What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-04 · 456 added, 152 removed, 417 unchanged (59% of the section changed)

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• the timing of certification authorizations associated with new capital projects and the ability to construct facilities at or below estimated costs;

• the availability to materials necessary to construct new capital projects;

• changes in environmental and other laws and regulations to which we are subject and environmental conditions of property that we now, or may in the future, own or operate;

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Currently, our growth strategy is focused on the following platforms, including:

• Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions, and new products and services as well as increased opportunities for collaboration and efficiencies across the organization.

• Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions, new pipeline expansions, and new products and services as well as increased opportunities for collaboration and efficiencies across the organization as a result of our ongoing business transformation.

• Growth of Marlin Gas Services’ CNG transport business and expansion into LNG and RNG transport services as well as methane capture.

• Identifying and undertaking additional strategic propane acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets.

• Identifying and undertaking additional strategic propane and complementary business acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets.

• Pursuit of growth opportunities that enable us to utilize our integrated set of energy delivery businesses to participate in renewable energy opportunities.

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Earnings per share information is presented for continuing operations on a diluted basis, unless otherwise noted.

Results of Operations for the Three months Ended March 31, 2021

Results of Operations for the Three and Six Months Ended June 30, 2021

Chesapeake Utilities is a Delaware corporation formed in 1947.

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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.

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.

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 and the Occupational Safety and Health Administration, in order to protect our employees, customers and the communities.

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.

In the fourth quarter of 2020, we began recording regulatory assets, as currently authorized by the Delaware and Maryland PSCs and as initially provided for by the Florida PSC, associated with the incremental expenses incurred by our natural gas and electric distribution businesses as a result of the pandemic.

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.

Environmental, Social and Governance Initiatives

ESG initiatives are embedded within Chesapeake Utilities culture and are an integral part of our strategy.

ESG is at the core of our well-established culture and our informed business decisions.

Over the years, we have reduced our greenhouse gas emissions, while responsibly growing our businesses.

We have also helped to accelerate the reduction of emissions by many of our customers.

Our combined efforts have enhanced the sustainability of our local communities.

We look forward to publishing our inaugural Corporate Responsibility and Sustainability Report later this year.

Below we have highlighted several of Chesapeake Utilities initiatives in each area of ESG:

Advancing Environmental Initiatives

Our three-part action plan continues to make progress.

We are pursuing a three-part action plan that supports decarbonization and a lower carbon energy future.

First, we are taking actions that will continue to reduce our greenhouse gas emissions.

For example, we have largely completed our Florida GRIP, as we commonly refer to it, which replaces older portions of our natural gas distribution system.

The remaining capital expenditures associated with this program will be invested through 2022.

Our Elkton Gas subsidiary also recently reached a settlement agreement with the Maryland PSC to accelerate its Aldyl-A pipeline replacement program and to recover the costs of the plan in the form of a fixed charge rider through a proposed 5-year surcharge.

Throughout our pipeline system, we have also implemented improved emission detection technology at our pipeline compressor stations.

The second component of our action plan is providing services and support to our customers who are reducing their greenhouse gas emissions.

Our current Del-Mar Energy Pathway Project, which is expected to be complete by the end of the year, will bring natural gas to Somerset County, Maryland for the first time.

As part of this project, our services will support the conversion by two significant industrial customers in Somerset County from less environmentally friendly fuel sources, including in one case, wood chips.

Similarly, several of our commercial customers continue to convert their vehicle fleet to compressed natural gas or propane, further reducing their greenhouse gas emissions and positively impacting the environment.

We continue to see significant demand for new natural gas service in both our Delmarva and Florida territories, with our growth rates more than double the industry’s growth rates.

In many of our local markets, natural gas is a cleaner fuel option than alternative energy sources.

Natural gas is an important component of the country’s energy transition and we are committed to responsibly expanding the infrastructure in our growing service areas.

These same markets are also presenting RNG opportunities with ongoing projects to transform landfill, food, dairy and poultry waste into usable energy.

The development of several RNG projects is the third component of our action plan.

Our participation in these projects extends from transporting the RNG to market by pipeline or our Marlin Gas Services compressed natural gas trailers, to potential investments in biogas plants and, in some cases, the solar energy facilities to provide electricity to the plants and significantly improve the RNG carbon intensity score.

To date, we’ve announced three projects that, if developed, will introduce RNG into two of our services territories for the first time.

We are continuing to actively consider other renewable projects and the potential of increasing the number of RNG projects in our diversified energy portfolio.

We are committed to remaining disciplined in our approach by pursuing projects that meet our return thresholds and strategic goals.

We also have several other initiatives underway, including plans to add additional small solar facilities along our system, and our participation in a pilot program to blend hydrogen into the natural gas distribution system that serves our Eight Flags combined heat and power plant.

We are optimistic about this pilot program and believe that hydrogen will continue to gain in efficiency and become more price competitive over time.

To finance these projects, we are working with many of our key banking partners to establish sustainable debt financing capacity at attractive pricing.

Advancing Social Initiatives

Promoting equity, diversity and inclusion (“EDI”).

Our success is the direct result of our employees and our strong culture that fully engages our team and promotes equity, diversity, inclusion, integrity, accountability and reliability.

We believe that a combination of diverse team members and an inclusive culture contributes to the success of our Company and to enhanced societal advancement.

Our eleven member Board of Directors includes, two female directors, an African American Director and a Director who is of Middle Eastern descent.

We established an EDI Council in 2020, complementing and broadening the work our Women in Energy group started years ago.

The Council oversees our efforts to improve diversity in recruitment, employee development and advancement, cultural awareness and related policies.

These efforts are expanded through the broad reach of our six Employee Resource Groups and other partnerships we have in the community.

Employees have access to communications and on-demand learning sessions on an array of topics, including equity, diversity and inclusion, through our “EDI Wise” webinars.

We have also expanded our supplier diversity program to gather information that will enable us to further expand, measure and report on the diversity of our suppliers and associated spend.

Safety at the center of Chesapeake Utilities culture and the way we do business.

There is nothing more important than the safety of our team, our customers and our communities.

The importance of safety is exhibited throughout our organization, with the direction and tone set by the Board of Directors and our President and Chief Executive Officer.

Employees are required to attend monthly safety meetings and incorporate safety moments at operational and other meetings.

The achievement of superior safety performance is both an important short and long-term strategic initiative in managing our operations.

Our new state-of-the-art training center, named ‘Safety Town,’ provides employees hands-on training and simulated on-the-job field experiences, further developing our team and enhancing the reliability and integrity of our systems.

Safety Town has also expanded our community outreach by offering safety training to many regional first responders .

Our second Safety Town facility will be located in Florida and is in the final stages of planning.

Advancing Governance Initiatives

Commitment to sound governance practices.

Consistent with our culture of teamwork, the broad responsibility of ESG stewardship is supported across our organization by the dedication and efforts of the Board and its Committees, as well as the entrepreneurship and dedication of our team.

As stewards of long-term enterprise value, the Board is committed to overseeing the sustainability of the Company.

The Board and Corporate Governance Committee annually reviews our corporate governance documents and practices to ensure that they provide the appropriate framework under which we operate.

In recent years, we have received national recognition as the Governance Team of the Year, and also Best for Corporate Governance Among North American Utilities.

To learn more about our corporate governance practices and transparency, stakeholder

engagement, the experience and diversity of our Board members, and our Business Code of Ethics and Conduct, which highlights our commitment to the highest ethical standards and the importance of engaging in sustainable practices, please view our Proxy Statement filed with the Securities and Exchange Commission on March 22, 2021.

Additionally, please view Chesapeake Utilities historical quarterly earnings conference calls for additional discussions on ESG and our sustainability practices.

Operational Highlights

Our income from continuing operations for the three months ended March 31, 2021 was $34.5 million, or $1.96 per share, compared to $29.0 million, or $1.77 per share, for the same quarter of 2020.

Operating income for the three months ended March 31, 2021 increased by $9.5 million, or 22.5 percent, over the same period in 2020.

Higher earnings for the first quarter of 2021 reflected a return to more normal weather compared to weather in the first quarter of 2020 that was 20.4 percent warmer than normal.

Our earnings also increased from pipeline expansion projects, favorable regulatory initiatives and contributions from the 2020 acquisitions of Elkton Gas and Western Natural Gas.

Increased retail propane margins per gallon, organic growth in the natural gas distribution operations and increased margin from Marlin Gas Services, also generated additional earnings .

Our income from continuing operations for the three months ended June 30, 2021 was $13.8 million, or $0.78 per share, compared to $10.7 million, or $0.64 per share, for the same quarter of 2020.

Operating income for the three months ended June 30, 2021 increased by $4.6 million, or 25.6 percent, over the same period in 2020.

Higher earnings for the second quarter of 2021 reflected continued pipeline expansion projects, margin generated from consumption returning to pre-pandemic levels, contributions from 2020 acquisitions, natural gas distribution growth and margin growth from increased investment in GRIP, and the timing of the impact of the Hurricane Michael regulatory proceeding settlement.

The margin increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and operating expenses associated primarily with growth initiatives and a return to pre-pandemic conditions, including payroll, benefits and other employee-related expenses and outside services costs.

The operating expense increases were partially offset by $2.2 million of lower pandemic related costs and the regulatory deferral of COVID-19 expenses.

Three Months Ended

March 31, Increase

June 30, Increase

2021 2020 (decrease)

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Total Operating Income 22,578 17,977 4,601

Other expense, net 385 3,319 (2,934)

Other income (expense), net 1,456 (279) 1,735

Interest charges 5,054 5,054 —

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Income from Continuing operations 13,815 10,661 3,154

Loss from Discontinued Operations (6) (111) 105

Income (Loss) from Discontinued Operations (2) 295 (297)

Net Income $ 13,813 $ 10,956 $ 2,857

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Earnings from Continuing Operations $ 0.79 $ 0.65 $ 0.14

Loss from Discontinued Operations — (0.01) 0.01

Earnings from Discontinued Operations — 0.02 (0.02)

Basic Earnings Per Share of Common Stock $ 0.79 $ 0.67 $ 0.12

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Earnings from Continuing Operations $ 0.78 $ 0.64 $ 0.14

Loss from Discontinued Operations — (0.01) 0.01

Earnings from Discontinued Operations — 0.02 (0.02)

Diluted Earnings Per Share of Common Stock $ 0.78 $ 0.66 $ 0.12

Key variances in continuing operations, between the first quarter of 2021 and the first quarter of 2020, included:

Key variances in continuing operations, between the second quarter of 2021 and the second quarter of 2020, included:

(in thousands, except per share data) Pre-tax

Income Earnings

First Quarter of 2020 Reported Results from Continuing Operations $ 39,639 $ 29,041 $ 1.77

Second Quarter of 2020 Reported Results from Continuing Operations $ 12,644 $ 10,661 $ 0.64

Adjusting for Unusual Items:

Gain from sales of assets in the first quarter of 2020 (3,162) (2,317) (0.14)

Gains from sales of assets 1,294 942 0.05

Regulatory deferral of COVID-19 expenses per PSCs orders 748 544 0.03

Absence of the favorable income tax impact associated with the CARES Act recorded in the second quarter of 2020 — (1,669) (0.10)

2,042 (183) (0.02)

Increased (Decreased) Gross Margins:

Increased customer consumption - primarily weather related 6,430 4,728 0.26

Hurricane Michael Settlement margin impact* 3,145 2,289 0.13

Eastern Shore and Peninsula Pipeline service expansions* 2,259 1,644 0.09

Increased customer consumption - primarily due to a return to pre-pandemic conditions 1,974 1,437 0.08

Margin contributions from Elkton Gas and Western Natural Gas* 1,135 826 0.05

Natural gas growth (excluding service expansions) 752 547 0.04

Aspire Energy improved margin including natural gas liquid processing 677 493 0.03

Florida GRIP* 572 416 0.02

10,514 7,652 0.44

(Increased) Decreased Operating Expenses (Excluding Cost of Sales):

Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions

(2,268) (1,651) (0.09)

Hurricane Michael settlement agreement - depreciation and amortization impact (1,774) (1,291) (0.07)

Depreciation, amortization and property tax costs due to new capital investments (1,505) (1,095) (0.06)

Payroll, Benefits and other employee-related expenses (1,320) (961) (0.05)

Operating expenses for Elkton Gas and Western Natural Gas acquisitions (939) (683) (0.04)

Reduction in expenses associated with the COVID-19 pandemic 1,465 1,066 0.06

(6,341) (4,615) (0.25)

Other income tax effects — 214 0.01

Net other changes 121 86 —

Change in shares outstanding due to 2020 and 2021 equity offerings — — (0.04)

121 300 (0.03)

Second Quarter of 2021 Reported Results from Continuing Operations $ 18,980 $ 13,815 $ 0.78

*See the Major Projects and Initiatives tabl e.

Our income from continuing operations for the six months ended June 30, 2021 was $48.3 million, or $2.75 per share, compared to $39.7 million, or $2.41 per share, for the same period of 2020.

Operating income for the six months ended June 30, 2021 increased by $14.1 million, or 23.4 percent, over the same period in 2020.

Higher earnings for the first six months of 2021 reflected a return to more normal weather compared to 2020 that was warmer than normal.

Our earnings also increased from expansion projects and acquisitions completed in 2020.

Further contributing to the improved performance in the first six months of 2021 were organic growth, consumption returning to pre-pandemic levels, increased retail propane margins per gallon, and the timing of the impact of the Hurricane Michael regulatory proceeding settlement.

The margin increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and operating expenses associated primarily with growth initiatives, including payroll, benefits and other employee-related

expenses and outside services costs.

The operating expense increases were partially offset by $2.8 million of lower pandemic expenses and the regulatory deferral of COVID-19 expenses.

Six Months Ended

June 30, Increase

2021 2020 (decrease)

(in thousands except per share)

Regulated Energy segment $ 144,616 $ 125,254 $ 19,362

Unregulated Energy segment 56,728 48,814 7,914

Other businesses and eliminations (73) (157) 84

Total Gross Margin $ 201,271 $ 173,911 $ 27,360

Operating Income

Regulated Energy segment $ 55,673 $ 45,894 $ 9,779

Unregulated Energy segment 18,660 14,142 4,518

Other businesses and eliminations (158) 75 (233)

Total Operating Income 74,175 60,111 14,064

Other income, net 1,841 3,039 (1,198)

Interest charges 10,159 10,868 (709)

Income from Continuing Operations Before Income Taxes 65,857 52,282 13,575

Income Taxes on Continuing Operations 17,570 12,580 4,990

Income from Continuing operations 48,287 39,702 8,585

Income (Loss) from Discontinued Operations (8) 184 (192)

Net Income $ 48,279 $ 39,886 $ 8,393

Basic Earnings Per Share of Common Stock

Earnings from Continuing Operations $ 2.76 $ 2.42 $ 0.34

Earnings from Discontinued Operations — 0.01 (0.01)

Basic Earnings Per Share of Common Stock $ 2.76 $ 2.43 $ 0.33

Diluted Earnings Per Share of Common Stock

Earnings from Continuing Operations $ 2.75 $ 2.41 $ 0.34

Earnings from Discontinued Operations — 0.01 (0.01)

Diluted Earnings Per Share of Common Stock $ 2.75 $ 2.42 $ 0.33

Key variances in continuing operations, between the six months ended June 30, 2021 and the six months ended June 30, 2020, included:

