What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-02 compared with 2023-08-03 · 324 added, 250 removed, 624 unchanged (48% of the section changed)

31 unchanged sentences

• 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;

• the impact on our costs and funding obligations, under our pension and other postretirement benefit plans, of potential downturns in the financial markets, lower discount rates, and costs associated with health care legislation and regulation;

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

17 unchanged sentences

Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is normally highest due to colder temperatures.

Acquisition of Florida City Gas

In September 2023, we entered into a definitive stock purchase agreement with NextEra Energy, Inc.

to acquire FCG for approximately $923.0 million in cash, subject to certain working capital adjustments.

The transaction is expected to close by the end of the fourth quarter of 2023, subject to customary closing conditions and certain regulatory approvals, at which time FCG will become a wholly-owned subsidiary of the Company.

FCG is a regulated utility that is expected to be included within our Regulated Energy segment.

FCG serves approximately 120,000 residential and commercial natural gas customers across eight counties in Florida, including Miami-Dade, Broward, Brevard, Palm Beach, Hendry, Martin, St.

Lucie and Indian River.

Its natural gas system includes approximately 3,800 miles of distribution main and 80 miles of transmission pipe.

Simultaneous with execution of the definitive purchase agreement, we obtained a commitment for a 364-day bridge loan facility (the “Bridge Facility”) for up to $965.0 million to fund the acquisition.

In October 2023, the Bridge Facility commitment was extended to include additional lending parties.

The Bridge Facility may be utilized to finance the acquisition in whole or part, largely based upon the proceeds from any related debt and/or equity financings we undertake.

See the discussion on the Bridge Facility within Financial Position, Liquidity and Capital Resources below for additional details.

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.

Non-GAAP Financial Measures

This document, including the tables herein, include references to both Generally Accepted Accounting Principles ("GAAP") and non-GAAP financial measures, including Adjusted Gross Margin, Adjusted Net Income and Adjusted EPS.

A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that includes or excludes amounts, or that is subject to adjustments, so as to be different from the most directly comparable measure calculated or presented in accordance with GAAP.

Our management believes certain non-GAAP financial measures, when considered together with GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period.

We calculate Adjusted Gross Margin 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:

For the Three Months Ended June 30, 2023

We calculate Adjusted Net Income and Adjusted EPS by deducting non-recurring costs and expenses associated with significant acquisitions that may affect the comparison of period-over-period results.

These non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measures.

The Company believes that these non-GAAP financial measures are useful and meaningful to investors as a basis for making investment decisions, and provide investors with information that demonstrates the profitability achieved by the Company under allowed rates for regulated energy operations and under the Company's competitive pricing structures for unregulated energy operations.

The Company's management uses these non-GAAP financial measures in assessing a business unit and Company performance.

Other companies may calculate these non-GAAP financial measures in a different manner.

The following tables reconcile Gross Margin, Net Income, and EPS, all as defined under GAAP, to our non-GAAP financial measures of Adjusted Gross Margin, Adjusted Net Income and Adjusted EPS for the three and nine months ended September 30, 2023 and 2022:

Adjusted Gross Margin

For the Three Months Ended September 30, 2023

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

10 unchanged sentences

Adjusted Gross Margin (Non-GAAP) $ 75,893 $ 18,589 $ (29) $ 94,453

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

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

10 unchanged sentences

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

For the Six months ended June 30, 2023

For the Nine months ended September 30, 2023

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

10 unchanged sentences

Adjusted Gross Margin (Non-GAAP) $ 240,130 $ 83,818 $ (157) $ 323,791

For the Six months ended June 30, 2022

For the Nine months ended September 30, 2022

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

13 unchanged sentences

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.

Gross Margin (GAAP) for the Regulated Energy segment for the quarter ended September 30, 2023 was $57.9 million, an increase of $10.6 million, or 22.5 percent, compared to the same period in 2022.

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

These contributors were partially offset by changes in customer consumption during the quarter.

Gross Margin (GAAP) for the Regulated Energy segment for the nine months ended September 30, 2023 was $177.6 million, an increase of $20.0 million, or 12.7 percent, compared to the same period in 2022.

These increases were partially offset by changes in customer consumption, increased employee costs related to growth initiatives, the ongoing competitive labor market and higher benefits costs.

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.

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

Results of Operations for the Three and Six Months Ended June 30, 2023

Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended September 30, 2023 was $6.6 million, an increase of $1.2 million, or 22.9 percent, compared to the same period in 2022.

Higher gross margin related primarily to contributions from increased propane margins and fees.

The increase was partially offset by reduced customer consumption due in part to the conversion of propane customers to our natural gas distribution service and reduced levels of virtual pipeline services.

Additionally, we experienced increased operating expenses associated with employee costs driven by the ongoing competitive labor market and higher benefits costs as well as higher depreciation and amortization.

Gross Margin (GAAP) for the Unregulated Energy segment for the nine months ended September 30, 2023 was $47.4 million, compared to $48.7 million for the same period in 2022.

Gross margin during the period was impacted by changes in customer consumption due to significantly warmer weather in our Mid-Atlantic service territories primarily during the first half of the year and the ongoing conversion of propane customers to our natural gas distribution service.

These factors were largely offset by expanded propane margins and fees and increased demand for virtual pipeline services.

