CHESAPEAKE UTILITIES CORP 10-Q/A

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2020, including the audited consolidated financial statements and notes thereto. Safe Harbor for Forward-Looking Statements We make statements in this Quarterly Report on Form 10-Q that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. One can typically identify forward-looking statements by the use of forward-looking words, such as “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” “potential,” “forecast” or other similar words, or future or conditional verbs such as “may,” “will,” “should,” “would” or “could.” These statements represent our intentions, plans, expectations, assumptions and beliefs about future financial performance, business strategy, projected plans and objectives of the Company. Forward-looking statements speak only as of the date they are made or as of the date indicated and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise. These statements are subject to many risks, uncertainties and other important factors that could cause actual future results to differ materially from those expressed in the forward-looking statements. In addition to the risk factors described under Item 1A, Risk Factors in our 2020 Annual Report on Form 10-K, such factors include, but are not limited to: • state and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed and the degree to which competition enters the electric and natural gas industries; • the outcomes of regulatory, environmental and legal matters, including whether pending matters are resolved within current estimates and whether the related costs are adequately covered by insurance or recoverable in rates; • the impact of climate change, including the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; • the impact of significant changes to current tax regulations and rates; • the timing of certification authorizations associated with new capital projects and the ability to construct facilities at or below estimated costs; • the availability to materials necessary to construct new capital projects; • changes in environmental and other laws and regulations to which we are subject and environmental conditions of property that we now, or may in the future, own or operate; • possible increased federal, state and local regulation of the safety of our operations; • the inherent hazards and risks involved in transporting and distributing natural gas, electricity, and propane; • the economy in our service territories or markets, the nation, and worldwide, including the impact of economic conditions (which we do not control ) on demand for natural gas, electricity, propane or other fuels; • risks related to cyber-attacks or cyber-terrorism that could disrupt our business operations or result in failure of information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; • adverse weather conditions, including the effects of hurricanes, ice storms and other damaging weather events; • customers' preferred energy sources; • industrial, commercial and residential growth or contraction in our markets or service territories; • the effect of competition on our businesses from other energy suppliers and alternative forms of energy; • the timing and extent of changes in commodity prices and interest rates; • the effect of spot, forward and future market prices on our various energy businesses; • the extent of our success in connecting natural gas and electric supplies to our transmission systems, establishing and maintaining key supply sources, and expanding natural gas and electric markets; • the creditworthiness of counterparties with which we are engaged in transactions; • the capital-intensive nature of our regulated energy businesses; • our ability to access the credit and capital markets to execute our business strategy, including our ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; • the ability to successfully execute, manage and integrate a merger, acquisition or divestiture of assets or businesses and the related regulatory or other conditions associated with the merger, acquisition or divestiture; • the impact on our costs and funding obligations, under our pension and other post-retirement benefit plans, of potential downturns in the financial markets, lower discount rates, and costs associated with health care legislation and regulation; • the ability to continue to hire, train and retain appropriately qualified personnel; 32 Table of Contents • the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and • risks related to the outbreak of a pandemic, including the duration and scope of the pandemic and the corresponding impact on our supply chains, our personnel, our contract counterparties, general economic conditions and growth, and the financial markets. Introduction We are an energy delivery company engaged in the distribution of natural gas, electricity, and propane; the transmission of natural gas; the generation of electricity and steam, and in providing related services to our customers. Our strategy is focused on growing earnings from a stable utility foundation and investing in related businesses and services that provide opportunities for returns greater than traditional utility returns. We are focused on identifying and developing opportunities across the energy value chain, with emphasis on midstream and downstream investments that are accretive to earnings per share, consistent with our long-term growth strategy and create opportunities to continue our record of top tier returns on equity relative to our peer group. Currently, our growth strategy is focused on the following platforms, including: • Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions, new pipeline expansions, and new products and services as well as increased opportunities for collaboration and efficiencies across the organization as a result of our ongoing business transformation. • Growth of Marlin Gas Services’ CNG transport business and expansion into LNG and RNG transport services as well as methane capture. • Identifying and undertaking additional strategic propane and complementary business acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets. • Pursuit of growth opportunities that enable us to utilize our integrated set of energy delivery businesses to participate in renewable energy opportunities. Due to the seasonality of our business, results for interim periods are not necessarily indicative of results for the entire fiscal year. Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is normally highest due to colder temperatures. The following discussions and those later in the document on operating income and segment results include the use of the term “gross margin," which is determined by deducting the cost of sales from operating revenue. Cost of sales includes the purchased cost of natural gas, electricity and propane and the cost of labor spent on direct revenue-producing activities, and excludes depreciation, amortization and accretion. Gross margin should not be considered an alternative to operating income or net income, which are determined in accordance with GAAP. We believe that gross margin, although a non-GAAP measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates the profitability achieved by us under our allowed rates for regulated energy operations and under our competitive pricing structures for unregulated energy operations. Our management uses gross margin in measuring our business units’ performance and has historically analyzed and reported gross margin information publicly. Other companies may calculate gross margin in a different manner. Earnings per share information is presented for continuing operations on a diluted basis, unless otherwise noted. 33 Table of Contents Results of Operations for the Three and Nine Months Ended September 30, 2021 Overview Chesapeake Utilities is a Delaware corporation formed in 1947. We are a diversified energy company engaged, through our operating divisions and subsidiaries, in regulated energy, unregulated energy and other businesses. We operate primarily on the Delmarva Peninsula and in Florida, Pennsylvania and Ohio and provide natural gas distribution and transmission; electric distribution and generation; propane gas distribution; mobile compressed natural gas services; steam generation; and other energy-related services. 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 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. 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. The additional operating expenses we incurred support the ongoing delivery of our essential services during these unprecedented times. Refer to Note 5 , Rates and Other Regulatory Activities , for further information on the regulated assets established as a result of the incremental expenses incurred associated with COVID-19. Environmental, Social and Governance Initiatives ESG initiatives are embedded within Chesapeake Utilities culture and are an integral part of our strategy. ESG is at the core of our well-established culture and our informed business decisions. Over the years, we have reduced our greenhouse gas emissions, while responsibly growing our businesses. We have also helped to accelerate the reduction of emissions by many of our customers Our combined efforts have enhanced the sustainability of our local communities. We look forward to publishing our inaugural Corporate Responsibility and Sustainability Report which will include, but not be limited to, several of the areas described below. Advancing Environmental Initiatives 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 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 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 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. 34 Table of Contents We continue to see significant demand for new natural gas service in both our Delmarva and Florida territories, with our growth rates more than double the industry’s growth rates. In many of our local markets, natural gas is a cleaner fuel option than alternative energy sources. Natural gas is an important component of the country’s energy transition and we are committed to responsibly expanding the infrastructure in our growing service areas. 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. 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. We are committed to remaining disciplined in our approach by pursuing projects that meet our return thresholds and strategic goals. We also have several other initiatives underway, including plans to add additional small solar facilities along our system, and our participation in a pilot program to blend hydrogen into the natural gas distribution system that serves our Eight Flags combined heat and power plant. We are optimistic about this pilot program and believe that hydrogen will continue to gain in efficiency and become more price competitive over time. To finance these projects, we are working with many of our key banking partners to 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 Promoting equity, diversity and inclusion (“EDI”). Our success is the direct result of our employees and our strong culture that fully engages our team and promotes equity, diversity, inclusion, integrity, accountability and reliability. 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. During the third quarter, we were very excited to hire William Hughston as Vice President and Chief Human Resources Officer. Mr. 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. Ms. 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. The Council oversees our efforts to improve diversity in recruitment, employee development and advancement, cultural awareness and related policies. These efforts are expanded through the broad reach of our six Employee Resource Groups and other partnerships we have in the community. Employees have access to communications and on-demand learning sessions on an array of topics, including equity, diversity and inclusion, through our “EDI Wise” webinars. We have also expanded our supplier diversity program to gather information that will enable us to further expand, measure and report on the diversity of our suppliers and associated spend. Safety at the center of Chesapeake Utilities culture and the way we do business. There is nothing more important than the safety of our team, our customers and our communities. The importance of safety is exhibited throughout our organization, with the direction and tone set by the Board of Directors and our President and Chief Executive Officer. Employees are required to attend monthly safety meetings and incorporate safety moments at operational and other meetings. 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. Our new state-of-the-art training center, named ‘Safety Town,’ provides employees hands-on training and simulated on-the-job field experiences, further developing our team and enhancing the reliability and integrity of our systems. 35 Table of Contents Safety Town has also expanded our community outreach by offering safety training to many regional first responders . Our second Safety Town facility will be located in Florida and is in the final stages of planning. Advancing Governance Initiatives Commitment to sound governance practices. Consistent with our culture of teamwork, the broad responsibility of ESG stewardship is supported across our organization by the dedication and efforts of the Board and its Committees, as well as the entrepreneurship and dedication of our team. As stewards of long-term enterprise value, the Board is committed to overseeing the sustainability of the Company. The Board and Corporate Governance Committee annually 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. 36 Table of Contents Operational Highlights 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 September 30, Increase 2021 2020 (decrease) (in thousands except per share) Gross Margin Regulated Energy segment $ 65,102 $ 66,491 $ (1,389) Unregulated Energy segment 14,897 13,068 1,829 Other businesses and eliminations (28) (51) 23 Total Gross Margin $ 79,971 $ 79,508 $ 463 Operating Income Regulated Energy segment $ 23,538 $ 20,482 $ 3,056 Unregulated Energy segment (2,883) (3,092) 209 Other businesses and eliminations (542) 16 (558) Total Operating Income 20,113 17,406 2,707 Other income (expense), net 339 (40) 379 Interest charges 4,975 4,584 391 Income from Continuing Operations Before Income Taxes 15,477 12,782 2,695 Income Taxes on Continuing Operations 2,993 3,502 (509) Income from Continuing operations 12,484 9,280 3,204 Income (Loss) from Discontinued Operations, net of tax (9) (19) 10 Net Income $ 12,475 $ 9,261 $ 3,214 Basic Earnings Per Share of Common Stock Earnings from Continuing Operations $ 0.71 $ 0.56 $ 0.15 Earnings from Discontinued Operations — — — Basic Earnings Per Share of Common Stock $ 0.71 $ 0.56 $ 0.15 Diluted Earnings Per Share of Common Stock Earnings from Continuing Operations $ 0.71 $ 0.56 $ 0.15 Earnings from Discontinued Operations — — — Diluted Earnings Per Share of Common Stock $ 0.71 $ 0.56 $ 0.15 37 Table of Contents 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 Net Income Earnings Per Share Third Quarter of 2020 Reported Results from Continuing Operations $ 12,782 $ 9,280 $ 0.56 Adjusting for Unusual Items: 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 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: 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 Improved margin from electric operations 653 488 0.03 Natural gas growth (excluding service expansions) 620 463 0.03 Increased customer consumption - primarily due to a return toward pre-pandemic conditions 536 400 0.02 Florida GRIP* 475 355 0.02 4,928 3,681 0.21 (Increased) Decreased Operating Expenses (Excluding Cost of Sales): Depreciation, amortization and property tax costs due to new capital investments (1,715) (1,281) (0.07) Payroll, benefits and other employee-related expenses (1,317) (984) (0.06) Operating expenses for Elkton Gas and Western Natural Gas acquisitions (531) (397) (0.02) Net reduction in expenses associated with the COVID-19 pandemic 608 454 0.03 (2,955) (2,208) (0.12) Other income tax effects — 269 0.02 Net other changes 218 163 — Change in shares outstanding due to 2020 and 2021 equity offerings — — (0.03) 218 432 (0.01) Third Quarter of 2021 Reported Results from Continuing Operations $ 15,477 $ 12,484 $ 0.71 *See the Major Projects and Initiatives tabl e. 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. 38 Table of Contents Nine Months Ended September 30, Increase 2021 2020 (decrease) (in thousands except per share) Gross Margin Regulated Energy segment $ 209,718 $ 191,745 $ 17,973 Unregulated Energy segment 71,625 61,883 9,742 Other businesses and eliminations (102) (210) 108 Total Gross Margin $ 281,241 $ 253,418 $ 27,823 Operating Income Regulated Energy segment $ 79,210 $ 66,376 $ 12,834 Unregulated Energy segment 15,777 11,050 4,727 Other businesses and eliminations (699) 92 (791) Total Operating Income 94,288 77,518 16,770 Other income, net 2,180 2,997 (817) Interest charges 15,134 15,452 (318) Income from Continuing Operations Before Income Taxes 81,334 65,063 16,271 Income Taxes on Continuing Operations 20,563 16,082 4,481 Income from Continuing operations 60,771 48,981 11,790 Income (Loss) from Discontinued Operations (17) 165 (182) Net Income $ 60,754 $ 49,146 $ 11,608 Basic Earnings Per Share of Common Stock Earnings from Continuing Operations $ 3.46 $ 2.97 $ 0.49 Earnings from Discontinued Operations — 0.01 (0.01) Basic Earnings Per Share of Common Stock $ 3.46 $ 2.98 $ 0.48 Diluted Earnings Per Share of Common Stock Earnings from Continuing Operations $ 3.45 $ 2.96 $ 0.49 Earnings from Discontinued Operations — 0.01 (0.01) Diluted Earnings Per Share of Common Stock $ 3.45 $ 2.97 $ 0.48 39 Table of Contents 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 Net Income Earnings Per Share Nine Months Ended September 30, 2020 Reported Results from Continuing Operations $ 65,063 $ 48,981 $ 2.96 Adjusting for Unusual Items: Regulatory deferral of COVID-19 expenses per PSCs orders 3,312 2,437 0.14 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 Increased (Decreased) Gross Margins: Increased customer consumption - primarily weather related 6,485 4,772 0.27 Eastern Shore and Peninsula Pipeline service expansions* 6,037 4,442 0.25 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 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 Sandpiper infrastructure rider associated with conversions 624 459 0.04 27,547 20,268 1.16 (Increased) Decreased Operating Expenses (Excluding Cost of Sales): 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) Net increase in operating expenses associated with a return toward pre-pandemic conditions (969) (713) (0.04) Insurance expense (non-health) (420) (309) (0.02) (14,369) (10,573) (0.60) Other income tax effects — 554 0.03 Net other changes 1,344 1,002 0.07 Change in shares outstanding due to 2020 and 2021 equity offerings — — (0.18) 1,344 1,556 (0.08) 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. 