(in thousands, except per share data) Pre-tax

Income Earnings

Six Months Ended June 30, 2020 Reported Results from Continuing Operations $ 52,282 $ 39,702 $ 2.41

Adjusting for Unusual Items:

Gains from sales of assets (1,563) (1,146) (0.07)

Regulatory deferral of COVID-19 expenses per PSCs orders 944 692 0.04

Absence of the favorable income tax impact associated with the CARES Act recorded in the second quarter of 2020 — (1,669) (0.10)

(619) (2,123) (0.13)

Increased (Decreased) Gross Margins:

Increased customer consumption - primarily weather related 5,936 4,352 0.25

Hurricane Michael Settlement margin impact * 5,720 4,194 0.24

Eastern Shore and Peninsula Pipeline service expansions* 5,239 3,841 0.22

Margin contributions from Elkton Gas and Western Natural Gas* 2,998 2,198 0.12

Increased retail propane margins per gallon 1,340 986 0.06

Increased customer consumption - primarily due to a return to pre-pandemic conditions 1,744 1,279 0.07

Natural gas growth (excluding service expansions) 1,691 1,240 0.07

Increased gross margin from demand for Marlin Gas Services * 731 537 0.03

Increased retail propane margins per gallon 1,137 834 0.05

Florida GRIP* 931 682 0.04

Aspire Energy improved margin including natural gas liquid processing 691 506 0.03

Sandpiper infrastructure rider associated with conversions 455 334 0.03

26,542 19,460 1.12

(Increased) Decreased Operating Expenses (Excluding Cost of Sales):

Payroll, Benefits and other employee-related expenses due to growth (1,995) (1,467) (0.08)

Hurricane Michael settlement agreement - depreciation and amortization impact (3,550) (2,603) (0.15)

Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions

(3,370) (2,471) (0.14)

Payroll, benefits and other employee-related expenses due to growth (3,301) (2,421) (0.14)

Depreciation, amortization and property tax costs due to new capital investments (3,215) (2,357) (0.13)

Facilities, maintenance and outside services costs (1,130) (831) (0.05)

Operating expenses for Elkton Gas and Western Natural Gas acquisitions (1,968) (1,443) (0.08)

Insurance expense (non-health) - both insured and self-insured (513) (376) (0.02)

Reduction in expenses associated with the COVID-19 pandemic 1,893 1,388 0.08

(14,024) (10,283) (0.58)

Interest charges (1)

Other income tax effects — 302 0.02

Net other changes 911 668 0.03

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1,676 1,531 (0.07)

First Quarter of 2021 Reported Results from Continuing Operations $ 46,877 $ 34,472 $ 1.96

Six Months Ended June 30, 2021 Reported Results from Continuing Operations $ 65,857 $ 48,287 $ 2.75

*See the Major Projects and Initiatives tabl e.

(1) Interest charges includes amortization of a regulatory liability of $0.3 million related to the Hurricane Michael regulatory proceeding settlement.

(1) Interest charges include amortization of a regulatory liability of $0.6 million related to the Hurricane Michael regulatory proceeding settlement.

Summary of Key Factors

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We constantly pursue and develop additional projects and initiatives to serve existing and new customers, and to further grow our businesses and earnings, with the intention to increase shareholder value.

The following summary represents the major projects/initiatives recently completed and currently underway.

The following table includes the major projects/initiatives recently completed and currently underway.

Major projects and initiatives that have generated consistent year-over-year margin contributions are removed from the table.

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Gross Margin for the Period

Three Months Ended Year Ended Estimate for

March 31, December 31, Fiscal

Three Months Ended Six Months Ended Year Ended Estimate for

June 30, June 30, December 31, Fiscal

in thousands 2021 2020 2021 2020 2020 2021 2022

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Guernsey Power Station 47 — 94 — — 514 1,486

Winter Haven Expansion — — — — — — 426

Beachside Pipeline Expansion — — — — — — —

Total Pipeline Expansions 4,261 1,955 8,478 3,145 10,480 17,023 21,445

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Western Natural Gas 389 — 939 — 389 2,066 2,251

Escambia Meter Station 83 — 83 — — 583 1,000

Total Acquisitions 1,218 — 3,080 — 1,733 6,641 7,364

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Capital Cost Surcharge Programs 120 128 257 261 523 1,186 1,985

Elkton STRIDE Plan — — — — — 45 299

Total Regulatory Initiatives 7,446 3,737 14,213 7,566 26,565 29,093 31,180

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Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to our distribution system in West Palm Beach, Florida.

The first phase of this project was placed into service in December 2018 and generated incremental gross margin of $0.2 million for the three months ended March 31, 2021 compared to 2020.

We expect to complete the remainder of the project in phases through the third quarter of 2021, and estimate that the project will generate annual gross margin of $5.0 million in 2021 and $5.2 million in 2022.

The first phase of this project was placed into service in December 2018 and generated incremental gross margin of $0.2 million and $0.4 million for the three and six months ended June 30, 2021, respectively, compared to 2020.

We expect to complete the remainder of the project in phases through the fourth quarter of 2021, and estimate that the project will generate annual gross margin of $4.8 million in 2021 and $5.2 million annually thereafter.

Del-Mar Energy Pathway

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The new facilities will:

(i) ensure an additional 14,300 Dts/d of firm service to four customers, (ii) provide additional natural gas transmission pipeline

infrastructure in eastern Sussex County, Delaware, and (iii) represent the first extension of Eastern Shore’s pipeline system into Somerset County, Maryland.

Construction of the project began in January 2020, and interim services in advance of this project generated additional gross margin of $0.7 million for the three months ended March 31, 2021.

(i) ensure an additional 14,300 Dekatherms per day ("Dts/d")/d of firm service to four customers, (ii) provide additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and (iii) represent the first extension of Eastern Shore’s pipeline system into Somerset County, Maryland.

Construction of the project began in January 2020, and interim services in advance of this project generated additional gross margin of $0.5 million and $1.2 million for the three and six months ended June 30, 2021, respectively.

The estimated annual gross margin from this project including natural gas distribution service in Somerset County, Maryland, is approximately $4.1 million in 2021 and $6.7 million annually thereafter.

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The 26-mile pipeline serves growing demand for energy in both Nassau and Duval Counties.

For the three months ended March 31, 2021, the project generated $1.9 million in additional gross margin, which includes margin from natural gas distribution service.

For the three and six months ended June 30, 2021, the project generated $1.6 million and $3.7 million, respectively, in additional gross margin, which includes margin from natural gas distribution service.

The estimated annual gross margin from this project including natural gas distribution service is approximately $7.6 million in 2021 and beyond.

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In the second quarter of 2021, Aspire Energy Express commenced construction of the gas transmission facilities to provide the firm transportation service to the power generation facility.

For the three months ended March 31, 2021, we received approximately $47,000 related to the construction delay of the in-service date of the project.

For the six months ended June 30, 2021, we received approximately $0.1 million, related to the construction delay of the in-service date of the project.

The project is expected to be in service in the fourth quarter of 2021, and produce gross margin of approximately $0.5 million in 2021 and $1.5 million in 2022 and beyond.

Winter Haven Expansion

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 most immediately 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.

We expect this expansion to generate additional gross margin of $0.4 million beginning in 2022 and beyond.

Beachside Pipeline Expansion

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 11.3 miles of pipeline from its existing pipeline in the Sebastian, Florida, area east under the ICW and southward on the barrier island.

We expect this expansion to generate additional annual gross margin of $2.5 million in 2023 and beyond.

CNG Transportation

Marlin Gas Services provides CNG temporary hold services, contracted pipeline integrity services, emergency services for damaged pipelines and specialized gas services for customers who have unique requirements.

For the three months ended March 31, 2021, Marlin Gas Services generated additional gross margin of $0.7 million.