Additionally, we experienced increased operating expenses associated with employee costs driven by the ongoing competitive labor market and higher benefits costs and increased depreciation and amortization.

Adjusted Net Income and Adjusted EPS

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands, except shares and per share data) 2023 2022 2023 2022

Net Income (GAAP) $ 9,407 $ 9,662 $ 61,884 $ 63,646

Transaction-related expenses, net (1)

2,804 — 2,898 —

Adjusted Net Income (Non-GAAP) $ 12,211 $ 9,662 $ 64,782 $ 63,646

Weighted average common shares outstanding - diluted 17,857,784 17,819,373 17,847,288 17,797,001

Earnings Per Share - Diluted (GAAP) $ 0.53 $ 0.54 $ 3.47 $ 3.58

Transaction-related expenses, net (1)

0.16 — 0.16 —

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 0.69 $ 0.54 $ 3.63 $ 3.58

(1) Transaction-related expenses represent costs incurred attributable to the announced acquisition of FCG including, but not limited to, legal, consulting, audit and financing fees.

2023 to 2022 Net Income (GAAP) Variance

Net income (GAAP) for the three months ended September 30, 2023 was $9.4 million, or $0.53 per share, compared to $9.7 million, or $0.54 per share, for the same quarter of 2022.

Transaction-related expenses incurred in connection with the announced FCG acquisition, higher operating expenses, interest charges, and depreciation, amortization and property taxes were largely offset by the previously discussed increase in gross margin.

Net income for the third quarter of 2022 also included a non-recurring after-tax gain of $0.5 million related to interest income from a federal income tax refund.

Net income (GAAP) for the nine months ended September 30, 2023 was $61.9 million, or $3.47 per share, compared to $63.6 million, or $3.58 per share, for the same period in 2022.

Net income for the nine months ended September 30, 2023 included a one-time tax benefit of $1.3 million associated with a reduction in state tax rate, while net income for the prior-year period included a non-recurring after-tax gain of $1.4 million related to a building sale and after-tax interest income of $0.5 million related to a federal income tax refund.

Inclusive of the effects of these items and the transaction-related expenses incurred in connection with the announced FCG acquisition, results for the nine months ended September 30, 2023 were also impacted by higher operating expenses, interest charges, and depreciation, amortization and property taxes.

These factors were largely offset by the previously discussed increase in gross margin.

Results of Operations for the Three and Nine Months Ended September 30, 2023

Chesapeake Utilities is a Delaware corporation formed in 1947.

15 unchanged sentences

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.

Our adjusted net income for the three months ended September 30, 2023 was $12.2 million, or $0.69 per share, compared to $9.7 million, or $0.54 per share, for the same quarter of 2022.

Adjusted net income for the third quarter of 2022 included a non-recurring after-tax gain of $0.5 million related to interest income from a federal income tax refund.

Operating income for the third quarter of 2023 was $20.2 million, an increase of $1.6 million or 8.5 percent compared to the same period in 2022.

Excluding transaction-related expenses associated with the announced acquisition of FCG, operating income increased $5.5 million or 29.4 percent compared to the prior-year period.

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

These increases in adjusted gross margin were partially offset by reduced demand for virtual pipeline services and reduced customer consumption during the third quarter of 2023.

Higher operating expenses 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 depreciation, amortization and property taxes.

Three Months Ended

June 30, Increase

September 30, Increase

2023 2022 (Decrease)

(in thousands, except per share data)

(in thousands, except shares and per share data)

Adjusted Gross Margin

8 unchanged sentences

Total Operating Income 20,228 18,648 1,580

Other income, net 831 2,584 (1,753)

Other income (expense), net (72) 957 (1,029)

Interest charges 7,076 6,240 836

Income from Before Income Taxes 22,213 23,228 (1,015)

Income Before Income Taxes 13,080 13,365 (285)

Income Taxes 3,673 3,703 (30)

2 unchanged sentences

Diluted Earnings Per Share of Common Stock $ 0.53 $ 0.54 $ (0.01)

Key variances between the second quarter of 2022 and the second quarter of 2023 included:

Adjusted Net Income and Adjusted Earnings Per Share

Net Income (GAAP) $ 9,407 $ 9,662 $ (255)

Transaction-related expenses, net (1)

2,804 — 2,804

Adjusted Net Income (Non-GAAP) $ 12,211 $ 9,662 $ 2,549

Weighted average common shares outstanding - diluted 17,857,784 17,819,373 38,411

Earnings Per Share - Diluted (GAAP) $ 0.53 $ 0.54 $ (0.01)

Transaction-related expenses, net (1)

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 0.69 $ 0.54 $ 0.15

(1) Transaction-related expenses represent costs incurred attributable to the announced acquisition of FCG including, but not limited to, legal, consulting, audit and financing fees.

