OVERVIEW

Unitil is a public utility holding company headquartered in Hampton, New Hampshire. Unitil is subject to regulation as a holding company system by the FERC under the Energy Policy Act of 2005. On December 1, 2008, the Company purchased: (i) all of the outstanding capital stock of Northern Utilities, a natural gas distribution utility serving customers in New Hampshire and Maine, from Bay State and (ii) all of the outstanding capital stock of Granite State, an interstate gas transmission pipeline company primarily serving the needs of Northern Utilities, from NiSource.

Unitil's principal business is the local distribution of electricity and natural gas throughout its service territory in the states of New Hampshire, Massachusetts and Maine. Unitil is the parent company of three wholly-owned distribution utilities:

i) Unitil Energy, which provides electric service in southeastern seacoast and state capital regions of New Hampshire;

ii) Fitchburg, which provides both electric and natural gas service in the greater Fitchburg area of north central Massachusetts; and

iii) Northern Utilities, which provides natural gas service in southeastern New Hampshire and portions of southern and central Maine, including the city of Portland and the Lewiston-Auburn area.

Unitil Energy, Fitchburg and Northern Utilities are collectively referred to as the "distribution utilities." Together, the distribution utilities serve approximately 100,300 electric customers and 69,300 natural gas customers in their service territory.

In addition, Unitil is the parent company of Granite State, a natural gas transmission pipeline, regulated by the FERC, operating 87 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 pipeline supplies.

The distribution utilities are local "pipes and wires" operating companies and, combined with Granite State, had an investment in Net Utility Plant of $422.8 million at December 31, 2008. Unitil's total revenue was $288.2 million in 2008, which includes revenue to recover the cost of purchased electricity and natural gas in rates on a fully reconciling basis. As a result of this reconciling rate structure, the Company's earnings are not affected by changes in the cost of purchased electricity and natural gas. Earnings applicable to common shareholders for 2008 were $9.6 million. Substantially all of Unitil's earnings are derived from the return on investment in the three distribution utilities and Granite.

Unitil also conducts non-regulated operations principally through Usource, which is wholly-owned by Unitil Resources. Usource provides energy brokering and consulting services to large commercial and industrial customers in the northeastern United States. Usource's total revenues were $3.8 million in 2008. The Company's other subsidiaries include Unitil Service, which provides, at cost, a variety of administrative and professional services to Unitil's affiliated companies, and Unitil Realty, which owns and manages Unitil's corporate office building and property located in Hampton, New Hampshire. Unitil's consolidated net income includes the earnings of the holding company and these subsidiaries.

CAUTIONARY STATEMENT

This report and the documents we incorporate by reference into this report contain statements that constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, included or incorporated by reference into this report, including, without limitation, statements regarding the financial position, business strategy and other plans and objectives for the Company's future operations, are forward-looking statements.

These statements include declarations regarding the Company's beliefs and current expectations. In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology. These forward-looking statements are subject to inherent risks and uncertainties in predicting future results and conditions that could cause the actual results to differ materially from those projected in these forward-looking statements. Some, but not all, of the risks and uncertainties include those described in Item 1A (Risk Factors) and the following:

• The Company's ability to complete the integration of the business, operations and personnel of Northern Utilities and Granite State and to achieve the estimated potential synergy savings attributable to the Acquisitions;

• The Company's ability to retain existing customers and gain new customers;

• Variations in weather;

• Major storms;

• Changes in the regulatory environment;

• Customers' preferences on energy sources;

• Interest rate fluctuation and credit market concerns;

• General economic conditions, including recent distress in the financial markets that has had an adverse impact on the availability of credit and liquidity resources generally and could jeopardize certain of our counterparty obligations, including those of our insurers and financial institutions;

• Fluctuations in supply, demand, transmission capacity and prices for energy commodities;

• Increased competition; and

• Customers' performance under multi-year energy brokering contracts.

Many of these risks are beyond the Company's control. Any forward-looking statements speak only as of the date of this report, and the Company undertakes no obligation to update any forward-looking statements to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for the Company to predict all of these factors, nor can the Company assess the impact of any such factor on its business or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements.

See also Item 1A Risk Factors.

RESULTS OF OPERATIONS

The following discussion of the Company's financial condition and results of operations should be read in conjunction with the accompanying Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in Item 8 of this report.

Net Income and EPS Overview

2008 Compared to 2007-The Company's Earnings Applicable to Common Shareholders was $9.6 million for 2008, an increase of 12% over 2007 Earnings of $8.6 million. Earnings per common share were $1.65 for 2008, $0.13 per share higher than last year.

Earnings in 2008 reflect the acquisitions, on December 1, 2008, of Northern Utilities and Granite State, which drove higher gas sales margins.

The following table presents the significant items (discussed below) contributing to the change in earnings per share in 2008 as compared to 2007:

                        2008 Earnings Per Share vs. 2007



                                                      2007    $1.52
               Electric Sales Margin                           (0.15 )
               Gas Sales Margin                                 0.72
               Usource Sales Margin                             0.01
               Operation and Maintenance Expense               (0.14 )
               Depreciation, Amortization and Other            (0.22 )
               Interest Expense, Net                           (0.09 )
                                                             - ----- -
                                                      2008   $  1.65
                                                             - ----- -

Electric sales margin decreased $1.4 million in 2008 compared to 2007. The decrease in electric sales margin primarily reflects lower sales volumes, partially offset by higher electric base rates implemented in March of 2008. Total electric kilowatt-hour (kWh) sales decreased 2.7% in 2008 compared to 2007 driven by lower average usage per customer reflecting milder summer temperatures, a slowing economy and energy conservation.

Natural gas sales margin increased $6.7 million in 2008 compared to 2007. This increase reflects $5.4 million of gas sales margin from Northern Utilities and Granite State and an additional increase of $1.3 million in gas sales margin reflecting higher rates implemented in November 2007 and higher sales to Commercial and Industrial (C&I) customers. Overall, natural gas sales increased 66.2% in 2008 compared to 2007. Excluding the contribution of the acquisition of Northern Utilities, total therm sales of natural gas increased 1.1% in 2008 compared to 2007.

Total Operation & Maintenance (O&M) expenses increased $1.3 million, or 5.0%, in 2008 compared to 2007. The acquisitions of Northern Utilities and Granite State accounted for $0.9 million of the increase. In addition, the increase in O&M expenses reflects higher employee and retiree compensation and benefit expenses of $2.7 million, including increased employee benefits of $1.4 million, driven primarily by higher medical claims in 2008 and higher employee benefits related to staffing increases, and higher salaries and compensation of $1.3 million, due to normal annual increases and staffing additions. Also contributing to the increase in O&M expenses were higher utility operating costs of $0.3 million and higher bad debt expenses of $0.3 million, partially offset by a reduction of $2.8 million from the proceeds of an insurance settlement and lower professional fees of $0.1 million.

Depreciation, Amortization, Taxes and Other expenses increased $2.2 million in 2008 compared to 2007. The acquisitions of Northern Utilities and Granite State accounted for $0.9 million of the increase. In addition, the increase in Depreciation, Amortization, Taxes and Other expenses reflects the amortization, in the first quarter of 2008, of $0.7 million of natural gas inventory carrying costs deferred under a previous regulatory ruling, higher depreciation on normal utility plant additions and higher property and payroll taxes. Partially offsetting these increases were lower amortization costs of $0.8 million.

Interest Expense, Net increased $0.9 million in 2008 compared to 2007. The acquisitions of Northern Utilities and Granite State accounted for $0.3 million of the increase. The increase associated with the acquisitions is due to $0.5 million of interest expense from the issuance of long-term notes by Northern Utilities and Granite State in December 2008, partially offset by interest income on regulatory mechanisms. In addition to the increase related to the acquisitions, the remaining $0.6 million increase in Interest Expense, Net reflects higher debt outstanding and lower interest earned on regulatory assets compared to the prior period.

Usource, our non-regulated energy brokering business, recorded revenues of $3.8 million in 2008, an increase of $0.1 million over 2007. Usource's revenues are primarily derived from fees and charges billed to suppliers as customers take delivery of energy from these suppliers under term contracts brokered by Usource.

On December 11, 2008 a severe ice storm hit the Northeast creating massive extended power outages for many residents of Massachusetts and New Hampshire, including Unitil's electric customers in New Hampshire and the greater Fitchburg, Massachusetts service area. Based on its preliminary assessment, the Company has accrued and deferred approximately $10 million in costs for the repair and replacement of electric distribution systems damaged during the storm. The amount and timing of the cost recovery of storm restoration expenditures will be determined in future regulatory proceedings.

In 2008, Unitil's annual common dividend was $1.38, representing an unbroken record of quarterly dividend payments since trading began in Unitil's common stock. At its January, 2009 meeting, the Unitil Board of Directors declared a quarterly dividend on the Company's common stock of $0.345 per share.

As a result of the acquisitions of Northern Utilities and Granite State on December 1, 2008, consolidated results for the Company in the current period may not be directly comparable to prior period results until such time as the acquisitions are fully reflected in both reporting periods. In particular, the Company expects that consolidated results of operations in future reporting periods will reflect to a greater degree the seasonal nature of natural gas sales by the acquired operating utilities. Accordingly, the Company expects that as a result of the acquisitions, consolidated results of operations will be positively affected during the first and fourth quarters, and negatively affected during the second and third quarters of future reporting years.

2007 Compared to 2006-The Company's Earnings Applicable to Common Shareholders was $8.6 million for 2007, an increase of 9% over 2006 Earnings of $7.9 million. Earnings per common share were $1.52 for 2007, $0.11 per share higher than 2006. Earnings in 2007 reflect higher electric and gas sales margins, driven by higher rates and increased sales of natural gas, and improved profits from Usource, Unitil's non-regulated energy-brokering business. Partially offsetting these factors were higher operating expenses.

A more detailed discussion of the Company's 2008 and 2007 results of operations and a year-to-year comparison of changes in financial position are presented below.

Subsequent Event

On December 15, 2008, the Company issued and sold 2,000,000 shares of its common stock at a price of $20.00 per share in a registered public offering. As part of this offering, the Company granted the underwriters a 30-day over-allotment option to purchase additional shares. The underwriters exercised the over-allotment option and purchased an additional 270,000 shares of the Company's common stock in January 2009. The Company's net increases to Common Equity and Cash from the over-allotment sales were approximately $5.1 million (after payment of the underwriting discount and offering expenses) and were used to repay a portion of the short-term indebtedness used for the Company's acquisitions of Northern Utilities and Granite State. The Company recorded the issuance of the 270,000 shares, the sale proceeds and the increase in Common Equity in January 2009.

Balance Sheet

The Company's Balance Sheet as of December 31, 2008 reflects the acquisitions of Northern Utilities and Granite State, which closed on December 1, 2008. Certain prior period balances have been reclassified to conform to current year presentation. Most significant has been the reclassification of certain balance sheet amounts between Regulatory Assets and Accrued Revenue and between current and noncurrent Energy Supply Contract Obligations.

The Company's Total Assets increased by $260.6 million in 2008 compared to 2007. The increase in Total Assets was driven by: an increase of $173.9 million in the Company's investment in Net Utility Plant, due to the acquisitions of Northern Utilities and Granite State and to capital expenditures related to Unitil Energy's and Fitchburg's electric and gas distribution systems; increases in Cash, Accounts Receivable, Accrued Revenue, Gas Inventory and other current assets of $77.4 million, primarily due to the acquisitions of Northern Utilities and Granite State; an increase in Other Noncurrent Assets of $9.6 million in 2008 compared to 2007, due to deferred amortizable charges for transition and transaction costs of $7.6 million associated with the acquisitions of Northern Utilities and Granite State, partially offset by a decrease in all other assets of $0.3 million.

The Company's Total Capitalization increased by $128.7 million in 2008 compared to 2007. This increase reflects an increase of $39.1 million in Common Equity, primarily due to the issuance of common shares by the Company as part of its financing of the acquisitions of Northern Utilities and Granite State (See Note 4 to the accompanying Consolidated Financial Statements), and an increase in Long-Term Debt of $89.7 million reflecting the issuance and sale of $80 million of Senior Unsecured Notes by Northern Utilities on December 3, 2008 and the issuance and sale of $10 million of Senior Unsecured Notes by Granite State on December 15, 2008, both through private placements to institutional investors (See Note 5 to the accompanying Consolidated Financial Statements).

The Company's Total Liabilities increased $131.9 million in 2008 compared to 2007 reflecting an increase in Current Liabilities and Non-Current Liabilities of $124.5 million and $9.7 million respectively, partially offset by a decrease in Deferred Income Taxes of $2.3 million. The increase in Current Liabilities was driven by an increase in Accounts Payable of $18.7 million, primarily due to the acquisitions of Northern Utilities and Granite State; an increase of $55.3 million in Short-Term Debt, including the $39.1 million remaining on the bank financing facility which was used to finance a portion of the acquisitions of Northern Utilities and Granite State, and increased borrowings for utility operating purposes; an increase of $22.0 million in Energy Supply Contract Obligations, primarily related to natural gas payment obligations associated with Northern Utilities; and an increase in Other Current Liabilities of $28.5 million. The increase in Other Current Liabilities includes: accrued storm restoration costs of $9.5 million related to the December 2008 ice storm experienced in the Company's service territories, $7.7 million of payments due to NiSource, Inc. in connection with the Company's acquisitions of Northern Utilities and Granite State, and $4.5 million of recoverable, accrued gas supply costs and an increase of $6.8 million in all other items.

The increase in Noncurrent Liabilities was driven by: an increase of $19.2 million in Retirement Benefit Obligations reflecting $4.4 million of retirement plan obligations associated with the acquisitions of Northern Utilities and Granite State and a net increase of $14.8 million in the actuarial obligations of the Company's other pension and postretirement benefit obligations, primarily due to the poor performance of capital markets during 2008 which adversely affected the Company's pension plan assets (See Note 10 to the accompanying Consolidated Financial Statements); an increase of $8.3 million in Other Noncurrent Liabilities, reflecting $3.1 million of accrued regulatory compliance costs for Northern Utilities (See Note 7 to the accompanying Consolidated Financial Statements), $2.6 of accrued integration costs associated with the acquisitions of Northern Utilities and Granite State, $1.1 million of long-term recoverable accrued gas supply costs and an increase in all other items of $1.5 million; and an increase of $0.3 million in Environmental Obligations. These increases were partially offset by a decrease of $18.1 million in Energy Supply Contract Obligations, reflecting current year cost recoveries.

Electric Sales, Revenues and Margin

Kilowatt-hour Sales-Unitil's total electric kWh sales decreased 2.7% in 2008 compared to 2007. Electric kWh sales to residential customers and C&I customers decreased 2.2% and 3.0%, respectively, in 2008 compared to 2007. The lower electric kWh sales in 2008 compared to 2007 were driven by lower average usage per customer reflecting milder summer temperatures, a slowing economy and energy conservation.

Unitil's total electric kWh sales decreased 0.5% in 2007 compared to 2006. Electric kWh sales to residential customers increased 0.4% in 2007 compared to 2006. The lower total kWh sales in 2007 compared to 2006 were driven by milder summer temperatures in 2007 compared to 2006, energy conservation by customers in response to higher overall energy prices and a slowing economy.

The following table details total kWh sales for the last three years by major customer class:

kWh Sales (millions)

                                                                   2008 vs. 2007                  2007 vs. 2006
                                                              ------------------------       ------------------------
                              2008       2007       2006      Change kWh      Change %       Change kWh      Change %
                             -------    -------    -------    ----------      --------       ----------      --------
Residential                    660.2      674.8      672.2         (14.6 )        (2.2 %)           2.6           0.4 %
Commercial / Industrial      1,035.7    1,068.2    1,079.3         (32.5 )        (3.0 %)         (11.1 )        (1.0 %)
                             -------    -------    -------    ---------- -                   ---------- -
Total                        1,695.9    1,743.0    1,751.5         (47.1 )        (2.7 %)          (8.5 )        (0.5 %)
                             -------    -------    -------    ---------- -                   ---------- -

Electric Operating Revenues and Sales Margin-The following table details Total Electric Operating Revenue and Sales Margin for the last three years by major customer class:

Electric Operating Revenues (millions)
--------------------------------------
                                                                           2008 vs. 2007              2007 vs. 2006
                                                                       ---------------------      ---------------------
                                                                          $            %             $            %
                                          2008      2007      2006     Change      Change(1)      Change      Change(1)
                                         -------   -------   -------   -------     ---------      -------     ---------
Electric Operating Revenue:
Residential                              $ 114.5   $ 114.7   $ 105.9   $  (0.2 )        (0.1 %)   $   8.8           3.9 %
Commercial / Industrial                    113.0     110.3     119.3       2.7           1.2 %       (9.0 )        (4.0 %)
                                         - -----   - -----   - -----   -- ---- -   --------- --   -- ---- -   --------- --
Total Electric Operating Revenue         $ 227.5   $ 225.0   $ 225.2   $   2.5           1.1 %    $  (0.2 )        (0.1 %)
                                         - -----   - -----   - -----   -- ---- -   --------- --   -- ---- -   --------- --
Cost of Electric Sales:
Purchased Electricity                    $ 170.1   $ 165.4   $ 167.3   $   4.7           2.1 %    $  (1.9 )        (0.8 %)
Conservation & Load Management               2.6       3.4       3.6      (0.8 )        (0.4 %)      (0.2 )        (0.1 %)
                                         - -----   - -----   - -----   -- ---- -   --------- --   -- ---- -   --------- --
Total Cost of Electric Sales             $ 172.7   $ 168.8   $ 170.9   $   3.9           1.7 %    $  (2.1 )        (0.9 %)
                                         - -----   - -----   - -----   -- ---- -   --------- --   -- ---- -   --------- --
Electric Sales Margin                    $  54.8   $  56.2   $  54.3   $  (1.4 )        (0.6 %)   $   1.9           0.8 %
                                         - -----   - -----   - -----   -- ---- -   --------- --   -- ---- -   --------- --

Total Electric Operating Revenues increased by $2.5 million, or 1.1%, in 2008 compared to 2007. Total Electric Operating Revenues include the recovery of costs of electric sales, which are recorded as Purchased Electricity and Conservation and Load Management (C&LM) in Operating Expenses. The net increase in Total Electric Operating Revenues in 2008 reflects higher Purchased Electricity costs of $4.7 million offset by lower C&LM revenues of $0.8 million and lower sales margin of $1.4 million.

Purchased Electricity and C&LM revenues increased $3.9 million, or 1.7%, of Total Electric Operating Revenues in 2008 compared to 2007, primarily reflecting higher electric commodity prices, partially offset by lower sales volumes and lower spending on energy efficiency and conservation programs. Purchased Electricity revenues include the recovery of the cost of electric supply as well as other energy supply related restructuring costs, including long-term power supply contract buyout costs. C&LM revenues include the recovery of the cost of energy efficiency and conservation programs. The Company recovers the cost of Purchased Electricity and C&LM in its rates at cost on a pass through basis.

Electric sales margin decreased $1.4 million in 2008 compared to 2007. The decrease in electric sales margin primarily reflects lower sales volumes, partially offset by higher electric base rates implemented in March of 2008. Total electric sales decreased 2.7% in 2008 compared to 2007 driven by lower average usage per customer reflecting milder summer temperatures, a slowing economy and energy conservation.

Total Electric Operating Revenues decreased by $0.2 million, or 0.1%, in 2007 compared to 2006. The net decrease in Total Electric Operating Revenues in 2007 reflects lower Purchased Electricity costs of $1.9 million and lower C&LM revenues of $0.2 million, offset by higher sales margin of $1.9 million.

Electric sales margin increased $1.9 million in 2007 compared to 2006. The improvement in electric sales margin reflects higher average distribution rates in 2007 compared to 2006, partially offset by lower sales volumes due to milder summer temperatures this year, energy conservation by customers in response to higher overall energy prices and a slowing economy.

Gas Sales, Revenues and Margin

Therm Sales-Overall, Unitil's total therm sales of natural gas increased 66.2% in 2008 compared to 2007. Excluding the contribution of the acquisition of Northern Utilities, total therm sales of natural gas increased 1.1% in 2008 compared to 2007, reflecting a decrease of 2.0% in sales to residential customers offset by an increase of 2.7% in sales to C&I customers. The lower sales to residential customers in 2008 reflects a milder winter heating season earlier this year and lower average usage by our customers reflecting a slowing economy and energy conservation. The increase in gas sales to C&I customers in 2008 reflects increased usage of natural gas in those customers' production operations.

Unitil's total therm sales of natural gas increased 7.6% in 2007 compared to . . .