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Item 2. Management’s Discussion and Analysis

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; 
 
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 • the ability to continue to hire, train and retain appropriately qualified personnel; 
 • the availability of, and competition for, qualified personnel supporting our natural gas, electricity and propane businesses; 
 • the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; 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 and six months ended June 30, 2023 and 2022: 
 
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 For the Three Months Ended June 30, 2023 
 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total 
 Operating Revenues $ 101,141 $ 40,751 $ (6,299) $ 135,593 
 Cost of Sales: 
 Natural gas, propane and electric costs (23,886) (18,116) 6,209 (35,793) 
 Depreciation & amortization (13,035) (4,269) 1 (17,303) 
 Operations & maintenance expense (1) 
 (9,240) (7,520) (2) (16,762) 
 Gross Margin (GAAP) 54,980 10,846 (91) 65,735 
 Operations & maintenance expense (1) 
 9,240 7,520 2 16,762 
 Depreciation & amortization 13,035 4,269 (1) 17,303 
 Adjusted Gross Margin (Non-GAAP) $ 77,255 $ 22,635 $ (90) $ 99,800 

 
 For the Three Months Ended June 30, 2022 
 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total 
 Operating Revenues $ 92,193 $ 53,463 $ (6,186) $ 139,470 
 Cost of Sales: 
 Natural gas, propane and electric costs (21,573) (31,701) 6,158 (47,116) 
 Depreciation & amortization (13,140) (4,074) (2) (17,216) 
 Operations & maintenance expense (1) 
 (8,324) (6,699) (521) (15,544) 
 Gross Margin (GAAP) 49,156 10,989 (551) 59,594 
 Operations & maintenance expense (1) 
 8,324 6,699 521 15,544 
 Depreciation & amortization 13,140 4,074 2 17,216 
 Adjusted Gross Margin (Non-GAAP) $ 70,620 $ 21,762 $ (28) $ 92,354 

 
 For the Six months ended June 30, 2023 
 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total 
 Operating Revenues $ 243,411 $ 123,916 $ (13,605) $ 353,722 
 Cost of Sales: 
 Natural gas, propane and electric costs (79,174) (58,687) 13,479 (124,382) 
 Depreciation & amortization (25,987) (8,503) 4 (34,486) 
 Operations & maintenance expense (1) 
 (18,527) (15,996) 3 (34,520) 
 Gross Margin (GAAP) 119,723 40,730 (119) 160,334 
 Operations & maintenance expense (1) 
 18,527 15,996 (3) 34,520 
 Depreciation & amortization 25,987 8,503 (4) 34,486 
 Adjusted Gross Margin (Non-GAAP) $ 164,237 $ 65,229 $ (126) $ 229,340 

 
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 For the Six months ended June 30, 2022 
 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total 
 Operating Revenues $ 220,084 $ 154,754 $ (12,488) $ 362,350 
 Cost of Sales: 
 Natural gas, propane and electric costs (67,016) (89,708) 12,427 (144,297) 
 Depreciation & amortization (26,225) (7,954) (14) (34,193) 
 Operations & maintenance expense (1) 
 (16,485) (13,756) (944) (31,185) 
 Gross Margin (GAAP) 110,358 43,336 (1,019) 152,675 
 Operations & maintenance expense (1) 
 16,485 13,756 944 31,185 
 Depreciation & amortization 26,225 7,954 14 34,193 
 Adjusted Gross Margin (Non-GAAP) $ 153,068 $ 65,046 $ (61) $ 218,053 

 (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 June 30, 2023 was $55.0 million, an increase of $5.8 million, or 11.8 percent, compared to the same period in 2022. Higher gross margin reflects contributions from our Florida natural gas base rate proceeding, organic growth in our natural gas distribution businesses, continued pipeline expansion projects and incremental contributions associated with regulated infrastructure programs. These increases were partially offset by changes in customer consumption largely related to continued warmer weather during the quarter, increased employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs compared to the prior-year period, higher property taxes, and increased facilities, maintenance and outside services costs. 
 
 
 Gross Margin (GAAP) for the Regulated Energy segment for the six months ended June 30, 2023 was $119.7 million, an increase of $9.4 million, or 8.5 percent, compared to the same period in 2022. The increase in gross margin for the period reflects contributions from our Florida natural gas base rate proceeding, organic growth in our natural gas distribution businesses, continued pipeline expansion projects and incremental contributions associated with regulated infrastructure programs. These increases were partially offset by changes in customer consumption due to significantly warmer weather experienced in the first half of 2023. Higher operating expenses also contributed to the offset driven by increased employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs, increased facilities, maintenance and outside services costs, and higher property taxes compared to the prior-year period. 
 
 
 2023 to 2022 Gross Margin (GAAP) Variance – Unregulated Energy 
 
 
 Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended June 30, 2023 was $10.8 million, compared to $11.0 million for the same period in 2022. Gross margin was impacted by reduced customer consumption due in part to the conversion of propane customers to our natural gas distribution service and to a lesser extent, continued warmer weather in our Mid-Atlantic service territories. Additionally, we experienced increased operating expenses associated with employee costs driven by the ongoing competitive labor market and higher benefits costs, increased property taxes and higher facilities, maintenance and outside services costs. These factors were partially offset by higher propane margins and fees and increased demand for CNG, RNG and LNG services. 
 
