UNITIL CORP 10-K

Item 1. Business UNITIL CORPORATION In this Annual Report on Form 10-K, the “Company”, “Unitil”, “we”, and “our” refer to Unitil Corporation and its subsidiaries, unless the context requires otherwise. Unitil is a public utility holding company incorporated under the laws of the State of New Hampshire in 1984. The following companies are wholly-owned subsidiaries of Unitil: Company Name State and Year of Organization Principal Business Unitil Energy Systems, Inc. (Unitil Energy) NH - 1901 Electric Distribution Utility Fitchburg Gas and Electric Light Company (Fitchburg) MA - 1852 Electric & Natural Gas Distribution Utility Northern Utilities, Inc. (Northern Utilities) NH - 1979 Natural Gas Distribution Utility Granite State Gas Transmission, Inc. (Granite State) NH - 1955 Natural Gas Transmission Pipeline Unitil Power Corp. (Unitil Power) NH - 1984 Wholesale Electric Power Utility Unitil Service Corp. (Unitil Service) NH - 1984 Utility Service Company Unitil Realty Corp. (Unitil Realty) NH - 1986 Real Estate Management Unitil Resources, Inc. (Unitil Resources) NH - 1993 Non-regulated Energy Services 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 natural gas to approximately 195,600 customers throughout its service territories in the states of New Hampshire, Massachusetts and Maine. Unitil is the parent company of three wholly-owned distribution utilities: i) 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, which provides both electric and natural gas service in the greater Fitchburg area of north central Massachusetts, and iii) Northern Utilities, which provides natural 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. In addition, Unitil is the parent company of Granite State, an interstate natural gas transmission pipeline company that provides interstate natural gas pipeline access and transportation services to Northern Utilities in its New Hampshire and Maine service territory. Together, Unitil’s three distribution utilities serve approximately 108,100 electric customers and 87,500 natural gas customers. Customers Served as of December 31, 2022 Residential Commercial & Industrial (C&I) Total Electric: Unitil Energy 66,500 11,300 77,800 Fitchburg 26,200 4,100 30,300 Total Electric 92,700 15,400 108,100 Natural Gas: Northern Utilities 54,300 16,900 71,200 Fitchburg 14,600 1,700 16,300 Total Natural Gas 68,900 18,600 87,500 Total Customers Served 161,600 34,000 195,600 Unitil had an investment in Net Utility Plant of $1,331.7 million at December 31, 2022. The Company’s total operating revenue was $563.2 million in 2022. Unitil’s operating revenue is substantially derived from regulated electric and natural gas distribution utility operations. A fifth utility subsidiary, Unitil Power, formerly functioned as the full requirements wholesale power supply provider for Unitil Energy. In connection with the implementation of electric industry restructuring in New Hampshire, on May 1, 2003 Unitil Power ceased being the wholesale supplier of Unitil Energy and divested its long-term power supply contracts through the sale of the entitlements to the electricity associated with various electric power supply contracts it had acquired to serve Unitil Energy’s customers. In the period since, Unitil Power continued to flow revenues and expenses from remaining contracts to Unitil Energy under the Amended Unitil System Agreement. The last of those contracts expired October 31, 2020, and the Company no longer has material revenues or expenses associated with those contracts. 3 Unitil has three other wholly-owned non-utility subsidiaries: Unitil Service, Unitil Realty, and Unitil Resources. Unitil Service provides, at cost, a variety of administrative and professional services, including regulatory, financial, accounting, human resources, engineering, operations, technology and energy supply management services on a centralized basis to its affiliated Unitil companies. Unitil Realty owns and manages the Company’s corporate office in Hampton, New Hampshire. Unitil Resources is the Company’s wholly-owned non-regulated subsidiary which currently does not have any activity. For segment information relating to each segment’s revenue, earnings and assets, see Note 2 (Segment Information) to the Consolidated Financial Statements included in Part II, Item 8 (Financial Statements and Supplementary Data) of this report. All of the Company’s revenues are attributable to customers in the United States of America and all its long-lived assets are located in the United States of America. OPERATIONS Electric Distribution Utility Operations Unitil’s electric distribution operations are conducted through two of the Company’s utilities, Unitil Energy and Fitchburg. Revenue from