40 Table of Contents Summary of Key Factors Recently Completed and Ongoing Major Projects and Initiatives We constantly pursue and develop additional projects and initiatives to serve existing and new customers, and to further grow our businesses and earnings, with the intention to increase shareholder value. The following table includes the major projects/initiatives recently completed and currently underway. Major projects and initiatives that have generated consistent year-over-year margin contributions are removed from the table. In the future, we will add new projects and initiatives to this table once negotiations are substantially completed and the associated earnings can be estimated. Gross Margin for the Period 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 Pipeline Expansions: Western Palm Beach County, Florida Expansion (1) $ 1,175 $ 1,020 $ 3,515 $ 2,988 $ 4,167 $ 4,811 $ 5,227 Del-Mar Energy Pathway (1) (2) 1,049 924 2,854 1,565 2,462 4,578 6,708 Callahan Intrastate Pipeline (2) (3) 1,893 1,378 5,673 1,452 2,926 7,564 7,564 Guernsey Power Station 47 — 141 — — 404 1,486 Winter Haven Expansion — — — — — — 658 Beachside Pipeline Expansion — — — — — — — Total Pipeline Expansions 4,164 3,322 12,183 6,005 9,555 17,357 21,643 CNG Transportation 1,598 1,592 5,383 5,047 7,231 7,300 8,500 RNG Transportation — — — — — 86 1,000 Acquisitions: Elkton Gas 590 357 2,648 357 1,344 3,900 4,113 Western Natural Gas 372 — 1,312 — 389 2,066 2,251 Escambia Meter Station 250 — 333 — — 583 1,000 Total Acquisitions 1,212 357 4,293 357 1,733 6,549 7,364 Regulatory Initiatives: Florida GRIP 4,306 3,831 12,543 11,135 15,178 16,950 18,797 Hurricane Michael Regulatory Proceeding 3,264 8,261 8,984 8,261 10,864 11,014 11,014 Capital Cost Surcharge Programs 433 129 690 389 523 1,186 1,985 Elkton STRIDE Plan — — — — — 45 299 Total Regulatory Initiatives 8,003 12,221 22,217 19,785 26,565 29,195 32,095 Total $ 14,977 $ 17,492 $ 44,076 $ 31,194 $ 45,084 $ 60,487 $ 70,602 (1) Includes gross margin generated from interim services. (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 Pipeline Expansions West Palm Beach County, Florida Expansion 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 $0.5 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. 41 Table of Contents Del-Mar Energy Pathway In December 2019, the FERC issued an order approving the construction of the Del-Mar Energy Pathway project. 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 Peninsula Pipeline completed the construction of a jointly owned intrastate transmission pipeline with Seacoast Gas Transmission in Nassau County, Florida in June 2020. The 26-mile pipeline serves growing demand for energy in both Nassau and Duval Counties. 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. Guernsey Power Station Guernsey Power Station and our affiliate, Aspire Energy Express, entered into a precedent firm transportation capacity agreement whereby Guernsey Power Station will construct a power generation facility and Aspire Energy Express will provide firm natural gas transportation service to this facility. Guernsey Power Station commenced construction of the project in October 2019. 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 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. Winter Haven Expansion In May 2021, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with CFG for an incremental 6,800 Dts/d of firm service in the Winter Haven, Florida area. As part of this agreement, Peninsula Pipeline will construct a new interconnect with FGT and a new regulator station for CFG. CFG will use the additional firm service to support new incremental load due to growth in the area, including providing service, most immediately, to a new can manufacturing facility, as well as reliability and operational benefits to CFG’s existing distribution system in the area. In connection with Peninsula Pipeline’s new regulator station, CFG is also extending its distribution system to connect to the new station. We expect this expansion to generate additional gross margin of $0.7 million beginning in 2022 and beyond. Beachside Pipeline Expansion In June 2021, Peninsula Pipeline and Florida City Gas entered into a Transportation Service Agreement for an incremental 10,176 Dts/d of firm service in Indian River County, Florida, to support Florida City Gas’ growth along the Indian River's barrier island. As part of this agreement, Peninsula Pipeline will construct approximately 11.3 miles of pipeline from its existing pipeline in the Sebastian, Florida, area east under the ICW and southward on the barrier island. We expect this expansion to generate additional annual gross margin of $2.5 million in 2023 and beyond. CNG Transportation Marlin Gas Services provides CNG temporary hold services, contracted pipeline integrity services, emergency services for damaged pipelines and specialized gas services for customers who have unique requirements. 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. Marlin Gas Services continues to actively expand the territories it serves, as well as leverage its patented technology to serve other markets, including pursuing liquefied natural gas transportation opportunities and RNG transportation opportunities from diverse supply sources to various pipeline interconnection points, as further outlined below. RNG Transportation Noble Road Landfill RNG Project In September 2020, Fortistar and Rumpke Waste & Recycling announced commencement of construction of the Noble Road Landfill RNG Project in Shiloh, Ohio. The project includes the construction of a new state-of-the-art facility that will utilize 42 Table of Contents advanced, patented technology to treat landfill gas by removing carbon dioxide and other components to purify the gas and produce pipeline quality RNG. 