SECURITIES AND EXCHANGE COMMISSION

(Release No. 35-27691; 70-10120)

Unitil Corporation, et al.

Order Authorizing Short-Term Borrowings and System Money Pool; Reservation of Jurisdiction

June 30, 2003

Unitil Corporation ("Unitil"), Hampton, New Hampshire, a registered holding company under the Act, and its wholly owned subsidiary companies, Fitchburg Gas and Electric Light Company ("Fitchburg"), Unitil Energy Systems, Inc. ("Unitil Energy"), Unitil Power Corp., Unitil Realty Corp., Unitil Resources, Inc. and Unitil Service Corp. ("Unitil Service") (the "Subsidiaries" or "Money Pool Participants" and together with Unitil the "Applicants"), have filed with the Securities and Exchange Commission ("Commission") an application-declaration, as amended ("Application") under sections 6(a), 7, 9(a), 10 and 12(b) of the Public Utility Holding Act of 1935, as amended, ("Act") and rules 43 and 45 under the Act. The Commission issued a notice of the filing of the Application on May 16, 2003 (HCAR No. 27679).

Introduction

By order dated June 9, 2000 (HCAR No. 27182), Applicants were authorized (1) to make unsecured short-term borrowings in the amount of $45 million for Unitil and $30 million for Fitchburg, and (2) to operate a system money pool ("Money Pool") through June 30, 2003.¹ The Applicants now request authority to make additional short-term borrowings and extend the operation of the Money Pool through June 30, 2006 ("Authorization Period").

Unitil requests authorization for short-term borrowing on a revolving basis from certain banks up to an aggregate amount of $55 million from time to time through the Authorization Period. Fitchburg requests authorization for short-term borrowings from the Money Pool, and direct borrowings from commercial banks, in an aggregate principal amount at any one time outstanding not to exceed $35 million from time to time through the Authorization Period. Applicants request authorization for the continued operation of the Money Pool by Unitil and the Money Pool Participants, in accordance with the Cash Pooling and Loan Agreement ("Pooling Agreement") among Unitil and the Money Pool Participants dated as of February 1, 1985, as amended.

Bank Borrowing by Unitil

Unitil asserts that an increase to its borrowing authority is beneficial because it will allow the company to respond to increased working capital requirements as a result of commodity volatility and restructuring charges, as well as necessary facility system improvements and growth. Unitil seeks to extend the authorization through the Authorization Period for its short-term bank borrowing arrangements and increase its short-term borrowing limit to $55 million, as described herein.

As of March 2003 Unitil had three unsecured lines of credit: a $21 million unsecured line of credit from Fleet National Bank, an $11 unsecured line of credit from Sovereign Bank, and a $13 million unsecured line of credit from Citizens Bank.

Unitil's existing and proposed borrowing arrangements will provide for borrowings at (1) "Base" or "Prime" rates, which are the interest rates designated by banks for general commercial lending reference purposes, it being understood that these rates are reference rates, not necessarily the lowest, established from time to time, that serve as the basis upon which effective rates of interest are calculated for loans making reference thereto, or (2) "Money Market" rates, normally lower rates with more favorable terms and conditions than banks' Base rates, and varying depending on a number of factors including the availability of bank funds, the bank's internal cost of funding, the creditworthiness of the borrower, the term of the loan, the size of the loan and the degree of competition among banks in a market. Under its short-term bank borrowing facilities, Unitil borrows at Money Market rates when those rates are available and more favorable than Base rates. Any borrowings at Money Market rates do not and will not exceed the Base rate for unsecured loans by the same bank.

Unitil proposes to issue short-term notes under both formal and informal lines of credit with lending institutions. Short-term unsecured promissory notes will be issued by Unitil to a particular lending institution prior to the first borrowing under that promissory note. Borrowings will be evidenced on a "grid" schedule, in the form attached to each promissory note and will be recorded the day that the request for borrowing is made. The bank holding the respective promissory notes will maintain the record of borrowings and repayments without the necessity of issuing additional notes. Unitil anticipates that the promissory notes used may vary to reflect customary terms or particular lending practices and policies of different lending institutions, but otherwise will be substantially similar.

Unitil's present and proposed short-term borrowing arrangements provide, and will provide, for borrowings at any of the rates described above and may be subject to prepayment at the borrower's option. The borrowing rate will change as the Base rate changes. Short-term notes may provide informal borrowings at sub-prime rate or Money Market rate which may be made available under each credit line arrangement. Money Market Rates are fixed rates. Under Unitil's current short-term borrowing arrangements, Money Market rate borrowings are not subject to prepayment. Money Market rate borrowings under the proposed facilities may or may not be subject to prepayment.

Borrowings under the proposed credit agreements will not exceed the shorter of the term of the particular line of credit or nine months. Short-term notes issued on a transactional basis will be dated as of the date of issue, will have a maximum term of nine months and will bear interest at the Base or Money Market rate, described above.

Unitil requests authority to obtain both formal and informal credit lines with a number of lending institutions. Formal credit lines under the proposed facilities may be subject to compensating balances and/or fee requirements. Compensating balance requirements will not exceed 5% of the committed credit line amount, and fees will not exceed 50 basis points times the total line of credit. Unitil may change its credit line arrangements and obtain additional formal or informal credit lines over time. The continued availability of these credit lines would be subject to the continued review of the lending institutions. In the future, Unitil may choose to formalize its banking relationship with its banks through a syndicated credit facility. A syndicated credit facility would allow Unitil to receive the administrative and economic efficiencies of coordinated banking relationships. The duration of any such facility would not exceed 365 days.

Unitil requests authority to renew and extend current short-term borrowings under the existing and proposed facilities as such borrowings mature and/or obtain credit lines with other lending institutions under similar conditions, to refund those short-term borrowings with other, similar short-term borrowings, to repay those short-term borrowings or to increase their amount from time to time up to an aggregate amount of $55 million.

Unitil expects to use the proceeds from the short-term borrowings authorized by this order for (1) loans or advances to subsidiaries through the money pool; (2) payment of outstanding indebtedness; (3) short-term cash needs that may arise due to payment timing differences; and (4) other general corporate purposes.

Short-Term Borrowing by Fitchburg

Fitchburg requests that it be authorized to incur short-term borrowings from the Money Pool and direct borrowings from commercial banks, in an aggregate principal amount at any one time outstanding not to exceed $35 million, and to increase the amount it is authorized to have outstanding at any time under such arrangements to $35 million.

Applicants state that it is anticipated that most short-term borrowings by Fitchburg will be made under the Pooling Agreement. However, Fitchburg seeks authorization for short-term borrowings up to $35 million through direct borrowings from commercial banks as well as through the Pooling Agreement. Fitchburg will use the proceeds from its short-term borrowing primarily to meet working capital requirements and provide interim financing for its utility construction expenditures. In addition to construction and other physical improvements, the funds will be used for permitted debt and preferred stock sinking fund redemptions.

Any of the proposed short-term borrowings by Fitchburg from commercial banks would be under terms and conditions similar to those of the borrowing arrangements between Unitil and its commercial bank lenders, described above.

Fitchburg requests authority to obtain both formal and informal credit lines with a number of lending institutions. Formal credit lines may be subject to compensating balances and/or fee requirements. Compensating balance requirements will not exceed 5% of the committed credit line amount, and fees will not exceed 50 basis points times the total line of credit. Fitchburg may change its credit line arrangements and obtain additional formal or informal credit lines over time.

System Money Pool

Applicants request authorization, through the Authorization Period, for (1) the continued operation of the system Money Pool, in accordance with the Pooling Agreement, (2) the other Applicants to make loans to Fitchburg through the Money Pool in an amount not to exceed $35 million, and (3) Fitchburg to make loans to the other Money Pool Participants and incur borrowings from Unitil and the other Money Pool Participants.

Under the Pooling Agreement, Unitil and the Subsidiaries invest their surplus funds, and the Money Pool Participants obtain advances (i.e., borrow funds) from the Money Pool. Unitil Service administers the Money Pool for Unitil and the Money Pool Participants on an "at cost basis." Applicants state that this arrangement is used to: (1) provide the Money Pool Participants with funds supplied internally by Unitil and the Money Pool Participants (i.e., surplus funds) and from external sources (i.e., bank borrowings), as described below; and (2) invest surplus funds of Unitil and the Money Pool Participants in various short-term money market instruments. Any issuance of debt securities under the Money Pool will have a maximum term of nine months.

Applicants state that the Money Pool offers several advantages to Unitil and the Money Pool Participants, including: lower overall short-term borrowing costs, a mechanism for each Money Pool Participant to earn a higher return on interest from surplus funds, and a decreased reliance on external funding sources. Lower borrowing costs result from the elimination of the additional banking fees that would be required if each Money Pool Participant had to maintain its own lines of credit and borrow on its own, and from reduction in the short-term cost of money when Unitil borrows, in the aggregate, on behalf of the Money Pool Participants, as opposed to each Money Pool Participant borrowing on its own. In addition, the Money Pool provides a mechanism for each Money Pool Participant to earn short-term interest on surplus funds that are loaned to other Money Pool Participants, at a rate normally charged by Unitil's lead bank instead of at the prevailing short-term investment rate. In addition to commercial paper, the Money Pool may invest surplus funds in various institutional money market funds (as defined by the Investment Company Act of 1940) or comparable interest bearing instruments that seek to obtain a high level of current income while preserving principal and liquidity. Overall, the Money Pool arrangement allows Unitil and the Money Pool Participants to effectively maximize the use of internally generated funds and, thereby, decrease their reliance on external funding sources.

Conditions

The authorization granted (other than for the continued operation of the Money Pool) shall be conditioned on Unitil, Unitil Energy and Fitchburg maintaining a common equity level (as reflected in the most recent 10-K or 10-Q filed with the Commission under the Securities Exchange Act of 1934, as amended ("1934 Act"), adjusted to reflect changes in capitalization since the balance sheet date therein) of at least 30% of its consolidated capitalization (comprising common equity, preferred stock, long-term and short-term debt) during the Authorization Period.

No securities, apart from securities issued for the purpose of funding Money Pool operation may be issued in reliance upon this order >unless: (1) the debt security to be issued, if rated, is rated investment grade by at least one nationally recognized statistical rating organization as that term is used in paragraphs (c)(2)(vi)(E), (F) and (H) of Rule 15c3-1 under the 1934 Act ("NRSRO"); (2) all outstanding securities of the issuer that are rated are rated investment grade by at least one NRSRO; and (3) all outstanding securities of Unitil that are rated are rated investment grade by at least one NRSRO ("Investment Grade Ratings Conditions").² Applicants request Commission to reserve jurisdiction over the issuance of securities subject to the Investment Grade Ratings Conditions where one or more of the Investment Grade Ratings Conditions are not met.

Conclusion

Neither Unitil nor any of its Subsidiaries presently has, or as a consequence of the proposed transactions will have, an interest in any exempt wholesale generator ("EWG") or foreign utility company ("FUCO"), as those terms are defined in Sections 32 and 33 of the Act, respectively. None of the proceeds from the proposed transactions will be used to acquire any securities of, or any interest in, an EWG or FUCO. Consequently, all applicable requirements of Rule 53(a)-(c) under the Act are satisfied as required by Rule 54 under the Act.

Fees and expenses in the estimated amount of $9,000 are expected to be incurred in connection with the proposed transactions. Applicants state that the Massachusetts Department of Telecommunications and Energy has approved Fitchburg's participation in the Money Pool, while the New Hampshire Public Utilities Commission has approved the participation in the Money Pool of Unitil, Unitil Energy and Unitil Power. Applicants state that besides those approvals no state or federal commission, other than this Commission, has jurisdiction over the proposed transactions.

Due notice of the filing of the Application has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. On the basis of the facts in the record, it is found that, except as to matters as to which jurisdiction is reserved, the applicable standards of the Act and rules under the Act are satisfied, and no adverse findings are necessary.

IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that, except as to matters as to which jurisdiction has been reserved, the Application, as amended, be, and hereby is, granted and permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.

IT IS FURTHER ORDERED that the Applicants will continue to file certificates under rule 24 with the Commission on a quarterly basis within 30 days after the end of each calendar quarter that will contain the following information:

1. the maximum principal amount of short-term borrowings outstanding;

2. the average interest rate for the Money Pool borrowings for the period;

3. the maximum amount outstanding during the period for each source of outside borrowings; and

4. the common equity capital as a percentage of total capitalization (composed of common equity, preferred stock, long-term and short-term debt) for each of Unitil (on a consolidated basis), Fitchburg and Unitil Energy.

IT IS FURTHER ORDERED that jurisdiction is reserved, pending completion of the record, over Applicants' issuance of any securities subject to the Investment Grade Ratings Conditions when one or more of the Investment Grade Ratings Conditions are not met.

For the Commission, by the Division of Investment Management, pursuant to delegated authority.

¹ In accordance with the Commission's order of December 2, 2002 (HCAR No. 35-27609), Unitil's two New Hampshire utilities, Concord Electric Company and Exeter & Hampton Electric Company, merged to form Unitil Energy. Unitil Energy is a participant in the Money Pool.

² Applicants note that none of the outstanding debt securities of Unitil, Fitchburg or Unitil Energy have been issued in a public offering and none are currently rated by an NRSRO.

http://www.sec.gov/divisions/investment/opur/filing/35-27691.htm