CHESAPEAKE UTILITIES CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2022, including the audited consolidated financial statements and notes thereto. Safe Harbor for Forward-Looking Statements We make statements in this Quarterly Report on Form 10-Q (this "Quarterly Report") that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. One can typically identify forward-looking statements by the use of forward-looking words, such as “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” “potential,” “forecast” or other similar words, or future or conditional verbs such as “may,” “will,” “should,” “would” or “could.” These statements represent our intentions, plans, expectations, assumptions and beliefs about future financial performance, business strategy, projected plans and objectives of the Company. Forward-looking statements speak only as of the date they are made or as of the date indicated and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise. These statements are subject to many risks and uncertainties. In addition to the risk factors described under Item 1A, Risk Factors in our 2022 Annual Report on Form 10-K, the following important factors, among others, could cause actual future results to differ materially from those expressed in the forward-looking statements: • state and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed and the degree to which competition enters the electric and natural gas industries; • the outcomes of regulatory, environmental and legal matters, including whether pending matters are resolved within current estimates and whether the related costs are adequately covered by insurance or recoverable in rates; • the impact of climate change, including the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; • the impact of significant changes to current tax regulations and rates; • the timing of certification authorizations associated with new capital projects and the ability to construct facilities at or below estimated costs; • changes in environmental and other laws and regulations to which we are subject and environmental conditions of property that we now, or may in the future, own or operate; • possible increased federal, state and local regulation of the safety of our operations; • the 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; • the economy in our service territories or markets, the nation, and worldwide, including the impact of economic conditions (which we do not control) on demand for natural gas, electricity, propane or other fuels; • risks related to cyber-attacks or cyber-terrorism that could disrupt our business operations or result in failure of information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; • adverse weather conditions, including the effects of hurricanes, ice storms and other damaging weather events; • customers' preferred energy sources; • industrial, commercial and residential growth or contraction in our markets or service territories; • the effect of competition on our businesses from other energy suppliers and alternative forms of energy; • the timing and extent of changes in commodity prices and interest rates; • the effect of spot, forward and future market prices on our various energy businesses; • the extent of our success in connecting natural gas and electric supplies to our transmission systems, establishing and maintaining key supply sources, and expanding natural gas and electric markets; • the creditworthiness of counterparties with which we are engaged in transactions; • the capital-intensive nature of our regulated energy businesses; • our ability to access the credit and capital markets to execute our business strategy, including our ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; • the ability to successfully execute, manage and integrate a merger, acquisition or divestiture of assets or businesses and the related regulatory or other conditions associated with the merger, acquisition or divestiture; • the impact on our costs and funding obligations, under our pension and other post-retirement benefit plans, of potential downturns in the financial markets, lower discount rates, and costs associated with health care legislation and regulation; 29 Table of Contents • the ability to continue to hire, train and retain appropriately qualified personnel; • the availability of, and competition for, qualified personnel supporting our natural gas, electricity and propane businesses; • the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and • 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. Introduction We are an energy delivery company engaged in the distribution of natural gas, electricity and propane; the transmission of natural gas; the generation of electricity and steam, and in providing related services to our customers. Our strategy is focused on growing earnings from a stable regulated energy delivery foundation and investing in related businesses and services that provide opportunities for returns greater than traditional utility returns. We seek to identify and develop opportunities across the energy value chain, with emphasis on midstream and downstream investments that are accretive to earnings per share, consistent with our long-term growth strategy and create opportunities to continue our record of top tier returns on equity relative to our peer group. 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: • Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions, and new products and services as well as increased opportunities to transform the Company with a focus on people, process, technology and organizational structure. • Identification and pursuit of additional pipeline expansions, including new interstate and intrastate transmission projects. • Growth of Marlin Gas Services’ CNG transport business and expansion into LNG and RNG transport services as well as methane capture. • Identifying and undertaking additional strategic propane acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets. • Pursuit of growth opportunities that enable us to utilize our integrated set of energy delivery businesses to participate in sustainable energy opportunities. Due to the seasonality of our business, results for interim periods are not necessarily indicative of results for the entire fiscal year. Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is normally highest due to colder temperatures. Earnings per share information is presented on a diluted basis, unless otherwise noted. The following discussions and those later in the document on operating income and segment results include the use of the term Adjusted Gross Margin which is a non-GAAP measure throughout our discussion on operating results. Adjusted Gross Margin is calculated by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues. The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements. Adjusted Gross Margin should not be considered an alternative to Gross Margin under U.S. GAAP which is defined as the excess of sales over cost of goods sold. We believe that Adjusted Gross Margin, although a non-GAAP measure, is useful and meaningful to investors as a basis for making investment decisions. It provides investors with information that demonstrates the profitability achieved by us under our allowed rates for regulated energy operations and under our competitive pricing structures for our unregulated energy operations. Our management uses Adjusted Gross Margin as one of the financial measures in assessing our business units’ performance. Other companies may calculate Adjusted Gross Margin in a different manner. The below tables reconcile Gross Margin as defined under GAAP to our non-GAAP measure of Adjusted Gross Margin for the three months ended March 31, 2023 and 2022: 30 Table of Contents For the Three Months Ended March 31, 2023 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Operating Revenues $ 142,270 $ 83,165 $ (7,306) $ 218,129 Cost of Sales: Natural gas, propane and electric costs (55,288) (40,571) 7,270 (88,589) Depreciation & amortization (12,952) (4,234) 3 (17,183) Operations & maintenance expense (1) (9,287) (8,476) 5 (17,758) Gross Margin (GAAP) 64,743 29,884 (28) 94,599 Operations & maintenance expense (1) 9,287 8,476 (5) 17,758 Depreciation & amortization 12,952 4,234 (3) 17,183 Adjusted Gross Margin (Non-GAAP) $ 86,982 $ 42,594 $ (36) $ 129,540 For the Three Months Ended March 31, 2022 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Operating Revenues $ 127,891 $ 101,292 $ (6,303) $ 222,880 Cost of Sales: Natural gas, propane and electric costs (45,442) (58,008) 6,270 (97,180) Depreciation & amortization (13,086) (3,881) (10) (16,977) Operations & maintenance expense (1) (8,176) (7,063) (401) (15,640) Gross Margin (GAAP) 61,187 32,340 (444) 93,083 Operations & maintenance expense (1) 8,176 7,063 401 15,640 Depreciation & amortization 13,086 3,881 10 16,977 Adjusted Gross Margin (Non-GAAP) $ 82,449 $ 43,284 $ (33) $ 125,700 (1) Operations & maintenance expenses within the Consolidated Statements of Income are presented in accordance with regulatory requirements and to provide comparability within the industry. Operations & maintenance expenses which are deemed to be directly attributable to revenue producing activities have been separately presented above in order to calculate Gross Margin as defined under U.S. GAAP. 2023 to 2022 Gross Margin (GAAP) Variance – Regulated Energy 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 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. 31 Table of Contents Results of Operations for the Three Months Ended March 31, 2023 Overview Chesapeake Utilities is a Delaware corporation formed in 1947. We are a diversified energy company engaged, through our operating divisions and subsidiaries, in regulated energy, unregulated energy and other businesses. We operate primarily on the east coast of the United States and provide natural gas distribution and transmission; electric distribution and generation; propane gas distribution; mobile compressed natural gas services; steam generation; and other energy-related services. 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 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. 32 Table of Contents Operational Highlights 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 March 31, Increase 2023 2022 (Decrease) (in thousands, except per share data) Adjusted Gross Margin Regulated Energy segment $ 86,982 $ 82,449 $ 4,533 Unregulated Energy segment 42,594 43,284 (690) Other businesses and eliminations (36) (33) (3) Total Adjusted Gross Margin $ 129,540 $ 125,700 $ 3,840 Operating Income Regulated Energy segment $ 37,625 $ 34,681 $ 2,944 Unregulated Energy segment 17,245 20,046 (2,801) Other businesses and eliminations 45 138 (93) Total Operating Income 54,915 54,865 50 Other income, net 276 913 (637) Interest charges 7,232 5,339 1,893 Income from Before Income Taxes 47,959 50,439 (2,480) Income Taxes 11,615 13,506 (1,891) Net Income $ 36,344 $ 36,933 $ (589) Basic Earnings Per Share of Common Stock $ 2.05 $ 2.09 $ (0.04) Diluted Earnings Per Share of Common Stock $ 2.04 $ 2.08 $ (0.04) 33 Table of Contents Key variances between the first quarter of 2023 and 2022, included: (in thousands, except per share data) Pre-tax Income Net Income Earnings Per Share First Quarter of 2022 Reported Results $ 50,439 $ 36,933 $ 2.08 Adjusting for Unusual Items: One-time benefit associated with reduction in state tax rate — 1,284 0.07 — 1,284 0.07 Increased (Decreased) Adjusted Gross Margins: 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 transmission service expansions* 481 365 0.02 Eastern Shore contracted rate adjustments (320) (242) (0.01) 4,014 3,042 0.16 (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) (3,166) (2,393) (0.12) First Quarter of 2023 Reported Results $ 47,959 $ 36,344 $ 2.04 * See the Major Projects and Initiatives table. 34 Table of Contents Summary of Key Factors Recently Completed and Ongoing Major Projects and Initiatives We constantly pursue and develop additional projects and initiatives to serve existing and new customers, and to further grow our businesses and earnings, with the intention to increase shareholder value. The following table includes the major projects/initiatives recently completed and currently underway. Major projects and initiatives that have generated consistent year-over-year adjusted gross margin contributions are removed from the table at the beginning of the next calendar year. 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 Year Ended Estimate for March 31, December 31, Fiscal (in thousands) 2023 2022 2022 2023 2024 Pipeline Expansions: Guernsey Power Station $ 365 $ 263 $ 1,377 $ 1,486 $ 1,482 Southern Expansion — — — 586 2,344 Winter Haven Expansion 139 33 260 576 626 Beachside Pipeline Expansion — — — 1,825 2,451 North Ocean City Connector — — — — 200 St. 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 Regulatory Initiatives: Florida GUARD program — — — TBD TBD Capital Cost Surcharge Programs 720 517 2,001 2,811 3,558 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 Total $ 9,321 $ 3,046 $ 17,824 $ 39,562 $ 46,787 (1) Includes adjusted gross margin generated from interim 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 Guernsey Power Station 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. 35 Table of Contents Southern Expansion 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 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 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. North Ocean City Connector 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 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 In July 2022, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 2,400 Dt/day of firm service in the St. Cloud, Florida area. As part of this agreement, Peninsula Pipeline will construct a pipeline extension and regulator station for FPU. 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. 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 36 Table of Contents 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. Similarly, we announced in March 2022, the opening of a high-capacity CNG truck and tube trailer fueling station in Port Wentworth, Georgia. As one of the largest public access CNG stations on the East Coast, it will offer a RNG option to customers in the near future. We constructed the station in partnership with Atlanta Gas Light, a subsidiary of Southern Company Gas. 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. 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. Planet Found's farm scale anaerobic digestion pilot system and technology produces biogas from 1,200 tons of poultry litter annually, which can be used to create renewable energy in the form of electricity or upgraded to renewable natural gas. In addition to generating biogas, Planet Found’s nutrient capture system plays a major role in converting digestate into a nutrient-rich soil conditioner, which is distributed to bulk and retail markets under the brand Element Soil. The transaction will accelerate our efforts in converting poultry waste to renewable, sustainable energy while simultaneously improving the local environments in our service territories. The expertise, technologies and know-how can be leveraged for various scale projects across our geographic footprint. Noble Road Landfill RNG Project In October 2021, Aspire Energy completed construction of its Noble Road Landfill RNG pipeline project, a 33.1-mile pipeline, which transports RNG generated from the Noble Road landfill to Aspire Energy’s pipeline system, displacing conventionally produced natural gas. In conjunction with this expansion, Aspire Energy also upgraded an existing compressor station and installed two new metering and regulation sites. The RNG volume is expected to represent nearly 10 percent of Aspire Energy’s gas gathering volumes. 37 Table of Contents Regulatory Initiatives 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 In December 2019, the FERC approved Eastern Shore’s capital cost surcharge to become effective January 1, 2020. The surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows Eastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the replacement of existing Eastern Shore facilities. 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. Florida Natural Gas Base Rate Proceeding 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 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 In October 2020, the Florida PSC approved a joint petition of our natural gas and electric distribution utilities in Florida to establish a regulatory asset to record incremental expenses incurred due to COVID-19. The regulatory asset allows us to obtain recovery of these costs in the next base rate proceedings. 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 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 . 38 Table of Contents Other Major Factors Influencing Adjusted Gross Margin Weather Impact 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 months ended March 31, 2023 and 2022. Three Months Ended March 31, 2023 2022 Variance Delmarva Peninsula Actual HDD 1,774 2,181 (407) 10-Year Average HDD ("Normal") 2,285 2,255 30 Variance from Normal (511) (74) Florida Actual HDD 344 497 (153) 10-Year Average HDD ("Normal") 505 497 8 Variance from Normal (161) — Ohio Actual HDD 2,384 2,926 (542) 10-Year Average HDD ("Normal") 2,965 2,912 53 Variance from Normal (581) 14 Florida Actual CDD 323 195 128 10-Year Average CDD ("Normal") 192 197 (5) Variance from Normal 131 (2) Natural Gas Distribution Adjusted Gross Margin Growth 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: Residential $ 610 $ 316 Commercial and industrial 212 384 Total Customer Growth (1) $ 822 $ 700 (1) Customer growth amounts for Florida include the effects of revised rates associated with our natural gas base rate proceeding. 39 Table of Contents Regulated 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) (in thousands) Revenue $ 142,270 $ 127,891 $ 14,379 Regulated natural gas and electric costs 55,288 45,442 9,846 Adjusted gross margin (1) 86,982 82,449 4,533 Operations & maintenance 30,336 29,149 1,187 Depreciation & amortization 12,952 13,086 (134) Other taxes 6,069 5,533 536 Total operating expenses 49,357 47,768 1,589 Operating income $ 37,625 $ 34,681 $ 2,944 (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. Operating income for the Regulated Energy segment for the first quarter of 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) Rate changes associated with the Florida natural gas base rate proceeding (1) $ 4,097 Natural gas growth including conversions (excluding service expansions) 1,522 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. Rate Changes Associated with the Florida Natural Gas Base Rate Proceeding In August 2022, the Florida PSC approved interim rates starting in September 2022. 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. 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 $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. 40 Table of Contents Contributions from Regulated Infrastructure Programs 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 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 Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table: (in thousands) Depreciation, amortization and property taxes $ 550 Increased facilities expenses, maintenance costs and outside services 382 Increased payroll, benefits and other employee-related expenses 293 Other variances 364 Quarter-over-quarter increase in operating expenses $ 1,589 41 Table of Contents 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) (in thousands) Revenue $ 83,165 $ 101,292 $ (18,127) Unregulated propane and natural gas costs 40,571 58,008 (17,437) Adjusted gross margin (1) 42,594 43,284 (690) Operations & maintenance 19,614 18,090 1,524 Depreciation & amortization 4,234 3,881 353 Other taxes 1,501 1,267 234 Total operating expenses 25,349 23,238 2,111 Operating Income $ 17,245 $ 20,046 $ (2,801) (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. Operating results for the Unregulated Energy segment for the first quarter of 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 customer consumption - primarily weather related $ (4,543) Increased propane margins and service fees 3,064 CNG/RNG/LNG Transportation and Infrastructure Increased demand for CNG/RNG/LNG Services 1,288 Aspire Energy Reduced customer consumption - primarily weather related (508) Other variances 9 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 • 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. 42 Table of Contents CNG/RNG/LNG Transportation and Infrastructure • 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 • 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 quarter-over-quarter increase in operating expenses are listed in the following table: (in thousands) Increased payroll, benefits and other employee-related expenses $ 825 Increased facilities expenses, maintenance costs and outside services 597 Increased depreciation, amortization and property tax costs 587 Other variances 102 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. 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. 43 Table of Contents F INANCIAL P OSITION , L IQUIDITY AND C APITAL R ESOURCES Our capital requirements reflect the capital-intensive and seasonal nature of our business and are principally attributable to investment in new plant and equipment, retirement of outstanding debt and seasonal variability in working capital. We rely on cash generated from operations, short-term borrowings, and other sources to meet normal working capital requirements and to temporarily finance capital expenditures. We may also issue long-term debt and equity to fund capital expenditures and to maintain our capital structure within our target capital structure range. We maintain an effective shelf registration statement with the SEC for the issuance of shares of common stock in various types of equity offerings, including shares of common stock under our ATM equity program, as well as an effective registration statement with respect to the DRIP. Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may consider issuing additional shares under the direct share purchase component of the DRIP and/or under the ATM equity program. Our energy businesses are weather-sensitive and seasonal. We normally generate a large portion of our annual net income and subsequent increases in our accounts receivable in the first and fourth quarters of each year due to significant volumes of natural gas, electricity, and propane delivered by our distribution operations, and our natural gas transmission operations to customers during the peak-heating season. In addition, our natural gas and propane inventories, which usually peak in the fall months, are largely drawn down in the heating season and provide a source of cash as the inventory is used to satisfy winter sales demand. Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements. Our capital expenditures were $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: 2023 (in thousands) Low High Regulated Energy: Natural gas distribution $ 89,000 $ 100,000 Natural gas transmission 50,000 60,000 Electric distribution 13,000 15,000 Total Regulated Energy 152,000 175,000 Unregulated Energy: Propane distribution 15,000 16,000 Energy transmission 8,000 9,000 Other unregulated energy 23,000 27,000 Total Unregulated Energy 46,000 52,000 Other: Corporate and other businesses 2,000 3,000 Total Other 2,000 3,000 Total 2023 Forecasted Capital Expenditures $ 200,000 $ 230,000 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, 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. 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. The timing of capital expenditures can vary based on delays in regulatory approvals, securing environmental approvals and other permits. The regulatory application and approval process has lengthened in the past few years, and we expect this trend to continue. 44 Table of Contents Capital Structure We are committed to maintaining a sound capital structure and strong credit ratings. This commitment, along with adequate and timely rate relief for our regulated energy operations, is intended to ensure our ability to attract capital from outside sources at a reasonable cost, which will benefit our customers, creditors, employees and stockholders. The following table presents our capitalization, excluding and including short-term borrowings, as of March 31, 2023 and December 31, 2022: March 31, 2023 December 31, 2022 (in thousands) Long-term debt, net of current maturities $ 656,284 43 % $ 578,388 41 % Stockholders’ equity 858,588 57 % 832,801 59 % Total capitalization, excluding short-term debt $ 1,514,872 100 % $ 1,411,189 100 % March 31, 2023 December 31, 2022 (in thousands) Short-term debt $ 94,079 6 % $ 202,157 12 % Long-term debt, including current maturities 677,773 41 % 599,871 37 % Stockholders’ equity 858,588 53 % 832,801 51 % Total capitalization, including short-term debt $ 1,630,440 100 % $ 1,634,829 100 % Our target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. Our equity to total capitalization ratio, including short-term borrowings, was 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. See Note 9, Stockholders’ Equity , in the condensed consolidated financial statements for additional information on commissions and fees paid in connection with these issuances. Shelf Agreements We have entered into Shelf Agreements with Prudential and MetLife, whom are under no obligation to purchase any unsecured debt. 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: Amount of Debt Issued Less: Unfunded Commitments Remaining Borrowing Capacity Shelf Agreement (1) Prudential Shelf Agreement $ 405,000 $ (300,000) $ — $ 105,000 MetLife Shelf Agreement 200,000 (50,000) — 150,000 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. 45 Table of Contents Short-term Borrowings We are authorized by our Board of Directors to borrow up to $400.0 million of short-term debt, as required. At 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. 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. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in the Revolver's loan documents. We are required by the financial covenants in the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio of no greater than 65 percent. As of 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 the Revolver. For additional information on interest rate swaps related to our short-term borrowings, see Note 12, Derivative Instruments . Long-Term Debt On March 15, 2022, we issued 2.95 percent Senior Notes due March 15, 2042 to MetLife in the aggregate principal amount of $50 million. We used the proceeds received from the issuances of the Senior Notes to reduce short-term borrowings under the Revolver and to fund capital expenditures. These Senior Notes have similar covenants and default provisions as our other Senior Notes, and have an annual principal payment beginning in the eleventh year after the issuance. On 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. 46 Table of Contents Cash Flows 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 March 31, (in thousands) 2023 2022 Net cash provided by (used in): Operating activities $ 81,667 $ 69,120 Investing activities (42,654) (29,935) Financing activities (42,152) (38,953) Net (decrease) increase in cash and cash equivalents (3,139) 232 Cash and cash equivalents—beginning of period 6,204 4,976 Cash and cash equivalents—end of period $ 3,065 $ 5,208 Cash Flows Provided by Operating Activities Changes in our cash flows from operating activities are attributable primarily to changes in net income, adjusted for non-cash items such as depreciation and changes in deferred income taxes, and working capital. Working capital requirements are determined by a variety of factors, including weather, the prices of natural gas, electricity and propane, the timing of customer collections, payments for purchases of natural gas, electricity and propane, and deferred fuel cost recoveries. During the three months ended March 31, 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; and • 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 $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 $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; and • A use of cash of $9.5 million for dividend payments in 2023. Off-Balance Sheet Arrangements The Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain letters of credit securing our subsidiaries' obligations. The maximum authorized liability under such guarantees and letters of credit as of 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 March 31, 2023 was $4.0 million. 47 Table of Contents 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. Additional information is presented in Note 7 , Other Commitments and Contingencies, in the condensed consolidated financial statements. Contractual Obligations There has been no material change in the contractual obligations presented in our 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 March 31, 2023: Payments Due by Period Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total (in thousands) Purchase obligations - Commodity (1) $ 15,493 $ 854 $ — $ — $ 16,347 Total $ 15,493 $ 854 $ — $ — $ 16,347 (1) In addition to the obligations noted above, we have agreements with commodity suppliers that have provisions with no minimum purchase requirements. There are no monetary penalties for reducing the amounts purchased; however, the propane contracts allow the suppliers to reduce the amounts available in the winter season if we do not purchase specified amounts during the summer season. Under these contracts, the commodity prices will fluctuate as market prices fluctuate. Rates and Regulatory Matters Our natural gas distribution operations in Delaware, Maryland and Florida and electric distribution operation in Florida are subject to regulation by the respective state PSC; Eastern Shore is subject to regulation by the FERC; and Peninsula Pipeline and Aspire Energy Express, our intrastate pipeline subsidiaries, are subject to regulation (excluding cost of service) by the Florida PSC and Public Utilities Commission of Ohio, respectively. We regularly are involved in regulatory matters in each of the jurisdictions in which we operate. Our significant regulatory matters are fully described in Note 5 , Rates and Other Regulatory Activities , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Recent Authoritative Pronouncements on Financial Reporting and Accounting Recent accounting developments, applicable to us, and their impact on our financial position, results of operations and cash flows are described in Note 1 , Summary of Accounting Policies , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. 48 Table of Contents