Key variances between the third quarter of 2022 and the third quarter of 2023 included:

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

Income Earnings

Second Quarter of 2022 Reported Results

Third Quarter of 2022 Adjusted Results

$ 13,365 $ 9,662 $ 0.54

Adjusting for Non-recurring Items:

Absence of gain from sales of assets (1,902) (1,382) (0.08)

Non-recurring Items:

Absence of interest income from Federal Income Tax refund (628) (454) (0.03)

(628) (454) (0.03)

1 unchanged sentence

Contribution from rates associated with Florida natural gas base rate proceeding* 3,470 2,495 0.14

Natural gas growth including conversions (excluding service expansions) 1,844 1,339 0.08

Increased propane margins and service fees 1,813 1,304 0.07

Natural gas transmission service expansions* 1,382 994 0.06

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

Natural gas growth including conversions (excluding service expansions) 1,312 944 0.06

Contributions from regulated infrastructure programs* 563 405 0.02

Customer consumption - primarily resulting from weather (2,165) (1,572) (0.09)

Changes in customer consumption (684) (492) (0.03)

Decreased margins related to demand for virtual pipeline services* (428) (308) (0.02)

7,428 5,342 0.30

1 unchanged sentence

Increased payroll, benefits and other employee-related expenses (1,638) (1,178) (0.06)

Increased facilities expenses, maintenance costs and outside services (1,008) (732) (0.04)

Depreciation, amortization and property taxes (697) (501) (0.03)

1 unchanged sentence

Interest charges (835) (601) (0.03)

Changes in Other income, net (401) (288) (0.02)

Net other changes 385 229 0.02

(851) (660) (0.03)

Second Quarter of 2023 Reported Results

Third Quarter of 2023 Adjusted Results**

$ 16,979 $ 12,211 $ 0.69

* See the Major Projects and Initiatives table.

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

**Transaction-related expenses attributable to the announced acquisition of FCG have been excluded from the Company’s non-GAAP measures of adjusted net income and adjusted EPS.

See the Reconciliation of GAAP to Non-GAAP Measures presented above.

Our adjusted net income for the nine months ended September 30, 2023 was $64.8 million, or $3.63 per share, compared to $63.6 million, or $3.58 per share, for the same period of 2022.

Adjusted net income for the nine months ended September 30, 2023 included a one-time tax benefit of $1.3 million associated with a reduction in state tax rate, while adjusted net income for the prior-year period included a non-recurring after-tax gain of $1.4 million related to a building sale and after-tax interest income of $0.5 million related to a federal income tax refund.

Operating income for the nine months ended September 30, 2023 was $103.5 million, an increase of $3.5 million or 3.5 percent compared to the same period in 2022.

Excluding transaction-related expenses associated with the announced acquisition of FCG, operating income increased $7.4 million or 7.4 percent compared to the prior-year period.

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

These increases in adjusted gross margin were partially offset by reduced customer consumption experienced during the first nine months of 2023 largely due to the unprecedented temperatures in our northern service territories primarily during the first half of the year.

The Company recorded higher employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs compared to the prior-year period, higher depreciation, amortization and property taxes and increased costs related to facilities, maintenance and outside services.

Nine Months Ended

September 30, Increase

2023 2022 (Decrease)

(in thousands, except per share data)

(in thousands, except shares and per share data)

Adjusted Gross Margin

10 unchanged sentences

Interest charges 21,272 17,404 3,868

Income from Before Income Taxes 70,172 73,668 (3,496)

Income Before Income Taxes 83,252 87,031 (3,779)

Income Taxes 21,368 23,385 (2,017)

2 unchanged sentences

Diluted Earnings Per Share of Common Stock $ 3.47 $ 3.58 $ (0.11)

Key variances between the six months ended June 30, 2022 and the six months ended June 30, 2023 included:

Adjusted Net Income and Adjusted Earnings Per Share

Net Income (GAAP) $ 61,884 $ 63,646 $ (1,762)

Transaction-related expenses, net (1)

2,898 — 2,898

Adjusted Net Income (Non-GAAP) $ 64,782 $ 63,646 $ 1,136

Weighted average common shares outstanding - diluted 17,847,288 17,797,001 $ 50,287

Earnings Per Share - Diluted (GAAP) $ 3.47 $ 3.58 $ (0.11)

Transaction-related expenses, net (1)

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 3.63 $ 3.58 $ 0.05

(1) Transaction-related expenses represent costs incurred attributable to the announced acquisition of FCG including, but not limited to, legal, consulting, audit and financing fees.

Key variances between the nine months ended September 30, 2022 and the nine months ended September 30, 2023 included:

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

Income Earnings

Six months ended June 30, 2022 Reported Results

Nine months ended September 30, 2022 Adjusted Results

$ 87,031 $ 63,646 $ 3.58

Adjusting for Non-recurring Items:

Non-recurring Items:

Absence of gain from sales of assets (1,902) (1,414) (0.08)

Absence of interest income from Federal Income Tax refund (628) (459) (0.03)

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

1 unchanged sentence

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* 11,440 8,504 0.48

1 unchanged sentence

Natural gas growth including conversions (excluding service expansions) 4,678 3,478 0.19

Increased margins related to demand for CNG/RNG/LNG services* 1,766 1,321 0.07

Natural gas transmission service expansions* 2,976 2,212 0.12

Contributions from regulated infrastructure programs* 1,756 1,305 0.07

Eastern Shore contracted rate adjustments (285) (213) (0.01)

Increased margins related to demand for virtual pipeline services* 1,338 995 0.06

Increased adjusted gross margin from off-system natural gas capacity sales 740 550 0.03

Customer consumption - primarily resulting from weather (9,765) (7,259) (0.41)

19,552 14,534 0.81

1 unchanged sentence

Increased payroll, benefits and other employee-related expenses (5,905) (4,389) (0.25)

Increased facilities expenses, maintenance costs and outside services (2,069) (1,548) (0.09)

Depreciation, amortization and property taxes (2,397) (1,782) (0.10)

Increased facilities expenses, maintenance costs and outside services (2,032) (1,510) (0.08)

(10,334) (7,681) (0.43)

3 unchanged sentences

(6,568) (5,128) (0.29)

Six months ended June 30, 2023 Reported Results

Nine months ended September 30, 2023 Adjusted Results**

$ 87,151 $ 64,782 $ 3.63

* See the Major Projects and Initiatives table.