 
 Gross Margin (GAAP) for the Unregulated Energy segment for the six months ended June 30, 2023 was $40.7 million, compared to $43.3 million for the same period in 2022. Gross margin during the first half of 2023 was impacted by changes in customer consumption due to significantly warmer weather in our Mid-Atlantic service territories primarily during the first quarter, as well as the ongoing conversion of propane customers to our natural gas distribution service. Additionally, we experienced increased operating expenses associated with employee costs driven by the ongoing competitive labor market and higher benefits costs, increased property taxes and higher facilities, maintenance and outside services costs. These factors were partially offset by expanded propane margins and fees and increased demand for CNG, RNG and LNG services. 
 
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 Results of Operations for the Three and Six Months Ended June 30, 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 May 2023, we published our most recent annual sustainability report, and continue to remain steadfast in regards 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. 
 
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 Operational Highlights 
 
 
 Our net income for the three months ended June 30, 2023 was $16.1 million, or $0.90 per share, compared to $17.1 million, or $0.96 per share, for the same quarter of 2022. Net income for the second quarter of 2022 included a non-recurring after-tax gain of $1.4 million related to a building sale. Operating income for the second quarter of 2023 was $28.3 million, an increase of $1.9 million or 7.1 percent compared to the same period in 2022. Adjusted gross margin in the second quarter of 2023 was positively impacted by contributions from the Florida natural gas base rate proceeding, organic growth in our natural gas distribution businesses, increased propane margins and fees, continued pipeline expansion projects, increased demand for CNG, RNG and LNG services and incremental contributions associated with regulated infrastructure programs. These increases in adjusted gross margin were partially offset by reduced consumption, including the continued effects of warmer temperatures experienced during the second quarter of 2023, and higher operating expenses which were largely associated with increased employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs compared to the prior-year period. Operating income was also impacted by higher property taxes during the second quarter of 2023. 
 
 
 
 Three Months Ended 
 June 30, Increase 
 2023 2022 (Decrease) 
 (in thousands, except per share data) 
 Adjusted Gross Margin 
 Regulated Energy segment $ 77,255 $ 70,620 $ 6,635 
 Unregulated Energy segment 22,635 21,762 873 
 Other businesses and eliminations (90) (28) (62) 
 Total Adjusted Gross Margin $ 99,800 $ 92,354 $ 7,446 
 
 Operating Income (Loss) 
 Regulated Energy segment $ 29,291 $ 25,841 $ 3,450 
 Unregulated Energy segment (993) 560 (1,553) 
 Other businesses and eliminations 48 68 (20) 
 Total Operating Income 28,346 26,469 1,877 
 Other income, net 831 2,584 (1,753) 
 Interest charges 6,964 5,825 1,139 
 Income from Before Income Taxes 22,213 23,228 (1,015) 
 Income Taxes 6,080 6,177 (97) 
 Net Income $ 16,133 $ 17,051 $ (918) 
 
 
 
 
 
 
 Basic Earnings Per Share of Common Stock $ 0.91 $ 0.96 $ (0.05) 
 
 
 
 Diluted Earnings Per Share of Common Stock $ 0.90 $ 0.96 $ (0.06) 

 
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 Key variances between the second quarter of 2022 and the second quarter of 2023 included: 
 
 (in thousands, except per share data) Pre-tax
Income Net
Income Earnings
Per Share 
 Second Quarter of 2022 Reported Results 
 $ 23,228 $ 17,051 $ 0.96 
 
 Adjusting for Non-recurring Items: 
 Absence of gain from sales of assets (1,902) (1,382) (0.08) 
 (1,902) (1,382) (0.08) 
 
 Increased (Decreased) Adjusted Gross Margins: 
 Contribution from rates associated with Florida natural gas base rate proceeding* 3,873 2,813 0.16 
 Natural gas growth including conversions (excluding service expansions) 1,844 1,339 0.08 
 Increased propane margins and service fees 1,512 1,098 0.06 
 Natural gas transmission service expansions* 1,113 809 0.05 
 Increased adjusted gross margin from off-system natural gas capacity sales 637 463 0.03 
 Increased margins related to demand for CNG/RNG/LNG services* 478 347 0.02 
 Contributions from regulated infrastructure programs* 395 287 0.02 
 Customer consumption - primarily resulting from weather (2,165) (1,572) (0.09) 
 7,687 5,584 0.33 
 
 Increased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs): 
 Increased payroll, benefits and other employee-related expenses (3,124) (2,269) (0.13) 
 Increased facilities expenses, maintenance costs and outside services (1,008) (732) (0.04) 
 Depreciation, amortization and property taxes (774) (562) (0.03) 
 (4,906) (3,563) (0.20) 
 
 Interest charges (1,139) (827) (0.05) 
 Net other changes (755) (730) (0.06) 
 (1,894) (1,557) (0.11) 
 Second Quarter of 2023 Reported Results 
 $ 22,213 $ 16,133 $ 0.90 

 
 
 * See the Major Projects and Initiatives table. 
 
 
 
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 Our net income for the six months ended June 30, 2023 was $52.5 million, or $2.94 per share, compared to $54.0 million, or $3.04 per share, for the same period of 2022. Net income for the six months ended June 30, 2023 included a one-time tax benefit of $1.3 million associated with a reduction in state tax rate, while the prior-year included a non-recurring after-tax gain of $1.4 million related to a building sale. Operating income for the six months ended June 30, 2023 was $83.3 million, an increase of $1.9 million or 2.4 percent compared to the same period in 2022, despite significantly warmer temperatures in our northern service territories during the first half of 2023. Adjusted gross margin for the first half of 2023 was positively impacted by contributions from the Florida natural gas base rate proceeding, increased propane margins and fees, organic growth in our natural gas distribution businesses, increased demand for CNG, RNG and LNG services, continued pipeline expansion projects and incremental contributions associated with regulated infrastructure programs. These increases in adjusted gross margin were significantly offset by reduced consumption experienced during the first half of 2023 from warmer weather in our northern service territories. We recorded higher employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs compared to the prior-year period, increased costs related to our facilities, maintenance and outside services, and higher property taxes. 
 
 Six Months Ended 
 June 30, Increase 
 2023 2022 (Decrease) 
 (in thousands, except per share data) 
 Adjusted Gross Margin 
 Regulated Energy segment $ 164,237 $ 153,068 $ 11,169 
 Unregulated Energy segment 65,229 65,046 183 
 Other businesses and eliminations (126) (61) (65) 
 Total Adjusted Gross Margin $ 229,340 $ 218,053 $ 11,287 
 
 Operating Income 
 Regulated Energy segment $ 66,916 $ 60,539 $ 6,377 
 Unregulated Energy segment 16,252 20,613 (4,361) 
 Other businesses and eliminations 93 182 (89) 
 Total Operating Income 83,261 81,334 1,927 
 Other income, net 1,107 3,498 (2,391) 
 Interest charges 14,196 11,164 3,032 
 Income from Before Income Taxes 70,172 73,668 (3,496) 
 Income Taxes 17,695 19,683 (1,988) 
 Net Income $ 52,477 $ 53,985 $ (1,508) 
 
 
 
 
 
 
 Basic Earnings Per Share of Common Stock $ 2.95 $ 3.05 $ (0.10) 
 
 
 
 Diluted Earnings Per Share of Common Stock $ 2.94 $ 3.04 $ (0.10) 

 
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 Key variances between the six months ended June 30, 2022 and the six months ended June 30, 2023 included: 
 
 (in thousands, except per share data) Pre-tax
Income Net
Income Earnings
Per Share 
 Six months ended June 30, 2022 Reported Results 
 $ 73,668 $ 53,985 $ 3.04 
 
 Adjusting for Non-recurring Items: 
 Absence of gain from sales of assets (1,902) (1,423) (0.08) 
 One-time benefit associated with reduction in state tax rate — 1,284 0.07 
 (1,902) (139) (0.01) 
 
 Increased (Decreased) Adjusted Gross Margins: 
 Customer consumption - primarily resulting from weather (9,081) (6,792) (0.38) 
 Contribution from rates associated with Florida natural gas base rate proceeding* 7,970 5,962 0.33 
 Increased propane margins and service fees 4,576 3,423 0.19 
 Natural gas growth including conversions (excluding service expansions) 3,366 2,518 0.14 
 Increased margins related to demand for CNG/RNG/LNG services* 1,766 1,321 0.07 
 Natural gas transmission service expansions* 1,594 1,192 0.07 
 Contributions from regulated infrastructure programs* 1,193 892 0.05 
 Eastern Shore contracted rate adjustments (285) (213) (0.01) 
 11,099 8,303 0.46 
 
 Increased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs): 
 Increased payroll, benefits and other employee-related expenses (4,267) (3,191) (0.18) 
 Increased facilities expenses, maintenance costs and outside services (2,069) (1,548) (0.09) 
 Depreciation, amortization and property taxes (1,700) (1,272) (0.07) 
 (8,036) (6,011) (0.34) 
 
 Interest charges (3,032) (2,268) (0.13) 
 Changes in Other income, net (489) (366) (0.02) 
 Net other changes (1,136) (1,027) (0.06) 
 (4,657) (3,661) (0.21) 
 Six months ended June 30, 2023 Reported Results 
 $ 70,172 $ 52,477 $ 2.94 

 
 
 * See the Major Projects and Initiatives table. 
 
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 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, further grow our businesses and earnings, and 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 Six Months Ended Year Ended Estimate for 
 June 30, June 30, December 31, Fiscal 
 (in thousands) 2023 2022 2023 2022 2022 2023 2024 
 Pipeline Expansions: 
 Guernsey Power Station $ 369 $ 368 $ 734 $ 631 $ 1,377 $ 1,486 $ 1,482 
 Southern Expansion — — — — — 586 2,344 
 Winter Haven Expansion 163 28 302 61 260 576 626 
 Beachside Pipeline Expansion 603 — 603 — — 1,825 2,451 
 North Ocean City Connector — — — — — — 200 
 St. Cloud / Twin Lakes Expansion — — — — — 268 584 
 Clean Energy (1) 
 269 — 516 — 126 1,009 1,009 
 Wildlight 67 — 93 — — 528 2,000 
 Lake Wales 38 — 38 — — 265 454 
 Newberry — — — — — TBD TBD 
 Total Pipeline Expansions 1,509 396 2,286 692 1,763 6,543 11,150 
 
 CNG/RNG/LNG Transportation and Infrastructure 2,905 2,427 6,426 4,660 11,100 12,558 12,280 
 
 Regulatory Initiatives: 
 Florida GUARD program — — — — — 37 1,412 
 Capital Cost Surcharge Programs 703 497 1,423 1,014 2,001 2,811 3,558 
 Florida Rate Case Proceeding (2) 
 3,873 — 7,970 — 2,474 16,289 17,153 
 Electric Storm Protection Plan 436 — 642 — 486 960 2,433 
 Total Regulatory Initiatives 5,012 497 10,035 1,014 4,961 20,097 24,556 
 
 Total $ 9,426 $ 3,320 $ 18,747 $ 6,366 $ 17,824 $ 39,198 $ 47,986 

 
 
 (1) Includes adjusted gross margin generated from interim services. 
 (2) Includes adjusted gross margin during 2023 comprised of both interim rates and permanent base rates which became effective in March 2023. 
 
 
 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 six months ended June 30, 2023, and is expected to produce adjusted gross margin of approximately $1.5 million in 2023 and beyond. 
 
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 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 $0.1 million and $0.2 million for the three and six months ended June 30, 2023, respectively, and is expected to produce adjusted gross margin of approximately $0.6 million in 2023 and thereafter. 
 
 
 Beachside Pipeline Expansion 
 In June 2021, Peninsula Pipeline and Florida City Gas entered into a Transportation Service Agreement for an incremental 10,176 Dts/d of firm service in Indian River County, Florida, to support Florida City Gas’ growth along the Indian River's barrier island. As part of this agreement, Peninsula Pipeline 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. The project generated additional adjusted gross margin of $0.6 million for the three and six months ended June 30, 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 installed approximately 5.7 miles of pipeline across southern Sussex County, Delaware to Fenwick Island, Delaware and Worcester County, Maryland. The project reinforces our existing system in Ocean City, Maryland and enables incremental growth along the pipeline. Construction of this project was completed in the second quarter 2023. 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. As a result, we expect this expansion to generate annual adjusted gross margin of approximately $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 placed in service during the third 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 additional adjusted gross margin of $0.3 million and $0.5 million for the three and six months ended June 30, 2023, respectively, 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 
 
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 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. The project generated adjusted gross margin of less than $0.1 million for both the three and six months ended June 30, 2023. We expect this project 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 2023, 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. The PSC approved the petition in April 2023. Approval of the agreement enabled Peninsula Pipeline to complete the acquisition of an existing pipeline in May 2023 that is being utilized to serve our current natural gas customers as well as enable us to serve new customers. During the three and six months ended June 30, 2023 the project generated adjusted gross margin of less than $0.1 million. The project is expected to contribute adjusted gross margin of approximately $0.3 million in 2023 and $0.5 million in 2024 and beyond. 
 
 
 Newberry Expansion 
 In April 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 8,000 Dt/d of firm service in the Newberry, Florida area. In July 2023, the Florida PSC approved the Company's recommendation to proceed with this project. Peninsula Pipeline will construct a pipeline extension which will be used by FPU to support the development of a natural gas distribution system to provide gas service to the City of Newberry. 
 
 
 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 and six months ended June 30, 2023, we generated $0.5 million and $1.8 million, respectively, 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 $12.6 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 converts digestate into a nutrient-rich soil conditioner, which is distributed to bulk and retail markets under the brand Element Soil. The transaction accelerated our access to renewable, sustainable energy generated from poultry waste while continuing to enhance the local environments in our service territories. 
 
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 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. 
 
 
 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 ten-year program to enhance the safety, reliability, and accessibility of portions of our natural gas distribution system. We have identified various categories of projects to be included in GUARD, which include 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. In August 2023, the Florida PSC approved the GUARD program, with the exception of reliability projects with an approximate value of $10 million. The remainder of the program was approved as filed, which included $205 million of capital expenditures projected to be spent over a 10-year period. The program is expected to generate less than $0.1 million of additional adjusted gross margin in 2023 and $1.4 million in 2024. 
 
 
 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 and six months ended June 30, 2023 , there was $0.2 million and $0.4 million, respectively, 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 and six months ended June 30, 2023, this proceeding generated adjusted gross margin of approximately $3.9 million and $8.0 million, respectively, 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 and six months ended June 30, 2023, this initiative generated adjusted gross margin of approximately $0.4 million and $0.6 million and is expected to generate $1.0 million of additional adjusted gross margin in 2023 and $2.4 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 
 
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 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 . 
 
 
 Other Major Factors Influencing Adjusted Gross Margin 
 Weather Impact 
 For the first half of 2023, lower consumption driven by weather experienced primarily during the first quarter resulted in a $9.1 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 the Company's northern service territories that were more than 20 percent higher than historical averages. Assuming normal temperatures, as detailed below, adjusted gross margin would have been higher by $10.3 million. The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and six months ended June 30, 2023 and 2022. 
 
 Three Months Ended Six Months Ended 
 June 30, June 30, 
 2023 2022 Variance 2023 2022 Variance 
 Delmarva Peninsula 
 Actual HDD 276 394 (118) 2,050 2,575 (525) 
 10-Year Average HDD ("Normal") 408 412 (4) 2,693 2,667 26 
 Variance from Normal (132) (18) (643) (92) 
 Florida 
 Actual HDD 26 37 (11) 370 534 (164) 
 10-Year Average HDD ("Normal") 44 45 (1) 549 542 7 
 Variance from Normal (18) (8) (179) (8) 
 Ohio 
 Actual HDD 678 604 74 3,062 3,530 (468) 
 10-Year Average HDD ("Normal") 631 630 1 3,596 3,542 54 
 Variance from Normal 47 (26) (534) (12) 
 Florida 
 Actual CDD 937 988 (51) 1,260 1,183 77 
 10-Year Average CDD ("Normal") 952 945 7 1,144 1,142 2 
 Variance from Normal (15) 43 116 41 

 
 
 Natural Gas Distribution Adjusted Gross Margin Growth 
 The average number of residential customers served on the Delmarva Peninsula increased by approximately 5.5 percent and 5.7 percent, respectively, for the three and six months ended June 30, 2023, while Florida customers increased by 4.0 percent and 4.2 percent, respectively, for the three and six month periods. 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: 
 
 
 
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 Three Months Ended Six Months Ended 
 June 30, 2023 June 30, 2023 
 (in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida 
 Customer Growth: 
 Residential $ 476 $ 347 $ 1,086 $ 663 
 Commercial and industrial 241 780 453 1,164 
 Total Customer Growth (1) 
 $ 717 $ 1,127 $ 1,539 $ 1,827 

 (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 June 30, 2023, compared to the quarter ended June 30, 2022: 
 
 Three Months Ended 
 June 30, Increase 
 2023 2022 (Decrease) 
 (in thousands) 
 Revenue $ 101,141 $ 92,193 $ 8,948 
 Regulated natural gas and electric costs 23,886 21,573 2,313 
 Adjusted gross margin (1) 
 77,255 70,620 6,635 
 Operations & maintenance 29,362 26,489 2,873 
 Depreciation & amortization 13,035 13,140 (105) 
 Other taxes 5,567 5,150 417 
 Total operating expenses 47,964 44,779 3,185 
 Operating income $ 29,291 $ 25,841 $ 3,450 

 (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 second quarter of 2023 was $29.3 million, an increase of $3.5 million, or 13.4 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 the continued effects of warmer weather during the quarter. Operating expenses increased by $3.2 million compared to the prior year quarter related to employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs, higher facilities, maintenance and outside services costs and increased property taxes. 
 
 
 
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 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) 
 $ 3,873 
 Natural gas growth including conversions (excluding service expansions) 1,844 
 Natural gas transmission service expansions 1,113 
 Increased adjusted gross margin from off-system natural gas capacity sales 637 
 Contributions from regulated infrastructure programs 395 
 Changes in customer consumption - primarily related to weather (1,148) 
 Other variances (79) 
 Quarter-over-quarter increase in adjusted gross margin** $ 6,635 

 (1) Includes adjusted gross margin contributions from 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 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 permanent rates contributed additional adjusted gross margin of $3.9 million for the three months ended June 30, 2023. 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 $1.8 million from natural gas customer growth. Adjusted gross margin increased by $1.1 million in Florida and $0.7 million on the Delmarva Peninsula for the three months ended June 30, 2023, as compared to the same period in 2022, due primarily to residential customer growth of 4.0 percent and 5.5 percent in Florida and on the Delmarva Peninsula, respectively. 
 
 
 Natural Gas Transmission Service Expansions 
 We generated increased adjusted gross margin of $1.1 million for the three months ended June 30, 2023 from natural gas transmission service expansions including, Peninsula Pipeline's Wildlight, Lake Wales, Winter Haven, and Beachside projects, FPU natural gas' Clean Energy project and Aspire Energy Express' Guernsey pipeline expansion. 
 
 
 Contributions from Off-System Natural Gas Sales 
 We generated additional adjusted gross margin of $0.6 million related to off-system natural gas capacity sales for the three months ended June 30, 2023. 
 
 
 Contributions from Regulated Infrastructure Programs 
 Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $0.4 million in the second quarter of 2023. The increase in adjusted gross margin was primarily related to continued investment in the Eastern Shore's capital surcharge program and FPU Electric's storm protection plan. Refer to Note 5, Rates and Other Regulatory Activities , in the condensed consolidated financial statements for additional information. 
 
 
 Changes in Customer Consumption 
 The continued effects of warmer weather in the second quarter of 2023 contributed to changes in weather-related consumption resulting in reduced adjusted gross margin of $1.1 million. 
 
 
 
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 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 $ 1,305 
 Increased facilities expenses, maintenance costs and outside services 682 
 Depreciation, amortization and property taxes 474 
 Increased costs related to credit and collections 345 
 Other variances 379 
 Quarter-over-quarter increase in operating expenses $ 3,185 

 
 
 For the six months ended June 30, 2023, compared to the six months ended June 30, 2022: 
 
 Six Months Ended 
 June 30, Increase 
 2023 2022 (Decrease) 
 (in thousands) 
 Revenue $ 243,411 $ 220,084 $ 23,327 
 Regulated natural gas and electric costs 79,174 67,016 12,158 
 Adjusted gross margin (1) 
 164,237 153,068 11,169 
 Operations & maintenance 59,698 55,621 4,077 
 Depreciation & amortization 25,987 26,225 (238) 
 Other taxes 11,636 10,683 953 
 Total operating expenses 97,321 92,529 4,792 
 Operating income $ 66,916 $ 60,539 $ 6,377 

 (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 six months ended June 30, 2023 was $66.9 million, an increase of $6.4 million, or 10.5 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, continued pipeline expansion projects and incremental contributions associated with regulated infrastructure programs. These increases were partially offset by changes in customer consumption due to significantly warmer weather during the first half of 2023. Operating expenses increased by $4.8 million compared to the prior year related to employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs, higher facilities, maintenance and outside services costs and increased property taxes. 
 
 
 
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 Items contributing to the period-over-period 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) 
 $ 7,970 
 Natural gas growth including conversions (excluding service expansions) 3,366 
 Natural gas transmission service expansions 1,594 
 Contributions from regulated infrastructure programs 1,193 
 Changes in customer consumption - primarily related to weather (3,013) 
 Eastern Shore contracted rate adjustments (285) 
 Other variances 344 
 Period-over-period increase in adjusted gross margin** $ 11,169 

 (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 $8.0 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 $3.4 million from natural gas customer growth. Adjusted gross margin increased by $1.8 million in Florida and $1.6 million on the Delmarva Peninsula for the six months ended June 30, 2023, as compared to the same period in 2022, due primarily to residential customer growth of 4.2 percent and 5.7 percent in Florida and on the Delmarva Peninsula, respectively. 
 
 
 Natural Gas Transmission Service Expansions 
 We generated increased adjusted gross margin of $1.6 million for the six months ended June 30, 2023 from natural gas transmission service expansions including, Peninsula Pipeline's Wildlight, Lake Wales, Winter Haven, and Beachside projects, FPU natural gas' Clean Energy project and Aspire Energy Express' Guernsey pipeline expansion. 
 
 
 Contributions from Regulated Infrastructure Programs 
 Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $1.2 million for the six months ended June 30, 2023. The increase in adjusted gross margin was primarily related to Eastern Shore's capital surcharge program, and FPU Electric's storm protection plan. Refer to Note 5, Rates and Other Regulatory Activities , in the condensed consolidated financial statements for additional information. 
 
 
 Changes in Customer Consumption 
 Significantly warmer weather experienced during the first half of 2023 contributed to changes in weather-related consumption resulting in reduced adjusted gross margin of $3.0 million for the six months ended June 30, 2023. The Delmarva Peninsula and Florida were warmer by approximately 20 percent and 31 percent, respectively, for the six months ended June 30, 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 for the six months ended June 30, 2023 compared to the same period in 2022. 
 
 
 Operating Expenses 
 Items contributing to the period-over-period increase in operating expenses are listed in the following table: 
 
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 (in thousands) 
 Payroll, benefits and other employee-related expenses $ 1,598 
 Increased facilities expenses, maintenance costs and outside services 1,064 
 Depreciation, amortization and property tax costs due to new capital investments 893 
 Increased costs related to credit and collections 426 
 Other variances 811 
 Period-over-period increase in operating expenses $ 4,792 

 
 
 
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 Unregulated Energy Segment 
 
 
 For the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022: 
 
 
 Three Months Ended 
 June 30, Increase 
 2023 2022 (Decrease) 
 (in thousands) 
 Revenue $ 40,751 $ 53,463 $ (12,712) 
 Unregulated propane and natural gas costs 18,116 31,701 (13,585) 
 Adjusted gross margin (1) 
 22,635 21,762 873 
 Operations & maintenance 18,196 16,127 2,069 
 Depreciation & amortization 4,269 4,074 195 
 Other taxes 1,163 1,001 162 
 Total operating expenses 23,628 21,202 2,426 
 Operating Income (Loss) $ (993) $ 560 $ (1,553) 

 (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 second quarter of 2023 experienced a reduction of $1.6 million compared to the same period in 2022. Adjusted gross margin in the Unregulated Energy segment during the second quarter was impacted by changes in customer consumption due to continued warmer weather in our Mid-Atlantic service territories and the conversion of propane customers to our natural gas distribution service. Additionally, we experienced increased operating expenses associated with higher employee costs driven by the continued competition in the current labor market and increased benefit costs, increased property taxes and higher costs related to facilities, maintenance, and outside services. These factors were partially offset by increased propane margins and fees and continued 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 
 Increased propane margins and service fees $ 1,512 
 Reduced customer consumption due to conversion of customers to our natural gas system (591) 
 Propane customer consumption - primarily weather related (381) 
 CNG/RNG/LNG Transportation and Infrastructure 
 Increased demand for CNG/RNG/LNG Services 478 
 Aspire Energy 
 Reduced customer consumption - primarily weather related (45) 
 Other variances (100) 
 Quarter-over-quarter increase in adjusted gross margin $ 873 

 The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. 
 Propane Operations 
 • Increased Propane Margins and Service Fees - Adjusted g ross margin increased by $1.5 million for the three months ended June 30, 2023, mainly due to increased margins and customer service fees. 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. 
 • Reduced customer consumption due to conversion of customers to our natural gas system - Adjusted gross margin decreased by $0.6 million as more customers converted from propane to our natural gas distribution service. 
 • Propane customer consumption - Adjusted gross margin decreased by $0.4 million due to reduced customer consumption as weather mainly on the Delmarva Peninsula continued to remain significantly warmer relative to the 
 
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 prior year. 
 CNG/RNG/LNG Transportation and Infrastructure 
 • Increased demand for CNG/RNG/LNG services - Adjusted gross margin increased by $0.5 million during the second quarter of 2023 as compared to the same period in the prior year due to higher demand for CNG hold services and contributions from the Aspire Noble Road RNG project . 
 Aspire Energy 
 • Reduced Customer Consumption - Adjusted gross margin was reduced by less than $0.1 million due to reduced demand as weather in Ohio remained warmer compared to 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 $ 1,908 
 Increased depreciation, amortization and property tax costs 311 
 Increased facilities expenses, maintenance costs and outside services 291 
 Other variances (84) 
 Quarter-over-quarter increase in operating expenses $ 2,426 

 
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 For the six months ended June 30, 2023, compared to the six months ended June 30, 2022: 
 
 Six Months Ended 
 June 30, Increase 
 2023 2022 (Decrease) 
 (in thousands) 
 Revenue $ 123,916 $ 154,754 $ (30,838) 
 Unregulated propane and natural gas costs 58,687 89,708 (31,021) 
 Adjusted gross margin (1) 
 65,229 65,046 183 
 Operations & maintenance 37,810 34,211 3,599 
 Depreciation & amortization 8,503 7,954 549 
 Other taxes 2,664 2,268 396 
 Total operating expenses 48,977 44,433 4,544 
 Operating Income $ 16,252 $ 20,613 $ (4,361) 

 
 Operating results for the Unregulated Energy segment for the six months ended June 30, 2023 decreased by $4.4 million compared to the same period in 2022. Operating results during the first half of 2023 were impacted by changes in customer consumption due to significantly warmer weather in our Mid-Atlantic service territories as well as the conversion of propane customers to our natural gas distribution service. Additionally, we experienced increased operating expenses associated with higher employee related expenses driven by the continued competition in the current labor market and higher benefit costs, increased costs for facilities, maintenance, and outside services and higher property taxes. These factors were partially offset by increased propane margins and fees and continued demand for CNG, RNG and LNG services. 
 Items contributing to the period-over-period increase in adjusted gross margin are listed in the following table: 
 
 (in thousands) 
 Propane Operations 
 Propane customer consumption - primarily weather related $ (4,924) 
 Increased propane margins and service fees 4,576 
 Decreased customer consumption due to conversion of customers to our natural gas system (591) 
 CNG/RNG/LNG Transportation and Infrastructure 
 Increased demand for CNG/RNG/LNG Services 1,766 
 Aspire Energy 
 Reduced customer consumption - primarily weather related (553) 
 Other variances (91) 
 Period-over-period increase in adjusted gross margin $ 183 

 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 $4.9 million as a result of reduced customer consumption driven by significantly warmer weather in our Mid-Atlantic and North Carolina service areas experienced primarily during the first quarter which continued to a lesser extent through the second quarter. 
 • Increased Propane Margins and Service Fees - Adjusted g ross margin increased by $4.6 million for the six months ended June 30, 2023, mainly due to increased margins and customer service fees. Propane margins also increased due to gains associated 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. 
 • Reduced customer consumption due to conversion of customers to our natural gas system - Adjusted gross margin fell by $0.6 million as more customers converted from propane to our natural gas distribution service. 
 
 
 
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 CNG/RNG/LNG Transportation and Infrastructure 
 • Increased demand for CNG/RNG/LNG services - Adjusted gross margin increased by $1.8 million during the first half of the year as compared to the same period in the prior year due to higher demand for CNG hold services and contributions from the Aspire Noble Road RNG project. 
 Aspire Energy 
 • Reduced Customer Consumption - Adjusted gross margin was reduced by $0.6 million due to reduced demand as weather in Ohio was approximately 13 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 $ 2,733 
 Increased facilities expenses, maintenance costs and outside services 889 
 Increased depreciation, amortization and property tax costs 836 
 Other variances 86 
 Period-over-period increase in operating expenses $ 4,544 

 
 
 
 O THER I NCOME , N ET 
 For the quarter ended June 30, 2023 compared to the quarter ended June 30, 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 $1.8 million in the second quarter of 2023. This was primarily attributable to lower gains on asset sales, including the absence of a one-time gain of $1.9 million related to a building sale during the second quarter of 2022, and higher pension related expenses compared to the same period in 2022. 
 
 
 For the six months ended June 30, 2023 compared to the six months ended June 30, 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 $2.4 million in the six months ended June 30, 2023. This was primarily attributable to lower gains on asset sales, including the absence of a one-time gain referred to above, and higher pension related expenses compared to the same period in 2022. 
 
 
 I NTEREST C HARGES 
 For the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 
 Interest charges for the three months ended June 30, 2023 increased by $1.1 million, compared to the same period in 2022, attributable primarily to $0.9 million in interest expense as a result of a long-term debt placement in 2023 and $0.7 million in higher interest rates on outstanding borrowings under our Revolver. These factors were partially offset by higher capitalized interest of $0.4 million associated with growth projects. The weighted-average interest rate on our Revolver borrowings was 5.25 percent during the second quarter of 2023 compared to 1.52 percent during the prior-year period as a result of the Federal Reserve raising interest rates throughout 2022 and through the second quarter of 2023. Any additional increases in interest rates by the Federal Reserve would have a corresponding increase in the interest rates charged under our Revolver. 
 
 
 For the six months ended June 30, 2023 compared to the six months ended June 30, 2022 
 Interest charges for the six months ended June 30, 2023 increased by $3.0 million, compared to the same period in 2022, attributable to $2.6 million primarily related to higher interest rates on outstanding borrowings under our Revolver and $1.1 million in interest expense as a result of a long-term debt placement in 2022 and 2023. These factors were partially offset by higher capitalized interest of $0.8 million associated with growth projects. The weighted-average interest rate on our Revolver borrowings was 5.18 percent during the six months ended June 30, 2023 compared to 1.12 percent during the prior-year period as a result of the Federal Reserve raising interest rates throughout 2022 and during the six months ended June 30, 2023. Any additional increases in interest rates by the Federal Reserve would have a corresponding increase in the interest rates charged under our Revolver. 
 
 
 
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 I NCOME T AXES 
 For the quarter ended June 30, 2023 compared to the quarter ended June 30, 2022 
 Income tax expense was $6.1 million for the quarter ended June 30, 2023, compared to $6.2 million for the quarter ended June 30, 2022. Our effective income tax rate was 27.4 percent and 26.6 percent, for the three months ended June 30, 2023 and 2022, respectively. 
 
 
 For the six months ended June 30, 2023 compared to the six months ended June 30, 2022 
 Income tax expense was $17.7 million for the six months ended June 30, 2023, compared to $19.7 million for the six months ended June 30, 2022. Our effective income tax rate was 25.2 percent and 26.7 percent, for the six months ended June 30, 2023 and 2022, respectively. Income tax expense for the six months ended June 30, 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 27.0 percent for the six months ended June 30, 2023. 
 
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 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 an 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 an 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 $91.9 million for the six months ended June 30, 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, the Florida Beachside Pipeline, the Wildlight pipeline expansion, other small pipeline expansion opportunities and 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. 
 
 
 
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 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 June 30, 2023 and December 31, 2022: 
 
 June 30, 2023 December 31, 2022 
 (in thousands) 
 Long-term debt, net of current maturities $ 645,742 43 % $ 578,388 41 % 
 Stockholders’ equity 864,228 57 % 832,801 59 % 
 Total capitalization, excluding short-term debt $ 1,509,970 100 % $ 1,411,189 100 % 
 
 June 30, 2023 December 31, 2022 
 (in thousands) 
 Short-term debt $ 95,807 6 % $ 202,157 12 % 
 Long-term debt, including current maturities 665,736 41 % 599,871 37 % 
 Stockholders’ equity 864,228 53 % 832,801 51 % 
 Total capitalization, including short-term debt $ 1,625,771 100 % $ 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 June 30, 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. 
 During the first half 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 expanded the total borrowing capacity and extended the term of the agreements for an additional three years from the effective date. The following table summarizes our Shelf Agreements at June 30, 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 June 30, 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. 
 
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 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 June 30, 2023 and December 31, 2022, we had $95.8 million and $202.2 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 5.33 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 addition, the 364-day tranche was extended through August 2023. We expect to renew the 364-day tranche of the Revolver upon its current expiration. As part of these amendments, the parties agreed to eliminate the previous covenant capping the aggregate investments limit 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 June 30, 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 June 30, 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 June 30, 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 June 30, 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 June 30, 2023 was $298.3 million. As of June 30, 2023, we had issued $5.9 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 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. 
 
 
 
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 Cash Flows 
 The following table provides a summary of our operating, investing and financing cash flows for the six months ended June 30, 2023 and 2022: 
 
 
 Six Months Ended 
 June 30, 
 (in thousands) 2023 2022 
 Net cash provided by (used in): 
 Operating activities $ 148,983 $ 123,795 
 Investing activities (88,991) (64,167) 
 Financing activities (62,027) (60,418) 
 Net (decrease) increase in cash and cash equivalents (2,035) (790) 
 Cash and cash equivalents—beginning of period 6,204 4,976 
 Cash and cash equivalents—end of period $ 4,169 $ 4,186 

 
 
 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 amortization, changes in deferred income taxes, share-based compensation expense 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 six months ended June 30, 2023, net cash provided by operating activities was $149.0 million. Operating cash flows were primarily impacted by the following: 
 • Net income, adjusted for non-cash adjustments, provided a $93.7 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 $28.8 million source of cash; 
 • Other working capital changes, impacted primarily by a reduction in net receivables and propane inventory levels, resulted in a $19.6 million source of cash; and 
 • An increased level of deferred taxes associated with incremental tax depreciation from growth investments resulted in a source of cash of $5.7 million. 
 
 
 Cash Flows Used in Investing Activities 
 
 
 Net cash used in investing activities totaled $89.0 million during the six months ended June 30, 2023, largely driven by $90.3 million for new capital expenditures. 
 
 
 Cash Flows Used in Financing Activities 
 
 
 Net cash used in financing activities totaled $62.0 million during the six months ended June 30, 2023 and included the following: 
 • Net repayments under the Revolver of $104.2 million; 
 • A use of cash of $19.0 million for dividend payments in 2023; partially offset by 
 • A net increase in long-term debt borrowings of $65.8 million to permanently finance investment in growth initiatives. 
 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 June 30, 2023 was $20.0 million. The aggregate amount guaranteed related to our subsidiaries at June 30, 2023 was $14.2 million, with the guarantees expiring on various dates through May 2024. In addition, the Board has authorized us to issue specific purpose corporate guarantees. The amount of specific purpose guarantees outstanding at June 30, 2023 was $4.0 million. 
 As of June 30, 2023, we have issued letters of credit totaling approximately $5.9 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 April 
 
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 2024. We have not drawn upon these letters of credit as of June 30, 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 June 30, 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) 
 $ 47,157 $ — $ — $ — $ 47,157 
 Total $ 47,157 $ — $ — $ — $ 47,157 

 
 (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. 
 
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
CHESAPEAKE UTILITIES CORP 10-Q

Item 2. Management’s Discussion and Analysis
