What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-04 · 283 added, 265 removed, 608 unchanged (47% of the section changed)

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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 and Six Months Ended June 30, 2021

Results of Operations for the Three and Nine Months Ended September 30, 2021

Chesapeake Utilities is a Delaware corporation formed in 1947.

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and other energy-related services.

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

In March 2020, the U.S.

Centers for Disease Control and Prevention ("CDC") declared a national emergency due to the rapidly growing outbreak of COVID-19.

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

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

Chesapeake Utilities is considered an “essential business,” which has allowed us to continue operational activities and construction projects 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.

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

We are considered an “essential business,” which has allowed us to continue operational activities and construction projects while adhering to the safety procedures intended to limit the spread of the virus.

At this time, restrictions continue to be lifted as vaccines have become widely 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.

The expiration of the states of emergency in our service territories has concluded our ability to defer incremental pandemic related costs for consideration through the applicable regulatory process.

Despite these positive state orders and in light of the continued emergence and growing prevalence of new variants of COVID-19, we continue to operate under our pandemic response plan, monitor developments affecting employees, customers, suppliers, stockholders and take all precautions warranted to operate safely and to comply with the CDC, and the Occupational Safety and Health Administration, in order to protect our employees, customers and the communities we serve.

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.

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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:

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 which will include, but not be limited to, several of the areas described below.

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.

For example, we have largely completed our Florida GRIP to replace 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.

Our Elkton Gas subsidiary also 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 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.

Our extension from Eastern Shore's Del-Mar Energy Pathway Project, which was recently completed, brings natural gas to our distribution system in Somerset County, Maryland for the first time.

As part of this project, our services enable 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.

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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.

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.

In October 2021, we completed construction of the Noble Road Landfill Renewable Natural Gas pipeline project.

This is our first RNG transportation project and, when combined with our previously announced projects, will expand our ability to utilize RNG in our services territories.

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

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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.

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

Just recently, we secured $9.6 million in sustainability linked financing from Bank of America to fund capital investments in energy delivery solutions provided by our subsidiary, Marlin Gas Services.

Advancing Social Initiatives

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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.

During the third quarter, we were recognized as a Top Workplace in Delaware for the 10 th consecutive year.

This follows recognition as a Top Workplace nationally earlier in the year.

These recognitions are a testament to our employees’ commitment to excellence.

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.

During the third quarter, we were very excited to hire William Hughston as Vice President and Chief Human Resources Officer.

Hughston brings tremendous EDI experience to the team, including drawing from his vast experience including his previous role as Chief Diversity Officer.

Additionally, in October 2021, we announced the addition of our third female Director to our Board of Directors, Lisa Bisaccia.

Bisaccia's addition continues our steady progress of gender and ethnic diversity that represents the communities we serve.

Our Board of Directors includes, three 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.

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

Thus far in 2021, four of our business units have been recognized with awards from the American Gas Association for their commitment to safety.

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

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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.

The Board and Corporate Governance Committee annually review 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 just this year were also recognized as Best for Corporate Governance Among North American Utilities by Ethical Boardroom magazine.

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' news releases and 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 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.

Our net income for the three months ended September 30, 2021 was $12.5 million, or $0.71 per share, compared to $9.3 million, or $0.56 per share, for the same quarter of 2020.

Operating income for the three months ended September 30, 2021 increased by $2.7 million, or 15.6 percent, over the same period in 2020.

During the third quarter of 2020, we settled the Hurricane Michael limited proceeding which resulted in $1.9 million in operating income being recognized that related to the first and second quarters of 2020.

Excluding the absence of this timing difference, operating income increased $4.6 million compared to the third quarter of 2020.

Higher performance in the third quarter of 2021 was generated from continued pipeline expansion projects, contributions from the 2020 acquisitions of Elkton Gas and Western Natural Gas, higher margins from consumption returning toward pre-pandemic levels, natural gas distribution growth, increased propane margins, and margin growth from increased investment in the Florida GRIP program.

We recorded 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.

These expense increases were largely offset by $3.0 million of lower pandemic related costs and the establishment of regulatory assets for COVID-19 expenses.