**Transaction-related expenses attributable to the announced acquisition of FCG have been excluded from our non-GAAP measures of adjusted net income and adjusted EPS.

See the Reconciliation of GAAP to Non-GAAP Measures presented above.

Summary of Key Factors

1 unchanged sentence

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.

The following table includes the major projects and 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.

As the FCG acquisition is still pending, it has not been incorporated into the table below.

Adjusted Gross Margin

Three Months Ended Six Months Ended Year Ended Estimate for

June 30, June 30, December 31, Fiscal

Three Months Ended Nine Months Ended Year Ended Estimate for

September 30, September 30, December 31, Fiscal

(in thousands) 2023 2022 2023 2022 2022 2023 2024

10 unchanged sentences

Lake Wales 114 — 152 — — 265 454

Newberry — — — — — TBD TBD

Newberry — — — — — — 862

Total Pipeline Expansions 1,819 437 4,105 1,129 1,763 6,543 12,012

8 unchanged sentences

Total $ 9,270 $ 4,260 $ 28,017 $ 10,626 $ 17,824 $ 38,248 $ 50,498

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

(1) Includes adjusted gross margin generated from interim services through the project in-service date in September 2023.

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

4 unchanged sentences

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.

The project generated additional adjusted gross margin of $0.1 million for the nine months ended September 30, 2023, and is expected to produce adjusted gross margin of approximately $1.5 million in 2023 and beyond.

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 installed 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 went into service during October 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.

5 unchanged sentences

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.

The project generated additional adjusted gross margin of $0.1 million and $0.3 million, for the three and nine months ended September 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.

In June 2021, Peninsula Pipeline and, at that time, an unrelated party, 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.

The project generated additional adjusted gross margin of $0.6 million and $1.2 million, respectively, for the three and nine months ended September 30, 2023.

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

3 unchanged sentences

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.

Construction of this project was completed in the second quarter of 2023.

Adjusted gross margin in connection with this project is expected to be recognized contingent upon the completion and inclusion in rate base at 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

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.

As part of this agreement, Peninsula Pipeline constructed a pipeline extension and regulator station for FPU.

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

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

This project was placed into service during July 2023 and generated additional adjusted gross margin of $0.1 million for both the three and nine months ended September 30, 2023.

We expect this extension to generate additional annual 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.

We installed approximately 2.2 miles of main extension in Davenport, Florida to support the filling station which was placed into service during September 2023.

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

The project generated additional adjusted gross margin of $0.3 million and $0.8 million, for the three and nine months ended September 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

to meet the significant growing demand for service in Yulee, Florida.

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

The agreement will enable us to build the project during the construction and build-out of the community, and charge the reservation rate as each phase of the project goes into service.

3 unchanged sentences

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.

The project generated adjusted gross margin of $0.2 million and $0.3 million, respectively, for the three and nine months ended September 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.

2 unchanged sentences

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.

Approval of the agreement enabled Peninsula Pipeline to complete the acquisition of an existing pipeline in May 2023 that is being utilized to serve both current and new natural gas customers.

During the three and nine months ended September 30, 2023 the project generated adjusted gross margin of $0.1 million and $0.2 million, respectively.

The project is expected to contribute adjusted gross margin of approximately $0.3 million in 2023 and $0.5 million in 2024 and beyond.

1 unchanged sentence

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.

The petition was approved by the Florida PSC in the third quarter of 2023.

The project is expected to contribute adjusted gross margin of approximately $0.9 million in 2024 and beyond.

Worcester Resiliency Upgrade

In August 2023, Eastern Shore filed an application with the FERC requesting authorization to construct the Worcester Resiliency Upgrade, which consists of a mixture of storage and transmission facilities in Sussex County, DE and Wicomico, Worcester, and Somerset Counties in Maryland.

The project will provide long-term incremental supply necessary to support the growing demand of the participating shippers.

Eastern Shore has requested certificate authorization by December 2024, with a target in-service date by the third quarter of 2025.

CNG/RNG/LNG Transportation and Infrastructure

8 unchanged sentences

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.

For the nine months ended September 30, 2023, we generated $1.3 million in additional adjusted gross margin, associated with the transportation of CNG and RNG by Marlin’s virtual pipeline and Aspire Energy’s Noble Road RNG pipeline.

We estimate annual adjusted gross margin of approximately $11.3 million in 2023, and $12.5 million in 2024 for these transportation related services, with potential for additional growth in future years.

16 unchanged sentences

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.

We 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 maintenance and repair equipment and system reliability projects.

