including the CEO, CFO, and CAO, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2023, concluding they are effective, with no material changes to internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2023[233] - No material changes to internal control over financial reporting occurred during the fiscal quarter[234] Part II. Other Information Item 1. Legal Proceedings The company is involved in various legal and administrative proceedings in the ordinary course of business, but management believes their ultimate resolution will not materially affect its financial position, operating results, or cash flows - The company is involved in routine legal and administrative proceedings[235] - Management believes the ultimate resolution of these claims will not have a material effect on financial position, operating results, or cash flows[235] - Specific matters are discussed in Notes 6 and 7 to the Consolidated Financial Statements[235] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to risk factors were disclosed compared to the 2022 Form 10-K[236] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the quarter. The company has a Rule 10b5-1 trading plan to repurchase common stock to fulfill the equity portion of Directors' annual retainers, with no shares purchased under this plan during the quarter ended September 30, 2023 Recent Sales of Unregistered Securities This section confirms no unregistered equity securities were sold during the reported quarter - No unregistered equity securities were sold during the quarter ended September 30, 2023[237] Issuer Purchases of Equity Securities This section details the company's Rule 10b5-1 trading plan for repurchasing common stock - The company has a Rule 10b5-1 trading plan to repurchase common stock for Directors' annual retainers[238] - The trading plan has a value limit of $614,000 and terminates by May 31, 2024[239] - No shares were purchased under this plan during the quarter ended September 30, 2023[241] Item 3. Defaults Upon Senior Securities This item is marked as 'Inapplicable' in the report's Table of Contents - This item is not applicable to the current report[5] Item 4. Mine Safety Disclosures This item is marked as 'Inapplicable' in the report's Table of Contents - This item is not applicable to the current report[5] Item 5. Other Information The company issued a press release on November 7, 2023, announcing its Q3 and YTD September 2023 earnings, and no directors or officers adopted or terminated Rule 10b5-1 trading arrangements during the quarter - A press release announcing Q3 and YTD September 2023 earnings was issued on November 7, 2023[242] - No director or officer adopted or terminated Rule 10b5-1 trading arrangements during the quarter[243] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO, CFO, and CAO, the earnings press release, and Inline XBRL documents - The report includes certifications from the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer[244] - Exhibit 99.1 is the Unitil Corporation Press Release dated November 7, 2023, announcing earnings[244] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase) are filed herewith[245] Signatures This section confirms the official signing of the report by key financial officers - The report was signed on November 7, 2023, by Daniel J. Hurstak (Chief Financial Officer) and Todd R. Diggins (Chief Accounting Officer)[248]