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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended
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Jun. 30, 2018
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 earnings are seasonal and are typically higher in the first and fourth quarters when customers use natural gas for heating purposes. 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 and are of a normal and recurring nature. The results of operations for the three and six months ended June 30, 2018 are not necessarily indicative of results to be expected for the year ending December 31, 2018. 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, 2017, as filed with the Securities and Exchange Commission (SEC) on February 1, 2018, for a description of the Company’s Basis of Presentation. Utility Revenue Recognition – Gas Operating Revenues and Electric Operating Revenues consist of billed and unbilled revenue and revenue from rate adjustment mechanisms. Billed and unbilled revenue includes delivery revenue and pass-through revenue, recognized according to tariffs approved by federal and state regulatory commissions which determine the amount of revenue the Company will record for these items. Revenue from rate adjustment mechanisms is accrued revenue, recognized in connection with rate adjustment mechanisms, and authorized by regulators for recognition in the current period for future cash recoveries from, or credits to, customers. Billed and unbilled revenue is recorded when service is rendered or energy is delivered to customers. However, the determination of energy sales to individual customers is based on the reading of their meters, which occurs on a systematic basis throughout the month. At the end of each calendar month, amounts of energy delivered to customers since the date of the last meter reading are estimated and the corresponding unbilled revenues are calculated. These unbilled revenues are calculated each month based on estimated customer usage by class and applicable customer rates and are then reversed in the following month when billed to customers. In the first quarter of 2018, the Company adopted Accounting Standards Update (ASU) 2014-09, and its subsequent clarifications and amendments outlined in ASU 2015-14, ASU 2016-08, ASU 2016-10 and ASU 2017-13, on a modified retrospective basis, which requires application to contracts with customers effective January 1, 2018, with the cumulative impact on contracts not yet completed as of December 31, 2017 recognized as an adjustment to the opening balance of Retained Earnings on the Company’s Consolidated Balance Sheets. There was no cumulative effect of adoption to be recognized as an adjustment to the opening balance of Retained Earnings on the Company’s Consolidated Balance Sheets. The adoption of this guidance did not have a material impact on the Consolidated Financial Statements as of the adoption date or for the three and six months ended June 30, 2018. A majority of the Company’s revenue from contracts with customers continues to be recognized on a monthly basis based on applicable tariffs and customer monthly consumption. Such revenue is recognized using the invoice practical expedient which allows an entity to recognize revenue in the amount that directly corresponds to the value transferred to the customer. As discussed below, the Company plans to disclose billed and unbilled revenue separately from rate adjustment mechanism revenue in the Notes to the Consolidated Financial Statements for periods in 2018 going forward, and will also provide this disclosure for prior periods for informational purposes. The Company’s billed and unbilled revenue meets the definition of “revenues from contracts with customers” as defined in ASU 2014-09. Revenue recognized in connection with rate adjustment mechanisms is consistent with the definition of alternative revenue programs in Accounting Standards Codification (ASC) 980-605-25-3, as the Company has the ability to adjust rates in the future as a result of past activities or completed events. ASU 2014-09 requires the Company to disclose separately the amount of revenues from contracts with customers and alternative revenue program revenues. In the following tables, revenue is classified by the types of goods/services rendered and market/customer type. The lower revenues reported in the three and six months ended 2018 to account for the reduction in the corporate income tax rate under the Tax Cuts and Jobs Act of 2017 (TCJA) are shown separately in the tables below for informational purposes.
|  | Three Months Ended June 30, 2018 |
Gas and Electric Operating Revenues ($ millions): |  | Gas |  |  | Electric |  |  | Total |
Billed and Unbilled Revenue: |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 15.8 |  |  | $ | 27.5 |  |  | $ | 43.3 |
C&I |  |  | 22.9 |  |  |  | 24.0 |  |  |  | 46.9 |
Other |  |  | 2.4 |  |  |  | 2.9 |  |  |  | 5.3 |
Revenue Reductions – TCJA |  |  | (1.0 | ) |  |  | (0.7 | ) |  |  | (1.7 | )
Total Billed and Unbilled Revenue |  |  | 40.1 |  |  |  | 53.7 |  |  |  | 93.8 |
Rate Adjustment Mechanism Revenue |  |  | (5.4 | ) |  |  | (5.0 | ) |  |  | (10.4 | )
Total Gas and Electric Operating Revenues |  | $ | 34.7 |  |  | $ | 48.7 |  |  | $ | 83.4 |
|  | Three Months Ended June 30, 2017 |
Gas and Electric Operating Revenues ($ millions): |  | Gas |  |  | Electric |  |  | Total |
Billed and Unbilled Revenue: |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 15.0 |  |  | $ | 23.6 |  |  | $ | 38.6 |
C&I |  |  | 20.3 |  |  |  | 20.6 |  |  |  | 40.9 |
Other |  |  | 1.5 |  |  |  | 1.5 |  |  |  | 3.0 |
Total Billed and Unbilled Revenue |  |  | 36.8 |  |  |  | 45.7 |  |  |  | 82.5 |
Rate Adjustment Mechanism Revenue |  |  | (4.8 | ) |  |  | 1.7 |  |  |  | (3.1 | )
Total Gas and Electric Operating Revenues |  | $ | 32.0 |  |  | $ | 47.4 |  |  | $ | 79.4 |
|  | Six Months Ended June 30, 2018 |
Gas and Electric Operating Revenues ($ millions): |  | Gas |  |  | Electric |  |  | Total |
Billed and Unbilled Revenue: |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 51.7 |  |  | $ | 62.0 |  |  | $ | 113.7 |
C&I |  |  | 72.8 |  |  |  | 48.9 |  |  |  | 121.7 |
Other |  |  | 9.5 |  |  |  | 5.9 |  |  |  | 15.4 |
Revenue Reductions – TCJA |  |  | (2.5 | ) |  |  | (1.5 | ) |  |  | (4.0 | )
Total Billed and Unbilled Revenue |  |  | 131.5 |  |  |  | 115.3 |  |  |  | 246.8 |
Rate Adjustment Mechanism Revenue |  |  | (9.8 | ) |  |  | (9.1 | ) |  |  | (18.9 | )
Total Gas and Electric Operating Revenues |  | $ | 121.7 |  |  | $ | 106.2 |  |  | $ | 227.9 |
|  | Six Months Ended June 30, 2017 |
Gas and Electric Operating Revenues ($ millions): |  | Gas |  |  | Electric |  |  | Total |
Billed and Unbilled Revenue: |  |  |  |  |  |  |  |  |  |  |  |
Residential |  | $ | 45.9 |  |  | $ | 51.0 |  |  | $ | 96.9 |
C&I |  |  | 62.3 |  |  |  | 40.7 |  |  |  | 103.0 |
Other |  |  | 7.5 |  |  |  | 3.0 |  |  |  | 10.5 |
Total Billed and Unbilled Revenue |  |  | 115.7 |  |  |  | 94.7 |  |  |  | 210.4 |
Rate Adjustment Mechanism Revenue |  |  | (8.9 | ) |  |  | 2.2 |  |  |  | (6.7 | )
Total Gas and Electric Operating Revenues |  | $ | 106.8 |  |  | $ | 96.9 |  |  | $ | 203.7 |
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 natural gas sales. The difference between distribution revenue amounts billed to customers and the targeted revenue decoupling amounts is recorded 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 that the Company files with the MDPU. The Company estimates that revenue decoupling applies to approximately 27% and 11% of Unitil’s total annual electric and natural gas sales volumes, respectively. Other Operating Revenue – Non-regulated – Usource, Unitil’s non-regulated subsidiary, conducts its business activities as a broker of competitive energy services. Usource does not take title to the electric and gas commodities which are the subject of the brokerage contracts. The Company records energy brokering revenues based upon the amount of electricity and gas delivered to customers through the end of the accounting period. Usource partners with certain entities to facilitate these brokerage services and pays these entities a fee under revenue sharing agreements. As discussed above, the Company adopted ASU 2014-09 in the first quarter of 2018. There was no cumulative effect of adoption to be recognized as an adjustment to the opening balance of Retained Earnings on the Company’s Consolidated Balance Sheets. ASU 2014-09 requires that payments made by Usource to third parties (“Channel Partners”) for revenue sharing agreements are recognized net, as a reduction from revenue, where those payments were previously recognized gross as an operating expense. Therefore, beginning in 2018 and going forward, payments made by Usource to Channel Partners for revenue sharing agreements are reported as “Other” in the “Operating Revenues” section of the Consolidated Statements of Earnings, along with Usource’s revenues. Prior to the adoption of ASU 2014-09, payments by Usource to third parties for revenue sharing agreements are included as “Operation and Maintenance” in the “Operating Expenses” section of the Consolidated Statements of Earnings. Those Channel Partner payments were $0.2 million and $0.3 million in the three months ended June 30, 2018 and 2017, respectively. Channel Partner payments were $0.5 million and $0.5 million in the six months ended June 30, 2018 and 2017, respectively. If ASU 2014-09 had been in effect for the three and six months ended June 30, 2017, the result would have been corresponding reductions of $0.3 million and $0.5 million, respectively, in both “Other” in in the “Operating Revenues” section of the Consolidated Statements of Earnings and “Operation and Maintenance” in the “Operating Expenses” section of the Company’s Consolidated Statements of Earnings as shown in the tables below.
|  | Three Months Ended June 30, |
|  | As Reported |  |  | If ASU 2014-09 Had Been in Effect |
Other Operating Revenues ($ millions): |  | 2018 |  |  | 2017 |
Usource Contract Revenue |  | $ | 1.3 |  |  | $ | 1.4 |
Less: Revenue Sharing Payments |  |  | 0.2 |  |  |  | 0.3 |
Total Other Operating Revenues |  | $ | 1.1 |  |  | $ | 1.1 |
|  | Three Months Ended June 30, |
|  | As Reported |  |  | If ASU 2014-09 Had Been in Effect |
Operation and Maintenance Expense ($ millions): |  | 2018 |  |  | 2017 |
Operation and Maintenance Expense |  | $ | 17.8 |  |  | $ | 16.2 |
|  | Six Months Ended June 30, |
|  | As Reported |  |  | If ASU 2014-09 Had Been in Effect |
Other Operating Revenues ($ millions): |  | 2018 |  |  | 2017 |
Usource Contract Revenue |  | $ | 2.9 |  |  | $ | 3.1 |
Less: Revenue Sharing Payments |  |  | 0.5 |  |  |  | 0.5 |
Total Other Operating Revenues |  | $ | 2.4 |  |  | $ | 2.6 |
|  | Six Months Ended June 30, |
|  | As Reported |  |  | If ASU 2014-09 Had Been in Effect |
Operation and Maintenance Expense ($ millions): |  | 2018 |  |  | 2017 |
Operation and Maintenance Expense |  | $ | 35.1 |  |  | $ | 32.0 |
Retirement Benefit Costs – The Company sponsors the Unitil Corporation Retirement Plan (Pension Plan), the Unitil Employee Health and Welfare Benefits Plan (PBOP Plan) and the Unitil Corporation Supplemental Executive Retirement Plan (SERP Plan).The net periodic benefit costs associated with these benefit plans consist of service cost and other components (See Note 9 to the Consolidated Financial Statements). In the first quarter of 2018, the Company adopted ASU No. 2017-07, “Compensation – Retirement Benefits (Topic 715) which amends the existing guidance relating to the presentation of net periodic pension cost and net periodic other post-retirement benefit costs. On a retrospective basis, the amendment requires an employer to separate the service cost component from the other components of net benefit cost and provides explicit guidance on how to present the service cost component and other components in the income statement. Accordingly, for all periods presented in the Consolidated Financial Statements in this Form 10-Q for the quarter ended June 30, 2018, the service cost component of the Company’s net periodic benefit costs is reported in “Operations and Maintenance” in the “Operating Expenses” section of the Consolidated Statements of Earnings while the other components of net periodic benefit costs are reported in the “Other Expense (Income), net” section of the Consolidated Statements of Earnings. Prior to adoption, the Company reported all components of its net periodic benefit costs in “Operations and Maintenance” in the “Operating Expenses” section of the Consolidated Statements of Earnings. The change in presentation for three and six months ended June 30, 2018 resulted in a reduction of “Operations and Maintenance” and an increase in “Other Expense (Income), net” on the Consolidated Statements of Earnings for the prior periods. There are $1.3 million and $1.1 million of non-service cost net periodic benefit costs reported in “Other Expense (Income), net” for the three months ended June 30, 2018 and June 30, 2017, respectively, net of amounts deferred as regulatory assets for future recovery. There are $2.9 million and $2.7 million of non-service cost net periodic benefit costs reported in “Other Expense (Income), net” for the six months ended June 30, 2018 and June 30, 2017, respectively, net of amounts deferred as regulatory assets for future recovery. 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 Financial Accounting Standards Board (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. Cash and Cash Equivalents – Cash and Cash Equivalents include all cash and cash equivalents to which the Company has legal title. Cash equivalents include short-term investments with original maturities of three months or less and interest bearing deposits. The Company’s cash and cash equivalents are held at financial institutions and at times may exceed federally insured limits. The Company has not experienced any losses in such accounts. Under the Independent System Operator—New England (ISO-NE) Financial Assurance Policy (Policy), Unitil’s subsidiaries Unitil Energy, Fitchburg and Unitil Power are required to provide assurance of their ability to satisfy their obligations to ISO-NE. Under this Policy, Unitil’s subsidiaries provide cash deposits covering approximately 2-1/2 months of outstanding obligations, less credit amounts that are based on the Company’s credit rating. As of June 30, 2018, June 30, 2017 and December 31, 2017, the Unitil subsidiaries had deposited $2.2 million, $2.0 million and $2.9 million, respectively to satisfy their ISO-NE obligations. In addition, Northern Utilities has cash margin deposits to satisfy requirements for its natural gas hedging program. There were no cash margin deposits at Northern Utilities as of June 30, 2018, June 30, 2017 and December 31, 2017. Allowance for Doubtful Accounts – The Company recognizes a provision for doubtful accounts each month based upon the Company’s experience in collecting electric and gas utility service accounts receivable in prior years. At the end of each month, an analysis of the delinquent receivables is performed which takes into account an assumption about the cash recovery of delinquent receivables. The analysis also calculates the amount of written-off receivables that are recoverable through regulatory rate reconciling mechanisms. The Company’s distribution utilities are authorized by regulators to recover the costs of their energy commodity portion of bad debts through rate mechanisms. Also, the electric and gas divisions of Fitchburg are authorized to recover through rates past due amounts associated with hardship accounts that are protected from shut-off. Evaluating the adequacy of the Allowance for Doubtful Accounts requires judgment about the assumptions used in the analysis, including the level of customers enrolling in payment plans with the Company. It has been the Company’s experience that the assumptions it has used in evaluating the adequacy of the Allowance for Doubtful Accounts have proven to be reasonably accurate. The Allowance for Doubtful Accounts as of June 30, 2018, June 30, 2017 and December 31, 2017, which is included in Accounts Receivable, net on the accompanying unaudited consolidated balance sheets, was as follows:
($ millions) |  |  |
|  | June 30, |  |  | December 31, |
|  | 2018 |  |  | 2017 |  |  | 2017 |
Allowance for Doubtful Accounts |  | $ | 1.4 |  |  | $ | 1.4 |  |  | $ | 1.6 |
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 June 30, 2018, June 30, 2017 and December 31, 2017.
|  | June 30, |  |  | December 31, |
Accrued Revenue ($ millions) |  | 2018 |  |  | 2017 |  |  | 2017 |
Regulatory Assets – Current |  | $ | 21.2 |  |  | $ | 29.1 |  |  | $ | 39.5 |
Unbilled Revenues |  |  | 8.5 |  |  |  | 7.5 |  |  |  | 13.8 |
Total Accrued Revenue |  | $ | 29.7 |  |  | $ | 36.6 |  |  | $ | 53.3 |
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. The exchange and storage gas volumes are recorded at weighted average cost. The following table shows the components of Exchange Gas Receivable as of June 30, 2018, June 30, 2017 and December 31, 2017.
|  | June 30, |  |  | December 31, |
Exchange Gas Receivable ($ millions) |  | 2018 |  |  | 2017 |  |  | 2017 |
Northern Utilities |  | $ | 5.2 |  |  | $ | 5.5 |  |  | $ | 5.4 |
Fitchburg |  |  | 0.3 |  |  |  | 0.4 |  |  |  | 0.4 |
Total Exchange Gas Receivable |  | $ | 5.5 |  |  | $ | 5.9 |  |  | $ | 5.8 |
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 June 30, 2017, June 30, 2016 and December 31, 2016.
|  | June 30, |  |  | December 31, |
Gas Inventory ($ millions) |  | 2018 |  |  | 2017 |  |  | 2017 |
Natural Gas |  | $ | 0.2 |  |  | $ | 0.2 |  |  | $ | 0.4 |
Propane |  |  | 0.3 |  |  |  | 0.2 |  |  |  | 0.1 |
Liquefied Natural Gas & Other |  |  | 0.1 |  |  |  | 0.1 |  |  |  | 0.1 |
Total Gas Inventory |  | $ | 0.6 |  |  | $ | 0.5 |  |  | $ | 0.6 |
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 June 30, 2018, June 30, 2017 and December 31, 2017, the Company estimates that the cost of removal amounts, which are recorded on the Consolidated Balance Sheets in Cost of Removal Obligations are $87.8 million, $82.3 million, and $84.3 million, respectively. Regulatory Accounting – The Company’s principal business is the distribution of electricity and natural gas by the three distribution utilities: Unitil Energy, Fitchburg and Northern Utilities. Unitil Energy and Fitchburg are subject to regulation by the FERC. Fitchburg is also regulated by the Massachusetts Department of Public Utilities (MDPU), Unitil Energy is regulated by the New Hampshire Public Utilities Commission (NHPUC) and Northern Utilities is regulated by the Maine Public Utilities Commission (MPUC) and NHPUC. Granite State, the Company’s natural gas transmission pipeline, is regulated by the FERC. Accordingly, the Company uses the Regulated Operations guidance as set forth in the FASB Codification. The Company has recorded Regulatory Assets and Regulatory Liabilities which will be recovered from customers, or applied for customer benefit, in accordance with rate provisions approved by the applicable public utility regulatory commission.
|  | June 30, |  |  | December 31, |
Regulatory Assets consist of the following ($ millions) |  | 2018 |  |  | 2017 |  |  | 2017 |
Retirement Benefits |  | $ | 86.7 |  |  | $ | 75.9 |  |  | $ | 84.5 |
Energy Supply & Other Rate Adjustment Mechanisms |  |  | 19.0 |  |  |  | 25.4 |  |  |  | 36.0 |
Deferred Storm Charges |  |  | 6.8 |  |  |  | 7.7 |  |  |  | 7.2 |
Environmental |  |  | 9.0 |  |  |  | 10.2 |  |  |  | 9.5 |
Income Taxes |  |  | 6.1 |  |  |  | 7.0 |  |  |  | 6.5 |
Other |  |  | 4.3 |  |  |  | 5.8 |  |  |  | 5.4 |
Total Regulatory Assets |  | $ | 131.9 |  |  | $ | 132.0 |  |  | $ | 149.1 |
Less: Current Portion of Regulatory Assets(1) |  |  | 21.2 |  |  |  | 29.1 |  |  |  | 39.5 |
Regulatory Assets – noncurrent |  | $ | 110.7 |  |  | $ | 102.9 |  |  | $ | 109.6 |
(1) | Reflects amounts included in Accrued Revenue, discussed above, on the Company’s Consolidated Balance Sheets.
|  | June 30, |  |  | December 31, |
Regulatory Liabilities consist of the following ($ millions) |  | 2018 |  |  | 2017 |  |  | 2017 |
Rate Adjustment Mechanisms |  | $ | 14.2 |  |  | $ | 13.1 |  |  | $ | 6.9 |
Gas Pipeline Refund (Note 6) |  |  | — |  |  |  | 3.5 |  |  |  | 2.3 |
Income Taxes (Note 8) |  |  | 47.1 |  |  |  | — |  |  |  | 48.9 |
Total Regulatory Liabilities |  |  | 61.3 |  |  |  | 16.6 |  |  |  | 58.1 |
Less: Current Portion of Regulatory Liabilities |  |  | 14.2 |  |  |  | 16.6 |  |  |  | 9.2 |
Regulatory Liabilities – noncurrent |  | $ | 47.1 |  |  | $ | — |  |  | $ | 48.9 |
Generally, the Company receives a return on investment on its regulated assets for which a cash outflow has been made. Included in Regulatory Assets as of June 30, 2018 are $0.1 million of deferred storm charges to be recovered over the next year and $6.3 million of environmental costs, rate case costs and other expenditures to be recovered over varying periods in the next seven years. Regulators have authorized recovery of these expenditures, but without a return. Regulatory commissions can reach different conclusions about the recovery of costs, which can have a material impact on the Company’s Consolidated Financial Statements. The Company believes it is probable that its regulated distribution and transmission utilities will recover their investments in long-lived assets, including regulatory assets. If the Company, or a portion of its assets or operations, were to cease meeting the criteria for application of these accounting rules, accounting standards for businesses in general would become applicable and immediate recognition of any previously deferred costs, or a portion of deferred costs, would be required in the year in which the criteria are no longer met, if such deferred costs were not recoverable in the portion of the business that continues to meet the criteria for application of the FASB Codification topic on Regulated Operations. If unable to continue to apply the FASB Codification provisions for Regulated Operations, the Company would be required to apply the provisions for the Discontinuation of Rate-Regulated Accounting included in the FASB Codification. In the Company’s opinion, its regulated operations will be subject to the FASB Codification provisions for Regulated Operations for the foreseeable future. Derivatives – The Company’s regulated energy subsidiaries enter into energy supply contracts to serve their electric and gas customers. The Company follows a procedure for determining whether each contract qualifies as a derivative instrument under the guidance provided by the FASB Codification on Derivatives and Hedging. For each contract, the Company reviews and documents the key terms of the contract. Based on those terms and any additional relevant components of the contract, the Company determines and documents whether the contract qualifies as a derivative instrument as defined in the FASB Codification. The Company has determined that none of its energy supply contracts, other than the regulatory approved hedging program, described below, qualifies as a derivative instrument under the guidance set forth in the FASB Codification. The Company has managed a regulatory approved hedging program for Northern Utilities, which is designed to fix or cap a portion of its gas supply costs for the coming years of service through the purchase of European call option contracts. Any gains or losses resulting from these option contracts are passed through to customers directly through Northern Utilities’ Cost of Gas Adjustment Clause. 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 Cost of Gas Sales when the gains and losses are passed through to customers through the Cost of Gas Adjustment Clause. Currently, there are no active transactions and the Company has proposed to regulators to discontinue the program. This matter remains pending. As of June 30, 2018, June 30, 2017 and December 31, 2017 the Company had zero, 1.2 billion and 0.6 billion cubic feet (BCF), respectively, outstanding in natural gas futures and options contracts under its hedging program. As of June 30, 2018, June 30, 2017 and December 31, 2017, the Company’s derivatives that are not designated as hedging instruments under FASB ASC 815-20 have a fair value of $0, $0.1 million and less than $0.1 million, respectively. Investments in Marketable Securities – The Company has a trust through which it invests in a variety of equity and fixed income mutual funds. These funds are intended to satisfy obligations under the Company’s SERP Plan (See further discussion of the SERP Plan in Note 9.) At June 30, 2018, June 30, 2017 and December 31, 2017, the fair value of the Company’s investments in these trading securities, which are recorded on the Consolidated Balance Sheets in Other Assets, were $5.2 million, $3.4 million and $3.6 million, respectively, as shown in the table below. These investments are valued based on quoted prices from active markets and are categorized in Level 1 as they are actively traded and no valuation adjustments have been applied. Changes in the fair value of these investments are recorded in Other Expense (Income), net.
|  | June 30, |  |  | December 31, |
Fair Value of Marketable Securities ($ millions) |  | 2018 |  |  | 2017 |  |  | 2017 |
Equity Funds |  | $ | 2.9 |  |  | $ | 1.9 |  |  | $ | 2.1 |
Fixed Income Funds |  |  | 2.3 |  |  |  | 1.5 |  |  |  | 1.5 |
Total Marketable Securities |  | $ | 5.2 |  |  | $ | 3.4 |  |  | $ | 3.6 |
Energy Supply Obligations – The following discussion and table summarize the nature and amounts of the items recorded on the Company’s Consolidated Balance Sheets. The current portion of these obligations is recorded as Energy Supply Obligations and the noncurrent portion is included in Other Noncurrent Liabilities on the Company’s Consolidated Balance Sheets.
|  | June 30, |  |  | December 31, |
Energy Supply Obligations ($ millions) |  | 2018 |  |  | 2017 |  |  | 2017 |
Current: |  |  |  |  |  |  |  |  |  |  |  |
Exchange Gas Obligation |  | $ | 5.2 |  |  | $ | 5.5 |  |  | $ | 5.4 |
Renewable Energy Portfolio Standards |  |  | 3.9 |  |  |  | 4.5 |  |  |  | 4.0 |
Power Supply Contract Divestitures |  |  | 0.3 |  |  |  | 0.3 |  |  |  | 0.3 |
Total Energy Supply Obligations – Current |  |  | 9.4 |  |  |  | 10.3 |  |  |  | 9.7 |
Noncurrent: |  |  |  |  |  |  |  |  |  |  |  |
Power Supply Contract Divestitures |  |  | 0.8 |  |  |  | 1.1 |  |  |  | 0.9 |
Total Energy Supply Obligations |  | $ | 10.2 |  |  | $ | 11.4 |  |  | $ | 10.6 |
Exchange Gas Obligation – Northern Utilities enters into gas exchange 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. 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. Fitchburg has entered into long-term renewable contracts for electric energy and/or renewable energy credits pursuant to Massachusetts legislation, specifically, the Act Relative to Green Communities of 2008 and the Act Relative to Competitively Priced Electricity (2012) in the Commonwealth, and the MDPU’s regulations implementing the legislation. The generating facilities associated with three of these contracts have been constructed and are operating. A recent round of long-term renewable energy procurements was conducted during 2016 and several contracts were finalized and submitted to MDPU for approval in 2017. These approvals remain pending. Additional procurements are expected in compliance with the Act to Promote Energy Diversity (2016). Fitchburg recovers the costs associated with long-term renewable contracts on a fully reconciling basis through a MDPU-approved cost recovery mechanism. 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). Recently Issued Pronouncements – In June 2018, the FASB issued Accounting Standards Update (ASU) No. 2018-07, “Compensation – Stock Compensation (Topic 718) which amends the existing guidance relating to the accounting for nonemployee share-based payments. Under this ASU, most of the guidance on share-based payments to nonemployees will be aligned with the requirements for share-based payments granted to employees. The ASU is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company adopted this ASU in the second quarter of 2018 and it did not have a material impact on the Company’s Consolidated Financial Statements. In March 2017, the FASB issued ASU No. 2017-07, “Compensation – Retirement Benefits (Topic 715) which amends the existing guidance relating to the presentation of net periodic pension cost and net periodic other post-retirement benefit costs. On a retrospective basis, the amendment requires an employer to separate the service cost component from the other components of net benefit cost and provides explicit guidance on how to present the service cost component and other components in the income statement. In addition, on a prospective basis, the ASU limits the component of net benefit cost eligible to be capitalized to service costs. The ASU became effective for the Company on January 1, 2018. The change in capitalization of retirement benefits did not have a material impact on the Company’s Consolidated Financial Statements. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which amends existing revenue recognition guidance, effective January 1, 2018. The objective of the new standard is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across entities, industries, jurisdictions, and capital markets and to provide more useful information to users of financial statements through improved and expanded disclosure requirements. The majority of the Company’s revenue, including energy provided to customers, is from tariff offerings that provide natural gas or electricity without a defined contractual term. For such arrangements, the Company generally expects that the revenue from contracts with these customers will continue to be equivalent to the electricity or natural gas supplied and billed in that period (including unbilled revenues) and the adoption of the new guidance will not result in a significant shift in the timing of revenue recognition for such sales. The Company used the modified retrospective method when adopting the new standard on January 1, 2018. The new guidance did not have a material impact to the Consolidated Financial Statements. (See “Utility Revenue Recognition” and “Other Operating Revenue – Non-regulated” above.) In February 2016, the FASB issued ASU 2016-02, Leases, Topic 842, which amends the existing guidance relating to the definition of a lease, recognition of lease assets and lease liabilities on the balance sheet, and the disclosure of key information about leasing arrangements. In November 2017, the FASB tentatively decided to amend the new leasing guidance such that entities may elect not to restate their comparative periods in the period of adoption. Under the new standard, all lessees must recognize an asset and liability on the balance sheet. Operating leases were previously not recognized on the balance sheet. The ASU will be effective for the Company on January 1, 2019, with early adoption permitted. The Company plans to adopt this guidance in the first quarter of 2019. The Company expects this ASU to increase lease assets and lease liabilities on the Consolidated Balance Sheets and does not expect the guidance will have a material impact on the Consolidated Statements of Income, Statements of Cash Flows and lease disclosures. In January 2016, the FASB issued Accounting Standards Update (ASU) 2016-01 which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. A financial instrument is defined as cash, evidence of ownership interest in a company or other entity, or a contract that both: (i) imposes on one entity a contractual obligation either to deliver cash or another financial instrument to a second entity or to exchange other financial instruments on potentially unfavorable terms with the second entity and (ii) conveys to that second entity a contractual right either to receive cash or another financial instruments from the first entity or to exchange other financial instruments on potentially favorable terms with the first entity. The ASU became effective for the Company on January 1, 2018 and it did not have a material impact on the Company’s Consolidated Financial Statements. Other than the pronouncements discussed above, there are no recently issued pronouncements that the Company has not already adopted or that have a material impact on the Company. 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, other than entering into its Second Amended and Restated Credit Agreement and related documents, as discussed below, that would result in adjustment to or disclosure in its unaudited consolidated financial statements. On July 25, 2018, the Company entered into a Second Amended and Restated Credit Agreement with Bank of America, N.A. and the other lenders that are parties thereto (the “Second Amended Credit Facility”) and related documents. The Second Amended Credit Facility amends and restates the Amended and Restated Credit Agreement among Bank of America, N.A. and the other lenders that are parties thereto (the “Credit Facility”). The Second Amended Credit Facility maintains the current borrowing limit of $120 million under the Credit Facility. The other terms and conditions of the Second Amended Credit Facility, including affirmative and negative covenants, are generally substantially similar to those of the Credit Facility except that, among other things, (i) the Company may borrow under the Second Amended Credit Facility until July 25, 2023, subject to two one-year extensions under certain circumstances, (ii) the Company may increase the borrowing limit under the Second Amended Credit Facility by up to $50 million under certain circumstances and (iii) the Second Amended Credit Facility decreases the Applicable Margin (as defined in the Second Amended Credit Facility) from 1.25% to 1.125%.

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- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 + Details
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