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.

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 twelve months ended December 31, 2019. 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.

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.


	Twelve Months Ended December 31, 2019
Gas and Electric Operating Revenues (millions):	Gas			Electric			Total
Billed and Unbilled Revenue:
Residential	$	81.4		$	121.5		$	202.9
Commercial & Industrial		120.1			93.8			213.9
Other		10.6			7.8			18.4

Total Billed and Unbilled Revenue		212.1			223.1			435.2
Rate Adjustment Mechanism Revenue		(8.7	)		10.8			2.1
Total Gas and Electric Operating Revenues	$	203.4		$	233.9		$	437.3


	Twelve Months Ended December 31, 2018
Gas and Electric Operating Revenues (millions):	Gas			Electric			Total
Billed and Unbilled Revenue:
Residential	$	81.4		$	123.6		$	205.0
Commercial & Industrial		119.7			96.4			216.1
Other		9.6			8.7			18.3

Total Billed and Unbilled Revenue		210.7			228.7			439.4

Rate Adjustment Mechanism Revenue		5.4			(5.4	)		—

Total Gas and Electric Operating Revenues	$	216.1		$	223.3		$	439.4


	Twelve Months Ended December 31, 2017
Gas and Electric Operating Revenues (millions):	Gas		Electric		Total
Billed and Unbilled Revenue:
Residential	$	71.2	$	107.9	$	179.1
Commercial & Industrial		102.8		87.7		190.5
Other		13.5		6.0		19.5

Total Billed and Unbilled Revenue		187.5		201.6		389.1
Rate Adjustment Mechanism Revenue		6.5		4.6		11.1

Total Gas and Electric Operating Revenues	$	194.0	$	206.2	$	400.2

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 the current portion of 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 Massachusetts Department of Public Utilities (MDPU). The Company estimates that revenue decoupling applies to approximately

% and 11

% of Unitil’s total annual electric and natural gas sales volumes, respectively.

Other Operating Revenue—Non-regulated—

Other Operating Revenue consists solely of revenue from Usource, Unitil’s

non-regulated

subsidiary, which, as discussed previously, the Company divested of on March 1, 2019. Usource conducted its business activities as a broker of competitive energy services. Usource did not take title to the electric and gas commodities which were the subject of the brokerage contracts. The Company recorded energy brokering revenues based upon the amount of electricity and gas delivered to customers through the end of the accounting period. Usource partnered with certain entities to facilitate these brokerage services and paid 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 were 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 were included as “Operation and Maintenance” in the “Operating Expenses” section of the Consolidated Statements of Earnings. Those Channel Partner payments were $0.2 million, $1.0 million and $1.1 million in 2019

, 2018

and 2017

, respectively.

If ASU

2014-09

had been in effect for 2017

, the result would have been corresponding reductions of $1.1 million in both “Other” 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.


Other Operating Revenues ($ millions):	Twelve Months Ended December 31
	As Reported						If ASU 2014-09 Had Been in Effect
	2019			2018			2017
Usource Contract Revenue	$	1.1		$	5.7		$	6.0
Less: Revenue Sharing Payments		(0.2	)		(1.0	)		(1.1	)

Total Other Operating Revenues	$	0.9		$	4.7		$	4.9


Operation and Maintenance Expense ($ millions):	Twelve Months Ended December 31
	As Reported				If ASU 2014-09 Had Been in Effect
	2019		2018		2017
Operation and Maintenance Expense	$	67.2	$	69.5	$	63.4

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). The net periodic benefit costs associated with these benefit plans consist of service cost and other components (See Note 10

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-K

for the twelve months ended December 31

, 2019

, 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

(

Income

)

Expense

et” 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 the twelve months ended December 31

, 2019

resulted in a reduction of “Operations and Maintenance” and an increase in “Other

(Income)

Expense

et” on the Consolidated Statements of Earnings for 2017

. There are $4.6 million, $5.5 million and $5.7 million of

non-service

cost net periodic benefit costs reported in “Other

(Income)

Expense,

et” for the twelve months ended December 31

, 2019

, 2018

and 2017

, respectively, net of amounts deferred as regulatory assets for future recovery.

Depreciation and Amortization

—Depreciation expense is calculated on a group straight-line basis based on the useful lives of assets, and judgment is involved when estimating the useful lives of certain assets. The Company conducts independent depreciation studies on a periodic basis as part of the regulatory ratemaking process and considers the results presented in these studies in determining the useful lives of the Company’s fixed assets. A change in the estimated useful lives of these assets could have a material impact on the Company’s consolidated financial statements. Provisions for depreciation were equivalent to the following composite rates, based on the average

depreciable property balances at the beginning and end of each year: 2019

– 3.41%, 2018

– 3.38% and 2017

– 3.45%.

Stock-based Employee Compensation

—Unitil accounts for stock-based employee compensation using the fair value-based method (See Note 6)

Sales and Consumption Taxes

—The Company bills its customers sales tax in Massachusetts and Maine and consumption tax in New Hampshire. These taxes are remitted to the appropriate departments of revenue in each state and are excluded from revenues on the Company’s Consolidated Statements of Earnings. The consumption tax in New Hampshire has been repealed effective January 1

, 2019

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 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.

Dividends

—The Company’s dividend policy is reviewed periodically by the Board of Directors. The amount and timing of all dividend payments is subject to the discretion of the Board of Directors and will

depend upon business conditions, results of operations, financial conditions and other factors. For the year

ended December 31

, 2019

the Company paid quarterly dividends of $0.37 per share, resulting in an annualized dividend rate of $1.48 per common share. For the years ended December 31

, 2018

and 2017

, the Company paid quarterly dividends of $0.365 and $0.36 per common share, respectively, resulting in annualized dividend rates of $1.46 and $1.44 per common share, respectively. At its January 2020

meeting, the Unitil Corporation Board of Directors declared a quarterly dividend on the Company’s common stock of $0.375 per share, an increase of $0.005 per share on a quarterly basis, resulting in an increase in the effective annualized dividend rate to $1.50 per share from $1.48 per share.

Cash and Cash Equivalents

—Cash and Cash Equivalents includes 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. On December 31

, 2019

and 2018

, the Unitil subsidiaries had deposited $1.9 million and $3.5 million, respectively to satisfy their

ISO-NE

obligations.

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. 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.

In June 2016, the FASB issued ASU

2016-13,

“Financial Instruments—Credit Losses (Topic 326),” which provides a new model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses. Under the new guidance, immediate recognition of all credit losses expected over the life of a financial instrument is required. The standard is effective January 1, 2020 and requires a modified retrospective method through a cumulative effect adjustment to retained earnings. The Company adopted this standard on the accounting for credit losses on its financial instruments, including accounts receivable, on January 1, 2020, and it did not have a material impact on the financial statements.

Accrued Revenue—

Accrued Revenue includes the current portion of Regulatory Assets (see “Regulatory Accounting” below) and unbilled revenues (see “Utility Revenue Recognition” above.) The following table shows the components of Accrued Revenue as of December 31, 2019 and 2018


Accrued Revenue (millions)	December 31,
Accrued Revenue (millions)	2019		2018
Regulatory Assets—Current	$	35.8	$	41.3
Unbilled Revenues		14.2		13.4

Total Accrued Revenue	$	50.0	$	54.7

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 December

201

and

2018


Exchange Gas Receivable (millions)	December 31,
Exchange Gas Receivable (millions)	201 9		201 8
Northern Utilities	$	5.5	$	7.5
Fitchburg		0.6		0.6
Total Exchange Gas Receivable	$	6.1	$	8.1

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 December 31, 2019 and 2018.


Gas Inventory (millions)	December 31,
Gas Inventory (millions)	201 9		201 8
Natural Gas	$	0.4	$	0.3
Propane		0.3		0.4
Liquefied Natural Gas & Other		0.1		0.1

Total Gas Inventory	$	0.8	$	0.8

The Company also has an inventory of Materials and Supplies in the amounts of $7.9 million and $7.0 million as of December 31, 2019 and December 31, 2018, respectively. These amounts are recorded at weighted average cost.

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 average interest rates applied to AFUDC were 3.90%, 2.70% and 2.90% in

2019

2018

and

2017

, respectively. 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 December 31

2019

and

2018

, the Company estimates that the cost of removal amounts, which are recorded on the Consolidated Balance Sheets in Cost of Removal Obligations are $96.0 million and $90.7 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 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.


Regulatory Assets consist of the following (millions)	December 31 ,
Regulatory Assets consist of the following (millions)	2019		2018
Retirement Benefits	$	88.9	$	72.0
Energy Supply & Other Rate Adjustment Mechanisms		31.0		38.4
Deferred Storm Charges		5.6		6.3
Environmental		7.2		7.9
Income Taxes		4.2		5.7
Other Deferred Charges		10.9		10.0

Total Regulatory Assets		147.8		140.3
Less: Current Portion of Regulatory Assets (1)		35.8		41.3

Regulatory Assets—noncurrent	$	112.0	$	99.0

(1)

Reflects amounts included in the Accrued Revenue on the Company’s Consolidated Balance Sheets.


Regulatory Liabilities consist of the following (millions)	December 31,
Regulatory Liabilities consist of the following (millions)	2019		2018
Rate Adjustment Mechanisms	$	6.0	$	11.5
Income Taxes (Note 9)		47.6		47.0
Other		0.4		—

Total Regulatory Liabilities		54.0		58.5
Less: Current Portion of Regulatory Liabilities		7.4		11.5

Regulatory Liabilities—noncurrent	$	46.6	$	47.0

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 December 31, 2019 are $

7.6

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.

Leases—

On January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)”. The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms

longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carryforward the historical lease classification. The Company also elected the practical expedient related to land easements, allowing the Company to carry forward its current accounting treatment for land easements on existing agreements. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. The Company recognizes those lease payments in the Consolidated Statements of Earnings on a straight-line basis over the lease term. The adoption of the standard resulted in recognition of approximately $

4.2

million of lease assets and lease liabilities as of January 1, 2019 on the Company’s Consolidated Balance Sheets. The Company’s adoption of the standard did not have a material effect on its Consolidated Statements of Earnings and Consolidated Statements of Cash Flows. See additional discussion below in the “Leases” section of Note 5 to the Consolidated Financial Statements.

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 its energy supply contracts either do not qualify as a derivative instrument under the guidance set forth in the FASB Codification, have been elected as a normal purchase, or have contingencies that have not yet been met in order to establish a notional amount.

The Company previously operated a regulatory approved hedging program for Northern Utilities designed to fix or cap a portion of its gas supply costs for the coming years of service, which included use of derivative instruments. The hedging program was terminated in 2018

Under the hedging program previously operated by Northern Utilities, any gains or losses resulting from the change in the fair value of these derivatives were passed through to ratepayers directly through Northern Utilities’ Cost of Gas Clause. The fair value of these derivatives was 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 recorded gains and losses resulting from the change in fair value of the derivatives as regulatory liabilities or assets, then reclassified these gains or losses into Cost of Gas Sales when the gains and losses were passed through to customers through the Cost of Gas Clause.

The Company had no derivative assets or liabilities recorded on its Consolidated Balance Sheets as of December 31

2019

and December 31

2018

. There

were no

losses / (gains) recognized in Regulatory Assets / Liabilities for the years ended December 31

2019

and

2018

. There were no losses / (gains) reclassified into the Consolidated Statements of Earnings for the years ended December 31

2019

and

2018

As discussed below in the “Fitchburg

–

Massachusetts RFP’s” section of Note 8 (Commitments and Contingencies), Fitchburg has entered into power purchase agreements for which contingencies exist. Until these contingencies are satisfied, these contracts will not qualify for derivative accounting. The Company believes that the power purchase obligations under these long-term contracts will have a material impact on the contractual obligations and regulatory assets of Fitchburg, once they qualify for derivative accounting.

Investments in Marketable Securities

—The Company maintains a trust through which it invests in a money market fund. This fund is intended to satisfy obligations under the Company’s SERP (See further discussion of the SERP in Note 10)

At December 31, 2019 and 2018, the fair value of the Company’s investments in these trading securities, which are recorded on the Consolidated Balance Sheets in Other Assets, were $5.6 million and $4.8 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 (Income) Expense, Net.


Fair Value of Marketable Securities (millions)	December 31,
	2019		2018
Money Market Funds	$	5.6	$	4.8

Total Marketable Securities	$	5.6	$	4.8

The Company also sponsors the Unitil Corporation Deferred Compensation Plan (the “DC Plan”). The DC Plan is a

non-qualified

deferred compensation plan that provides a vehicle for participants to accumulate

tax-deferred

savings to supplement retirement income. The DC Plan, which was effective January 1

, 2019

, is open to senior management or other highly compensated employees as determined by the Company’s Board of Directors, and may also be used for recruitment and retention purposes for newly hired senior executives. The DC Plan design mirrors the Company’s Tax Deferred Savings and Investment Plan formula, but provides for contributions on compensation above the IRS limit, which will allow participants to defer up to 85

% of base salary, and up to 85

% of any cash incentive for retirement. The Company may also elect to make discretionary contributions on behalf of any participant in an amount determined by the Company’s Board of Directors. A trust has been established to invest the funds associated with the DC Plan.

At December 31

, 2019

and 2018

, the

fair value of the Company’s investments in these trading securities related to the DC Plan, which are recorded on the Consolidated Balance Sheets in Other Assets,

were $0.2

million and $0

, 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 (Income) Expense, Net.


Fair Value of Marketable Securities (millions)	December 31 ,
	2019		2018
Equity Funds	$	0.1	$	—
Money Market Funds		0.1		—

Total Marketable Securities	$	0.2	$	—

Energy Supply Obligations

—The following discussion and table summarize the nature and amounts of the items recorded as Energy Supply Obligations (current portion) and Other Noncurrent Liabilities (noncurrent portion) on the Company’s Consolidated Balance Sheets.


	December 31,
Energy Supply Obligations consist of the following: (millions)	2019		2018
Current:
Exchange Gas Obligation	$	5.5	$	7.5
Renewable Energy Portfolio Standards		4.7		5.6
Power Supply Contract Divestitures		0.3		0.3

Total Energy Supply Obligations—Current		10.5		13.4

Noncurrent:
Power Supply Contract Divestitures		0.3		0.6

Total Energy Supply Obligations	$	10.8	$	14.0

Exchange Gas Obligation—

As discussed above, 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 defer costs for RPS compliance which

are recorded in the 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 the purchase of clean energy and/or

RECs pursuant to Massachusetts legislation, specifically, An Act Relative to Green Communities (“Green Communities Act”, 2008), An Act Relative to Competitively Priced Electricity in the Commonwealth (2012) and An Act to Promote Energy Diversity (“Energy Diversity Act”, 2016). The generating facilities associated with four of these contracts have been constructed and are now operating. Since 2017, the Company has participated in two major statewide procurements which resulted in contracts for imported hydroelectric power and associated transmission and for offshore wind generation. The contracts were approved by the MDPU in the second quarter of 2019.

Additional long-term clean energy contracts are expected in compliance with the Energy Diversity Act and An Act to Promote a Clean Energy Future (2018)

. 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—

Unitil Energy’s and Fitchburg’s customers are entitled 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. As of December 31, 2019, Fitchburg has fully-recovered its power supply-related stranded costs and Unitil Energy $0.6 million remaining to recover. The obligations related to these divestitures are recorded in Energy Supply Obligations (current portion) and Other Noncurrent Liabilities (noncurrent portion) on the Company’s Consolidated Balance Sheets with corresponding regulatory assets recorded in Accrued Revenue (current portion) and Regulatory Assets (noncurrent portion).

Retirement Benefit Obligations

—The Company sponsors the Pension Plan, which is a defined benefit pension plan. Effective January 1, 2010, the Pension Plan was closed to new

non-union

employees. For union employees, the Pension Plan was closed on various dates between December 31, 2010 and June 1, 2013, depending on the various Collective Bargaining Agreements of each union. The Company also sponsors a

non-qualified

retirement plan, the SERP, covering certain executives of the Company, and an employee 401(k) savings plan. Additionally, the Company sponsors the PBOP Plan, primarily to provide health care and life insurance benefits to retired employees.

The Company records on its balance sheets as an asset or liability the overfunded or underfunded status of its retirement benefit obligations (RBO) based on the projected benefit obligations. The Company has recognized a corresponding Regulatory Asset, to recognize the future collection of these obligations in electric and gas rates (See Note 10).

Off-Balance Sheet Arrangements

—As of December 31

, 2019

, the Company does not have any significant arrangements that would be classified as

Off-Balance

Sheet Arrangements.

Commitments and Contingencies

—The Company’s accounting policy is to record and/or disclose commitments and contingencies in accordance with the FASB Codification as it applies to an existing condition, situation, or set of circumstances involving uncertainty as to possible loss that will ultimately be resolved when one or more future events occur or fail to occur. As of December 31

, 2019

, the Company is not aware of any material commitments or contingencies other than those disclosed in the Commitments and Contingencies footnote to the Company’s consolidated financial statements below (See Note 8)

Environmental Matters

—The Company’s past and present operations include activities that are generally subject to extensive federal and state environmental laws and regulations. The Company has recovered or will recover substantially all of the costs of the environmental remediation work performed to date from customers or from its insurance carriers. The Company believes it is in compliance with all applicable environmental and safety laws and regulations, and the Company believes that as of December 31

, 2019

, there are no material losses that would require additional liability reserves to be recorded other than those disclosed in Note 8

, Commitments and Contingencies. Changes in future environmental compliance regulations or in future cost estimates of environmental remediation costs could have a material effect on the Company’s financial position if those amounts are not recoverable in regulatory rate mechanisms.

Recently Issued Pronouncements –

In December 2019, the FASB issued ASU No.

2019-12,

“Income Taxes (Topic 740)” which amends the existing guidance relating to the accounting for income taxes. This ASU is intended to simplify the accounting for income taxes by removing certain exceptions to the general principles of accounting for income taxes and to improve the consistent application of GAAP for other areas of accounting for income taxes by clarifying and amending existing guidance. The ASU is effective for fiscal years beginning after December 15, 2020. The Company does not expect that the adoption of this new guidance will have a material impact on the Company’s Consolidated Financial Statements.

In February 2016, the FASB issued ASU No.

2016-02,

“Leases (Topic 842)”. The new standard requires lessees to record assets and liabilities on the balance sheet for all leases with terms longer than 12 months. The Company adopted the standard as of January 1, 2019. See “Leases” above in Note 1.

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 evaluates all events or transactions through the date of the related filing. During the period through the date of this filing, the Company did not have any material subsequent events that would result in adjustment to or disclosure in its Consolidated Financial Statements.