While margin was slightly down for the quarter by $0.4 million, on a year-to-date basis, Marlin Gas Services generated additional gross margin of $0.3 million.

We estimate that Marlin Gas Services will generate annual gross margin of approximately $7.9 million in 2021 and $8.5 million in 2022, with the potential for additional growth in future years.

Marlin Gas Services continues to actively expand the territories it serves, as well as leverage its patented technology to serve other markets, including pursuing liquefied natural gas transportation opportunities and renewable natural gas transportation opportunities from diverse supply sources to various pipeline interconnection points, as further outlined below.

Marlin Gas Services continues to actively expand the territories it serves, as well as leverage its patented technology to serve other markets, including pursuing liquefied natural gas transportation opportunities and RNG transportation opportunities from diverse supply sources to various pipeline interconnection points, as further outlined below.

RNG Transportation

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In September 2020, Fortistar and Rumpke Waste & Recycling announced commencement of construction of the Noble Road Landfill RNG Project in Shiloh, Ohio.

The project includes the construction of a new state-of-the-art facility that will utilize advanced, patented technology to treat landfill gas by removing carbon dioxide and other components to purify the gas and produce pipeline quality RNG.

Aspire Energy will utilize its existing natural gas gathering assets to inject the RNG from this project to its system for distribution to end use customers.

The project includes the construction of a new state-of-the-art facility that will utilize

advanced, patented technology to treat landfill gas by removing carbon dioxide and other components to purify the gas and produce pipeline quality RNG.

Aspire Energy has begun constructing an approximately 17.5 mile pipeline to inject the RNG from this project to its system for distribution to end use customers.

Once flowing, the RNG volume will represent nearly 10 percent of Aspire Energy’s gas gathering volumes.

Bioenergy DevCo

In June 2020, our Delmarva natural gas operations and Bioenergy DevCo (“BDC”), a developer of anaerobic digestion facilities that create renewable energy and healthy soil products from organic material, entered into an agreement related to a project to extract renewable natural gas from poultry production waste.

BDC and our affiliates are collaborating on this project in addition to several other project sites where organic waste can be converted into a carbon-negative energy source.

The renewable natural gas resource created from organic material at BDC's anaerobic digestion facilities in Delaware, will be processed for use by our Delmarva natural gas operations.

Marlin Gas Services will transport the sustainable fuel from the BDC facility to an Eastern Shore interconnection, where it will be introduced to the distribution system and ultimately distributed to our natural gas customers.

Marlin Gas Services will transport the RNG created from the organic waste from the BDC facility to an Eastern Shore interconnection, where the sustainable fuel will be introduced into our transmission system and ultimately distributed to our natural gas customers.

CleanBay Project

In July 2020, our Delmarva natural gas operations and CleanBay Renewables Inc.

("CleanBay") announced a new partnership to bring renewable natural gas to our operations.

As part of this partnership, we will transport the renewable natural gas produced at CleanBay's planned Westover, Maryland bio-refinery, to our natural gas infrastructure in the Delmarva Peninsula

Eastern Shore and Marlin Gas Services, will transport the renewable natural gas from CleanBay to our Delmarva natural gas distribution system where it is ultimately delivered to the Delmarva natural gas distribution end use customers.

At the present time, we expect to generate $0.2 million in 2021 in incremental margin from these renewable natural gas transportation projects beginning in 2021.

("CleanBay") announced a new partnership to bring RNG to our operations.

As part of this partnership, we will transport the RNG produced at CleanBay's planned Westover, Maryland bio-refinery, to our natural gas infrastructure in the Delmarva Peninsula region.

Eastern Shore and Marlin Gas Services, will transport the RNG from CleanBay to our Delmarva natural gas distribution system where it is ultimately delivered to the Delmarva natural gas distribution end use customers.

At the present time, we expect to generate $0.2 million in 2021 in incremental margin from these RNG transportation projects beginning in 2021.

Timing of incremental margin from RNG transportation projects is dependent upon the construction schedules of each project.

As we continue to finalize contract terms and complete the necessary permitting associated with each of these projects, additional information will be provided regarding incremental margin at a future time.

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.

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

We generated $0.6 million in additional gross margin from Western Natural Gas in 2020 and we estimate that this acquisition will generate gross margin of approximately $1.8 million in 2021 with additional opportunities for growth.

As we continue to finalize contract terms and complete the necessary permitting associated with each of these projects, additional information will be provided regarding incremental margin.

In addition to these projects, the Company is continuing to pursue other RNG projects that provide opportunities for the Company across the entire value chain.

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.

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

We generated $1.3 million in additional gross margin from Elkton Gas and estimate that this acquisition will generate gross margin of approximately $4.0 million in 2021 and $4.2 million in 2022.

For the three and six months ended June 30, 2021 we generated $0.7 million and $2.1 million, respectively, in additional gross margin from Elkton Gas and estimate that this acquisition will generate gross margin of approximately $4.0 million in 2021 and $4.1 million thereafter.

Western Natural Gas

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

We generated $0.4 million and $0.9 million in additional gross margin for the three and six months ended June 30, 2021, respectively, from Western Natural Gas and we estimate that this acquisition will generate gross margin of approximately $2.1 million in 2021 and growing to $2.3 million in 2022, with additional opportunities for growth.

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’s Crist Lateral pipeline.

The Florida Power & Light Crist Lateral provides gas supply to their natural gas fired power plant owned by Florida Power & Light in Pensacola, Florida.

We generated $0.1 million in additional gross margin in the second quarter of 2021 and we estimate that this acquisition will generate gross margin of approximately $0.6 million in 2021 and growing to $1.0 million in 2022.

Regulatory Initiatives

Florida GRIP is a natural gas pipe replacement program approved by the Florida PSC that allows automatic recovery, through rates, of costs associated with the replacement of mains and services.

Since the program's inception in August 2012, we have invested $173.9 million of capital expenditures to replace 333 miles of qualifying distribution mains, including $8.0 million of new pipes during the first three months of 2021.

Since the program's inception in August 2012, we have invested $178.9 million of capital expenditures to replace 333 miles of qualifying distribution mains, including $13.0 million of new pipes during the first six months of 2021.

We expect to generate annual gross margin of approximately $16.8 million in 2021, and $17.9 million in 2022.

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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.

In March 2020, we filed an update to our original filing to account for actual charges incurred through December 2019, revised the amortization period of the storm-related costs from 30 years as originally requested, to 10 years, and included costs related to Hurricane Dorian of approximately $1.2 million in this filing.

In September 2019, FPU filed a petition with the Florida PSC, for approval of its consolidated electric depreciation rates.

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

The following table summarizes the impact of Hurricane Michael regulatory proceeding for the three months ended March 31, 2021:

Three Months Ended

(in thousands) March 31, 2021

The following table summarizes the impact of Hurricane Michael regulatory proceeding for the three and six months ended June 30, 2021:

Three Months Ended Six Months Ended

(in thousands) June 30, 2021 June 30, 2021

Gross Margin $ 3,145 $ 5,720

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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 produce gross margin of approximately $1.4 million in 2021 and $2.4 million in 2022 from relocation projects and is dependent upon the completion of capital projects and timing of filings.

Eastern Shore expects to produce gross margin of approximately $1.2 million in 2021 and $2.0 million in 2022 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction.

Elkton Gas STRIDE Plan

In March 2021, Elkton Gas filed a strategic infrastructure development and enhancement ("STRIDE") 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 a fixed charge rider through a proposed 5-year surcharge.

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

In June 2021, we reached a settlement with the Maryland PSC Staff and

the Maryland Office of the Peoples Counsel.

The STRIDE plan is expected to go into service in the third quarter of 2021 and is expected to generate less than $0.1 million of margin for the remainder of the year.

We expect to generate $0.3 million of additional gross margin from the STRIDE plan in 2022 and $0.4 million annually thereafter.

