What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-03 · 322 added, 583 removed, 308 unchanged (75% of the section changed)

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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.

We make statements in this Quarterly Report on Form 10-Q (this " Quarterly Report") that do not directly or exclusively relate to historical facts.

Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and 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:

These statements are subject to many risks and uncertainties.

In addition to the risk factors described under Item 1A, Risk Factors in our 2021 Annual Report on Form 10-K, the following important factors, among others, could cause actual future results to differ materially from those expressed in the forward-looking statements:

• 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;

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

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

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

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• the ability to continue to hire, train and retain appropriately qualified personnel;

• the availability of, and competition for, qualified personnel supporting our natural gas, electricity and propane businesses;

• the effect of accounting pronouncements issued periodically by accounting standard-setting bodies;

• 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.

• the impacts associated with the outbreak of a pandemic, including the duration and scope of the pandemic the corresponding impact on our supply chains, our personnel, our contract counterparties, general economic conditions and growth, the financial markets and any costs to comply with governmental mandates.

We are an energy delivery company engaged in the distribution of natural gas, electricity and propane;

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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.

Our strategy is focused on growing earnings from a stable regulated energy delivery foundation and investing in related businesses and services that provide opportunities for returns greater than traditional utility returns.

We seek to identify and develop 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.

• Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions, and new products and services as well as increased opportunities to transform the Company with a focus on people, process, technology and organizational structure.

• Identification and pursuit of additional pipeline expansions, including new interstate and intrastate transmission projects.

• 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.

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

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

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

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

The following discussions and those later in the document on operating income and segment results include the use of the term Adjusted Gross Margin which is a non-GAAP measure throughout our discussion on operating results.

Adjusted Gross Margin is calculated by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues.

The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements.

Adjusted Gross Margin should not be considered an alternative to Gross Margin under U.S.

GAAP which is defined as the excess of sales over cost of goods sold.

We believe that Adjusted Gross Margin, although a non-GAAP measure, is useful and meaningful to investors as a basis for making investment decisions.

Our management uses Adjusted Gross Margin as one of the financial measures in assessing our business units’ performance.

Other companies may calculate Adjusted Gross Margin in a different manner.

The below tables reconcile Gross Margin as defined under GAAP to our non-GAAP measure of Adjusted Gross Margin for the three months ended March 31, 2022 and 2021:

For the Three Months Ended March 31, 2022

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

Operating Revenues $ 127,891 $ 101,292 $ (6,303) $ 222,880

Cost of Sales:

Natural gas, propane and electric costs (45,442) (58,008) 6,270 (97,180)

Depreciation & amortization (13,086) (3,881) (10) (16,977)

Operations & maintenance expense (1)

(8,176) (7,063) (401) (15,640)

Gross Margin (GAAP) 61,187 32,340 (444) 93,083

Operations & maintenance expense (1)

8,176 7,063 401 15,640

Depreciation & amortization 13,086 3,881 10 16,977

Adjusted Gross Margin (Non-GAAP) $ 82,449 $ 43,284 $ (33) $ 125,700

For the Three Months Ended March 31, 2021

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

Operating Revenues $ 121,197 $ 74,759 $ (4,769) $ 191,187

Cost of Sales:

Natural gas, propane and electric costs (43,043) (35,983) 4,729 (74,297)

Depreciation & amortization (12,030) (3,323) (12) (15,365)

Operations & maintenance expense (1)

(8,335) (6,371) 352 (14,354)

Gross Margin (GAAP) 57,789 29,082 300 87,171

Operations & maintenance expense (1)

8,335 6,371 (352) 14,354

Depreciation & amortization 12,030 3,323 12 15,365

Adjusted Gross Margin (Non-GAAP) $ 78,154 $ 38,776 $ (40) $ 116,890

(1) Operations & maintenance expenses within the Consolidated Statements of Income are presented in accordance with regulatory requirements and to provide comparability within the industry.

Operations & maintenance expenses which are deemed to be directly attributable to revenue producing activities have been separately presented above in order to calculate Gross Margin as defined under U.S.

2022 to 2021 Gross Margin (GAAP) Variance – Regulated Energy

Gross Margin (GAAP) for the Regulated Energy segment for the first quarter of 2022 was $61.2 million, an increase of $3.4 million, or 5.9 percent, compared to the first quarter of 2021.

