What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-02 compared with 2022-08-03 · 300 added, 248 removed, 645 unchanged (46% of the section changed)

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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 and six months ended June 30, 2022 and 2021:

For the Three Months Ended June 30, 2022

The below tables reconcile Gross Margin as defined under GAAP to our non-GAAP measure of Adjusted Gross Margin for the three and nine months ended September 30, 2022 and 2021:

For the Three Months Ended September 30, 2022

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

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Adjusted Gross Margin (Non-GAAP) $ 69,732 $ 17,146 $ (30) $ 86,848

For the Three Months Ended June 30, 2021

For the Three Months Ended September 30, 2021

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

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Adjusted Gross Margin (Non-GAAP) $ 65,102 $ 14,897 $ (30) $ 79,969

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

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

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Adjusted Gross Margin (Non-GAAP) $ 222,800 $ 82,193 $ (92) $ 304,901

For the Six Months Ended June 30, 2021

For the Nine Months Ended September 30, 2021

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

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

Gross Margin (GAAP) for the Regulated Energy segment for the quarter ended June 30, 2022 was $49.2 million, an increase of $2.8 million, or 6.1 percent, compared to the same period in 2021.

Higher gross margin reflects continued pipeline expansions by Eastern Shore, Peninsula Pipeline, and Aspire Energy Express through 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.

Gross Margin (GAAP) for the Regulated Energy segment for the six months ended June 30, 2022 was $110.4 million, an increase of $6.2 million, or 5.9 percent, compared to the same period in 2021.

These increases were partially offset by higher depreciation and amortization related to recent capital investments

as well as, increased payroll, benefits and other employee related costs.

Gross Margin (GAAP) for the Regulated Energy segment for the quarter ended September 30, 2022 was $47.3 million, an increase of $2.6 million, or 5.7 percent, compared to the same period in 2021.

Higher gross margin reflects continued pipeline expansions by Eastern Shore, Peninsula Pipeline, and Aspire Energy Express through contributions from the new Guernsey pipeline, contributions from regulated infrastructure programs, organic growth in the natural gas distribution businesses, increased customer consumption and interim rates associated with the Florida natural gas base rate proceeding.

These increases were partially offset by higher depreciation and amortization related to recent capital investments and higher facilities, maintenance and outside services costs.

Gross Margin (GAAP) for the Regulated Energy segment for the nine months ended September 30, 2022 was $157.6 million, an increase of $8.8 million, or 5.9 percent, compared to the same period in 2021.

Higher gross margin reflects continued pipeline expansions by Eastern Shore, Peninsula Pipeline, and Aspire Energy Express through contributions from the new Guernsey pipeline, contributions from regulated infrastructure programs, organic growth in the natural gas distribution businesses, increased customer consumption and interim rates associated with the Florida natural gas base rate proceeding.

These increases were partially offset by higher depreciation and amortization related to recent capital investments as well as, increased vehicle expenses largely due to higher fuel costs.

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

Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended June 30, 2022 was $11.0 million, an increase of $2.3 million, or 26.5 percent, compared to the same period in 2021.

Higher gross margin is a result of increased propane margins per gallon and service fees, along with improved performance in our other unregulated businesses.

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

Gross Margin (GAAP) for the Unregulated Energy segment for the six months ended June 30, 2022 was $43.3 million, an increase of $5.5 million, or 14.6 percent, compared to the same period in 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 increased demand for CNG services and 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 and Six Months Ended June 30, 2022

Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended September 30, 2022 was $5.4 million, comparable to the same period in 2021.

Primary drivers of gross margin were increased propane margins per gallon and service fees, increased demand for our CNG, RNG and LNG services and improved performance in our other unregulated businesses.

This gross margin was partially offset by higher depreciation, amortization and property taxes related to recent capital investments and acquisitions, increased payroll, benefits and employee related expenses and higher vehicle expenses largely driven by increased fuel costs.

Gross Margin (GAAP) for the Unregulated Energy segment for the nine months ended September 30, 2022 was $48.7 million, an increase of $5.2 million, or 12.0 percent, compared to the same period in 2021.

Higher gross margin is a result of contributions from the propane acquisitions completed in 2021 and 2022, increased propane margins per gallon and service fees, along with increased demand for CNG, RNG and LNG services and higher rates for Aspire Energy.

Results of Operations for the Three and Nine Months Ended September 30, 2022

Chesapeake Utilities is a Delaware corporation formed in 1947.

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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 June 30, 2022, these restrictions have predominantly been lifted as vaccines have become widely available in the United States.

As of September 30, 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.

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Environmental:

• We were joined by the Governor of the state of Maryland to celebrate the public-private partnership resulting from the extension of natural gas transmission and distribution pipeline into Somerset County, MD, enabling conversion for two state-funded entities to natural gas, improving their facilities’ environmental profile.

• In our Florida operating area, we participated in an event that showcases model homes filled with the latest designs and technologies for energy conservation.

• We announced Sharon Grant's appointment as our new assistant vice president and diversity officer;

Grant will have direct oversight responsibilities for our equity, diversity, and inclusion (EDI) strategy and will collaborate across the organization with the teams responsible for the enterprise-wide environmental, social, and governance plan.

• We participated in events and made donations to organizations and fundraising initiatives within our local communities through our Employee Resource Groups and company community giving programs.

• In July 2022, we announced the appointment of Stephanie N.

• We recently acquired approximately 90,000 gallons of biopropane (bioLPG) to fuel its fleet of AutoGas vehicles.

Through the use of this bioLPG, we will supply more than of one-third of the propane used in our fleet vehicles with this cleaner propane source.

• Our affiliate Marlin Compression and the Port Fuel Center were recognized for their collaboration in constructing a high-capacity CNG truck and tube trailer fueling station, which opened in March in Port Wentworth, Georgia.

Located along the I-95 corridor near the Port of Savannah, the CNG fueling station is one of the largest public access CNG stations on the East Coast, and features a dedicated lane for filling transport trailers.

It also serves as a staging area for Marlin Gas Services to fill CNG transport trailers for its virtual pipeline services, which include the transport of compressed renewable natural gas.

• We recently donated $0.1 million to multiple charitable organizations in Florida providing assistance to those who were impacted by Hurricane Ian.

Chesapeake Utilities partnered with the American Red Cross, Volunteer Florida, Feeding Florida, and Florida Farm Bureau.

With wind speeds reaching 150mph, Hurricane Ian was one of the strongest and most devastating hurricanes to hit Florida.

• For the third consecutive year, two of our subsidiaries have been recognized with Stars of Delaware awards by the Delaware State News.

Chesapeake Utilities, our natural gas distribution system on the Delmarva Peninsula, was honored as the Best Company with Over 50 People and Best Energy Provider, and Sharp Energy, our propane distribution subsidiary, again received the award for Best Propane Company.

• We recently unveiled “CPK Wellness,” a free, digital service provided to all employees which includes key resources for building and sustaining healthy physical, mental and financial habits.

Our wellness strategy incorporates social events, wellness sessions, tools and other resources to better the lives of our colleagues both in and outside the workplace.

• As part of the Board's ongoing succession planning, Stephanie N.

Gary and Sheree M.

Petrone to serve as members of our Board of Directors as part of an ongoing succession planning strategy.

that is aligned with our EDI commitments.

• We recently joined governance leaders as a member of the Advisory Board for the John L.

Weinberg Center for Corporate Governance.

• We were recognized for the Best Corporate Governance in the U.S.

for 2022 by World Finance magazine.

Petrone were appointed to serve as members of the Board of Directors of Chesapeake Utilities Corporation, effective July 22, 2022.

• We were named Best for Corporate Governance in the United States by World News Media Ltd.’s World Finance, an international publication.

• Our 2021 Annual Report and inaugural Sustainability Report were recognized in the 2022 MerComm International Annual Reports Competition (ARC) Awards, the world’s largest competition honoring excellence in reports.

Earlier this year, we established our Environmental Sustainability Office ("ESO") and ESG Committee ("ESGC").

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.

The ESGC brings together a cross-functional team of leaders across the organization responsible for identifying, assessing, executing and advancing the Company’s strategic ESG initiatives.

Operational Highlights

Our net income for the three months ended June 30, 2022 was $17.1 million, or $0.96 per share, compared to $13.8 million, or $0.78 per share, for the same quarter of 2021.

Operating income for the three months ended June 30, 2022 increased by $3.9 million, or 17.2 percent, over the same period in 2021.

Higher performance in the second quarter of 2022 was generated primarily from continued pipeline expansion projects, increased propane margins per gallon and fees, incremental contributions associated with regulated infrastructure programs, organic growth in our natural gas distribution businesses, increased customer consumption, and improved performance in our other unregulated businesses.

Our net income for the three months ended September 30, 2022 was $9.7 million, or $0.54 per share, compared to $12.5 million, or $0.71 per share, for the same quarter of 2021.

Operating income for the third quarter of 2022 was $18.6 million, a decrease of $1.5 million compared to the same period in 2021.

The third quarter of 2021 included a $2.1 million reduction in other operating expenses resulting from regulatory deferral of certain costs associated with the COVID-19 pandemic.

Absent this benefit, operating income increased $0.6 million or 3.1 percent.

Performance in the third quarter of 2022 was generated primarily from continued pipeline expansion projects, increased demand for CNG, RNG and LNG services, incremental contributions associated with regulated infrastructure programs, organic growth in our natural gas distribution businesses, interim rates associated with our Florida natural gas base rate proceeding and increased propane margins per gallon and fees.

We recorded higher depreciation, amortization and property taxes related to recent capital investments and higher operating expenses associated primarily with growth initiatives.

We closely managed our operating expense increases, given anticipated future interest and other inflationary expense increases.

We continued to manage our operating expense increases, given ongoing interest and other inflationary expense increases.

Rising interest rates also increased interest expense compared to the prior year on both our short-term and long-term borrowings.

Three Months Ended

June 30, Increase

September 30, Increase

2022 2021 (decrease)

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Diluted Earnings Per Share of Common Stock $ 0.54 $ 0.71 $ (0.17)

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

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

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

Income Earnings

Second Quarter of 2021 Reported Results

Third Quarter of 2021 Reported Results

$ 15,465 $ 12,475 $ 0.71

Adjusting for Unusual Items:

Gain from sales of assets 1,902 1,396 0.08

Interest income from Federal Income Tax refund 628 454 0.03

Absence of CARES Act items recognized during the third quarter of 2021 — (922) (0.05)

Absence of regulatory deferral of COVID-19 expenses per PSCs orders (2,080) (1,504) (0.08)

(1,452) (1,972) (0.10)

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Natural gas transmission service expansions* 1,202 869 0.05

Increased propane margins and fees 1,104 810 0.05

Increased margins related to demand for CNG/RNG/LNG services* 1,215 879 0.05

Contributions from regulated infrastructure programs * 820 593 0.03

Natural gas growth (excluding service expansions) 938 689 0.04

Natural gas growth including conversions (excluding service expansions) 775 560 0.03

Increased customer consumption - Inclusive of weather 539 390 0.02

Increased margins related to demand for Marlin Gas Services* 547 402 0.02

Higher operating results from Aspire Energy 203 149 0.01

Interim rates associated with the Florida natural gas base rate proceeding* 521 377 0.02

Contributions from rates associated with recovery of pandemic related costs 261 188 0.01

Increased propane margins and fees 206 149 0.01

7,101 5,134 0.28

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Depreciation, amortization and property taxes (1,673) (1,209) (0.07)

Vehicle expenses (407) (299) (0.02)

Customer service related costs (200) (147) (0.01)

Facilities expenses, maintenance costs and outside services (1,420) (1,026) (0.06)

Increased vehicle expenses largely due to higher fuel costs (284) (205) (0.01)

Payroll, benefits and other employee-related expenses (197) (143) (0.01)

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Net other changes (532) (758) (0.04)

Change in shares outstanding due to 2021 and 2022 equity offerings — — (0.01)

(1,798) (1,673) (0.10)

Second Quarter of 2022 Reported Results

Third Quarter of 2022 Reported Results

$ 13,365 $ 9,662 $ 0.54

*See the Major Projects and Initiatives tabl e.

Our net income for the six months ended June 30, 2022 was $54.0 million, or $3.04 per share, compared to $48.3 million, or $2.75 per share, for the same period of 2021.

Operating income for the six months ended June 30, 2022 increased by $7.2 million, or 9.7 percent, over the same period in 2021.

Higher performance in the first six months of 2022 was generated from propane and natural gas acquisitions completed in 2021, continued pipeline expansion projects, organic growth in our natural gas distribution businesses, incremental contributions associated with regulated infrastructure programs, increased propane margins per gallon and fees and improved performance in our other unregulated businesses.

Our net income for the nine months ended September 30, 2022 was $63.6 million, or $3.58 per share, compared to $60.8 million, or $3.45 per share, for the same period of 2021.

Operating income during the first nine months of 2022 was $100.0 million, an increase of $5.7 million, or 6.0 percent, compared to the same period in 2021.

Operating income through the first nine months of 2021 included a $2.5 million reduction in other operating expenses resulting from regulatory deferral of certain costs associated with the COVID-19 pandemic.

Absent this benefit, operating income increased $8.2 million, or 8.7 percent.

Higher performance in the first nine months of 2022 was generated from acquisitions completed in 2021, continued pipeline expansion projects, organic growth in our natural gas distribution businesses, incremental contributions associated with regulated infrastructure programs, greater demand for CNG, RNG and LNG services, increased propane margins per gallon and fees and improved performance in our other unregulated businesses.

We recorded higher depreciation, amortization and property taxes related to recent capital investments and operating expenses associated primarily with growth initiatives, as well as increased vehicle expenses due to higher fuel costs.

Six Months Ended

June 30, Increase

We continued to manage our operating expense increases, given ongoing interest and other inflationary expense increases.

Rising interest rates also increased interest expense compared to the prior year on both our short-term and long-term borrowings.

Nine Months Ended

September 30, Increase

2022 2021 (decrease)

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Diluted Earnings Per Share of Common Stock $ 3.58 $ 3.45 $ 0.13

Key variances between the six months ended June 30, 2022 and the six months ended June 30, 2021, included:

Key variances between the nine months ended September 30, 2022 and September 30, 2021, included:

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

Income Earnings

Six Months Ended June 30, 2021 Reported Results

Nine Months Ended September 30, 2021 Reported Results

$ 81,309 $ 60,754 $ 3.45

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Gain from sales of assets 1,902 1,391 0.08

Interest income from Federal Income Tax refund 628 459 0.03

Absence of CARES Act items recognized during the third quarter of 2021 — (922) (0.05)

Absence of deferral of COVID-19 expenses per PSCs orders (2,545) (1,861) (0.10)

(15) (933) (0.04)

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Natural gas transmission service expansions* 3,720 2,719 0.15

Natural gas growth (excluding service expansions) 2,132 1,563 0.09

Natural gas growth including conversions (excluding service expansions) 2,907 2,125 0.12

Contributions from regulated infrastructure programs * 2,824 2,064 0.12

Increased margins related to demand for CNG/RNG/LNG services* 2,090 1,528 0.09

Increased propane margins and fees 2,029 1,483 0.08

Higher operating results from Aspire Energy 1,000 731 0.04

Increased margins related to demand for Marlin Gas Services* 612 448 0.03

Increased customer consumption - Inclusive of weather 877 641 0.04

Contribution from rates associated with recovery of pandemic related costs 780 570 0.03

Interim rates associated with the Florida natural gas base rate proceeding* 521 381 0.02

24,192 17,684 1.00

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Depreciation, amortization and property tax costs (5,109) (3,735) (0.21)

Vehicle expenses (662) (485) (0.03)

Payroll, benefits and other employee-related expenses (503) (369) (0.02)

Facilities expenses, maintenance costs and outside services (1,370) (1,002) (0.06)

Increased vehicle expenses largely due to higher fuel costs (946) (692) (0.04)

Payroll, benefits and other employee-related expenses (701) (512) (0.03)

(15,211) (11,120) (0.63)

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(3,244) (2,739) (0.20)

Six Months Ended June 30, 2022 Reported Results

Nine Months Ended September 30, 2022 Reported Results

$ 87,031 $ 63,646 $ 3.58

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

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

In the future, we will add new projects and initiatives to this table once negotiations are substantially completed and the associated earnings can be estimated.

Major projects and initiatives that have generated consistent year-over-year adjusted gross margin contributions are removed from the table at the beginning of the next calendar year.

In the future, we will add new projects and initiatives to this table once negotiations or details are substantially final and the associated earnings can be estimated.

Adjusted Gross Margin

Three Months Ended Six Months Ended Year Ended Estimate for

June 30, June 30, December 31, Fiscal

Three Months Ended Nine Months Ended Year Ended Estimate for

September 30, September 30, December 31, Fiscal

in thousands 2022 2021 2022 2021 2021 2022 2023

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Elkton Gas STRIDE Plan 62 — 202 — 26 241 354

Florida Rate Case Proceeding (3)

— — — — — TBD TBD

Florida Rate Case Proceeding 521 — 521 — — TBD TBD

Total Regulatory Initiatives 6,094 4,739 17,050 13,233 18,220 22,117 22,444

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

(3) Subject to approval from the Florida PSC.

Detailed Discussion of Major Projects and Initiatives

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West Palm Beach County, Florida Expansion

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

Peninsula Pipeline constructed 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 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 for the three and six months ended June 30, 2022 of $0.1 million and $0.3 million, respectively, compared to 2021.

The project generated incremental adjusted gross margin for the three and nine months ended September 30, 2022 of $0.1 million and $0.4 million, respectively, compared to 2021.

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

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The new facilities:

(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 for the three and six months ended June 30, 2022 of $0.8 million and $1.6 million, respectively.

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 beyond.

(i) added 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.

The project generated additional adjusted gross margin for the three and nine months ended September 30, 2022 of $0.7 million and $2.3 million, respectively.

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 beyond subject to further increase as the distribution system continues to build out the area.

Guernsey Power Station

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

This project added $0.3 million and $0.5 million of adjusted gross margin for the three and six months ended June 30, 2022, respectively, and is expected to produce adjusted gross margin of approximately $1.4 million in 2022 and $1.5 million in 2023 and beyond.

This project added $0.3 million and $0.9 million of adjusted gross margin for the three and nine months ended September 30, 2022, respectively, 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

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The project is currently estimated to go into service in the fourth quarter of 2023.

Eastern Shore expects the Southern Expansion project to generate annual adjusted gross margin of $0.6 million in 2023 and annual adjusted gross margin of $2.3 million in 2024 and thereafter.

Eastern Shore expects the Southern Expansion project to generate annual adjusted gross margin of $0.6 million in 2023 and increase to an annual adjusted gross margin of $2.3 million in 2024 and thereafter.

Winter Haven Expansion

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

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

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 be in service in the third quarter of 2022 and expect to generate adjusted gross margin of $0.4 million in 2022 once complete and $1.0 million in 2023 and thereafter.

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

This additional firm service is supporting 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 also extended its distribution system to connect to the new station.

This expansion was placed in service in the third quarter of 2022 and expects to generate adjusted gross margin of $0.3 million in 2022 once complete and $0.6 million in 2023 and thereafter.

Beachside Pipeline Expansion

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North Ocean City Connector

During the second quarter, we began construction of an extension of service into North Ocean City, Maryland.

During the second quarter of 2022, we began construction of an extension of service into North Ocean City, Maryland.

Our Delaware natural gas 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.

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The extension will be used to support new incremental load due to growth in the area, including providing service, most immediately, to the residential development, Twin Lakes.

The expansion will also improve reliability and operational benefits to FPU’s existing distribution system in the area, supporting future growth in the area.

We expect this expansion to be in service in the first quarter of 2023 and generate adjusted gross margin of $0.6 million in 2023 and thereafter.

The expansion will also improve reliability and provide operational benefits to FPU’s existing distribution system in the area,

supporting future growth.

We expect this expansion to be in service in the second quarter of 2023 and generate adjusted gross margin of $0.4 million in 2023 and $0.6 million thereafter.

CNG/RNG/LNG Transportation and Infrastructure

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We constructed the station in partnership with Atlanta Gas Light, a subsidiary of Southern Company Gas.

In 2020, Atlanta Gas Light announced that Chesapeake Utilities would be constructing, maintaining the station and ensuring access to CNG and RNG for the many customers expected to fuel at the station.

In 2020, Atlanta Gas Light announced that Chesapeake Utilities constructed and maintains the station and ensures access to CNG and RNG for the many customers expected to fuel at the station.

We are also involved in various other projects, all at various stages and all with different opportunities to participate across the energy value chain.

In many of these projects, Marlin will play a key role in ensuring the RNG is transported to one of our many pipeline systems where it will be injected.

Accordingly, given the overlapping role of Marlin in many of these projects, we have combined our transportation services and infrastructure adjusted gross margin discussion into one section.

For the three and six months ended June 30, 2022, the Company generated $0.7 million and $0.9 million in additional adjusted gross margin associated with the transportation of CNG and RNG by Marlin’s virtual pipeline and Aspire Energy’s Noble Road RNG pipeline.

Accordingly, given the overlapping role of Marlin in many of these projects, we have combined our transportation services and infrastructure related adjusted gross margin discussion into one section.

For the three and nine months ended September 30, 2022, the Company generated $1.2 million and $2.0 million in additional adjusted gross margin associated with the transportation of CNG and RNG by Marlin’s virtual pipeline and Aspire Energy’s Noble Road RNG pipeline.

The Company estimates annual adjusted gross margin of approximately $9.5 million in 2022, and $10.5 million in 2023 for these transportation related services, with potential for additional growth in future years.

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As new projects are solidified, we will provide additional detail on those projects at that time.

Planet Found Development

In late October 2022, we consummated the acquisition of Planet Found Energy Development.

Planet Found's farm scale anaerobic digestion pilot system and technology produces biogas from 1,200 tons of poultry litter annually, which can be used to create renewable energy in the form of electricity or upgraded to renewable natural gas.

In addition to generating biogas, Planet Found’s nutrient capture system plays a major role in converting digestate into a nutrient-rich soil conditioner, which is distributed to bulk and retail markets under the brand Element Soil.

The transaction will accelerate our efforts in converting poultry waste to renewable, sustainable energy while simultaneously improving the local environments in our service territories.

The expertise, technologies and know-how can be leveraged for various scale projects across our geographic footprint.

Noble Road Landfill RNG Project

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

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

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

CleanBay Project

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

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

As part of this partnership, we will transport the RNG produced at CleanBay's planned

Westover, Maryland bio-refinery, to our natural gas infrastructure in the Delmarva Peninsula region.

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

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

There are multiple strategic benefits to this acquisition including it:

There were multiple strategic benefits to this acquisition including it:

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

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The acquisition adds approximately 850 customers and distribution of approximately 406,000 gallons of propane annually to Sharp Energy’s territory.

For the three and six months ended June 30, 2022, these acquisitions contributed $1.5 million and $5.5 million , respectively, in adjusted gross margin and are expected to generate $11.3 million of additional adjusted gross margin in 2022 and $12.0 million in 2023.

The financial results of this acquisition are included in Sharp Energy's Diversified Energy division given geographic proximity and other synergies within the service territory.

For the three and nine months ended September 30, 2022, these acquisitions contributed $1.6 million and $7.0 million , respectively, in adjusted gross margin and are 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.

The Company generated $0.2 million and $0.4 million, respectively, in additional adjusted gross margin for the three and six months ended June 30, 2022 and estimates that this acquisition will generate adjusted gross margin of approximately $1.0 million in 2022 and beyond.

We generated $0.4 million in additional adjusted gross margin in the first nine months of 2022 and we estimate 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, the Company has invested $198.7 million of capital expenditures to replace 351 miles of qualifying distribution mains, including $9.2 million of new pipes during the first six month of 2022.

GRIP generated additional gross margin of $0.8 million and $1.6 million, respectively, for the three and six months ended June 30, 2022 compared to 2021.

Since the program's inception in August 2012, the Company has invested $201.4 million of capital expenditures to replace 351 miles of qualifying distribution mains, including $11.9 million of new pipes during the first nine months of 2022.

GRIP generated additional gross margin of $0.7 million and $2.3 million, respectively, for the three and nine months ended September 30, 2022 compared to 2021.

We are currently projecting to complete this program in 2022 and expect to generate adjusted gross margin of $19.9 million and $20.2 million in 2022 and 2023, respectively.

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

For t he three and six months ended June 30, 2022 , there was $0.4 million and $0.8 million, respectively, of adjusted gross margin generated pursuant to the program.

For t he three and nine months ended September 30, 2022 , there was $0.1 million and $0.8 million, respectively, of incremental adjusted gross margin generated pursuant to the program.

Eastern Shore expects to produce adjusted gross margin of approximately $2.0 million in 2022 and $1.9 million in 2023 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction.

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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

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

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

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

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

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

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

Our Florida regulated business units are amortizing the amount over two years effective 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 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

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(v) authorization to retain acquisition adjustment in the revenue requirement;

and (vi) authorization to establish an environmental remediation surcharge for the purposes of addressing future expected remediation costs for manufactured gas plant sites.

and (vi) authorization to establish an environmental remediation surcharge for the purposes of add ressing future expected remediation costs for manufactured gas plant sites.

In August 2022, interim rates were approved by the Florida PSC in the amount of approximately $7.7 million on an annualized basis, effective for all meter readings in September 2022.

The interim rates are subject to refund pending the final outcome of the rate case proceeding.

The discovery process has commenced and hearing for the proceeding has been scheduled for October 2022.

The discovery process concluded in early October 2022 and the hearings for the proceeding were held later in the month.

The outcome of the application is subject to review and approval by the Florida PSC.

COVID-19 Regulatory Proceeding

The regulatory asset allows us to obtain recovery of these costs in the next base rate proceedings.

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

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

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

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

Our Florida regulated business units are currently amortizing the amount over two years effective 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 adjusted gross margin of $1.0 million that will be offset by a corresponding amortization of regulatory asset expense for both 2022 and 2023 .

Storm Protection Plan

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The SPPCR rules allow the utility to file for recovery of associated costs related to its SPP.

The Company’s SPP plan was filed in April 2022, with hearings scheduled for early August 2022.

Our SPP plan was filed in April 2022, and hearings were held in August 2022.

The SPP was approved with modifications by the Florida PSC on October 4, 2 022.

The SPPCRC was filed in May 2022 with requested rates effective January 1, 2023.

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Weather Impact

Weather was not a significant factor during the second quarter and the first half of 2022.

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and six months ended June 30, 2022 and 2021.

Three Months Ended Six Months Ended

June 30, June 30,

Weather was not a significant factor during the third quarter of 2022.

For the nine-month period, weather conditions accounted for $0.2 million of decreased gross margin compared to the same period in 2021.

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, 2022 and 2021.

Three Months Ended Nine Months Ended

September 30, September 30,

2022 2021 Variance 2022 2021 Variance

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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 $0.9 million and $2.1 million of additional adjusted gross margin for the three and six months ended June 30, 2022.

The average number of residential customers served on the

Delmarva Peninsula increased by 5.7 percent and 5.5 percent for the three and six months ended June 30, 2022, while Florida customers increased by 4.1 percent for both the three and six month periods.

Customer growth for our natural gas distribution operations, as a result of the addition of new customers and the conversion of customers from alternative fuel sources to natural gas service, generated $0.8 million and $2.9 million of additional adjusted gross margin for the three and nine months ended September 30, 2022.

The average number of residential customers served on the Delmarva Peninsula increased by 5.8 percent and 5.6 percent for the three and nine months ended September 30, 2022, while Florida customers increased by 4.4 percent and 4.2 percent for the three and nine month periods.

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 and six months ended June 30, 2022 are provided in the following table:

Three Months Ended Six Months Ended

June 30, 2022 June 30, 2022

The details for the three and nine months ended September 30, 2022 are provided in the following table:

Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2022

(in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida

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Regulated Energy Segment

For the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021:

For the quarter ended September 30, 2022, compared to the quarter ended September 30, 2021:

Three Months Ended

June 30, Increase

September 30, Increase

2022 2021 (decrease)

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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 second quarter of 2022 was $25.8 million, an increase of $3.1 million, or 13.5 percent, over the same period in 2021.

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

Operating expenses increased by $1.1 million compared to the prior year quarter due to higher depreciation, amortization and property taxes and increased vehicle expense resulting from higher fuel costs.

The increase was partially offset by reductions in various areas including facilities, maintenance and outside services costs, as well as a lower level of payroll and benefits expenses.

Operating income for the Regulated Energy segment for the third quarter of 2022 was $23.7 million, an increase of $0.3 million, or 1.3 percent, over the same period in 2021.The third quarter of 2021 included a $2.1 million reduction in other operating expenses resulting from regulatory deferral of certain costs associated with the COVID-19 pandemic.

Absent this benefit, operating income increased $2.4 million, or 10.2 percent.

Higher operating income reflects continued pipeline expansions by Eastern Shore, Peninsula Pipeline and Aspire Energy Express, incremental contributions from regulated infrastructure programs, organic growth in our natural gas distribution businesses, increased customer consumption and interim rates associated with the Florida natural gas base rate proceeding.

After considering the benefits of regulatory asset accounting in 2021, operating expenses increased by $2.3 million compared to the prior year quarter primarily due to a higher level of depreciation, amortization and property taxes, facilities, maintenance and outside services costs and increased vehicle expense resulting from higher fuel costs.

The increase was partially offset by a lower level of payroll and benefits expenses.

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

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Contributions from regulated infrastructure programs 820

Natural gas growth (excluding service expansions) 938

Natural gas growth including conversions (excluding service expansions) 775

Changes in customer consumption 640

Escambia Meter Station acquisition 166

Interim rates associated with the Florida natural gas base rate proceeding 521

Contributions from rates associated with recovery of pandemic related costs 260

Other variances 412

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Natural Gas Transmission Service Expansions

We generated increased adjusted gross margin of $1.3 million for the three months ended June 30, 2022 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.

We generated increased adjusted gross margin of $1.2 million for the three months ended September 30, 2022 from natural gas transmission service expansions including, Peninsula Pipeline's Western Palm Beach County project, Eastern Shore's Del-Mar Energy Pathway project and Aspire Energy Express' Guernsey pipeline expansion.

Contributions from Regulated Infrastructure Programs

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $1.1 million in the second quarter of 2022.

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $0.8 million in the third 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.

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We generated additional adjusted gross margin of $0.8 million from natural gas customer growth.

Adjusted gross margin increased by $0.3 million in Florida and $0.6 million on the Delmarva Peninsula for the three months ended June 30, 2022, as compared to the same period in 2021, due primarily to residential customer growth of 4.1 percent and 5.7 percent in Florida and on the Delmarva Peninsula, respectively.

Adjusted gross margin increased by $0.3 million in Florida and $0.5 million on the Delmarva Peninsula for the three months ended September 30,

2022, as compared to the same period in 2021, due primarily to residential customer growth of 4.4 percent and 5.8 percent in Florida and on the Delmarva Peninsula, respectively.

Changes in Customer Consumption

Increased customer consumption contributed additional adjusted gross margin of $0.6 million in the second quarter of 2022.

Adjusted gross margin increased by $0.2 million due to the acquisition of the Escambia Meter Station which was consummated in June 2021.

Increased customer consumption contributed additional adjusted gross margin of $0.6 million in the third quarter of 2022.

Interim Rates Associated with the Florida Natural Gas Base Rate Proceeding

In August 2022, the Florida PSC approved interim rates starting in September 2022.

These interim rates contributed additional adjusted gross margin of $0.5 million.

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

Contributions from Rates Associated with Recovery of Pandemic Related Costs

In July 2021, the Florida PSC approved an order that allowed us to establish a regulatory asset to recover incremental expenses we incurred due to COVID-19 resulting in additional adjusted gross margin of $0.3 million for the quarter.

Operating Expenses

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(in thousands)

Absence of regulatory deferral of COVID-19 expenses per PSCs orders $ 2,080

Depreciation, amortization and property taxes 1,431

Vehicle expenses 207

Facilities maintenance costs and outside services (635)

Facilities expenses, maintenance costs and outside services 1,145

Payroll, benefits and other employee related costs (735)

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Quarter-over-quarter increase in operating expenses $ 4,337

For the six months ended June 30, 2022, compared to the six months ended June 30, 2021:

Six Months Ended

June 30, Increase

For the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021:

Nine Months Ended

September 30, Increase

2022 2021 (decrease)

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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 six months ended June 30, 2022 was $60.5 million, an increase of $5.1 million, or 9.1 percent, over the same period in 2021.

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

Operating expenses increased by $3.4 million compared to the prior year due to higher depreciation, amortization and property taxes, payroll, benefits and other employee related expenses.

Operating income for the Regulated Energy segment for the nine months ended September 30, 2022 was $84.2 million, an increase of $5.4 million, or 6.8 percent, over the same period in 2021.

Absent this benefit, operating income increased $7.9 million, or 10.0 percent.

Higher operating income reflects continued pipeline expansions by Eastern Shore, Peninsula Pipeline and Aspire Energy Express, organic growth in our natural gas distribution businesses, incremental contributions from regulated infrastructure programs, increased customer consumption, interim rates associated with the Florida natural gas base rate proceeding, cost recovery associated with pandemic related costs, and operating results from the Escambia Meter Station acquisition completed in 2021.

After considering the benefits of regulatory asset accounting in 2021, operating expenses increased by $5.2 million compared to the prior year primarily due to a higher level of depreciation and amortization, property taxes, facilities, maintenance costs, outside services and vehicle expenses largely due to higher fuel costs.

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

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Natural gas transmission service expansions $ 3,720

Natural gas growth (excluding service expansions) 2,132

Natural gas growth including conversions (excluding service expansions) 2,907

Contributions from regulated infrastructure programs 2,824

Changes in customer consumption 1,089

Contributions from rates associated with recovery of pandemic related costs 780

Interim rates associated with the Florida natural gas base rate proceeding 521

Escambia Meter Station acquisition 416

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Natural Gas Transmission Service Expansions

We generated increased adjusted gross margin of $2.5 million for the six months ended June 30, 2022 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.

We generated increased adjusted gross margin of $3.7 million for the nine months ended September 30, 2022 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.

Natural Gas Distribution Customer Growth

We generated additional adjusted gross margin of $2.9 million from natural gas customer growth.

Adjusted gross margin increased by $0.7 million in Florida and $1.4 million on the Delmarva Peninsula for the six months ended June 30, 2022, as compared to the same period in 2021, due primarily to residential customer growth of 4.1 percent and 5.5 percent in Florida and on the Delmarva Peninsula, respectively.

Adjusted gross margin increased by $1.0 million in Florida and $1.9 million on the Delmarva Peninsula for the nine months ended September 30, 2022, as compared to the same period in 2021, due primarily to residential customer growth of 4.2 percent and 5.6 percent in Florida and on the Delmarva Peninsula, respectively.

Contributions from Regulated Infrastructure Programs

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $2.0 million for the six months ended June 30, 2022.

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $2.8 million for the nine months ended September 30, 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.

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Changes in Customer Consumption

Increased customer consumption contributed additional adjusted gross margin of $0.4 million for the six months ended June 30, 2022.

Increased customer consumption contributed additional adjusted gross margin of $1.1 million for the nine months ended September 30, 2022.

Contributions from Rates Associated with Recovery of Pandemic Related Costs

In July 2021, the Florida PSC approved an order that allowed us to establish a regulatory asset to recover incremental expenses we incurred due to COVID resulting in additional adjusted gross margin of $0.8 million for the nine months ended September 30, 2022.

Interim Rates Associated with the Florida Natural Gas Base Rate Proceeding

In August 2022, the Florida PSC approved interim rates starting in September 2022.

These interim rates contributed additional adjusted gross margin of $0.5 million.

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

Adjusted gross margin increased by $0.4 million due to the acquisition of the Escambia Meter Station which was consummated in June 2021.

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Depreciation, amortization and property taxes $ 4,408

Customer service related costs 414

Payroll, benefits and other employee-related expenses 188

Absence of deferral of COVID-19 expenses per PSCs orders 2,545

Facilities expenses, maintenance costs and outside services 1,122

Increased vehicle expenses largely due to higher fuel costs 348

Other variances (708)

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Unregulated Energy Segment

For the quarter ended June 30, 2022, compared to the quarter ended June 30, 2021:

For the quarter ended September 30, 2022, compared to the quarter ended September 30, 2021:

Three Months Ended

June 30, Increase

September 30, Increase

2022 2021 (decrease)

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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 second quarter of 2022 increased by $1.0 million compared to the same period in 2021.

Operating results for the Unregulated Energy segment for the third quarter of 2022 decreased by $2.1 million compared to the same period in 2021.

The operating results for this segment typically are impacted by seasonal variances, with the first and fourth quarters generating a significantly larger portion of adjusted gross margin as a result of colder temperatures generally contributing to higher customer demand.

Operating results for the second and third quarters historically have been lower due to reduced customer demand during the warmer periods of the year.

The impact to operating income may not align with the seasonal variations as many of the operating expenses are recognized ratably over the course of the year.

Higher operating results during the second quarter were driven by contributions from the acquisition of Diversified Energy, increased propane margins including higher service fees, increased demand for CNG from Marlin Gas Services and margin improvement from Aspire Energy.

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

The impact to operating income may not align with the seasonal variations in adjusted gross margin as many of the operating expenses are recognized ratably over the course of the year.

This seasonality impact on second and third quarters has grown with the acquisition of Diversified Energy in late 2021.

Performance in the Unregulated Energy segment during the third quarter was driven by incremental adjusted gross margin from Diversified Energy, increased demand for CNG, RNG and LNG services and expanded propane margins including higher service fees.

Additionally, we experienced increased operating expenses associated with the acquisition of Diversified Energy as well as increased costs for facilities, maintenance, and outside services, higher payroll, benefits and employee related expenses driven by competition in the current labor market, depreciation, amortization and property taxes and increased vehicle expenses largely due to rising fuel costs.

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

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Propane Operations

Diversified Energy acquisition (completed in December 2021) $ 1,491

Propane acquisitions completed in 2022 and 2021 $ 1,562

Increased propane margins and service fees 206

Marlin Gas Services

Increased demand for CNG services 547

CNG/RNG/LNG Transportation and Infrastructure

Increased demand for CNG/RNG/LNG Services 1,215

Aspire Energy

Increased margins - rate changes and natural gas liquid processing 203

Decreased customer consumption - primarily weather related (183)

Decreased margins - rate changes and natural gas liquid processing (131)

Other variances (420)

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Propane Operations

• Acquisition of Diversified Energy - Adjusted gross margin increased by $1.5 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 $1.1 million for the three months ended June 30, 2022, mainly due to increased customer 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.

Marlin Gas Services

• Increased demand for CNG services - Adjusted gross margin increased by $0.5 million during the second quarter as compared to the same period in the prior year due to higher demand for CNG hold services.

• Recent propane acquisitions - Adjusted gross margin increased by $1.6 million due to recent propane acquisitions completed in 2021 and 2022.

• Increased Retail Propane Margins and Service Fees - Adjusted g ross margin increased by $0.2 million for the three months ended September 30, 2022, mainly due to increased customer service fees.

CNG/RNG/LNG Transportation and Infrastructure

• Increased demand for CNG/RNG/LNG services - Adjusted gross margin increased by $1.2 million during the third quarter as compared to the same period in the prior year due to higher demand for CNG hold services and contributions from an Aspire RNG project .

Aspire Energy

• Increased Margins - Adjusted g ross margin increased by $0.2 million during the second quarter of 2022 over the same period in 2021, including rate changes and improvements from natural gas liquid processing.

• Decreased Customer Consumption - Adjusted gross margin decreased by $0.2 million due to lower demand.

• Decreased Margins - Adjusted g ross margin decreased by $0.1 million during the third quarter of 2022 over the same period in 2021, including rate changes and reductions from natural gas liquid processing.

Operating Expenses

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(in thousands)

Operating expenses from the Diversified Energy acquisition $ 2,258

Operating expenses associated with recent propane acquisitions $ 2,377

Increased facilities expenses, maintenance costs and outside services 594

Increased payroll, benefits and other employee-related expenses 432

Increased depreciation, amortization and property tax costs 268

Increased vehicle expenses due to higher fuel costs 199

Increased vehicle expenses largely due to higher fuel costs 213

Other variances 469

Quarter-over-quarter increase in operating expenses $ 4,353

Diversified Energy's operating results reflected lower adjusted gross margins during the second quarter of 2022 which is in line with the seasonality typically experienced during the second and third quarters by our legacy propane distribution businesses.

For the six months ended June 30, 2022, compared to the six months ended June 30, 2021:

Six Months Ended

June 30, Increase

Diversified Energy's operating results reflected lower adjusted gross margins during the third quarter of 2022 which is in line with the seasonality typically experienced during the second and third quarters by our legacy propane distribution businesses.

For the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021:

Nine Months Ended

September 30, Increase

2022 2021 (decrease)

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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 for the six months ended June 30, 2022 increased by $2.0 million or, 11.0 percent compared to the same period in 2021.

Higher operating results during the first half of 2022 were driven by contributions from the acquisition of Diversified Energy, increased propane margins including higher service fees margin, increased demand for CNG from Marlin Gas Services and margin improvement from Aspire Energy.

Operating results for the Unregulated Energy segment for the nine months ended September 30, 2022 were comparable to the same period in 2021.

Operating results during the first nine months of 2022 were driven by contributions from the acquisition of Diversified Energy, increased propane margins including higher service fees, increased demand for CNG, RNG and LNG services and margin improvement from Aspire Energy.

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 payroll, benefits and employee related expenses, depreciation, amortization and property taxes, and increased vehicle expenses due to rising fuel costs.

Additionally, we experienced increased operating expenses associated with the acquisition of Diversified Energy, including

costs to integrate the business in Sharp's operating practices, as well as increased payroll, benefits and employee related expenses, depreciation, amortization and property taxes, increased vehicle expenses largely due to rising fuel costs and increased costs for facilities, maintenance and outside services.

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

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Propane Operations

Diversified Energy acquisition (completed in December 2021) $ 5,466

Propane acquisitions completed in 2022 and 2021 $ 7,028

Increased propane margins and service fees 2,029

Decreased customer consumption - intra-quarter weather volatility (577)

Decreased customer consumption due to conversion of customers to our natural gas system (530)

Marlin Gas Services

Increased demand for CNG services 612

Decreased customer consumption - intra-quarter weather volatility (495)

CNG/RNG/LNG Transportation and Infrastructure

Increased demand for CNG/RNG/LNG services 2,090

Aspire Energy

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Propane Operations

• Acquisition of Diversified Energy - Adjusted gross margin increased by $5.5 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 $1.8 million for the six months ended June 30, 2022, mainly due to increased customer service fees.

• Recent propane acquisitions - Adjusted gross margin increased by $7.0 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 $2.0 million for the nine months ended September 30, 2022, mainly due to increased customer 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.

• 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 $0.5 million as more customers converted from propane to natural gas.

Marlin Gas Services

• Increased demand for CNG services - Adjusted gross margin increased by $0.6 million during the second quarter as compared to the same period in the prior year due to higher demand for CNG hold services.

• Decreased Customer Consumption due to weather - Adjusted g ross margin decreased by $0.5 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.

CNG/RNG/LNG Transportation and Infrastructure

• Increased demand for CNG services - Adjusted gross margin increased by $2.1 million for the nine months ended September 30, 2022 as compared to the same period in the prior year due to higher demand for CNG hold services for Marlin and contributions from an Aspire RNG project.

Aspire Energy

• Increased Margins - Adjusted g ross margin increased by $1.1 million during the second 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 $0.5 million due to higher consumption of gas as weather in Ohio was approximately 2 percent colder for the six months ended June 30, 2022 over the same period in 2021.

• Increased Margins - Adjusted g ross margin increased by $1.0 million during the first nine months 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 $0.3 million due to higher consumption of gas as weather in Ohio was approximately 4 percent colder for the nine months ended September 30, 2022 over the same period in 2021.

Operating Expenses

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(in thousands)

Operating expenses from the Diversified Energy acquisition $ 4,708

Operating expenses associated with recent propane acquisitions $ 7,085

Increased payroll, benefits and other employee-related expenses 1,253

Increased depreciation, amortization and property tax costs 743

Increased vehicle expenses due to higher fuel costs 385

Increased vehicle expenses largely due to higher fuel costs 598

Increased facilities expenses, maintenance costs and outside services 584

Other variances 372

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OTHER INCOME, NET

For the quarter ended June 30, 2022 compared to the quarter ended June 30, 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 $1.1 million in the second quarter of 2022, compared to the same period in 2021.

The increase was primarily due to gains recognized on the sale of assets.

For the six months ended June 30, 2022 compared to the six months ended June 30, 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 $1.7 million in the six months of 2022, compared to the same period in 2021.

The increase was primarily due to gains recognized on the sale of assets.

For the quarter ended September 30, 2022 compared to the quarter ended September 30, 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 $0.6 million in the third quarter of 2022, compared to the same period in 2021.

The increase was primarily due to interest income received in connection to a Federal Income Tax refund.

For the nine months ended September 30, 2022 compared to the nine months ended September 30, 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 $2.3 million in the nine months of 2022, compared to the same period in 2021.

The increase was primarily due to gains recognized on the sale of assets and interest income received in connection to a Federal Income Tax refund.

I NTEREST CHARGES

For the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021

Interest charges for the three months ended June 30, 2022 increased by $0.8 million, compared to the same period in 2021, attributable primarily to an increase of $0.6 million in interest expense as a result of a long-term debt placement in 2022, $0.1 million due to lower capitalized interest associated with growth projects, $0.1 million related to amounts assessed by state and local taxing authorities, 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 $0.1 million decrease in lower interest expense from lower levels of outstanding borrowings under our Revolver.

During the second quarter of 2022, the interest rate associated with our Revolver increased by 1.22 percent as a result of Federal Reserve raising interest rates.

For the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021

Interest charges for the three months ended September 30, 2022 increased by $1.3 million, compared to the same period in 2021, attributable primarily to an increase of $0.8 million in higher interest rates on outstanding borrowings under our Revolver and $0.4 million in interest expense as a result of a long-term debt placement in 2022.

During the third quarter of 2022, the interest rate associated with our Revolver increased by 1.47 percent as a result of the 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 six months ended June 30, 2022 compared to the six months ended June 30, 2021

Interest charges for the six months ended June 30, 2022 increased by $1.0 million, compared to the same period in 2021, attributable primarily to an increase of $0.9 million in interest expense as a result of a long-term debt placement in 2022, $0.2 million due to lower capitalized interest associated with growth projects, $0.1 million related to amounts assessed by state and local taxing authorities, 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 $0.3 million decrease in lower interest expense from lower levels of outstanding borrowings under our Revolver.

During the first six months of 2022, the interest rate associated with our Revolver increased by 1.56 percent as a result of Federal Reserve raising interest rates.

For the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Interest charges for the nine months ended September 30, 2022 increased by $2.3 million, compared to the same period in 2021, attributable primarily to an increase of $1.0 million in interest expense as a result of a long-term debt placement in 2022, $0.7 million in higher interest rates on outstanding borrowings under our Revolver, $0.2 million due to lower capitalized interest associated with growth projects, $0.2 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, and $0.1 million related to amounts assessed by state and local taxing authorities.

During the first nine months of 2022, the interest rate associated with our Revolver increased by 3.03 percent as a result of the 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 June 30, 2022 compared to the quarter ended June 30, 2021

Income tax expense was $6.2 million for the quarter ended June 30, 2022, compared to $5.2 million for the quarter ended June 30, 2021.

Our effective income tax rate was 26.6 percent and 27.2 percent, for the three months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022 compared to the six months ended June 30, 2021

Income tax expense was $19.7 million for the six months ended June 30, 2022, compared to $17.6 million for the six months ended June 30, 2021.

Our effective income tax rate was 26.7 percent for both the six months ended June 30, 2022 and 2021, respectively.

For the quarter ended September 30, 2022 compared to the quarter ended September 30, 2021

Income tax expense was $3.7 million for the quarter ended September 30, 2022, compared to $3.0 million for the quarter ended September 30, 2021.

Our effective income tax rate was 27.7 percent and 19.3 percent, for the three months ended September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021

Income tax expense was $23.4 million for the nine months ended September 30, 2022, compared to $20.6 million for the nine months ended September 30, 2021.

Our effective income tax rate was 26.9 percent and 25.3 percent, for the nine months ended September 30, 2022 and 2021, respectively.

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

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

Our capital expenditures were $61.0 million for the six months ended June 30, 2022.

Our capital expenditures were $95.5 million for the nine months ended September 30, 2022.

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

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

During the first half of 2022, the Company experienced a reduced level of new capital investments due to regulatory delays and supply chain disruptions.

As a result, the Company is decreasing its capital expenditure guidance range to $140 million to $175 million for 2022.

During the first nine months of 2022, the Company experienced a reduced level of new capital investments due to regulatory delays and supply chain disruptions.

As a result, the Company decreased its capital expenditure guidance range to $140 million to $175 million for 2022.

The Company expects these delays in timing to be temporary.Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, supply chain disruptions, capital delays that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital.

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

The following table presents our capitalization, excluding and including short-term borrowings, as of June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

The following table presents our capitalization, excluding and including short-term borrowings, as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

(in thousands)

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Total capitalization, excluding short-term debt $ 1,398,271 100 % $ 1,324,033 100 %

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(in thousands)

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

Our equity to total capitalization ratio, including short-term borrowings, was 52 percent as of June 30, 2022.

Our equity to total capitalization ratio, including short-term borrowings, was 51 percent as of September 30, 2022.

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

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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 June 30, 2022:

The following table summarizes our Shelf Agreements at September 30, 2022:

(in thousands) Total Borrowing Capacity Less:

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150,000 (50,000) — 100,000

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.

Total Shelf Agreements as of September 30, 2022 $ 520,000 $ (270,000) $ (80,000) $ 170,000

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

(2) Unfunded commitments of $80 million reflects Senior Notes expected to be issued on or before March 14, 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 June 30, 2022 and December 31, 2021, we had $137.0 million and $221.6 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 2.38 percent and 0.83 percent respectively.

At September 30, 2022 and December 31, 2021, we had $167.3 million and $221.6 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 4.13 percent and 0.83 percent respectively.

Included in the September 30, 2022 balance, is $50.0 million in short-term debt for which we have entered into an interest rate swap agreement.

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

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

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

The two tranches of the Revolver consist of one $200.0 million 364-day short-term debt tranche and a $200.0 million five-year tranche which expires in August 2026, both of which have three (3) one-year extension options, which can be authorized by our Chief Financial Officer.

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

In August 2022, we amended both tranches of the Revolver, which now bear interest using SOFR as the benchmark interest rate, plus a 10-basis point SOFR adjustment, in lieu of LIBOR which is being retired by financial institutions.

In addition, the 364-day tranche was extended for the upcoming year, expiring in August 2023.

Furthermore, the previous covenant capping the aggregate investments at $150.0 million where we maintain a less than 50 percent ownership interest has been eliminated and the 364 day tranche of the facility now offers a reduced interest margin similar to the five-year tranche for amounts borrowed in connection with sustainable investments.

All other terms and conditions remained unchanged.

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

These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements.

These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in the Revolver's loan documents.

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

As of June 30, 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.

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

As of September 30, 2022, we are in compliance with this covenant.

Both tranches of the Revolver are available to fund our short-term cash needs, seasonal working capital requirements and to temporarily finance portions of our capital expenditures.

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

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

As of June 30, 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 June 30, 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.

We are currently in discussions with the various lending institutions regarding the renewal of the 364-day tranche.

At that time, the reference interest rate for the 364-day and five-year tranche will transition from LIBOR which is being retired by financial institutions to the Standard Overnight Financing Rate ("SOFR").

We do not expect this transition to have a material impact on our financial condition.

Our total available credit under the Revolver at June 30, 2022 was $257.7 million.

As of June 30, 2022, we had issued $5.3 million in letters of credit to various counterparties under the syndicated Revolvers.

As of September 30, 2022, the pricing under the 364-day tranche of the Revolver does not include an unused commitment fee and reflects an interest rate of 70 basis points over SOFR plus a 10 basis point SOFR adjustment.

As of September 30, 2022, the pricing under the five-year tranche of the Revolver included an unused commitment fee of 9 basis points and an interest rate of 95 basis points over SOFR plus a 10 basis point SOFR adjustment.

Our total available credit under the Revolver at September 30, 2022 was $227.4 million.

As of September 30, 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, we 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.

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.

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 over LIBOR.

In the third quarter of 2022, we entered into an interest rate swap with a notional amount of $50.0 million through September 30, 2025 at a pricing of 3.98 percent.

Long-Term Debt

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

We used the proceeds received from the issuances of the Senior Notes to reduce short-term borrowings under our Revolver 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 six months ended June 30, 2022 and 2021:

Six Months Ended

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

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

On September 28, 2022, we agreed to issue and Prudential agreed to purchase 5.43 percent Senior Notes due March 14, 2038 in the aggregate principal amount of $80.0 million.

We expect to issue the Notes on or before March 14, 2023.

We anticipate using the proceeds received from the issuance of the Notes to reduce short-term borrowings under our revolving credit facility and to fund capital expenditures.

The following table provides a summary of our operating, investing and financing cash flows for the nine months ended September 30, 2022 and 2021:

Nine Months Ended

September 30,

(in thousands) 2022 2021

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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 six months ended June 30, 2022, net cash provided by operating activities was $123.8 million.

During the nine months ended September 30, 2022, net cash provided by operating activities was $136.0 million.

Operating cash flows were primarily impacted by the following:

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• Changes in net regulatory assets and liabilities due primarily to the change in fuel costs collected through the various cost recovery mechanisms resulted in a $27.5 million outflow of cash;

• Other working capital changes, impacted primarily by propane inventory purchases and hedging activities, resulted in a $21.7 million use of cash;

• Other working capital changes, impacted primarily by propane inventory purchases and hedging activities, resulted in a $26.2 million source of cash;

• A decrease in income tax receivables increased cash inflows by $1.4 million.

Cash Flows Used in Investing Activities

Net cash used in investing activities totaled $64.2 million during the six months ended June 30, 2022, largely driven by $65.1 million for new capital expenditures.

Net cash used in investing activities totaled $97.1 million during the nine months ended September 30, 2022, largely driven by $98.0 million for new capital expenditures.

Cash Flows Used in Financing Activities

Net cash used in financing activities totaled $60.4 million during the six months ended June 30, 2022.

Net cash used in financing activities totaled $41.4 million during the nine months ended September 30, 2022.

Net cash used in financing activities:

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The Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain letters of credit securing our subsidiaries' obligations.

The maximum authorized liability under such guarantees and letters of credit as of June 30, 2022 was $20.0 million.

The aggregate amount guaranteed related to our subsidiaries at June 30, 2022 was $11.4 million, with the guarantees expiring on various dates through May 22, 2023.

In addition, the Board has authorized us to issue specific

purpose corporate guarantees.

The amount of specific purpose guarantees outstanding at June 30, 2022 was $2.0 million.

In July 2022, in connection with the Florida rate case, we entered into a guarantee in the amount of $7.1 million with the Florida PSC.

As of June 30, 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 June 30, 2022 and do not anticipate that the counterparties will draw upon these letters of credit.

The maximum authorized liability under such guarantees and letters of credit as of September 30, 2022 was $20.0 million.

The aggregate amount guaranteed related to our subsidiaries at September 30, 2022 was $12.0 million, with the guarantees expiring on various dates through August 9, 2023.

In addition, the Board has authorized us to issue specific purpose corporate guarantees.

The amount of specific purpose guarantees outstanding at September 30, 2022 was

$11.1 million, including a guarantee issued in July 2022 in the amount of $7.1 million associated with the Florida natural gas rate case.

As of September 30, 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 September 30, 2023.

We have not drawn upon these letters of credit as of September 30, 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 June 30, 2022:

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