Three Months Ended

June 30, Increase

September 30, Increase

2021 2020 (decrease)

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Income from Continuing operations 12,484 9,280 3,204

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

Income (Loss) from Discontinued Operations, net of tax (9) (19) 10

Net Income $ 12,475 $ 9,261 $ 3,214

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Diluted Earnings Per Share of Common Stock $ 0.71 $ 0.56 $ 0.15

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

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

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

Income Earnings

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

Third Quarter of 2020 Reported Results from Continuing Operations $ 12,782 $ 9,280 $ 0.56

Adjusting for Unusual Items:

Gains from sales of assets 1,294 942 0.05

Absence of timing of Hurricane Michael Settlement (first and second quarter 2020 impacts recorded in the third quarter of 2020) (1,933) (1,444) (0.08)

Regulatory deferral of COVID-19 expenses per PSCs orders 2,437 1,821 0.10

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

Favorable income tax impact associated the CARES Act recognized during the third quarter of 2021 — 922 0.05

504 1,299 0.07

Increased (Decreased) Gross Margins:

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

Increased retail propane margins and fees 994 743 0.04

Margin contributions from 2020 and 2021 acquisitions* 855 638 0.04

Eastern Shore and Peninsula Pipeline service expansions* 795 594 0.03

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

Improved margin from electric operations 653 488 0.03

Natural gas growth (excluding service expansions) 620 463 0.03

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

Increased customer consumption - primarily due to a return toward pre-pandemic conditions 536 400 0.02

Florida GRIP* 475 355 0.02

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(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 (1,715) (1,281) (0.07)

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Operating expenses for Elkton Gas and Western Natural Gas acquisitions (531) (397) (0.02)

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

Net reduction in expenses associated with the COVID-19 pandemic 608 454 0.03

(2,955) (2,208) (0.12)

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218 432 (0.01)

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

Third Quarter of 2021 Reported Results from Continuing Operations $ 15,477 $ 12,484 $ 0.71

*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

Our net income for the nine months ended September 30, 2021 was $60.8 million, or $3.45 per share, compared to $49.1 million, or $2.97 per share, for the same period of 2020.

Operating income for the nine months ended September 30, 2021 increased by $16.8 million, or 21.6 percent, over the same period in 2020.

The growth in 2021 reflects increased consumption driven primarily by colder weather compared to the same period of 2020, expansion projects and acquisitions completed in 2020.

Further contributing to the improved performance in the first nine months of 2021 was organic growth, consumption returning to pre-pandemic levels, increased propane margins, increased margins from investment in the Florida GRIP program, and the impact of the Hurricane Michael regulatory proceeding settlement.

These 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 toward pre-pandemic operating levels, including payroll, benefits and other employee-related expenses and outside services costs.

The operating expense increases were partially offset by $2.3 million decrease in pandemic related costs compared to 2020 and the establishment of regulatory assets for COVID-19 expenses as approved by the PSCs.

Nine Months Ended

September 30, Increase

2021 2020 (decrease)

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Diluted Earnings Per Share of Common Stock $ 3.45 $ 2.97 $ 0.48

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

Key variances in continuing operations, between the nine months ended September 30, 2021 and the nine months ended September 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

Nine Months Ended September 30, 2020 Reported Results from Continuing Operations $ 65,063 $ 48,981 $ 2.96

Adjusting for Unusual Items:

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

Regulatory deferral of COVID-19 expenses per PSCs orders 3,312 2,437 0.14

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

Gains from sales of assets (1,563) (1,150) (0.07)

Net impact of CARES Act items recognized during the second quarter of 2020 and third quarter of 2021 — (748) (0.06)

1,749 539 0.01

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Increased customer consumption - primarily weather related 6,485 4,772 0.27

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

Eastern Shore and Peninsula Pipeline service expansions* 6,037 4,442 0.25

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

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

Margin contributions from 2020 and 2021 acquisitions* 3,936 2,896 0.16

Increased propane margins and fees 2,712 1,995 0.11

Increased customer consumption - primarily due to a return toward pre-pandemic conditions 2,280 1,677 0.10

Natural gas growth (excluding service expansions) 2,237 1,646 0.09

Increased retail propane margins per gallon 1,137 834 0.05

Florida GRIP* 1,408 1,036 0.06

Improved margin from electric operations 931 685 0.04

Aspire Energy improved margin including natural gas liquid processing 897 660 0.04

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

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 (5,802) (4,269) (0.24)

Payroll, benefits and other employee-related expenses due to growth (4,679) (3,443) (0.20)

Operating expenses for Elkton Gas and Western Natural Gas acquisitions (2,499) (1,839) (0.10)

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

Net increase in operating expenses associated with a return toward pre-pandemic conditions

(969) (713) (0.04)

Interest charges (1)

Insurance expense (non-health) (420) (309) (0.02)

(14,369) (10,573) (0.60)

Other income tax effects — 554 0.03

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1,344 1,556 (0.08)

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

Nine Months Ended September 30, 2021 Reported Results from Continuing Operations $ 81,334 $ 60,771 $ 3.45

*See the Major Projects and Initiatives tabl e.

(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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Gross Margin for the Period

Three Months Ended Six Months Ended Year Ended Estimate for

June 30, June 30, December 31, Fiscal

Three Months Ended Nine Months Ended Year Ended Estimate for

September 30, September 30, December 31, Fiscal

in thousands 2021 2020 2021 2020 2020 2021 2022

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(2) Includes gross margin from natural gas distribution services.

(3) Prior quarter amounts have been revised to conform to the current period presentation.

Detailed Discussion of Major Projects and Initiatives

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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 and $0.4 million for the three and six months ended June 30, 2021, respectively, compared to 2020.

The first phase of this project was placed into service in December 2018 and generated incremental gross margin of $0.2 million and $0.5 million for the three and nine months ended September 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.

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

Eastern Shore anticipates that this project will be fully in-service by the beginning of the fourth quarter of 2021.

The new facilities will:

(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.

Eastern Shore recently completed this project.

The new facilities:

(i) ensure an additional 14,300 Dekatherms per day ("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.

Including interim services, this project generated additional gross margin of $0.1 million and $1.3 million for the three and nine months ended September 30, 2021, respectively.

The estimated annual gross margin from this project, including initial natural gas distribution service in Somerset County, Maryland, is approximately $4.6 million in 2021 and $6.7 million annually thereafter.

Callahan Intrastate Pipeline

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

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.

For the three and nine months ended September 30, 2021, the project generated $0.5 million and $4.2 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 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.

For the nine months ended September 30, 2021, we recognized approximately $0.1 million, slightly lower than originally estimated as a result of a construction delay in the project.

The project is expected to be in service in the fourth quarter of 2021, and produce gross margin of approximately $0.4 million in 2021 and $1.5 million in 2022 and beyond.

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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.

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 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.

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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.

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.

Marlin Gas Services generated additional gross margin of $0.3 million on a year-to-date basis.

We estimate that Marlin Gas Services will generate annual gross margin of approximately $7.3 million in 2021 and $8.5 million in 2022, with the potential for additional growth in future years.

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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.

In October 2021, we announced that Aspire Energy had completed construction of its Noble Road Landfill RNG pipeline project, a 33.1-mile pipeline, which will transport RNG generated from the landfill to Aspire Energy’s pipeline system, displacing conventionally produced natural gas.

In conjunction with this expansion, Aspire Energy also upgraded an existing compressor station and installed two new metering and regulation sites.

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

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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.

At the present time, we expect to generate $0.1 million in 2021 in incremental margin from these RNG transportation projects .

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

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

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.

For the three and nine months ended September 30, 2021, we generated $0.2 million and $2.3 million, respectively, in additional gross margin from Elkton Gas and estimate that this acquisition will generate gross margin of approximately $3.9 million in 2021 and $4.1 million thereafter.

Western Natural Gas

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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.

We generated $0.4 million and $1.3 million in additional gross margin for the three and nine months ended September 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 grow to $2.3 million of gross margin in 2022, with additional opportunities for growth in the future.

Escambia Meter Station

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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.

We generated $0.3 million in additional gross margin in the third quarter of 2021 and we estimate that this acquisition will generate gross margin of approximately $0.6 million in 2021 and grow to $1.0 million of gross margin 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 $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.

Since the program's inception in August 2012, we have invested $183.6 million of capital expenditures to replace 337 miles of qualifying distribution mains, including $17.7 million of new pipes during the first nine months of 2021.

We expect to generate annual gross margin of approximately $17.0 million in 2021, and $18.8 million in 2022.

Hurricane Michael

In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest Florida.

The hurricane caused widespread and severe damage to FPU's infrastructure resulting in 100 percent of its customers in the Northwest Florida service territory losing electrical service.

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

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The 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 and six months ended June 30, 2021:

Three Months Ended Six Months Ended

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

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,

(in thousands) 2021 2020 (1)

Gross Margin $ 3,264 $ 8,261 $ 8,984 $ 8,261

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Net income $ 1,332 $ 2,932 $ 3,377 $ 2,932

(1) Amounts reflected for the quarter ended September 30, 2020 include the cumulative effect of the Hurricane Michael settlement dating back to January 1, 2020.

Capital Cost Surcharge Programs

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Elkton Gas STRIDE Plan

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

In March 2021, Elkton Gas filed a 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.

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 fourth quarter of 2021 and is expected to generate $0.3 million of additional gross margin in 2022 and $0.4 million annually thereafter.

COVID-19 Regulatory Proceeding

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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.

In November 2020, the Office of Public Counsel filed a protest to the order approving the establishment of this regulatory asset treatment.

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.

The settlement allowed 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.

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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.

Weather was not a significant factor in the third quarter.

For the nine-month period, weather conditions accounted for $6.5 million of increased gross margin compared to the same period in 2020, primarily due to a 7.2 percent increase in HDDs and a return to pre-pandemic conditions that resulted in increased customer consumption.

Assuming normal temperatures, as detailed below, gross margin would have been higher by $1.3 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,

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 Variance 2021 2020 Variance

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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 $0.8 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 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

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 $0.6 million and $2.2 million of additional margin for the three and nine months ended September 30, 2021, respectively.

The average number of residential customers served on the

Delmarva Peninsula increased by 4.0 percent and 4.1 percent for the three and nine months ended September 30, 2021, while Florida customers increased by and 4.7 percent and 5.0 percent, for the three and nine months ended September 30, 2021, respectively.

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 our distribution infrastructure continues to build out.

We anticipate continued customer growth, as new communities continue to build out due to population growth, additional infrastructure is added to support the growth.

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

Three Months Ended Nine Months Ended

September 30, 2021 September 30, 2021

(in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida

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Regulated Energy Segment

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

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

Three Months Ended

June 30, Increase

September 30, Increase

2021 2020 (decrease)

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Operating income $ 23,538 $ 20,482 $ 3,056

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:

Operating income for the Regulated Energy segment for the third quarter of 2021 was $23.5 million, an increase of $3.1 million, or 14.9 percent, over the same period in 2020.

During the third quarter of 2020, we settled the Hurricane Michael limited proceeding, which resulted in $1.9 million in operating income being recognized that related to the first and second quarters of 2020.

Excluding this timing difference, operating income increased $5.0 million compared to the third quarter of 2020.

Higher operating income reflects continued pipeline expansions by Eastern Shore and Peninsula Pipeline, increased consumption from a return toward pre-pandemic consumption levels, organic growth in our natural gas distribution businesses, and operating results from the Elkton Gas and Escambia Meter Station acquisitions completed in 2020 and 2021, as well as lower expenses.

Operating expenses decreased by $3.0 million compared to the prior year quarter due to a lower level of overall pandemic related costs compared to 2020 and the establishment of regulatory assets for COVID-19 expenses as authorized by the PSCs.

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

(in thousands)

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

Margin impact from the Hurricane Michael regulatory proceeding settlement (includes the absence of first and second quarter 2020 impact recorded in the third quarter of 2020) $ (5,507)

Eastern Shore and Peninsula Pipeline service expansions 795

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

Improved margin from electric operations 653

Natural gas growth (excluding service expansions) 620

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

Margin contribution from 2020 and 2021 acquisitions 483

Florida GRIP 475

Increased customer consumption - primarily due to a return toward pre-pandemic conditions 314

Eastern Shore capital surcharge 304

Other variances 474

Quarter-over-quarter increase in gross margin $ 9,332

Quarter-over-quarter decrease in gross margin $ (1,389)

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.

Margin Impact from Hurricane Michael Regulatory Proceeding Settlement

We saw a decrease in gross margin of $5.5 million as a result of the settlement of the Hurricane Michael regulatory proceeding which included the absence of interim rates from the first and second quarter of 2020 that were first reflected in the third quarter of 2020.

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 $0.7 million from Peninsula Pipeline's Western Palm Beach County and Callahan projects and $0.1 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.

Improved Margin from Electric Operations

Our electric operations generated additional gross margin of $0.7 million due to increased consumption and growth.

Natural Gas Distribution Customer Growth

We generated additional gross margin of $0.6 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.

Gross margin increased by $0.3 million in Florida and $0.3 million on the Delmarva Peninsula for the three months ended September 30, 2021, as compared to the same period in 2020, due primarily to residential customer growth of 4.0 percent and 4.7 percent on the Delmarva Peninsula and in Florida, respectively.

Gross margin increased by $0.5 million due to margin contributed from Elkton Gas and the Escambia Meter Station which were completed in July 2020 and June 2021, respectively.

Continued investment in the Florida GRIP generated additional gross margin of $0.5 million in third quarter of 2021 compared to the same period in 2020.

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

The absence of unfavorable COVID-19 impacts, resulted in a return towards pre-pandemic consumption, positively impacting gross margin by $0.3 million for the three months ended September 30, 2021 compared to the same period in 2020.

Eastern Shore Capital Surcharge

Eastern Shore's capital surcharge resulted in $0.3 million of additional margin for the three months ended September 30, 2021.

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

Operating Expenses

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

Items contributing to the quarter-over-quarter decrease 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

Absence of Hurricane Michael Depreciation and Amortization cumulative adjustment (first and second quarter 2020) $ (3,574)

Regulatory deferral of COVID-19 expenses per PSCs orders (2,437)

Net reduction in expenses associated with the COVID-19 pandemic (546)

Depreciation, asset removal and property tax costs due to new capital investments 1,181

Payroll, benefits and other employee-related expenses due to growth 612

Operating expenses from the Elkton Gas acquisition 204

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

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

Other variances 115

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

Quarter-over-quarter decrease in operating expenses $ (4,445)

For the Nine Months Ended September 30, 2021, compared to the nine months ended September 30, 2020:

Nine Months Ended

September 30, Increase

2021 2020 (decrease)

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Operating income $ 79,210 $ 66,376 $ 12,834

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:

Operating income for the Regulated Energy segment for the first nine months of 2021 was $79.2 million, an increase of $12.8 million, or 19.3 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 and Escambia Meter Station acquisitions completed in 2020 and 2021, and increased consumption from a return toward pre-pandemic consumption levels.

Further contributing to the operating income growth was margin from organic growth in our natural gas distribution businesses and increased consumption driven primarily by colder weather compared to the same period of 2020.

These 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, expenses associated with Elkton Gas, and higher other operating expenses.

The operating expense increases were partially offset by $2.5 million associated with a reduction in pandemic related costs compared to 2020 and the establishment of regulatory assets for COVID-19 expenses as approved by the PSCs.

Items contributing to the period-over-period 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 $ 6,037

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

Margin contribution from 2020 and 2021 acquisitions 2,624

Natural gas growth (excluding service expansions) 2,237

Increased customer consumption - primarily due to a return toward pre-pandemic conditions 2,112

Increased customer consumption - primarily weather related 1,510

Florida GRIP 1,408

Improved margin from electric operations 931

Sandpiper Energy infrastructure rider associated with conversions 624

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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 $5.7 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 $4.7 million from Peninsula Pipeline's Western Palm Beach County and Callahan projects and $1.3 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.

Gross margin increased by $2.6 million due to margin contributed from Elkton Gas and the Escambia Meter Station which were completed in July 2020 and June 2021, respectively.

Natural Gas Distribution Customer Growth

We generated additional gross margin of $2.2 million from natural gas customer growth.

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.

Gross margin increased by $1.0 million in Florida and $1.2 million on the Delmarva Peninsula for the nine months ended September 30, 2021, as compared to the same period in 2020, due primarily to residential customer growth of 4.1 percent and 5.0 percent on the Delmarva Peninsula and in Florida, respectively.

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

The absence of unfavorable COVID-19 impacts during the first nine months of 2021, resulted in a return to pre-pandemic consumption, positively impacting gross margin by $2.1 million compared to the same period in 2020.

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.

Gross margin increased by $1.5 million for the for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to a 7 percent increase in HDDs on the Delmarva Peninsula and a 39 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 $1.4 million for the nine months ended September 30, 2021 compared to the same period in 2020.

Improved Margin from Electric Operations

Our electric operations generated additional gross margin of $0.9 million due to increased consumption and growth.

Sandpiper Energy Infrastructure Rider Associated with Conversions

We generated additional margin of $0.6 million associated with the conversion of Sandpiper Energy''s propane customers to natural gas customers for the nine months ended September 30, 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:

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

(in thousands)

Hurricane Michael regulatory proceeding settlement - depreciation and amortization impact $ 3,550

Depreciation, asset removal and property tax costs due to new capital investments $ 4,563

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 2,601

Operating expenses from the Elkton Gas acquisition 1,238

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

Net increase in operating expenses associated with a return toward pre-pandemic conditions 853

Regulatory deferral of COVID-19 expenses per PSCs orders (3,312)

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Unregulated Energy Segment

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

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

Three Months Ended

June 30, Increase

September 30, Increase

2021 2020 (decrease)

7 unchanged sentences

Total operating expenses 17,780 16,160 1,620

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

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.

Operating loss $ (2,883) $ (3,092) $ 209

Operating results for the Unregulated Energy segment for the third quarter of 2021 increased by $0.2 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.