Unitil’s electric utility operations was $297.9 million in 2022, which represents about 53% of Unitil’s total operating revenue. The Company’s GAAP Electric Gross Margin was $73.4 million in 2022. The Company’s Electric Adjusted Gross Margin (a non-GAAP financial measure) was $98.8 million in 2022, or 41% of Unitil’s total Adjusted Gross Margin. See “Results of Operations” in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) for a discussion of the non-GAAP financial measures presented in this Annual Report on Form 10-K, including a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures for the periods presented. The primary business of Unitil’s electric utility operations is the local distribution of electricity to customers in its service territory in New Hampshire and Massachusetts. All of Unitil Energy’s and Fitchburg’s electric customers are entitled to purchase their supply of electricity from third-party competitive suppliers, while Unitil Energy and Fitchburg remain their electric distribution company. Both Unitil Energy and Fitchburg supply electricity to those customers who do not obtain their supply from third-party competitive suppliers, with the approved costs associated with electricity supply being recovered on a pass-through basis under regulated reconciling rate mechanisms that are periodically adjusted. Unitil Energy distributes electricity to approximately 77,800 customers in New Hampshire in the capital city of Concord as well as parts of 12 surrounding towns, and all or part of 18 towns in the southeastern and seacoast regions of New Hampshire, including the towns of Hampton, Exeter, Atkinson and Plaistow. Unitil Energy’s service territory consists of approximately 408 square miles. Unitil Energy’s service territory encompasses retail and recreation centers for the central and southeastern parts of the state and includes the Hampton Beach recreational area. These areas serve diversified commercial and industrial businesses, including manufacturing firms engaged in the production of electronic components, wire and plastics, as well as firms engaged in the aviation, defense, healthcare and education sectors. Unitil Energy’s 2022 electric operating revenue was $208.9 million, of which approximately 60% was derived from residential sales and 40% from commercial and industrial (C&I) sales. Fitchburg is engaged in the distribution of both electricity and natural gas in the greater Fitchburg area of north central Massachusetts. Fitchburg’s service territory encompasses approximately 170 square miles. Electricity is distributed by Fitchburg to approximately 30,300 customers in the communities of Fitchburg, Ashby, Townsend and Lunenburg. Fitchburg’s industrial customers include paper manufacturing and paper products companies, rubber and plastics manufacturers, precision machining and molding, non-lethal ballistics manufacturing, specialty chemicals compounding, cannabis growing and processing facilities, printing, and educational institutions. Fitchburg’s 2022 electric operating revenue was $89.0 million, of which approximately 58% was derived from residential sales and 42% from C&I sales. Natural Gas Operations Unitil’s natural gas operations include gas distribution utility operations and interstate gas transmission pipeline operations. Revenue from Unitil’s gas operations was $265.3 million in 2022, which represents about 47% of Unitil’s total operating revenue. The Company’s GAAP Gas Gross Margin was $107.6 million in 2022. The Company’s Gas Adjusted Gross Margin (a non-GAAP financial measure) was $143.9 million in 2022, or 59% of Unitil’s total Adjusted Gross Margin. See “Results of Operations” in Part II, Item 7 (Management’s Discussion and Analysis of Financial Condition and Results of Operations) for a discussion of the non-GAAP financial measures presented in this Annual Report on Form 10-K, including a reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures for the periods presented. 4 Natural Gas Distribution Utility Operations Unitil’s natural gas distribution operations are conducted through two of the Company’s operating utilities, Northern Utilities and Fitchburg. The primary business of Unitil’s natural gas utility operations is the local distribution of natural gas to customers in its service territories in New Hampshire, Massachusetts and Maine. Northern Utilities’ C&I customers and Fitchburg’s residential and C&I customers are entitled to purchase their natural gas supply from third-party competitive suppliers, while Northern Utilities or Fitchburg remains their gas distribution company. Both Northern Utilities and Fitchburg supply gas to those customers who do not obtain their supply from third-party competitive suppliers, with the approved costs associated with this gas supply recovered on a pass-through basis underregulated reconciling rate mechanisms that are periodically adjusted. Northern Utilities distributes natural gas to approximately 71,200 customers in 47 New Hampshire and southern Maine communities, from Plaistow, New Hampshire in the south to the city of Portland, Maine and then extending to Lewiston-Auburn, Maine to the north. Northern Utilities has a diversified customer base both in Maine and New Hampshire. Commercial businesses include healthcare, education, government and retail. Northern Utilities’ industrial base includes manufacturers in the auto, housing, paper, printing, textile, pharmaceutical, electronics, wire and food production industries as well as a military installation. Northern Utilities’ 2022 gas operating revenue was $209.1 million, of which approximately 36% was derived from residential firm sales and 64% from C&I firm sales. Fitchburg distributes natural gas to approximately 16,300 customers in the communities of Fitchburg, Lunenburg, Townsend, Ashby, Gardner and Westminster, all located in Massachusetts. Fitchburg’s industrial customers include paper manufacturing and paper products companies, rubber and plastics manufacturers, cannabis growing and processing facilities, printing, educational institutions. Fitchburg’s 2022 gas operating revenue was $47.8 million, of which approximately 58% was derived from residential firm sales and 42% from C&I firm sales. Gas Transmission Pipeline Operations Granite State is an interstate natural 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 natural gas pipelines and access to domestic natural gas supplies in the south and Canadian natural gas supplies in the north. Granite State had operating revenue of $8.4 million in 2022. Granite State derives its revenues principally from the transportation services provided to Northern Utilities and to third-party suppliers under FERC-approved rates. Seasonality The Company’s results of operations are expected to reflect the seasonal nature of the natural gas business. Annual gas revenues are substantially realized during the colder weather seasons of the year as a result of higher sales of natural gas used for heating-related purposes. 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 result of operations. Sales of electricity are generally less sensitive to weather than natural gas sales, but may also be affected by weather conditions and the temperature in the winter and summer seasons. Unitil Energy, Fitchburg and Northern Utilities have a well-diversified customer mix and are not dependent on a single customer, or a few customers, for their electric and natural gas sales. Revenue Decoupling Revenue decoupling is the term given to the elimination of the dependency of a utility’s distribution revenue on the volume of electricity or gas sales. The difference between distribution revenue amounts billed to customers and the targeted revenue decoupling amounts is recognized as an increase or a decrease in Accrued Revenue, which forms the basis for resetting rates for future cash recoveries from, or credits to, customers. These revenue decoupling targets may be adjusted as a result of rate cases and other authorized adjustments that the Company files with the Massachusetts Department of Public Utilities (MDPU) and New Hampshire Public Utilities Commission (NHPUC). Fitchburg has been subject to revenue decoupling since 2011. Unitil Energy is subject to revenue decoupling as of June 1, 2022. As a result of Unitil Energy now being subject to revenue decoupling, as of June 1, 2022, revenue decoupling now applies to substantially all of Unitil’s total annual electric sales volumes. As a result of the recently received final order in Northern Utilities’ base rate case in New Hampshire, substantially all of Northern Utilities’ gas sales volumes in New Hampshire are subject to decoupling as of August 1, 2022. As of August 1, 2022, the Company estimates that revenue decoupling applies to approximately 43% of Unitil’s total annual gas sales volumes. 5 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% Non-Regulated and Other Non-Utility Operations The results of Unitil’s other non-utility subsidiaries, Unitil Service, Unitil Resources, Unitil Realty, and the holding company, are included in the Company’s consolidated results of operations. The results of these non-utility operations are principally derived from income earned on short-term investments and real property owned for Unitil’s and its subsidiaries’ use and are reported, after intercompany eliminations, in Other segment income. For segment information, see Note 2 (Segment Information) to the Consolidated Financial Statements included in Part II, Item 8 (Financial Statements and Supplementary Data) of this report. 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 also are 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 NHPUC; Fitchburg is subject to regulation by the MDPU; and Northern Utilities is regulated by the NHPUC and Maine Public Utilities Commission (MPUC). Granite State, Unitil’s interstate natural gas transmission pipeline, is subject to regulation by the 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 natural gas to all customers in their service territory, at rates established under cost of service regulation. Under this regulatory structure, Unitil’s distribution utilities are provided the opportunity to recover the cost of providing distribution service to their customers based on a test year, and to earn a reasonable return on their capital investment in utility assets. In addition, the Company’s distribution utilities and its natural gas transmission pipeline company may recover certain base rate costs, including capital project spending and enhanced reliability and vegetation management programs, through annual step adjustments and cost tracking rate mechanisms. The Company's electric and gas sales in New Hampshire and Massachusetts are now largely decoupled. Also see Note 6 (Energy Supply) and Note 7 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements for additional information regarding rates and regulation. EMPLOYEES As of December 31, 2022, the Company and its subsidiaries had 516 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. 6 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 December 31, 2022, a total of 170 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 December 31, 2022: Employees Covered CBA Expiration Fitchburg 41 5/31/2027 Northern Utilities NH Division 35 06/07/2025 Northern Utilities ME Division 40 03/31/2026 Granite State 4 03/31/2026 Unitil Energy 41 05/31/2023 Unitil Service - Gas Control 4 3/31/2024 Unitil Service 5 05/31/2023 The CBAs provide discrete salary adjustments, established work practices and uniform benefit packages. The Company expects to negotiate new agreements prior to their expiration dates. AVAILABLE INFORMATION The Internet address for the Company’s website is unitil.com . On the Investors section of the Company’s website, the Company makes available, free of charge, its Securities and Exchange Commission (SEC) reports, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and other reports, as well as amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practical after the Company electronically files such material with, or furnishes such material to, the SEC. The Company’s current Code of Ethics was approved by Unitil’s Board of Directors on January 15, 2004. This Code of Ethics, along with any amendments or waivers, is also available on Unitil’s website. Unitil’s common stock is listed on the New York Stock Exchange under the ticker symbol “UTL”. INVESTOR INFORMATION Annual Meeting The Company’s annual meeting of shareholders is scheduled to be held at the offices of the Company, 6 Liberty Lane West, Hampton, New Hampshire, on Wednesday, April 26, 2023, at 11:30 a.m. Transfer Agent The Company’s transfer agent, Computershare Investor Services, is responsible for shareholder records, issuance of common stock, administration of the Dividend Reinvestment and Stock Purchase Plan, and the distribution of Unitil’s dividends and IRS Form 1099-DIV. Shareholders may contact Computershare at: Computershare Investor Services P.O. Box 43078 Providence, RI 02940-3078 Telephone: 800-736-3001 www.computershare.com/investor 7 Investor Relations For information about the Company, you may call the Company directly, toll-free, at: 800-999-6501 and ask for the Investor Relations Representative; visit the Investors page at www.unitil.com ; or contact the transfer agent, Computershare, at the number listed above. Special Services & Shareholder Programs Available to Holders of Record If a shareholder’s shares of our common stock are registered directly in the shareholder’s name with the Company’s transfer agent, the shareholder is considered a holder of record of the shares. The following services and programs are available to shareholders of record: • Internet Account Access is available at www.computershare.com/investor . • Dividend Reinvestment and Stock Purchase Plan: To enroll, please contact the Company’s Investor Relations Representative or Computershare. • Dividend Direct Deposit Service: To enroll, please contact the Company’s Investor Relations Representative or Computershare. • Direct Registration: For information, please contact Computershare at 800-935-9330 or the Company’s Investor Relations Representative at 800-999-6501.