In August 2023, the Florida PSC approved the GUARD program, which included $205 million of capital expenditures projected to be spent over a 10-year period.

For t he three and nine months ended September 30, 2023 , there was $0.1 million of incremental adjusted gross margin generated pursuant to the program.

The program is expected to generate $0.3 million of additional adjusted gross margin in 2023 and $2.4 million in 2024.

Capital Cost Surcharge Programs

1 unchanged sentence

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.

For t he three and nine months ended September 30, 2023 , there was $0.2 million and $0.6 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 $4.0 million in 2024 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction.

10 unchanged sentences

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.

For the three and nine months ended September 30, 2023, there was $3.5 million and $11.4 million, respectively, of incremental adjusted gross margin generated pursuant to this proceeding , and it is expected to generate $16.3 million of total adjusted gross margin in 2023 and $17.2 million in 2024.

Storm Protection Plan

2 unchanged sentences

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.

For the three and nine months ended September 30, 2023, this initiative generated adjusted gross margin of approximately $0.3 million and $0.9 million, respectively, and is expected to generate $1.0 million of total adjusted gross margin in 2023 and $2.4 million in 2024.

We expect continued investment under the SPP going forward.

2 unchanged sentences

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

Our Florida regulated business units reached a settlement with the

Florida OPC in June 2021, enabling the business units to establish a regulatory asset of $2.1 million.

Our Florida regulated business units reached a settlement with the Florida OPC in June 2021, enabling the business units to establish a regulatory asset of $2.1 million.

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

3 unchanged sentences

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,

Weather was not a significant factor during the third quarter of 2023 but the Company's year-to-date adjusted gross margin was negatively impacted by approximately $9.8 million attributable to reduced customer consumption driven largely by significantly warmer weather in some of our service territories.

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended Nine Months Ended

September 30, September 30,

2023 2022 Variance 2023 2022 Variance

13 unchanged sentences

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.

The average number of residential customers served on the Delmarva Peninsula increased by approximately 5.5 percent and 5.6 percent, respectively, for the three and nine months ended September 30, 2023, while Florida customers increased by 3.6 percent and 4.0 percent, respectively, for the three- and nine-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.

1 unchanged sentence

The details are provided in the following table:

Three Months Ended Six Months Ended

June 30, 2023 June 30, 2023

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2023

(in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida

6 unchanged sentences

Regulated Energy Segment

For the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022:

For the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022:

Three Months Ended

June 30, Increase

September 30, Increase

2023 2022 (Decrease)

6 unchanged sentences

Depreciation & amortization 13,192 13,271 (79)

Transaction-related expenses (2)

3,899 — 3,899

Other taxes 5,290 5,130 160

3 unchanged sentences

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.

(2) Transaction-related expenses represent costs incurred attributable to the announced acquisition of FCG including, but not limited to, legal, consulting, audit and financing fees.

Operating income for the Regulated Energy segment for the third quarter of 2023 was $24.9 million, an increase of $1.2 million, or 5.3 percent, over the same period in 2022.

Excluding the transaction-related expenses associated with the announced acquisition of FCG, operating income increased $5.1 million or 21.8 percent over the same period in 2022.

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

These increases were partially offset by changes in customer consumption.

Excluding the transaction-related expenses described above, operating expenses increased by $1.0 million compared to the prior year primarily attributable to increased employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs, and higher property taxes.

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

1 unchanged sentence

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

Natural gas growth including conversions (excluding service expansions) 1,844

Natural gas transmission service expansions 1,382

Increased adjusted gross margin from off-system natural gas capacity sales 637

Natural gas growth including conversions (excluding service expansions) 1,312

Contributions from regulated infrastructure programs 563

Changes in customer consumption - primarily related to weather (1,148)

Changes in customer consumption (259)

Other variances (307)

4 unchanged sentences

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.

These permanent rates contributed additional adjusted gross margin of $3.5 million for the three months ended September 30, 2023.

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

Natural Gas Transmission Service Expansions

We generated increased adjusted gross margin of $1.4 million for the three months ended September 30, 2023 from natural gas transmission service expansions including Peninsula Pipeline's Wildlight, Lake Wales, St.

Cloud/Twin Lakes, Winter Haven, and Beachside projects, as well as FPU natural gas' Clean Energy project.

Natural Gas Distribution Customer Growth

We generated additional adjusted gross margin of $1.3 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.

Adjusted gross margin increased by $0.9 million in Florida and $0.4 million on the Delmarva Peninsula for the three months ended September 30, 2023, as compared to the same period in 2022, due primarily to residential customer growth of 3.6 percent and 5.5 percent in Florida and on the Delmarva Peninsula, respectively, as well as commercial and industrial growth in Florida.

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.

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $0.6 million in the third quarter of 2023.

The increase in adjusted gross margin was primarily related to continued investment in 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.

We experienced reduced customer consumption in the third quarter of 2023 resulting in reduced adjusted gross margin of $0.3 million.

Operating Expenses

1 unchanged sentence

(in thousands)

Transaction-related expenses (1)

Increased payroll, benefits and other employee-related expenses 749

Increased facilities expenses, maintenance costs and outside services 682

Depreciation, amortization and property taxes 297

Increased costs related to credit and collections 345

Other variances (33)

Quarter-over-quarter increase in operating expenses $ 4,912

For the six months ended June 30, 2023, compared to the six months ended June 30, 2022:

Six Months Ended

June 30, Increase

(1) Transaction-related expenses represent costs incurred attributable to the announced acquisition of FCG including, but not limited to, legal, consulting, audit and financing fees.

For the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022:

Nine Months Ended

September 30, Increase

2023 2022 (Decrease)

6 unchanged sentences

Depreciation & amortization 39,179 39,496 (317)

Transaction-related expenses (2)

3,899 — 3,899

Other taxes 16,926 15,814 1,112

3 unchanged sentences

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.

(2) Transaction-related expenses represent costs incurred attributable to the announced acquisition of FCG including, but not limited to, legal, consulting, audit and financing fees.

Operating income for the Regulated Energy segment for the nine months ended September 30, 2023 was $91.8 million, an increase of $7.6 million, or 9.1 percent, over the same period in 2022.

Excluding the transaction-related expenses associated with the announced acquisition of FCG, operating income increased $11.5 million or 13.7 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.

These increases were partially offset by changes in customer consumption.

Excluding the transaction-related expenses described above, operating expenses increased by $5.8 million compared to the prior year primarily attributable to increased employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs, increased property taxes and higher facilities, maintenance and outside services costs.

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

4 unchanged sentences

Contributions from regulated infrastructure programs 1,756

Changes in customer consumption - primarily related to weather (3,013)

Eastern Shore contracted rate adjustments (285)

Changes in customer consumption (3,272)

Other variances (248)

9 unchanged sentences

We generated additional adjusted gross margin of $4.7 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.

Adjusted gross margin increased by $2.7 million in Florida and $2.0 million on the Delmarva Peninsula for the nine months ended September 30, 2023, as compared to the same period in 2022, due primarily to residential customer growth of 4.0 percent and 5.6 percent in Florida and on the Delmarva Peninsula, respectively, as well as commercial and industrial growth in Florida.

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.

We generated increased adjusted gross margin of $3.0 million for the nine months ended September 30, 2023 from natural gas transmission service expansions including Peninsula Pipeline's Wildlight, Lake Wales, St.

Cloud/Twin Lakes, 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.

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $1.8 million for the nine months ended September 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.

1 unchanged sentence

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.

We experienced reduced customer consumption for the nine months ended September 30, 2023 as a result of significantly warmer weather experienced in our Delmarva service territory primarily during the first half of the year resulting in reduced adjusted gross margin of $3.3 million.

Operating Expenses

1 unchanged sentence

(in thousands)

Transaction-related expenses (1)

Payroll, benefits and other employee-related expenses 2,301

Increased facilities expenses, maintenance costs and outside services 1,064

Depreciation, amortization and property tax costs due to new capital investments 1,190

Increased facilities expenses, maintenance costs and outside services 1,079

Increased regulatory expenses 444

Increased costs related to credit and collections 270

1 unchanged sentence

Period-over-period increase in operating expenses $ 9,704

(1) Transaction-related expenses represent costs incurred attributable to the announced acquisition of FCG including, but not limited to, legal, consulting, audit and financing fees.

Unregulated Energy Segment

For the quarter ended June 30, 2023, compared to the quarter ended June 30, 2022:

For the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022:

Three Months Ended

June 30, Increase

September 30, Increase

2023 2022 (Decrease)

11 unchanged sentences

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.

Operating results for the Unregulated Energy segment for the third quarter of 2023 reflect a $0.3 million improvement compared to the same period in 2022.

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

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

Adjusted gross margin in the Unregulated Energy segment during the third quarter increased due to improved propane margins and fees as well as increased customer consumption at Aspire.

These increases were partially offset by reduced customer consumption in our propane operations and reduced levels of virtual pipeline services.

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

2 unchanged sentences

Increased propane margins and service fees $ 1,813

Reduced customer consumption due to conversion of customers to our natural gas system (591)

Propane customer consumption - primarily weather related (381)

Reduced propane customer consumption (659)

CNG/RNG/LNG Transportation and Infrastructure

Increased demand for CNG/RNG/LNG Services 478

Lower level of virtual pipeline services (428)

Aspire Energy

Reduced customer consumption - primarily weather related (45)

Increased customer consumption 298

Other variances 419

2 unchanged sentences

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.

• Increased Propane Margins and Service Fees - Adjusted g ross margin increased by $1.8 million for the three months ended September 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

• Propane customer consumption - Adjusted gross margin decreased by $0.7 million due to reduced customer consumption.

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 .

• Lower level of virtual pipeline services - Adjusted gross margin decreased by $0.4 million during the third quarter of 2023 as compared to the same period in the prior year due to lower levels of CNG hold services.

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.

• Increased Customer Consumption - Adjusted gross margin increased by $0.3 million due to increased customer consumption compared to the same period in the prior year.

Operating Expenses

3 unchanged sentences

Increased depreciation, amortization and property tax costs 395

Increased facilities expenses, maintenance costs and outside services 291

Other variances (174)

Quarter-over-quarter increase in operating expenses $ 1,110

For the six months ended June 30, 2023, compared to the six months ended June 30, 2022:

Six Months Ended

June 30, Increase

For the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022:

Nine Months Ended

September 30, Increase

2023 2022 (Decrease)

9 unchanged sentences

Operating Income $ 11,529 $ 15,557 $ (4,028)

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.