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

Higher operating results during the third quarter were driven by increased propane margins, contributions from the acquisition of Western Natural Gas and margin improvement from Aspire Energy as well as increased consumption in the propane businesses as volumes continue returning toward pre-pandemic levels.

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

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

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Propane Operations

Increased retail propane margins and service fee $ 751

Western Natural Gas acquisition (completed in October 2020) 372

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

Marlin Gas Services

Decreased demand for CNG services (400)

Increased wholesale propane margins 243

Increased customer consumption - primarily due to a return toward pre-pandemic conditions 222

Increased customer consumption - primarily weather related 122

Aspire Energy

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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.

• Increased Retail Propane Margins and Service Fee - Gross margin increased by $0.8 million for the three months ended September 30, 2021, due to lower propane inventory costs and favorable market conditions as well as resuming assessment of our customary service fees which had been suspended as a result of the COVID-19 pandemic during the same period in the prior year.

These market conditions, which include market pricing and competition with other propane suppliers, as well as the availability and price of alternative energy sources, may fluctuate based on changes in demand, supply and other energy commodity prices.

• 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 Wholesale Propane Margins - Gross margin increased by $0.2 million during the third quarter of 2021 over the same period in 2020, due to lower propane inventory costs and favorable market conditions.

These conditions tend to fluctuate based on changes in demand, supply and other energy commodity prices.

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

• Increased Customer Consumption - primarily weather related - Gross margin increase by $0.1 million due to growth and favorable pricing during the third quarter of 2021.

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.

• Gross margin increased by $0.3 million during the third quarter of 2021 over the same period in 2020, including improvements from natural gas liquid processing.

Other Operating Expenses

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(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 $ 595

Operating expenses from the Western Natural Gas acquisition 269

Payroll, benefits and other employee-related expenses due to growth 427

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

Operating expenses from the Western Natural Gas acquisition 273

Net increase in operating expenses associated with a return toward pre-pandemic conditions 123

Other variances 202

Quarter-over-quarter increase in operating expenses $ 1,620

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

Six Months Ended

June 30, Increase

For the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020:

Nine Months Ended

September 30, Increase

2021 2020 (decrease)

8 unchanged sentences

Operating income $ 15,777 $ 11,050 $ 4,727

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.

Operating income for the Unregulated Energy segment for the nine months ended September 30, 2021 was $15.8 million, an increase of $4.7 million or 42.8 percent, over the same period in 2020.

Higher operating income resulted from increased consumption driven primarily by colder weather compared to the same period in 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, increased payroll and benefits costs, new expenses associated with Western Natural Gas and higher other operating expenses.

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

2 unchanged sentences

Increased customer consumption - primarily weather related $ 3,823

Increased retail propane margins per gallon driven by favorable supply costs 1,137

Increased retail propane margins and service fees 2,403

Western Natural Gas acquisition (completed in October 2020) 1,312

Increased wholesale propane margins per gallon 309

Marlin Gas Services

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Propane Operations

• 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.

• Increased Customer Consumption Primarily Weather Related - Gross margin increased by $3.8 million, as weather on the Delmarva Peninsula was 7 percent colder for the nine months ended September 30, 2021 compared to the same period in 2020.

• Increased Retail Propane Margins and Service Fees - Gross margin increased by $2.4 million, due to lower propane inventory costs and favorable market conditions as well as resuming the assessment of our customary service fees which had been suspended as a result of the COVID-19 pandemic during the same period in the prior year.

These market conditions, which include competition with other propane suppliers, as well as the availability and price of alternative energy sources, may fluctuate based on changes in demand, supply and other energy commodity prices.

• Western Natural Gas - Gross margin increased by $1.3 million due to the margin generated from Western Natural Gas, which was acquired by Sharp in October 2020.

• Increased Wholesale Propane Margins - Gross margin increased by $0.3 million during the third quarter of 2021 over the same period in 2020, due to lower propane inventory costs and favorable market conditions.

These conditions tend to fluctuate based on changes in demand, supply and other energy commodity prices.

Marlin Gas 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.

• Gross margin increased by $0.3 million for the nine months ended September 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 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.

• Increased Customer Consumption Primarily Weather Related - Gross margin increased by $1.2 million due to higher consumption of gas as weather in Ohio was approximately 3 percent colder for the nine months ended September 30, 2021 over the same period in 2020.

• Improved Margin including natural gas liquid processing - Gross margin increased by $0.9 million, including improvements from natural gas liquid processing, for the nine months ended September 30, 2021, as compared to the same period in 2020.

Other Operating Expenses

2 unchanged sentences

Depreciation, amortization and property tax costs due to new capital investments $ 1,650

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 1,170

Operating expenses from the Western Natural Gas acquisition 880

Net increase in operating expenses associated with a return toward pre-pandemic conditions 406

Insurance expense (non-health) 404

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

Other variances 505

1 unchanged sentence

OTHER EXPENSE, NET

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.

For the quarter ended September 30, 2021 compared to the quarter ended September 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 $0.4 million in the third quarter of 2021, compared to the same period in 2020.

For the nine months ended September 30, 2021 compared to the nine months ended September 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 $0.8 million in the first nine 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.

I NTEREST CHARGES

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.

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

Interest charges for the three months ended September 30, 2021 increased by $0.4 million, compared to the same period in 2020, attributable primarily to a $0.8 million increase 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 increased charges was a decrease of $0.3 million in lower interest expense from lower levels of outstanding borrowings under our revolving credit facilities and the restructuring of our revolving credit facilities, and a decrease of $0.2 million in interest expense as a result of several long-term debt placements in 2020.

For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Interest charges for the nine months ended September 30, 2021 decreased by $0.3 million, compared to the same period in 2020, attributable primarily to a decrease of $1.5 million in lower interest expense from lower levels of outstanding borrowings under our revolving credit facilities and the restructuring of our revolving credit facilities.

Partially offsetting the interest savings was an increase of $0.6 million in interest expense as a result of several long-term debt placements in 2020, $0.4 million due to lower capitalized interest associated with growth projects, and $0.2 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.

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

Income tax expense was $3.0 million for the quarter ended September 30, 2021, compared to $3.5 million for the quarter ended September 30, 2020.

Our effective income tax rate was 19.3 percent and 27.4 percent, for the three months ended September 30, 2021 and 2020, respectively.

During the third quarter 2021, we recognized a $0.9 million reduction in tax expense associated certain provisions of the CARES Act which allowed us to carryback net operating losses into prior year periods where the federal income tax rate was higher..

Excluding this impact of the CARES Act, our effective tax rate for the three months ended September 30, 2021 was 25.3 percent.

For the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020

Income tax expense was $20.6 million for the nine months ended September 30, 2021, compared to $16.1 million for the nine months ended September 30, 2020.

Our effective income tax rate was 25.3 percent and 24.7 percent, for the nine months ended September 30, 2021 and 2020, respectively.

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 $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:

Our capital expenditures were $151.4 million for the nine months ended September 30, 2021.

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

(dollars in thousands) Low High

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Propane distribution

11,000 12,000

Energy transmission

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Other unregulated energy

13,000 15,000

Total Unregulated Energy

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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 June 30, 2021 and December 31, 2020:

June 30, 2021 December 31, 2020

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

September 30, 2021 December 31, 2020

(in thousands)

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Total capitalization, excluding short-term debt $ 1,256,421 100 % $ 1,205,584 100 %

June 30, 2021 December 31, 2020

September 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 June 30, 2021.

Our equity to total capitalization ratio, including short-term borrowings, was 51 percent as of September 30, 2021.

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

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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 was added to the general funds and then used to pay down short-term borrowing.

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.

In the first nine months of 2021, we issued less than 0.1 million shares at an average price per share of $116.63 and received net proceeds of $6.6 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 June 30, 2021:

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

(in thousands) Total Borrowing Capacity Less:

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150,000 (140,000) — 10,000

Total Shelf Agreements as of June 30, 2021 $ 670,000 $ (360,000) $ — $ 310,000

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

At June 30, 2021 and December 31, 2020, we had $169.3 million and $175.6 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 1.11 percent and 1.28 percent, 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.

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

At September 30, 2021 and December 31, 2020, we had $192.0 million and $175.6 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 0.82 percent and 1.28 percent.

Included in the September 30, 2021 balance, is $70.0 million in short-term debt for which we have entered into interest rate swap agreements.

In August 2021 we amended and restated our Revolver into a multi-tranche facility totaling $400.0 million with multiple participating lenders.

The two tranches of the facility consist of one $200.0 million 364-day short-term debt tranche and a $200.0 million five-year tranche, both of which have three (3) one-year extension options, which can be authorized by the Chief Financial Officer.

We are eligible to establish the repayment term for individual borrowings under the five year tranche of the facility and to the extent that an individual loan under the revolver exceeded 12 months, the outstanding balance would be classified as a component of long-term debt.

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

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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 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.

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

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

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.

As of September 30, 2021, we are in compliance with this covenant.

The 364-day tranche of the Revolver expires in August 2022 and the five-year tranche expires in August 2026;

both tranches are available to provide funds for our short-term cash needs to meet seasonal working capital requirements and to temporarily fund portions of our capital expenditures.

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

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

As of September 30, 2021, the pricing under the 364-day tranche of the Revolver does not include an unused commitment fee and maintains an interest rate of 0.70 percent over LIBOR.

As of September 30, 2021, the pricing under the five-year tranche of the Revolver included an unused commitment fee of 0.09 percent and an interest rate of 0.95 percent over LIBOR.

Our total available credit under the Revolver at September 30, 2021 was $203.4 million.

As of September 30, 2021, we had issued $4.6 million in letters of credit to various counterparties under the syndicated Revolvers.

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.

In the fourth quarter of 2020, the Company entered into two $30.0 million interest rate swaps with a total notional amount of $60.0 million through September and December 2021 with pricing of 0.205 and 0.20 percent, respectively.

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

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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.

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

Long-Term Debt

On August 25, 2021, we entered into a Note Agreement with multiple lenders to issue $50.0 million in uncollateralized senior notes.

Under the Note Agreement, we will issue the senior notes on January 25, 2022 at a rate of 2.49 percent for a 15-year term.

These senior notes, when issued, will have similar covenants and default provisions as the existing senior notes, and will have an annual principal payment beginning in the sixth year after the issuance.

The proceeds received from the issuances of the senior notes will be used to reduce our short-term borrowings under our lines of credit and to fund capital expenditures.

In addition, on September 24, 2021, we entered into an Equipment Financing Agreement with Banc of America Leasing & Capital, LLC to issue $9.6 million in sustainability linked financing for the purchase of equipment by our subsidiary, Marlin Gas Services.

The equipment security note bears a 2.46 percent interest rate and has a term of ten years.

Under the terms of the agreement, we granted a security interest in the equipment to the lender, to serve as collateral.

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

Nine Months Ended

September 30,

(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 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.

During the nine months ended September 30, 2021 and 2020, net cash provided by operating activities was $152.8 million and $115.9 million, respectively, resulting in an increase in cash flows of $36.9 million.

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

• Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities increased cash flows by $31.4 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 income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by $10.5 million, due primarily to higher net income, and higher depreciation and amortization;

• Net cash flows from income taxes receivable increased by $7.0 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 prepaid expenses and other current assets, customer deposits and refunds, accrued compensation and other net assets and liabilities, decreased cash flows by $0.5 million;

• Changes in net regulatory assets and liabilities decreased cash flows by $4.3 million due primarily to the change in fuel costs collected through the various cost recovery mechanisms;

• Net cash flows from changes in propane inventory, storage gas and other inventories decreased by approximately $7.2 million.

Cash Flows Used in Investing Activities

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.

Net cash used in investing activities totaled $148.1 million and $136.6 million during the nine months ended September 30, 2021 and 2020, respectively, resulting in a decrease in cash flows of $11.5 million.

Cash paid for capital expenditures was $148.2 million for the first nine months of 2021, compared to $123.4 million for the same period in 2020, resulting in decreased cash flows of $24.8 million.

The decrease was offset by an increase in cash flows due to the absence of acquisitions that occurred in the third quarter of 2020.

Cash Flows Used in Financing Activities

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.

Net cash used in financing activities totaled $2.3 million during the nine months ended September 30, 2021 compared to $16.7 million of net cash provided by financing activities over the same period in 2020, resulting in a decrease in cash flows of $19.0 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;

• Long-term debt repayments of $10.1 million;

• Cash dividends of $23.3 million paid during the nine months ended September 30, 2021, compared to $20.0 million for the nine months ended September 30, 2020;

• Cash flows of $7.1 million as a result of issuing shares of our common stock under the DRIP program.

These increases in cash used were partially offset by increased cash provided by short-term debt of $16.4 million.

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 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 June 30, 2021 and do not anticipate that the counterparties will draw upon these letters of credit.

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

The aggregate amount guaranteed at September 30, 2021 was $8.0 million, with the guarantees expiring on various dates through September 24, 2022.

As of September 30, 2021, we have issued letters of credit totaling approximately $4.6 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 September 30, 2022.

We have not drawn upon these letters of credit as of September 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 June 30, 2021:

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

Payments Due by Period

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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.

We regularly are 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