What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-01 compared with 2021-02-02 · 187 added, 226 removed, 288 unchanged (59% of the section changed)

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Unitil is subject to regulation as a holding company system by the FERC under the Energy Policy Act of 2005.

Unitil’s principal business is the local distribution of electricity and natural gas to approximately 192,700 customers throughout its service territory in the states of New Hampshire, Massachusetts and Maine.

Unitil’s principal business is the local distribution of electricity and natural gas to 194,275 customers throughout its service territory in the states of New Hampshire, Massachusetts and Maine.

Unitil is the parent company of three wholly-owned distribution utilities:

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Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as the “distribution utilities.” Together, the distribution utilities serve approximately 107,680 electric customers and 86,595 natural gas customers in their service territories.

The distribution utilities are local “pipes and wires” operating companies.

The distribution utilities are local “wires and pipes” operating companies.

In addition, Unitil is the parent company of Granite State, a natural gas transmission pipeline, regulated by the FERC, operating 86 miles of underground gas transmission pipeline primarily located in Maine and New Hampshire.

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Earnings from Unitil’s utility operations are derived from the return on investment in the three distribution utilities and Granite State.

Unitil previously conducted non-regulated

operations principally through Usource, which was wholly-owned by Unitil Resources.

Unitil previously conducted non-regulated operations principally through Usource, which was wholly-owned by Unitil Resources.

The Company divested Usource in the first quarter of 2019.

Usource provided energy brokering and advisory services to large commercial and industrial customers in the northeastern United States.

See additional discussion of the divestiture of Usource in “Divestiture of Non-Regulated

Business Subsidiary” in Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements.

The Company’s other subsidiaries include Unitil Service, which provides, at cost, a variety of administrative and professional services to Unitil’s affiliated companies, and Unitil Realty, which owns and manages Unitil’s corporate office building and property located in Hampton, New Hampshire.

See additional discussion of the divestiture of Usource in “Divestiture of Non-Regulated Business Subsidiary” in Note 1 (Summary of Significant Accounting Policies) to the Consolidated Financial Statements.

The Company’s other subsidiaries include Unitil Service, which provides, at cost, a variety of

administrative and professional services to Unitil’s affiliated companies, and Unitil Realty, which owns and manages Unitil’s corporate office building and property located in Hampton, New Hampshire.

Unitil’s consolidated net income includes the earnings of the holding company and these subsidiaries.

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Fitchburg is subject to regulation by the MDPU;

Utilities is regulated by the NHPUC and MPUC.

and Northern Utilities is regulated by the NHPUC and MPUC.

Granite State, Unitil’s interstate natural gas transmission pipeline, is subject to regulation by the FERC with regard to its rates and operations.

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Unitil’s distribution utilities deliver electricity and/or natural gas to all customers in their service territories, at rates established under traditional cost of service regulation.

Under this regulatory structure, Unitil’s distribution utilities recover the cost of providing distribution service to their customers based on a historical test year, and earn a return on their capital investment in utility assets.

In addition, the Company’s distribution utilities and its natural gas transmission pipeline company may also recover certain base rate costs, including capital project spending and enhanced reliability and vegetation management programs, through annual step adjustments and cost tracker rate mechanisms.

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 historical test year, and earn a return on their capital investment in utility assets.

In addition, the Company’s distribution utilities and its natural gas transmission pipeline company also may recover certain base rate costs, including capital project spending and enhanced reliability and vegetation management programs, through annual step adjustments and cost tracker rate mechanisms.

Most of Unitil’s customers have the opportunity to purchase their electricity or natural gas supplies from third-party energy suppliers.

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The following discussion of the Company’s financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Part II, Item 8 of this report.

The Company is responding to the coronavirus pandemic by taking steps to mitigate the potential risks posed by its spread.

The Company’s electric and gas service utility distribution operating systems have continued to provide service to customers without disruption due to the coronavirus pandemic through the date of this filing.

The Company has implemented its Crisis Response Plan to address specific aspects of the coronavirus pandemic.

The Company continues to respond to the coronavirus pandemic by taking steps to mitigate the potential risks posed by its spread.

The Company’s electric and gas utility distribution operating systems have continued to provide service to customers without disruption due to the coronavirus pandemic through the date of this filing.

The Company has implemented its Crisis Response Plan to address specific aspects of

the coronavirus pandemic.

The Crisis Response Plan guides emergency response, business continuity, and the precautionary measures being taken on behalf of employees and the public.

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The Company continues to implement strong physical and cyber-security measures to ensure that its systems remain functional in order to serve both operational needs with a remote workforce and to help ensure uninterrupted service to customers.

The extent to which the coronavirus pandemic impacts the Company’s financial condition, results of operations, and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus pandemic, and the actions to contain the coronavirus pandemic or treat its impact, among others.

In particular, the continued spread of the coronavirus could adversely impact the Company’s business, including (i) by disrupting the Company’s employees and contractors ability to

provide ongoing services to the Company, (ii) by reducing customer demand for electricity or gas, or (iii) by reducing the supply of electricity or gas, each of which could have an adverse impact on the Company’s financial condition, results of operations, and cash flows.

The extent to which the coronavirus pandemic affects the Company’s financial condition, results of operations, and cash flows will depend on future developments, that are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information that may emerge concerning the severity of the coronavirus pandemic, and the actions to contain the coronavirus pandemic or treat its effect, among others.

In particular, the continued spread of the coronavirus could adversely affect the Company’s business, including (i) by disrupting the Company’s employees and contractors ability to provide ongoing services to the Company, (ii) by reducing customer demand for electricity or gas, or (iii) by reducing the supply of electricity or gas, each of which could have an adverse effect on the Company’s financial condition, results of operations, and cash flows.

The Company’s results of operations reflect the seasonal nature of the gas business.

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Sales of electricity are generally less sensitive to weather than gas sales, but may also be affected by the weather conditions in both the winter and summer seasons.

Also, as a result of recent rate cases, the Company’s gas GAAP gross margins and gas adjusted gross margins (a non-GAAP

measure) are derived from a higher percentage of fixed billing components, including customer charges.

Also, as a result of recent rate cases, the Company’s gas GAAP gross margins and gas adjusted gross margins (a non-GAAP financial measure) are derived from a higher percentage of fixed billing components, including customer charges.

Therefore, future gas revenues and gas adjusted gross margin will be less affected by the seasonal nature of the gas business.

In addition, approximately 27% and 11% of the Company’s total annual electric and gas sales volumes, respectively, are decoupled and changes in sales to existing customers do not affect GAAP gross margin and adjusted gross margin.

The Company analyzes operating results using Gas and Electric Adjusted Gross Margins, which are non-GAAP

Gas Adjusted Gross Margin is calculated as Total Gas Operating Revenue less Cost of Gas Sales.

Electric Adjusted Gross Margin is calculated as Total Electric Operating Revenues less Cost of Electric Sales.