Higher gross margin reflects continued pipeline expansions by Eastern Shore and Peninsula Pipeline, contributions from the new Guernsey pipeline, organic growth in the natural gas distribution businesses and operating results from the 2021 Escambia Meter acquisition.

These increases were partially offset by higher depreciation and amortization related to recent capital investments and acquisitions as well as, increased payroll, benefits and other employee related costs.

2022 to 2021 Gross Margin (GAAP) Variance – Unregulated Energy

Gross Margin (GAAP) for the Unregulated Energy segment for the first quarter of 2022 was $32.3 million, an increase of $3.3 million, or 11.2 percent, compared to the first quarter of 2021.

Higher gross margin is a result of contributions from the propane acquisition of Diversified Energy completed in 2021, increased propane margins per gallon and service fees, along with higher rates for Aspire Energy.

These increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and acquisitions, increased payroll, benefits and employee related costs and higher vehicle expenses primarily driven by increased fuel costs.

Results of Operations for the Three Months Ended March 31, 2022

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;

We operate primarily on the east coast of the United States and provide natural gas distribution and transmission;

electric distribution and generation;

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

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

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

These restrictions significantly impacted economic conditions in the United States beginning in 2020 and persisted throughout 2021, though to a lesser extent.

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

As of March 31, 2022, these restrictions have predominantly been lifted as vaccines have become widely available in the United States.

Previously existing states of emergency in all of our service territories expired during the second and third quarters of 2021, eliminating a majority of restrictions initially implemented to slow the spread of the virus.

The expiration of the states of emergency along with the settlement of our limited proceeding in Florida, has concluded our ability to defer incremental pandemic related costs for consideration through the applicable regulatory process.

We have adjusted our operating practices accordingly to ensure the safety of our operations and will take the necessary actions to comply with the CDC, and the Occupational Safety and Health Administration, as new developments occur.

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.

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.

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

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

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

Our Board of Directors includes, three female directors, an African American director and a director who is of Middle Eastern descent.

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

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.

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.

ESG initiatives are at the core of our well-established culture, guiding our strategy and informing our ongoing business decisions.

In February 2022, Chesapeake Utilities published its inaugural sustainability report.

In the report, we outline our ESG commitments:

• Chesapeake Utilities will be a leader in the transition to a lower carbon future.

• We will continue to promote a diverse and inclusive workplace and further the sustainability of the communities we serve.

• Our businesses will be operated with integrity and the highest ethical standards.

These commitments guide our mission to deliver energy that makes life better for the people and communities we serve.

They impact every aspect of our company and the relationships we have with our stakeholders.

We encourage our investors to review the report and welcome feedback as we continue to enhance our ESG disclosures.

During the first quarter, some of our most recent ESG advancements included:

Environmental:

• Successfully completed first test of hydrogen and natural gas blend to fuel our Eight Flags' CHP

• Marlin Gas Services opened its first CNG fueling station near the Port of Savannah, capable of distributing RNG for fleet vehicles

• Named a 2022 Top Workplaces USA award recipient for mid-sized companies for the second consecutive year

• Initiated two new Employee Resource Groups within the Company

• Increased transparency with the enhancement of our director skills matrix in the Proxy Statement distributed to shareholders in March 2022

• In April 2022, we joined governance leaders as a member of the Advisory Board for the John L.

Weinberg Center for Corporate Governance

Additionally, we established our Environmental Sustainability Office ("ESO") and ESG Committee ("ESGC") during the first quarter of 2022.

The ESO was established to identify and manage emission-reducing projects both internally, as well as those

that support our customers’ sustainability goals.

The ESGC was established to bring together a cross-functional team of leaders across the organization to identify, assess, execute and advance the Company’s strategic ESG initiatives.

We look forward to highlighting the progress of these initiatives in future sustainability reports.

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.

Our net income for the three months ended March 31, 2022 was $36.9 million, or $2.08 per share, compared to $34.5 million, or $1.96 per share, for the same quarter of 2021.

Operating income for the three months ended March 31, 2022 increased by $3.3 million, or 6.3 percent, over the same period in 2021.

Higher performance in the first quarter of 2022 was generated from the 2021 acquisitions of Diversified Energy and the Escambia Meter Station, continued pipeline expansion projects, increased investment in various regulated infrastructure programs, natural gas distribution growth, contributions from increased margins and fees from our propane distribution business and Aspire Energy.

These increases were partially offset by reduced consumption in our propane operations in the first quarter compared to the same period in 2021.

We recorded higher depreciation, amortization and property taxes related to recent capital investments and higher operating expenses associated primarily with growth initiatives and recent acquisitions including payroll, benefits and other employee-related expenses.

Three Months Ended

September 30, Increase

March 31, Increase

2022 2021 (decrease)

(in thousands except per share)

Adjusted Gross Margin

Regulated Energy segment $ 82,449 $ 78,154 $ 4,295

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Other businesses and eliminations (33) (40) 7

Total Gross Margin $ 79,971 $ 79,508 $ 463

Total Adjusted Gross Margin $ 125,700 $ 116,890 $ 8,810

Operating Income

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Total Operating Income 54,865 51,597 3,268

Other income (expense), net 339 (40) 379

Other income, net 913 375 538

Interest charges 5,339 5,105 234

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

Income from Before Income Taxes 50,439 46,867 3,572

Income Taxes 13,506 12,401 1,105

Net Income $ 36,933 $ 34,466 $ 2,467

Basic Earnings Per Share of Common Stock $ 2.09 $ 1.97 $ 0.12

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 $ 2.08 $ 1.96 $ 0.12

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

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

Key variances between the first quarter of 2022 and the first quarter of 2021, included:

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

Income Earnings

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

First Quarter of 2021 Reported Results $ 46,867 $ 34,466 $ 1.96

Increased (Decreased) Adjusted Gross Margins:

Contributions from 2021 acquisitions* 4,225 3,093 0.17

Natural gas transmission service expansions* 1,227 899 0.05

Natural gas growth (excluding service expansions) 1,194 874 0.05

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

Florida GRIP* 475 355 0.02

Higher operating results from Aspire Energy 929 680 0.04

Contributions from regulated infrastructure programs * 924 677 0.04

Increased propane margins and fees 722 529 0.03

Reduced customer consumption - primarily weather related (435) (318) (0.02)

8,786 6,434 0.36

(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)

(Increased) Decreased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs):

Operating expenses from recent acquisitions (2,450) (1,794) (0.10)

Depreciation, amortization and property tax costs (1,607) (1,176) (0.07)

Payroll, benefits and other employee-related expenses (846) (620) (0.04)

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)

Vehicle expenses (255) (187) (0.01)

(5,158) (3,777) (0.22)

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.

Nine Months Ended

September 30, Increase

2021 2020 (decrease)

(in thousands except per share)

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 (234) (172) (0.01)

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

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

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

Income Earnings

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 178 (18) 0.01

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(56) (190) (0.02)

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

First Quarter of 2022 Reported Results $ 50,439 $ 36,933 $ 2.08

*See the Major Projects and Initiatives tabl e.

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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

Adjusted Gross Margin

Three Months Ended Year Ended Estimate for

March 31, December 31, Fiscal

in thousands 2022 2021 2021 2022 2023

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1,722 884 4,584 6,980 6,867

Callahan Intrastate Pipeline (2) (3)

1,893 1,378 5,673 1,452 2,926 7,564 7,564

Guernsey Power Station 263 47 187 1,380 1,486

Southern Expansion — — — 375 2,344

Winter Haven Expansion 33 — — 401 976

Beachside Pipeline Expansion — — — — 1,825

North Ocean City Connector — — — — 400

Total Pipeline Expansions 3,325 2,098 9,500 14,363 19,125

CNG Transportation 1,598 1,592 5,383 5,047 7,231 7,300 8,500

RNG Transportation — — — — — 86 1,000

Virtual Pipeline Solutions (CNG/RNG/LNG) 2,142 2,077 7,566 8,500 9,500

RNG Infrastructure 91 — — 1,000 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

Diversified Energy 3,975 — 603 11,300 12,000

Escambia Meter Station 250 — 583 1,000 1,000

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Florida GRIP 4,851 4,065 16,995 18,797 19,475

Hurricane Michael Regulatory Proceeding 3,264 8,261 8,984 8,261 10,864 11,014 11,014

Capital Cost Surcharge Programs 517 136 1,199 2,018 1,936

Elkton STRIDE Plan — — — — — 45 299

Elkton Gas STRIDE Plan 74 — 26 241 354

Total Regulatory Initiatives 5,442 4,201 18,220 21,056 21,765

Total $ 15,225 $ 8,376 $ 36,472 $ 57,219 $ 64,390

(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.

(1) Includes adjusted gross margin generated from interim services.

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

Detailed Discussion of Major Projects and Initiatives

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

The first phase of this project was placed into service in December 2018 and generated incremental gross margin of $0.2 million and $0.5 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.

The first phase of this project was placed into service in December 2018 with multiple phases placed into service leading up to the project's final completion in the fourth quarter of 2021.

The project generated incremental adjusted gross margin of $0.1 million during the first quarter 2022 compared to the first quarter 2021.

We estimate that the project will generate annual adjusted gross margin of $5.2 million in 2022 and beyond.

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 project was placed into service in the fourth quarter of 2021.

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.

(i) include an additional 14,300 Dts/d of firm service to

four customers, (ii) provide additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and (iii) represent the first extension of Eastern Shore’s pipeline system into Somerset County, Maryland.

Including interim services in advance of completion, the project generated additional adjusted gross margin of $0.8 million for the three months ended March 31, 2022.

The estimated annual adjusted gross margin from this project, including natural gas distribution service in Somerset County, Maryland, is approximately $7.0 million in 2022 and growing each year thereafter, as the distribution system serving Somerset County further expands to meet demand.

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 and the Company's affiliate, Aspire Energy Express, entered into a precedent agreement for firm transportation capacity 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.

Aspire Energy Express completed construction of the gas transmission facilities in the fourth quarter of 2021.

This project added $0.2 million of adjusted gross margin in the first quarter and is expected to produce adjusted gross margin of approximately $1.4 million in 2022 and $1.5 million in 2023 and beyond.

Southern Expansion

Pending FERC authorization, Eastern Shore plans to install a new natural gas driven compressor skid unit at its existing Bridgeville, Delaware compressor station that will provide 7,300 Dts of incremental firm transportation pipeline capacity.

The project is currently estimated to go into service in the fourth quarter of 2022.

Eastern Shore expects the Southern Expansion project to generate annual adjusted gross margin of $0.4 million in 2022 and $2.3 million in 2023 and thereafter.

Winter Haven Expansion

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

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

The additional firm service will be used 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.

We expect this expansion to generate additional adjusted gross margin of $0.4 million in 2022 and $1.0 million in 2023 and thereafter.

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

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 Intercoastal Waterway and southward on the barrier island.

We expect this extension to generate additional annual adjusted gross margin of $1.8 million in 2023 and $2.5 million thereafter.

North Ocean City Connector

Pending receipt of the remaining permits, we expect to begin construction beginning in the second quarter of 2022 of an extension of service into North Ocean City, Maryland.

The Delaware Division and Sandpiper plan to install approximately 5.7 miles of pipeline across southern Sussex County, Delaware to Fenwick Island, Delaware and Worcester County, Maryland.

The project will produce additional capacity to serve new customers and reinforce our existing system in Ocean City, Maryland.

We expect this expansion to generate additional annual adjusted gross margin of $0.4 million in 2023 and beyond.

Virtual Pipeline Solutions (CNG, RNG & LNG)

Marlin Gas Services provides CNG , RNG and liquefied natural gas (“LNG”) temporary hold services, contracted pipeline integrity services, emergency services for damaged pipelines and specialized gas services for customers who have unique requirements.

For the quarter ended March 31, 2022, Marlin Gas Services generated additional adjusted gross margin of $0.1 million compared to the quarter ended March 31, 2021.

We estimate that Marlin Gas Services will generate annual adjusted gross margin of approximately $8.5 million in 2022, and $9.5 million in 2023, with potential for additional growth in future years.

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

RNG Infrastructure

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

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 October 2021, Aspire Energy completed construction of its Noble Road Landfill RNG pipeline project, a 33.1-mile pipeline, which transports RNG generated from the Noble Road 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.

The RNG volume is expected to represent nearly 10 percent of Aspire Energy’s gas gathering volumes.

Bioenergy DevCo

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

At the present time, we expect to generate $0.1 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.

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.

At the present time, we expect to generate adjusted gross margin of $1.0 million in 2022 and beyond from renewable natural gas transportation.

As we continue to finalize contract terms associated with some of these projects, additional information will be provided regarding incremental margin at a future time.

Diversified Energy

On December 15, 2021, Sharp Energy acquired the propane operating assets of Diversified Energy Company for approximately $37.5 million net of cash acquired.

There are multiple strategic benefits to this acquisition including it:

(i) expands the Company's propane territory into North Carolina and South Carolina while also expanding our existing footprint in Pennsylvania and Virginia, and (ii) includes an established customer base with opportunities for future growth.

Through this acquisition, the Company added approximately 19,000 residential, commercial and agricultural customers, along with distribution of approximately 10.0 million gallons of propane annually.

For the three months ended March 31, 2022, Diversified Energy contributed $4.0 million in adjusted gross margin and is expected to generate $11.3 million of additional adjusted gross margin in 2022 and $12.0 million in 2023.

Escambia Meter Station

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

We generated $0.3 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.

The Company generated $0.3 million in additional adjusted gross margin for the three months ended March 31, 2022 and estimates that this acquisition will generate adjusted gross margin of approximately $1.0 million in 2022 and beyond.

Regulatory Initiatives

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

Since the program's inception in August 2012, we have invested $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;

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)

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.

Since the program's inception in August 2012, the Company has invested $189.5 million of capital expenditures to replace 348 miles of qualifying distribution mains, including $23.6 million of new pipes during 2021.

GRIP generated additional gross margin of $0.8 million for the quarter ended March 31, 2022 compared to March 31, 2021.

We are currently projecting to complete this program in 2022 and expect to generate adjusted gross margin of $18.8 million and $19.5 million in 2022 and 2023, respectively.

The adjusted gross margin

on GRIP investments will continue until the Company requests the remaining net GRIP investment, and the associated expenses, be included in its next base rate proceeding.

Capital Cost Surcharge Programs

In December 2019, the FERC approved Eastern Shore’s capital cost surcharge, which became effective January 1, 2020.

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

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

Eastern Shore expects to 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.

For the first quarter of 2022, there was $0.4 million of adjusted gross margin generated pursuant to the program.

Eastern Shore expects to produce adjusted gross margin of approximately $2.0 million in 2022 and 2023 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction.

Elkton Gas STRIDE Plan

In March 2021, Elkton Gas filed a 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.

In June 2021, we reached a settlement with the Maryland PSC Staff and the Maryland Office of the Peoples Counsel regarding a five-year plan to replace Aldyl-A pipelines and recover the associated costs of those replacements through a fixed charge rider.The STRIDE plan went into service in September 2021 and is expected to generate $0.2 million of adjusted gross margin in 2022 and $0.4 million annually thereafter.

COVID-19 Regulatory Proceeding

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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 Company’s Florida regulated business units reached a settlement with the Florida OPC in June 2021.

The settlement allowed the business units to establish a regulatory asset of $2.1 million.

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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

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

Florida Natural Gas Base Rate Proceeding

On March 24, 2022, our Florida natural gas distribution business units, FPU, the Florida Division of Chesapeake Utilities, FPU – Indiantown Division, and FPU – Fort Meade (jointly, “the Florida Natural Gas Companies”), filed a joint notification with the Florida PSC, stating their intent to file a consolidated natural gas base rate proceeding and request consolidation of the Florida distribution operations under FPU for all Florida regulatory purposes.

Our Florida Natural Gas Companies anticipates filing the consolidated base rate case as soon as practicable after the expiration of the notification period, but not before May 24, 2022.

We estimate that an increase in the revenue requirement of $18 million to $21 million is necessary to produce sufficient revenues to allow the Florida Natural Gas Companies, once consolidated, to continue to provide the safe and reliable natural gas service our customers deserve and have come to expect, while continuing to invest in the safety of our employees, customers, and communities, as well as the natural gas distribution system itself.

Our request will seek an effective date for new rates of January 1, 2023.

We will also be requesting interim rate relief, subject to refund, in accordance with the applicable statute using the period January 1, 2021 through December 31, 2021, as the test period.

We currently cannot estimate the ultimate outcome of the consolidated base rate proceeding.

Other major factors influencing adjusted 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

For the three months ended March 31, 2022, weather conditions accounted for $0.4 million of decreased adjusted gross margin compared to the same period in 2021.

Assuming normal temperatures, as detailed below, adjusted gross margin would have been higher by $0.9 million.

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three months ended March 31, 2022 and 2021.

Three Months Ended

2022 2021 Variance

Delmarva Peninsula

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Variance from Normal (2) (11)

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

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

Natural Gas Distribution Adjusted Gross 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 $1.2 million of additional adjusted gross margin for the three months ended March 31, 2022.

The average number of residential customers served on the Delmarva Peninsula increased by 5.3 percent for the three months ended March 31, 2022, while Florida customers increased by 4.0 percent, for the same period.

A larger percentage of the adjusted gross 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 and additional infrastructure is added to support the growth.

