What changed in this filing

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Item 1. Financial Statements

2021-08-04 compared with 2021-05-04 · 300 added, 164 removed, 732 unchanged (39% of the section changed)

2 unchanged sentences

Condensed Consolidated Statements of Income (Unaudited)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in thousands, except shares and per share data)

8 unchanged sentences

Maintenance 4,259 4,143 8,300 7,979

Gain from settlement — ( 130 ) — ( 130 )

Depreciation and amortization 15,298 12,247 30,662 24,500

2 unchanged sentences

Operating Income 22,578 17,977 74,175 60,111

Other income, net 385 3,319

Other income (expense), net 1,456 ( 279 ) 1,841 3,039

Interest charges 5,054 5,054 10,159 10,868

2 unchanged sentences

Income from Continuing Operations 13,815 10,661 48,287 39,702

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

Income (Loss) from Discontinued Operations, Net of Tax ( 2 ) 295 ( 8 ) 184

Net Income $ 13,813 $ 10,956 $ 48,279 $ 39,886

4 unchanged sentences

Earnings from Continuing Operations $ 0.79 $ 0.65 $ 2.76 $ 2.42

Loss from Discontinued Operations — ( 0.01 )

Earnings from Discontinued Operations — 0.02 — 0.01

Basic Earnings Per Share of Common Stock $ 0.79 $ 0.67 $ 2.76 $ 2.43

1 unchanged sentence

Earnings from Continuing Operations $ 0.78 $ 0.64 $ 2.75 $ 2.41

Loss from Discontinued Operations — ( 0.01 )

Earnings from Discontinued Operations — 0.02 — 0.01

Diluted Earnings Per Share of Common Stock $ 0.78 $ 0.66 $ 2.75 $ 2.42

2 unchanged sentences

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in thousands)

6 unchanged sentences

Unrealized gain on commodity contract cash flow hedges, net of tax of $1,193, $651, $1,257 and $653, respectively 3,126 1,703 3,291 1,710

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

Unrealized gain/(loss) on interest rate swap cash flow hedges, net of tax of $2, $(14), $1 and $(14), respectively 6 ( 37 ) 4 ( 37 )

Total Other Comprehensive Income, net of tax 3,196 1,732 3,423 1,805

3 unchanged sentences

Condensed Consolidated Balance Sheets (Unaudited)

Assets March 31,

Assets June 30,

2021 December 31,

35 unchanged sentences

Condensed Consolidated Balance Sheets (Unaudited)

Capitalization and Liabilities March 31,

Capitalization and Liabilities June 30,

2021 December 31,

6 unchanged sentences

Retained earnings 374,936 342,969

Accumulated other comprehensive loss ( 2,638 ) ( 2,865 )

Accumulated other comprehensive income (loss) 558 ( 2,865 )

Deferred compensation obligation 7,203 5,679

28 unchanged sentences

Condensed Consolidated Statements of Cash Flows (Unaudited)

Three Months Ended

Six Months Ended

(in thousands)

5 unchanged sentences

Deferred income taxes 12,810 12,232

Gain on sale of discontinued operations — ( 200 )

Realized gain on commodity contracts and sale of assets ( 5,342 ) ( 3,496 )

16 unchanged sentences

Proceeds from sale of assets 497 4,273

Proceeds from the sale of discontinued operations — 200

Environmental expenditures ( 395 ) ( 1,948 )

5 unchanged sentences

Change in cash overdrafts due to outstanding checks ( 1,101 ) ( 1,690 )

Net repayments under line of credit agreements ( 19,528 ) 8,715

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

Net advances (repayments) under line of credit agreements ( 5,249 ) 40,578

Repayment of long-term debt, net of offering fees — ( 13 )

Repayment of long-term debt ( 10,099 ) ( 40,100 )

12 unchanged sentences

Other Comprehensive

Loss Deferred

Income/(Loss) Deferred

Compensation Treasury

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

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

Net income — — — 10,956 — — — 10,956

5 unchanged sentences

Treasury stock activities — — — — — 191 ( 191 ) —

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

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

Net income — — — 39,886 — — — 39,886

Other comprehensive income — — — — 1,805 — — 1,805

Dividend declared ($0.845 per share) — — — ( 14,009 ) — — — ( 14,009 )

Dividend reinvestment plan 25,576 13 2,273 — — — — 2,286

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

34,456 16 1,746 — — — — 1,762

Treasury stock activities — — — — — 1,116 ( 1,116 ) —

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

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

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

Net income — — — 13,813 — — — 13,813

Other comprehensive income — — — — 3,196 — — 3,196

Dividend declared ($0.480 per share) — — — ( 8,500 ) — — — ( 8,500 )

Dividend reinvestment plan 39,605 19 4,602 — — — — 4,621

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

6,830 3 2,043 — — — — 2,046

Treasury stock activities — — — — — 211 ( 211 ) —

Balance at June 30, 2021 17,567,928 $ 8,550 $ 357,520 $ 374,936 $ 558 $ 7,203 $ ( 7,203 ) $ 741,564

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

6 unchanged sentences

Treasury stock activities — — — — — 1,524 ( 1,524 ) —

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

Balance at June 30, 2021 17,567,928 $ 8,550 $ 357,520 $ 374,936 $ 558 $ 7,203 $ ( 7,203 ) $ 741,564

(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 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.

(2) Includes 117,193 , 105,087 , 107,141 , and 95,329 shares at June 30, 2021, December 31, 2020, June 30, 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 three months ended March 31, 2021 and 2020, we withheld 14,020 and 10,319 shares, respectively, for employee taxes.

For the six months ended June 30, 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.

14 unchanged sentences

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.

Chesapeake Utilities is considered an “essential business,” which has allowed us to continue operational activities and construction projects while adhering to the social distancing restrictions that were in place.

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

For example, the state of emergency in Florida was terminated in May 2021 followed by Delaware and Maryland in July 2021, resulting in reduced restrictions.

Despite these positive state orders and in light of the continued emergence and growing prevalence of the new variants of COVID-19, 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, 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.

2 unchanged sentences

Calculation of Earnings Per Share

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in thousands, except shares and per share data)

1 unchanged sentence

Income from Continuing Operations $ 13,815 $ 10,661 $ 48,287 $ 39,702

Loss from Discontinued Operations ( 6 ) ( 111 )

Income/(Loss) from Discontinued Operations ( 2 ) 295 ( 8 ) 184

Net Income $ 13,813 $ 10,956 $ 48,279 $ 39,886

1 unchanged sentence

Basic Earnings Per Share from Continuing Operations $ 0.79 $ 0.65 $ 2.76 $ 2.42

Basic Loss Per Share from Discontinued Operations — ( 0.01 )

Basic Earnings Per Share from Discontinued Operations — 0.02 — 0.01

Basic Earnings Per Share $ 0.79 $ 0.67 $ 2.76 $ 2.43

5 unchanged sentences

Diluted Earnings Per Share from Continuing Operations $ 0.78 $ 0.64 $ 2.75 $ 2.41

Diluted Loss Per Share from Discontinued Operations — ( 0.01 )

Diluted Earnings Per Share from Discontinued Operations — 0.02 — 0.01

Diluted Earnings Per Share $ 0.78 $ 0.66 $ 2.75 $ 2.42

Escambia Meter Station Asset Purchase

In June 2021, Peninsula Pipeline purchased the Escambia Meter Station from Florida Power and Light for $ 7.5 million and entered into a Transportation Service Agreement with Gulf Power Company to provide up to 530,000 Dts/d of firm service from an interconnect with FGT to Florida Power & Light Company’s Crist Lateral pipeline which provide gas supply to a natural gas fired power plant owned by Florida Power & Light in Pensacola, Florida.

Acquisition of Western Natural Gas

4 unchanged sentences

There are multiple strategic benefits to this acquisition including it:

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

(i) expanded our propane territory serviced in Florida and (ii) included 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.

1 unchanged sentence

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.

For the three months ended June 30, 2021, Western Natural Gas generated operating revenue and income of $ 0.6 million and $ 0.1 million, respectively.

For the six months ended June 30, 2021, Western Natural Gas generated operating revenue and income of $ 1.4 million and $ 0.3 million, respectively.

Acquisition of Elkton Gas

4 unchanged sentences

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

For the three months ended June 30, 2021, Elkton Gas generated operating revenue and income of $ 0.5 million and $ 0.3 million, respectively.

For the six months ended June 30, 2021, Elkton Gas generated operating revenue and income of $ 3.1 million and $ 0.9 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 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

The following table displays our revenue from continuing operations by major source based on product and service type for the three months ended June 30, 2021 and 2020:

Three months ended June 30, 2021 Three months ended June 30, 2020

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

26 unchanged sentences

$ 80,910 $ 34,773 $ ( 4,601 ) $ 111,082 $ 73,518 $ 27,740 $ ( 4,207 ) $ 97,051

(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.

(1) Total operating revenues for the three months ended June 30, 2021, include other revenue (revenues from sources other than contracts with customers) of $ 0.1 million and $ 0.09 million for our Regulated and Unregulated Energy segments, respectively, and $ 0.1 million and $ 0.04 million for our Regulated and Unregulated Energy segments, respectively, for the three months ended June 30, 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.

The following table displays our revenue from continuing operations by major source based on product and service type for the six months ended June 30, 2021 and 2020:

Six months ended June 30, 2021 Six months ended June 30, 2020

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

Energy distribution

Delaware natural gas division $ 43,340 $ — $ — $ 43,340 $ 38,325 $ — $ — $ 38,325

Florida natural gas division 17,402 — — 17,402 15,708 — — 15,708

FPU electric distribution 37,449 — — 37,449 29,920 — — 29,920

FPU natural gas distribution 50,020 — — 50,020 44,942 — — 44,942

Maryland natural gas division 13,690 — — 13,690 13,117 — — 13,117

Sandpiper natural gas/propane operations 11,885 — — 11,885 9,150 — — 9,150

Elkton Gas 3,830 — — 3,830 — — — —

Total energy distribution 177,616 — — 177,616 151,162 — — 151,162

Energy transmission

Aspire Energy — 18,484 — 18,484 — 14,335 — 14,335

Aspire Energy Express 93 — — 93 — — — —

Eastern Shore 38,589 — — 38,589 37,556 — — 37,556

Peninsula Pipeline 13,077 — — 13,077 10,185 — — 10,185

Total energy transmission 51,759 18,484 — 70,243 47,741 14,335 — 62,076

Energy generation

Eight Flags — 8,502 — 8,502 — 8,017 — 8,017

Propane operations

Propane delivery operations — 78,361 — 78,361 — 55,882 — 55,882

Energy delivery services

Marlin Gas Services — 4,340 — 4,340 — 3,557 — 3,557

Other and eliminations

Eliminations ( 27,268 ) ( 156 ) ( 9,635 ) ( 37,059 ) ( 22,430 ) ( 39 ) ( 8,749 ) ( 31,218 )

Other — 265 265 — — 265 265

Total other and eliminations ( 27,268 ) ( 156 ) ( 9,370 ) ( 36,794 ) ( 22,430 ) ( 39 ) ( 8,484 ) ( 30,953 )

Total operating revenues (1)

$ 202,107 $ 109,531 $ ( 9,370 ) $ 302,268 $ 176,473 $ 81,752 $ ( 8,484 ) $ 249,741

(1) Total operating revenues for the six months ended June 30, 2021, include other revenue (revenues from sources other than contracts with customers) of $( 0.2 ) million and $ 0.2 million for our Regulated and Unregulated Energy segments, respectively, and $ 0.8 million and $ 0.1 million for our Regulated and Unregulated Energy segments, respectively, for the six months ended June 30, 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.

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 March 31, 2021 and December 31, 2020 were as follows:

The balances of our trade receivables, contract assets, and contract liabilities as of June 30, 2021 and December 31, 2020 were as follows:

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

9 unchanged sentences

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 March 31, 2021 and 2020, we recognized revenue of $ 0.4 million.

For the three months ended June 30, 2021 and 2020, we recognized revenue of $ 0.2 million.

For each of the six months ended June 30, 2021 and 2020, we recognized revenue of $ 0.6 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 March 31, 2021, are expected to be recognized as follows:

Revenue for these businesses for the remaining performance obligations, at June 30, 2021, are expected to be recognized as follows:

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

7 unchanged sentences

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.

There were no material regulatory activities in the second 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.

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

The STRIDE plan proposes to

increase the speed of Elkton Gas' Aldyl-A pipeline replacement program and to recover the costs of the plan in the form of fixed charge rider through a proposed five-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.

In June 2021, we reached a settlement with the Maryland PSC Staff and the Maryland Office of the Peoples Counsel.

The settlement agreement is currently being reviewed by a Maryland Public Utilities Law Judge, who must issue a final recommendation to the Commission.

A final order is expected in August 2021.

Hurricane Michael:

23 unchanged sentences

Interim services began in the fourth quarter of 2019.

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

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

Winter Haven Expansion Project:

In May 2021, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with CFG for an incremental 6,800 Dts/d of firm service in the Winter Haven, Florida area.

As part of this agreement, Peninsula Pipeline will construct a new interconnect with FGT and a new regulator station for CFG.

CFG will use the additional firm service to support new incremental load due to growth in the area, including providing service to a new can manufacturing facility, as well as provide reliability and operational benefits to CFG’s existing distribution system in the area.

In connection with Peninsula Pipeline’s new regulator station, CFG is also extending its distribution system to connect to the new station.

Escambia Meter Station:

In June 2021, Peninsula Pipeline purchased the Escambia Meter Station from Florida Power and Light and entered into a Transportation Service Agreement with Gulf Power Company to provide up to 530,000 Dts/d of firm service from an interconnect with FGT to Florida Power & Light Company’s Crist Lateral pipeline, which provides gas supply to their natural gas fired power plant owned by Florida Power & Light in Pensacola,

As required by Peninsula Pipeline’s tariff and Florida Statutes, Peninsula Pipeline filed the required company and customer affidavits with the Florida PSC in June 2021.

Beachside Pipeline Extension:

In June 2021, Peninsula Pipeline and Florida City Gas entered into a Transportation Service Agreement for an incremental 10,176 Dts/d of firm service in Indian River County, Florida, to support Florida City Gas’ growth along the Indian River's barrier island.

As part of this agreement, Peninsula Pipeline will construct approximately 11.33 miles of pipeline from its existing pipeline in the Sebastian, Florida area, which will travel east under the Intercoastal Waterway ("ICW") and southward on the barrier island.

As required by Peninsula Pipeline’s tariff and Florida Statutes, Peninsula Pipeline filed the required company and customer affidavits with the Florida PSC in June 2021.

Eastern Shore

8 unchanged sentences

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.

Capital Cost Surcharge:

In June 2021, Eastern Shore filed with the FERC a capital cost surcharge to recover capital costs associated with two mandated highway relocate projects that required the replacement of existing Eastern Shore facilities.

The capital cost surcharge is an approved item in the settlement of Eastern Shore’s last rate case.

In conjunction with the filing of this surcharge, pursuant to the settlement agreement, a true-up of the existing surcharge to reflect additional depreciation was included in this filing.

The FERC issued an order approving the surcharge as filed on July 7, 2021.

The combined revised surcharge will become effective July 15, 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.

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 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 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.

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.

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

Chesapeake Utilities is considered an “essential business,” which has allowed us to continue operational activities and construction projects with appropriate safety precautions and personal protective equipment, while being mindful of the social distancing restrictions that were in place.

In response to the COVID-19 pandemic and related restrictions, we experienced reduced consumption of energy largely in the commercial and industrial sectors, higher bad debt expenses and incremental expenses associated with COVID-19, including expenditures associated with 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.

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

For example, the state of emergency in Florida was terminated in May followed by Delaware and Maryland in July, resulting in reduced restrictions.

Despite these positive state orders and in light of the continued emergence and growing prevalence of new variants of COVID-19, 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, in order to protect our employees, customers and the communities.

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.

The Maryland PSC found that the creation of a regulatory asset for COVID-19 related expenses will facilitate the recovery of those costs prudently incurred to serve customers during this period, and that the deferral of such costs is appropriate because the current catastrophic health emergency is outside the control of the utility and is a non-recurring event.

current catastrophic health emergency is outside the control of the utility and is a non-recurring event.

The Maryland PSC is working on a plan that will provide funds to assist with the repayment of arrearages for customers in need and those impacted by COVID-19.

Chesapeake Utilities – Maryland Division, Sandpiper Energy, and Elkton Gas will receive funds in the third quarter of 2021 to credit the accounts of those customers experiencing financial hardship in becoming current on their past due balances.

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 state of emergency was lifted July 12, 2021.

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

In October 2020, the Florida PSC approved a joint petition of our natural gas and electric distribution utilities in Florida to establish regulatory asset to record incremental expenses incurred due to COVID-19.

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

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.

In October 2020, the Florida PSC approved a joint petition of our natural gas and electric distribution utilities in Florida to establish a regulatory asset to record incremental expenses incurred due to COVID-19.

The regulatory asset will allow us to seek recovery of these costs in the next base rate proceedings.

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

The Company’s Florida regulated business units reached a settlement with Office of Public Counsel in June 2021.

The settlement allows the units to establish a regulatory asset in a total amount of $ 2.1 million as of June 30, 2021.

This amount includes COVID-19 related incremental expenses for bad debt write-offs, personnel protective equipment, cleaning and business information services for remote work.

Our Florida regulated business units will amortize the amount over two years and recover the regulatory asset through the Purchased Gas Adjustment and Swing Service mechanisms for the natural gas business units and through the Fuel Purchased Power Cost Recovery clause for the electric division.

This settlement agreement was approved by the Florida PSC on July 8, 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 business units as authorized by the Delaware, Maryland and Florida PSCs.

As of June 30, 2021 our total COVID-19 regulatory asset balance was $ 1.6 million.

Summary TCJA Table

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:

The following table summarizes the regulatory liabilities related to accumulated deferred taxes ("ADIT") associated with TCJA for our regulated businesses as of June 30, 2021 and December 31, 2020:

Amount (in thousands)

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

Operation and Regulatory Jurisdiction June 30, 2021 December 31, 2020 Status

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

14 unchanged sentences

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

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.

As of June 30, 2021 and December 31, 2020, we had approximately $ 5.6 million and $ 5.9 million, respectively, in environmental liabilities related to FPU’s four 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 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.

As of June 30, 2021 and December 31, 2020, we had recovered approximately $ 12.6 million and $ 12.4 million, respectively, leaving approximately $ 1.4 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 site:

MGP Site (Jurisdiction) Status Estimated Clean-Up Costs

West Palm Beach (Florida) Remedial actions approved by the Florida Department of Environmental Protection have been implemented on the east parcel of the site.

Remediation is ongoing for the MGPs in Winter Haven and Key West in Florida and in Seaford, Delaware and the remaining clean-up costs are estimated to be between $ 0.3 million to $ 0.9 million for these three sites.

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.

The following is a summary of our remediation status and estimated costs to implement clean-up of our West Palm Beach Florida site:

Status Estimated Clean-Up Costs

Remedial actions approved by the Florida Department of Environmental Protection have been implemented on the east parcel of the site.

Similar remedial actions have been initiated on the site's west parcel, and construction of active remedial systems are expected be completed in 2022.

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.

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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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.

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

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

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

As of June 30, 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 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.

The maximum authorized liability under such guarantees and letters of credit as of June 30, 2021 was $ 20.0 million.

The aggregate amount guaranteed at June 30, 2021 was approximately $ 8.0 million with the guarantees expiring on various dates through March 30, 2022.

As of June 30, 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.

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 have not drawn on these letters of credit as of June 30, 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.

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The following table presents financial information about our reportable segments:

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in thousands)

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Operating income 22,578 17,977 74,175 60,111

Other income, net 385 3,319

Other income (expense), net 1,456 ( 279 ) 1,841 3,039

Interest charges 5,054 5,054 10,159 10,868

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Income from Continuing Operations 13,815 10,661 48,287 39,702

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

Income (Loss) from Discontinued Operations, Net of Tax ( 2 ) 295 ( 8 ) 184

Net Income $ 13,813 $ 10,956 $ 48,279 $ 39,886

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

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

(in thousands) June 30, 2021 December 31, 2020

Identifiable Assets

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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.

In the first six months of 2021, we issued less than 0.1 million shares at an average price per share of $ 113.51 and received net proceeds of $ 4.5 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 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.

Accumulated Other Comprehensive Gain (Loss)

The following tables present the changes in the balance of accumulated other comprehensive gain (loss) as of June 30, 2021 and 2020.

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

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Amounts reclassified from accumulated other comprehensive income (loss) 128 ( 2,534 ) ( 19 ) ( 2,425 )

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

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

Net current-period other comprehensive income 128 3,291 4 3,423

As of June 30, 2021 $ ( 5,018 ) $ 5,600 $ ( 24 ) $ 558

(in thousands)

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

Other comprehensive income before reclassifications — 895 — 895

Other comprehensive income/(loss) before reclassifications — 2,770 ( 29 ) $ 2,741

Amounts reclassified from accumulated other comprehensive income/(loss) 132 ( 1,060 ) ( 8 ) ( 936 )

Net prior-period other comprehensive income 66 7 — 73

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.

Net prior-period other comprehensive income/(loss) 132 1,710 ( 37 ) 1,805

As of June 30, 2020 $ ( 4,801 ) $ 376 $ ( 37 ) $ ( 4,462 )

The following table presents amounts reclassified out of accumulated other comprehensive income (loss) for the three and six months ended June 30, 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

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in thousands)

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$ 19 $ 19 $ 38 $ 38

( 106 ) ( 108 ) ( 209 ) ( 215 )

Total before income taxes ( 87 ) ( 89 ) ( 171 ) ( 177 )

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Net of tax $ ( 64 ) $ ( 66 ) $ ( 128 ) $ ( 132 )

Gains and losses on commodity contracts cash flow hedges:

Gains on commodity contracts cash flow hedges:

Propane swap agreements (2)

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See Note 13, Derivative Instruments , for additional details.

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.

Amortization of defined benefit pension and postretirement plan items are 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.

Employee Benefit Plans

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:

Net periodic benefit costs for our pension and post-retirement benefits plans for the three and six months ended June 30, 2021 and 2020 are set forth in the following tables:

Pension Plan FPU

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Postretirement

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

For the Three Months Ended June 30, 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

(in thousands)

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Total periodic cost (benefit) $ 54 $ 69 $ ( 246 ) $ ( 92 ) $ 19 $ 21 $ ( 3 ) $ 1 $ 4 $ 12

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

Pension Plan FPU

Pension Plan Chesapeake SERP Chesapeake

Postretirement

For the Six Months Ended June 30, 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020

(in thousands)

Interest cost $ 68 $ 92 $ 858 $ 1,036 $ 24 $ 32 $ 12 $ 16 $ 12 $ 20

Expected return on plan assets ( 80 ) ( 84 ) ( 1,660 ) ( 1,490 ) — — — — — —

Amortization of prior service credit — — — — — — ( 38 ) ( 38 ) — —

Amortization of net (gain) loss 120 130 310 270 14 10 18 24 ( 4 ) —

Net periodic cost (benefit) 108 138 ( 492 ) ( 184 ) 38 42 ( 8 ) 2 8 20

Amortization of pre-merger regulatory asset — — — — — — — — — 4

Total periodic cost (benefit) $ 108 $ 138 $ ( 492 ) $ ( 184 ) $ 38 $ 42 $ ( 8 ) $ 2 $ 8 $ 24

We expect to record $ 0.7 million in pension and post-retirement benefits 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.

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 ended March 31, 2021 and 2020:

For the Three Months Ended March 31, 2021 Chesapeake

In 2019, we executed a de-risking strategy for the Chesapeake Pension Plan.

As a result of this strategy, we are planning to terminate the Chesapeake Pension Plan in the fourth quarter of 2021.

For the Three Months Ended June 30, 2021 Chesapeake

Plan Chesapeake SERP Chesapeake

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Total $ 60 $ 155 $ 7 $ ( 9 ) $ ( 2 ) $ 211

For the Three Months Ended March 31, 2020 Chesapeake

For the Three Months Ended June 30, 2020 Chesapeake

Plan Chesapeake SERP Chesapeake

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

For the Six Months Ended June 30, 2021 Chesapeake

Plan Chesapeake SERP Chesapeake

Postretirement

(in thousands)

Prior service credit $ — $ — $ — $ ( 38 ) $ — $ ( 38 )

Net loss 120 310 14 18 ( 4 ) 458

Total recognized in net periodic benefit cost 120 310 14 ( 20 ) ( 4 ) 420

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

120 58 14 ( 20 ) ( 1 ) 171

Recognized from regulatory asset — 252 — — ( 3 ) 249

Total $ 120 $ 310 $ 14 $ ( 20 ) $ ( 4 ) $ 420

For the Six Months Ended June 30, 2020 Chesapeake

Plan Chesapeake SERP Chesapeake

Postretirement

(in thousands)

Prior service credit $ — $ — $ — $ ( 38 ) $ — $ ( 38 )

Net loss 130 270 10 24 — 434

Total recognized in net periodic benefit cost 130 270 10 ( 14 ) — 396

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

130 52 10 ( 14 ) — 178

Recognized from regulatory asset — 218 — — — 218

Total $ 130 $ 270 $ 10 $ ( 14 ) $ — $ 396

(1) See Note 9 , Stockholders' Equity .

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.

During the three and six months ended June 30, 2021, we contributed approximately $ 0.1 million to the Chesapeake Pension Plan and approximately $ 0.5 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.

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 months ended March 31, 2021 were immaterial.

Cash benefits paid under the Chesapeake SERP for the three and six months ended June 30, 2021 were immaterial and $ 0.1 million, respectively.

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 months ended March 31, 2021 were $ 0.2 million.

Cash benefits paid under the Chesapeake Postretirement Plan, primarily for medical claims for the three and six months ended June 30, 2021 were immaterial and $ 0.2 million, respectively.

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 months ended March 31, 2021, were immaterial.

Cash benefits paid under the FPU Medical Plan, primarily for medical claims for the three and six months ended June 30, 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 March 31, 2021 and December 31, 2020, consisted of the following:

(in thousands) March 31,

The investment balances at June 30, 2021 and December 31, 2020, consisted of the following:

(in thousands) June 30,

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 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 three months ended June 30, 2021 and 2020, we recorded a net unrealized gain of approximately $ 0.6 million and $ 1.4 million, respectively, in other income, net in the condensed consolidated statements of income related to these investments.

For the six months ended June 30, 2021 and 2020, we recorded a net unrealized gain of approximately $ 1.0 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 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.

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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 months ended March 31, 2021 and 2020:

Three Months Ended

The table below presents the amounts included in net income related to share-based compensation expense for the three and six months ended June 30, 2021 and 2020:

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

(in thousands)

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accordingly, 6,830 shares, with a weighted average fair value of $ 117.11 per share, were issued and vested in 2021.

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.

At June 30, 2021, there was approximately $ 0.7 million of unrecognized compensation expense related to shares granted to non-employee directors.

This expense will be recognized over the remaining service period ending in May of 2022.

Key Employees

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

The table below presents the summary of the stock activity for awards to key employees for the six months ended June 30, 2021:

Number of Shares Weighted Average

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Forfeited ( 5,384 ) $ 93.39

Outstanding—March 31, 2021 193,920 $ 94.61

Outstanding—June 30, 2021 194,107 $ 94.61

In February 2021, we granted awards of 66,612 shares of common stock to key employees under the SICP.

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

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.

At June 30, 2021, the aggregate intrinsic value of the SICP awards granted to key employees was approximately $ 23.4 million.

At June 30, 2021, there was approximately $ 6.1 million of unrecognized compensation cost related to these awards, which will be recognized as expense for the remainder of 2021 through 2023.

Stock Options

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

There were no stock options outstanding or issued during the six months ended June 30, 2021 and 2020.

Derivative Instruments

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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.

As of June 30, 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) 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 in March 2021 through March 2024) and (ii) the per gallon propane swap prices, to the extent the index prices exceed the contracted prices.

As of June 30, 2021, the volume of our commodity derivative contracts were as follows:

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

Sharp Propane (gallons) Purchases 23.3 Cash flows hedges June 2024

Sharp Propane (gallons) Sales 5.0 Cash flows hedges March 2022

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

Under the futures and swap agreements, Sharp will receive the difference between (i) the index prices (Mont Belvieu prices in

June 2021 through June 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.

1 unchanged sentence

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

We expect to reclassify approximately $ 5.4 million from accumulated other comprehensive income to earnings during the next 12 -month period ended June 30, 2022.

Interest Rate Swap Activities

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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 March 31, 2022.

We expect to reclassify less than $ 0.1 million from accumulated other comprehensive (loss) to earnings during the next 12 -month period ended June 30, 2022.

Broker Margin

2 unchanged sentences

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

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

(in thousands) Balance Sheet Location June 30, 2021 December 31, 2020

Sharp Other Current Liabilities $ 4,808 $ 1,505

2 unchanged sentences

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

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:

The fair values of the derivative contracts recorded in the condensed consolidated balance sheets as of June 30, 2021 and December 31, 2020, are as follows:

Derivative Assets

Fair Value As Of

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

(in thousands) Balance Sheet Location June 30, 2021 December 31, 2020

Derivatives designated as fair value hedges

5 unchanged sentences

Fair Value As Of

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

(in thousands) Balance Sheet Location June 30, 2021 December 31, 2020

Derivatives designated as fair value hedges

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Amount of Gain (Loss) on Derivatives:

Location of Gain For the Three Months Ended March 31,

Location of Gain For the Three Months Ended June 30, For the Six Months Ended June 30,

(in thousands) (Loss) on Derivatives 2021 2020 2021 2020

3 unchanged sentences

Propane swap agreements Cost of sales 455 238 3,502 1,465

Propane swap agreements Other comprehensive income (loss) 229 9

Propane swap agreements Other comprehensive income 4,319 2,354 4,548 2,363

Interest rate swap agreements

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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 March 31, 2021 and December 31, 2020:

Fair Value Measurements Using:

As of March 31, 2021 Fair Value Quoted Prices in

As of June 30, 2021 Fair Value Quoted Prices in

Active Markets

22 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 three months ended March 31, 2021 and 2020:

Three months ended March 31,

The following table sets forth the summary of the changes in the fair value of Level 3 investments for the six months ended June 30, 2021 and 2020:

Six months ended June 30,

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

At June 30, 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 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 June 30, 2021, long-term debt, which includes current maturities but excludes debt issuance costs, had a carrying value of approximately $ 512.9 million, compared to the estimated fair value of $ 541.5 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.

3 unchanged sentences

Our outstanding long-term debt is shown below:

March 31, December 31,

June 30, December 31,

(in thousands) 2021 2020

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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 March 31, 2021:

The following table summarizes our Shelf Agreements at June 30, 2021:

(in thousands) Total Borrowing Capacity Less:

8 unchanged sentences

150,000 ( 140,000 ) — 10,000

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

Total Shelf Agreements as of June 30, 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.

1 unchanged sentence

Short-Term Borrowings

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.

We are authorized by our Board of Directors to borrow up to $ 400.0 million of short-term debt, as required.

At June 30, 2021 and December 31, 2020, we had $ 169.3 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 June 30, 2021 balance, is $ 100.0 million in short-term debt for which we have entered into interest rate swap agreements.

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.

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

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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.

As of June 30, 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.

1 unchanged sentence

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 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.

As of June 30, 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 June 30, 2021 was $ 200.9 million.

As of June 30, 2021, we had issued $ 4.8 million in letters of credit to various counterparties under the syndicated Revolver.

These letters of credit are not included in the outstanding short-term borrowings and we do not anticipate that they will be drawn upon by the counterparties.

The letters of credit reduce the available borrowings under our syndicated Revolver.

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

These lease arrangements enable us to better conduct business operations in the regions in which we operate.

Office space is leased to provide adequate workspace for all our employees in several locations throughout the Mid-Atlantic, Mid-West and in Florida.

Office space is leased to provide adequate workspace for our employees in several locations throughout the Mid-Atlantic, Mid-West and in Florida.

We lease land at various locations throughout our service territories to enable us to inject natural gas into underground storage and distribution systems, for bulk storage capacity, for our propane operations and for storage of equipment used in repairs and maintenance of our infrastructure.

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

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 amounts disclosed in our consolidated balance sheet at June 30, 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 that would preclude our ability to pay dividends, obtain financing or enter into additional leases.

As of June 30, 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

Three Months Ended Six Months Ended

June 30, June 30,

( in thousands) Classification 2021 2020 2021 2020

2 unchanged sentences

(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 March 31, 2021 and December 31, 2020:

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

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 June 30, 2021 and December 31, 2020:

(in thousands) Balance sheet classification June 30, 2021 December 31, 2020

Operating lease assets Operating lease right-of-use assets $ 10,020 $ 11,194

2 unchanged sentences

Total lease liabilities $ 10,451 $ 11,619

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

The following table presents our weighted-average remaining lease terms and weighted-average discount rates for our operating and financing leases at June 30, 2021 and December 31, 2020:

June 30, 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 March 31, 2021 and 2020:

Three Months Ended

Six Months Ended

(in thousands) 2021 2020

Operating cash flows from operating leases $ 936 $ 1,034

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:

The following table presents the future undiscounted maturities of our operating and financing leases at June 30, 2021 and for each of the next five years and thereafter:

(in thousands) Operating

6 unchanged sentences

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