The Company’s management believes Gas and Electric Adjusted Gross Margins provide useful information to investors regarding profitability.

The Company’s management also believes Gas and Electric Adjusted Gross Margins are important measures to analyze revenue from the Company’s ongoing operations because the approved cost of gas and electric sales are tracked, reconciled and passed through directly to customers in gas and electric tariff rates, resulting in an equal and offsetting amount reflected in Total Gas and Electric Operating Revenue.

In the following tables the Company has reconciled Gas and Electric Adjusted Gross Margin to GAAP Gross Margin, which we believe to be the most comparable GAAP measure.

GAAP Gross Margin is calculated as Revenue less Cost of Sales and Depreciation and Amortization.

The Company calculates Gas and Electric 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 revenue, is a meaningful measure to inform investors of the Company’s profitability from gas and electric sales in the period.

On August 6, 2021, the Company issued and sold 800,000 shares of its common stock at a price of $50.80 per share in a registered public offering (Offering).

The Company’s net increase to Common Equity and Cash proceeds from the Offering was approximately $38.6 million.

The proceeds were used to make equity capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes.

As part of the Offering, the Company granted the underwriters a 30-day option to purchase additional shares.

The underwriters exercised the option and purchased an additional 120,000 shares of the Company’s common stock on September 8, 2021.

The Company’s net increase to Common Equity and Cash proceeds from the exercise of the option was approximately $5.9 million.

The proceeds were used to make equity capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes.

Overall, the results of operations and earnings for the year ended December 31, 2021 reflect the higher number of average shares outstanding.

The Company analyzes operating results using Electric and Gas Adjusted Gross Margins, which are non-GAAP financial measures.

Electric Adjusted Gross Margin is calculated as Total Electric Operating Revenue less Cost of Electric Sales.

Gas Adjusted Gross Margin is calculated as Total Gas Operating Revenues less Cost of Gas Sales.

The Company’s management believes Electric and Gas Adjusted Gross Margins provide useful information to investors regarding profitability.

Also, the Company’s management believes Electric and Gas Adjusted Gross Margins are important financial measures to analyze revenue from the Company’s ongoing operations because the approved cost of electric and gas sales are tracked, reconciled and passed through directly to customers in electric and gas tariff rates, resulting in an equal and offsetting amount reflected in Total Electric and Gas Operating Revenue.

In the following tables the Company has reconciled Electric and Gas Adjusted Gross Margin to GAAP Gross Margin, which we believe to be the most comparable GAAP financial measure.

GAAP Gross Margin

is calculated as Revenue less Cost of Sales, and Depreciation and Amortization.

The Company calculates Electric and Gas Adjusted Gross Margin as Revenue less Cost of Sales.

The Company believes excluding Depreciation and Amortization, which are period costs and not related to volumetric sales, is a meaningful financial measure to inform investors of the Company’s profitability from electric and gas sales in the period.

Twelve Months Ended December 31, 2021 ($ millions)

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Adjusted Gross Margin

Gas GAAP Gross Margin was $92.8 million in 2020, a decrease of $0.9 million compared to 2019.

The decrease was driven by unfavorable effects of $4.4 million from lower sales due to warmer weather in 2020, $2.1 million attributed to lower sales primarily associated with the economic slowdown caused by the coronavirus pandemic, and higher depreciation and amortization of $1.3 million.

These decreases were partially offset by higher rates of $5.1 million and customer growth of $1.8 million.

Gas GAAP Gross Margin was $93.7 million in 2019, an increase of $1.7 million compared to 2018.

The increase was driven by higher rates of $5.6 million and higher gas sales of $0.9 million, partially offset by milder weather in the fourth quarter of 2019.

The positive effect of higher rates and customer growth was partially offset by the absence in 2019 of a $1.2 million non-recurring

adjustment recognized in the second quarter of 2018 to increase gas revenue and operating expenses in connection with a then ongoing base rate case for the Company’s New Hampshire natural gas utility, and higher depreciation and amortization of $3.6 million.

Electric GAAP Gross Margin was $71.5 million in 2021, an increase of $2.4 million compared to 2020.

The increase was driven by higher rates and customer growth of $4.5 million, partially offset by higher depreciation and amortization expense of $2.1 million.

Electric GAAP Gross Margin was $69.1 million in 2020, a decrease of $0.2 million compared to 2019.

The decrease reflects an unfavorable effect of $0.8 million attributed to the combined net effect of lower Commercial and Industrial (C&I) sales and higher Residential sales associated with the coronavirus pandemic, and higher depreciation and amortization of $1.2 million, partially offset by higher rates of $1.4 million and the positive combined effect of customer growth and warmer summer weather of $0.4 million.

Electric GAAP Gross Margin was $69.3 million in 2019, an increase of $0.5 million compared to 2018.

The increase reflects higher rates of $1.6 million and lower depreciation and amortization of $0.5 million, partially offset by a decrease of $1.6 million from lower kWh sales.

Gas GAAP Gross Margin was $100.5 million in 2021, an increase of $7.7 million compared to 2020.

The increase was driven by higher rates and customer growth of $9.4 million, and $1.1 million from the favorable effect of colder weather during the peak heating season in 2021, which the Company defines as the months of January—April, and November—December, partially offset by higher depreciation and amortization of $2.8 million.

Gas GAAP Gross Margin was $92.8 million in 2020, a decrease of $0.9 million compared to 2019.

The decrease was driven by unfavorable effects of $4.4 million from lower sales due to warmer weather in

2020, $2.1 million attributed to lower sales primarily associated with the economic slowdown caused by the coronavirus pandemic, and higher depreciation and amortization of $1.3 million.

These decreases were partially offset by higher rates of $5.1 million and customer growth of $1.8 million.

Net Income and EPS Overview

2021 Compared to 2020

The Company’s Net Income was $36.1 million, or $2.35 in Earnings Per Share (EPS), for the year ended December 31, 2021, an increase of $3.9 million in Net Income, or $0.20 in EPS, compared to 2020.

The Company’s earnings in 2021 reflect higher Electric and Gas Adjusted Gross Margins (a non-GAAP financial measure), partially offset by higher operating expenses.

Also, EPS in 2021 reflects the sale of 920,000 common shares in the third quarter of 2021.

Electric Adjusted Gross Margin (a non-GAAP financial measure) was $97.4 million in 2021, an increase of $4.5 million compared with 2020.

The increase was driven by higher rates and customer growth of $4.5 million.

Electric kilowatt-hour (kWh) sales increased 2.2% in 2021 compared to 2020.

Sales to Residential customers increased 0.5% and sales to C&I customers increased 3.5% in 2021 compared to 2020.

The increase in sales to Residential customers principally reflects positive customer growth.

The increase in sales to C&I customers reflects customer growth and increased usage due to improving economic conditions.

As of December 31, 2021, the number of electric customers served increased by approximately 600 over the previous year.

Gas Adjusted Gross Margin (a non-GAAP financial measure) was $133.1 million in 2021, an increase of $10.5 million compared to 2020.

The increase was driven by higher rates and customer growth of $9.4 million, and $1.1 million from the favorable effect of colder weather during the peak heating season in 2021.

Gas therm sales increased 3.3% in 2021 compared to 2020.

Sales to Residential customers decreased 0.7% and sales to C&I customers increased 4.4% in 2021 compared to 2020.

The overall increase in gas therm sales reflects customer growth and colder weather in the peak heating season.

As of December 31, 2021, the number of gas customers served increased by approximately 1,000, including seasonal accounts, over the previous year.

Based on weather data collected in the Company’s gas service areas, on average there were 0.4% fewer Effective Degree Days (EDD) in 2021 compared to 2020 and 8.2% fewer EDD compared to normal.

However, there were 3.4% more EDD in the peak heating season in 2021 compared to the same period in 2020.

The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were 2.8% higher in 2021 compared to 2020.

Operation and Maintenance (O&M) expenses increased $3.0 million in 2021 compared to 2020, reflecting higher labor costs of $1.6 million and higher utility operating costs of $1.4 million.

Depreciation and Amortization expense increased $5.0 million in 2021 compared to 2020, reflecting additional depreciation associated with higher levels of utility plant in service and higher amortization.

Taxes Other Than Income Taxes increased $0.6 million in 2021 compared to 2020, reflecting higher payroll taxes and higher local property taxes on higher utility plant in service.

Interest Expense, Net increased $1.8 million in 2021 compared to 2020 primarily reflecting higher interest on long-term debt and lower interest income, partially offset by lower rates on lower levels of short-term debt.

Other Expense (Income), Net decreased $0.6 million in 2021 compared to 2020, reflecting lower retirement benefit and other costs.

Federal and State Income Taxes increased $1.3 million in 2021 compared to 2020, reflecting higher pre-tax earnings in the current period.

In 2021, Unitil’s annual common dividend was $1.52 per share, representing an unbroken record of quarterly dividend payments since trading began in Unitil’s common stock.

At its January 2022 meeting, the

Unitil Corporation Board of Directors declared a quarterly dividend on the Company’s common stock of $0.39 per share, an increase of $0.01 per share on a quarterly basis, resulting in an increase in the effective annualized dividend rate to $1.56 per share from $1.52 per share.

2020 Compared to 2019

The Company’s Net Income was $32.2 million, or $2.15 in Earnings Per Share, for the year ended December 31, 2020, a decrease of $12.0 million, or $0.82 per share, compared to 2019.

In the first quarter of 2019, the Company recognized a one-time

net gain of $9.8 million, or $0.66 per share, on the Company’s divestiture of its non-regulated

business subsidiary, Usource.

The Company’s earnings in 2020 reflect higher Gas and Electric Adjusted Gross Margins (a non-GAAP

measure) and higher operating expenses.

In the first quarter of 2019, the Company recognized a one-time net gain of $9.8 million, or $0.66 per share, on the Company’s divestiture of its non-regulated business subsidiary, Usource.

The Company’s earnings in 2020 reflect higher Electric and Gas Adjusted Gross Margins (a non-GAAP financial measure) and higher operating expenses.

The Company estimates that warmer than normal weather negatively affected Net Income by approximately $3.1 million, or $0.20 per share, in 2020.

Additionally, the Company estimates that the coronavirus pandemic negatively affected Net Income by approximately $1.4 million, or $0.09 per share, in 2020.

Gas Adjusted Gross Margin (a non-GAAP

measure) was $122.6 million in 2020, an increase of $0.4 million compared to 2019.

The increase was driven by higher rates of $5.1 million and customer growth of $1.8 million, largely offset by unfavorable effects of $4.4 million from lower sales due to warmer weather in 2020, and $2.1 million attributed to lower sales primarily associated with the economic slowdown caused by the coronavirus pandemic.

Gas therm sales decreased 7.5% in 2020 compared to 2019.

The decrease in overall gas therm sales in the Company’s service areas reflects warmer weather in 2020 compared to 2019, as well as lower sales to C&I customers, primarily in the second, third and fourth quarters, due to the economic slowdown caused by

the coronavirus pandemic.

These negative effects on 2020 gas therm sales were partially offset by customer growth.

As of December 31, 2020, the number of gas customers served increased by 1,663, including seasonal accounts, over the previous year.

Based on weather data collected in the Company’s gas service areas, there were 8.2% fewer Effective Degree Days (EDD) in 2020, on average, compared to 2019 and 8.0% fewer EDD compared to normal.

The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were 1.6% lower in 2020 compared to 2019.

Electric Adjusted Gross Margin (a non-GAAP

measure) was $92.9 million in 2020, an increase of $1.0 million compared with 2019.

The increase reflects higher rates of $1.4 million and the positive combined effect of customer growth and warmer summer weather of $0.4 million, partially offset by an unfavorable effect of $0.8 million attributed to the combined net effect of lower C&I sales and higher Residential sales associated with the coronavirus pandemic.

Electric kilowatt-hour (kWh) sales in 2020 were essentially on par with 2019.

Electric Sales, Revenues and Adjusted Gross Margin

Kilowatt-hour Sales

Unitil’s total electric kWh sales increased 2.2% in 2021 compared to 2020.

Sales to Residential customers increased 0.5% and sales to C&I customers increased 3.5% in 2021 compared to 2020.

The increase in sales to Residential customers principally reflects positive customer growth.

The increase in sales to C&I customers reflects customer growth and increased usage due to improving economic conditions.

As of December 31, 2021, the number of electric customers served increased by approximately 600 over the previous year.

Sales margins derived from decoupled unit sales (representing approximately 27% of total annual sales volume) are not sensitive to changes in kWh sales.

Unitil’s total electric kWh sales in 2020 were essentially on par with 2019.

Sales to Residential customers increased 6.5% and sales to C&I customers decreased 4.5% in 2020 compared to 2019.

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The decrease in sales to C&I customers reflects lower usage as a result of the economic slowdown caused by the coronavirus pandemic, and the warmer winter weather in 2020, partially offset by customer growth.

Based on weather data collected in the Company’s electric service areas, there were 37.9% more Cooling Degree Days (CDD) in 2020, on average, compared to 2019.

Operation and Maintenance (O&M) expenses decreased $1.5 million in 2020 compared to 2019.

The decrease includes $0.4 million of lower operating costs attributed to Usource operations incurred in the first quarter of 2019.

The change in O&M expenses also reflects lower labor costs of $1.3 million, partially offset by higher utility operating costs of $0.2 million.

The lower labor costs reflect lower employee benefit costs.

Depreciation and Amortization expense increased $2.5 million in 2020 compared to 2019, reflecting increased depreciation on higher levels of utility plant in service and higher amortization of software.

Taxes Other Than Income Taxes increased $1.2 million in 2020 compared to 2019, reflecting higher local property taxes on higher utility plant in service of $1.2 million as well as the absence in 2020 of $0.6 million in property tax abatements recognized in 2019.

This increase was partially offset by lower payroll taxes in 2020 reflecting the recognition of $0.6 million of payroll tax credits associated with the CARES Act in 2020.

Interest Expense, Net increased $0.1 million in 2020 compared to 2019 reflecting higher levels of long-term debt, largely offset by lower rates on short-term debt and lower interest expense on regulatory liabilities.

Other Expense (Income), Net changed from income of $8.6 million in 2019 to expense of $5.2 million in 2020, a net change of $13.8 million.

This change primarily reflects a pre-tax

gain of $13.4 million on the Company’s divestiture of Usource in the first quarter of 2019 and $0.4 million of other costs in 2020.

Federal and State Income Taxes decreased $3.6 million in 2020 compared to 2019, primarily reflecting lower pre-tax

earnings in the current period.

In 2020, Unitil’s annual common dividend was $1.50 per share, representing an unbroken record of quarterly dividend payments since trading began in Unitil’s common stock.

At its January 2021 meeting, the Unitil Corporation Board of Directors declared a quarterly dividend on the Company’s common stock of $0.38 per share, an increase of $0.005 per share on a quarterly basis, resulting in an increase in the effective annualized dividend rate to $1.52 per share from $1.50 per share.

2019 Compared to 2018

— The Company’s Net Income was $44.2 million, or $2.97 in earnings per share, for the year ended December 31, 2019, an increase of $11.2 million, or $0.74 per share, compared to

In the first quarter of 2019, the Company recognized a one-time

net gain of $9.8 million, or $0.66 per share, on the Company’s divestiture of its non-regulated

business subsidiary, Usource.

Excluding the Usource divestiture, the Company’s Net Income was $34.4 million, or $2.31 per share, for the year ended December 31, 2019, an increase of $1.4 million, or $0.08 per share, compared to 2018.

The increase in earnings was driven by higher natural gas sales margins, partially offset by increases in operating expenses.

Based on weather data collected in the Company’s electric service areas, there were 37.9% more CDD in 2020, on average, compared to 2019.

The following table details total kWh sales for the last three years by major customer class:

kWh Sales (millions)

Commercial & Industrial

Total kWh Sales

Electric Operating Revenues and Electric Adjusted Gross Margin

—The following table details Total Electric Operating Revenue and Electric Adjusted Gross Margin for the last three years by major customer class:

Electric Operating Revenues and Electric Adjusted Gross Margin

Electric Operating Revenue:

Commercial & Industrial

Total Electric Operating Revenue

Cost of Electric Sales

Electric Adjusted Gross Margin

Electric Adjusted Gross Margin (a non-GAAP financial measure) was $97.4 million in 2021, an increase of $4.5 million compared with 2020.

The increase was driven by higher rates and customer growth of $4.5 million.

The increase in Total Electric Operating Revenue of $21.3 million, or 9.4%, in 2021 compared to 2020 reflects higher cost of electric sales, which are tracked and reconciled costs as a pass-through to customers, and higher sales of electricity.

Electric Adjusted Gross Margin (a non-GAAP financial measure) was $92.9 million in 2020, an increase of $1.0 million compared with 2019.

The decrease in Total Electric Operating Revenue of $6.7 million, or 2.9%, in 2020 compared to 2019 reflects lower cost of electric sales, which are tracked and reconciled costs as a pass-through to customers, partially offset by higher sales of electricity.

Gas Sales, Revenues and Adjusted Gross Margin

—Unitil’s total gas therm sales increased 3.3% in 2021 compared to 2020.

Sales to Residential customers decreased 0.7% and sales to C&I customers increased 4.4% in 2021 compared to 2020.

The overall increase in gas therm sales reflects customer growth and colder weather in the peak heating season.

As of December 31, 2021, the number of gas customers served increased by approximately 1,000, including seasonal accounts, over the previous year.

Based on weather data collected in the Company’s gas service areas, on average there were 0.4% fewer EDD in 2021 compared to 2020 and 8.2% fewer EDD compared to normal.

However, there were 3.4% more EDD in the peak heating season in 2021 compared to the same period in 2020.

The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were 2.8% higher in 2021 compared to 2020.

Sales margin derived from decoupled unit sales (representing approximately 11% of total annual therm sales volume) is not sensitive to changes in gas therm sales.

Unitil’s total therm sales of natural gas decreased 7.5% in 2020 compared to 2019.

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The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were 1.6% lower in 2020 compared to 2019.

Sales margin derived from decoupled unit sales (representing approximately 11% of total annual therm sales volume) is not sensitive to changes in gas therm sales.

Unitil’s total therm sales of natural gas increased 0.4% in 2019 compared to 2018.

Sales to residential decreased 1.4% and sales to C&I customers increased 0.9% in 2019 compared to 2018.

The overall increase in gas therm sales was driven by customer growth, partially offset by milder weather in the fourth quarter of 2019 compared to 2018.

Based on weather data collected in the Company’s natural gas service areas, there were 6.7% fewer EDD in 2019, on average, compared to 2018.

The Company estimates that weather-normalized gas therm sales, excluding decoupled sales, were up 4.2% in 2019 compared to 2018.

As of December 31, 2019 the number of natural gas customers served increased by 1,152 over the previous year.

The following table details total therm sales for the last three years, by major customer class:

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Gas Adjusted Gross Margin

Gas Adjusted Gross Margin (a non-GAAP

measure) was $122.6 million in 2020, an increase of $0.4 million compared to 2019.

The increase was driven by higher rates of $5.1 million and customer

growth of $1.8 million, largely offset by unfavorable effects of $4.4 million from lower sales due to warmer weather in 2020, and $2.1 million attributed to lower sales primarily associated with the economic slowdown caused by the coronavirus pandemic.

Gas Adjusted Gross Margin (a non-GAAP financial measure) was $133.1 million in 2021, an increase of $10.5 million compared to 2020.

The increase was driven by higher rates and customer growth of $9.4 million, and $1.1 million from the favorable effect of colder weather during the peak heating season in 2021.

The increase in Total Gas Operating Revenues of $33.4 million, or 17.5%, in 2021 compared to 2020 reflects higher cost of gas sales, which are tracked and reconciled costs as a pass-through to customers, and higher gas sales volumes.

Gas Adjusted Gross Margin (a non-GAAP financial measure) was $122.6 million in 2020, an increase of $0.4 million compared to 2019.

The decrease in Total Gas Operating Revenues of $12.0 million, or 5.9%, in 2020 compared to 2019 reflects lower cost of gas sales, which are tracked and reconciled costs as a pass-through to customers, and lower sales volumes.

Gas Adjusted Gross Margin (a non-GAAP

measure) was $122.2 million in 2019, an increase of $5.3 million compared to 2018.

The increase was driven by higher rates of $5.6 million and higher therm sales of $0.9 million, partially offset by milder weather in the fourth quarter of 2019.

The positive effect of higher rates and customer growth was partially offset by the absence in 2019 of a $1.2 million adjustment recognized in the second quarter of 2018 to increase gas revenue and operating expenses in connection with a then ongoing base rate case for the Company’s New Hampshire natural gas utility.

The decrease in Total Gas Operating Revenues of $12.7 million, or 5.9%, in 2019 compared to 2018 reflects lower cost of gas sales, which are tracked and reconciled costs as a pass-through to customers and the adjustment recognized in the second quarter of 2018, discussed above, partially offset by higher gas sales volumes and higher rates.

Electric Sales, Revenues and Adjusted Gross Margin

Kilowatt-hour Sales

—Unitil’s total electric kWh sales in 2020 were essentially on par with 2019.

Sales to Residential customers increased 6.5% and sales to C&I customers decreased 4.5% in 2020 compared to 2019.

The increase in sales to Residential customers reflects higher consumption by Residential customers due to the coronavirus pandemic and warmer summer weather in 2020 compared to 2019, which resulted in higher use of air conditioning, and customer growth.

As of December 31, 2020, the number of electric customers served increased by 948 over the previous year.

These positive effects on 2020 electric kWh sales were partially offset by the warmer winter weather in 2020 which adversely affected the usage of electricity for heating purposes.

Based on weather data collected in the Company’s electric service areas, there were 37.9% more CDD in 2020, on average, compared to 2019.

Sales margins derived from decoupled unit sales (representing approximately 27% of total annual sales volume) are not sensitive to changes in kWh sales.

Unitil’s total electric kWh sales decreased 4.8% in 2019 compared to 2018.

Sales to Residential customers and C&I customers decreased 5.4% and 4.3%, respectively, in 2019 compared to 2018, reflecting milder summer weather in 2019 compared to 2018, lower average usage per customer due to energy efficiency initiatives and net metered distributed generation, as well as reduced usage by some industrial customers, partially offset by customer growth.

Based on weather data collected in the Company’s electric service areas, there were 22.3% fewer CDD in 2019, on average, compared to 2018.

As of December 31, 2019, the number of electric customers served increased by 558 over the previous year.

The following table details total kWh sales for the last three years by major customer class:

kWh Sales (millions)

Commercial & Industrial

Total kWh Sales

Electric Operating Revenues and Electric Adjusted Gross Margin

—The following table details Total Electric Operating Revenue and Electric Adjusted Gross Margin for the last three years by major customer class:

Electric Operating Revenues and Electric Adjusted Gross Margin

Electric Operating Revenue:

Commercial & Industrial

Total Electric Operating Revenue

Cost of Electric Sales

Electric Adjusted Gross Margin

Electric Adjusted Gross Margin (a non-GAAP

measure) was $92.9 million in 2020, an increase of $1.0 million compared with 2019.

Electric Adjusted Gross Margin (a non-GAAP

measure) was $91.9 million in 2019, on par with 2018.

Electric sales margins in 2019 were positively affected by higher rates of $1.6 million, offset by a decrease of $1.6 million from lower kWh sales, for the reasons noted above.

The increase in Total Electric Operating Revenue of $10.6 million, or 4.7%, in 2019 compared to 2018 reflects higher cost of electric sales, which are tracked and reconciled costs as a pass-through to customers, partially offset by lower sales of electricity.

Operating Revenue—Other

Total Other Operating Revenue (See “Other Operating Revenue – Non-regulated”

in Note 1 to the accompanying Consolidated Financial Statements) is comprised of revenues from the Company’s non-regulated

energy brokering business, Usource, which was divested in the first quarter of 2019 (See “Divestiture of Non-Regulated

Business Subsidiary” in Note 1 to the accompanying Consolidated Financial Statements).

Total Other Operating Revenue (See “Other Operating Revenue—Non-regulated” in Note 1 to the accompanying Consolidated Financial Statements) is comprised of revenues from the Company’s non-regulated energy brokering business, Usource, which was divested in the first quarter of 2019 (See “Divestiture of Non-Regulated Business Subsidiary” in Note 1 to the accompanying Consolidated Financial Statements).

Usource’s revenues were primarily derived from fees and charges billed to suppliers as customers take delivery of energy from those suppliers under term contracts brokered by Usource.

Usource’s revenues decreased $0.9 million in 2020 compared to 2019 and $3.8 million 2019 compared to 2018, reflecting the Company’s divestiture of Usource in the first quarter of 2019.

Usource’s revenues were $0.9 million in 2019.

Operating Expenses

Cost of Electric Sales

—Cost of Electric Sales includes the cost of electric supply as well as other energy supply related restructuring costs, including power supply buyout costs, and spending on energy

efficiency programs.

Cost of Electric Sales increased $16.8 million, or 12.5%, in 2021 compared to 2020.

This increase reflects higher sales of electricity and higher wholesale electricity prices, partially offset by an increase in the amount of electricity purchased by customers directly from third-party suppliers.

The Company reconciles and recovers the approved Cost of Electric Sales in its rates at cost on a pass through basis and therefore changes in approved expenses do not affect earnings.

In 2020, Cost of Electric Sales decreased $7.7 million, or 5.4%, compared to 2019.

This decrease reflects lower wholesale electricity prices, partially offset by slightly higher sales of electricity and a decrease in the amount of electricity purchased by customers directly from third-party suppliers.

Cost of Gas Sales

—Cost of Gas Sales includes the cost of natural gas purchased and manufactured to supply the Company’s total gas supply requirements and spending on energy efficiency programs.

Cost of Gas Sales decreased $12.4 million, or 15.3%, in 2020 compared to 2019.

This decrease reflects lower wholesale gas commodity prices and lower gas sales, partially offset by a decrease in the amount of gas purchased by customers directly from third-party suppliers.

Cost of Gas Sales includes the cost of natural gas purchased to supply the Company’s total gas supply requirements and spending on energy efficiency programs.

Cost of Gas Sales increased $22.9 million, or 33.3%, in 2021 compared to 2020.

This increase reflects higher gas sales and higher wholesale gas commodity prices, partially offset by an increase in the amount of gas purchased by customers directly from third-party suppliers.

The Company reconciles and recovers the approved Cost of Gas Sales in its rates at cost on a pass through basis and therefore changes in approved expenses do not affect earnings.

In 2020, Cost of Gas decreased $12.4 million, or 15.3%, compared to 2019.

This decrease reflects lower wholesale natural gas prices, partially offset by higher sales of natural gas.

Cost of Electric Sales

—Cost of Electric Sales includes the cost of electric supply as well as other energy supply related restructuring costs, including power supply buyout costs, and spending on energy efficiency programs.

Cost of Electric Sales decreased $7.7 million, or 5.4%, in 2020 compared to 2019.

The Company reconciles and recovers the approved Cost of Electric Sales in its rates at cost on a pass through basis and therefore changes in approved expenses do not affect earnings.

In 2019, Cost of Electric Sales increased $10.6 million, or 8.1%, compared to 2018.

This increase reflects higher wholesale electricity prices and a decrease in the amount of electricity purchased by customers directly from third-party suppliers, partially offset by lower sales of electricity.

This decrease reflects lower wholesale gas commodity prices and lower gas sales, partially offset by a decrease in the amount of gas purchased by customers directly from third-party suppliers.

Operation and Maintenance

—O&M expense includes electric and gas utility operating costs, and the operating costs of the Company’s non-regulated

business activities.

Total O&M expenses decreased $1.5 million, or 2.2% in 2020 compared to 2019.

O&M expense includes electric and gas utility operating costs, and the operating costs of the Company’s non-regulated business activities.

Total O&M expenses increased $3.0 million, or 4.6% in 2021 compared to 2020, reflecting higher labor costs of $1.6 million and higher utility operating costs of $1.4 million.

In 2020, total O&M expenses decreased $1.5 million, or 2.2% compared to 2019.

The decrease includes $0.4 million of lower operating costs attributed to Usource operations incurred in the first quarter of 2019.

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The lower labor costs reflect lower employee benefit costs.

In 2019, total O&M expenses decreased $2.3 million compared to 2018.

Excluding the adjustment which increased gas revenue and O&M expenses by $1.2 million in the second quarter of 2018 in connection with a then ongoing base rate case for the Company’s New Hampshire natural gas utility;

O&M expenses decreased $1.1 million in 2019 compared to 2018.

The decrease in 2019 includes $2.4 million of lower labor and other costs related to the divestiture of Usource.

Excluding the lower expenses associated with the Usource divestiture and the 2018 adjustment, discussed above;

O&M expenses were higher by $1.3 million.

The change in O&M expenses reflects higher utility operating costs of $0.7 million, higher labor costs of $0.5 million, and higher professional fees of $0.1 million.

Depreciation and Amortization

—Depreciation and Amortization expense increased $2.5 million, or 4.8%, in 2020 compared to 2019, reflecting increased depreciation on higher levels of utility plant in service and higher amortization of software.

In 2019, Depreciation and Amortization expense increased $1.6 million, or 3.2%, compared to 2018, reflecting increased depreciation on higher levels of utility plant in service, partially offset by lower amortization.

Depreciation and Amortization expense increased $5.0 million, or 9.2%, in 2021 compared to 2020, reflecting additional depreciation associated with higher levels of utility plant in service and higher amortization.

In 2020, Depreciation and Amortization expense increased $2.5 million, or 4.8%, compared to 2019, reflecting increased depreciation on higher levels of utility plant in service and higher amortization.

Taxes Other Than Income Taxes—

Taxes Other Than Income Taxes increased $1.2 million, or 5.3%, in 2020 compared to 2019, reflecting higher local property taxes on higher utility plant in service of $1.2 million as well as the absence in 2020 of $0.6 million in property tax abatements recognized in 2019.

Taxes Other Than Income Taxes increased $0.6 million, or 2.5%, in 2021 compared to 2020, reflecting higher payroll taxes and higher local property taxes on higher utility plant in service.

In 2020, Taxes Other Than Income Taxes increased $1.2 million, or 5.3%, compared to 2019, reflecting higher local property taxes on higher utility plant in service of $1.2 million as well as the absence in 2020 of $0.6 million in property tax abatements recognized in 2019.

This increase was partially offset by lower payroll taxes in 2020 reflecting the recognition of $0.6 million of payroll tax credits associated with the CARES Act in 2020.

See Note 9 (Income Taxes) to the accompanying Consolidated Financial Statements.

In 2019, Taxes Other Than Income Taxes increased $0.3 million, or 1.3%, compared to 2018, reflecting higher local property tax rates on higher levels of utility plant in service, partially offset by $1.0 million of property tax abatements received in 2019.

Interest Expense, Net

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Certain reconciling rate mechanisms used by the Company’s distribution utilities give rise to regulatory assets and regulatory liabilities on which interest is calculated.

Interest Expense, Net increased $1.8 million, or 7.6%, in 2021 compared to 2020 primarily reflecting higher interest on long-term debt and lower interest income, partially offset by lower rates on lower levels of short-term debt.

Interest Expense, Net increased $0.1 million, or 0.4%, in 2020 compared to 2019 reflecting higher levels of long-term debt, largely offset by lower rates on short-term debt and lower interest expense on regulatory liabilities.

Interest Expense, Net decreased $0.3 million, or 1.3%, in 2019 compared to 2018 reflecting lower interest on long-term debt and higher interest income on AFUDC, partially offset by interest on higher levels of short-term borrowings.

Other (Income) Expense, Net

Other Expense (Income), Net decreased $0.6 million, or 11.5% in 2021 compared to 2020, reflecting lower retirement benefit and other costs.

Other Expense (Income), Net changed from income of $8.6 million in 2019 to expense of $5.2 million in 2020, a net change of $13.8 million.

This change primarily reflects a pre-tax

gain of $13.4 million on the Company’s divestiture of Usource in the first quarter of 2019 and $0.4 million of other costs in 2020.

Other Expense (Income), Net changed from an expense of $5.8 million in 2018 to income of $8.6 million in 2019, a net change of $14.4 million.

This change primarily reflects a pre-tax

gain of $13.4 million on the Company’s divestiture of Usource and lower retirement benefit costs in the current period.

The Usource divestiture generated a capital gain to the Company and a $3.6 million provision is included in the Company’s income tax expense for 2019.

This change primarily reflects a pre-tax gain of $13.4 million on the Company’s divestiture of Usource in the first quarter of 2019 and $0.4 million of other costs in 2020.

Provision for Income Taxes

Federal and State Income Taxes decreased $3.6 million in 2020 compared to 2019, primarily reflecting lower pre-tax

earnings in the current period.

Federal and State Income Taxes increased $5.4 million in 2019 compared to 2018 reflecting income taxes associated with the gain on the Company’s divestiture of Usource and higher pre-tax

earnings in 2019 compared to 2018.

Federal and State Income Taxes increased $1.3 million in 2021 compared to 2020, reflecting higher pre-tax earnings in the current period.

Federal and State Income Taxes decreased $3.6 million in 2020 compared to 2019, primarily reflecting lower pre-tax earnings in the current period.

LIQUIDITY, COMMITMENTS AND CAPITAL REQUIREMENTS

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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.

On August 6, 2021, the Company issued and sold 800,000 shares of its common stock at a price of $50.80 per share in a registered public offering (Offering).

The Company’s net increase to Common Equity and Cash proceeds from the Offering was approximately $38.6 million and was used to make equity capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes.

As part of the Offering, the Company granted the underwriters a 30-day over-allotment option to purchase additional shares.

The underwriters exercised the over-allotment option and purchased an additional 120,000 shares of the Company’s common stock on September 8, 2021.

The Company’s net increase to Common Equity and Cash proceeds from the over-allotment sales was approximately $5.9 million and was used to make equity capital contributions to the Company’s regulated utility subsidiaries, to repay debt and for other general corporate purposes.

The Company and its subsidiaries are individually and collectively members of the Unitil Cash Pool (Cash Pool).

The Cash Pool is the financing vehicle for day-to-day

cash borrowing and investing.

The Cash Pool 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.

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On July 25, 2018, the Company entered into a Second Amended and Restated Credit Agreement (Credit Facility) with a syndicate of lenders, which amended and restated in its entirety the Company’s prior credit agreement, dated as of October 4, 2013, as amended.

The Credit Facility extends to July 25, 2023, subject to two one-year

extensions and has a borrowing limit of $120 million, which includes a $25 million sublimit for the issuance of standby letters of credit.

The Credit Facility provides the Company with the ability to elect that borrowings under the Credit Facility bear interest under several options, including at a daily fluctuating rate of interest per annum equal to one-month

London Interbank Offered Rate plus 1.125%.

The Credit Facility extends to July 25, 2023, subject to two one-year extensions and has a borrowing limit of $120 million, which includes a $25 million sublimit for the issuance of standby letters of credit.

The terms of the current credit facility allow for a comparable successor rate to be used if the one-month LIBOR rate becomes unavailable.

The Company believes that a change to a new rate will not have a material effect on its financial position, operating results, or cash flows.

Provided there is no event of default, the Company may increase the borrowing limit under the Credit Facility by up to $50 million.

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The affirmative and negative covenants under the Credit Facility shall apply to Unitil until the Credit Facility terminates and all amounts borrowed under the Credit Facility are paid in full (or with respect to letters of credit, they are cash collateralized).

The Company is monitoring the coronavirus pandemic and does not believe it will adversely affect the Company’s access to capital and funding sources and its planned capital expenditures.

The Company believes the future operating cash flows of the Company, along with its existing borrowing availability and access to financial markets for the issuance of new long-term debt, will be sufficient to meet any working capital and future operating requirements, and forecasted capital investment opportunities.

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

The Company believes its future operating cash flows, its available borrowing capacity, and its access to private and public capital markets for the issuance of long-term debt and equity securities will be sufficient to meet its working capital and capital investment needs.

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.

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Unitil Corporation and its utility subsidiaries, Fitchburg, Unitil Energy, Northern Utilities, and Granite State are currently rated “BBB+” by Standard & Poor’s Ratings Services.

Unitil Corporation and Granite

State are currently rated “Baa2”, and Fitchburg, Unitil Energy and Northern Utilities are currently rated “Baa1” by Moody’s Investors Services.

In April 2014, Unitil Service Corp.

entered into a financing arrangement, structured as a capital lease obligation, for various information systems and technology equipment.

Final funding under this capital lease occurred on October 30, 2015, resulting in total funding of $13.4 million.

This capital lease was paid in full in the second quarter of 2019.

Unitil Corporation and Granite State are currently 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:

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Contractual Obligations

The table below lists the Company’s known specified contractual obligations as of December 31, 2020.

Payments Due by Period

Contractual Obligations (millions) as of December 31, 2020

Long-Term Debt

Interest on Long-Term Debt

Gas Supply Contracts

Electric Supply Contracts

Other (Including Capital and Operating Lease Obligations)

Total Contractual Cash Obligations

The Company and its subsidiaries have material obligations for payment of principal and interest on its long-term debt as well as for operating and capital leases that are discussed in Note 4 (Debt and Financing Arrangements).

The Company and its subsidiaries have material energy supply commitments that are discussed in Note 6 (Energy Supply) and Note 7 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements.

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From year to year, there are likely to be timing differences associated with the cash recovery of such costs, creating under- or over-recovery situations at any point in time.

Rate recovery mechanisms are typically designed to collect the under-recovered cash or refund the over-collected cash over subsequent periods of less than a year.

Rate recovery mechanisms are typically designed to collect the under-recovered cash or refund the over-collected cash over subsequent periods of less than one year.

The Company provides limited guarantees on certain energy and natural gas storage management contracts entered into by the distribution utilities.

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The Company, along with its subsidiaries, made cash contributions to its Pension Plan in the amounts of $4.1 million and $4.7 million in 2021 and 2020, respectively.

The Company, along with its subsidiaries,

contributed $4.2 million and $4.0 million to Voluntary Employee Benefit Trusts (VEBTs) in 2020 and 2019, respectively.

The Company, along with its subsidiaries, expects to continue to make contributions to its Pension Plan and the VEBTs in 2021 and future years at minimum required and discretionary funding levels consistent with the amounts recovered in the distribution utilities’ rates for these benefit plans.

The Company, along with its subsidiaries, contributed $8.9 million and $4.2 million to Voluntary Employee Benefit Trusts (VEBTs) in 2021 and 2020, respectively.

The Company, along with its subsidiaries, expects to continue to make contributions to

its Pension Plan and the VEBTs in 2022 and future years at least at minimum required amounts.

The Company may also make additional discretionary contributions.

See Note 9 (Retirement Benefit Plans) to the accompanying Consolidated Financial Statements.

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.

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.

As of December 31, 2021, there were approximately $0.7 million of guarantees on certain energy and natural gas storage management contracts entered into by the distribution utilities outstanding.

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Cash Provided by Operating Activities

—Cash Provided by Operating Activities was $75.7 million in 2020, a decrease of $29.2 million compared to 2019.

Cash flow from Net Income, adjusted for the total of non-cash

charges was $96.0 million in 2020 compared to $96.3 million in 2019, a decrease of $0.3 million.

The change to Net Income, absent the gain on the Usource divestiture in 2019, is primarily attributable to increases in natural gas and electric sales margin and customer growth.

Cash Provided by Operating Activities was $107.8 million in 2021, an increase of $32.1 million compared to 2020.

Cash flow from Net Income, adjusted for the total of non-cash charges was $106.4 million in 2021 compared to $96.0 million in 2020, an increase of $10.4 million.

The change to Net Income is primarily attributable to increases in natural electric and gas sales margin and customer growth.

The increase in depreciation and amortization of $5.0 million in 2021 compared to 2020 reflects higher depreciation on higher utility plant in service.

The decrease in the deferred tax provision of $4.2 million in 2020 compared to 2019 is primarily driven by a larger use of the Net Operating Loss Carryforward in 2019 from the Usource divestiture as compared to the 2020 Net Operating Loss Carryforward utilization against taxable income.

Changes in working capital items resulted in a ($15.3) million use of cash in 2020 compared to a $13.9 million source of cash in 2019, representing a decrease of $29.2 million.

The change in working capital in 2020 compared to 2019 is primarily related to the change in accounts receivables and accrued revenue and is reflective of the effect of the current macroecoomic environment on business and operating conditions.

Deferred Regulatory and Other Charges decreased by $9.3 million in 2020 compared to 2019, primarily driven by changes in Regulatory Assets and Liabilities, and the change in Other, net in 2020 compared to 2019 was $4.3 million.

The increase in the deferred tax provision of $1.5 million in 2021 compared to 2020 is primarily driven by higher tax repairs and tax depreciation.

Changes in working capital items resulted in a $6.2 million source of cash in 2021 compared to a ($15.3) million use of cash in 2020, representing an increase of $21.5 million.

The change in working capital in 2021 compared to 2020 is primarily related to the change in accounts payable and accrued revenue and is reflective of the effect of the current macroeconomic environment on business and operating conditions.

Deferred Regulatory and Other Charges increased by $6.6 million in 2021 compared to 2020, primarily driven by changes in Regulatory Assets and Liabilities, and the change in Other, net in 2021 compared to 2020 was ($6.4) million.

Cash Used in Investing Activities

—Cash Used in Investing Activities was ($122.6) million in 2020 compared to ($105.8) million in 2019, an increase of $16.8 million.

Absent the proceeds from the Usource divestiture in 2019, the increase in 2020 compared to 2019 is $3.4 million.

The higher spending in 2020 is primarily related to utility capital expenditures for electric and gas utility system additions.

Cash Used in Investing Activities was ($115.0) million in 2021 compared to ($122.6) million in 2020, a decrease of $7.6 million.

The lower spending in 2021 is primarily related to the timing of normal utility capital expenditures for electric and gas utility system additions.

The Company’s projected capital spending range for 2022 is $135 million to $145 million.

Cash Provided by (Used in) Financing Activities

—Cash Provided by Financing Activities was $47.7 million in 2020 compared to cash used of ($1.7) million in 2019.

The higher cash provided from financing activities in 2020 compared to 2019 is primarily attributable to the proceeds from the issuance of long-term debt of $99.7 million less the repayment of maturing and discretionary long-term debt of ($24.8) million, repayment of short-term debt of ($3.9) million and dividends paid of ($22.6) million.

Other changes in financing activities in 2020 total ($0.7) million.

Cash Provided by Financing Activities

Cash Provided by Financing Activities was $7.7 million in 2021 compared to cash provided of $47.7 million in 2020.

The lower cash provided from financing activities in 2021 compared to 2020 of ($40.0) million is primarily attributable to the higher proceeds from

the issuance of common stock, net of $44.4 million, and short-term debt of $13.3 million, and lower proceeds from long-term debt of ($99.7) million.

Other changes in financing activities in 2021 total a source of $2.0 million.

FINANCIAL COVENANTS AND RESTRICTIONS

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There are restrictions on, among other things, Unitil’s and its subsidiaries’ ability to permit 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 apply to Unitil until the Credit Facility terminates and all amounts borrowed under the Credit Facility are paid in full (or with respect to letters of credit, they are cash collateralized).

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limitations that may be imposed by New Hampshire, Massachusetts and Maine state regulatory agencies.

In addition, before the Company can pay dividends on its common stock, it has to satisfy its debt obligations and comply with any statutory or contractual limitations.

See Financial Covenants and

In addition, before the Company can pay dividends on its common stock, it must satisfy its debt obligations and comply with any statutory or contractual limitations.

See Financial Covenants and Restrictions

in this report, as well as Note 4 (Debt and Financing Arrangements) to the accompanying Consolidated Financial Statements.

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The preparation of the Company’s Consolidated 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 is sometimes 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.

In making those estimates and assumptions, the Company is sometimes required to make subjective and/or complex judgments about the effect of matters that are inherently uncertain and for which different estimates that could reasonably have been used could have resulted in material differences in its financial statements.

If actual results were to differ significantly from those estimates, assumptions and judgment, the financial position of the Company could be materially affected and the results of operations of the Company could be materially different than reported.

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In accordance with the FASB Codification, the Company has recorded Regulatory Assets and Regulatory Liabilities which will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.

The FASB Codification specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and how these effects are to be accounted for by a regulated enterprise.

The FASB Codification specifies the economic effects that result from the cause and effect relationship of costs and revenues in the rate-regulated environment and the related accounting for a regulated enterprise.

Revenues intended to cover certain costs may be recorded either before or after the costs are incurred.

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Generally, the Company receives a return on investment on its regulated assets for which a cash outflow has been made.

Regulatory commissions can reach different conclusions about the recovery of costs, which can have a material affect on the Company’s consolidated financial statements.

Regulatory commissions can reach different conclusions about the recovery of costs, which can have a material effect on the Company’s consolidated financial statements.

The Company believes it is probable that its regulated distribution and transmission utilities will recover their investments in long-lived assets, including regulatory assets.

If the Company, or a portion of its assets or operations, were to cease meeting the criteria for application of these accounting rules, accounting standards for businesses in general would become applicable and immediate recognition of any previously deferred costs, or a portion of deferred costs, would be required in the year in which the criteria are no longer met, if such deferred costs were not recoverable in the portion of the business that continues to meet the criteria for application of the FASB Codification topic on Regulated Operations.

If the Company, or a portion of

its assets or operations, were to cease meeting the criteria for application of these accounting rules, accounting standards for businesses in general would become applicable and immediate recognition of any previously deferred costs, or a portion of deferred costs, would be required in the year in which the criteria are no longer met, if such deferred costs were not recoverable in the portion of the business that continues to meet the criteria for application of the FASB Codification topic on Regulated Operations.

If unable to continue to apply the FASB Codification provisions for Regulated Operations, the Company would be required to apply the provisions for the Discontinuation of Rate-Regulated Accounting included in the FASB Codification.

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For union employees, the Pension Plan was closed on various dates between December 31, 2010 and June 1, 2013, depending on the various Collective Bargaining Agreements of each union.

The Company also sponsors a non-qualified

retirement plan, the Unitil Corporation Supplemental Executive Retirement Plan (SERP), covering certain executives of the Company, and an employee 401(k) savings plan.

The Company also sponsors a non-qualified retirement plan, the Unitil Corporation Supplemental Executive Retirement Plan (SERP), covering certain executives of the Company, and an employee 401(k) savings plan.

Additionally, the Company sponsors the Unitil Employee Health and Welfare Benefits Plan (PBOP Plan), primarily to provide health care and life insurance benefits to retired employees.

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These temporary differences result in deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets.

Company accounts for income tax assets, liabilities and expenses in accordance with the FASB Codification guidance on Income Taxes.

The Company accounts for income tax assets, liabilities and expenses in accordance with the FASB Codification

guidance on Income Taxes.

The Company classifies penalties and interest expense related to income tax liabilities as income tax expense and interest expense, respectively, in the Consolidated Statements of Earnings.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis