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REGULATORY MATTERS | 3 Months Ended
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Mar. 31, 2016
REGULATORY MATTERS | NOTE 6 – REGULATORY MATTERS UNITIL’S REGULATORY MATTERS ARE DESCRIBED IN NOTE 8 TO THE FINANCIAL STATEMENTS IN ITEM 8 OF PART II OF UNITIL CORPORATION’S FORM 10-K FOR DECEMBER 31, 2015 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 28, 2016. Regulatory Matters Unitil Energy – Base Rates – On March 30, 2016 Unitil Energy filed notice of its intent to seek an increase in base rates with the NHPUC. NHPUC rules provide that such notice must be filed at least 30 days prior to the actual filing of a request for an increase in rates. The Company will be seeking an increase in base rates of approximately $6.0 million, or 4 percent of total revenue. The Company intends to request a temporary increase in rates during the pendency of the investigation of the permanent rate relief request. The Company will also be requesting a long-term rate plan for the annual recovery, beginning in 2017, of the costs associated with certain plant additions. Fitchburg – Base Rates – Electric – On June 16, 2015, Fitchburg filed for a $3.8 million increase in its electric base revenue decoupling target, which represents a 5.6 percent increase over 2014 test year operating electric revenues. The filing included a request for approval of a capital cost recovery mechanism to recover prudently incurred additions to utility plant on an annual basis. Hearings have been completed and briefs have been filed. By statute, the MDPU is afforded ten months to act on a request for a rate increase. A decision is expected by the end of April, 2016. Fitchburg – Base Rates – Gas – On June 16, 2015, Fitchburg filed for a $3.0 million increase in its gas base revenue decoupling target, which represents an 8.3 percent increase over 2014 test year total gas operating revenues. Hearings have been completed and briefs have been filed. By statute, the MDPU is afforded ten months to act on a request for a rate increase. A decision is expected by the end of April, 2016. Northern Utilities – Base Rates – Maine – The rate case settlement in Northern Utilities’ Maine division’s last rate case allowed the Company to implement a Targeted Infrastructure Replacement Adjustment (TIRA) rate mechanism to adjust base distribution rates annually to recover the revenue requirements associated with targeted investments in gas distribution system infrastructure replacement and upgrade projects. The TIRA has an initial term of four years and covers targeted capital expenditures in 2013 through 2016. The 2016 TIRA, for 2015 expenditures, was filed on February 29, 2016, and provides for an annual increase in base distribution revenue of $1.5 million, effective May 1, 2016, and is pending approval. Northern Utilities – Base Rates – New Hampshire – Northern Utilities’ New Hampshire division’s last rate case resulted in a settlement agreement providing for an increase of $4.6 million in distribution base revenue and an additional step increase in revenue of $1.4 million for investments in gas mains extensions and infrastructure replacement projects, effective May 1, 2014, and a step adjustment that provided for an annual increase of $1.8 million in revenue effective May 1, 2015. Northern Utilities – Pipeline Refund – On February 19, 2015 the FERC issued Opinion No. 524-A, the final order in Portland Natural Gas Transmission’s (PNGTS) Section 4 rate case, requiring PNGTS to issue refunds to shippers. Northern Utilities received a pipeline refund of $22.0 million on April 15, 2015. As a gas supply-related refund, the entire amount refunded will be credited to Northern Utilities’ customers and marketers. In New Hampshire, the refund is being credited to all customers over a three year period as directed by the NHPUC. In Maine, the refund has been divided into two parts, as directed by the MPUC. Maine retail customers who purchase their gas directly from Northern Utilities are being credited their portion of the refund over a three year period. The second part of the refund was paid on October 5, 2015 as a one-time lump sum payment directly to marketers who transport gas on Northern Utilities’ distribution system. The Company has recorded current and noncurrent Regulatory Liabilities of $6.8 million and $3.3 million, respectively, on its Consolidated Balance Sheets as of March 31, 2016. Granite State – Base Rates – Granite State has in place a FERC approved amended settlement agreement under which it is permitted each June to file for a rate adjustment to recover the revenue requirements associated with specified capital investments in gas transmission projects up to a specific cost cap. The most recent rate increase under this provision was $0.4 million, effective August 1, 2015. Granite State’s next rate adjustment request will be filed with the FERC in June 2016. Major Storms – Fitchburg and Unitil Energy Fitchburg – 2011 Storm Cost Deferral and 2012 Storm Costs – As part of its May 30, 2014 order approving a base rate increase for Fitchburg, the MDPU approved the recovery over three years, without carrying charges, of $5.0 million of costs of repair for damage due to severe storms, including previously deferred costs incurred in 2011, as well as costs incurred in 2012 as a result of Superstorm Sandy. Unitil Energy – 2012 Storm Costs – On April 25, 2013, the NHPUC approved the recovery of $2.3 million of costs to repair damage to Unitil Energy’s electrical system resulting from Superstorm Sandy over a five-year period, with carrying charges at the Company’s long-term cost of debt, net of deferred taxes, or 4.52%, applied to the uncollected balance through the recovery period. Thanksgiving 2014 Snow Storm – Unitil Energy has requested recovery of $1.7 million for the repair of damage due to this storm through its approved storm reserve fund. The request remains pending. The Company does not believe that its storm restoration expenditures and the timing of cost recovery will have a material adverse impact on the Company’s financial condition or results of operations. NHPUC Energy Efficiency Resource Standard Proceeding – In May 2015 the NHPUC opened a proceeding to establish an Energy Efficiency Resource Standard, an energy efficiency policy with specific targets or goals for energy savings that New Hampshire electric and gas utilities must meet. In this proceeding the Commission will define the savings targets and address issues related to public and private funding; program cost recovery; lost-revenue recovery (e.g. decoupling); performance-based incentives and penalties; program administration; and evaluation measurement, and verification. Initial and reply comments have been filed by interested parties and the matter remains pending. Unitil Energy – Other – In July 2015, the NHPUC opened an investigation into Grid Modernization to address a variety of issues related to Distribution System Planning, Customer Engagement with Distributed Energy Resources, and Utility Cost Recovery and Financial Incentives. The NHPUC has engaged a consultant to form and direct a Working Group to investigate these issues over the next year and to prepare a final report with recommendations for the Commission. This matter remains pending. Fitchburg – Electric Operations – On November 17, 2015, Fitchburg submitted its 2015 annual reconciliation of costs and revenues for transition and transmission under its restructuring plan, including the reconciliation of costs and revenues for a number of other surcharges and cost factors, for review and approval by the MDPU. All of the rates were given final approval by the MDPU on December 29, 2015, effective January 1, 2016. Fitchburg – Gas Operations – On October 31, 2015, Fitchburg submitted its second annual filing to recover the estimated costs to be incurred in calendar year 2016 under its approved 20 year gas system enhancement plan program. The plan was established pursuant to a gas leak bill that was signed into law in 2014 that provided for the establishment of infrastructure replacement programs to address aging natural gas pipeline infrastructure. The Company seeks approval to collect in rates $0.9 million for the costs of its cumulative capital investments for 2015 and 2016, effective May 1, 2016. This matter remains pending. Fitchburg – Service Quality – On March 1, 2016, Fitchburg submitted its 2015 Service Quality Reports for both its gas and electric divisions. Fitchburg reported that it met or exceeded its benchmarks for service quality performance in all metrics for both its gas and electric divisions. On November 25, 2015, the MDPU approved Fitchburg’s 2014 gas division Service Quality Report as filed. On March 10, 2016, the MDPU approved Fitchburg’s 2013 electric division Service Quality Report as filed. Fitchburg’s 2014 electric division and 2015 gas and electric division Service Quality Reports remain pending. MDPU Service Quality Guidelines – In December 2015, the MDPU issued its final order adopting new and revised Service Quality Guidelines. The Company has generally been able to meet or exceed the performance metrics of the previous Service Quality Guidelines and believes that the new and revised Guidelines will not have a material impact on the Company’s financial condition or results of operations. Fitchburg – Other – In December 2013, the MDPU opened an investigation into Modernization of the Electric Grid. The stated objective of the Grid Modernization proceeding is to ensure that the electric distribution companies “adopt grid modernization policies and practices.” In June 2014, the MDPU issued its first Grid Modernization order, setting forth a requirement that each electric distribution company submit a ten-year strategic Grid Modernization Plan (GMP). As part of the GMP, each company must include a five-year Short-Term Investment Plan (STIP), which must include an approach to achieving advanced metering functionality within five years of the Department’s approval of the GMP. The filing of a GMP is a recurring obligation and must be updated as part of subsequent base distribution rate cases, which by statute must occur no less often than every five years. Capital investments contained in the STIP are eligible for pre-authorization, meaning that the MDPU will not revisit in later filings whether the Company should have proceeded with these investments. Fitchburg and the Commonwealth’s three other electric distribution companies filed their initial GMPs on August 19, 2015. These filing are currently under MDPU review and remain pending. On January 28, 2016 the MDPU approved Fitchburg’s Three-Year Energy Efficiency Plan for 2016-2018, subject to limited modifications and directives in the Order. The Department found that the savings goals included in each Three-Year Plan are reasonable and are consistent with the achievement of all available cost-effective energy efficiency; approved each Program Administrator’s program implementation cost budget for the Three-Year Plans; approved the performance incentive pool, mechanism, and payout rates; found that all proposed energy efficiency programs are cost-effective; found that funding sources are reasonable and that each Program Administrator may recover the funds to implement its energy efficiency plan through its EES; and found that each Program Administrator’s Three-Year Plan is consistent with the Green Communities Act, the Guidelines, and Department precedent. FERC Transmission Formula Rate Proceeding – On December 28, 2015, FERC issued an order, pursuant to Section 206 of the Federal Power Act, instituting a proceeding concerning the justness and reasonableness of ISO-New England, Inc. Participating Transmission Owners’ Regional Network Service and Local Network Service formula rates and to develop formula rate protocols for these rates. Fitchburg and Unitil Energy are Participating Transmission Owners, although Unitil Energy does not own transmission plant. To the extent that this proceeding results in any changes to the rates being charged, a refund period will begin as of January 4, 2016. The Company does not believe this investigation will have a material adverse impact on the Company’s financial condition or results of operations. Legal Proceedings The Company is involved in legal and administrative proceedings and claims of various types, which arise in the ordinary course of business. The Company believes, based upon information furnished by counsel and others, that the ultimate resolution of these claims will not have a material impact on its financial position, operating results or cash flows. In early 2009, a putative class action complaint was filed against Unitil’s Massachusetts based utility, Fitchburg, in Massachusetts’ Worcester Superior Court (the “Court”), (captioned Bellermann et al v. Fitchburg Gas and Electric Light Company). The Complaint seeks an unspecified amount of damages, including the cost of temporary housing and alternative fuel sources, emotional and physical pain and suffering and property damages allegedly incurred by customers in connection with the loss of electric service during the ice storm in Fitchburg’s service territory in December 2008. The Town of Lunenburg has filed a separate action in the Court arising out of the December 2008 ice storm. The Company continues to believe that both of these suits are without merit and will continue to defend itself vigorously. The Company believes, based upon information furnished by counsel and others, that the ultimate resolution of these suits will not have a material impact on its financial position, operating results or cash flows.

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