(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 nine months ended September 30, 2023 decreased by $4.0 million compared to the same period in 2022.

Operating results were impacted during the first nine months of 2023 by changes in customer consumption due to significantly warmer weather in our Mid-Atlantic and North Carolina service areas during the first half of the year 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, higher depreciation, amortization and property taxes, and increased costs for facilities, maintenance, and outside services.

These factors were partially offset by increased propane margins and fees and continued demand for virtual pipeline services.

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

1 unchanged sentence

Propane Operations

Propane customer consumption - primarily weather related $ (4,924)

Increased propane margins and service fees $ 6,389

Propane customer consumption - primarily weather related (5,583)

Decreased customer consumption due to conversion of customers to our natural gas system (656)

CNG/RNG/LNG Transportation and Infrastructure

Increased demand for CNG/RNG/LNG Services 1,766

Increased level of virtual pipeline services 1,338

Aspire Energy

4 unchanged sentences

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.

• Increased Propane Margins and Service Fees - Adjusted g ross margin increased by $6.4 million for the nine months ended September 30, 2023, mainly due to increased margins and customer service fees.

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

• Propane customer consumption - Adjusted gross margin fell by $5.6 million as a result of reduced customer consumption driven by significantly warmer weather that our Mid-Atlantic and North Carolina service areas experienced primarily during the first half of 2023.

• Reduced customer consumption due to conversion of customers to our natural gas system - Adjusted gross margin fell by $0.7 million as more customers converted from propane to our natural gas distribution service.

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.

• Increased levels of virtual pipeline services - Adjusted gross margin increased by $1.3 million during the first nine months of 2023 as compared to the same period in the prior year due to increased levels of 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.

• Reduced Customer Consumption - Adjusted gross margin was reduced by $0.3 million resulting from lower consumption as weather in Ohio was approximately 13 percent 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:

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

(in thousands)

Increased payroll, benefits and other employee-related expenses $ 3,603

Increased facilities expenses, maintenance costs and outside services 889

Increased depreciation, amortization and property tax costs 1,231

Increased facilities expenses, maintenance costs and outside services 836

Other variances (17)

Period-over-period increase in operating expenses $ 5,653

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

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.

O THER I NCOME (E XPENSE) , N ET

For the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022

Other income (expense), 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 $1.0 million in the third quarter of 2023.

This was primarily attributable to the absence of interest income received in connection with a Federal Income Tax refund during the third quarter of 2022 and higher pension related expenses compared to the prior-year period.

For the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Other income (expense), net, decreased by $3.4 million for the nine months ended September 30, 2023.

The decrease was primarily attributable to the absence of a one-time gain related to a building sale during the second quarter of 2022, the absence of interest income received in connection with a Federal Income Tax refund during the third quarter of 2022, and higher pension related expenses compared to the prior-year period.

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.

For the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022

Interest charges for the three months ended September 30, 2023 increased by $0.8 million compared to the same period in 2022, attributable primarily to $0.9 million in interest expense related to a long-term debt placement in the first quarter of 2023 and $0.4 million driven largely by higher average interest rates on outstanding borrowings under our Revolver.

These factors were partially offset by higher capitalized interest of $0.5 million associated with capital projects.

The weighted-average interest rate on our Revolver borrowings was 5.5 percent during the quarter ended September 30, 2023 compared to 3.0 percent during the prior-year period as a result of the Federal Reserve raising interest rates throughout 2022 and continuing into the third quarter of 2023.

For the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Interest charges for the nine months ended September 30, 2023 increased by $3.9 million compared to the same period in 2022, attributable primarily to $3.0 million driven largely by higher average interest rates on outstanding borrowings under our Revolver and $2.0 million in interest expense related to long-term debt placements in 2022 and 2023.

These factors were partially offset by higher capitalized interest of $1.3 million associated with capital projects.

The weighted-average interest rate on our Revolver borrowings was 5.27 percent during the nine months ended September 30, 2023 compared to 1.71 percent during the prior-year period as a result of the Federal Reserve actions referred to above throughout 2022 and continuing into the third quarter of 2023.

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.

For the quarter ended September 30, 2023 compared to the quarter ended September 30, 2022

Income tax expense was $3.7 million in both quarters ended September 30, 2023 and 2022, respectively, and the effective income tax rate was 28.1 percent and 27.7 percent, respectively, during those periods.

For the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022

Income tax expense was $21.4 million for the nine months ended September 30, 2023, compared to $23.4 million for the nine months ended September 30, 2022.

Our effective income tax rate was 25.7 percent and 26.9 percent for the nine months ended September 30, 2023 and 2022, respectively.

Income tax expense for the nine months ended September 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 27.2 percent for the nine months ended September 30, 2023.

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

2 unchanged sentences

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.

We maintain an effective shelf registration statements with the SEC for the issuance of shares of common stock in various types of equity offerings, including the DRIP and previously, shares of common stock under an ATM equity program.

Our energy businesses are weather-sensitive and seasonal.

2 unchanged sentences

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

Our capital expenditures were $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:

Our capital expenditures were $144.8 million for the nine months ended September 30, 2023.

In the table below, we have provided the range of our forecasted capital expenditures for 2023 (excluding the FCG acquisition which is expected to close prior to year-end 2023):

(in thousands) Low High

21 unchanged sentences

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.

Given the magnitude of the FCG acquisition, the Company will surpass its capital expenditures guidance range two years early.

Additionally, as a result of the Company’s most recent 5-year strategic plan review where it revisited growth projections over the next five years for its legacy businesses and with the increased scale and investment opportunities related to the planned acquisition of FCG, the Company announced new capital expenditure guidance for the five-year period ended 2028 that will range from $1.5 billion to $1.8 billion.

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

2 unchanged sentences

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 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.

2 unchanged sentences

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

The following table presents our capitalization, excluding and including short-term borrowings, as of June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

The following table presents our capitalization, excluding and including short-term borrowings, as of September 30, 2023 and December 31, 2022:

September 30, 2023 December 31, 2022

(in thousands)

2 unchanged sentences

Total capitalization, excluding short-term debt $ 1,510,478 100 % $ 1,411,189 100 %

June 30, 2023 December 31, 2022

September 30, 2023 December 31, 2022

(in thousands)

4 unchanged sentences

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

Our equity to total capitalization ratio, including short-term borrowings, was 53 percent as of June 30, 2023.

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

During the first nine months of 2023, there were no issuances under the DRIP.

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

See Note 9, Stockholders’ Equity , in the condensed consolidated financial statements for additional information on commissions and fees paid in connection with these issuances.

Shelf Agreements

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

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

The amended agreements 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 February 2023, we amended both Shelf Agreements which 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 September 30, 2023:

(in thousands) Total Borrowing Capacity Less:

5 unchanged sentences

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

Total Shelf Agreements as of June 30, 2023 $ 605,000 $ (350,000) $ — $ 255,000

Total Shelf Agreements as of September 30, 2023 $ 605,000 $ (350,000) $ — $ 255,000

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

2 unchanged sentences

We are authorized by our Board of Directors to borrow up to $375.0 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.

At September 30, 2023 and December 31, 2022, we had $118.6 million and $202.2 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 5.61 percent and 5.04 percent respectively.

Borrowings outstanding under the sustainable investment sublimit of the 364-day tranche amounted to $9.4 million at September 30, 2023.

In October 2023, August 2023 and August 2022, we entered into amendments to our Revolver which resulted in modifications to both tranches of the facility.

The amendment in October 2023, allowed for a change in our funded indebtedness ratio from 65 percent to 70 percent during the quarter in which the acquisition of FCG is consummated and the quarter subsequent to the closing of the acquisition.

The amendment in August 2023 served to renew the 364-day tranche of the Revolver, providing for $175.0 million of short-term debt capacity.

Additionally, this amendment provided for the following:

borrowings under the 364 days facility shall now bear interest (i) based upon SOFR, plus a 10-basis point credit spread adjustment, and an applicable margin of 1.05 percent or less, with such margin based on total indebtedness as a percentage of total capitalization or (ii) the base rate, as selected by our discretion.

Further, this amendment provided that borrowings under the 364 days green loan shall now bear interest at (i) SOFR rate plus a 10-basis point credit spread adjustment and an applicable margin of 1.00 percent or less, with such margin based on total indebtedness as a percentage of total capitalization or (ii) the base rate plus 0.05 percent or less, as selected by our discretion.

The amendment entered into in August 2022 served to reset the benchmark interest rate to SOFR and to eliminate a previous covenant which capped our investment limit to $150.0 million for investments where we maintain less than 50 percent ownership.

The 364-day tranche of the Revolver expires in August 2024 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 September 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 75 basis points over SOFR plus a 10 basis point SOFR adjustment.

As of September 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.

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

1 unchanged sentence

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

As of 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.

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.

As of September 30, 2023, we were in compliance with this covenant.

Our total available credit under the Revolver at September 30, 2023 was $250.5 million.

As of September 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.

In connection with our acquisition of FCG, we entered into a 364-day Bridge Facility commitment with Barclays Bank PLC for up to $965.0 million.

In October 2023, the Bridge Facility commitment was extended to include additional lending parties.

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

3 unchanged sentences

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

The following table provides a summary of our operating, investing and financing cash flows for the six months ended June 30, 2023 and 2022:

Six Months Ended

The following table provides a summary of our operating, investing and financing cash flows for the nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30,

(in thousands) 2023 2022

9 unchanged sentences

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.

During the nine months ended September 30, 2023, net cash provided by operating activities was $183.3 million.

Operating cash flows were primarily impacted by the following:

4 unchanged sentences

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.

Net cash used in investing activities totaled $135.7 million during the nine months ended September 30, 2023, largely driven by $137.7 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 cash used in financing activities totaled $52.0 million during the nine months ended September 30, 2023 and included the following:

• Net repayments under the Revolver of $81.7 million;

4 unchanged sentences

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.

The maximum authorized liability under such guarantees and letters of credit as of September 30, 2023 was $20.0 million.

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

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.

The amount of specific purpose guarantees outstanding at September 30, 2023 was $4.0 million.

As of September 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 September 2024.

We have not drawn upon these letters of credit as of September 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.

2 unchanged sentences

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:

The following table summarizes commodity purchase contract obligations at September 30, 2023:

Payments Due by Period

17 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis