OVERVIEW

Unitil Corporation (Unitil or the Company) is a public utility holding company
headquartered in Hampton, New Hampshire. Unitil is subject to regulation as a
holding company system by the Federal Energy Regulatory Commission (FERC) under
the Energy Policy Act of 2005.
Unitil's principal business is the local distribution of electricity and gas
throughout its service territory in the states of New Hampshire, Massachusetts
and Maine. Unitil is the parent company of three wholly-owned distribution
utilities:

i) Unitil Energy Systems, Inc. (Unitil Energy), which provides electric


         service in the southeastern seacoast and state capital regions of New
         Hampshire, including the capital city of Concord;

ii) Fitchburg Gas and Electric Light Company (Fitchburg), which provides both

electric and gas service in the greater Fitchburg area of north central

Massachusetts; and

iii) Northern Utilities, Inc. (Northern Utilities), which provides gas service

in southeastern New Hampshire and portions of southern and central Maine,

including the city of Portland, which is the largest city in northern New

England.



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Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as
the "distribution utilities." Together, the distribution utilities serve
approximately 107,100 electric customers and 85,600 gas customers in their
service territory.
In addition, Unitil is the parent company of Granite State Gas Transmission,
Inc. (Granite State), an interstate gas transmission pipeline company, operating
86 miles of underground gas transmission pipeline primarily located in Maine and
New Hampshire. Granite State provides Northern Utilities with interconnection to
major gas pipelines and access to domestic gas supplies in the south and
Canadian gas supplies in the north.
Unitil had an investment in Net Utility Plant of $1,237.3 million at
September 30, 2021. Unitil's total operating revenue includes revenue to recover
the approved cost of purchased electricity and gas in rates on a fully
reconciling basis. As a result of this reconciling rate structure, the Company's
earnings are not directly affected by changes in the cost of purchased
electricity and gas. Earnings from Unitil's utility operations are primarily
derived from the return on investment in the utility assets of the three
distribution utilities and Granite State.
Unitil Resources is the Company's wholly-owned
non-regulated
subsidiary. The Company's other subsidiaries include Unitil Service Corp., which
provides, at cost, a variety of administrative and professional services to
Unitil's affiliated companies; Unitil Realty Corp., which owns and manages
Unitil's corporate office building and property located in Hampton, New
Hampshire; and Unitil Power Corp., which formerly functioned as the full
requirements wholesale power supply provider for Unitil Energy. Unitil's
consolidated net income includes the earnings of the holding company and these
subsidiaries.
RATES AND REGULATION
Regulation
Unitil is subject to comprehensive regulation by federal and state regulatory
authorities. Unitil and its subsidiaries are subject to regulation as a holding
company system by the FERC under the Energy Policy Act of 2005. Unitil's utility
operations related to wholesale and interstate energy business activities are
also regulated by the FERC. Unitil's distribution utilities are subject to
regulation by the applicable state public utility commissions, with regard to
their rates, issuance of securities and other accounting and operational
matters: Unitil Energy is subject to regulation by the New Hampshire Public
Utilities Commission (NHPUC); Fitchburg is subject to regulation by the
Massachusetts Department of Public Utilities (MDPU); and Northern Utilities is
regulated by the NHPUC and the Maine Public Utilities Commission (MPUC). Granite
State, Unitil's interstate gas transmission pipeline, is subject to regulation
by 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 gas to all customers
in their service territory, at rates established under cost of service
regulation. Under this regulatory structure, Unitil's distribution utilities
recover the cost of providing distribution service to their customers 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 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-tracking rate
mechanisms.
Fitchburg is subject to 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 targeted revenue decoupling amounts is
recognized as an increase or a decrease in Accrued Revenue which forms the basis
for resetting rates for future cash recoveries from, or credits to, customers.
These revenue decoupling targets may be adjusted as a result of rate cases and
other authorized adjustments that the Company files with the MDPU. The Company
estimates that revenue decoupling currently applies to approximately 27% and 11%
of Unitil's total annual electric and gas sales volumes, respectively.

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RESULTS OF OPERATIONS
The following section of MD&A compares the results of operations for each of the
two fiscal periods ended September 30, 2021 and September 30, 2020 and should be
read in conjunction with the accompanying unaudited Consolidated Financial
Statements and the accompanying Notes to unaudited Consolidated Financial
Statements included in Part I, Item 1 of this report, which are prepared in
accordance with accounting principles generally accepted in the United States of
America (GAAP).
The Company is responding to the novel coronavirus
(COVID-19)
pandemic (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 Crisis Response Plan guides emergency
response, business continuity, and the precautionary measures being taken on
behalf of employees and the public. The Company has initiated extra precautions
to protect employees who work in the field and for employees who continue to
work in operations, distribution and corporate facilities. The Company has
implemented social distancing and work from home policies, where appropriate.
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 affects 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 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. Annual gas revenues are substantially realized during the heating
season as a result of higher sales of gas due to cold weather. Accordingly, the
results of operations are historically most favorable in the first and fourth
quarters. Fluctuations in seasonal weather conditions may have a significant
effect on the result of operations. 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 discussed below) are derived from a higher percentage of fixed billing
components, including customer charges. Therefore, gas revenues and gas adjusted
gross margin will be less affected by the seasonal nature of the gas business.
As noted earlier, 27% and 11% of the Company's total annual electric and gas
sales volumes, respectively, are currently decoupled. Changes in sales to
existing customers with decoupled rates do not affect GAAP gross margin and
adjusted gross margin.
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 will be 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

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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 will be 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 reflect the higher number of average shares outstanding period over
period.
The Company analyzes operating results using Gas and Electric Adjusted Gross
Margins, which are
non-GAAP
measures. 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. Also the Company's management
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, is a meaningful measure to inform investors of the Company's
profitability from gas and electric sales in the period.

Three Months Ended September 30, 2021 ($ millions)


                                                                                 Non-

                                                                               Regulated
                                                  Gas          Electric        and Other        Total
Total Operating Revenue                        $    32.6      $     65.5      $        -       $  98.1
Less: Cost of Sales                                (13.2 )         (40.1 )             -         (53.3 )
Less: Depreciation and Amortization                 (8.1 )          (6.5 )           (0.2 )      (14.8 )

GAAP Gross Margin                                   11.3            18.9             (0.2 )       30.0
Depreciation and Amortization                        8.1             6.5              0.2         14.8

Adjusted Gross Margin                          $    19.4      $     25.4      $        -       $  44.8

Three Months Ended September 30, 2020 ($ millions)


                                                                                 Non-

                                                                               Regulated
                                                 Gas           Electric        and Other        Total
Total Operating Revenue                        $   27.5       $     59.9      $        -       $  87.4
Less: Cost of Sales                                (9.5 )          (35.4 )             -         (44.9 )
Less: Depreciation and Amortization                (7.5 )           (6.0 )           (0.2 )      (13.7 )

GAAP Gross Margin                                  10.5             18.5             (0.2 )       28.8
Depreciation and Amortization                       7.5              6.0              0.2         13.7

Adjusted Gross Margin                          $   18.0       $     24.5      $        -       $  42.5




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Nine Months Ended September 30, 2021 ($ millions)
                                                                     Non-

                                                                   Regulated
                                        Gas        Electric        and Other        Total
Total Operating Revenue               $ 151.3      $   182.2      $        -       $  333.5
Less: Cost of Sales                     (59.1 )       (108.8 )             -         (167.9 )
Less: Depreciation and Amortization     (24.5 )        (19.4 )           (0.6 )       (44.5 )

GAAP Gross Margin                        67.7           54.0             (0.6 )       121.1
Depreciation and Amortization            24.5           19.4              0.6          44.5

Adjusted Gross Margin                 $  92.2      $    73.4      $        -       $  165.6

Nine Months Ended September 30, 2020 ($ millions)


                                                                     Non-

                                                                   Regulated
                                        Gas        Electric        and Other        Total
Total Operating Revenue               $ 131.4      $   170.3      $        -       $  301.7
Less: Cost of Sales                     (48.1 )       (100.3 )             -         (148.4 )
Less: Depreciation and Amortization     (22.3 )        (17.8 )           (0.6 )       (40.7 )

GAAP Gross Margin                        61.0           52.2             (0.6 )       112.6
Depreciation and Amortization            22.3           17.8              0.6          40.7

Adjusted Gross Margin                 $  83.3      $    70.0      $        -       $  153.3



Gas GAAP Gross Margin was $11.3 million and $67.7 million in the three and nine
months ended September 30, 2021, respectively, increases of $0.8 million and
$6.7 million compared to the same periods in 2020. The increase in the three
month period was driven by higher rates and customer growth of $1.4 million,
partially offset by higher depreciation and amortization expense of
$0.6 million. The increase in the nine month period was driven by higher rates
and customer growth of $7.5 million and $1.4 million from the favorable effect
of colder winter weather, partially offset by higher depreciation and
amortization expense of $2.2 million.
Electric GAAP Gross Margin was $18.9 million and $54.0 million in the three and
nine months ended September 30, 2021, respectively, increases of $0.4 million
and $1.8 million compared to the same periods in 2020. The increase in the three
month period was driven by higher rates and customer growth of $1.3 million,
partially offset by $0.4 million from the effect of milder summer weather and
higher depreciation and amortization expense of $0.5 million. The increase in
the nine month period was driven by higher rates and customer growth of
$3.4 million, partially offset by higher depreciation and amortization expense
of $1.6 million.
Earnings Overview
The Company reported breakeven Net Income and earnings per share (EPS) for the
third quarter of 2021, a decrease of $0.3 million in Net Income, or $0.02 in
EPS, compared to the third quarter of 2020. For the third quarter of 2021,
higher Gas and Electric Adjusted Margins (a
non-GAAP
measure) were offset by higher operating expenses compared to the same period in
2020.
For the nine months ended September 30, 2021, the Company reported Net Income of
$21.6 million, or $1.42 per share, an increase of $3.0 million, or $0.17 per
share, compared to the same nine month period in 2020. The Company's earnings in
the first nine months of 2021 reflect higher Gas and Electric Adjusted Margins
(a
non-GAAP
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,
discussed above.

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Gas Adjusted Gross Margin (a
non-GAAP
measure) was $19.4 million and $92.2 million in the three and nine months ended
September 30, 2021, respectively, increases of $1.4 million and $8.9 million
compared to the same periods in 2020. The increase in the three month period was
driven by higher rates and customer growth of $1.4 million. The increase over
the nine month period was driven by higher rates and customer growth of
$7.5 million and $1.4 million from the favorable effect of colder winter
weather.
Gas therm sales increased 5.0% and 4.3% in the three and nine month periods
ended September 30, 2021, respectively, compared to the same periods in 2020.
The increase in gas therm sales reflects colder winter weather in the first
quarter of 2021 compared to the same period in 2020, and customer growth. Based
on weather data collected in the Company's gas service areas, on average there
were 2.1% more Effective Degree Days (EDD) in the first nine months of 2021
compared to the same period in 2020, although 6.4% fewer EDD compared to normal.
The Company estimates weather-normalized gas therm sales, excluding decoupled
sales, increased 2.9% in the first nine months of 2021 compared to the same
period in 2020. As of September 30, 2021, the number of gas customers increased
by 592 over the previous year.
Electric Adjusted Gross Margin (a
non-GAAP
measure) was $25.4 million and $73.4 million in the three and nine months ended
September 30, 2021, respectively, increases of $0.9 million and $3.4 million
compared with the same periods in 2020. The increase in the three month period
was driven by higher rates and customer growth of $1.3 million, partially offset
by $0.4 million from the effect of milder summer weather. The increase over the
nine month period was driven by higher rates and customer growth of
$3.4 million.
Total electric kilowatt-hour (kWh) sales increased 0.2% and 2.0%, respectively
in the three and nine month periods ended September 30, 2021 compared to the
same periods in 2020. Sales to Residential customers decreased 3.5% and
increased 0.4%, respectively, in the three and nine month periods ended
September 30, 2021 compared to the same periods in 2020. Sales to Commercial and
Industrial (C&I) customers increased 3.3% and 3.2%, respectively, in the three
and nine month periods ended September 30, 2021 compared to the same periods in
2020. The changes in sales to Residential customers reflects customer growth and
colder winter weather, offset by the effects of milder summer weather and lower
Residential electric sales as the economy continues to reopen. The increase in
sales to C&I customers reflects customer growth and increased usage due to
improving economic conditions. Based on weather data collected in the Company's
electric service areas, on average there were 5.4% fewer Cooling Degree Days
(CDD) in the first nine months of 2021 compared to the same period in 2020. As
of September 30, 2021, the number of electric customers increased by 652 over
the previous year.
Operation and Maintenance (O&M) expenses increased $0.6 million and $2.6 million
in three and nine months ended September 30, 2021, respectively, compared to the
same periods in 2020. The increase in the three month period reflects higher
labor costs of $0.8 million, higher utility operating costs of $0.2 million, and
lower professional fees of $0.4 million. The increase in the nine month period
reflects higher utility operating costs of $1.6 million, higher labor costs of
$1.2 million, and lower professional fees of $0.2 million.
Depreciation and Amortization expense increased $1.1 million and $3.8 million in
the three and nine months ended September 30, 2021, respectively, compared to
the same periods in 2020. These increases primarily reflect additional
depreciation associated with higher levels of utility plant in service and
higher amortization.
Taxes Other Than Income Taxes increased $0.8 million and $0.6 million for the
three and nine months ended September 30, 2021, respectively, compared to the
same periods in 2020. The increase in the three month period reflects higher
payroll taxes and higher local property taxes on higher utility plant in
service. The increase in the nine month period reflects higher local property
taxes on higher utility plant in service and slightly higher payroll taxes.

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Interest Expense, Net increased $0.9 million and $1.8 million, respectively, in
the three and nine months ended September 30, 2021, compared to the same periods
in 2020, reflecting higher interest on long-term debt, partially offset by lower
rates on lower levels of short-term debt.
Other Expense (Income), Net decreased $0.1 million and $0.6 million,
respectively for the three and nine months ended September 30, 2021 compared to
the same periods in 2020, reflecting lower retirement benefit and other costs.
Federal and State Income Taxes increased $1.1 million for the nine months ended
September 30, 2021, respectively, compared to the same period in 2020,
reflecting higher
pre-tax
earnings in the current period.
At its January 2021, April 2021, July 2021 and October 2021 meetings, the Unitil
Corporation Board of Directors declared quarterly dividends on the Company's
common stock of $0.38 per share. These quarterly dividends result in a current
effective annualized dividend rate of $1.52 per share, representing an unbroken
record of quarterly dividend payments since trading began in Unitil's common
stock.
Gas Sales, Revenues and Adjusted Gross Margin
Therm Sales
-
Unitil's total gas therm sales increased 5.0% and 4.3% in the three and nine
month periods ended September 30, 2021, respectively, compared to the same
periods in 2020. In the third quarter of 2021, sales to Residential customers
decreased 3.7% and sales to C&I customers increased 6.0%, compared to the same
period in 2020. For the nine months ended September 30, 2021, sales to
Residential and C&I customers increased 0.3% and 5.4%, respectively, compared to
the same period in 2020. The increase in gas therm sales reflects colder winter
weather in the first quarter of 2021 compared to the same period in 2020, and
customer growth. Based on weather data collected in the Company's gas service
areas, on average there were 2.1% more EDD in the first nine months of 2021
compared to the same period in 2020, although 6.4% fewer EDD compared to normal.
The Company estimates weather-normalized gas therm sales, excluding decoupled
sales, increased 2.9% in the first nine months of 2021 compared to the same
period in 2020. As of September 30, 2021, the number of gas customers increased
by 592 over the previous year. Sales margins derived from decoupled unit sales
(currently representing approximately 11% of total annual therm sales volume)
are not sensitive to changes in gas therm sales.
The following table details total firm therm sales for the three and nine months
ended September 30, 2021 and 2020, by major customer class:

Therm Sales (millions)
                                               Three Months Ended September 30,                            Nine Months Ended September 30,
                                        2021          2020        Change        % Change          2021            2020         Change       % Change
Residential                                2.6           2.7         (0.1 )          (3.7 %)         34.3           34.2           0.1            0.3 %
Commercial / Industrial                   24.7          23.3          1.4             6.0 %         132.7          125.9           6.8            5.4 %

Total                                     27.3          26.0          1.3             5.0 %         167.0          160.1           6.9            4.3 %




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Gas Operating Revenues and Adjusted Gross Margin -
The following table details Total Gas Operating Revenues and Gas Adjusted Gross
Margin for the three and nine months ended September 30, 2021 and 2020:

Gas Operating Revenues and Gas Adjusted Gross Margin ($ millions)


                                                     Three Months Ended September 30,                                   Nine Months Ended September 30,
                                         2021                2020            $ Change        % Change         2021           2020         $ Change        % Change
Gas Operating Revenue:
Residential                          $        12.0       $       10.2       $      1.8            17.6 %    $    61.4      $   54.3      $      7.1            13.1 %
Commercial / Industrial                       20.6               17.3              3.3            19.1 %         89.9          77.1            12.8            16.6 %

Total Gas Operating Revenue          $        32.6       $       27.5       $      5.1            18.5 %    $   151.3      $  131.4      $     19.9            15.1 %

Cost of Gas Sales                    $        13.2       $        9.5       $      3.7            38.9 %    $    59.1      $   48.1      $     11.0            22.9 %

Gas Adjusted Gross Margin            $        19.4       $       18.0       $      1.4             7.8 %    $    92.2      $   83.3      $      8.9            10.7 %



Gas Adjusted Gross Margin (a
non-GAAP
measure) was $19.4 million and $92.2 million in the three and nine months ended
September 30, 2021, respectively, increases of $1.4 million and $8.9 million,
respectively, compared to the same periods in 2020. The increase in the three
month period was driven by higher rates and customer growth of $1.4 million. The
increase over the nine month period was driven by higher rates and customer
growth of $7.5 million and $1.4 million from the favorable effect of colder
winter weather.
The increases in Total Gas Operating Revenue of $5.1 million and $19.9 million
in the three and nine months ended September 30, 2021, respectively, compared to
the same periods in 2020, reflect higher costs of gas sales, which are tracked
and reconciled costs that are passed through directly to customers, and higher
gas sales volumes.
Electric Sales, Revenues and Adjusted Gross Margin
Kilowatt-hour Sales
- Unitil's total electric kWh sales increased 0.2% and 2.0%, respectively in the
three and nine month periods ended September 30, 2021 compared to the same
periods in 2020. Sales to Residential customers decreased 3.5% and increased
0.4%, respectively, in the three and nine month periods ended September 30, 2021
compared to the same periods in 2020. Sales to C&I customers increased 3.3% and
3.2%, respectively, in the three and nine month periods ended September 30, 2021
compared to the same periods in 2020. The changes in sales to Residential
customers reflects customer growth and colder winter weather, offset by the
effects of milder summer weather and lower Residential electric sales as the
economy continues to reopen. The increase in sales to C&I customers reflects
customer growth and increased usage due to improving economic conditions. Based
on weather data collected in the Company's electric service areas, on average
there were 5.4% fewer CDD in the first nine months of 2021 compared to the same
period in 2020. As of September 30, 2021, the number of electric customers
increased by 652 over the previous year. Sales margins derived from decoupled
unit sales (currently representing approximately 27% of total annual electric
kWh sales volume) are not sensitive to changes in electric kWh sales.

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The following table details total kWh sales for the three and nine months ended
September 30, 2021 and 2020 by major customer class:

kWh Sales (millions)
                                            Three Months Ended September 30,                           Nine Months Ended September 30,
                                    2021           2020        Change        % Change          2021           2020         Change       % Change
Residential                           199.7         207.0         (7.3 )          (3.5 %)        541.4          539.4          2.0            0.4 %
Commercial / Industrial               258.7         250.4          8.3             3.3 %         714.6          692.4         22.2            3.2 %

Total                                 458.4         457.4          1.0             0.2 %       1,256.0        1,231.8         24.2            2.0 %



Electric Operating Revenues and Electric Adjusted Gross Margin
-
The following table details Total Electric Operating Revenues and Electric
Adjusted Gross Margin for the three and nine month periods ended September 30,
2021 and 2020:

Electric Operating Revenues and Electric Adjusted Gross Margin ($ millions)



                                                              Three Months Ended September 30,                                     Nine Months Ended September 30,
                                                2021                2020             $ Change          % Change           2021          2020         $ Change        % Change
Electric Operating Revenue:
Residential                                 $        37.6       $        36.1       $       1.5               4.2 %     $  105.3      $  102.3      $      3.0             2.9 %
Commercial / Industrial                              27.9                23.8               4.1              17.2 %         76.9          68.0             8.9            13.1 %

Total Electric Operating Revenue            $        65.5       $        59.9       $       5.6               9.3 %     $  182.2      $  170.3      $     11.9             7.0 %

Cost of Electric Sales                      $        40.1       $        35.4       $       4.7              13.3 %     $  108.8      $  100.3      $      8.5             8.5 %

Electric Adjusted Gross Margin              $        25.4       $        24.5       $       0.9               3.7 %     $   73.4      $   70.0      $      3.4             4.9 %



Electric Adjusted Gross Margin (a
non-GAAP
measure) was $25.4 million and $73.4 million in the three and nine months ended
September 30, 2021, respectively, increases of $0.9 million and $3.4 million,
respectively, compared with the same periods in 2020. The increase in the three
month period was driven by higher rates and customer growth of $1.3 million,
partially offset by $0.4 million from the effect of milder summer weather. The
increase over the nine month period was driven by higher rates and customer
growth of $3.4 million.
The increases in Total Electric Operating Revenue of $5.6 million and
$11.9 million in the three and nine months ended September 30, 2021,
respectively, compared to the same periods in 2020 reflect higher costs of
electric sales, which are tracked and reconciled to costs that are passed
through directly to customers, and higher sales of electricity.
Operating Expenses
Cost of Gas Sales
-
Cost of Gas Sales includes the cost to supply the Company's total gas
requirements and spending on energy efficiency programs. Cost of Gas Sales
increased $3.7 million, or 38.9%, and $11.0 million, or 22.9%, in the three and
nine months ended September 30, 2021, respectively, compared to the same periods
in 2020. These increases reflect higher sales of gas and higher wholesale gas
commodity prices, partially offset by an increase in the amount of gas purchased
by customers directly from third-party suppliers. Because the Company reconciles
and recovers the approved Cost of Gas Sales in its rates at cost on a
pass-through basis, changes in approved expenses do not affect earnings.
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

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efficiency programs. Cost of Electric Sales increased $4.7 million, or 13.3%,
and $8.5 million, or 8.5% in the three and nine months ended September 30, 2021,
respectively, compared to the same periods in 2020. These increases reflect
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. Because the Company reconciles and recovers
the approved Cost of Electric Sales in its rates at cost on a pass-through
basis, changes in approved expenses do not affect earnings.
Operation and Maintenance (O&M) -
O&M expense includes gas and electric utility operating costs, and the operating
cost of the Company's corporate and other business activities. O&M expense
increased $0.6 million, or 3.7%, and $2.6 million, or 5.4%, in three and nine
months ended September 30, 2021, respectively, compared to the same periods in
2020. The increase in the three month period reflects higher labor costs of
$0.8 million, higher utility operating costs of $0.2 million, and lower
professional fees of $0.4 million. The increase in the nine month period
reflects higher utility operating costs of $1.6 million, higher labor costs of
$1.2 million, and lower professional fees of $0.2 million.
Depreciation and Amortization -
Depreciation and Amortization expense increased $1.1 million, or 8.0%, and
$3.8 million, or 9.3%, in the three and nine months ended September 30, 2021,
respectively, compared to the same periods in 2020. These increases reflect
additional depreciation associated with higher levels of utility plant in
service and higher amortization.
Taxes Other Than Income Taxes
-
Taxes Other Than Income Taxes increased $0.8 million, or 15.1%, and
$0.6 million, or 3.4% for the three and nine months ended September 30, 2021,
respectively, compared to the same periods in 2020. The increase in the three
month period reflects higher payroll taxes and higher local property taxes on
higher utility plant in service. The increase in the nine month period reflects
higher local property taxes on higher utility plant in service and slightly
higher payroll taxes.
Other Expense (Income), Net -
Other Expense (Income), Net decreased $0.1 million, or 9.1%, and $0.6 million,
or 15.0%, respectively for the three and nine months ended September 30, 2021
compared to the same periods in 2020, reflecting lower retirement benefit and
other costs.
Provision for Income Taxes
-
Federal and State Income Taxes for the three months ended September 30, 2021
decreased $0.7 million compared with the same period in 2020, reflecting lower
pre-tax
earnings in the current period. For the nine months ended September 30, 2021,
Federal and State Income Taxes increased $1.1 million compared to the same
period in 2020, reflecting higher
pre-tax
earnings in the current period.
Interest Expense, Net -
Interest expense is presented in the Consolidated Financial Statements net of
interest income. Interest expense is mainly comprised of interest on long-term
debt and short-term borrowings. In addition, certain reconciling rate mechanisms
used by the Company's distribution operating utilities give rise to regulatory
assets and regulatory liabilities on which interest is accrued.
Unitil's utility subsidiaries operate a number of reconciling rate mechanisms to
recover specifically identified costs on a pass-through basis. These reconciling
rate mechanisms track costs and revenue on a monthly basis. In any given month,
this tracking and reconciling process will produce either an under-collected or
an over-collected position. In accordance with the distribution utilities' rate
tariffs, interest is accrued on these balances and will produce either interest
income or interest expense. Consistent with regulatory precedent, interest
income is recorded on an under-collection of costs which creates a regulatory
asset to be recovered in future periods when rates are reset. Interest expense
is recorded on an over-collection of costs, which creates a regulatory liability
to be refunded in future periods when rates are reset.

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Interest Expense, Net               Three Months Ended                    Nine Months Ended
($ millions)                           September 30,                        September 30,
                               2021        2020       Change        2021        2020       Change
Interest Expense
Long-term Debt                $  6.5      $  6.0      $   0.5      $ 19.8      $ 18.1      $   1.7
Short-term Debt                  0.2         0.3         (0.1 )       0.5         1.3         (0.8 )
Regulatory Liabilities           0.1         0.1           -          0.3         0.2          0.1

Subtotal Interest Expense        6.8         6.4          0.4        20.6        19.6          1.0

Interest (Income)
Regulatory Assets                 -         (0.2 )        0.2        (0.4 )      (0.6 )        0.2
AFUDC
(1)
and Other                       (0.3 )      (0.6 )        0.3        (0.7 )      (1.3 )        0.6

Subtotal Interest (Income)      (0.3 )      (0.8 )        0.5        (1.1 )      (1.9 )        0.8

Total Interest Expense, Net   $  6.5      $  5.6      $   0.9      $ 19.5      $ 17.7      $   1.8

(1) AFUDC - Allowance for Funds Used During Construction.





Interest Expense, Net increased $0.9 million, or 16.1%, and $1.8 million, or
10.2%, respectively, in the three and nine months ended September 30, 2021,
compared to the same periods in 2020, primarily reflecting higher interest on
long-term debt, partially offset by lower rates on lower levels of short-term
debt.
CAPITAL REQUIREMENTS
Sources of Capital
Unitil requires capital to fund utility plant additions, working capital and
other utility expenditures recovered in subsequent periods through regulated
rates. The capital necessary to meet these requirements is derived primarily
from internally generated funds, which consist of cash flows from operating
activities. The Company initially supplements internally generated funds through
short-term bank borrowings, as needed, under its unsecured revolving Credit
Facility. Periodically, the Company replaces portions of its short-term debt
with long-term debt financings more closely matched to the long-term nature of
its utility assets. Additionally, from time to time, the Company accesses the
public capital markets through public offerings of equity securities. The
Company's utility operations are seasonal in nature and therefore are subject to
seasonal fluctuations in cash flows. The amount, type and timing of any future
financing will vary from year to year based on capital needs and maturity or
redemptions of securities.
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 will be 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
will be 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 (the Cash Pool). The Cash Pool is the financing vehicle for
day-to-day
cash borrowing and investing. The

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Cash Pool allows for an efficient exchange of cash among the Company and its
subsidiaries. The interest rates charged to the subsidiaries for borrowing from
the Cash Pool are based on actual interest costs from lenders under the
Company's revolving Credit Facility (as defined). At September 30, 2021,
September 30, 2020 and December 31, 2020, the Company and all of its
subsidiaries were in compliance with the regulatory requirements to participate
in the Cash Pool.
On July 25, 2018, the Company entered into a Second Amended and Restated Credit
Agreement and related documents (collectively, the Credit Facility) with a
syndicate of lenders, which amended and restated in its entirety the Company's
prior credit facility. The Credit Facility extends to July 25, 2023, subject to
two
one-year
extensions under certain circumstances, 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 Company may increase the
borrowing limit under the Credit Facility by up to $50 million under certain
circumstances.
The Company utilizes the Credit Facility for cash management purposes related to
its short-term operating activities. Total gross borrowings were $170.7 million
for the nine months ended September 30, 2021. Total gross repayments were
$194.9 million for the nine months ended September 30, 2021. The following table
details the borrowing limits, amounts outstanding and amounts available under
the Credit Facility as of September 30, 2021, September 30, 2020 and
December 31, 2020:

                                          Revolving Credit Facility ($ millions)
                                             September 30,                December 31,
                                        2021               2020               2020
Limit                               $      120.0       $      120.0       $       120.0
Short-Term Borrowings Outstanding           30.5               17.3                54.7
Letter of Credit Outstanding                  -                 0.1                 0.1

Available                           $       89.5       $      102.6       $        65.2



The Credit Facility contains customary terms and conditions for credit
facilities of this type, including affirmative and negative covenants. There are
restrictions on, among other things, the Company's and its subsidiaries' ability
to permit liens or incur indebtedness, and restrictions on the Company'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 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 only financial covenant in the Credit Facility provides
that Funded Debt to Capitalization (as each term is defined in the Credit
Facility) cannot exceed 65%, tested on a quarterly basis. At September 30, 2021,
September 30, 2020 and December 31, 2020, the Company was in compliance with the
covenants contained in the Credit Facility in effect on those dates.
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.
On December 18, 2020, Unitil Realty Corp. entered into a loan agreement in the
amount of $4.7 million at 2.64%, with a maturity date of December 18, 2030. Less
than $0.1 million of costs associated with this loan have been recorded as a
reduction to the proceeds. Unitil Realty Corp. used the net proceeds from this
loan for general corporate purposes.

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On September 15, 2020, Northern Utilities issued $40 million of Notes due 2040
at 3.78%. Fitchburg issued $27.5 million of Notes due 2040 at 3.78%. Unitil
Energy issued $27.5 million of Bonds due 2040 at 3.58%. Northern Utilities,
Fitchburg and Unitil Energy used the net proceeds from these offerings to repay
short-term debt and for general corporate purposes. Approximately $0.5 million
of costs associated with these issuances have been recorded as a reduction to
Long-Term Debt on the Consolidated Balance Sheets.
Unitil Corporation and its utility subsidiaries, Fitchburg, Unitil Energy,
Northern Utilities, and Granite State currently are rated "BBB+" by Standard &
Poor's Ratings Services. Unitil Corporation and Granite State currently are
rated "Baa2", and Fitchburg, Unitil Energy and Northern Utilities are currently
rated "Baa1" by Moody's Investors Services.
The continued availability of various methods of financing, as well as the
choice of a specific form of security for such financing, will depend on many
factors, including, but not limited to: security market conditions; general
economic climate; regulatory approvals; the ability to meet covenant issuance
restrictions; the level of earnings, cash flows and financial position; and the
competitive pricing offered by financing sources.
The Company provides limited guarantees on certain energy and gas storage
management contracts entered into by the distribution utilities. The Company's
policy is to limit the duration of these guarantees. As of September 30, 2021,
there were approximately $0.7 million of guarantees outstanding with a duration
less than one year.
Northern Utilities enters into asset management agreements under which Northern
Utilities releases certain gas pipeline and storage assets, resells to an asset
manager and subsequently repurchases the gas over the course of the gas heating
season at the same price at which it sold the gas to the asset manager. There
was $9.7 million, $6.0 million and $5.4 million of gas obligations at
September 30, 2021, September 30, 2020 and December 31, 2020, respectively,
related to these asset management agreements. The amount of gas released in
September 2021 and payable in October 2021 is $0.1 million and is recorded in
Accounts Payable at September 30, 2021. The amount of gas released in September
2020 and payable in October 2020 was less than $0.1 million and was recorded in
Accounts Payable at September 30, 2020. The amount of gas released in December
2020 and payable in January 2021 was $1.0 million and was recorded in Accounts
Payable at December 31, 2020.
Off-Balance
Sheet Arrangements
The Company and its subsidiaries do not currently use, and are not dependent on
the use of,
off-balance
sheet financing arrangements such as securitization of receivables or obtaining
access to assets or cash through special purpose entities or variable interest
entities. Unitil Corporation's subsidiaries conduct a portion of their
operations in leased facilities, and lease some of their vehicles, machinery and
office equipment under both capital and operating lease arrangements. As of
September 30, 2021, there were approximately $0.7 million of guarantees on
certain energy and gas storage management contracts entered into by the
distribution utilities outstanding. See Note 4 (Debt and Financing Arrangements)
to the accompanying Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles in the United States of America
requires the Company to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. In making those estimates and
assumptions, the Company 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. If
actual results were to differ significantly from those

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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. As of September 30, 2021, the Company's
critical accounting policies and estimates had not changed significantly from
December 31, 2020. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Critical Accounting Policies" in
the Company's 2020 Form
10-K
for additional information.
LABOR RELATIONS
Unitil's commitment to excellence begins with its employees. As of September 30,
2021, the Company and its subsidiaries had 513 employees. The Company considers
its relationship with employees to be good and has not experienced any major
labor disruptions. Unitil's employees are focused on the Company's mission to
safely and reliably deliver "energy for life" and provide customers with
affordable and sustainable energy solutions.
The Company strives to be the employer of choice in the communities it serves -
regardless of race, religion, color, gender identification, or sexual
orientation. The Company works diligently to attract the best talent from a
diverse range of sources to meet the current and future demands of our business.
To attract and retain a talented workforce, Unitil provides employee wages that
are competitive and consistent with employee positions, skill levels,
experience, knowledge and geographic location. All employees are eligible for
health insurance, paid and unpaid leave, educational assistance, retirement plan
and life and disability/accident coverage.
Employees at Unitil have the opportunity to be heard. Feedback from employees is
collected annually in the Company's Employee Opinion survey. This feedback helps
create action plans to improve the engagement of employees consistent with the
Company's culture of continuous improvement.
As of September 30, 2021, a total of 165 employees of certain of the Company's
subsidiaries were represented by labor unions. The following table details by
subsidiary the employees covered by a collective bargaining agreement (CBA) as
of September 30, 2021:

                                  Employees Covered       CBA Expiration
Fitchburg                                         44           05/31/2022
Northern Utilities NH Division                    36           06/07/2025
Northern Utilities ME Division                    36           03/31/2026
Granite State                                      4           03/31/2026
Unitil Energy                                     40           05/31/2023
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.
INTEREST RATE RISK
Unitil meets its external financing needs by issuing short-term and long-term
debt. The majority of debt outstanding represents long-term notes or bonds
bearing fixed rates of interest. Changes in market interest rates do not affect
interest expense resulting from these outstanding long-term debt securities.
However, the Company periodically repays its short-term debt borrowings through
the issuance of new long-term debt securities. Changes in market interest rates
may affect the interest rate and corresponding interest expense on any new
issuances of long-term debt securities. In addition, short-term debt borrowings
bear a variable rate of interest. As a result, changes in short-term interest
rates will increase

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or decrease interest expense in future periods. For example, if the average
amount of short-term debt outstanding was $25 million for the period of one
year, a change in interest rates of 1% would result in a change in annual
interest expense of approximately $250,000. The average interest rates on the
Company's short-term borrowings and intercompany money pool transactions for the
three months ended September 30, 2021 and September 30, 2020 were 1.2% and 1.3%,
respectively. The average interest rates on the Company's short-term borrowings
for the nine months ended September 30, 2021 and September 30, 2020 were 1.2%
and 1.8%, respectively. The average interest rate on the Company's short-term
borrowings for the twelve months ended December 31, 2020 was 1.7%.
COMMODITY PRICE RISK
Although Unitil's three distribution utilities are subject to commodity price
risk as part of their traditional operations, the current regulatory framework
within which these companies operate allows for full collection of electric
power and natural gas supply costs in rates on a pass-through basis.
Consequently, there is limited commodity price risk after consideration of the
related rate-making.
REGULATORY MATTERS
Please refer to Note 6 to the Consolidated Financial Statements in Part I, Item
1 of this report for a discussion of Regulatory Matters.
ENVIRONMENTAL MATTERS
Please refer to Note 7 to the Consolidated Financial Statements in Part I, Item
1 of this report for a discussion of Environmental Matters.

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