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Summary of Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2013
Summary of Significant Accounting Policies | NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations – Unitil Corporation (Unitil or the Company) is a public utility holding company. Unitil and its subsidiaries are subject to regulation as a holding company system by the Federal Energy Regulatory Commission (FERC) under the Energy Policy Act of 2005. The following companies are wholly-owned subsidiaries of Unitil: Unitil Energy Systems, Inc. (Unitil Energy), Fitchburg Gas and Electric Light Company (Fitchburg), Northern Utilities, Inc. (Northern Utilities), Granite State Gas Transmission, Inc. (Granite State), Unitil Power Corp. (Unitil Power), Unitil Realty Corp. (Unitil Realty), Unitil Service Corp. (Unitil Service) and its non-regulated business unit Unitil Resources, Inc. (Unitil Resources). Usource Inc. and Usource L.L.C. are subsidiaries of Unitil Resources. The Company’s results are expected to reflect the seasonal nature of the natural gas businesses. Accordingly, the Company expects that results of operations will be positively affected during the first and fourth quarters, when sales of natural gas are typically higher, and negatively affected during the second and third quarters, when gas operating and maintenance expenses usually exceed sales margins in the period. Unitil’s principal business is the local distribution of electricity in the southeastern seacoast and state capital regions of New Hampshire and the greater Fitchburg area of north central Massachusetts, and the local distribution of natural gas in southeastern New Hampshire, portions of southern and central Maine and in the greater Fitchburg area of north central Massachusetts. Unitil has three distribution utility subsidiaries, Unitil Energy, which operates in New Hampshire, Fitchburg, which operates in Massachusetts and Northern Utilities, which operates in New Hampshire and Maine (collectively referred to as the distribution utilities). Granite State is a natural gas transportation pipeline, operating 86 miles of underground gas transmission pipeline primarily located in Maine and New Hampshire. Granite State provides Northern Utilities with interconnection to three major natural gas pipelines and access to domestic natural gas supplies in the south and Canadian natural gas supplies in the north. Granite State derives its revenues principally from the transportation services provided to Northern Utilities and, to a lesser extent, third-party marketers. A fifth utility subsidiary, Unitil Power, formerly functioned as the full requirements wholesale power supply provider for Unitil Energy. In connection with the implementation of electric industry restructuring in New Hampshire, Unitil Power ceased being the wholesale supplier of Unitil Energy on May 1, 2003 and divested of its long-term power supply contracts through the sale of the entitlements to the electricity associated with various electric power supply contracts it had acquired to serve Unitil Energy’s customers. Unitil also has three other wholly-owned subsidiaries: Unitil Service; Unitil Realty; and Unitil Resources. Unitil Service provides, at cost, a variety of administrative and professional services, including regulatory, financial, accounting, human resources, engineering, operations, technology, energy management and management services on a centralized basis to its affiliated Unitil companies. Unitil Realty owns and manages the Company’s corporate office in Hampton, New Hampshire and leases this facility to Unitil Service under a long-term lease arrangement. Unitil Resources is the Company’s wholly-owned non-regulated subsidiary. Usource, Inc. and Usource L.L.C. (collectively, Usource) are wholly-owned subsidiaries of Unitil Resources. Usource provides brokering and advisory services to large commercial and industrial customers in the northeastern United States. Basis of Presentation – The accompanying unaudited consolidated financial statements of Unitil have been prepared in accordance with the instructions to Form 10-Q and include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of results to be expected for the year ending December 31, 2013. For further information, please refer to Note 1 of Part II to the Consolidated Financial Statements – “Summary of Significant Accounting Policies” of the Company’s Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission (SEC) on January 30, 2013, for a description of the Company’s Basis of Presentation. Accrued Revenue – Accrued Revenue includes the current portion of Regulatory Assets and unbilled revenues. The following table shows the components of Accrued Revenue as of March 31, 2013, March 31, 2012 and December 31, 2012.
|  | March 31, |  |  | December 31, |
Accrued Revenue ($millions) |  | 2013 |  |  | 2012 |  |  | 2012 |
Regulatory Assets – Current |  | $ | 27.3 |  |  | $ | 32.3 |  |  | $ | 46.6 |
Unbilled Revenues |  |  | 10.4 |  |  |  | 8.6 |  |  |  | 11.5 |
Total Accrued Revenue |  | $ | 37.7 |  |  | $ | 40.9 |  |  | $ | 58.1 |
Utility Plant – The cost of additions to Utility Plant and the cost of renewals and betterments are capitalized. Cost consists of labor, materials, services and certain indirect construction costs, including an allowance for funds used during construction (AFUDC). The costs of current repairs and minor replacements are charged to appropriate operating expense accounts. The original cost of utility plant retired or otherwise disposed of is charged to the accumulated provision for depreciation. The Company includes in its mass asset depreciation rates, which are periodically reviewed as part of its ratemaking proceedings, cost of removal amounts to provide for future negative salvage value. At March 31, 2013, March 31, 2012 and December 31, 2012, the Company estimates that the cost of removal amounts, which are recorded on the Consolidated Balance Sheets in Cost of Removal Obligations are $53.0 million, $47.9 million, and $51.4 million, respectively. Prior to December 31, 2012, the cost of removal amounts had been recorded in Accumulated Depreciation on the Consolidated Balance Sheets. Gas Inventory – The Company uses the weighted average cost methodology to value natural gas inventory. The following table shows the components of Gas Inventory as of March 31, 2013, March 31, 2012 and December 31, 2012.
|  | March 31, |  |  | December 31, |
Gas Inventory ($millions) |  | 2013 |  |  | 2012 |  |  | 2012 |
Natural Gas |  | $ | — |  |  | $ | 0.1 |  |  | $ | 0.6 |
Propane |  |  | 0.3 |  |  |  | 0.4 |  |  |  | 0.4 |
Liquefied Natural Gas & Other |  |  | 0.2 |  |  |  | 0.1 |  |  |  | 0.1 |
Total Gas Inventory |  | $ | 0.5 |  |  | $ | 0.6 |  |  | $ | 1.1 |
Exchange Gas Receivable – Northern Utilities and Fitchburg have gas exchange and storage agreements whereby natural gas purchases during the months of April through October are delivered to a third party. The third party delivers natural gas back to the Company during the months of November through March. Prior to March 31, 2013, the exchange gas amounts had been recorded in Gas Inventory on the Company’s Consolidated Balance Sheets. The exchange and storage gas volumes are recorded at weighted average cost. The following table shows the components of Exchange Gas Receivable as of March 31, 2013, March 31, 2012 and December 31, 2012.
|  | March 31, |  |  | December 31, |
Exchange Gas Receivable ($millions) |  | 2013 |  |  | 2012 |  |  | 2012 |
Northern Utilities |  | $ | 1.5 |  |  | $ | 5.9 |  |  | $ | 8.7 |
Fitchburg |  |  | 0.2 |  |  |  | 0.3 |  |  |  | 0.7 |
Total Exchange Gas Receivable |  | $ | 1.7 |  |  | $ | 6.2 |  |  | $ | 9.4 |
Energy Supply Obligations – The following discussion and table summarize the nature and amounts of the items recorded as Energy Supply Obligations on the Company’s Consolidated Balance Sheets. Gas Inventory Obligation – Northern Utilities enters into asset management agreements under which Northern Utilities releases certain natural gas pipeline and storage assets, resells the natural gas storage inventory to an asset manager and subsequently repurchases the inventory over the course of the natural gas heating season at the same price at which it sold the natural gas inventory to the asset manager. The gas inventory related to these agreements is recorded in Exchange Gas Receivable on the Company’s Consolidated Balance Sheets while the corresponding obligations are recorded in Energy Supply Obligations. Power Supply Contract Divestitures – As a result of the restructuring of the utility industry in New Hampshire and Massachusetts, Unitil Energy’s and Fitchburg’s customers have the opportunity to purchase their electric or natural gas supplies from third-party suppliers. In connection with the implementation of retail choice, Unitil Power, which formerly functioned as the wholesale power supply provider for Unitil Energy, and Fitchburg divested their long-term power supply contracts through the sale of the entitlements to the electricity sold under those contracts. Unitil Energy and Fitchburg recover in their rates all the costs associated with the divestiture of their power supply portfolios and have secured regulatory approval from the NHPUC and MDPU, respectively, for the recovery of power supply-related stranded costs. The obligations related to these divestitures are recorded in Energy Supply Obligations on the Company’s Consolidated Balance Sheets with corresponding regulatory assets recorded in Accrued Revenue (current portion) and Regulatory Assets (long-term portion). Renewable Energy Portfolio Standards – Renewable Energy Portfolio Standards (RPS) require retail electricity suppliers, including public utilities, to demonstrate that required percentages of their sales are met with power generated from certain types of resources or technologies. Compliance is demonstrated by purchasing and retiring Renewable Energy Certificates (REC) generated by facilities approved by the state as qualifying for REC treatment. Unitil Energy and Fitchburg purchase RECs in compliance with RPS legislation in New Hampshire and Massachusetts for supply provided to default service customers. RPS compliance costs are a supply cost that is recovered in customer default service rates. Unitil Energy and Fitchburg collect RPS compliance costs from customers throughout the year and demonstrate compliance for each calendar year on the following July 1. Due to timing differences between collection of revenue from customers and payment of REC costs to suppliers, Unitil Energy and Fitchburg typically maintain accrued revenue for RPS compliance which is recorded in Accrued Revenue with a corresponding liability in Energy Supply Obligations on the Company’s Consolidated Balance Sheets.
|  | March 31, |  |  | December 31, |
Energy Supply Obligations ($millions) |  | 2013 |  |  | 2012 |  |  | 2012 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Exchange Gas Obligation |  | $ | 1.5 |  |  | $ | 5.9 |  |  | $ | 8.7 |
Power Supply Contract Divestitures |  |  | 0.9 |  |  |  | 6.7 |  |  |  | 0.9 |
Renewable Energy Portfolio Standards |  |  | 4.7 |  |  |  | 3.5 |  |  |  | 4.2 |
Total Energy Supply Obligations – Current |  | $ | 7.1 |  |  | $ | 16.1 |  |  | $ | 13.8 |
Long-Term: |  |  |  |  |  |  |  |  |  |  |  |
Power Supply Contract Divestitures |  | $ | 3.1 |  |  | $ | 4.0 |  |  | $ | 3.3 |
Total Energy Supply Obligations |  | $ | 10.2 |  |  | $ | 20.1 |  |  | $ | 17.1 |
Fair Value – The Financial Accounting Standards Board (FASB) Codification defines fair value, and establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy under the FASB Codification are described below:
Level 1 – |  | Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – |  | Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 – |  | Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2 or from Level 2 to Level 3. There have been no changes in the valuation techniques used during the current period. Derivatives – The Company has a regulatory approved hedging program for Northern Utilities designed to fix a portion of its gas supply costs for the coming year of service. In order to fix these costs, the Company purchases natural gas futures contracts on the New York Mercantile Exchange (NYMEX) that correspond to the associated delivery month. Any gains or losses resulting from the change in the fair value of these derivatives are passed through to ratepayers directly through a regulatory commission approved recovery mechanism. The fair value of these derivatives is determined using Level 2 inputs (valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly), specifically based on the NYMEX closing prices for outstanding contracts as of the balance sheet date. As a result of the ratemaking process, the Company records gains and losses resulting from the change in fair value of the derivatives as regulatory liabilities or assets, then reclassifies these gains or losses into Purchased Gas when the gains and losses are passed through to customers in accordance with rate reconciling mechanisms. As of March 31, 2013, March 31, 2012 and December 31, 2012 the Company had 1.7 billion, 1.5 billion and 1.9 billion cubic feet (BCF), respectively, outstanding in natural gas purchase contracts under its hedging program. The tables below show derivatives, which are part of the regulatory approved hedging program, that are not designated as hedging instruments under FASB ASC 815-20. As discussed above, the change in fair value related to these derivatives is recorded initially as a regulatory asset or liability then reclassified into Purchased Gas in accordance with the recovery mechanism. The tables below include disclosure of the derivative assets and liabilities and the reclassifications from their corresponding regulatory liabilities and assets, respectively into Purchased Gas. The current and noncurrent portions of these regulatory assets are recorded as Accrued Revenue and Regulatory Assets, respectively, on the Company’s unaudited Consolidated Balance Sheets. The current and noncurrent portions of these regulatory liabilities are recorded as Other Current Liabilities and Other Noncurrent Liabilities, respectively on the Company’s unaudited Consolidated Balance Sheets.
Fair Value Amount of Derivative Assets / Liabilities (millions) Offset in Regulatory Liabilities / Assets, as of: |
|  |  |  | Fair Value |
Description |  | Balance Sheet Location |  | March 31, 2013 |  |  | March 31, 2012 |  |  | December 31, 2012 |
Derivative Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural Gas Futures Contracts |  | Prepayments and Other |  | $ | 0.5 |  |  | $ | — |  |  | $ | — |
Natural Gas Futures Contracts |  | Other Noncurrent Assets |  |  | — |  |  |  | — |  |  |  | — |
Total Derivative Assets |  |  |  | $ | 0.5 |  |  | $ | — |  |  | $ | — |
Derivative Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |
Natural Gas Futures Contracts |  | Other Current Liabilities |  | $ | — |  |  | $ | 1.8 |  |  | $ | 0.7 |
Natural Gas Futures Contracts |  | Other Noncurrent Liabilities |  |  | — |  |  |  | 0.2 |  |  |  | — |
Total Derivative Liabilities |  |  |  | $ | — |  |  | $ | 2.0 |  |  | $ | 0.7 |
|  | Three Months Ended March 31, |
(millions) |  | 2013 |  |  | 2012 |
Amount of Loss (Gain) Recognized in Regulatory Assets (Liabilities) for Derivatives: |  |  |  |  |  |  |  |
Natural Gas Futures Contracts |  | $ | (0.3 | ) |  | $ | 1.3 |
Amount of Loss Reclassified into unaudited Consolidated Statements of Earnings(1): |  |  |  |  |  |  |  |
Purchased Gas |  | $ | 0.9 |  |  | $ | 1.6 |
(1) | These amounts are offset in the unaudited Consolidated Statements of Earnings with Accrued Revenue and therefore there is no effect on earnings.
Allowance for Doubtful Accounts – The Company recognizes a provision for doubtful accounts each month based upon the Company’s experience in collecting electric and gas utility service accounts receivable in prior years. At the end of each month, an analysis of the delinquent receivables is performed which takes into account an assumption about the cash recovery of delinquent receivables. The analysis also calculates the amount of written-off receivables that are recoverable through regulatory rate reconciling mechanisms. The Company’s distribution utilities are authorized by regulators to recover the costs of their energy commodity portion of bad debts through rate mechanisms. Evaluating the adequacy of the Allowance for Doubtful Accounts requires judgment about the assumptions used in the analysis, including expected fuel assistance payments from governmental authorities and the level of customers enrolling in payment plans with the Company. The Allowance for Doubtful Accounts as of March 31, 2013, March 31, 2012 and December 31, 2012, which are included in Accounts Receivable, Net on the accompanying unaudited consolidated balance sheets, were as follows:
(Millions) |  | March 31, |  |  | December 31, |
|  | 2013 |  |  | 2012 |  |  | 2012 |
Allowance for Doubtful Accounts |  | $ | 2.0 |  |  | $ | 2.6 |  |  | $ | 1.9 |
Income Taxes – The Company is subject to Federal and State income taxes as well as various other business taxes. This process involves estimating the Company’s current tax liabilities as well as assessing temporary and permanent differences resulting from the timing of the deductions of expenses and recognition of taxable income for tax and book accounting purposes. These temporary differences result in deferred tax assets and liabilities, which are included in the Company’s Consolidated Balance Sheets. The Company accounts for income tax assets, liabilities and expenses in accordance with the FASB Codification guidance on Income Taxes. The Company classifies penalty and interest expense related to income tax liabilities as income tax expense and interest expense, respectively, in the Consolidated Statements of Earnings. Provisions for income taxes are calculated in each of the jurisdictions in which the Company operates for each period for which a statement of earnings is presented. The Company accounts for income taxes in accordance with the FASB Codification guidance on Income Taxes which requires an asset and liability approach for the financial accounting and reporting of income taxes. Significant judgments and estimates are required in determining the current and deferred tax assets and liabilities. The Company’s current and deferred tax assets and liabilities reflect its best assessment of estimated future taxes to be paid. In accordance with the FASB Codification, the Company periodically assesses the realization of its deferred tax assets and liabilities and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts and circumstances which gave rise to the revision become known. Deferred income taxes are reflected as Current and Noncurrent Deferred Income Taxes on the Company’s Consolidated Balance Sheets based on the nature of the underlying timing item. Prior to December 31, 2012, deferred income taxes were reflected as a single amount on the Consolidated Balance Sheets. Subsequent Events – The Company has evaluated all events or transactions through the date of this filing. During this period, the Company did not have any material subsequent events that impacted its unaudited consolidated financial statements. Reclassifications – Certain amounts previously reported have been reclassified to improve the financial statements’ presentation and to conform to current year presentation. Most significant has been the reclassification of cost of removal costs associated with asset retirements from Accumulated Depreciation to Cost of Removal Obligations, the reclassification of exchange gas amounts from Gas Inventory to Exchange Gas Receivable and the segregation of Deferred Income Taxes to current and noncurrent amounts on the Company’s Consolidated Balance Sheets, as discussed above in Utility Plant, Exchange Gas Receivable and Income Taxes, respectively. Recently Issued Pronouncements – There are no recently issued pronouncements that the Company has not already adopted.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18861-107790 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18743-107790 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18780-107790 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18854-107790 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18726-107790 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Accounting Principles Board Opinion (APB) -Number 22 -Paragraph 8 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. + Details
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