What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-02 · 258 added, 551 removed, 394 unchanged (67% of the section changed)

16 unchanged sentences

• possible increased federal, state and local regulation of the safety of our operations;

• the availability and reliability of adequate technology, including our ability to adapt to technological advances, effectively implement new technologies and manage the related costs;

• the inherent hazards and risks involved in transporting and distributing natural gas, electricity and propane;

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

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

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

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

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We seek to identify and develop opportunities across the energy value chain, with emphasis on midstream and downstream investments that are accretive to earnings per share, consistent with our long-term growth strategy and create opportunities to continue our record of top tier returns on equity relative to our peer group.

Our growth strategy includes the continued investment and expansion of our regulated operations that provide a stable base of earnings, as well as investments in other related non-regulated businesses and services including sustainable energy initiatives.

By investing in these related business and services, we create opportunities to sustain our track record of higher returns, as compared to a traditional utility.

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

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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 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

Operating Revenues $ 90,980 $ 47,914 $ (7,841) $ 131,053

Cost of Sales:

Natural gas, propane and electric costs (21,248) (30,768) 7,811 (44,205)

Depreciation & amortization (13,271) (4,071) 3 (17,339)

Operations & maintenance expense (1)

(9,211) (7,673) 371 (16,513)

Gross Margin (GAAP) 47,250 5,402 344 52,996

Operations & maintenance expense (1)

9,211 7,673 (371) 16,513

Depreciation & amortization 13,271 4,071 (3) 17,339

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

For the Three Months Ended September 30, 2021

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

Operating Revenues $ 80,396 $ 32,110 $ (5,171) $ 107,335

Cost of Sales:

Natural gas, propane and electric costs (15,294) (17,213) 5,141 (27,366)

Depreciation & amortization (12,296) (3,491) (11) (15,798)

Operations & maintenance expense (1)

(8,124) (5,733) 240 (13,617)

Gross Margin (GAAP) 44,682 5,673 199 50,554

Operations & maintenance expense (1)

8,124 5,733 (240) 13,617

Depreciation & amortization 12,296 3,491 11 15,798

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

For the Nine Months Ended September 30, 2022

The below tables reconcile Gross Margin as defined under GAAP to our non-GAAP measure of Adjusted Gross Margin for the three months ended March 31, 2023 and 2022:

For the Three Months Ended March 31, 2023

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

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Adjusted Gross Margin (Non-GAAP) $ 86,982 $ 42,594 $ (36) $ 129,540

For the Nine Months Ended September 30, 2021

For the Three Months Ended March 31, 2022

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

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2023 to 2022 Gross Margin (GAAP) Variance – Regulated Energy

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.

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.

Gross Margin (GAAP) for the Regulated Energy segment for the quarter ended March 31, 2023 was $64.7 million, an increase of $3.6 million, or 5.8 percent, compared to the same period in 2022.

Higher gross margin was driven by contributions from our Florida natural gas base rate proceeding, organic growth in the natural gas distribution businesses, incremental contributions associated with regulated infrastructure programs, and continued pipeline expansion projects.

These increases were partially offset by changes in customer consumption due to significantly warmer weather during the first quarter of 2023, higher depreciation and amortization related to recent capital investments and higher facilities, maintenance and outside services costs.

2023 to 2022 Gross Margin (GAAP) Variance – Unregulated Energy

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.

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 largely driven by increased fuel costs.

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

Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended March 31, 2023 was $29.9 million, compared to $32.3 million for the same period in 2022.

Primary drivers of the change in gross margin included changes in customer consumption due to significantly warmer weather during the first quarter of 2023, higher depreciation, amortization and property taxes related to recent capital investments and increased payroll, benefits and employee related expenses.

These factors were partially offset by increased propane margins and fees and increased demand for our CNG, RNG and LNG services.

Results of Operations for the Three Months Ended March 31, 2023

Chesapeake Utilities is a Delaware corporation formed in 1947.

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and other energy-related services.

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

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

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

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

As of 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.

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

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

Environmental, Social and Governance Initiatives

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

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

In the report, we outline our ESG commitments:

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

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

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

Sustainability Initiatives

In February 2022, we published our inaugural sustainability report, and are actively working on an updated report to be published in 2023.

We continue to remain steadfast in regard to our commitments, including the following:

• Maintaining a leading role in the journey to a lower carbon future in our service areas.

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

• Operating our businesses with integrity and the highest ethical standards.

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

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

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

Some of our most recent ESG advancements include the following:

Environmental:

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

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

We encourage our investors to review the report, which can be accessed on our website, and welcome feedback as we continue to enhance our sustainability disclosures.

Operational Highlights

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 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.

Our net income for the three months ended March 31, 2023 was $36.3 million, or $2.04 per share, compared to $36.9 million, or $2.08 per share, for the same quarter of 2022.

Operating income for the first quarter of 2023 was $54.9 million, which was relatively consistent with the same period in 2022, despite significantly warmer temperatures in our northern service territories in 2023.

Adjusted gross margin in the first quarter of 2023 was positively impacted by contributions from our Florida natural gas base rate proceeding, increased propane margins and fees, organic growth in the our natural gas distribution businesses, increased demand for CNG, RNG and LNG services, incremental contributions associated with regulated infrastructure programs, and continued pipeline expansion projects.

These increases in adjusted gross margin were partially offset by reduced consumption experienced during the first quarter of 2023 as a result of unprecedented temperatures in our northern service territories.

We recorded higher depreciation, amortization and property taxes related to continued capital investments, higher operating expenses associated primarily with growth initiatives, and increased payroll, benefits and employee expenses driven by the ongoing competitive labor market.

We continued to actively manage our operating expenses to mitigate ongoing interest and other inflationary expense increases.

Three Months Ended

September 30, Increase

March 31, Increase

2023 2022 (Decrease)

(in thousands except per share)

(in thousands, except per share data)

Adjusted Gross Margin

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Diluted Earnings Per Share of Common Stock $ 2.04 $ 2.08 $ (0.04)

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

Key variances between the first quarter of 2023 and 2022, included:

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

Income Earnings

Third Quarter of 2021 Reported Results

First Quarter of 2022 Reported Results

$ 50,439 $ 36,933 $ 2.08

Adjusting for Unusual Items:

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)

One-time benefit associated with reduction in state tax rate — 1,284 0.07

Increased (Decreased) Adjusted Gross Margins:

Contributions from acquisitions* 1,562 1,129 0.06

Natural gas transmission service expansions* 1,202 869 0.05

Customer consumption - primarily resulting from weather (6,916) (5,241) (0.29)

Contribution from rates associated with Florida natural gas base rate proceeding* 4,097 3,104 0.17

Increased propane margins and service fees 3,064 2,322 0.13

Natural gas growth including conversions (excluding service expansions) 1,522 1,153 0.06

Increased margins related to demand for CNG/RNG/LNG services* 1,288 976 0.05

Contributions from regulated infrastructure programs* 798 605 0.03

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

Increased customer consumption - Inclusive of weather 539 390 0.02

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

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

Operating expenses from recent acquisitions (2,377) (1,719) (0.10)

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

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)

(5,951) (4,302) (0.25)

Interest charges (1,266) (915) (0.05)

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)

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 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.

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)

(in thousands except per share)

Adjusted Gross Margin

Regulated Energy segment $ 222,800 $ 209,718 $ 13,082

Unregulated Energy segment 82,193 71,625 10,568

Other businesses and eliminations (92) (104) 12

Total Adjusted Gross Margin $ 304,901 $ 281,239 $ 23,662

Operating Income

Regulated Energy segment $ 84,202 $ 78,835 $ 5,367

Unregulated Energy segment 15,557 15,624 (67)

Other businesses and eliminations 222 (171) 393

Total Operating Income 99,981 94,288 5,693

Other income, net 4,454 2,155 2,299

Interest charges 17,404 15,134 2,270

Income from Before Income Taxes 87,031 81,309 5,722

Income Taxes 23,385 20,555 2,830

Net Income $ 63,646 $ 60,754 $ 2,892

Basic Earnings Per Share of Common Stock $ 3.59 $ 3.46 $ 0.13

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

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

Nine Months Ended September 30, 2021 Reported Results

$ 81,309 $ 60,754 $ 3.45

Adjusting for Unusual Items:

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)

Increased (Decreased) Adjusted Gross Margins:

Contributions from acquisitions* 7,444 5,442 0.31

Natural gas transmission service expansions* 481 365 0.02

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 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

Eastern Shore contracted rate adjustments (320) (242) (0.01)

4,014 3,042 0.16

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

Operating expenses from recent acquisitions (7,085) (5,179) (0.29)

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

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)

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

Increased payroll, benefits and other employee-related expenses (1,142) (866) (0.05)

Depreciation, amortization and property taxes (1,125) (852) (0.05)

Increased facilities expenses, maintenance costs and outside services (1,061) (804) (0.05)

(3,328) (2,522) (0.15)

Interest charges (1,893) (1,435) (0.08)

Changes in Other income, net (706) (535) (0.03)

Net other changes (567) (423) (0.01)

Change in shares outstanding due to 2021 and 2022 equity offerings — — (0.04)

(3,166) (2,393) (0.12)

Nine Months Ended September 30, 2022 Reported Results

First Quarter of 2023 Reported Results

$ 47,959 $ 36,344 $ 2.04

*See the Major Projects and Initiatives tabl e.

* See the Major Projects and Initiatives table.

Summary of Key Factors

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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.

Our practice is to add new projects and initiatives to this table once negotiations or details are substantially final and/or the associated earnings can be estimated.

Adjusted Gross Margin

Three Months Ended Nine Months Ended Year Ended Estimate for

September 30, September 30, December 31, Fiscal

Three Months Ended Year Ended Estimate for

March 31, December 31, Fiscal

(in thousands) 2023 2022 2022 2023 2024

Pipeline Expansions:

Western Palm Beach County, Florida Expansion (1)

$ 1,307 $ 1,175 $ 3,922 $ 3,515 $ 4,729 $ 5,227 $ 5,227

Del-Mar Energy Pathway (1) (2)

1,729 1,049 5,179 2,854 4,584 6,980 6,980

Guernsey Power Station $ 365 $ 263 $ 1,377 $ 1,486 $ 1,482

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Cloud / Twin Lakes Expansion — — — 268 584

Clean Energy (1)

247 — 126 1,009 1,009

Wildlight 26 — — 528 2,000

Lake Wales — — — TBD TBD

Total Pipeline Expansions 777 296 1,763 6,278 10,696

CNG/RNG/LNG Transportation and Infrastructure 3,521 2,233 11,100 12,521 12,348

Acquisitions:

Propane Acquisitions 1,562 — 7,028 — 603 11,300 12,000

Escambia Meter Station 250 250 749 333 583 1,000 1,000

Total Acquisitions 1,812 250 7,777 333 1,186 12,300 13,000

Regulatory Initiatives:

Florida GRIP 5,022 4,306 14,824 12,543 16,995 19,858 20,154

Florida GUARD program — — — TBD TBD

Capital Cost Surcharge Programs 720 517 2,001 2,811 3,558

Elkton Gas STRIDE Plan 62 — 202 — 26 241 354

Florida Rate Case Proceeding 521 — 521 — — TBD TBD

Florida Rate Case Proceeding (2)

4,097 — 2,474 16,289 17,153

Electric Storm Protection Plan 206 — 486 1,663 3,032

Total Regulatory Initiatives 5,023 517 4,961 20,763 23,743

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

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

(2) Includes adjusted gross margin during the first quarter of 2023 comprised of both interim rates and permanent base rates.

Detailed Discussion of Major Projects and Initiatives

Pipeline Expansions

West Palm Beach County, Florida Expansion

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 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.

Del-Mar Energy Pathway

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

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

The new facilities:

(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

Guernsey Power Station and the Company's affiliate, Aspire Energy Express, entered into a precedent agreement for firm transportation capacity whereby Guernsey Power Station will construct a power generation facility and Aspire Energy Express will provide firm natural gas transportation service to this facility.

Guernsey Power Station commenced construction of the project in October 2019.

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

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.

Guernsey Power Station and our affiliate, Aspire Energy Express, are engaged in a firm transportation capacity agreement whereby Guernsey Power Station has constructed a power generation facility and Aspire Energy Express provides firm natural gas transportation service to this facility.

Guernsey Power Station commenced construction of the project in October 2019, Aspire Energy Express completed construction of the gas transmission facilities in the fourth quarter of 2021, and the facility went into service during the first quarter of 2023.

The project generated additional adjusted gross margin of $0.1 million for the three months ended March 31, 2023, and is expected to produce adjusted gross margin of approximately $1.5 million in 2023 and beyond.

Southern Expansion

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

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

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.

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

The project obtained FERC approval in December 2022 and 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 $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 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.

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

As part of this agreement, Peninsula Pipeline constructed a new interconnect with FGT and a new regulator station for Florida Natural Gas Distribution.

Florida Natural Gas Distribution is using the additional firm service to support new incremental load due to growth in the area, including providing service, most immediately, to a new can manufacturing facility, as well as reliability and operational benefits to Florida Natural Gas Distribution’s existing distribution system in the area.

In connection with Peninsula Pipeline’s new regulator station, Florida Natural Gas Distribution also extended its distribution system to connect to the new station.

This expansion was placed in service in the third quarter of 2022.

The project generated additional adjusted gross margin of approximately $0.1 million in the first quarter and is expected to produce adjusted gross margin of approximately $0.6 million in 2023 and beyond.

Beachside Pipeline Expansion

In June 2021, Peninsula Pipeline and Florida City Gas entered into a Transportation Service Agreement for an incremental 10,176 Dts/d of firm service in Indian River County, Florida, to support Florida City Gas’ growth along the Indian River's barrier island.

As part of this agreement, Peninsula Pipeline will construct approximately 11.3 miles of pipeline from its existing pipeline in the Sebastian, Florida, area east under the Intercoastal Waterway and southward on the barrier island.

Construction is underway and is expected to be complete in the second quarter of 2023.

As part of this agreement, Peninsula Pipeline has constructed approximately 11.3 miles of pipeline from its existing pipeline in the Sebastian, Florida, area east under the Intercoastal Waterway and southward on the barrier island.

Construction was completed and the project went into service in April 2023.

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

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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.

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

We expect this expansion to generate additional annual adjusted gross margin of $0.4 million in 2023 and beyond, with additional margin opportunities from incremental growth.

Our Delaware natural gas division and Sandpiper are installing approximately 5.7 miles of pipeline across southern Sussex County, Delaware to Fenwick Island, Delaware and Worcester County, Maryland.

The project will reinforce our existing system in Ocean City, Maryland and allow for incremental growth along the pipeline.

Adjusted gross margin in connection with this project is expected to be recognized contingent upon the completion and approval of our next rate case in Maryland.

We expect this expansion to generate annual adjusted gross margin of $0.2 million beginning in 2024, with additional margin opportunities from incremental growth.

St.Cloud / Twin Lakes Expansion

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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 provide operational benefits to FPU’s existing distribution system in the area,

supporting future growth.

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 $0.3 million in 2023 and $0.6 million thereafter.

Clean Energy Expansion

During the fourth quarter of 2022, Clean Energy Fuels ("Clean Energy") and Florida Natural Gas Distribution entered into a precedent agreement for firm transportation services associated with a CNG fueling station Clean Energy is constructing.

We plan to install approximately 2.2 miles of main extension in Davenport, Florida to support the filling station.

Construction is underway and is expected to be complete in the third quarter of 2023.

Our subsidiary, Marlin Gas Services, is providing interim services to Clean Energy during the construction phase of the project.

The project generated adjusted gross margin of approximately $0.2 million in the first quarter and is expected to produce adjusted gross margin of approximately $1.0 million in 2023 and beyond.

Wildlight Expansion

In August 2022, Peninsula Pipeline and FPU filed a joint petition with the Florida PSC for approval of its Transportation Service Agreement associated with the Wildlight planned community located in Nassau County, Florida.

The project enables us to meet the significant growing demand for service in Yulee, Florida.

The agreement will enable us to build the project during

the construction and build-out of the community, and charge the reservation rate as each phase of the project goes into service.

Construction of the pipeline facilities will occur in two separate phases.

Phase one consists of three extensions with associated facilities, and a gas injection interconnect with associated facilities.

Phase two will consist of two additional pipeline extensions.

Various phases of the project commenced in the first quarter of 2023, with construction on the overall project continuing through 2025.

This project is expected to contribute adjusted gross margin of approximately $0.5 million in 2023 and $2.0 million in 2024 and beyond.

Lake Wales Expansion

In February 2022, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with our Florida natural gas division, FPU for an additional 9,000 Dt/d of firm service in the Lake Wales, Florida area.

Approval of the agreement by the Florida PSC will enable Peninsula Pipeline to begin executing on the acquisition of an existing pipeline in the area that will be utilized to serve our current natural gas customers as well as new customers.

The Florida PSC approved the petition in April 2023.

CNG/RNG/LNG Transportation and Infrastructure

We have made a commitment to meet customer demand for CNG, RNG and LNG in the markets we serve.

This has included making investments within Marlin Gas Services to be able to transport these products through its virtual pipeline fleet to customers.To date, we have also made an infrastructure investment in Ohio, enabling RNG to fuel a third party landfill fleet and to transport RNG to end use customers off our pipeline system.

This has included making investments within Marlin Gas Services to be able to transport these products through its virtual pipeline fleet to customers.

To date, we have also made an infrastructure investment in Ohio, enabling RNG to fuel a third party landfill fleet and to transport RNG to end use customers off our pipeline system.

Similarly, we announced in March 2022, the opening of a high-capacity CNG truck and tube trailer fueling station in Port Wentworth, Georgia.

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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 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 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.

Discussed below are some of the recently completed projects as well as a sample of the growth projects in which we are currently involved.

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

We include our RNG transportation services and infrastructure related adjusted gross margin from across the organization in combination with our CNG and LNG projects.

For the three months ended March 31, 2023, we generated $1.3 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.

We estimate annual adjusted gross margin of approximately $12.5 million in 2023, and $12.3 million in 2024 for these transportation related services, with potential for additional growth in future years.

Full Circle Dairy

In February 2023, we announced plans to construct, own and operate a dairy manure RNG facility at Full Circle Dairy in Madison County, Florida.

The project consists of a facility converting dairy manure to RNG and transportation assets to bring the gas to market.

The first injection of RNG is projected to occur in the first half of 2024.

Planet Found Development

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

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

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.

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

Bioenergy DevCo

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

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

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

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

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

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

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

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

Propane Acquisitions

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

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.

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

On June 13, 2022, Sharp acquired the propane operating assets of Davenport Energy's Siler City propane division for approximately $2.0 million.

Through this acquisition, the Company expands its operating footprint further into North Carolina, where customers will be served by Sharp Energy’s Diversified Energy division.

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

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

In June 2021, Peninsula Pipeline purchased the Escambia Meter Station from Florida Power and Light and entered into a Transportation Service Agreement with Gulf Power Company to provide up to 530,000 Dts/d of firm service from an interconnect with FGT to Florida Power & Light’s Crist Lateral pipeline.

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

We generated $0.4 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 $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.

The adjusted gross margin on GRIP investments will continue to be generated as we have included the investments, and the associated expenses, in the base rate proceeding that was filed in May 2022.

Florida GUARD Program

In February 2023, FPU filed a petition with the Florida PSC for approval of the GUARD program.

GUARD is a proposed ten-year program to enhance the safety, reliability and accessibility of portions of our natural gas distribution system.

We have identified various categories of eligible projects to be included in GUARD, which includes the relocation of mains and service lines located in rear easements and other difficult to access areas to the front of the street, the replacement of problematic distribution mains, service lines and M&R equipment, and system reliability projects.

The petition is currently under review by the Florida PSC.

Capital Cost Surcharge Programs

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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 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.

For t he three months ended March 31, 2023 , there was $0.2 million of incremental adjusted gross margin generated pursuant to the program.

Eastern Shore expects to produce adjusted gross margin of approximately $2.8 million in 2023 and $3.6 million in 2024 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction.

Elkton Gas STRIDE Plan

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.

Florida Natural Gas Base Rate Proceeding

In May 2022, our natural gas distribution businesses in Florida, FPU, FPU-Indiantown division, FPU-Fort Meade division and Chesapeake Utilities CFG division (collectively, “Florida natural gas distribution businesses”) filed a consolidated natural gas rate case with the Florida PSC.

In connection with the application, the Company is seeking approval of the following:

(i) interim rate relief of approximately $7.2 million on an annualized basis, subject to refund, pending the outcome of the rate case proceeding;

(ii) a permanent rate relief of approximately $24.1 million, effective January 1, 2023, (iii) a depreciation study also submitted with filing;

(iv) authorization to make certain changes to tariffs to include the consolidation of rates and rate structure across the businesses and to unify the Florida natural gas distribution businesses under FPU;

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

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 May 2022, our natural gas distribution businesses in Florida filed a consolidated natural gas rate case with the Florida PSC.

The application included a request for the following:

(i) permanent rate relief of approximately $24.1 million, effective January 1, 2023, (ii) a depreciation study also submitted with the filing;

(iii) authorization to make certain changes to tariffs to include the consolidation of rates and rate structure across the businesses and to unify the Florida natural gas distribution businesses under FPU;

(iv) authorization to retain the acquisition adjustment recorded at the time of the FPU merger in our revenue requirement;

and (v) authorization to establish an environmental remediation surcharge for the purposes of addressing future expected remediation costs for FPU MGP 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 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.

The discovery process and related hearings were concluded during the fourth quarter of 2022 and briefs were submitted in the same quarter of 2022.

In January 2023, the Florida PSC approved the application for consolidation and permanent rate relief of approximately $17.2 million on an annual basis.

Actual rates in connection with the rate relief were approved by the Florida PSC in February 2023 with an effective date of March 1, 2023.

For the three months ended March 31, 2023, this proceeding generated adjusted gross margin of approximately $4.1 million and is expected to generate $16.3 million of additional adjusted gross margin in 2023 and $17.2 million in 2024.

Storm Protection Plan

In 2020, the Florida PSC implemented the SPP and SPPCR rules, which require electric utilities to petition the Florida PSC for approval of a Transmission and Distribution Storm Protection Plan that covers the utility’s immediate 10-year planning period with updates to the plan at least every 3 years.

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

Our Florida electric distribution operation's SPP and SPP CRC wer e filed d uring the first quarter of 2022 and approved in the fourth quarter of 2022 with modifications, by the Florida PSC.

For the three months ended March 31, 2023, this initiative generated adjusted gross margin of approximately $0.2 million and is expected to generate $1.7 million of additional adjusted gross margin in 2023 and $3.0 million in 2024.

We expect continued investment under the SPP going forward.

COVID-19 Regulatory Proceeding

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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.

Our Florida regulated business units reached a settlement with the Florida OPC in June 2021, enabling 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

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

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.

The SPPCRC hearing is scheduled for November 2022.

Our Florida regulated business units are currently amortizing the amount over two years effective January 1, 2022 and recovering 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 additional adjusted gross margin of $1.0 million annually that is being offset by a corresponding amortization of regulatory asset expense, for both 2022 and 2023 .

Other Major Factors Influencing Adjusted Gross Margin

Weather Impact

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.

For the first quarter of 2023, lower consumption driven primarily by weather resulted in a $6.9 million decrease in adjusted gross margin compared to the same period in 2022.

The impact to adjusted gross margin was largely the result of unprecedented temperatures in our northern service territories that were more than 20 percent higher than historical averages .

Assuming normal temperatures, as detailed below, gross margin would have been higher by $5.4 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

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three months ended March 31, 2023 and 2022.

Three Months Ended

2023 2022 Variance

Delmarva Peninsula

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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 $0.8 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 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

The average number of residential customers served on the Delmarva Peninsula and in Florida increased by approximately 5.8 percent and 4.4 percent, respectively, during 2023.

On the Delmarva Peninsula, a larger percentage of the adjusted gross margin growth was generated from residential growth given the expansion of gas into new housing communities and conversions to natural gas as our distribution infrastructure continues to build out.

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

The details are provided in the following table:

Three Months Ended

March 31, 2023

(in thousands) Delmarva Peninsula Florida

Customer Growth:

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Total Customer Growth (1)

(1) Customer growth amounts for Florida include the effects of revised rates associated with our natural gas base rate proceeding.

Regulated Energy Segment

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

For the quarter ended March 31, 2023, compared to the quarter ended March 31, 2022:

Three Months Ended

September 30, Increase

March 31, Increase

2023 2022 (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 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.

Operating income for the Regulated Energy segment for the first quarter of 2023 was $37.6 million, an increase of $2.9 million, or 8.5 percent, over the same period in 2022.

Higher operating income reflects contributions from our Florida natural gas base rate proceeding, organic growth in our natural gas distribution businesses, incremental contributions associated with regulated infrastructure programs, and continued pipeline expansion projects.

These increases were partially offset by changes in customer consumption due to significantly warmer weather during the first quarter of 2023.

Operating expenses increased by $1.6 million compared to the prior year quarter primarily due to higher depreciation and amortization related to recent capital investments and higher facilities, maintenance and outside services costs.

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

(in thousands)

Natural gas transmission service expansions $ 1,202

Contributions from regulated infrastructure programs 820

Rate changes associated with the Florida natural gas base rate proceeding (1)

Natural gas growth including conversions (excluding service expansions) 1,522

Changes in customer consumption 640

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

Contributions from rates associated with recovery of pandemic related costs 260

Contributions from regulated infrastructure programs 798

Natural gas transmission service expansions 481

Changes in customer consumption - primarily related to weather (1,865)

Eastern Shore contracted rate adjustments (320)

Other variances (180)

Quarter-over-quarter increase in adjusted gross margin** $ 4,533

(1) Includes adjusted gross margin comprised of both interim rates and permanent base rates that became effective in March 2023.

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

Natural Gas Transmission Service Expansions

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 $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.

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

Natural Gas Distribution Customer Growth

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 $0.5 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 third quarter of 2022.

Interim Rates Associated with the Florida Natural Gas Base Rate Proceeding

Rate Changes 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.

In March 2023, we obtained a final rate order in connection with the Florida natural gas base rate proceeding with permanent rates effective on March 1, 2023.

These interim and permanent rates contributed additional adjusted gross margin of $4.1 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

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

(in thousands)

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

Depreciation, amortization and property taxes 1,431

Facilities expenses, maintenance costs and outside services 1,145

Payroll, benefits and other employee related costs (735)

Other variances 416

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

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)

(in thousands)

Revenue $ 311,064 $ 282,503 $ 28,561

Regulated natural gas and electric costs 88,264 72,785 15,479

Adjusted gross margin (1)

222,800 209,718 13,082

Operations & maintenance 83,288 79,738 3,550

Depreciation & amortization 39,496 36,156 3,340

Other taxes 15,814 14,989 825

Total operating expenses 138,598 130,883 7,715

Operating income $ 84,202 $ 78,835 $ 5,367

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

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

Operating income for the Regulated Energy segment for the 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:

(in thousands)

Natural gas transmission service expansions $ 3,720

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

Other variances 825

Period-over-period increase in adjusted gross margin $ 13,082

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

Natural Gas Transmission Service Expansions

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 $1.5 million from natural gas customer growth.

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.

Adjusted gross margin increased by $0.7 million in Florida and $0.8 million on the Delmarva Peninsula for the three months ended March 31, 2023, as compared to the same period in 2022, due primarily to residential customer growth of 4.4 percent and 5.8 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 $2.8 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.

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $0.8 million in the first quarter of 2023.

The increase in adjusted gross margin was primarily related to continued investment in the Florida Gas Reliability Infrastructure Program, Eastern Shore's capital surcharge program, FPU Electric's storm protection plan, and the Elkton Gas STRIDE Plan.

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

Natural Gas Transmission Service Expansions

We generated increased adjusted gross margin of $0.5 million for the three months ended March 31, 2023 from natural gas transmission service expansions including, Peninsula Pipeline's Twin Lakes and Winter Haven projects, FPU natural gas' Clean Energy project and Aspire Energy Express' Guernsey pipeline expansion.

Changes in Customer Consumption

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.

Operating Expenses

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

(in thousands)

Depreciation, amortization and property taxes $ 4,408

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)

Period-over-period increase in operating expenses $ 7,715

Unregulated Energy Segment

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

Three Months Ended

September 30, Increase

2022 2021 (decrease)

(in thousands)

Revenue $ 47,914 $ 32,110 $ 15,804

Unregulated propane and natural gas costs 30,768 17,213 13,555

Adjusted gross margin (1)

17,146 14,897 2,249

Operations & maintenance 17,089 13,451 3,638

Depreciation & amortization 4,071 3,491 580

Other taxes 1,042 907 135

Total operating expenses 22,202 17,849 4,353

Operating Income (loss) $ (5,056) $ (2,952) $ (2,104)

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

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

Operating results for the Unregulated Energy segment for the 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 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:

(in thousands)

Propane Operations

Propane acquisitions completed in 2022 and 2021 $ 1,562

Increased propane margins and service fees 206

CNG/RNG/LNG Transportation and Infrastructure

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

Aspire Energy

Decreased customer consumption - primarily weather related (183)

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

Other variances (420)

Quarter-over-quarter increase in adjusted gross margin $ 2,249

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

Propane Operations

• 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

• 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.

Significantly warmer weather contributed to changes in weather-related consumption resulting in reduced adjusted gross margin of $1.9 million in the first quarter of 2023.

The Delmarva Peninsula and Florida were warmer by approximately 19 percent and 31 percent, respectively, for the three months ended March 31, 2023 compared to the same period in 2022.

Eastern Shore Contracted Rate Adjustments

Adjustments to contracted rates charged to various Eastern Shore customers resulted in reduced adjusted gross margin of $0.3 million during the first quarter of 2023.

Operating Expenses

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(in thousands)

Operating expenses associated with recent propane acquisitions $ 2,377

Depreciation, amortization and property taxes $ 550

Increased facilities expenses, maintenance costs and outside services 382

Increased payroll, benefits and other employee-related expenses 293

Increased depreciation, amortization and property tax costs 268

Increased vehicle expenses largely due to higher fuel costs 213

Other variances 364

Quarter-over-quarter increase in operating expenses $ 1,589

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

Unregulated Energy Segment

For the quarter ended March 31, 2023, compared to the quarter ended March 31, 2022:

Three Months Ended

March 31, Increase

2023 2022 (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 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, 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:

Operating results for the Unregulated Energy segment for the first quarter of 2023 experienced a reduction of $2.8 million compared to the same period in 2022.

Adjusted gross margin in the Unregulated Energy segment during the first quarter was impacted by changes in customer consumption due to significantly warmer weather in our Mid-Atlantic service territories.

Additionally, we experienced increased operating expenses associated with higher payroll, benefits and employee related expenses driven by the continued competition in the current labor market, depreciation, amortization and property taxes and increased costs for facilities, maintenance, and outside services.

These factors were partially offset by expanded propane margins and fees and increased demand for CNG, RNG and LNG services.

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

(in thousands)

Propane Operations

Propane acquisitions completed in 2022 and 2021 $ 7,028

Propane customer consumption - primarily weather related $ (4,543)

Increased propane margins and service fees 3,064

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

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

CNG/RNG/LNG Transportation and Infrastructure

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Aspire Energy

Increased margins - rate changes and natural gas liquid processing 1,000

Increased customer consumption - primarily weather related 282

Reduced customer consumption - primarily weather related (508)

Other variances 9

Period-over-period increase in adjusted gross margin $ 10,568

Quarter-over-quarter decrease in adjusted gross margin $ (690)

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

Propane Operations

• 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 customer consumption - Adjusted gross margin fell by $4.5 million due to reduced customer consumption as weather on the Delmarva Peninsula and in Florida was approximately 19 and 31 percent, warmer relative to the prior year.

• Increased Propane Margins and Service Fees - Adjusted g ross margin increased by $3.1 million for the three months ended March 31, 2023, mainly due to increased margins and 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 conversion of customers to natural gas - Adjusted gross margin decreased by $0.5 million as more customers converted from propane to natural gas.

• 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.

• Increased demand for CNG/RNG/LNG services - Adjusted gross margin increased by $1.3 million during the first 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 $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.

• Reduced Customer Consumption - Adjusted gross margin was reduced by $0.5 million due to reduced demand as weather in Ohio was approximately 19 percent warmer over the same period in the prior year.

Operating Expenses

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

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

(in thousands)

Operating expenses associated with recent propane acquisitions $ 7,085

Increased payroll, benefits and other employee-related expenses $ 825

Increased depreciation, amortization and property tax costs 743

Increased vehicle expenses largely due to higher fuel costs 598

Increased facilities expenses, maintenance costs and outside services 597

Increased depreciation, amortization and property tax costs 587

Other variances 102

Period-over-period increase in operating expenses $ 10,635

OTHER INCOME, NET

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 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 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.

Quarter-over-quarter increase in operating expenses $ 2,111

O THER I NCOME , N ET

For the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022

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, decreased by $0.6 million in the first quarter of 2023.

This was primarily driven by increased pension related expenses and a reduced volume of asset sales, compared to the same period in 2022.

I NTEREST C HARGES

For the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022

Interest charges for the three months ended March 31, 2023 increased by $1.9 million, compared to the same period in 2022, attributable primarily to higher interest rates on outstanding borrowings under our Revolver and $0.3 million in interest expense as a result of a long-term debt placement in 2022.

These factors were partially offset by $0.4 million related to higher capitalized interest associated with growth projects.

The weighted-average interest rate on our Revolver borrowings was 5.17 percent during the first quarter of 2023 compared to 1.17 percent during the prior-year period as a result of the Federal Reserve raising interest rates throughout 2022 and during the first quarter of 2023.

As a result, the interest rates associated with our Revolver have increased 446 basis points since March 31, 2022.

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 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.

I NCOME T AXES

For the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022

Income tax expense was $11.6 million for the quarter ended March 31, 2023, compared to $13.5 million for the quarter ended March 31, 2022.

Our effective income tax rate was 24.2 percent and 26.8 percent, for the three months ended March 31, 2023 and 2022, respectively.

Income tax expense for the quarter ended March 31, 2023 includes a $1.3 million benefit in deferred tax expense resulting from a reduction in the Pennsylvania state income tax rate.

Excluding this change, our effective income tax rate was 26.9 percent for the quarter ended March 31, 2023.

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 $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:

(dollars in thousands) Low High

Our capital expenditures were $41.8 million for the three months ended March 31, 2023.

In the table below, we have provided the range of our forecasted capital expenditures for 2023:

(in thousands) Low High

Regulated Energy:

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Electric distribution

13,000 15,000

Total Regulated Energy

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The 2023 forecast, excluding acquisitions, includes capital expenditures associated with the following:

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

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

Pipeline expansions related to the Eastern Shore Southern Expansion project and the Florida Beachside Pipeline, the Wildlight pipeline expansion, other small pipeline expansion opportunities, continued distribution system expansions including the Wildlight development in Florida.

Furthermore, the 2023 forecast includes continued expenditures under, the capital cost surcharge program as well as information technology system enhancements, and other strategic initiatives and investments.

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

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.

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 and other factors discussed in Item 1A.

Risk Factors in our 2022 Annual Report on Form 10-K.

Historically, actual capital expenditures have typically lagged behind the budgeted amounts.

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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 September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

The following table presents our capitalization, excluding and including short-term borrowings, as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

(in thousands)

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Total capitalization, excluding short-term debt $ 1,514,872 100 % $ 1,411,189 100 %

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(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 51 percent as of September 30, 2022.

Our equity to total capitalization ratio, including short-term borrowings, was 53 percent as of March 31, 2023.

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

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

In the first three months of 2023, there were no issuances under the DRIP.

In 2022, we issued less than 0.1 million shares at an average price per share of $136.26 and received net proceeds of $4.5 million under the DRIP.

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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 September 30, 2022:

In February 2023, we amended our Shelf Agreements with Prudential and MetLife.

The amended agreements now provide for total borrowing capacity of up to $405.0 million under the Prudential Shelf Agreement and $200.0 million under the MetLife Shelf Agreement.

Additionally, the amendments extend the term of the agreements for an additional three years from the effective dates.

The following table summarizes our Shelf Agreements at March 31, 2023:

(in thousands) Total Borrowing Capacity Less:

5 unchanged sentences

MetLife Shelf Agreement 200,000 (50,000) — 150,000

150,000 (50,000) — 100,000

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.

Total Shelf Agreements as of March 31, 2023 $ 605,000 $ (350,000) $ — $ 255,000

(1) The Prudential and MetLife Shelf Agreements both expire in February 2026.

The Uncollateralized Senior 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.

Short-term Borrowings

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

At September 30, 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 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.

At March 31, 2023 and December 31, 2022, we had $94.1 million and $202.2 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 5.17 percent and 5.04 percent respectively.

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.

As part of these amendments, the parties agreed to eliminate the previous covenant capping the aggregate investments at $150.0 million where we maintain an ownership interest less than 50 percent.

Additionally, 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 new sustainable investments.

All other terms and conditions remained unchanged.

Borrowings outstanding under the sustainable investment sublimit of the 364-day tranche amounted to $9.4 million at March 31, 2023.

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

1 unchanged sentence

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

As of September 30, 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 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.

As of March 31, 2023, we are in compliance with this covenant.

The 364-day tranche of the Revolver expires in August 2023 and the five-year tranche expires in August 2026, both of which are available to fund our short-term cash needs to meet seasonal working capital requirements and to temporarily fund portions of our capital expenditures.

Borrowings under both tranches of the Revolver are subject to a pricing grid, including the commitment fee and the interest rate charged based upon our total indebtedness to total capitalization ratio for the prior quarter.

As of March 31, 2023, the pricing under the 364-day tranche of the Revolver included an unused commitment fee of 9 basis points and maintains an interest rate of 70 basis points over SOFR plus a 10 basis point SOFR adjustment.

As of March 31, 2023, 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 March 31, 2023 was $300.1 million.

As of March 31, 2023, we had issued $5.8 million in letters of credit to various counterparties under the Revolver.

These letters of credit are not included in the outstanding short-term borrowings and we do not anticipate that they will be drawn upon by the counterparties.

The letters of credit reduce the available borrowings under our syndicated Revolver.

In the fourth quarter of 2020, we entered into 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 over LIBOR, 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 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.

The letters of credit reduce the available borrowings under the Revolver.

For additional information on interest rate swaps related to our short-term borrowings, see Note 12, Derivative Instruments .

Long-Term Debt

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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,

On March 14, 2023 we issued 5.43 percent Senior Notes due March 14, 2038 in the aggregate principal amount of $80.0 million.

We used the proceeds received from the issuances of the Senior Notes to reduce short-term borrowings under our Revolver credit facility 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 sixth year after the issuance.

The following table provides a summary of our operating, investing and financing cash flows for the three months ended March 31, 2023 and 2022:

Three Months Ended

(in thousands) 2023 2022

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Financing activities (42,152) (38,953)

Net increase in cash and cash equivalents (2,496) 2,387

Net (decrease) increase in cash and cash equivalents (3,139) 232

Cash and cash equivalents—beginning of period 6,204 4,976

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

During the three months ended March 31, 2023, net cash provided by operating activities was $81.7 million.

Operating cash flows were primarily impacted by the following:

• Net income, adjusted for non-cash adjustments, provided a $58.1 million source of cash;

• 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 $24.6 million inflow of cash;

• A net increase in income tax payable increased cash inflows by $10.1 million;

• An increased level of deferred taxes associated with incremental tax depreciation from growth investments resulted in a source of cash of $2.5 million;

• 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 $26.2 million source of cash;

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

• Other working capital changes, impacted primarily by propane inventory purchases and hedging activities, resulted in a $13.5 million use of cash.

Cash Flows Used in Investing Activities

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.

Net cash used in investing activities totaled $42.7 million during the three months ended March 31, 2023, largely driven by $42.4 million for new capital expenditures.

Cash Flows Used in Financing Activities

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

Net cash used in financing activities:

• Repayments under lines of credit resulted in a use of cash of $54.3 million;

• Net increase in long-term debt borrowings resulted in a source of cash of $37.4 million to permanently finance investment in growth initiatives, $49.9 million, offset by long-term repayments of $12.5 million;

• Source of cash of $4.4 million from issuance of stock under the DRIP;

Net cash used in financing activities totaled $42.2 million during the three months ended March 31, 2023 and included the following:

• Net repayments under the Revolver of $107.8 million;

• Net increase in long-term debt borrowings resulted in a source of cash of $77.9 million to permanently finance investment in growth initiatives;

• A use of cash of $9.5 million for dividend payments in 2023.

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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 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.

The maximum authorized liability under such guarantees and letters of credit as of March 31, 2023 was $20.0 million.

The aggregate amount guaranteed related to our subsidiaries at March 31, 2023 was $14.2 million, with the guarantees expiring on various dates through March 30, 2024.

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.

The amount of specific purpose guarantees outstanding at March 31, 2023 was $4.0 million.

As of March 31, 2023, we have issued letters of credit totaling approximately $5.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions, to our current and previous primary insurance carriers.

These letters of credit have various expiration dates through October 25, 2023.

We have not drawn upon these letters of credit as of March 31, 2023 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 2022 Annual Report on Form 10-K, except for commodity purchase obligations entered into in the ordinary course of our business.

The following table summarizes commodity purchase contract obligations at September 30, 2022:

The following table summarizes commodity purchase contract obligations at March 31, 2023:

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