COVID-19 Regulatory Proceeding

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 business units to establish a regulatory asset of $2.1 million.

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 beginning January 1, 2022 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 results in annual additional gross margin of $1.0 million that will be offset by a corresponding amortization of regulatory asset expense for both 2022 and 2023 .

Other major factors influencing gross margin

Weather and Consumption

Weather conditions accounted for a $6.4 million increase in gross margin during the first quarter of 2021, compared to the same period in 2020, primarily due to a 13.8 percent increase in HDDs in the Delmarva Peninsula and Ohio that resulted in increased customer consumption.

Compared to normal temperatures, as detailed below, gross margin was higher by $1.3 million.

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") the three months ended March 31, 2021 and 2020.

Three Months Ended

2021 2020 Variance

Weather Impact

Weather was not a significant factor in the second quarter.

For the six-month period, weather conditions accounted for a $5.9 million increased gross margin compared to the same period in 2020, primarily due to an 8.7 percent increase in HDDs that resulted in increased customer consumption.

Assuming normal temperatures, as detailed below, gross margin would have been higher by $1.9 million.

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") the three and six months ended June 30, 2021 and 2020.

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 Variance 2021 2020 Variance

Delmarva Peninsula

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Natural Gas Distribution Margin Growth

Customer growth for our natural gas distribution operations, as a result of the addition of new customers and the conversion of customers from alternative fuel sources to natural gas service, generated $0.9 million of additional margin for the three months ended March 31, 2021.

The average number of residential customers served on the Delmarva Peninsula and in Florida increased

by 4.5 percent and 5.0 percent, respectively, during the first quarter of 2021.

A larger percentage of the margin growth was generated from residential growth given the expansion of natural gas into new housing communities and conversions to natural gas as the Company's distribution infrastructure continues to build out.

Customer growth for our natural gas distribution operations, as a result of the addition of new customers and the conversion of customers from alternative fuel sources to natural gas service, generated $0.8 million and $1.7 million of additional margin for the three and six months ended June 30, 2021, respectively.

The average number of residential customers served on the Delmarva Peninsula increased by 4.4 percent and 4.5 percent for the three and six months ended June 30, 2021, while Florida increased by and 5.2 percent and 5.1 percent, for the three and six months ended June 30, 2021, respectively.

percentage of the margin growth was generated from residential growth given the expansion of natural gas into new housing communities and conversions to natural gas as the Company's distribution infrastructure continues to build out.

In addition, as new communities continue to build out due to population growth and infrastructure is added to support the growth, there is also increased load from new commercial and industrial customers.

The details for the three months ended March 31, 2021 are provided in the following table:

Three Months Ended

March 31, 2021

(in thousands) Delmarva Peninsula Florida

The details for the three and six months ended June 30, 2021 are provided in the following table:

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2021

(in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida

Customer Growth:

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Regulated Energy Segment

For the quarter ended March 31, 2021, compared to the quarter ended March 31, 2020:

For the quarter ended June 30, 2021, compared to the quarter ended June 30, 2020:

Three Months Ended

March 31, Increase

June 30, Increase

2021 2020 (decrease)

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Operating income $ 22,808 $ 18,006 $ 4,802

Operating income for the Regulated Energy segment for the first quarter of 2021 was $32.9 million, an increase of $5.0 million or 17.8 percent for the three months ended March 31, 2021 over the same period in 2020.

Higher operating income reflects increased consumption driven primarily by colder weather compared to the first quarter of 2020, continued pipeline expansions by Eastern Shore and Peninsula Pipeline, contributions from the Hurricane Michael regulatory proceeding settlement, organic growth in the Company's natural gas distribution businesses and operating results from the Elkton Gas acquisition completed in the third quarter of 2020.

These increases were offset by higher depreciation, amortization and property taxes, including amortization of the regulatory asset associated with the Hurricane Michael regulatory proceeding settlement, new expenses associated with Elkton Gas, and higher other operating expenses.

Operating income for the Regulated Energy segment for the second quarter of 2021 was $22.8 million, an increase of $4.8 million, or 26.7 percent, over the same period in 2020.

Higher operating income reflects continued pipeline expansions by Eastern Shore and Peninsula Pipeline, increased consumption from return to pre-pandemic consumption levels, organic growth in our natural gas distribution businesses, operating results from the Elkton Gas acquisition completed in the third quarter of 2020, and timing of the impact of the Hurricane Michael regulatory proceeding settlement, which was settled in the third quarter of 2020.

The margin increases were offset by higher depreciation, amortization and property taxes, including amortization of the regulatory asset associated with the Hurricane Michael regulatory proceeding settlement, new expenses associated with Elkton Gas, and higher other operating expenses.

The operating expense increases were also partially offset by $1.6 million due to lower pandemic expenses and the regulatory deferral of COVID-19 expenses.

While the Hurricane Michael settlement positively impacted the quarter, the full year impact for 2021 is expected to be negligible.

Items contributing to the quarter-over-quarter increase in gross margin are listed in the following table:

(in thousands)

Margin contribution from the Hurricane Michael regulatory proceeding settlement $ 3,145

Eastern Shore and Peninsula Pipeline service expansions 2,259

Margin contribution from Hurricane Michael regulatory proceeding settlement 2,575

Increased customer consumption - primarily weather related 1,641

Margin contribution from the Elkton Gas acquisition (completed in July 2020) 1,312

Increased customer consumption - primarily due to a return to pre-pandemic conditions 1,769

Natural gas growth (excluding service expansions) 752

Margin contribution from the Elkton Gas acquisition (completed in July 2020) 746

Florida GRIP 572

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The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.

Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement

We generated $3.1 million in additional gross margin as a result of the settlement of the Hurricane Michael regulatory proceeding.

Refer to Note 5, Rates and Other Regulatory Activities , in the condensed consolidated financial statements for additional information.

While the Hurricane Michael settlement positively impacted the period, on an annual basis, the incremental impact year-over-year (2021 vs.

2020) is expected to be negligible.

Eastern Shore and Peninsula Pipeline Service Expansions

We generated additional gross margin of $1.8 million from Peninsula Pipeline's Western Palm Beach County and Callahan projects and $0.5 million from Eastern Shore's Del-Mar Energy Pathway project.

Increased customer consumption - primarily due to return to a pre-pandemic consumption

The absence of unfavorable COVID-19 impacts, resulted in a return to pre-pandemic consumption, positively impacting gross margin by $1.8 million for the three months ended June 30, 2021 compared to the same period in 2020.

Natural Gas Distribution Customer Growth

We generated additional gross margin of $0.7 million from natural gas customer growth.

Gross margin increased by $0.3 million in Florida and $0.4 million on the Delmarva Peninsula for the three months ended June 30, 2021, as compared to the same period in 2020, due primarily to residential customer growth of 4.4 percent and 5.2 percent on the Delmarva Peninsula and in Florida, respectively.

Gross margin increased by $0.7 million due to margin contributed from Elkton Gas which was acquired in July 2020.

Continued investment in the Florida GRIP generated additional gross margin of $0.6 million in second quarter of 2021 compared to the same period in 2020.

Operating Expenses

Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table:

(in thousands)

Hurricane Michael regulatory proceeding settlement - depreciation and amortization impact $ 1,774

Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions

Payroll, benefits and other employee-related expenses due to growth 1,157

Depreciation, asset removal and property tax costs due to new capital investments 1,108

Operating expenses from the Elkton Gas acquisition 510

Reduction in expenses associated with the COVID-19 pandemic (811)

Regulatory deferral of COVID-19 expenses per PSCs orders (748)

Other variances (28)

Quarter-over-quarter increase in operating expenses $ 4,530

For the Six Months Ended June 30, 2021, compared to the six months ended June 30, 2020:

Six Months Ended

June 30, Increase

2021 2020 (decrease)

(in thousands)

Revenue $ 202,107 $ 176,473 $ 25,634

Cost of sales 57,491 51,219 6,272

Gross margin 144,616 125,254 19,362

Operations & maintenance 54,886 51,697 3,189

Depreciation & amortization 23,860 18,666 5,194

Other taxes 10,197 8,997 1,200

Total operating expenses 88,943 79,360 9,583

Operating income $ 55,673 $ 45,894 $ 9,779

Operating income for the Regulated Energy segment for the first six months of 2021 was $55.7 million, an increase of $9.8 million, or 21.3 percent, over the same period in 2020.

Higher operating income reflects continued pipeline expansions by Eastern Shore and Peninsula Pipeline, operating results from the Elkton Gas acquisition completed in the third quarter of 2020, and increased consumption from a return to pre-pandemic consumption levels.

Further contributing to the operating income growth was margin from organic growth in the our natural gas distribution businesses and increased consumption driven primarily by colder weather compared to the same period of 2020, and timing of the impact of the Hurricane Michael regulatory proceeding settlement.

The operating expense increases were partially offset by $2.0 million due to lower pandemic expenses and the regulatory deferral of COVID-19 expenses.

While the Hurricane Michael settlement positively impacted the period, on an annual basis, the incremental impact year-over-year (2021 vs.

2020) is expected to be negligible.

Items contributing to the quarter-over-quarter increase in gross margin are listed in the following table:

(in thousands)

Margin contribution from the Hurricane Michael regulatory proceeding settlement $ 5,720

Eastern Shore and Peninsula Pipeline service expansions 5,239

Margin contribution from the Elkton Gas acquisition (completed in July 2020) 2,059

Increased customer consumption - primarily due to a return to pre-pandemic conditions 1,798

Natural gas growth (excluding service expansions) 1,691

Increased customer consumption - primarily weather related 1,314

Florida GRIP 931

Sandpiper Energy infrastructure rider associated with conversions 455

Other variances 155

Period-over-period increase in gross margin $ 19,362

The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.

Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement

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Refer to Note 5, Rates and Other Regulatory Activities , in the condensed consolidated financial statements for additional information.

Increased Customer Consumption - Primarily Weather Related

Gross margin increased by $1.6 million for the for the three months ended March 31, 2021, compared to the same period in 2020, primarily due to an 18 percent increase in HDDs on the Delmarva Peninsula and a 36 percent increase in HDDs in Florida that resulted in increased customer consumption of energy.

While the Hurricane Michael settlement positively impacted the period, on an annual basis, the incremental impact year-over-year (2021 vs.

2020) is expected to be negligible.

Eastern Shore and Peninsula Pipeline Service Expansions

We generated additional gross margin of $4.0 million from Peninsula Pipeline's Western Palm Beach County and Callahan projects and $1.2 million from Eastern Shore's Del-Mar Energy Pathway project.

Gross margin increased by $2.1 million due to margin contributed from Elkton Gas which was acquired in July 2020.

Increased customer consumption - primarily due to return to pre-pandemic conditions

The absence of unfavorable COVID-19 impacts during the first six months of 2021, resulted in a return to pre-pandemic consumption, positively impacting gross margin by $1.8 million compared to the same period in 2020.

Natural Gas Distribution Customer Growth

We generated additional gross margin of $1.7 million from natural gas customer growth.

Gross margin increased by $0.4 million in Florida and $0.5 million on the Delmarva Peninsula for the three months ended March 31, 2021, as compared to the same period in 2020, due primarily to residential customer growth of 4.5 percent and 5.0 percent on the Delmarva Peninsula and in Florida, respectively.

Continued investment in the Florida GRIP generated additional gross margin of $0.4 million in first quarter of 2021 compared to the same period in 2020.

Gross margin increased by $0.7 million in Florida and $1.0 million on the Delmarva Peninsula for the six months ended June 30, 2021, as compared to the same period in 2020, due primarily to residential customer growth of 4.5 percent and 5.1 percent on the Delmarva Peninsula and in Florida, respectively.

Increased Customer Consumption - Primarily Weather Related

Gross margin increased by $1.3 million for the for the six months ended June 30, 2021, compared to the same period in 2020, primarily due to a 9 percent increase in HDDs on the Delmarva Peninsula and a 40 percent increase in HDDs in Florida that resulted in increased customer consumption of energy.

Continued investment in the Florida GRIP generated additional gross margin of $0.9 million for the six months ended June 30, 2021 compared to the same period in 2020.

Sandpiper Infrastructure Rider Associated with Conversions

We generated additional margin of $0.5 million associated with the conversion of Sandpiper's propane customers to natural gas customers for the six months ended June 30, 2021 compared to the same period in 2020.

Operating Expenses

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Depreciation, asset removal and property tax costs due to new capital investments 2,500

Facilities and maintenance costs and outside services 885

Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions 2,459

Payroll, benefits and other employee-related expenses due to growth 1,958

Operating expenses from the Elkton Gas acquisition 1,034

Reduction in expenses associated with the COVID-19 pandemic (1,078)

Regulatory deferral of COVID-19 expenses per PSCs orders (944)

Other variances 104

Quarter-over-quarter increase in operating expenses $ 5,055

Period-over-period increase in operating expenses $ 9,583

Unregulated Energy Segment

For the quarter ended March 31, 2021, compared to the quarter ended March 31, 2020:

For the quarter ended June 30, 2021, compared to the quarter ended June 30, 2020:

Three Months Ended

March 31, Increase

June 30, Increase

2021 2020 (decrease)

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Operating income $ (445) $ 281 $ (726)

Operating income for the Unregulated Energy segment for the first quarter of 2021 was $19.1 million, an increase of $5.2 million or 37.8 percent, over the same period in 2020.

Higher operating income reflects increased consumption driven primarily by colder weather compared to the first quarter of 2020, higher retail propane margins per gallon, contribution from the acquisition of the Western Natural Gas propane assets and increased demand for Marlin Gas Services' CNG transportation services.

These increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and new expenses associated with Western Natural Gas and higher other operating expenses.

Operating results for the Unregulated Energy segment for the second quarter of 2021 declined by $0.7 million compared to the same period in 2020.

The operating results for this segment typically exhibit seasonality with the first and fourth quarters producing higher results due to colder temperatures.

The results for the second quarter are not indicative of the results for the entire year.

Lower operating results during the second quarter were driven by higher operating expenses, depreciation, amortization and property taxes related to recent capital investments, and expenses associated with Western Natural Gas.

Lower performance by Marlin Gas Services resulting from reduced customer demand for pipeline integrity and emergency services during the quarter also contributed to this decrease.

Operating expenses were partially offset by increased gross margin generated from the acquisition of Western Natural Gas and by Aspire Energy as well as consumption in the propane businesses returning towards pre-pandemic levels.

Items contributing to the quarter-over-quarter increase in gross margin are listed in the following table:

(in thousands) Margin Impact

(in thousands)

Propane Operations

Western Natural Gas acquisition (completed in October 2020) $ 389

Increased customer consumption - primarily due to a return to pre-pandemic conditions 204

Marlin Gas Services

Decreased demand for CNG services (400)

Aspire Energy

Increased margin including improvements from natural gas liquid processing 677

Other variances 50

Quarter-over-quarter increase in gross margin $ 920

The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.

Propane Operations

• Western Natural Gas - Gross margin increased by $0.4 million due to the margin generated from Western Natural Gas, which was acquired by Sharp in October 2020.

• Increased Customer Consumption - primarily due to a return to pre-pandemic conditions - Gross margin increased due to the absence of unfavorable COVID-19 impacts, resulted in a return to pre-pandemic consumption, positively impacting gross margin by $0.2 million for the three months ended June 30, 2021 compared to the same period in 2020.

Marlin Gas Services

• Gross margin decreased by $0.4 million during the second quarter of 2021, as compared to the same period in the prior year due to lower demand for CNG hold services.

Aspire Energy

• Gross margin increased by $0.7 million during the second quarter of 2021 over the same period in 2020, including improvements from natural gas liquid processing.

Other Operating Expenses

Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table:

(in thousands)

Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions $ 705

Depreciation, amortization and property tax costs due to new capital investments 559

Operating expenses from the Western Natural Gas acquisition 269

Payroll, benefits and other employee-related expenses due to growth 231

Reduction in expenses associated with the COVID-19 pandemic (418)

Other variances 300

Quarter-over-quarter increase in operating expenses $ 1,646

For the six months ended June 30, 2021, compared to the six months ended June 30, 2020:

Six Months Ended

June 30, Increase

2021 2020 (decrease)

(in thousands)

Revenue $ 109,532 $ 81,752 $ 27,780

Cost of sales 52,804 32,938 19,866

Gross margin 56,728 48,814 7,914

Operations & maintenance 29,178 26,996 2,182

Depreciation & amortization 6,780 5,806 974

Other taxes 2,110 1,870 240

Total operating expenses 38,068 34,672 3,396

Operating income $ 18,660 $ 14,142 $ 4,518

Operating income for the Unregulated Energy segment for the six months ended June 30, 2021 was $18.7 million, an increase of $4.5 million or 31.9 percent, over the same period in 2020.

Higher operating income resulted from increased consumption driven primarily by colder weather compared to the first half of 2020, higher retail propane margins per gallon, and contributions from the acquisition of the Western Natural Gas propane assets.

These margin increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments, new expenses associated with Western Natural Gas and higher other operating expenses.

The operating expense increases were partially offset by $0.6 million due to lower pandemic related costs.

Items contributing to the period-over-period increase in gross margin are listed in the following table:

(in thousands)

Propane Operations

Increased customer consumption - primarily weather related $ 3,701

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Increased customer consumption - primarily weather related 921

Improved margin including natural gas liquid processing 691

Other variances 194

Quarter-over-quarter increase in gross margin $ 6,994

Period-over-period increase in gross margin $ 7,914

The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.

Propane Operations

• Increased Customer Consumption Primarily Weather Related - Gross margin increased by $3.8 million, as weather on the Delmarva Peninsula was 18 percent colder during the first quarter of 2021 compared to the same period in 2020.

• Increased Customer Consumption Primarily Weather Related - Gross margin increased by $3.7 million, as weather on the Delmarva Peninsula was 9 percent colder for the six months ended June 30, 2021 compared to the same period in 2020.

• Increased Retail Propane Margins - Gross margin increased by $1.1 million, due to lower propane inventory costs and favorable market conditions.

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Marlin Gas Services

• Gross margin increased by $0.7 million during the first quarter of 2021, as compared to the same period in the prior year due to higher demand for CNG hold services.

• Gross margin increased by $0.3 million for the six months ended June 30, 2021, as compared to the same period in the prior year due to higher demand for CNG hold services.

Aspire Energy

• Increased Customer Consumption Primarily Weather Related - Gross margin increased by $0.9 million due to higher consumption of gas as weather in Ohio was approximately 11 percent colder during the first quarter of 2021 over the same period in 2020.

• Increased Customer Consumption Primarily Weather Related - Gross margin increased by $0.9 million due to higher consumption of gas as weather in Ohio was approximately 5 percent colder for the six months ended June 30, 2021 over the same period in 2020.

• Improved Margin including natural gas liquid processing - Gross margin increased by $0.7 million including improvements from natural gas liquid processing for the six months ended June 30, 2021, as compared to the same period in 2020.

Other Operating Expenses

Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table:

Items contributing to the period-over-period increase in operating expenses are listed in the following table:

(in thousands)

Depreciation, amortization and property tax costs due to new capital investments $ 1,066

Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions 921

Payroll, benefits and other employee-related expenses due to growth 723

Operating expenses from the Western Natural Gas acquisition 607

Facilities and maintenance costs 251

Insurance expense (non-health) 347

Reduction in expenses associated with the COVID-19 pandemic (620)

Other variances 352

Quarter-over-quarter increase in operating expenses $ 1,751

Period-over-period increase in operating expenses $ 3,396

OTHER EXPENSE, NET

For the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020

Other expense, net, which includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, decreased by $2.9 million in the first quarter of 2021, compared to the same period in 2020.

The decrease was primarily due to gains on two property sales which were completed in the first quarter of 2020.

For the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020

Other expense, net, which includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, increased by $1.7 million in the second quarter of 2021, compared to the same period in 2020.

The increase was primarily due to gains recognized on the sales of Community Gas Systems ("CGS") from our affiliate Sharp to our Delaware Division, in conjunction with the acquisitions of the CGS and conversion of customers from propane to natural gas service.

For the six months ended June 30, 2021 compared to the six months ended June 30, 2020

Other expense, net, which includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, decreased by $1.2 million in the first six months of 2021, compared to the same period in 2020.

The decrease was primarily due to gains on two property sales which were completed in the first quarter of 2020, partially offset by gains from the sales of CGS from Sharp to our Delaware Division as discussed in the preceding paragraph.

I NTEREST CHARGES

For the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020

Interest charges for the quarter ended March 31, 2021 decreased by $0.7 million, compared to the same period in 2020, attributable primarily to a decrease of $0.7 million in lower interest expense from lower levels outstanding under our revolving credit facilities, and $0.3 million of an amortization credit/reduction in interest expense associated with a regulatory liability that was established in connection with the Hurricane Michael regulatory proceeding settlement.

Partially offsetting the interest savings was an increase of $0.2 million in interest expense as a result of several long-term debt placements in 2020.

For the quarter ended March 31, 2021 compared to the quarter ended March 31, 2020

Income tax expense was $12.4 million for the quarter ended March 31, 2021, compared to $10.6 million for the quarter ended March 31, 2021.

Our effective income tax rate was 26.5 percent and 26.7 percent, for the three months ended March 31, 2021 and 2020, respectively.

For the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020

Interest charges were $5.1 million for both quarters ended June 30, 2021 and 2020.

For the six months ended June 30, 2021 compared to the six months ended June 30, 2020

Interest charges for the six months ended June 30, 2021 decreased by $0.7 million, compared to the same period in 2020, attributable primarily to a decrease of $0.9 million in lower interest expense from lower levels outstanding under our revolving credit facilities, and $0.6 million of an amortization credit/reduction in interest expense associated with a regulatory liability that was established in connection with the Hurricane Michael regulatory proceeding settlement.

Partially offsetting the interest savings was an increase of $0.5 million in interest expense as a result of several long-term debt placements in 2020 and $0.4 million due to lower capitalized interest associated with growth projects.

For the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020

Income tax expense was $5.2 million for the quarter ended June 30, 2021, compared to $2.0 million for the quarter ended June 30, 2020.

Our effective income tax rate was 27.2 percent and 15.7 percent, for the three months ended June 30, 2021 and 2020, respectively.

The second quarter of 2021 included a favorable income tax impact associated with the CARES Act that reduced the effective tax rate by 13.2 percent, from 28.9 percent to 15.7 percent.

For the six months ended June 30, 2021 compared to the six months ended June 30, 2020

Income tax expense was $17.6 million for the six months ended June 30, 2021, compared to $12.6 million for the six months ended June 30, 2020.

Our effective income tax rate was 26.7 percent and 24.1 percent, for the six months ended June 30, 2021 and 2020, respectively.

The second quarter included a favorable income tax impact associated with the CARES Act that reduced the effective tax rate on a year to date basis by 3.2 percent, from 27.3 percent to 24.1 percent.

F INANCIAL P OSITION , L IQUIDITY AND C APITAL R ESOURCES

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Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements.

Our capital expenditures were $48.7 million for the three months ended March 31, 2021.

Our capital expenditures were $107.8 million for the six months ended June 30, 2021.

In the table below, we have provided a range of our forecasted capital expenditures for 2021:

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The 2021 forecast, which excludes any potential acquisitions, includes capital expenditures associated with the following projects:

Delmarva Natural Gas distribution's Somerset County expansion and the Bioenergy Devco RNG Project, Eastern Shore's Del-Mar Energy Pathway and the CleanBay RNG project, Florida's Western Palm Beach County expansion and other potential pipeline projects, continued expenditures under the Florida GRIP, further expansions of our natural gas distribution and transmission systems, continued natural gas and electric system infrastructure improvement activities, facilities to support Marlin Gas Services' CNG transport growth and expansion into RNG and LNG transport, information technology systems, and other strategic initiatives and investments.

Delmarva Natural Gas distribution's Somerset County expansion, Eastern Shore's Del-Mar Energy Pathway, Florida's Western Palm Beach County expansion and other potential pipeline projects, continued expenditures under the Florida GRIP, further expansions of our natural gas distribution and transmission systems, continued natural gas and electric system infrastructure improvement activities, facilities to support Marlin Gas Services' CNG transport growth and expansion into RNG and LNG transport, information technology systems, and other strategic initiatives and investments, including renewable energy investments.

The capital expenditure projection is subject to continuous review and modification.

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This commitment, along with adequate and timely rate relief for our regulated energy operations, is intended to ensure our ability to attract capital from outside sources at a reasonable cost, which will benefit our customers, creditors, employees and stockholders.

The following table presents our capitalization, excluding and including short-term borrowings, as of March 31, 2021 and December 31, 2020:

March 31, 2021 December 31, 2020

The following table presents our capitalization, excluding and including short-term borrowings, as of June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

(in thousands)

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Total capitalization, excluding short-term debt $ 1,240,014 100 % $ 1,205,584 100 %

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(in thousands)

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Our target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent.

Our equity to total capitalization ratio, including short-term borrowings, was 52 percent as of March 31, 2021.

Our equity to total capitalization ratio, including short-term borrowings, was 52 percent as of June 30, 2021.

We seek to align permanent financing with the in-service dates of our capital projects.

We may utilize more temporary short-term debt when the financing cost is attractive as a bridge to the permanent long-term financing or if the equity markets are volatile.

In the third and fourth quarters of 2020, we issued 1.0 million shares of common stock through our DRIP and the ATM programs and received net proceeds of approximately $83.0 million which were added to the general funds.

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 2021, we also 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.

See Note 9, Stockholders’ Equity , in the condensed consolidated financial statements for additional information on commissions and fees paid in connection with these issuances.

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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:

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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.

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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, respectively.

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 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, respectively.

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 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.

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Our pricing is adjusted each quarter based upon our 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 new 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.

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 new 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.

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.

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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 million of short-term debt, as required.

The following table provides a summary of our operating, investing and financing cash flows for the three months ended March 31, 2021 and 2020:

Three Months Ended

The following table provides a summary of our operating, investing and financing cash flows for the six months ended June 30, 2021 and 2020:

Six Months Ended

(in thousands) 2021 2020

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Changes in working capital are determined by a variety of factors, including weather, the prices of natural gas, electricity and propane, the timing of customer collections, payments for purchases of natural gas, electricity and propane, and deferred fuel cost recoveries.

During the three months ended March 31, 2021 and 2020, net cash provided by operating activities was $80.4 million and $58.8 million, respectively, resulting in an increase in cash flows of $21.6 million.

During the six months ended June 30, 2021 and 2020, net cash provided by operating activities was $134.2 million and $91.7 million, respectively, resulting in an increase in cash flows of $42.5 million.

Significant operating activities generating the cash flows change were as follows:

• Changes in net prepaid expenses and other current assets, customer deposits and refunds, accrued compensation and other net assets and liabilities, increased cash flows by $10.5 million;

• Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities increased cash flows by $20.4 million;

• Net income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by $13.2 million, due primarily to higher net income, depreciation and amortization and gain on sale of assets;

• Net cash flows from income taxes receivable increased by $6.0 million;

• Changes in net prepaid expenses and other current assets, customer deposits and refunds, accrued compensation and other net assets and liabilities, increased cash flows by $4.6 million;

• Changes in net regulatory assets and liabilities increased cash flows by $3.6 million due primarily to the change in fuel costs collected through the various cost recovery mechanisms;

• Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities decreased cash flows by $3.6 million;

• Net cash flows from changes in propane inventory, storage gas and other inventories decreased by approximately $5.2 million.

• Net cash flows from income taxes receivable increased by $1.3 million.

Cash Flows Used in Investing Activities

Net cash used in investing activities totaled $51.8 million and $31.5 million during the three months ended March 31, 2021 and 2020, respectively, resulting in a decrease in cash flows of $20.3 million.

Cash paid for capital expenditures was $52.0 million for the first three months of 2021, compared to $35.2 million for the same period in 2020, resulting in decreased cash flows of $16.8 million.

Net cash used in investing activities totaled $104.5 million and $80.3 million during the six months ended June 30, 2021 and 2020, respectively, resulting in a decrease in cash flows of $24.2 million.

Cash paid for capital expenditures was $104.6 million for the first six months of 2021, compared to $82.8 million for the same period in 2020, resulting in decreased cash flows of $21.8 million.

The remaining decrease was largely attributable to several property sales that occurred in the first quarter of 2020.

Cash Flows Used in Financing Activities

Net cash used in financing activities totaled $26.5 million during the three months ended March 31, 2021 compared to $30.3 million of net cash used in financing activities over the same period in 2020, resulting in an increase in cash flows of $3.8 million.

The increase in net cash provided by financing activities resulted primarily from the following:

• Increased cash flows of $30.0 million from the absence of repayments of long-term debt;

• Increased cash flows of $1.8 million as a result of changes in cash overdrafts in 2021;

• Cash dividends of $7.5 million paid during the three months ended March 31, 2021, compared to $6.5 million for the three months ended March 31, 2020;

• Decreased cash flows from short-term borrowing of $28.2 million under our line of credit arrangements;

• Increased cash flows of $1.9 million as a result of issuing shares of our common stock under the DRIP program.

Net cash used in financing activities totaled $28.2 million during the six months ended June 30, 2021 compared to $14.8 million of net cash used in financing activities over the same period in 2020, resulting in a decrease in cash flows of $13.4 million.

The increase in net cash used in financing activities resulted primarily from the following:

• Long-term debt repayments of $10.1 million and repayments of short-term debt of $5.2 million;

• Cash dividends of $15.0 million paid during the six months ended June 30, 2021, compared to $13.0 million for the six months ended June 30, 2020;

• Cash flows of $4.8 million as a result of issuing shares of our common stock under the DRIP program

Off-Balance Sheet Arrangements

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 $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, to 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 $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, to our current and previous primary insurance carriers.

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

We have not drawn upon 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 upon 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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There has been no material change in the contractual obligations presented in our 2020 Annual Report on Form 10-K, except for commodity purchase obligations entered into in the ordinary course of our business.

The following table summarizes commodity purchase contract obligations at March 31, 2021:

The following table summarizes commodity purchase contract obligations at June 30, 2021:

Payments Due by Period

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Eastern Shore is subject to regulation by the FERC;

and Peninsula Pipeline is subject to regulation by the Florida PSC.

At March 31, 2021, we were involved in regulatory matters in each of the jurisdictions in which we operate.

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.

At June 30, 2021, we were involved in regulatory matters in each of the jurisdictions in which we operate.

Our significant regulatory matters are fully described in Note 5 , Rates and Other Regulatory Activities , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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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 2. Management’s Discussion and Analysis