NOTE 7 – ENVIRONMENTAL MATTERS

UNITIL’S ENVIRONMENTAL 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.

The Company’s past and present operations include activities that are generally subject to extensive and complex federal and state environmental laws and regulations. The Company is in material compliance with applicable environmental and safety laws and regulations and, as of June 30, 2016, has not identified any material losses reasonably likely to be incurred in excess of recorded amounts. However, we cannot assure that significant costs and liabilities will not be incurred in the future. It is possible that other developments, such as increasingly stringent federal, state or local environmental laws and regulations could result in increased environmental compliance costs.

Northern Utilities Manufactured Gas Plant Sites – Northern Utilities has an extensive program to identify, investigate and remediate former manufactured gas plant (MGP) sites, which were operated from the mid-1800s through the mid-1900s. In New Hampshire, MGP sites were identified in Dover, Exeter, Portsmouth, Rochester and Somersworth. In Maine, Northern Utilities has documented the presence of MGP sites in Lewiston and Portland, and a former MGP disposal site in Scarborough.

Northern Utilities has worked with the Maine Department of Environmental Protection (ME DEP) and New Hampshire Department of Environmental Services (NH DES) to address environmental concerns with these sites. Northern Utilities or others have substantially completed remediation of the Exeter, Rochester, Dover, Somersworth, Portsmouth, Lewiston, Portland and Scarborough sites, though future activities may be required.

Although remediation at the site in Exeter has been substantially completed, sediment contamination attributed to the former MGP was identified off-site. This off-site location has been investigated and associated remediation activities were completed in January 2016. The closure report, submitted by Northern Utilities in May 2016, remains under review by the NH DES.

At the site in Somersworth, the NH DES in February 2016 requested that Northern Utilities prepare a work plan to investigate an on-site, groundwater impact. The work plan was submitted in April 2016 and subsequently approved in June 2016. The investigation is expected to be completed by October 2016.

In Lewiston, on-site monitoring continues. Following the completion of 10-year maintenance activities in early 2016, Northern Utilities requested an engineering study to determine closure estimates for the ongoing monitoring in Lewiston. The closure estimates were submitted In May 2016 with the recommendation that monitoring continue for another 10-year time period after which a review will be conducted.

The site in Portland has been investigated and remedial activities have largely been completed. Final remediation activities were completed in the fourth quarter of 2015, and closure documentation will be submitted to the ME DEP in the third quarter of 2016. The State of Maine completed its taking of the site via eminent domain for the expansion of the adjacent International Marine Terminal in the second quarter of 2014. As a result of this taking, and pursuant to an agreement between the State of Maine and Northern Utilities, future remedial activities necessitated as a result of development of the site will be primarily the responsibility of the State of Maine.

The NHPUC and MPUC have approved regulatory mechanisms for the recovery of MGP environmental costs. For Northern Utilities’ New Hampshire division, the NHPUC has approved the recovery of MGP environmental costs over succeeding seven-year periods, without carrying costs. For Northern Utilities’ Maine division, the MPUC has authorized the recovery of environmental remediation costs over succeeding five-year periods, without carrying costs.

The Environmental Obligations (Table A below) shows the amounts accrued for Northern Utilities related to estimated future cleanup costs associated with Northern Utilities’ environmental remediation obligations for former MGP sites. Corresponding Regulatory Assets were recorded to reflect that the future recovery of these environmental remediation costs is expected based on regulatory precedent and established practices.

Fitchburg’s Manufactured Gas Plant Site – Fitchburg completed the scheduled site work at the former MGP site at Sawyer Passway, located in Fitchburg, Massachusetts in the fourth quarter of 2014. The closure documentation for the site was submitted in the fourth quarter of 2015 and is under review by the Massachusetts Department of Environmental Protection (MA DEP) with a decision anticipated by the fourth quarter of 2016.

The Environmental Obligations (Table A below) shows the amounts accrued for Fitchburg related to estimated future cleanup costs for permanent remediation of the Sawyer Passway site with a corresponding Regulatory Asset recorded to reflect that the recovery of these environmental remediation costs are probable through the regulatory process. The amounts recorded do not assume any amounts are recoverable from insurance companies or other third parties. Fitchburg recovers the environmental response costs incurred at this former MGP site in gas rates pursuant to the terms of a cost recovery agreement approved by the MDPU. Pursuant to this agreement, Fitchburg is authorized to amortize and recover environmental response costs from gas customers over succeeding seven-year periods, without carrying costs.

The Company’s ultimate liability for future environmental remediation costs, including MGP site costs, may vary from estimates, which may be adjusted as new information or future developments become available. Based on the Company’s current assessment of its environmental responsibilities, existing legal requirements and regulatory policies, the Company does not believe that these environmental costs will have a material adverse effect on the Company’s consolidated financial position or results of operations.

The following table sets forth a summary of changes in the Company’s liability for Environmental Obligations for the six months ended June 30, 2016 and 2015.


Environmental Obligations
	($ millions)
	Fitchburg				Northern Utilities				Total
	Six months ended June 30,
	2016		2015		2016		2015		2016		2015
Total Balance at Beginning of Period	$	1.2	$	1.9	$	1.6	$	3.6	$	2.8	$	5.5
Additions		—		0.1		0.9		0.2		0.9		0.3
Less: Payments / Reductions		0.1		0.2		0.6		0.2		0.7		0.4

Total Balance at End of Period		1.1		1.8		1.9		3.6		3.0		5.4

Less: Current Portion		0.1		1.8		0.2		1.6		0.3		3.4

Noncurrent Balance at End of Period	$	1.0	$	—	$	1.7	$	2.0	$	2.7	$	2.0