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. Bioenergy DevCo In June 2020, our Delmarva natural gas operations and Bioenergy DevCo (“BDC”), a developer of anaerobic digestion facilities that create renewable energy and healthy soil products from organic material, entered into an agreement related to a project to extract RNG from poultry production waste. BDC and our affiliates are collaborating on this project in addition to several other project sites where organic waste can be converted into a carbon-negative energy source. Marlin Gas Services will transport the RNG created from the organic waste from the BDC facility to an Eastern Shore interconnection, where the sustainable fuel will be introduced into our transmission system and ultimately distributed to our natural gas customers. CleanBay Project In July 2020, our Delmarva natural gas operations and CleanBay Renewables Inc. ("CleanBay") announced a new partnership to bring RNG to our operations. As part of this partnership, we will transport the RNG produced at CleanBay's planned Westover, Maryland bio-refinery, to our natural gas infrastructure in the Delmarva Peninsula region. Eastern Shore and Marlin Gas Services, will transport the RNG from CleanBay to our Delmarva natural gas distribution system where it is ultimately delivered to the Delmarva natural gas distribution end use customers. At the present time, we expect to generate $0.1 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. As we continue to finalize contract terms and complete the necessary permitting associated with each of these projects, additional information will be provided regarding incremental margin. In addition to these projects, the Company is continuing to pursue other RNG projects that provide opportunities for the Company across the entire value chain. Acquisitions Elkton Gas In July 2020, we closed on the acquisition of Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil County, Maryland. The purchase price was approximately $15.6 million, which included $0.6 million of working capital. Elkton Gas’ territory is contiguous to our franchised service territory in Cecil County, Maryland. 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 In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas, which provides propane distribution service throughout Jacksonville, Florida and the surrounding communities, for approximately $6.7 million, net of cash acquired. The acquisition was accounted for as a business combination within our Unregulated Energy Segment in the fourth quarter of 2020. We generated $0.4 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 In June 2021, Peninsula Pipeline purchased the Escambia Meter Station from Florida Power and Light and entered into a Transportation Service Agreement with Gulf Power Company to provide up to 530,000 Dts/d of firm service from an interconnect with FGT to Florida Power & Light’s Crist Lateral pipeline. The Florida Power & Light Crist Lateral provides gas supply to their natural gas fired power plant owned by Florida Power & Light in Pensacola, Florida. We generated $0.3 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. 43 Table of Contents Regulatory Initiatives Florida GRIP 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 $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 August 2019, FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael (capital and expenses) through a change in base rates. In March 2020, we filed an update to our original filing to account for actual charges incurred through December 2019, revised the amortization period of the storm-related costs, and included costs related to Hurricane Dorian. In September 2019, FPU filed a petition with the Florida PSC, for approval of its consolidated electric depreciation rates. The petition was joined to the Hurricane Michael docket. The approved rates, which were part of the settlement agreement in September 2020 that is described below, were retroactively applied effective January 1, 2020. In September 2020, the Florida PSC approved a settlement agreement between FPU and the Office of the Public Counsel regarding final cost recovery and rates associated with Hurricane Michael. Previously, in late 2019, the Florida PSC approved an interim rate increase, subject to refund, effective January 1, 2020, associated with the restoration effort following Hurricane Michael. We fully reserved these interim rates, pending a final resolution and settlement of the limited proceeding. The settlement agreement allowed us to: (a) refund the over-collection of interim rates through the fuel clause; (b) record regulatory assets for storm costs in the amount of $45.8 million including interest which will be amortized over six years; (c) recover these storm costs through a surcharge for a total of $7.7 million annually; and (d) collect an annual increase in revenue of $3.3 million to recover capital costs associated with new plant investments and a regulatory asset for the cost of removal and undepreciated plant. The new base rates and storm surcharge were effective on November 1, 2020. 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) 2021 2020 Gross Margin $ 3,264 $ 8,261 $ 8,984 $ 8,261 Depreciation (305) (883) (913) (883) Amortization of regulatory assets 2,079 6,238 6,237 6,238 Operating income 1,490 2,906 3,660 2,906 Amortization of liability associated with interest expense (293) (1,132) (930) (1,132) Pre-tax income 1,783 4,038 4,590 4,038 Income tax expense 451 1,106 1,213 1,106 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 In December 2019, the FERC approved Eastern Shore’s capital cost surcharge, which became effective January 1, 2020. The surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows Eastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the replacement of existing Eastern Shore facilities. Eastern Shore expects to produce gross margin of approximately $1.2 million in 2021 and $2.0 million in 2022 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction. Elkton Gas STRIDE Plan 44 Table of Contents 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 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 In October 2020, the Florida PSC approved a joint petition of our natural gas and electric distribution utilities in Florida to establish a regulatory asset to record incremental expenses incurred due to COVID-19. The regulatory asset will allow us to seek recovery of these costs in the next base rate proceedings. In November 2020, the Office of Public Counsel filed a protest to the order approving the establishment of this regulatory asset treatment. The Company’s Florida regulated business units reached a settlement with Office of Public Counsel in June 2021. 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. Our Florida regulated business units will amortize the amount over two years beginning January 1, 2022 and recover the regulatory asset through the Purchased Gas Adjustment and Swing Service mechanisms for the natural gas business units and through the Fuel Purchased Power Cost Recovery clause for the electric division. This results in annual additional gross margin of $1.0 million that will be offset by a corresponding amortization of regulatory asset expense for both 2022 and 2023 . Other major factors influencing gross margin Weather Impact 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") 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 Delmarva Peninsula Actual HDD 9 43 (34) 2,595 2,416 179 10-Year Average HDD ("Normal") 47 48 (1) 2,736 2,797 (61) Variance from Normal (38) (5) (141) (381) Florida Actual HDD 1 2 (1) 573 412 161 10-Year Average HDD ("Normal") 1 — 1 550 613 (63) Variance from Normal — 2 23 (201) Ohio Actual HDD 41 86 (45) 3,489 3,383 106 10-Year Average HDD ("Normal") 78 79 (1) 3,660 3,691 (31) Variance from Normal (37) 7 (171) (308) Florida Actual CDD 1,330 1,365 (35) 2,340 2,637 (297) 10-Year Average CDD ("Normal") 1,402 1,416 (14) 2,563 2,559 4 Variance from Normal (72) (51) (223) 78 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 $0.6 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 45 Table of Contents 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 Customer Growth: Residential $ 226 $ 208 $ 1,049 $ 788 Commercial and industrial 84 102 183 217 Total Customer Growth $ 310 $ 310 $ 1,232 $ 1,005 Regulated Energy Segment For the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020: Three Months Ended September 30, Increase 2021 2020 (decrease) (in thousands) Revenue $ 80,396 $ 82,762 $ (2,366) Cost of sales 15,294 16,271 (977) Gross margin 65,102 66,491 (1,389) Operations & maintenance 24,477 26,364 (1,887) Depreciation & amortization 12,296 15,314 (3,018) Other taxes 4,791 4,331 460 Total operating expenses 41,564 46,009 (4,445) Operating income $ 23,538 $ 20,482 $ 3,056 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: 46 Table of Contents (in thousands) 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 Improved margin from electric operations 653 Natural gas growth (excluding service expansions) 620 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 decrease in gross margin $ (1,389) The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. 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. 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. 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 $0.3 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. Acquisitions 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. Florida GRIP 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 decrease in operating expenses are listed in the following table: 47 Table of Contents (in thousands) 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 Other variances 115 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) (in thousands) Revenue $ 282,503 $ 259,235 $ 23,268 Cost of sales 72,785 67,490 5,295 Gross margin 209,718 191,745 17,973 Operations & maintenance 79,363 78,062 1,301 Depreciation & amortization 36,156 33,979 2,177 Other taxes 14,989 13,328 1,661 Total operating expenses 130,508 125,369 5,139 Operating income $ 79,210 $ 66,376 $ 12,834 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) Eastern Shore and Peninsula Pipeline service expansions $ 6,037 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 Other variances 490 Period-over-period increase in gross margin $ 17,973 48 Table of Contents The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. 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. Acquisitions 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 $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 $1.5 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. Florida GRIP 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 period-over-period increase in operating expenses are listed in the following table: (in thousands) Depreciation, asset removal and property tax costs due to new capital investments $ 4,563 Payroll, benefits and other employee-related expenses due to growth 2,601 Operating expenses from the Elkton Gas acquisition 1,238 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) Other variances (804) Period-over-period increase in operating expenses $ 5,139 49 Table of Contents Unregulated Energy Segment For the quarter ended September 30, 2021, compared to the quarter ended September 30, 2020: Three Months Ended September 30, Increase 2021 2020 (decrease) (in thousands) Revenue $ 32,110 $ 22,714 $ 9,396 Cost of sales 17,213 9,646 7,567 Gross margin 14,897 13,068 1,829 Operations & maintenance 13,382 12,412 970 Depreciation & amortization 3,491 2,968 523 Other taxes 907 780 127 Total operating expenses 17,780 16,160 1,620 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 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. Gross Margin Items contributing to the quarter-over-quarter increase in gross margin are listed in the following table: (in thousands) Propane Operations Increased retail propane margins and service fee $ 751 Western Natural Gas acquisition (completed in October 2020) 372 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 Increased margin including improvements from natural gas liquid processing 320 Other variances (201) Quarter-over-quarter increase in gross margin $ 1,829 The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. Propane Operations • 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, 50 Table of Contents 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 $0.3 million during the third quarter of 2021 over the same period in 2020, including improvements from natural gas liquid processing. Other Operating Expenses Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table: (in thousands) Depreciation, amortization and property tax costs due to new capital investments $ 595 Payroll, benefits and other employee-related expenses due to growth 427 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 nine months ended September 30, 2021, compared to the nine months ended September 30, 2020: Nine Months Ended September 30, Increase 2021 2020 (decrease) (in thousands) Revenue $ 141,642 $ 104,466 $ 37,176 Cost of sales 70,017 42,583 27,434 Gross margin 71,625 61,883 9,742 Operations & maintenance 42,560 39,408 3,152 Depreciation & amortization 10,271 8,774 1,497 Other taxes 3,017 2,651 366 Total operating expenses 55,848 50,833 5,015 Operating income $ 15,777 $ 11,050 $ 4,727 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. 51 Table of Contents Gross Margin Items contributing to the period-over-period increase in gross margin are listed in the following table: (in thousands) Propane Operations Increased customer consumption - primarily weather related $ 3,823 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 Increased demand for CNG services 337 Aspire Energy Increased customer consumption - primarily weather related 1,152 Improved margin including natural gas liquid processing 897 Other variances (491) Period-over-period increase in gross margin $ 9,742 The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. Propane Operations • Increased Customer Consumption Primarily Weather Related - Gross margin increased by $3.8 million, as weather on the Delmarva Peninsula was 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 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 $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 Items contributing to the period-over-period increase in operating expenses are listed in the following table: 52 Table of Contents (in thousands) Depreciation, amortization and property tax costs due to new capital investments $ 1,650 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 Other variances 505 Period-over-period increase in operating expenses $ 5,015 OTHER EXPENSE, NET 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 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. INCOME TAXES 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. 53 Table of Contents F INANCIAL P OSITION , L IQUIDITY AND C APITAL R ESOURCES Our capital requirements reflect the capital-intensive and seasonal nature of our business and are principally attributable to investment in new plant and equipment, retirement of outstanding debt and seasonal variability in working capital. We rely on cash generated from operations, short-term borrowings, and other sources to meet normal working capital requirements and to temporarily finance capital expenditures. We may also issue long-term debt and equity to fund capital expenditures and to maintain our capital structure within our target capital structure range. We maintain an effective shelf registration statement with the SEC for the issuance of shares of common stock in various types of equity offerings, including shares of common stock under our ATM equity program, as well as an effective registration statement with respect to the DRIP. Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may consider issuing additional shares under the direct share purchase component of the DRIP and/or under the ATM equity program. Beginning in the third quarter of 2020, we issued shares of common stock under both the DRIP and the ATM equity program. Our energy businesses are weather-sensitive and seasonal. We normally generate a large portion of our annual net income and subsequent increases in our accounts receivable in the first and fourth quarters of each year due to significant volumes of natural gas, electricity, and propane delivered by our distribution operations, and our natural gas transmission operations to customers during the peak-heating season. In addition, our natural gas and propane inventories, which usually peak in the fall months, are largely drawn down in the heating season and provide a source of cash as the inventory is used to satisfy winter sales demand. Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements. 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: 2021 (dollars in thousands) Low High Regulated Energy: Natural gas distribution $ 76,000 $ 79,000 Natural gas transmission 58,000 63,000 Electric distribution 8,000 8,000 Total Regulated Energy 142,000 150,000 Unregulated Energy: Propane distribution 11,000 12,000 Energy transmission 16,000 20,000 Other unregulated energy 13,000 15,000 Total Unregulated Energy 40,000 47,000 Other: Corporate and other businesses 3,000 3,000 Total Other 3,000 3,000 Total 2021 Forecasted Capital Expenditures $ 185,000 $ 200,000 The 2021 forecast, which excludes any potential acquisitions, includes capital expenditures associated with the following projects: Delmarva Natural Gas distribution's Somerset County expansion, Eastern Shore's Del-Mar Energy Pathway, Florida's Western Palm Beach County expansion and other potential pipeline projects, continued expenditures under the Florida GRIP, further expansions of our natural gas distribution and transmission systems, continued natural gas and electric system infrastructure improvement activities, facilities to support Marlin Gas Services' CNG transport growth and expansion into RNG and LNG transport, information technology systems, and other strategic initiatives and investments, including renewable energy investments. The capital expenditure projection is subject to continuous review and modification. Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, capital delays due to COVID-19 that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital. Historically, actual capital expenditures have typically lagged behind the budgeted amounts. The timing of capital expenditures can vary based on delays in regulatory approvals, securing environmental approvals and other permits. The regulatory application and approval process has lengthened in the past few years, and we expect this trend to continue. 54 Table of Contents Capital Structure We are committed to maintaining a sound capital structure and strong credit ratings. 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 September 30, 2021 and December 31, 2020: September 30, 2021 December 31, 2020 (in thousands) Long-term debt, net of current maturities $ 505,459 40 % $ 508,499 42 % Stockholders’ equity 750,962 60 % 697,085 58 % Total capitalization, excluding short-term debt $ 1,256,421 100 % $ 1,205,584 100 % September 30, 2021 December 31, 2020 (in thousands) Short-term debt $ 192,026 13 % $ 175,644 13 % Long-term debt, including current maturities 521,665 36 % 522,099 37 % Stockholders’ equity 750,962 51 % 697,085 50 % Total capitalization, including short-term debt $ 1,464,653 100 % $ 1,394,828 100 % 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 51 percent as of September 30, 2021. We seek to align permanent financing with the in-service dates of our capital projects. We may utilize more temporary short-term debt when the financing cost is attractive as a bridge to the permanent long-term financing or if the equity markets are volatile. In the third and fourth quarters of 2020, we issued 1.0 million shares of common stock through our DRIP and the ATM programs and received net proceeds of approximately $83.0 million, which was added to the general funds and then used to pay down short-term borrowing. 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. We used the net proceeds from the ATM equity program and the DRIP, after deducting the commissions or other fees and related offering expenses payable by us, for general corporate purposes, including, but not limited to, financing of capital expenditures, repayment of short-term debt, financing acquisitions, investing in subsidiaries, and general working capital purposes. Shelf Agreements We have entered into Shelf Agreements with Prudential, MetLife and NYL, whom are under no obligation to purchase any unsecured debt. The following table summarizes our Shelf Agreements at September 30, 2021: (in thousands) Total Borrowing Capacity Less: Amount of Debt Issued Less: Unfunded Commitments Remaining Borrowing Capacity Shelf Agreement Prudential Shelf Agreement (1) $ 370,000 $ (220,000) $ — $ 150,000 MetLife Shelf Agreement (1) 150,000 — — 150,000 NYL Shelf Agreement (1) 150,000 (140,000) — 10,000 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. The Senior Notes, Shelf Agreements or Shelf Notes set forth certain business covenants to which we are subject when any note is outstanding, including covenants that limit or restrict our ability, and the ability of our subsidiaries, to incur indebtedness, or place or permit liens and encumbrances on any of our property or the property of our subsidiaries. 55 Table of Contents Short-term Borrowings We are authorized by our Board of Directors to borrow up to $400.0 million of short-term debt, as required. 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. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio of no greater than 65 percent. As of 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, 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. Our short-term borrowing is based on the 30-day LIBOR rate. The interest rate swaps are cash settled monthly as the counter-party pays us the 30-day LIBOR rate less the fixed rate. 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. Cash Flows 56 Table of Contents 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 Net cash provided by (used in): Operating activities $ 152,784 $ 115,880 Investing activities (148,076) (136,551) Financing activities (2,321) 16,742 Net increase (decrease) in cash and cash equivalents 2,387 (3,929) Cash and cash equivalents—beginning of period 3,499 6,985 Cash and cash equivalents—end of period $ 5,886 $ 3,056 Cash Flows Provided By Operating Activities Changes in our cash flows from operating activities are attributable primarily to changes in net income, adjusted for non-cash items such as depreciation and changes in deferred income taxes, and working capital. 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 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 $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, 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; and • 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 $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 $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: 57 Table of Contents • 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; and • 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 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. Additional information is presented in Note 7 , Other Commitments and Contingencies, in the condensed consolidated financial statements. Contractual Obligations 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 September 30, 2021: Payments Due by Period Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total (in thousands) Purchase obligations - Commodity (1) $ 30,597 $ 37,437 $ — $ — $ 68,034 Total $ 30,597 $ 37,437 $ — $ — $ 68,034 (1) In addition to the obligations noted above, we have agreements with commodity suppliers that have provisions with no minimum purchase requirements. There are no monetary penalties for reducing the amounts purchased; however, the propane contracts allow the suppliers to reduce the amounts available in the winter season if we do not purchase specified amounts during the summer season. Under these contracts, the commodity prices will fluctuate as market prices fluctuate. Rates and Regulatory Matters Our natural gas distribution operations in Delaware, Maryland and Florida and electric distribution operation in Florida are subject to regulation by the respective state PSC; Eastern Shore is subject to regulation by the FERC; 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. 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. Recent Authoritative Pronouncements on Financial Reporting and Accounting Recent accounting developments, applicable to us, and their impact on our financial position, results of operations and cash flows are described in Note 1 , Summary of Accounting Policies , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. 58 Table of Contents