The details for the three months ended March 31, 2022 are provided in the following table:

Three Months Ended

March 31, 2022

(in thousands) Delmarva Peninsula Florida

Customer Growth:

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Regulated Energy Segment

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

For the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021:

Three Months Ended

September 30, Increase

March 31, Increase

2022 2021 (decrease)

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Revenue $ 127,891 $ 121,197 $ 6,694

Cost of sales 15,294 16,271 (977)

Gross margin 65,102 66,491 (1,389)

Regulated natural gas and electric costs 45,442 43,043 2,399

Adjusted gross margin (1)

82,449 78,154 4,295

Operations & maintenance 29,149 28,233 916

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Operating income $ 34,681 $ 32,637 $ 2,044

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:

(1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance.

For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above.

Operating income for the Regulated Energy segment for the first quarter of 2022 was $34.7 million, an increase of $2.0 million, or 6.3 percent, over the same period in 2021.

Higher operating income reflects continued pipeline expansions by Eastern Shore and Peninsula Pipeline, organic growth in our natural gas distribution businesses, incremental contributions from regulated infrastructure programs, and operating results from the Escambia Meter Station acquisition completed in 2021.

Operating expenses increased by $2.3 million compared to the prior year quarter due to higher depreciation, amortization and property taxes, payroll, benefits and other employee related expenses.

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

(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 transmission service expansions $ 1,227

Natural gas growth (excluding service expansions) 1,194

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

Contributions from regulated infrastructure programs 924

Escambia Meter Station acquisition 250

Other variances 700

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

Quarter-over-quarter increase in adjusted gross margin $ 4,295

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 Transmission Service Expansions

We generated increased adjusted gross margin of $1.2 million from natural gas transmission service expansions including, Peninsula Pipeline's Western Palm Beach County project, Eastern Shore's Del-Mar Energy Pathway project and the Guernsey pipeline expansion for the three months ended March 31, 2022

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.

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

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

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

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

Eastern Shore Capital Surcharge

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

We generated additional adjusted gross margin of $1.2 million from natural gas customer growth.

Adjusted gross margin increased by $0.4 million in Florida and $0.8 million on the Delmarva Peninsula for the three months ended March 31, 2022, as compared to the same period in 2021, due primarily to residential customer growth of 5.3 percent and 4.0 percent on the Delmarva Peninsula and in Florida, respectively.

Contributions from Regulated Infrastructure Programs

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $0.9 million in the first quarter of 2022 The increase in adjusted gross margin was primarily related to continued investment in the Florida GRIP, Eastern Shore's capital surcharge program and the Elkton Gas STRIDE Plan.

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:

(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

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.

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.

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.

Adjusted gross margin increased by $0.3 million due to the acquisition of the Escambia Meter Station which was consummated in June 2021.

Operating Expenses

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

Items contributing to the quarter-over-quarter 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)

Depreciation, amortization and property taxes $ 1,403

Payroll, benefits and other employee related costs 485

Other variances 363

Period-over-period increase in operating expenses $ 5,139

Quarter-over-quarter increase in operating expenses $ 2,251

Unregulated Energy Segment

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

For the quarter ended March 31, 2022, compared to the quarter ended March 31, 2021:

Three Months Ended

September 30, Increase

March 31, Increase

2022 2021 (decrease)

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Revenue $ 101,292 $ 74,759 $ 26,533

Cost of sales 17,213 9,646 7,567

Gross margin 14,897 13,068 1,829

Unregulated propane and natural gas costs 58,008 35,983 22,025

Adjusted gross margin (1)

43,284 38,776 4,508

Operations & maintenance 18,090 15,284 2,806

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Total operating expenses 23,238 19,793 3,445

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.

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

Operating Income $ 20,046 $ 18,983 $ 1,063

(1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance.

For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above.

Operating results for the Unregulated Energy segment for the first quarter of 2022 increased by $1.1 million or, 5.6 percent compared to the same period in 2021.

Higher operating results during the first quarter were driven by contributions from the acquisition of Diversified Energy, margin improvement from Aspire Energy and increased propane margins including higher service fees.

These increases were partially offset by reduced consumption in our propane operations.

Additionally, we experienced increased operating expenses associated with the acquisition of Diversified Energy as well as increased employee related expenses, depreciation, amortization and property taxes, and increased vehicle expenses due to rising fuel costs.

Items contributing to the quarter-over-quarter increase in adjusted 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

Diversified Energy acquisition (completed in December 2021) $ 3,975

Increased propane margins and service fees 722

Decreased customer consumption - intra-quarter weather volatility (649)

Decreased customer consumption due to conversion of customers to our natural gas system (351)

Aspire Energy

Increased margin including improvements from natural gas liquid processing 320

Increased margins - rate changes and natural gas liquid processing 929

Increased customer consumption - primarily weather related 403

Other variances (521)

Quarter-over-quarter increase in gross margin $ 1,829

Quarter-over-quarter increase in adjusted gross margin $ 4,508

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.

• Acquisition of Diversified Energy - Adjusted gross margin increased by $4.0 million due to the acquisition of Diversified Energy, which was acquired by Sharp in December 2021.

• Increased Retail Propane Margins and Service Fees - Adjusted g ross margin increased by $0.7 million for the three months ended March 31, 2022, mainly due to increased customary service fees.

Propane margins also increased due to gains with our SWAP agreements.

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

• Western Natural Gas - Gross margin increased by $0.4 million due to the margin generated from Western Natural Gas,

which was acquired by Sharp in October 2020.

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

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

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

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

• Decreased Customer Consumption due to weather - Adjusted g ross margin decreased by $0.6 million due to reduced

customer consumption during the first quarter of 2022 compared to the same period in 2021 due to intra-quarter weather volatility.

• Decreased customer consumption due to conversion of customers to natural gas - Adjusted gross margin decreased by $0.4 million as more customers converted from propane to natural gas.

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

• Increased Margins - Adjusted g ross margin increased by $0.9 million during the first quarter of 2022 over the same period in 2021, including rate changes and improvements from natural gas liquid processing.

• Increased Customer Consumption Primarily Weather Related - Adjusted gross margin increased by $0.4 million due to higher consumption of gas as weather in Ohio was approximately 6 percent colder during the first quarter of 2022 over the same period in 2021.

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

Operating expenses from the Diversified Energy acquisition $ 2,450

Increased payroll, benefits and other employee-related expenses 396

Increased depreciation, amortization and property tax costs 212

Increased vehicle expenses due to higher fuel costs 186

Other variances 201

Quarter-over-quarter increase in operating expenses $ 3,445

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 $ 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.

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:

(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.

OTHER INCOME, NET

For the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021

Other income, net, which includes non-operating investment income, interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, increased by $0.5 million in the first quarter of 2022, compared to the same period in 2021.

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.

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.

For the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021

Interest charges for the three months ended March 31, 2022 increased by $0.2 million, compared to the same period in 2021, attributable primarily to an increase of $0.3 million in interest expense as a result of a long-term debt placement in 2022 and $0.1 million of an amortization credit/increase in interest expense associated with a regulatory liability that was established in connection with the Hurricane Michael regulatory proceeding settlement in 2020.

Partially offsetting the interest charges was a $0.2 million decrease in lower interest expense from lower levels of outstanding borrowings under our revolving credit facilities.

During the first quarter of 2022, the interest rate associated with our Revolver increased by 0.34 percent as a result of Federal Reserve raising interest rates.

Any additional increases in interest rates by the Federal Reserve would have a corresponding increase in the interest rates charged under our Revolver.

For the quarter ended March 31, 2022 compared to the quarter ended March 31, 2021

Income tax expense was $13.5 million for the quarter ended March 31, 2022, compared to $12.4 million for the quarter ended March 31, 2021.

Our effective income tax rate was 26.8 percent and 26.5 percent, for the three months ended March 31, 2022 and 2021, respectively.

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

4 unchanged sentences

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.

2 unchanged sentences

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.

Our capital expenditures were $25.6 million for the three months ended March 31, 2022.

In the table below, we have provided an updated range of our forecasted capital expenditures for 2022:

12 unchanged sentences

Energy transmission

16,000 20,000

Other unregulated energy

13,000 15,000

Total Unregulated Energy

2 unchanged sentences

Total 2022 Forecasted Capital Expenditures $ 175,000 $ 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 2022 forecast, excluding acquisitions, includes capital expenditures associated with the following:

Pipeline expansions related to the Eastern Shore Southern Expansion project and the Florida Beachside Pipeline as well as amounts for the expansion into Somerset County, Maryland.

Furthermore, the 2022 forecast includes continued expenditures under the Florida GRIP, the capital cost surcharge program and the Elkton Gas STRIDE program as well as further expansion of our natural gas distribution and transmission systems, information technology systems, and other strategic initiatives and 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.

Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, capital delays 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.

4 unchanged sentences

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

The following table presents our capitalization, excluding and including short-term borrowings, as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

(in thousands)

2 unchanged sentences

Total capitalization, excluding short-term debt $ 1,403,390 100 % $ 1,324,033 100 %

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

(in thousands)

4 unchanged sentences

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.

Our equity to total capitalization ratio, including short-term borrowings, was 52 percent as of March 31, 2022.

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.

In 2022, we issued less than 0.1 million shares at an average price per share of $137.45 and received net proceeds of $3.2 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:

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

The following table summarizes our Shelf Agreements at March 31, 2022:

(in thousands) Total Borrowing Capacity Less:

6 unchanged sentences

150,000 (50,000) — 100,000

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.

Total Shelf Agreements as of March 31, 2022 $ 520,000 $ (270,000) $ — $ 250,000

(1) The Prudential and MetLife Shelf Agreements expire in April 2023 and May 2023.

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.

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

At 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.

At March 31, 2022 and December 31, 2021, we had $140.9 million and $221.6 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 1.17 percent and 0.83 percent respectively.

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

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

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

As of March 31, 2022, 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.

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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.

As of March 31, 2022, 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 March 31, 2022, 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 March 31, 2022 was $256.3 million.

As of March 31, 2022, we had issued $5.3 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 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 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.

At December 31, 2021, all of our interest rate swaps had expired and we have not entered into any new derivative contracts associated with our outstanding short-term borrowings.

Long-Term Debt

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

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

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

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

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

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

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

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

Nine Months Ended

September 30,

On March 15, 2022 we issued $50 million of 2.95 percent Senior Notes due March 15, 2042 to MetLife.

We used the proceeds received from the issuances of the Senior Notes to reduce short-term borrowings under our revolving credit facility and to fund capital expenditures.

These Senior Notes have similar covenants and default provisions as the existing senior notes, and have an annual principal payment beginning in the eleventh year after the issuance.

The following table provides a summary of our operating, investing and financing cash flows for the three months ended March 31, 2022 and 2021:

Three Months Ended

(in thousands) 2022 2021

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Financing activities (38,953) (26,459)

Net increase (decrease) in cash and cash equivalents 2,387 (3,929)

Net increase in cash and cash equivalents 232 2,076

Cash and cash equivalents—beginning of period 4,976 3,499

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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;

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

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

During the three months ended March 31, 2022, net cash provided by operating activities was $69.1 million.

Operating cash flows were primarily impacted by the following:

• Net income, adjusted for non-cash adjustments, provided a $58.9 million source of cash;

• An increased level of deferred taxes associated with incremental tax depreciation from growth investments resulted in a source of cash of $7.4 million;

• Changes in net regulatory assets and liabilities due primarily to the change in fuel costs collected through the various cost recovery mechanisms generated a $5.8 million inflow of cash;

• Working capital changes, impacted primarily by propane inventory purchases and hedging activities, resulted in a $9.1 million use of cash;

• An increase in income tax receivables reduced cash inflows by $6.1 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.

Net cash used in investing activities totaled $29.9 million during the three months ended March 31, 2022.

Key investing activities included:

• Cash used to pay for capital expenditures was $29.9 million.

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:

• Long-term debt repayments of $10.1 million;

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

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

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

Net cash used in financing activities totaled $39.0 million during the three months ended March 31, 2022.

Net cash used in financing activities:

• Repayments under lines of credit resulted in a use of cash of $82.0 million;

• Net increase in long-term debt borrowings resulted in a source of cash of $49.7 million to permanently finance investment in growth initiatives;

• Source of cash of $3.2 million from issuance of stock under the DRIP;

• A use of cash of $8.3 million for dividend payments in 2021.

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.

The maximum authorized liability under such guarantees and letters of credit as of March 31, 2022 was $20.0 million.

The aggregate amount guaranteed at March 31, 2022 was $13.1 million, with the guarantees expiring on various dates through March 30, 2023.

As of March 31, 2022, we have issued letters of credit totaling approximately $5.3 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions, to our current and previous primary insurance carriers.

These letters of credit have various expiration dates through October 25, 2022.

We have not drawn upon these letters of credit as of March 31, 2022 and do not anticipate that the counterparties will draw upon these letters of credit.

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

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There has been no material change in the contractual obligations presented in our 2021 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:

The following table summarizes commodity purchase contract obligations at March 31, 2022:

Payments Due by Period

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis