What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-05 · 217 added, 554 removed, 679 unchanged (53% of the section changed)

2 unchanged sentences

Condensed Consolidated Statements of Income (Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in thousands, except shares and per share data)

8 unchanged sentences

Maintenance 4,042 3,836

Gain from a settlement — — ( 130 ) ( 130 )

Depreciation and amortization 15,365 12,252

2 unchanged sentences

Operating Income 51,597 42,134

Other income (expense), net ( 40 ) ( 351 ) 2,997 ( 731 )

Other income, net 385 3,319

Interest charges 5,105 5,814

2 unchanged sentences

Income from Continuing Operations 34,472 29,041

Income (loss) from Discontinued Operations, Net of Tax ( 19 ) ( 630 ) 165 ( 1,388 )

Loss from Discontinued Operations, Net of Tax ( 6 ) ( 111 )

Net Income $ 34,466 $ 28,930

4 unchanged sentences

Earnings from Continuing Operations $ 1.97 $ 1.77

Earnings (loss) from Discontinued Operations — ( 0.04 ) 0.01 ( 0.08 )

Loss from Discontinued Operations — ( 0.01 )

Basic Earnings Per Share of Common Stock $ 1.97 $ 1.76

1 unchanged sentence

Earnings from Continuing Operations $ 1.96 $ 1.77

Earnings (loss) from Discontinued Operations — ( 0.04 ) 0.01 ( 0.08 )

Loss from Discontinued Operations — ( 0.01 )

Diluted Earnings Per Share of Common Stock $ 1.96 $ 1.76

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in thousands)

6 unchanged sentences

Unrealized gain on commodity contract cash flow hedges, net of tax of $63 and $2, respectively 166 7

Unrealized loss (gain) on interest rate swap cash flow hedges, net of tax of $10, $0, $(4) and $0, respectively 27 — ( 10 ) —

Unrealized loss on interest rate swap cash flow hedges, net of tax of $(1) ( 2 ) —

Total Other Comprehensive Income, net of tax 227 73

1 unchanged sentence

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

Assets September 30,

Assets March 31,

2021 December 31,

12 unchanged sentences

Allowance for credit losses ( 4,243 ) ( 4,785 )

Trade receivables, net 49,002 49,562

Trade and other receivables, net 58,066 56,890

Accrued revenue 20,835 21,527

18 unchanged sentences

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

Capitalization and Liabilities September 30,

Capitalization and Liabilities March 31,

2021 December 31,

35 unchanged sentences

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended

September 30,

Three Months Ended

(in thousands)

5 unchanged sentences

Deferred income taxes 6,334 5,738

Gain on sale of discontinued operations ( 200 ) —

Realized gain on commodity contracts and sale of assets ( 3,514 ) ( 4,458 )

Unrealized gain on investments/commodity contracts ( 432 ) ( 1,025 )

Unrealized (gain) loss on investments/commodity contracts ( 389 ) 1,511

Employee benefits and compensation ( 173 ) 11

14 unchanged sentences

Proceeds from sale of assets 394 4,106

Acquisitions, net of cash acquired ( 15,629 ) —

Proceeds from the sale of discontinued operations 200 —

Environmental expenditures ( 247 ) ( 422 )

2 unchanged sentences

Common stock dividends ( 7,513 ) ( 6,483 )

Issuance (repurchase) of stock under equity issuance plans, net of offering fees 19,731 ( 536 )

Issuance of stock under the Dividend Reinvestment Plan, net of offering fees 2,053 192

Tax withholding payments related to net settled stock compensation ( 1,478 ) ( 977 )

2 unchanged sentences

Proceeds from issuance of long-term debt, net of offering fees — ( 13 )

Repayment of long-term debt and capital lease obligation ( 40,100 ) ( 6,435 )

Net cash provided by financing activities 16,742 34,205

Net Decrease in Cash and Cash Equivalents ( 3,929 ) ( 1,769 )

Repayment of long-term debt — ( 30,000 )

Net cash used in financing activities ( 26,459 ) ( 30,313 )

Net Increase (Decrease) in Cash and Cash Equivalents 2,076 ( 3,003 )

Cash and Cash Equivalents—Beginning of Period 3,499 6,985

1 unchanged sentence

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries

8 unchanged sentences

Compensation Treasury

Balance at June 30, 2019 16,403,776 $ 7,984 $ 256,385 $ 285,762 $ ( 5,747 ) $ 4,694 $ ( 4,694 ) $ 544,384

Net income — — — 5,621 — — — 5,621

Other comprehensive loss — — — — 344 — — 344

Dividend declared ($0.4050 per share) — — — ( 6,689 ) — — — ( 6,689 )

Dividend reinvestment plan — — ( 1 ) — — — — ( 1 )

Share-based compensation and tax benefit (3)(4)

— — 1,052 — — — — 1,052

Treasury stock activities — — — — — ( 189 ) 189 —

Balance at September 30, 2019 16,403,776 $ 7,984 $ 257,436 $ 284,694 $ ( 5,403 ) $ 4,505 $ ( 4,505 ) $ 544,711

Balance at December 31, 2019 16,403,776 $ 7,984 $ 259,253 $ 300,607 $ ( 6,267 ) $ 4,543 $ ( 4,543 ) $ 561,577

Net income — — — 28,930 — — — 28,930

Prior period reclassification — — — 115 ( 115 ) — — —

Other comprehensive income — — — — 1,425 — — 1,425

Other comprehensive gain — — — — 73 — — 73

Dividend declared ($0.4050 per share) — — — ( 6,703 ) — — — ( 6,703 )

3 unchanged sentences

Treasury stock activities — — — — — 925 ( 925 ) —

Balance at September 30, 2019 16,403,776 $ 7,984 $ 257,436 $ 284,694 $ ( 5,403 ) $ 4,505 $ ( 4,505 ) $ 544,711

Balance at June 30, 2020 16,463,808 $ 8,013 $ 263,272 $ 326,454 $ ( 4,462 ) $ 5,659 $ ( 5,659 ) $ 593,277

Net income — — — 9,261 — — — 9,261

Other comprehensive income — — — — 833 — — 833

Dividend declared ($0.440 per share) — — — ( 7,358 ) — — — ( 7,358 )

Equity issuances under various plans (5)

232,684 113 19,420 — — — — 19,533

Share-based compensation and tax benefit (3) (4)

1,144 — — — — 1,144

Treasury stock activities — — — — — ( 25 ) 25 —

Balance at September 30, 2020 16,696,492 $ 8,126 $ 283,836 $ 328,357 $ ( 3,629 ) $ 5,634 $ ( 5,634 ) $ 616,690

Cumulative effect of the adoption of ASU 2016-13 — — — ( 30 ) — — — ( 30 )

Balance at March 31, 2020 16,433,105 $ 7,998 $ 259,521 $ 322,804 $ ( 6,194 ) $ 5,468 $ ( 5,468 ) $ 584,129

Balance at December 31, 2020 17,461,841 $ 8,499 $ 348,482 $ 342,969 $ ( 2,865 ) $ 5,679 $ ( 5,679 ) $ 697,085

2 unchanged sentences

Dividend declared ($0.440 per share) — — — ( 7,812 ) — — — ( 7,812 )

Equity issuances under various plans (5)

258,260 126 21,693 — — — — 21,819

Dividend reinvestment plan 20,511 10 2,204 — — — — 2,214

Share-based compensation and tax benefit (3) (4)

1 unchanged sentence

Treasury stock activities — — — — — 1,313 ( 1,313 ) —

Cumulative effect of the adoption of ASU 2016-13 — — — ( 30 ) — — — ( 30 )

Balance at September 30, 2020 16,696,492 $ 8,126 $ 283,836 $ 328,357 $ ( 3,629 ) $ 5,634 $ ( 5,634 ) $ 616,690

Balance at March 31, 2021 17,521,493 $ 8,528 $ 350,875 $ 369,623 $ ( 2,638 ) $ 6,992 $ ( 6,992 ) $ 726,388

(1) 2,000,000 shares of preferred stock at $ 0.01 par value have been authorized.

1 unchanged sentence

accordingly, no information has been included in the statements of stockholders’ equity.

(2) Includes 104,119 shares at September 30, 2020, 95,329 shares at December 31, 2019, 94,923 shares at September 30, 2019 and 97,053 shares at December 31, 2018, respectively, held in a Rabbi Trust related to our Non-Qualified Deferred Compensation Plan.

(2) Includes 116,751 , 105,087 , 104,871 , and 95,329 shares at March 31, 2021, December 31, 2020, March 31, 2020 and December 31, 2019, respectively, held in a Rabbi Trust related to our Non-Qualified Deferred Compensation Plan.

(3) Includes amounts for shares issued for directors’ compensation.

(4) The shares issued under the SICP are net of shares withheld for employee taxes.

For the nine months ended September 30, 2020 and 2019, we withheld 10,319 and 7,635 shares, respectively, for employee taxes.

(5) Includes the Retirement Savings Plan, DRIP and ATM equity issuances.

For the three months ended March 31, 2021 and 2020, we withheld 14,020 and 10,319 shares, respectively, for employee taxes.

The accompanying notes are an integral part of these financial statements.

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N OTES TO C ONDENSED C ONSOLIDATED F INANCIAL S TATEMENTS (U NAUDITED )

9 unchanged sentences

Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is highest due to colder temperatures.

Beginning in the third quarter of 2019, our management began executing a strategy to sell the operating assets of PESCO.

In the fourth quarter of 2019, we closed on four separate transactions to sell PESCO's assets and contracts.

As a result of these sales, we have fully exited the natural gas marketing business, which provided natural gas management and supply services to commercial and industrial customers in Florida, Delaware, Maryland, Pennsylvania, Ohio and other states.

Accordingly, PESCO’s historical financial results are reflected in our condensed consolidated financial statements as discontinued operations, which required retrospective application to financial information for all periods presented.

Refer to Note 3, Acquisitions and Divestitures, for further information

Effects of COVID-19

On March 13, 2020, the CDC declared a national emergency due to the rapidly growing outbreak of COVID-19.

In March 2020, the CDC declared a national emergency due to the rapidly growing outbreak of COVID-19.

In response to this declaration and the rapid spread of COVID-19 within the United States, federal, state and local governments throughout the country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness.

These restrictions have continued to significantly impact economic conditions in the United States.

We are considered an “essential business,” which allows us to continue our operational activities and construction projects while the social distancing restrictions remain in place.

In response to the COVID-19 pandemic and related restrictions, we implemented our pandemic response plan, which includes having all employees who can work remotely do so in order to promote social distancing and providing personal protective equipment to field employees to reduce the spread of COVID-19.

Impacts from the restrictions imposed in our service territories and the implementation of our pandemic response plan, included reduced consumption of energy largely in the commercial and industrial sectors, higher bad debt expenses and incremental expenses associated with COVID-19, including personal protective equipment and premium pay for field personnel.

The additional operating expenses we incurred support the ongoing delivery of our essential services during these unprecedented times.

As the COVID-19 pandemic is still ongoing, we are continuing to assess recoverability and to date, have not established regulatory assets associated with the incremental net expense impacts, as currently authorized by the Delaware, Maryland and Florida PSCs.

We are committed to communicating timely updates and will continue to monitor developments affecting our employees, customers, suppliers, and stockholders and take additional precautions as warranted to operate safely and to comply with the CDC, Occupational Safety and Health Administration, state and local requirements in order to protect our employees, customers and the communities we serve, and update and communicate the ongoing financial impact on our results once determined.

Refer to Note 5, Rates and Other Regulatory Activities, for further information on the potential deferral of incremental expenses associated with COVID-19.

These restrictions significantly impacted economic conditions in the United States in 2020 and continued into 2021.

At this time, restrictions continue to lift as vaccines have become more available in the United States.

Regardless, Chesapeake Utilities is considered an “essential business,” which has allowed us to continue operational activities and construction projects despite any social distancing restrictions that are in place.

Despite the early changes in restrictions, we continue to operate under our pandemic response plan, monitor developments affecting employees, customers, suppliers, stockholders and take all precautions warranted to operate safely and to comply with the CDC, Occupational Safety and Health Administration, and state and local requirements in order to protect our employees, customers and the communities.

Refer to Note 5 , Rates and Other Regulatory Activities , for further information on the regulated assets established as a result of the incremental expenses incurred associated with COVID-19.

FASB Statements and Other Authoritative Pronouncements

Recently Adopted Accounting Standards

Financial Instruments - Credit Losses (ASC 326) - In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments , which changes how entities account for credit losses for most financial assets and certain

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other instruments, and subsequent guidance which served to clarify or amend the original standard.

ASU 2016-13 and the related amendments require entities to estimate lifetime expected credit losses for trade receivables and to provide additional disclosure related to credit losses.

We adopted ASU 2016-13 on January 1, 2020 and recorded an immaterial cumulative effect in retained earnings as of that date.

As a result, prior period financial information has not been recast and continues to be reported under the accounting guidance that was effective during those periods.

Our estimate for expected credit losses has been developed by analyzing our portfolio of financial assets that present potential credit exposure risk.

These assets consist solely of our trade receivables from customers and contract assets.

The estimate is based on five years of historical collections experience, a review of current economic and operating conditions in our service territories, and an examination of economic indicators which provide a reasonable and supportable basis of potential future activity.

Those indicators include metrics which we believe provide insight into the future collectability of our trade receivables such as unemployment rates and economic growth statistics in our service territories.

When determining estimated credit losses, we analyzed the balance of our trade receivables based on the underlying service line they pertain to.

This resulted in an examination of trade receivables from our energy distribution, energy transmission, energy delivery services and propane operations service lines.

Our energy distribution service line consists of all our regulated distribution utility operations on the Delmarva Peninsula and throughout Florida.

These business units have the ability to recover their costs through the rate making process, which can include consideration for amounts historically written off as a component of their rate base.

Therefore, they possess a mechanism to recover credit losses which we believe reduces their exposure to credit risk.

Our energy transmission and energy delivery services business units consist of our natural gas pipelines and our mobile compressed natural gas ("CNG") delivery operations.

The majority of the customer base these business units serve are regulated distribution utilities who also have the ability to recover their costs.

We believe this cost recovery mechanism significantly reduces the amount of credit risk they present.

Our propane operations are unregulated and do not have the same ability to recover their costs as our regulated operations.

However, historically our propane operations have not had material write offs relative to the amounts of revenues earned.

Our estimate of expected credit losses reflects our anticipated losses associated with our trade receivables as a result of non-payment from our customers beginning the day the trade receivable is established.

We believe the risk of loss associated with trade receivables classified as current presents the least amount of credit exposure risk and therefore, we assign a lower estimate to our current trade receivables.

As our trade receivables age outside of their expected due date, our estimate increases.

Our allowance for credit losses relative to the balance of our trade receivables has historically been immaterial as a result of on time payment activity from our customers.

During the first quarter of 2020, COVID-19 began to rapidly spread within the United States.

Federal, state and local governments throughout the country imposed restrictions to promote social distancing to slow the spread of the virus, which has also had the effect of limiting commercial activity.

These measures have resulted in significant job losses and a slowing of economic activity across the United States and in the areas that we serve.

We have been identified as an “essential business,” which allowed us to continue operational activity and construction projects with social distancing restrictions in place.

We have considered the impact of COVID-19 for the nine months ended September 30, 2020, monitored developments that impact our customers’ ability to pay and have revised our estimates of expected credit losses.

Our prior estimates for expected credit losses had not included an evaluation of current conditions or forward-looking economic indicators as we were not required to consider those factors under the previous incurred loss accounting guidance.

The below table provides a reconciliation of our allowance for credit losses at September 30, 2020:

(in thousands)

Balance at December 31, 2019 $ 1,337

Provision for credit losses 2,810

Recoveries 577

Write offs ( 594 )

Balance at September 30, 2020 $ 4,130

Fair Value Measurement (ASC 820) - In August 2018, the FASB issued ASU 2018-13, Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement , which removes, modifies and adds certain disclosure requirements on fair value measurements in ASC 820.

We adopted ASU 2018-13 beginning January 1, 2020 and, since the changes only impacted disclosures, its adoption did not have a material impact on our financial position or results of operations.

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Intangibles - Goodwill (ASC 350) - In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment , which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

ASU 2017-04 was effective beginning January 1, 2020.

The amendments included in this ASU are to be applied prospectively, and are not expected to have a material impact on our financial position or results of operations.

There are no new accounting pronouncements issued that are applicable to us.

Calculation of Earnings Per Share

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in thousands, except shares and per share data)

1 unchanged sentence

Income from Continuing Operations $ 34,472 $ 29,041

Income (Loss) from Discontinued Operations ( 19 ) ( 630 ) 165 ( 1,388 )

Loss from Discontinued Operations ( 6 ) ( 111 )

Net Income $ 34,466 $ 28,930

1 unchanged sentence

Basic Earnings Per Share from Continuing Operations $ 1.97 $ 1.77

Basic Earnings (Loss) Per Share from Discontinued Operations — ( 0.04 ) 0.01 ( 0.08 )

Basic Loss Per Share from Discontinued Operations — ( 0.01 )

Basic Earnings Per Share $ 1.97 $ 1.76

5 unchanged sentences

Diluted Earnings Per Share from Continuing Operations $ 1.96 $ 1.77

Diluted Earnings (Loss) Per Share from Discontinued Operations — ( 0.04 ) 0.01 ( 0.08 )

Diluted Loss Per Share from Discontinued Operations — ( 0.01 )

Diluted Earnings Per Share $ 1.96 $ 1.76

Acquisitions and Divestitures

Acquisition of Western Natural Gas Company

In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas Company, which provides propane distribution service throughout Jacksonville, Florida and the surrounding communities, for approximately $ 6.7 million, net of cash acquired.

The acquisition will be accounted for as a business combination within our Unregulated Energy Segment beginning in the fourth quarter of 2020.

Acquisition of Western Natural Gas

In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas, which provides propane distribution service throughout Jacksonville, Florida and the surrounding communities, for approximately $ 6.7 million, net of cash acquired.

Additionally, the purchase price included $ 0.3 million of working capital.

We recorded contingent consideration of $ 0.3 million related to the seller's adherence to various provisions contained in the purchase agreement through the first anniversary of the transaction closing.

We accounted for this acquisition as a business combination within our Unregulated Energy segment beginning in the fourth quarter of 2020.

There are multiple strategic benefits to this acquisition including it:

(i) expands our propane territory serviced in Florida;

(ii) includes an established customer base with opportunities for future growth;

and (iii) provides opportunities to market additional services and pricing programs to these customers.

(i) expands our propane territory serviced in Florida and (ii) includes an established customer base with additional opportunities for future growth.

In connection with this acquisition, we recorded $ 3.5 million in property plant and equipment, $ 1.4 million in intangible assets associated with customer relationships and non-compete agreements and $ 1.8 million in goodwill, all of which is deductible for income tax purposes.

The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based on contractual provisions.

The purchase price allocation will be finalized in the fourth quarter of 2021.

For the three months ended March 31, 2021, Western Natural Gas generated operating revenue and income of $ 0.8 million and $ 0.2 million, respectively.

Acquisition of Elkton Gas

In July 2020, we closed on the acquisition of Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil County, Maryland for approximately, $ 15.6 million, net of cash acquired.

Additionally, the purchase price included $ 0.6 million of working

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Additionally, the purchase price included $ 0.6 million of working capital.

Elkton Gas’ territory is contiguous to our franchised service territory in Cecil County, Maryland.

Elkton Gas continues to operate out of its existing office with the same local personnel who are now also serving our existing franchised service territory in Cecil County.

In connection with this acquisition, we recorded $ 15.9 million in property, plant and equipment, $ 0.6 million in accounts receivable, $ 2.6 million in other liabilities, $ 2.6 million in regulatory liabilities and $ 4.3 million in goodwill, all of which is deductible for income tax purposes.

All of the assets and liabilities are recorded in the Regulated Energy segment.

The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based on contractual provisions.

The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based

on contractual provisions.

The purchase price allocation will be finalized in the third quarter of 2021.

For the three and nine months ended September 30, 2020, Elkton Gas generated operating revenue of $ 0.6 million and an operating loss of less than $ 0.1 million, respectively.

The immaterial operating loss is reflective of less than a full quarter of results;

in addition, the third quarter is typically the warmest quarter of the year.

Acquisition of Boulden

In December 2019, Sharp acquired certain propane operating assets of Boulden, which provides propane distribution service to approximately 5,200 customers in Delaware, Maryland and Pennsylvania, for approximately $ 24.6 million, net of cash acquired.

Additionally, the purchase price included $ 0.2 million of working capital.

We recorded contingent consideration of $ 0.6 million related to the seller's adherence to various provisions contained in the contract through the first anniversary of the transaction closing.

We accounted for the purchase of the operating assets of Boulden as a business combination and integrated the business into our Sharp operation.

There are multiple strategic benefits to this acquisition including it:

(i) overlays with the Elkton Gas acquisition to establish an integrated energy delivery platform in Cecil County, Maryland;

(ii) includes an established customer base with opportunities for future growth;

(iii) enables operational synergies, including supply, for the northern Delmarva Peninsula;

and (iv) provides opportunities to market additional services and pricing programs to these customers.

In connection with this acquisition, we recorded $ 8.3 million in property, plant and equipment, $ 5.1 million in intangible assets associated with customer relationships and non-compete agreements and $ 11.2 million in goodwill, all of which is deductible for income tax purposes.

The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based on contractual provisions and will be finalized in the fourth quarter of 2020.

For the three months ended September 30, 2020, Boulden generated operating revenue of $ 0.4 million and an operating loss of $ 0.2 million, respectively.

For the nine months ended September 30, 2020, Boulden generated operating revenue and income of $ 4.1 million and $ 1.2 million, respectively.

The third quarter is typically the warmest quarter of the year, with the smallest amount of gallons being delivered during that quarter.

Divestiture of PESCO

During the fourth quarter of 2019, we sold PESCO's assets and contracts in four separate transactions and exited the natural gas marketing business.

As a result of the sales agreements, we began to report PESCO as discontinued operations during the third quarter of 2019, excluded PESCO's performance from continuing operations for all periods presented and classified its assets and liabilities as held for sale where applicable.

We received a total of $ 23.1 million in cash consideration from the buyers, inclusive of working capital of $ 8.0 million and recognized total pre-tax gain of $ 7.5 million ($ 5.4 million after tax) in connection with these transactions of which, $ 7.3 million of this gain was recognized in the fourth quarter of 2019.

Operating revenues and costs of sales from the previous reporting periods, which were previously eliminated in consolidation, have been grossed up and are now reflected as a component of operating revenues and costs of sales for the three and nine months ended September 30, 2019.

We recast these amounts because, upon completion of the sales transactions, we continued to provide and receive services from the buyers through the remainder of the contractual terms.

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A summary of discontinued operations presented in the condensed consolidated statements of income includes the following:

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands) 2020

Operating revenues (1)

$ 3 $ 34,271 $ 26 $ 152,573

Cost of sales (1)

( 40 ) 33,763 ( 39 ) 149,464

Other operating expenses 75 1,360 272 4,819

Operating loss ( 32 ) ( 852 ) ( 207 ) ( 1,710 )

Interest and other expense 6 ( 74 ) ( 23 ) ( 242 )

Loss from Discontinued Operations before income taxes ( 26 ) ( 926 ) ( 230 ) ( 1,952 )

Gain on sale of Discontinued Operations — — 200 —

Income tax benefit ( 7 ) ( 296 ) ( 195 ) ( 564 )

Gain (Loss) from Discontinued Operations, Net of Tax $ ( 19 ) $ ( 630 ) $ 165 $ ( 1,388 )

(1) Included in operating revenues and cost of sales for the three and nine months ended September 30, 2019, is $ 4.3 million and $ 19.1 million, respectively, representing amounts which had been previously eliminated in consolidation related to intercompany activity that continued with the buyers after the disposition of the assets of PESCO.

Since the disposition of the assets and contracts of PESCO was completed in the fourth quarter of 2019, there were no assets or liabilities classified as held for sale at September 30, 2020 and December 31, 2019.

We have elected not to separately disclose discontinued operations on the condensed consolidated statements of cash flows.

The following table summarizes significant statements of cash flows data related to the discontinued operations of PESCO:

Nine Months Ended September 30, 2019

Depreciation and amortization $ 437

Deferred income taxes $ 513

Realized gain on commodity contracts $ ( 623 )

Our Delmarva Peninsula natural gas distribution operations had asset management agreements with PESCO to manage their natural gas transportation and storage capacity.

The agreements were effective as of April 1, 2017, and expired on March 31, 2020.

As a result of the sale of the assets of PESCO, effective October 1, 2019, these agreements were managed by New Jersey Resource Energy Services Company through the remainder of the contract term.

In March 2020, our Delmarva Peninsula natural gas distribution operations entered into asset management agreements with a third party to manage their natural gas transportation and storage capacity.

The agreements were effective as of April 1, 2020, and expire on March 31, 2023.

In addition to the asset management agreements, Eastern Shore had several firm transportation and capacity arrangements with PESCO, which were included in the assets sold to United Energy Trading, LLC.

Eastern Shore will continue to fulfill these arrangements throughout the remainder of their contractual term.

These agreements currently have expiration dates of November 30, 2021.

For the three months ended March 31, 2021, Elkton Gas generated operating revenue and income of $ 2.6 million and $ 0.6 million, respectively.

Revenue Recognition

2 unchanged sentences

Typically, our customers pay for the goods and/or services we provide in the month following the satisfaction of our performance obligation.

The revenues in the following tables exclude operating revenues from PESCO that are reflected as discontinued operations.

The following table displays our revenue from continuing operations by major source based on product and service type for the three months ended September 30, 2020 and 2019:

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Three months ended September 30, 2020 Three Months Ended September 30, 2019

(in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Regulated Energy Unregulated Energy Other and Eliminations Total

Energy distribution

Delaware natural gas division $ 7,243 $ — $ — $ 7,243 $ 6,953 $ — $ — $ 6,953

Florida natural gas division 7,309 — — 7,309 6,710 — — 6,710

FPU electric distribution 29,051 — — 29,051 24,174 — — 24,174

FPU natural gas distribution 19,935 — — 19,935 17,908 — — 17,908

Maryland natural gas division 2,824 — — 2,824 2,634 — — 2,634

Sandpiper natural gas/propane operations 3,290 — — 3,290 3,673 — — 3,673

Elkton Gas 623 — — 623 — — — —

Total energy distribution 70,275 — — 70,275 62,052 — — 62,052

Energy transmission

Aspire Energy — 3,449 — 3,449 — 4,247 — 4,247

Eastern Shore 18,389 — — 18,389 17,573 — — 17,573

Peninsula Pipeline 6,433 — — 6,433 4,442 — — 4,442

Total energy transmission 24,822 3,449 — 28,271 22,015 4,247 — 26,262

Energy generation

Eight Flags — 3,882 — 3,882 — 4,027 — 4,027

Propane operations

Propane delivery operations — 13,710 — 13,710 — 14,200 — 14,200

Energy delivery services

Marlin Gas Services — 1,708 — 1,708 — 1,059 — 1,059

Other and eliminations

Eliminations ( 12,335 ) ( 35 ) ( 4,188 ) ( 16,558 ) ( 9,487 ) ( 1,253 ) ( 4,367 ) ( 15,107 )

Other — — 131 131 — — 133 133

Total other and eliminations ( 12,335 ) ( 35 ) ( 4,057 ) ( 16,427 ) ( 9,487 ) ( 1,253 ) ( 4,234 ) ( 14,974 )

Total operating revenues (1)

$ 82,762 $ 22,714 $ ( 4,057 ) $ 101,419 $ 74,580 $ 22,280 $ ( 4,234 ) $ 92,626

(1) Total operating revenues for the three months ended September 30, 2020, include other revenue (revenues from sources other than contracts with customers) of $ 0.2 million and $ 0.05 million for our Regulated and Unregulated Energy segments, respectively, and $ 0.1 million and $ 0.1 million for our Regulated and Unregulated Energy segments, respectively, for the three months ended September 30, 2019.

The sources of other revenues include revenue from alternative revenue programs related to revenue normalization for the Maryland division and Sandpiper and late fees.

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The following table displays our revenue from continuing operations by major source based on product and service type for the nine months ended September 30, 2020 and 2019:

Nine months ended September 30, 2020 Nine months ended September 30, 2019

The following table displays our revenue from continuing operations by major source based on product and service type for the three months ended March 31, 2021 and 2020:

Three months ended March 31, 2021 Three Months Ended March 31, 2020

(in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Regulated Energy Unregulated Energy Other and Eliminations Total

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Aspire Energy — 12,905 — 12,905 — 9,781 — 9,781

Aspire Energy Express 47 — — 47 — — — —

Eastern Shore 19,972 — — 19,972 19,279 — — 19,279

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$ 121,197 $ 74,759 $ ( 4,769 ) $ 191,187 $ 102,955 $ 54,012 $ ( 4,277 ) $ 152,690

(1) Total operating revenues for the nine months ended September 30, 2020, include other revenue (revenues from sources other than contracts with customers) of $ 1.0 million and $ 0.2 million for our Regulated and Unregulated Energy segments, respectively, and $( 0.1 ) million and $ 0.3 million for our Regulated and Unregulated Energy segments, respectively, for the nine months ended September 30, 2019.

(1) Total operating revenues for the three months ended March 31, 2021, include other revenue (revenues from sources other than contracts with customers) of $( 0.3 ) million and $ 0.1 million for our Regulated and Unregulated Energy segments, respectively, and $ 0.7 million and $ 0.1 million for our Regulated and Unregulated Energy segments, respectively, for the three months ended March 31, 2020.

The sources of other revenues include revenue from alternative revenue programs related to revenue normalization for the Maryland division and Sandpiper and late fees.

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Contract balances

The timing of revenue recognition, customer billings and cash collections results in trade receivables, unbilled receivables (contract assets), and customer advances (contract liabilities) in our condensed consolidated balance sheets.

The balances of our trade receivables, contract assets, and contract liabilities as of September 30, 2020 and December 31, 2019 were as follows:

The balances of our trade receivables, contract assets, and contract liabilities as of March 31, 2021 and December 31, 2020 were as follows:

Trade Receivables Contract Assets (Current) Contract Assets (Non-current) Contract Liabilities (Current)

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Our performance obligation is satisfied over the term of the respective retail offering plan on a ratable basis.

For each of the three months ended September 30, 2020 and 2019, we recognized revenue of $ 0.2 million.

For the nine months ended September 30, 2020 and 2019, we recognized revenue of $ 0.8 million and $ 0.7 million, respectively.

For each of the three months ended March 31, 2021 and 2020, we recognized revenue of $ 0.4 million.

Remaining performance obligations

Our businesses have long-term fixed fee contracts with customers in which revenues are recognized when performance obligations are satisfied over the contract term.

Revenue for these businesses for the remaining performance obligations, at September 30, 2020, are expected to be recognized as follows:

Revenue for these businesses for the remaining performance obligations, at March 31, 2021, are expected to be recognized as follows:

(in thousands) 2021 2022 2023 2024 2025 2026 2027 and thereafter

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Eastern Shore, our natural gas transmission subsidiary, is subject to regulation by the FERC;

and Peninsula Pipeline, our intrastate pipeline subsidiary, is subject to regulation (excluding cost of service) by the Florida PSC.

In August 2019, we filed with the Delaware PSC an application seeking an order that will establish the regulatory accounting treatment and valuation methodology for the acquisition of propane CGS owned by our affiliate, Sharp and the conversion of the CGS to natural gas service.

We proposed to acquire each CGS one at a time and to pay replacement cost for each CGS system.

In addition, we requested authorization to pay for and capitalize the CGS residents’ behind-the-meter conversion costs.

Our existing natural gas customers will be protected against subsidizing

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the acquisitions and conversions of the CGS systems because we will complete only those systems that meet our economic test.

The application was reviewed by the Delaware PSC, who approved and issued a final order in June 2020.

Approval of the Elkton Gas Acquisition:

In December 2019, we entered into an agreement with SJI to acquire its subsidiary, Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil County, Maryland.

Elkton Gas territory is contiguous to our franchised service territory in Cecil County, Maryland.

On June 29, 2020, the Maryland PSC issued a final order approving the settlement agreement, therefore, enabling the transaction to move forward.

In July 2020, the transaction closed and we acquired Elkton Gas as our wholly-owned subsidiary.

Application for Authority to Exercise a Franchise:

In March 2020, we filed with the Maryland PSC an application seeking approval to exercise a franchise granted to us by the Board of County Commissioners of Somerset County, Maryland in December 2019.

The application was approved in June 2020.

and Peninsula Pipeline and Aspire Energy Express, our intrastate pipeline subsidiaries, are subject to regulation (excluding cost of service) by the Florida PSC and Public Utilities Commission of Ohio, respectively.

There were no material regulatory activities during the first quarter of 2021.

Strategic Infrastructure Development and Enhancement (“STRIDE”) plan:

In March 2021, Elkton Gas filed with the Maryland PSC a strategic infrastructure development and enhancement plan.

The STRIDE plan proposes to increase the speed of Elkton Gas' Aldyl-A pipeline replacement program and to recover the costs of the plan through a

proposed 5-year surcharge.

Under Elkton Gas’ proposed STRIDE plan, the Aldyl-A pipelines would be replaced by 2023.

The procedural schedule for the case is underway, with hearings scheduled for June 2021.

Hurricane Michael:

In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest Florida and caused widespread and severe damage to FPU's infrastructure resulting in the loss of electric service to 100 percent of its customers in the Northwest Florida service territory.

FPU, after exerting extraordinary hurricane restoration efforts, restored service to those customers who were able to accept it.

FPU expended more than $ 65.0 million to restore service, which was recorded as new plant and equipment, charged against FPU’s accumulated depreciation or charged against FPU’s storm reserve.

Additionally, amounts undergoing review by the Florida PSC for regulatory asset treatment were recorded as receivables and other deferred charges.

In August 2019, FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael (capital and expenses) through a change in base rates.

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The settlement agreement allowed us to:

(a) record regulatory assets for storm costs in the amount of $ 45.8 million including interest which will be amortized over six years;

(b) recover these storm costs through a surcharge for a total of $ 7.7 million annually;

and (c) collect an annual increase in revenue of $ 3.3 million to recover capital costs associated with new plant and a regulatory asset for cost of removal and undepreciated plant.

(a) refund the over-collection of interim rates through the fuel clause;

(b) record regulatory assets for storm costs in the amount of $ 45.8 million including interest which will be amortized over six years;

and (d) collect an annual increase in revenue of $ 3.3 million to recover capital costs associated with new plant and a regulatory asset for cost of removal and undepreciated plant.

The new base rates and storm surcharge were effective on November 1, 2020.

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Interim services began in the fourth quarter of 2019.

We expect to complete the remainder of the project in phases through the second quarter of 2021.

Callahan Pipeline, Nassau County:

In the second quarter of 2020, Peninsula Pipeline and Seacoast Gas Transmission completed construction of a jointly owned 26 -mile, 16 -inch steel pipeline that interconnects to the Cypress Pipeline

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interstate system in western Nassau County in order to serve growing demand in both Nassau and Duval counties, Florida.

The Callahan pipeline terminates into the existing Peninsula Pipeline-Peoples Gas jointly owned pipeline, which serves Amelia Island and the Peoples Gas distribution system.

The Callahan Pipeline has enhanced FPU’s ability to expand service into Nassau County and has enabled Peoples Gas to enhance its system pressure and the reliability of its service in Duval County.

We expect to complete the remainder of the project in phases through the third quarter of 2021.

Eastern Shore

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In December 2019, the FERC issued an order approving the construction of the Del-Mar Energy Pathway project.

The order, which was applied for in September 2018 by Eastern Shore, approved the construction and operation of new facilities that will provide an additional 14,300 Dts/d of firm service to four customers.

The order approved the construction and operation of new facilities that will provide an additional 14,300 Dts/d of firm service to four customers.

Facilities to be constructed include six miles of pipeline looping in Delaware;

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(i) additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and (ii) extension of Eastern Shore’s pipeline system, for the first time, into Somerset County, Maryland.

Construction on the project began in January 2020, and Eastern Shore anticipates that this project will be fully in-service by the beginning of the fourth quarter of 2021.

Capital Cost Surcharge:

In December 2019, the FERC approved Eastern Shore’s proposed capital cost surcharge to become effective January 1, 2020.

The surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows Eastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the replacement of existing Eastern Shore facilities.

Eastern Shore expects to recover $ 0.5 million in capital cost surcharges on an annual basis.

As Eastern Shore continues to relocate its pipeline and incur capital expenditures, we will continue to utilize the surcharge to seek recovery of its costs.

Renewable Natural Gas Tariff:

In October 2019, Eastern Shore filed an application with the FERC to include renewable natural gas (biogas) utilization and standards in its tariff.

Eastern Shore had proposed changes to its gas quality specifications that would enable it to accommodate renewable natural gas at various receipt points on its system.

Changes to the gas quality specifications would ensure interchangeability of renewable natural gas with the natural gas currently delivered to Eastern Shore.

The tariffs became effective in November 2019.

Aspire Energy Express:

In October 2020, the Public Utilities Commission of Ohio approved the request by Aspire Energy Express for authority to operate as an intrastate pipeline company in Ohio and also approved the submitted tariff.

Aspire Energy Express will utilize the pipeline to provide natural gas transportation service in Ohio, including delivery to the Guernsey Power Station and other potential customers elsewhere in Ohio.

Aspire Energy Express has entered into agreements with the Guernsey Power Station to construct the pipeline and provide natural gas transportation service to the facility pending approval of the application.

Aspire Energy Express intends to own and operate the proposed intrastate pipeline facilities that will interconnect with the Rockies Express Pipeline and other potential points of receipt.

The pipeline facilities that will be initially constructed are near the Guernsey Power Station.

Aspire Energy Express will be subject to ongoing jurisdiction and supervision of the Public Utilities Commission of Ohio with respect to the gas pipeline safety standards and requirements.

Construction on the project began in January 2020, and Eastern Shore anticipates that this project will be fully in-service by the end of 2021.

COVID-19 Impact

We are monitoring the global outbreak of COVID-19 and taking steps to mitigate the potential risks posed by its spread.

We provide an “essential service” to our customers, which means that it is paramount that we keep our employees who operate our business safe and informed.

At this time, we have begun to see some early indications of these restrictions lifting.

We provide an “essential

service” to our customers, which means that it is paramount that we keep our employees who operate our business safe and informed.

We have taken and are continuously monitoring and updating precautions and protocols to ensure the safety of our employees and customers.

As an “essential business” we are allowed to continue operational activity and construction projects with appropriate safety precautions, personal protective equipment and social distancing restrictions in place.

We have taken steps to assure our customers that disconnections for non-payment will be temporarily suspended.

We are also working with our suppliers to understand the potential impacts to our supply chain;

We are working with our suppliers to understand the potential impacts to our supply chain;

if material negative impacts are identified, we will work to mitigate them.

This is a rapidly evolving situation, and could lead to extended disruption of economic activity in our markets.

This is a continuously evolving situation, and has led to extended disruption of economic activity in our markets.

We will continue to monitor developments affecting our employees, customers, suppliers and shareholders, and will take additional precautions as warranted to comply with the CDC, state and local requirements and recommendations to protect our employees, customers and the communities we serve.

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As a result of these measures, we are incurring costs associated with crisis management and the pandemic response including restrictions put in place by the state PSCs on utility disconnects for non-payment, technology costs incurred to expand work from home capabilities, additional sanitation and cleaning costs and costs of acquiring personal protective equipment as well as other expenses.

We are tracking and analyzing whether these costs qualify for cost recovery and could be classified as regulatory assets.

The additional operating expenses we incurred support the ongoing delivery of our essential services during these unprecedented times.

In April 2020, the Maryland PSC issued an order that authorized utilities to establish a regulatory asset to record prudently incurred incremental costs related to COVID-19, beginning on March 16, 2020.

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In May 2020, the Delaware PSC issued an order that authorized Delaware utilities to establish a regulatory asset to record COVID-19 related incremental costs incurred to ensure customers have essential utility services, for the period beginning on March 24, 2020 and ending 30 days after the state of emergency ends.

At the present time, the state of emergency has not ended.

The creation of the regulatory asset for COVID-19 related costs offers utilities the ability to seek recovery of those costs.

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This regulatory asset will allow us to seek recovery of these costs in our next base rate proceeding.

As the COVID-19 pandemic is still ongoing, to date we have not established regulatory assets associated with the incremental expense impacts, as currently authorized by the Delaware, Maryland and Florida PSCs.

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On November 16, 2020, the Office of Public Counsel filed a protest to the order approving the establishment of this regulatory asset, contending that the order should be a reversed or modified and to request a hearing on the protest.

The hearing date has been scheduled for June 16, 2021.

In the fourth quarter of 2020, we began recording regulatory assets based on the net incremental expense resulting from the COVID-19 pandemic for our natural gas distribution and electric businesses as currently authorized by the Delaware and Maryland PSCs and as initially authorized by the Florida PSC.

Summary TCJA Table

The following table summarizes the TCJA impact on our regulated businesses:

Regulatory Liabilities related to Accumulated Deferred Income Taxes ("ADIT")

Operation and Regulatory Jurisdiction Amount (in thousands) Status Status of Customer Rate impact related to lower federal corporate income tax rate

Customer rates for our regulated businesses were adjusted as approved by the regulators, prior to 2020 with the exception of Elkton Gas, which implemented a one-time bill credit in May 2020.

The following table summarizes the regulatory liabilities related to accumulated deferred taxes ("ADIT") associated with TCJA for our regulated businesses as of March 31, 2021 and December 31, 2020:

Amount (in thousands)

Operation and Regulatory Jurisdiction March 31, 2021 December 31, 2020 Status

Eastern Shore (FERC) $ 34,190 $ 34,190 Will be addressed in Eastern Shore's next rate case filing.

Implemented one-time bill credit (totaling $0.9 million) in April 2018.

Customer rates were adjusted in April 2018.

Delaware Division (Delaware PSC) $ 12,694 $ 12,728 PSC approved amortization of ADIT in January 2019.

Implemented one-time bill credit (totaling $1.5 million) in April 2019.

Customer rates were adjusted in March 2019.

Maryland Division (Maryland PSC) $ 3,938 $ 3,970 PSC approved amortization of ADIT in May 2018.

Implemented one-time bill credit (totaling $0.4 million) in July 2018.

Customer rates were adjusted in May 2018.

Sandpiper Energy (Maryland PSC) $ 3,699 $ 3,713 PSC approved amortization of ADIT in May 2018.

Implemented one-time bill credit (totaling $0.6 million) in July 2018.

Customer rates were adjusted in May 2018.

Chesapeake Florida Gas Division/Central Florida Gas (Florida PSC) $ 8,146 $ 8,184 PSC issued order authorizing amortization and retention of net ADIT liability by the Company in February 2019.

Florida PSC's final order was issued in February 2019.

Excluding GRIP, tax savings arising from the TCJA rate reduction will be retained by the Company.

Tax savings for 2018 will be refunded to customers in 2020 through the annual GRIP cost recovery mechanism.

Future customer GRIP surcharges will be adjusted to reflect tax savings associated with TCJA.

FPU Natural Gas (excludes Fort Meade and Indiantown) (Florida PSC) $ 19,166 $ 19,257 Same treatment on a net basis as Chesapeake Florida Gas Division (above).

Same treatment on a net basis as Chesapeake Florida Gas Division (above).

FPU Fort Meade and Indiantown Divisions $ 306 $ 309 Same treatment on a net basis as Chesapeake Florida Gas Division (above).

Tax rate reduction:

The impact was immaterial for the divisions.

GRIP (Applicable to Fort Meade division only):

Same treatment as Chesapeake Florida Gas Division (above).

FPU Electric (Florida PSC) $ 6,631 $ 6,694 In January 2019, PSC issued order approving amortization of ADIT through purchased power cost recovery, storm reserve and rates.

TCJA benefit is provided to customers through a combination of reductions to the fuel cost recovery rate, base rates, as well as application to the storm reserve over the next several years.

Elkton Gas (Maryland PSC) $ 1,124 $ 1,124 PSC approved amortization of ADIT in March 2018.

Implemented one-time bill credit (totaling less than $0.1 million) in May 2020.

Customer rates were adjusted in April 2020.

Environmental Commitments and Contingencies

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and Winter Haven, Key West, Pensacola, Sanford and West Palm Beach, Florida.

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As of September 30, 2020 and December 31, 2019, we had approximately $ 6.2 million and $ 8.0 million, respectively, in environmental liabilities related to FPU’s MGP sites in Key West, Pensacola, Sanford and West Palm Beach.

As of March 31, 2021 and December 31, 2020, we had approximately $ 5.7 million and $ 5.9 million, respectively, in environmental liabilities related to FPU’s MGP sites in Key West, Pensacola, Sanford and West Palm Beach.

FPU has approval to recover, from insurance and through customer rates, up to $ 14.0 million of its environmental costs related to its MGP sites.

As of September 30, 2020 and December 31, 2019, we had recovered approximately $ 12.3 million and $ 11.9 million, respectively, leaving approximately $ 1.7 million and $ 2.1 million, respectively, in regulatory assets for future recovery of environmental costs from FPU’s customers.

As of March 31, 2021 and December 31, 2020, we had recovered approximately $ 12.5 million and $ 12.4 million, respectively, leaving approximately $ 1.5 million and $ 1.6 million, respectively, in regulatory assets for future recovery of environmental costs from FPU’s customers.

Environmental liabilities for our MGP sites are recorded on an undiscounted basis based on the estimate of future costs provided by independent consultants.

We continue to expect that all costs related to environmental remediation and related activities, including any potential future remediation costs for which we do not currently have approval for regulatory recovery, will be recoverable from customers through rates.

The following is a summary of our remediation status and estimated costs to implement clean-up of our key MGP sites:

The following is a summary of our remediation status and estimated costs to implement clean-up of our key MGP site:

MGP Site (Jurisdiction) Status Estimated Clean-Up Costs

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Between $3.3 million to $14.2 million, including costs associated with the relocation of FPU’s operations at this site, and any potential costs associated with future redevelopment of the properties.

Sanford (Florida) In March 2018, the United States Environmental Protection Agency ("EPA") approved a "site-wide ready for anticipated use" status, which is the final step before delisting a site.

Construction has been completed and restrictive covenants are in place to ensure protection of human health.

The only remaining activity is long-term groundwater monitoring.

FPU's remaining remediation expenses, including attorneys' fees and costs, are anticipated to be immaterial.

Winter Haven (Florida) Remediation is ongoing.

Not expected to exceed $0.4 million.

Seaford (Delaware) Conducted investigations of on-site and off-site impacts in the vicinity of the site, from 2014 through 2018, and submitted the findings to Delaware Department of Natural Resources and Environmental Control ("DNREC") in a March 2019 report.

An interim action involving air-sparging/vapor extraction is being implemented, in accordance with the DNREC-approved Work Plan.

Between $0.2 million and $0.5 million.

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The Environmental Protection Agency has approved a "site-wide ready for anticipated use" status for the Sanford, Florida MGP site, which is the final step before delisting a site.

The remaining remediation expenses for the Sanford MGP site are immaterial.

Remediation is ongoing for the Winter Haven, Florida and the Seaford, Delaware MGP sites and the estimated clean-up costs are between $ 0.2 million to $ 0.9 million for both sites.

Other Commitments and Contingencies

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The agreements were effective as of April 1, 2020 and expire on March 31, 2023.

Previously, our Delmarva Peninsula natural gas distribution operations had asset management agreements with PESCO to manage their natural gas transportation and storage capacity.

See Note 3, Acquisitions and Divestitures, for additional details regarding the sale of PESCO's assets and contracts.

In May 2019, FPU natural gas distribution operations and Eight Flags entered into separate asset management agreements with Emera Energy Services, Inc.

FPU natural gas distribution operations and Eight Flags have entered into separate asset management agreements with Emera Energy Services, Inc.

to manage their natural gas transportation capacity.

The parties also entered into long-term agreements for a 10 -year term that commenced in July 2020.

Chesapeake Utilities' Florida Division has firm transportation service contracts with Florida Gas Transmission Company ("FGT") and Gulfstream Natural Gas System, LLC ("Gulfstream").

These agreements are for a 10 -year term that commenced in November 2020 and expire in October 2030.

Chesapeake Utilities' Florida Division has firm transportation service contracts with FGT and Gulfstream.

Pursuant to a capacity release program approved by the Florida PSC, all of the capacity under these agreements has been released to various third parties.

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Failure to comply with the ratios specified in the Gulf Power agreement could also result in FPU having to provide an irrevocable letter of credit.

As of September 30, 2020, FPU was in compliance with all of the requirements of its fuel supply contracts.

As of March 31, 2021, FPU was in compliance with all of the requirements of its fuel supply contracts.

Eight Flags provides electricity and steam generation services through its CHP plant located on Amelia Island, Florida.

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The Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain letters of credit securing our subsidiaries' obligations.

The maximum authorized liability under such guarantees and letters of credit as of September 30, 2020 was $ 20.0 million.

The aggregate amount guaranteed at September 30, 2020 was approximately $ 7.9 million with the guarantees expiring on various dates through September 24, 2021.

The amounts related to PESCO were immaterial and were fully terminated in October 2020.

See Note 3, Acquisitions and Divestitures , for additional details on the sale of assets and contracts for PESCO.

Chesapeake Utilities also guarantees the payment of FPU’s first mortgage bonds.

The maximum exposure under this guarantee is the outstanding principal plus accrued interest balances.

The outstanding principal balances of FPU’s first mortgage bonds approximate their carrying values.

See Note 15 , Long-Term Debt , for further details.

As of September 30, 2020, we have issued letters of credit totaling approximately $ 4.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions and our current and previous primary insurance carriers.

The maximum authorized liability under such guarantees and letters of credit as of March 31, 2021 was $ 20.0 million.

The aggregate amount guaranteed at March 31, 2021 was approximately $ 8.3 million with the guarantees expiring on various dates through March 30, 2022.

As of March 31, 2021, we have issued letters of credit totaling approximately $ 4.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions and our current and previous primary insurance carriers.

These letters of credit have various expiration dates through October 5, 2021.

There have been no drawings on these letters of credit as of September 30, 2020.

We do not anticipate that the counterparties will draw upon these letters of credit, and we expect that they will be renewed to the extent necessary in the future.

At September 30, 2020, letters of credit associated with PESCO were fully terminated.

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We have not drawn on these letters of credit as of March 31, 2021 and do not anticipate that the counterparties will draw upon these letters of credit.

We expect that they will be renewed to the extent necessary in the future.

Segment Information

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• Unregulated Energy.

Includes energy transmission, energy generation (the operations of our Eight Flags' CHP plant), propane operations, and the new mobile compressed natural gas distribution and pipeline solutions subsidiary.

Includes energy transmission, energy generation (the operations of our Eight Flags' CHP plant), propane operations, and mobile compressed natural gas distribution and pipeline solutions subsidiary.

Also included in this segment are other unregulated energy services, such as energy-related merchandise sales and heating, ventilation and air conditioning, plumbing and electrical services.

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Effective in the third quarter of 2019, the natural gas marketing and related services subsidiary (PESCO), previously reported in the Unregulated Energy segment, was reflected in discontinued operations.

See Note 3, Acquisitions and Divestitures for additional details of the sale of PESCO.

The remainder of our operations are presented as “Other businesses and eliminations,” which consists of unregulated subsidiaries that own real estate leased to Chesapeake Utilities, as well as certain corporate costs not allocated to other operations.

The following table presents financial information about our reportable segments:

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in thousands)

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Operating income 51,597 42,134

Other income (expense), net ( 40 ) ( 351 ) 2,997 ( 731 )

Other income, net 385 3,319

Interest charges 5,105 5,814

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Income from Continuing Operations 34,472 29,041

Income (loss) from Discontinued Operations, Net of Tax ( 19 ) ( 630 ) 165 ( 1,388 )

Loss from Discontinued Operations, Net of Tax ( 6 ) ( 111 )

Net Income $ 34,466 $ 28,930

(1) All significant intersegment revenues are billed at market rates and have been eliminated from consolidated operating revenues.

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(in thousands) September 30, 2020 December 31, 2019

(in thousands) March 31, 2021 December 31, 2020

Identifiable Assets

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Common Stock Issuances

On June 30, 2020, we filed a shelf registration statement with the SEC to facilitate the issuance of our common stock from time to time.

On August 17, 2020, we filed a prospectus supplement under the shelf registration statement for an ATM equity program under which we may issue and sell shares of our common stock up to an aggregate offering price of $ 75.0 million.

In September 2020, we issued 0.1 million shares of common stock at price per share of $ 83.21 and received net proceeds of approximately $ 10.2 million, after deducting commissions and other fees of $ 0.4 million.

In October 2020, we issued an additional 0.6 million shares at price per share of $ 82.88 and received approximately $ 50.8 million in net proceeds, after deducting commissions and other fees of $ 1.1 million.

In June 2020, we filed a shelf registration statement with the SEC to facilitate the issuance of our common stock from time to time.

In August 2020, we filed a prospectus supplement under the shelf registration statement for an ATM equity program under which we may issue and sell shares of our common stock up to an aggregate offering price of $ 75.0 million.

In the third and fourth quarters of 2020, we issued 0.7 million shares of common stock at an average price per share of $ 82.93 and received net proceeds of approximately $ 61.0 million, after deducting commissions and other fees of $ 1.5 million.

We maintain an effective shelf registration statement with the SEC for the issuance of shares under our DRIP.

Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may consider issuing additional shares under the direct stock purchase component of the DRIP.

In the third quarter of 2020, we issued 0.1 million shares at price per share of $ 84.90 and received net proceeds of $ 9.0 million under the DRIP.

In October 2020, we issued an additional 0.1 million shares at price per share of $ 86.99 and received approximately $ 13.0 million in net proceeds.

We intend to use the net proceeds from the ATM equity program and the DRIP, after deducting the commissions or other fees and related offering expenses payable by us, for general corporate purposes, including, but not limited to, financing of capital expenditures, repayment of short-term debt, financing acquisitions, investing in subsidiaries, and general working capital purposes.

Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may issue additional shares under the direct stock purchase component of the DRIP.

In the third and fourth quarters of 2020, we issued 0.3 million shares at an average price per share of $ 86.12 and received net proceeds of $ 22.0 million under the DRIP.

In the first quarter of 2021, we issued less than 0.1 million shares at an average price per share of $ 109.05 and received net proceeds of $ 1.9 million under the DRIP.

In April of 2021, we issued less than 0.1 million shares at an average price per share of $ 115.35 and received net proceeds of $ 1.0 million under the DRIP.

We used the net proceeds from the ATM equity program and the DRIP, after deducting the commissions or other fees and related offering expenses payable by us, for general corporate purposes, including, but not limited to, financing of capital expenditures, repayment of short-term debt, financing acquisitions, investing in subsidiaries, and general working capital purposes.

Accumulated Other Comprehensive Loss

Defined benefit pension and postretirement plan items, unrealized gains (losses) of our propane swap agreements and natural gas swaps and futures contracts, designated as commodity contracts cash flow hedges, and the unrealized gains (losses) of our interest rate swap agreements designated as cash flow hedges are the components of our accumulated other comprehensive loss.

The following tables present the changes in the balance of accumulated other comprehensive (loss)/income as of September 30, 2020 and 2019.

All amounts except the stranded tax reclassification are presented net of tax.

Defined benefit pension and postretirement plan items, unrealized gains (losses) of our propane swap agreements designated as commodity contracts cash flow hedges, and the unrealized gains (losses) of our interest rate swap agreements designated as cash flow hedges are the components of our accumulated other comprehensive loss.

The following tables present the changes in the balance of accumulated other comprehensive loss as of March 31, 2021 and 2020.

All amounts in the following tables are presented net of tax.

Defined Benefit Commodity Interest Rate

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Amounts reclassified from accumulated other comprehensive income (loss) 63 ( 2,205 ) ( 3 ) ( 2,145 )

Net current-period other comprehensive income 198 2,450 ( 10 ) 2,638

As of September 30, 2020 $ ( 4,735 ) $ 1,116 $ ( 10 ) $ ( 3,629 )

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Net current-period other comprehensive income (loss) 63 166 ( 2 ) 227

As of March 31, 2021 $ ( 5,083 ) $ 2,475 $ ( 30 ) $ ( 2,638 )

(in thousands)

As of December 31, 2019 $ ( 4,933 ) $ ( 1,334 ) $ — $ ( 6,267 )

Other comprehensive income (loss) before reclassifications ( 80 ) 1,780 — 1,700

Other comprehensive income before reclassifications — 895 — 895

Amounts reclassified from accumulated other comprehensive income/(loss) 66 ( 888 ) — ( 822 )

Net prior-period other comprehensive income 66 7 — 73

Prior-year reclassification — ( 115 ) — ( 115 )

As of September 30, 2019 $ ( 5,696 ) $ 293 $ — $ ( 5,403 )

The following table presents amounts reclassified out of accumulated other comprehensive loss for the three and nine months ended September 30, 2020 and 2019.

As of March 31, 2020 $ ( 4,867 ) $ ( 1,327 ) $ — $ ( 6,194 )

The following table presents amounts reclassified out of accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020.

Deferred gains or losses for our commodity contracts and interest rate swap cash flow hedges are recognized in earnings upon settlement.

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

(in thousands)

2 unchanged sentences

( 104 ) ( 108 )

( 108 ) ( 44 ) ( 323 ) ( 370 )

Total before income taxes ( 85 ) ( 89 )

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$ 3,047 $ 1,227

Natural gas swaps (2)(3)

Natural gas futures (2)(3)

— 348 — ( 350 )

Total before income taxes 116 634 1,581 805

Income tax expense ( 842 ) ( 339 )

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Interest rate swap agreements $ 4 $ —

Total before income taxes 34 — 45 —

Income tax expense ( 1 ) —

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See Note 13, Derivative Instruments , for additional details.

(3) PESCO's results are reflected as discontinued operations in our condensed consolidated statements of income.

Amortization of defined benefit pension and postretirement plan items is included in other expense, net gains and losses on propane swap agreements, natural gas swaps, and natural gas futures contracts are included in cost of sales, the realized gain or loss on interest rate swap agreements is recognized as a component of interest charges in the accompanying condensed consolidated statements of income.

The income tax benefit is included in income tax expense in the accompanying condensed consolidated statements of income.

Table of Co ntents

Employee Benefit Plans

Net periodic benefit costs for our pension and post-retirement benefits plans for the three and nine months ended September 30, 2020 and 2019 are set forth in the following tables:

Pension Plan FPU

Pension Plan Chesapeake SERP Chesapeake

Postretirement

For the Three Months Ended September 30, 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019

(in thousands)

Interest cost $ 46 $ 104 $ 518 $ 614 $ 16 $ 16 $ 8 $ 10 $ 10 $ 12

Expected return on plan assets ( 42 ) ( 127 ) ( 745 ) ( 693 ) — — — — — —

Amortization of prior service credit — — — — — — ( 19 ) ( 19 ) — —

Amortization of net loss 65 101 135 128 5 17 12 11 — —

Net periodic cost (benefit) 69 78 ( 92 ) 49 21 33 1 2 10 12

Settlement expense — — — — — 58 — — — —

Amortization of pre-merger regulatory asset — — — 162 — — — — 2 2

Total periodic cost $ 69 $ 78 $ ( 92 ) $ 211 $ 21 $ 91 $ 1 $ 2 $ 12 $ 14

Net periodic benefit costs for our pension and post-retirement benefits plans for the three months ended March 31, 2021 and 2020 are set forth in the following tables:

Pension Plan FPU

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Postretirement

For the Nine Months Ended September 30, 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019

For the Three Months Ended March 31, 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

(in thousands)

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Amortization of prior service credit — — — — — — ( 19 ) ( 19 ) — —

Amortization of net loss 195 304 405 386 15 68 36 35 — —

Amortization of net (gain) loss 60 65 155 135 7 5 8 12 ( 2 ) —

Net periodic cost (benefit) 54 69 ( 246 ) ( 92 ) 19 21 ( 5 ) 1 4 10

Settlement expense — — — — — 58 — — — —

Amortization of pre-merger regulatory asset — — — — — — — — — 2

Total periodic cost $ 207 $ 237 $ ( 276 ) $ 694 $ 63 $ 184 $ 3 $ 6 $ 36 $ 42

We expect to record immaterial pension and post-retirement benefit costs for 2020.

Total periodic cost (benefit) $ 54 $ 69 $ ( 246 ) $ ( 92 ) $ 19 $ 21 $ ( 5 ) $ 1 $ 4 $ 12

We expect to record $ 0.7 million in pension and post-retirement benefit for 2021.

The components of our net periodic costs have been recorded or reclassified to other expense, net in the condensed consolidated statements of income.

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The portion of the unrecognized pension and postretirement benefit costs related to FPU’s unregulated operations and Chesapeake Utilities' operations is recorded to accumulated other comprehensive loss.

Table of Co ntents

The following tables present the amounts included in the regulatory asset and accumulated other comprehensive loss that were recognized as components of net periodic benefit cost during the three and nine months ended September 30, 2020 and 2019:

For the Three Months Ended September 30, 2020 Chesapeake

Plan Chesapeake SERP Chesapeake

Postretirement

(in thousands)

Prior service credit $ — $ — $ — $ ( 19 ) $ — $ ( 19 )

Net loss 65 135 5 12 — 217

Total recognized in net periodic benefit cost 65 135 5 ( 7 ) — 198

Recognized from accumulated other comprehensive loss/(gain) (1)

65 26 5 ( 7 ) — 89

Recognized from regulatory asset — 109 — — — 109

Total $ 65 $ 135 $ 5 $ ( 7 ) $ — $ 198

For the Three Months Ended September 30, 2019 Chesapeake

Plan Chesapeake SERP Chesapeake

Postretirement

(in thousands)

Prior service credit $ — $ — $ — $ ( 19 ) $ — $ ( 19 )

Net loss 101 128 17 11 — 257

Total recognized in net periodic benefit cost 101 128 17 ( 8 ) — 238

Recognized from accumulated other comprehensive loss/(gain) (1)

101 24 ( 93 ) ( 8 ) — 24

Recognized from regulatory asset — 104 — — — 104

Total $ 101 $ 128 $ ( 93 ) $ ( 8 ) $ — $ 128

For the Nine Months Ended September 30, 2020 Chesapeake

For the Three Months Ended March 31, 2021 Chesapeake

Plan Chesapeake SERP Chesapeake

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Total $ 60 $ 155 $ 7 $ ( 11 ) $ ( 2 ) $ 209

For the Nine Months Ended September 30, 2019 Chesapeake

For the Three Months Ended March 31, 2020 Chesapeake

Plan Chesapeake SERP Chesapeake

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(1) See Note 9 , Stockholders' Equity .

Table of Co ntents

During the three and nine months ended September 30, 2020, we contributed approximately $ 0.1 million and $ 0.3 million, respectively, to the Chesapeake Pension Plan and approximately $ 0.5 million and $ 2.6 million, respectively, to the FPU Pension Plan.

During the three months ended March 31, 2021, we contributed approximately $ 0.1 million to the Chesapeake Pension Plan and approximately $ 0.4 million to the FPU Pension Plan.

We expect to contribute approximately $ 0.3 million and $ 2.1 million, respectively, to the Chesapeake Pension Plan and FPU Pension Plans during 2021, which represents the minimum annual contribution payments required.

A provision in the CARES Act, which was passed by Congress and signed into law by President Trump in March 2020, authorized the deferral of 2020 pension contributions to January 1, 2021.

Despite this authorization, we have not deferred, and do not expect to defer, any of our 2020 pension plan contributions to 2021.

The Chesapeake SERP, the Chesapeake Postretirement Plan and the FPU Medical Plan are unfunded and are expected to be paid out of our general funds.

Cash benefits paid under the Chesapeake SERP for the three and nine months ended September 30, 2020 were immaterial and $ 0.1 million, respectively.

Cash benefits paid under the Chesapeake SERP for the three months ended March 31, 2021 were immaterial.

We expect to pay total cash benefits of approximately $ 0.2 million under the Chesapeake SERP in 2021.

Cash benefits paid under the Chesapeake Postretirement Plan, primarily for medical claims for the three and nine months ended September 30, 2020 were immaterial.

Cash benefits paid under the Chesapeake Postretirement Plan, primarily for medical claims for the three months ended March 31, 2021 were $ 0.2 million.

We estimate that approximately $ 0.2 million will be paid for such benefits under the Chesapeake Postretirement Plan in 2021.

Cash benefits paid under the FPU Medical Plan, primarily for medical claims for the three and nine months ended September 30, 2020, were immaterial.

Cash benefits paid under the FPU Medical Plan, primarily for medical claims for the three months ended March 31, 2021, were immaterial.

We estimate that approximately $ 0.1 million will be paid for such benefits under the FPU Medical Plan in 2021.

The investment balances at September 30, 2020 and December 31, 2019, consisted of the following:

(in thousands) September 30,

The investment balances at March 31, 2021 and December 31, 2020, consisted of the following:

(in thousands) March 31,

2021 December 31,

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We classify these investments as trading securities and report them at their fair value.

For the three months ended September 30, 2020 and 2019, we recorded a net unrealized gain of approximately $ 0.6 million and a net unrealized loss of approximately $ 0.1 million, respectively, in other expense, net in the condensed consolidated statements of income related to these investments.

For the nine months ended September 30, 2020 and 2019, we recorded a net unrealized gain of approximately $ 0.4 million and $ 1.0 million, respectively, in other expense, net in the condensed consolidated statements of income related to these investments.

For the investment in the Rabbi Trust, we also have recorded an associated liability, which is included in other pension and benefit costs in the condensed consolidated balance sheets and is adjusted each period for the gains and losses incurred by the investments in the Rabbi Trust.

For the three months ended March 31, 2021 and 2020, we recorded a net unrealized gain of approximately $ 0.4 million and a net unrealized loss of approximately $ 1.5 million, respectively, in other income, net in the condensed consolidated statements of income related to these investments.

For the investment in the Rabbi Trust, we also have recorded an associated liability, which is included in other pension and benefit costs in the consolidated balance sheets and is adjusted each period for the gains and losses incurred by the investments in the Rabbi Trust.

Share-Based Compensation

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The compensation cost is based primarily on the fair value of the shares awarded, using the estimated fair value of each share on the date it was granted and the number of shares to be issued at the end of the service period.

The table below presents the amounts included in net income related to share-based compensation expense for the three and nine months ended September 30, 2020 and 2019:

Table of Co ntents

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

The table below presents the amounts included in net income related to share-based compensation expense for the three months ended March 31, 2021 and 2020:

Three Months Ended

(in thousands)

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Non-employee Directors

Shares granted to non-employee directors are issued in advance of the directors’ service periods and are fully vested as of the date of the grant.

Shares granted to non-employee directors are issued in advance of the directors’ service periods and are fully vested as of the grant date.

We record a deferred expense equal to the fair value of the shares issued and amortize the expense equally over a service period of one year.

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accordingly, 8,870 shares, with a weighted average fair value of $ 84.47 per share, were issued and vested in 2020.

At September 30, 2020, there was approximately $ 0.4 million of unrecognized compensation expense related to shares granted to non-employee directors.

At March 31, 2021, there was approximately $ 0.1 million of unrecognized compensation expense related to shares granted to non-employee directors.

This expense will be recognized over the remaining service period ending on the date of the 2021 Annual Meeting of Stockholders.

In January 2020, a newly appointed member of the Board of Directors received a pro-rated retainer of 254 shares of common stock under the SICP to serve as a non-employee director through the 2020 Annual Meeting of Stockholders.

The shares awarded to the non-employee director immediately vested upon issuance in January 2020, had a weighted average fair value of $ 95.83 per share, and the expense was recognized over the remaining service period ending on the date of the 2020 Annual Meeting of Stockholders.

Key Employees

The table below presents the summary of the stock activity for awards to key employees for the nine months ended September 30, 2020:

The table below presents the summary of the stock activity for awards to key employees for the three months ended March 31, 2021:

Number of Shares Weighted Average

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Expired ( 852 ) $ 74.85

Outstanding—September 30, 2020 186,209 $ 86.98

In February 2020, our Board of Directors granted awards of 69,345 shares of common stock to key employees under the SICP.

Forfeited ( 5,384 ) $ 93.39

Outstanding—March 31, 2021 193,920 $ 94.61

In February 2021, we granted awards of 66,425 shares of common stock to key employees under the SICP.

The shares granted are multi-year awards that will vest at the end of the three-year service period ending December 31, 2023.

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For the market-based conditions, we used the Monte Carlo valuation to estimate the fair value of each market-based award granted.

In March 2020, upon the appointment of certain of our executive officers, we withheld shares with a value at least equivalent to each such executive officer’s minimum statutory obligation for applicable income and other employment taxes related to shares that we awarded in February 2020 for the performance period ended December 31, 2019, remitted the cash to the appropriate taxing authorities, and paid the balance of such awarded shares to each such executive officer.

In March 2021, upon the election of certain of our executive officers, we withheld shares with a value at least equivalent to each such executive officer’s minimum statutory obligation for applicable income and other employment taxes related to shares that vested and were paid in February 2021 for the performance period ended December 31, 2020, remitted the cash to the appropriate taxing authorities, and paid the balance of such awarded shares to each such executive officer.

We withheld 14,020 shares, based on the value of the shares on their award date.

Total combined payments for the employees’ tax obligations to the taxing authorities were approximately $ 1.5 million.

At September 30, 2020, the aggregate intrinsic value of the SICP awards granted to key employees was approximately $ 15.7 million.

At September 30, 2020, there was approximately $ 4.9 million of unrecognized compensation cost related to these awards, which is expected to be recognized as expense for the remainder of 2020 through 2022.

Table of Co ntents

At March 31, 2021, the aggregate intrinsic value of the SICP awards granted to key employees was approximately $ 22.5 million.

At March 31, 2021, there was approximately $ 7.3 million of unrecognized compensation cost related to these awards, which is expected to be recognized as expense for the remainder of 2021 through 2023.

Stock Options

There were no stock options outstanding or issued during the nine months ended September 30, 2020 and 2019.

There were no stock options outstanding or issued during the three months ended March 31, 2021 and 2020.

Derivative Instruments

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Our propane distribution operations may also enter into fair value hedges of their inventory or cash flow hedges of their future purchase commitments in order to mitigate the impact of wholesale price fluctuations.

Occasionally, we may enter into interest rate swap agreements to mitigate risk associated with changes in short-term borrowing rates.

As of September 30, 2020, our natural gas and electric distribution operations did not have any outstanding derivative contracts.

PESCO's Derivative Instruments

As discussed in Note 3, Acquisitions and Divestitures , during the fourth quarter of 2019, we sold PESCO's assets and contracts and, therefore, no longer have natural gas futures and contracts recorded in our condensed consolidated financial statements.

Commodity Derivative Activities

As of September 30, 2020, the volume of our commodity derivative contracts were as follows:

We have also entered into interest rate swap agreements to mitigate risk associated with changes in short-term borrowing rates.

As of March 31, 2021, our natural gas and electric distribution operations did not have any outstanding derivative contracts.

Volume of Derivative Activity

As of March 31, 2021, the volume of our commodity derivative contracts were as follows:

Business unit Commodity Quantity hedged (in millions) Designation Longest Expiration date of hedge

Sharp Propane (gallons) 21.7 Cash flows hedges May 2023

Sharp Propane (gallons) 18.2 Cash flows hedges March 2024

Sharp entered into futures and swap agreements to mitigate the risk of fluctuations in wholesale propane index prices associated with the propane volumes expected to be purchased during the heating season.

Under the futures and swap agreements, Sharp will receive the difference between:

(i) the index prices (Mont Belvieu prices for September 2020 through May 2023), and (ii) the per gallon propane swap prices, to the extent the index prices exceed the contracted prices.

Under the futures and swap agreements, Sharp will receive the difference between (i) the index prices (Mont Belvieu prices in March 2021 through March 2024) and (ii) the per gallon propane swap prices, to the extent the index prices exceed the contracted prices.

If the index prices are lower than the swap prices, Sharp will pay the difference.

We designated and accounted for propane swaps as cash flows hedges.

We designated and accounted for the propane swaps as cash flows hedges.

The change in the fair value of the swap agreements is recorded as unrealized gain (loss) in other comprehensive income (loss) and later recognized in the statement of income in the same period and in the same line item as the hedged transaction.

We expect to reclassify approximately $ 1.0 million from accumulated other comprehensive income (loss) to earnings during the next 12 -month period ended September 30, 2021.

We expect to reclassify approximately $ 3.2 million from accumulated other comprehensive income (loss) to earnings during the next 12 -month period ended March 31, 2022.

Interest Rate Swap Activities

We manage interest rate risk by entering into derivative contracts to hedge the variability in cash flows attributable to changes in the short-term borrowing rates.

In the second quarter of 2020, we entered into interest rate swaps with notional amounts totaling $ 100.0 million associated with three of our short-term lines of credit through October 2020.

The interest rate swaps were entered to hedge the variability in cash flows attributable to changes in the short-term borrowing rates during this period.

Pricing on the interest rate swaps range between 0.2615 and 0.3875 percent for the period.

In the fourth quarter of 2020, we entered into interest rate swaps with notional amount of $ 60.0 million through December 2021 with pricing of 0.20 and 0.205 percent for the period associated with our outstanding borrowing under the Revolver.

In February 2021, we entered into an additional interest rate swap with a notional amount of $ 40.0 million through December 2021 with pricing of 0.17 percent.

Our short-term borrowing is based on the 30-day LIBOR rate.

3 unchanged sentences

When the interest rate swaps settle, the realized gain or loss will be recorded in the income statement and recognized as a component of interest charges.

We expect to reclassify less than $ 0.1 million from accumulated other comprehensive income (loss) to earnings during the next 12 -month period ended September 30, 2021.

Table of Co ntents

We expect to reclassify less than $ 0.1 million from accumulated other comprehensive income (loss) to earnings during the next 12 -month period ended March 31, 2022.

Broker Margin

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We currently maintain a broker margin account for Sharp, with the balance related to the account is as follows:

(in thousands) Balance Sheet Location September 30, 2020 December 31, 2019

Sharp Other Current Assets $ 177 $ 2,317

(in thousands) Balance Sheet Location March 31, 2021 December 31, 2020

Sharp Other Current Liabilities $ 1,060 $ 1,505

Financial Statements Presentation

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We did not have any derivative contracts with a credit-risk-related contingency.

As of September 30, 2020 and December 31, 2019, we did not have material fair value hedges.

The fair values of the derivative contracts recorded in the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, are as follows:

The fair values of the derivative contracts recorded in the condensed consolidated balance sheets as of March 31, 2021 and December 31, 2020, are as follows:

Derivative Assets

Fair Value As Of

(in thousands) Balance Sheet Location September 30, 2020 December 31, 2019

(in thousands) Balance Sheet Location March 31, 2021 December 31, 2020

Derivatives designated as fair value hedges

Propane put options Derivative assets, at fair value $ — $ 14

Derivatives designated as cash flow hedges

3 unchanged sentences

Fair Value As Of

(in thousands) Balance Sheet Location September 30, 2020 December 31, 2019

(in thousands) Balance Sheet Location March 31, 2021 December 31, 2020

Derivatives designated as fair value hedges

Propane put options Derivative liabilities, at fair value $ — $ 23

Derivatives designated as cash flow hedges

2 unchanged sentences

Total liability derivatives $ 84 $ 127

Table of Co ntents

The effects of gains and losses from derivative instruments on the condensed consolidated financial statements are as follows:

Amount of Gain (Loss) on Derivatives:

Location of Gain For the Three Months Ended September 30, For the Nine Months Ended September 30,

Location of Gain For the Three Months Ended March 31,

(in thousands) (Loss) on Derivatives 2021 2020

Derivatives designated as fair value hedges

Propane put options Cost of sales $ ( 24 ) $ —

Derivatives designated as cash flow hedges

4 unchanged sentences

Interest rate swap agreements Other comprehensive income (loss) ( 3 ) —

Natural gas swap contracts Other comprehensive income (loss) — 4 — ( 63 )

Natural gas futures contracts Other comprehensive income (loss) — 1,612 — 2,376

Total $ 3,253 $ 1,236

Table of Co ntents

Fair Value of Financial Instruments

4 unchanged sentences

Investments - mutual funds and other - The fair values of these investments, comprised of money market and mutual funds, are recorded at fair value based on quoted net asset values of the shares.

Level 2 Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability Derivative assets and liabilities - The fair value of the propane put/call options and swap agreements are measured using market transactions for similar assets and liabilities in either the listed or over-the-counter markets.

Level 2 Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability Derivative assets and liabilities - The fair value of the propane put/call options, propane and interest rate swap agreements are measured using market transactions for similar assets and liabilities in either the listed or over-the-counter markets.

Level 3 Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (i.e.

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Financial Assets and Liabilities Measured at Fair Value

The following tables summarize our financial assets and liabilities that are measured at fair value on a recurring basis and the fair value measurements, by level, within the fair value hierarchy as of September 30, 2020 and December 31, 2019:

Fair Value Measurements Using:

As of September 30, 2020 Fair Value Quoted Prices in

As of March 31, 2021 Fair Value Quoted Prices in

Active Markets

9 unchanged sentences

Derivative liabilities $ 84 $ — $ 84 $ —

Table of Co ntents

Fair Value Measurements Using:

11 unchanged sentences

Derivative liabilities $ 127 $ — $ 127 $ —

The following table sets forth the summary of the changes in the fair value of Level 3 investments for the nine months ended September 30, 2020 and 2019:

Nine months ended September 30,

The following table sets forth the summary of the changes in the fair value of Level 3 investments for the three months ended March 31, 2021 and 2020:

Three months ended March 31,

(in thousands)

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Investment income from the Level 3 investments is reflected in other expense, (net) in the condensed consolidated statements of income.

At September 30, 2020, there were no non-financial assets or liabilities required to be reported at fair value.

At March 31, 2021, there were no non-financial assets or liabilities required to be reported at fair value.

We review our non-financial assets for impairment at least on an annual basis, as required.

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The fair value of short-term debt approximates the carrying value due to its near-term maturities and because interest rates approximate current market rates (Level 3 measurement).

At September 30, 2020, long-term debt, which includes current maturities but excludes debt issuance costs, had a carrying value of approximately $ 536.5 million, compared to the estimated fair value of $ 567.0 million.

At March 31, 2021, long-term debt, which includes current maturities but excludes debt issuance costs, had a carrying value of approximately $ 523.0 million, compared to the estimated fair value of $ 537.7 million.

At December 31, 2020, long-term debt, which includes the current maturities but excludes debt issuance costs, had a carrying value of approximately $ 523.0 million, compared to a fair value of approximately $ 548.5 million.

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The valuation technique used to estimate the fair value of long-term debt would be considered a Level 3 measurement.

Table of Co ntents

Long-Term Debt

Our outstanding long-term debt is shown below:

September 30, December 31,

March 31, December 31,

(in thousands) 2021 2020

FPU secured first mortgage bonds (1) :

9.08% bond, due June 1, 2022 $ 7,993 $ 7,990

Uncollateralized senior notes:

5.93% note, due October 31, 2023 $ 9,000 $ 9,000

5.93% note, due October 31, 2023 10,500 12,000

5.68% note, due June 30, 2026 17,400 17,400

9 unchanged sentences

2.96% note, due August 15, 2035 40,000 40,000

Term Note due February 28, 2020

debt issuance costs ( 875 ) ( 901 )

2 unchanged sentences

Total long-term debt, net of current maturities $ 508,525 $ 508,499

(1) FPU secured first mortgage bonds are guaranteed by Chesapeake Utilities.

In January 2019, we issued a $ 30 million unsecured term note through Branch Banking and Trust Company, with a maturity date of February 28, 2020.

This note was paid in full in February 2020 utilizing our short-term borrowing facilities.

Shelf Agreements

We have entered into Shelf Agreements with Prudential, MetLife and NYL, whom are under no obligation to purchase any unsecured debt.

The following table summarizes our Shelf Agreements at September 30, 2020:

The following table summarizes our Shelf Agreements at March 31, 2021:

(in thousands) Total Borrowing Capacity Less:

8 unchanged sentences

150,000 ( 140,000 ) — 10,000

Total Shelf Agreements as of September 30, 2020 $ 670,000 $ ( 360,000 ) $ — $ 310,000

Table of Co ntents

(1) In January 2020, we requested and Prudential accepted our request to purchase $ 50.0 million of our unsecured debt.

We issued the Shelf Notes in July 2020 at the rate of 3.00 percent per annum.

( 2) In April 2020, the Prudential Shelf Agreement was amended to increase the available borrowing capacity to $ 150.0 million.

The Shelf Agreement expires in April 2023.

(3) In May 2020, we reached into an agreement with MetLife to provide a new $ 150.0 million MetLife Shelf Agreement for a three-year term ending May 2023.

(4) In February 2020, we requested and NYL accepted our request to purchase $ 40.0 million of our unsecured debt.

The Shelf Notes were issued in August 2020 at the rate of 2.96 percent per annum.

The Shelf Agreement expires in November 2021.

Total Shelf Agreements as of March 31, 2021 $ 670,000 $ ( 360,000 ) $ — $ 310,000

(1) The Prudential, MetLife and NYL Shelf Agreements expire in April 2023, May 2023 and November 2021, respectively.

The Uncollateralized Senior Notes, Shelf Agreements or Shelf Notes set forth certain business covenants to which we are subject when any note is outstanding, including covenants that limit or restrict our ability, and the ability of our subsidiaries, to incur indebtedness, or place or permit liens and encumbrances on any of our property or the property of our subsidiaries.

Short-Term Borrowings

At September 30, 2020 and December 31, 2019, we had $ 216.4 million and $ 247.4 million, respectively, of short-term borrowings outstanding at weighted average interest rates of 1.28 percent and 2.62 percent, respectively.

Our short-term borrowings balance at September 30, 2020 and December 31, 2019, included book overdrafts of $ 0.9 million and $ 3.2 million, respectively.

Included in the September 30, 2020 balance, is $ 100.0 million in short-term debt for which we have entered into interest rate swap agreements.

In the second quarter of 2020, we entered into interest rate swaps with notional amounts totaling $ 100.0 million associated with three of our short-term lines of credit through October 2020.

The interest rate swaps were entered to hedge the variability in cash flows attributable to changes in the short-term borrowing rates during this period.

The fixed swap rates will range between 0.2615 and 0.3875 percent for the period.

Our short-term borrowing is based on the 30-day LIBOR rate.

The interest swap is cash settled monthly as the counter-party pays us the 30-day LIBOR rate less the fixed rate.

In September 2020, we entered into a new $ 375.0 million syndicated Revolver with six participating lenders.

The Revolver expires on September 29, 2021 and has a commitment fee of 0.175 percent and an interest rate of 1.125 percent over LIBOR.

As a result of entering into the Revolver, in September 2020, we terminated and paid outstanding balances for all of our previously existing bilateral lines of credit and the previous revolving credit facility.

Our available credit under the new Revolver at September 30, 2020 was $ 154.7 million.

At March 31, 2021 and December 31, 2020, we had $ 156.1 million and $ 175.6 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 1.11 percent and 1.28 percent.

Included in the March 31, 2021 balance, is $ 100.0 million in short-term debt for which we have entered into interest rate swap agreements.

In September 2020, we entered into a $ 375.0 million syndicated Revolver with six participating lenders.

As a result of entering into the Revolver, in September 2020, we terminated and paid all outstanding balances under the previously existing bilateral lines of credit and the previous revolving credit facility.

The availability of funds under the Revolver is subject to conditions specified in the credit agreement, all of which we currently satisfy.

These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in the agreement.

We are required by the financial covenants our Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio of no greater than 65 percent.

As of September 30, 2020, we are in compliance with all of our debt covenants.

These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements.

We are required by the financial covenants in the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio of no greater than 65 percent.

As of March 31, 2021, we are in compliance with this covenant.

The Revolver expires on September 29, 2021 and is available to provide funds for our short-term cash needs to meet seasonal working capital requirements and to temporarily fund portions of our capital expenditures.

Borrowings under the Revolver are subject to a pricing grid, including the commitment fee and the interest rate charged.

Our pricing is adjusted each quarter based upon total indebtedness to total capitalization ratio.

As of March 31, 2021, the pricing under the Revolver included an unused commitment fee of 0.15 percent and an interest rate of 1.0 percent over LIBOR.

Our available credit under the Revolver at March 31, 2021 was $ 214.1 million.

As of March 31, 2021, we had issued $ 4.8 million in letters of credit to various counterparties under the syndicated Revolver.

Although the letters of credit are not included in the outstanding short-term borrowings and we do not anticipate they will be drawn upon by the counterparties, the letters of credit reduce the available borrowings under our syndicated Revolver.

In the fourth quarter of 2020, we entered into interest rate swaps with a notional amount of $ 60.0 million through December 2021 with pricing of 0.20 and 0.205 percent for the period associated with our outstanding borrowing under the Revolver.

In February 2021, we entered into an additional interest rate swap with a notional amount of $ 40.0 million through December 2021 with pricing of 0.17 percent.

Our short-term borrowing is based on the 30-day LIBOR rate.

The interest rate swaps are cash settled monthly as the counter-party pays us the 30-day LIBOR rate less the fixed rate.

We are authorized by our Board of Directors to borrow up to $ 375.0 million of short-term debt, as required.

We have entered into lease arrangements for office space, land, equipment, pipeline facilities and warehouses.

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While lease liabilities are not re-measured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred.

A 100 -basis-point increase in CPI would have resulted in immaterial additional annual lease costs.

A 100-basis-point increase in CPI would not have resulted in material additional annual lease costs.

Most of our leases include options to renew, with renewal terms that can extend the lease term from one to 25 years or more.

The exercise of lease renewal options is at our sole discretion.

The amounts disclosed in our condensed consolidated balance sheet at September 30, 2020 pertaining to the right-of-use assets and lease liabilities, are measured based on our current expectations of exercising our available renewal options.

Our existing leases are not subject to any restrictions or covenants which would preclude our ability

Table of Co ntents

to pay dividends, obtain financing or enter into additional leases.

As of September 30, 2020, we have not entered into any leases, which have not yet commenced, that would entitle us to significant rights or create additional obligations.

The following table presents information related to our total lease cost included in our condensed consolidated statements of income:

Three Months Ended Nine Months Ended

September 30, September 30,

The amounts disclosed in our consolidated balance sheet at March 31, 2021, pertaining to the right-of-use assets and lease liabilities, are measured based on our current expectations of exercising our available renewal options.

Our existing leases are not subject to any restrictions or covenants which preclude our ability to pay dividends, obtain financing or enter into additional leases.

As of March 31, 2021, we have not entered into any leases, which have not yet commenced, that would entitle us to significant rights or create additional obligations.

The following table presents information related to our total lease cost included in our consolidated statements of income:

Three Months Ended

( in thousands) Classification 2021 2020

1 unchanged sentence

Operations expense $ 523 $ 626

Finance lease cost:

Amortization of lease assets Depreciation and amortization — — — 650

Interest on lease liabilities Interest expense — — — 5

Net lease cost $ 627 $ 638 $ 1,882 $ 2,581

(1) Includes short-term leases and variable lease costs, which are immaterial .

The following table presents the balance and classifications of our right of use assets and lease liabilities included in our condensed consolidated balance sheet at September 30, 2020 and December 31, 2019:

(in thousands) Balance sheet classification September 30, 2020 December 31, 2019

The following table presents the balance and classifications of our right of use assets and lease liabilities included in our condensed consolidated balance sheet at March 31, 2021 and December 31, 2020:

(in thousands) Balance sheet classification March 31, 2021 December 31, 2020

Operating lease assets Operating lease right-of-use assets $ 10,510 $ 11,194

Total lease assets $ 11,077 $ 11,563

Operating lease liabilities Other accrued liabilities $ 1,724 $ 1,747

1 unchanged sentence

Total lease liabilities $ 10,849 $ 11,619

The following table presents our weighted-average remaining lease terms and weighted-average discount rates for our operating and financing leases at September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

The following table presents our weighted-average remaining lease terms and weighted-average discount rates for our operating and financing leases at March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

Weighted-average remaining lease term ( in years )

2 unchanged sentences

Operating leases 3.8 % 3.8 %

The following table presents additional information related to cash paid for amounts included in the measurement of lease liabilities included in our condensed consolidated statements of cash flows as of September 30, 2020 and 2019:

Nine Months Ended

September 30,

Three Months Ended

(in thousands) 2021 2020

Operating cash flows from operating leases $ 471 $ 527

Operating cash flows from finance leases $ — $ 5

Financing cash flows from finance leases $ — $ 650

Table of Co ntents

The following table presents the future undiscounted maturities of our operating and financing leases at September 30, 2020 and for each of the next five years and thereafter:

The following table presents the future undiscounted maturities of our operating and financing leases at March 31, 2021 and for each of the next five years and thereafter:

(in thousands) Operating

5 unchanged sentences

(1) Operating lease payments include $ 2.1 million related to options to extend lease terms that are reasonably certain of being exercised.

Table of Co ntents

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements