What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-02 · 309 added, 554 removed, 394 unchanged (69% of the section changed)

36 unchanged sentences

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

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

the transmission of natural gas;

the generation of electricity and steam, and in providing related services to our customers.

Chesapeake Utilities is a Delaware corporation formed in 1947.

We are a diversified energy company engaged, through our operating divisions and subsidiaries, in regulated energy, unregulated energy and other businesses.

We operate primarily on the east coast of the United States and provide natural gas distribution and transmission;

electric distribution and generation;

propane gas distribution;

mobile compressed natural gas services;

steam generation;

and other energy-related services.

Our strategy is focused on growing earnings from a stable regulated energy delivery foundation and investing in related businesses and services that provide opportunities for returns greater than traditional utility returns.

10 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.

Sustainability Initiatives

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

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

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

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

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

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

In April of 2024, we unveiled our first in a series of sustainability micro-reports, with the first report focused on Safety and Reliability.

The Safety and Reliability Report will be followed by at least two additional micro-reports.

The second report, expected to be published this summer, will focus on the Company’s environmental stewardship, including progress on environmental sustainability initiatives and mitigation of greenhouse gas emissions.

The third micro-report, planned for distribution in the fall, will focus on community impact, reporting on Diversity, Equity and Inclusion ("DEI") initiatives and investments in people, communities and customers.

Transitioning from a single large sustainability report to these micro-reports will provide a steadier release of information throughout the year, including progress updates and new or expanded initiatives and programs.

In addition to the micro-reports, the Company will publish investor-focused tables later this year.

We encourage our investors to review the Safety and Reliability micro-report, as well as prior sustainability reports, which can be accessed on our website, and welcome feedback as we continue to enhance our sustainability disclosures.

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.

On November 30, 2023, we completed the acquisition of FCG for $ 922.8 million in cash, which included working capital adjustments as defined in the agreement that were settled during the first quarter of 2024, pursuant to the previously disclosed stock purchase agreement with Florida Power & Light Company.

Upon completion of the acquisition, FCG became a wholly-owned subsidiary of the Company and is 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.

1 unchanged sentence

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.

In June 2023, FCG received approval from the Florida PSC for a $23.3 million total increase in base revenue in connection with its May 2022 rate case filing.

The new rates, which became effective as of May 1, 2023, included the transfer of its SAFE program provisions from a rider clause to base rates, an increase in rates associated with a liquefied natural gas facility, and approval of FCG's proposed RSAM with a $25.0 million reserve amount.

The RSAM is recorded as either an increase or decrease to accrued removal costs on the balance sheet, with a corresponding increase or decrease to depreciation and amortization expense.

The impact of FCG's results from the acquisition date and effects on our liquidity are discussed further below and throughout Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

Unless otherwise noted, EPS and Adjusted EPS information are presented on a diluted basis.

Non-GAAP Financial Measures

7 unchanged sentences

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.

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

Operating Revenues $ 102,411 $ 34,970 $ (5,834) $ 131,547

Cost of Sales:

Natural gas, propane and electric costs (26,518) (16,381) 5,805 (37,094)

Depreciation & amortization (13,192) (4,420) 2 (17,610)

Operations & maintenance expense (1)

(4,819) (7,532) (382) (12,733)

Gross Margin (GAAP) 57,882 6,637 (409) 64,110

Operations & maintenance expense (1)

4,819 7,532 382 12,733

Depreciation & amortization 13,192 4,420 (2) 17,610

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

For the Three Months Ended September 30, 2022

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

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

Cost of Sales:

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

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

Operations & maintenance expense (1)

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

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

Operations & maintenance expense (1)

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

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

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

For the Nine months ended September 30, 2023

For the Three Months Ended March 31, 2024

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

3 unchanged sentences

Depreciation & amortization (12,537) (4,481) 2 (17,016)

Operations & maintenance expense (1)

Operations & maintenance expenses (1)

(12,736) (8,422) (2) (21,160)

Gross Margin (GAAP) 93,235 33,146 (30) 126,351

Operations & maintenance expense (1)

Operations & maintenance expenses (1)

12,736 8,422 2 21,160

1 unchanged sentence

Adjusted Gross Margin (Non-GAAP) $ 118,508 $ 46,049 $ (30) $ 164,527

For the Nine months ended September 30, 2022

For the Three Months Ended March 31, 2023

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

3 unchanged sentences

Depreciation & amortization (12,952) (4,234) 3 (17,183)

Operations & maintenance expense (1)

Operations & maintenance expenses (1)

(9,287) (8,476) 5 (17,758)

Gross Margin (GAAP) 64,743 29,884 (28) 94,599

Operations & maintenance expense (1)

Operations & maintenance expenses (1)

9,287 8,476 (5) 17,758

1 unchanged sentence

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

(1) Operations & maintenance expenses within the Consolidated Statements of Income are presented in accordance with regulatory requirements and to provide comparability within the industry.

(1) Operations & maintenance expenses within the condensed consolidated statements of income are presented in accordance with regulatory requirements and to provide comparability within the industry.

Operations & maintenance expenses which are deemed to be directly attributable to revenue producing activities have been separately presented above in order to calculate Gross Margin as defined under U.S.

2024 to 2023 Gross Margin (GAAP) Variance – Regulated Energy

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.

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, as well as lower operating expenses.

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.

Gross Margin (GAAP) for the Regulated Energy segment for the quarter ended March 31, 2024 was $93.2 million, an increase of $28.5 million, or 44.0 percent, compared to the same period in 2023.

Higher gross margin reflects incremental margin attributable to FCG, organic growth in our natural gas distribution businesses and continued pipeline expansion projects, and incremental contributions associated with regulated infrastructure programs.

These contributors were partially offset by non-recurring FCG transaction and transition-related expenses.

2024 to 2023 Gross Margin (GAAP) Variance – Unregulated Energy

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.

Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended March 31, 2024 was $33.1 million, an increase of $3.3 million, or 10.9 percent, compared to the same period in 2023.

Higher gross margin related primarily to contributions from increased propane margins and fees as well as increased customer margins and improved customer consumption at Aspire.

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

Three Months Ended

(in thousands, except per share data) 2024 2023

Net Income (GAAP) $ 46,168 $ 36,344

Transaction-related expenses, net (1)

2,804 — 2,898 —

FCG transaction and transition-related expenses, net (1)

Adjusted Net Income (Non-GAAP) $ 46,845 $ 36,344

Weighted average common shares outstanding - diluted (2)

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

Transaction-related expenses, net (1)

22,306 17,832

Earnings Per Share - Diluted (GAAP) $ 2.07 $ 2.04

FCG transaction and transition-related expenses, net (1)

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 2.10 $ 2.04

(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.

(1) Transition-related expenses represent non-recurring costs incurred attributable to the acquisition and integration of FCG including, but not limited to, transition services, consulting, system integration, rebranding, and legal fees.

(2) Weighted average shares for the quarter ended March 31, 2024 reflect the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG.

See Notes 3 and 9 for additional details on the acquisition and related equity offering.

2024 to 2023 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.

We are a diversified energy company engaged, through our operating divisions and subsidiaries, in regulated energy, unregulated energy and other businesses.

We operate primarily on the east coast of the United States and provide natural gas distribution and transmission;

electric distribution and generation;

propane gas distribution;

mobile compressed natural gas services;

steam generation;

and other energy-related services.

Sustainability Initiatives

In May 2023, we published our most recent annual sustainability report, and continue to remain steadfast in regards to our commitments, including the following:

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

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

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

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

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

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

Net income (GAAP) for the quarter ended March 31, 2024 was $46.2 million, or $2.07 per share, compared to $36.3 million, or $2.04 per share, for the same quarter of 2023.

Net income for the three months ended March 31, 2024 included $0.7 million of transaction and transition-related expenses in connection with the acquisition and integration of FCG.

Excluding these costs, net income increased by $10.5 million or 28.9 percent compared to the same period in the prior year.

Results of Operations for the Three Months Ended March 31, 2024

Operational Highlights

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.

Our adjusted net income for the three months ended March 31, 2024 was $46.8 million, or $2.10 per share, compared to $36.3 million, or $2.04 per share, for the same quarter of 2023.

Adjusted net income for the first quarter of 2023 included a non-recurring gain of $1.3 million related to a reduction in the Pennsylvania state tax rate.

Operating income for the first quarter of 2024 was $79.6 million, an increase of $24.7 million or 44.9 percent compared to the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $25.6 million or 46.6 percent compared to the prior-year period.

Adjusted gross margin in the first quarter of 2024 was positively impacted by incremental margin from FCG, natural gas organic growth and continued pipeline expansion projects, higher customer consumption, incremental contributions associated with regulatory initiatives, and increased propane margins and fees compared to the prior-year period.

Higher operating expenses in the first quarter of 2024 largely associated with FCG were partially offset by lower employee benefits and incentive compensation costs compared to the same quarter of 2023.

Increases in depreciation and amortization expense attributable to growth projects and FCG were partially offset by lower depreciation in our electric operations due to revised rates in the electric depreciation study filing approved in December 2023 and a $3.4 million RSAM adjustment from FCG.

Three Months Ended

September 30, Increase

2023 2022 (Decrease)

(in thousands, except shares and per share data)

Adjusted Gross Margin

Regulated Energy segment $ 75,893 $ 69,732 $ 6,161

Unregulated Energy segment 18,589 17,146 1,443

Other businesses and eliminations (29) (30) 1

Total Adjusted Gross Margin $ 94,453 $ 86,848 $ 7,605

Operating Income (Loss)

Regulated Energy segment $ 24,912 $ 23,663 $ 1,249

Unregulated Energy segment (4,723) (5,056) 333

Other businesses and eliminations 39 41 (2)

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

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

Interest charges 7,076 6,240 836

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

Income Taxes 3,673 3,703 (30)

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

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

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

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

Third Quarter of 2022 Adjusted Results

$ 13,365 $ 9,662 $ 0.54

Non-recurring Items:

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

(628) (454) (0.03)

Increased (Decreased) Adjusted Gross Margins:

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

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

Natural gas transmission service expansions* 1,382 994 0.06

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

Contributions from regulated infrastructure programs* 563 405 0.02

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

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

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

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

(2,335) (1,679) (0.09)

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)

Third Quarter of 2023 Adjusted Results**

$ 16,979 $ 12,211 $ 0.69

* See the Major Projects and Initiatives table.

**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

March 31, Increase

2024 2023 (Decrease)

(in thousands, except shares and per share data)

(in thousands, except per share data)

Adjusted Gross Margin

13 unchanged sentences

Net Income $ 46,168 $ 36,344 $ 9,824

Basic Earnings Per Share of Common Stock $ 3.48 $ 3.59 $ (0.11)

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

Weighted Average Common Shares Outstanding:

Basic 22,250 17,760 4,490

Diluted 22,306 17,832 4,474

Earnings Per Share of Common Stock

Basic $ 2.07 $ 2.05 $ 0.02

Diluted $ 2.07 $ 2.04 $ 0.03

Adjusted Net Income and Adjusted Earnings Per Share

Net Income (GAAP) $ 46,168 $ 36,344 $ 9,824

Transaction-related expenses, net (1)

2,898 — 2,898

FCG transaction and transition-related expenses, net (2)

Adjusted Net Income (Non-GAAP) $ 46,845 $ 36,344 $ 10,501

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

Earnings Per Share - Diluted (GAAP) $ 2.07 $ 2.04 $ 0.03

Transaction-related expenses, net (1)

FCG transaction and transition-related expenses, net (2)

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 2.10 $ 2.04 $ 0.06

(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:

(1) Weighted average shares for the quarter ended March 31, 2024 reflect the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG.

(2) Transaction and transition-related expenses represent costs incurred attributable to the acquisition and integration of FCG including, but not limited to, transition services, consulting, system integration, rebranding and legal fees.

Key variances between the first quarter of 2023 and the first quarter of 2024 included:

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

Income Earnings

Nine months ended September 30, 2022 Adjusted Results

First Quarter of 2023 Adjusted Results

$ 47,959 $ 36,344 $ 2.04

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

Absence of the one-time benefit associated with a reduction in the PA state tax rate — (1,284) (0.06)

— (1,284) (0.06)

Increased (Decreased) Adjusted Gross Margins:

Contribution from rates associated with Florida natural gas base rate proceeding* 11,440 8,504 0.48

Increased propane margins and service fees 6,389 4,749 0.27

Increased Adjusted Gross Margins:

Contribution from recent acquisitions 25,397 18,685 0.84

Natural gas growth including conversions (excluding service expansions) 1,916 1,409 0.07

Changes in customer consumption 1,906 1,402 0.06

Natural gas transmission service expansions* 1,622 1,193 0.05

Contribution from rates associated with the Florida natural gas base rate proceeding* 1,498 1,102 0.05

Contributions from regulated infrastructure programs* 1,278 941 0.04

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)

Higher performance from Aspire Energy 938 690 0.03

Increased propane margins and service fees 559 411 0.02

35,114 25,833 1.16

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

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

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)

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

FCG operating expenses (10,413) (7,661) (0.34)

Depreciation, amortization and property tax costs (1,498) (1,102) (0.05)

Insurance related costs (525) (386) (0.02)

Payroll, benefits and other employee-related expenses 2,964 2,181 0.10

(9,472) (6,968) (0.31)

Interest charges (9,794) (7,206) (0.32)

Changes in Other income, net (888) (660) (0.04)

Increase in shares outstanding due to 2023 and 2024 equity offerings — — (0.41)

Net other changes (132) 126 —

(9,926) (7,080) (0.73)

Nine months ended September 30, 2023 Adjusted Results**

First Quarter of 2024 Adjusted Results**

$ 63,675 $ 46,845 $ 2.10

* 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.

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

See reconciliations above for a detailed comparison to the related GAAP measures.

Summary of Key Factors

Recently Completed and Ongoing Major Projects and Initiatives

We constantly pursue and develop additional projects and initiatives to serve existing and new customers, further grow our businesses and earnings, and increase shareholder value.

The following table includes the major projects 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.

We continuously 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 all major projects and initiatives that are currently underway or recently completed.

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.

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.

Adjusted Gross Margin

Three Months Ended Nine Months Ended Year Ended Estimate for

September 30, September 30, December 31, Fiscal

Three Months Ended Year Ended Estimate for

March 31, December 31, Fiscal

(in thousands) 2024 2023 2023 2024 2025

Pipeline Expansions:

Guernsey Power Station $ 373 $ 373 $ 1,107 $ 1,004 $ 1,377 $ 1,486 $ 1,482

Southern Expansion $ 586 $ — $ 586 $ 2,344 $ 2,344

Winter Haven Expansion 166 64 468 125 260 576 626

Beachside Pipeline Expansion 603 — 1,810 2,451 2,414

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Cloud / Twin Lakes Expansion 146 — 264 584 584

Clean Energy (1)

267 — 783 — 126 1,009 1,009

Wildlight 199 26 471 2,000 2,038

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Newberry — — — 862 2,585

Boynton Beach — — — — 3,342

New Smyrna Beach — — — — 1,710

Total Pipeline Expansions 1,648 26 3,396 8,695 15,965

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Florida GUARD program 589 — 353 3,231 5,602

FCG SAFE Program 412 — — 2,683 5,293

Capital Cost Surcharge Programs 831 720 2,829 3,979 4,374

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5,595 4,097 15,835 17,153 17,153

Maryland Rate Case (2)

— — — TBD TBD

Electric Storm Protection Plan 630 206 1,326 2,433 3,951

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Total $ 13,140 $ 8,570 $ 34,920 $ 50,674 $ 66,307

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

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

(2) Rate case application and depreciation study filed with the Maryland PSC in January 2024.

See additional information provided below.

Detailed Discussion of Major Projects and Initiatives

Pipeline Expansions

Guernsey Power Station

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

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

The project generated additional adjusted gross margin of $0.1 million for the 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 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.

Winter Haven Expansion

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

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

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

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

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

The project generated additional adjusted gross margin of $0.1 million and $0.3 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.

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

The project was placed in service in the fourth quarter of 2023.

The project generated additional adjusted gross margin of $0.6 million for the three months ended March 31, 2024, and is expected to produce adjusted gross margin of $2.3 million in 2024 and thereafter.

Beachside Pipeline Expansion

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 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.

In June 2021, Peninsula Pipeline and FCG 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 Sebastian, Florida.

The project went into service in April 2023.

Subsequent to the acquisition of FCG, the agreement is now an affiliate agreement.

The project generated additional adjusted gross margin of $0.6 million for the three months ended March 31, 2024,

and is expected to produce adjusted gross margin of approximately $2.5 million in 2024 and $2.4 million in 2025 and thereafter.

North Ocean City Connector

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

Our Delaware natural gas division and Sandpiper installed approximately 5.4 miles of pipeline across southern Sussex County, Delaware to Fenwick Island, Delaware and Worcester County, Maryland.

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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.

The Company filed a natural gas rate case application with the PSC for the state of Maryland in January 2024 as discussed below.

Adjusted gross margin in connection with this project is contingent upon the completion of the rate case and inclusion of the project in rate base.

As a result, we expect this expansion to generate annual adjusted gross margin of approximately $0.5 million beginning in 2025, with additional margin opportunities from incremental growth.

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.

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 Dts/d of firm service in the St.

Cloud, Florida area.

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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 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.

This project was placed into service during July 2023 and generated additional adjusted gross margin of $0.1 million for the three months ended March 31, 2024.

We expect this extension to generate additional annual adjusted gross margin of $0.6 million in 2024 and thereafter.

In February 2024, Peninsula Pipeline filed a petition with the Florida PSC for approval of an amendment to its Transportation Service Agreement with FPU for an additional 10,000 Dts/d of firm service in the St.

Cloud, Florida area.

Peninsula Pipeline will construct pipeline expansions that will allow FPU to serve the future communities that are expected in that area.

The Florida PSC approved the projects in May 2024.

Wildlight Expansion

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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 $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.

The project generated additional adjusted gross margin of $0.2 million for the three months ended March 31, 2024, and is expected to contribute adjusted gross margin of approximately $2.0 million in 2024 and beyond.

Lake Wales Expansion

In February 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with our Florida natural gas division, FPU for an additional 9,000 Dt/d of firm service in the Lake Wales, Florida area.

The PSC approved the petition in April 2023.

Approval of the agreement enabled Peninsula Pipeline to complete the acquisition of an existing pipeline in May 2023 that is being utilized to serve 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.

In February 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with our Florida Natural Gas distribution business, FPU, for an additional 9,000 Dts/d of firm service in the Lake Wales, Florida area.

The PSC approved the petition in April 2023 and Peninsula Pipeline completed the acquisition of an existing pipeline in May 2023 that is being utilized to serve both current and new natural gas customers.

The project generated additional adjusted gross margin of $0.1 million for the three months ended March 31, 2024, and is expected to contribute adjusted gross margin of approximately $0.5 million in 2024 and beyond.

Newberry Expansion

In April 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 8,000 Dt/d of firm service in the Newberry, Florida area.

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.

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 Dts/d of firm service in the Newberry, Florida area.

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.

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.

A filing to address the acquisition and conversion of existing Company owned propane community gas systems in Newberry was made in November 2023.

The Florida PSC approved it in April 2024.

Conversions are anticipated to begin during the second quarter of 2024.

The project is expected to contribute adjusted gross margin of approximately $0.9 million in 2024 and $2.6 million in 2025 and beyond.

Worcester Resiliency Upgrade

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

In December 2023, FERC issued its schedule for preparation of the Environmental Assessment.

In April 2024, the FERC issued their environmental assessment with no significant impacts noted.

East Coast Reinforcement Projects

In December 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreements with FPU for projects that will support additional supply to communities on the East Coast of Florida.

The projects are driven by the need for increased supply to coastal portions of the state that are experiencing significant population growth.

Peninsula Pipeline will construct several pipeline extensions which will support FPU’s distribution system in the areas of Boynton Beach and New Smyrna Beach with an additional 15,000 Dts/d and 3,400 Dts/d, respectively.

The Florida PSC approved the projects in March 2024.

The projects are expected to contribute adjusted gross margin of approximately $5.1 million in 2025 and $6.3 million in 2026 and beyond.

Central Florida Reinforcement Projects

In February 2024, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreements with FPU for projects that will support additional supply to communities located in Central Florida.

The projects are driven by the need for increased supply to communities in central Florida that are experiencing significant population growth.

Peninsula Pipeline will construct several pipeline extensions which will support FPU’s distribution system in the areas of Plant City and Lake Mattie with an additional 5,000 Dts/d and 8,700 Dts/d, respectively.

The Florida PSC approved the projects in May 2024.

Pioneer Supply Header Pipeline Project

In March 2024, Peninsula Pipeline filed a petition with the Florida PSC for its approval of Firm Transportation Service Agreements with both FCG and FPU for a project that will support greater supply growth of natural gas service in southeast Florida.

The project consists of the transfer of a pipeline asset from FCG to Peninsula Pipeline.

Peninsula Pipeline will proceed to provide transportation service to both FCG and FPU using the pipeline asset, which provides opportunities for additional project development.

Alternative Natural Gas Projects

In February 2024, Peninsula Pipeline filed a petition with the Florida PSC for its approval of its Transportation Service Agreements with FCG for projects that will support the transportation of additional supply into FCG’s distribution system.

The projects are driven by continued growth in the regions and will facilitate additional transportation capacity, including the transportation of pipeline quality gas produced from landfills through FCG's system.

Peninsula Pipeline will construct several pipeline extensions which will support FCG's distribution system in Brevard County, Indian-River County, and Miami-Dade County.

CNG/RNG/LNG Transportation and Infrastructure

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

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

As one of the largest public access CNG stations on the East Coast, it will offer a RNG option to customers in the near future.

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

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

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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 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 $12.5 million in 2024 and $14.0 million in 2025 for these transportation related services, with potential for additional growth in future years.

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

Planet Found Development

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

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

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

The transaction accelerated our access to renewable, sustainable energy generated from poultry waste while continuing to enhance the local environments in our service territories.

Noble Road Landfill RNG Project

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In August 2023, the Florida PSC approved the GUARD program, which included $205.0 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.

For t he three months ended March 31, 2024 , there was $0.6 million of incremental adjusted gross margin generated pursuant to the program.

The program is expected to generate $3.2 million of adjusted gross margin in 2024 and $5.6 million in 2025.

FCG SAFE Program

In June 2023, the Florida PSC issued the approval order for the continuation of the SAFE program beyond its 2025 expiration date and inclusion of 150 miles of additional mains and services located in rear property easements.

The SAFE program is designed to relocate certain mains and facilities associated with rear lot easements to street front locations to improve FCG's ability to inspect and maintain the facilities and reduce opportunities for damage and theft.

In the same order, the Commission approved a replacement of 160 miles of pipe that was used in the 1970s and 1980s and shown through industry research to exhibit premature failure in the form of cracking.

The program includes projected capital expenditures of $205 million over a 10-year period.

For t he three months ended March 31, 2024 , there was $0.4 million of incremental adjusted gross margin generated pursuant to the program.

The program is expected to generate $2.7 million of adjusted gross margin in 2024 and $5.3 million in 2025.

In April 2024, FCG filed a petition with the Florida PSC to more closely align the SAFE Program with FPU's GUARD program.

Specifically, the requested modifications will enable FCG to accelerate remediation related to problematic pipe and facilities consisting of obsolete and exposed pipe.

If approved, these efforts will serve to improve the safety and reliability of service to FCG's customers.

These modifications, if approved, result in an estimated additional $50.0 million in capital expenditures associated with the SAFE Program which would increase the total projected capital expenditures to $255.0 million over a 10-year period.

Capital Cost Surcharge Programs

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

For t he three and nine months ended September 30, 2023 , there was $0.2 million and $0.6 million, respectively, of incremental adjusted gross margin generated pursuant to the program.

For t he three months ended March 31, 2024 , there was $0.1 million of incremental adjusted gross margin generated pursuant to the program.

Eastern Shore expects to produce adjusted gross margin of approximately $4.0 million in 2024 and $4.4 million in 2025 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction.

Florida Natural Gas Base Rate Proceeding

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

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

The application included a request for the following:

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

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

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

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

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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 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.

For the three months ended March 31, 2024, there was $1.5 million of incremental adjusted gross margin generated pursuant to this proceeding , and it is expected to generate $17.2 million of total adjusted gross margin in 2024 and 2025.

Maryland Natural Gas Rate Case

In January 2024, our natural gas distribution businesses in Maryland, CUC-Maryland Division, Sandpiper Energy, Inc., and Elkton Gas Company (collectively, “Maryland natural gas distribution businesses”) filed a joint application for a natural gas rate case with the Maryland PSC.

In connection with the application, we are seeking approval of the following:

(i) permanent rate relief of approximately $6.9 million;

(ii) authorization to make certain changes to tariffs to include a unified rate structure and to consolidate the Maryland natural gas distribution businesses which we anticipate will be called Chesapeake Utilities of Maryland, Inc.;

and (iii) authorization to establish a rider for recovery of the costs associated with our new technology systems.

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

Rate changes are suspended until December 2024.

Maryland Natural Gas Depreciation Study

In January 2024, our Maryland natural gas distribution businesses filed a joint petition for approval of their proposed unified depreciation rates with the Maryland PSC.

The outcome of the filing is subject to review by the Maryland PSC which is expected to be completed in the third quarter of 2024.

Storm Protection Plan

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

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

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

For the three and 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.

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

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

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

For the three months ended March 31, 2024, this initiative generated additional adjusted gross margin of $0.4 million, and is expected to generate $2.4 million of adjusted gross margin in 2024 and $4.0 million in 2025.

We expect continued investment under the SPP going forward.

COVID-19 Regulatory Proceeding

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

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

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

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

Our Florida regulated business units are currently amortizing the amount over two years effective January 1, 2022 and recovering the regulatory asset through the Purchased Gas Adjustment and Swing Service mechanisms for the natural gas business units and through the Fuel Purchased Power Cost Recovery clause for the electric division.

This results in additional adjusted gross margin of $1.0 million annually that is being offset by a corresponding amortization of regulatory asset expense, for both 2022 and 2023 .

Other Major Factors Influencing Adjusted Gross Margin

Weather Impact

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

For the first quarter of 2024, higher consumption driven primarily by weather resulted in a $1.9 million increase in adjusted gross margin compared to the same period in 2023.

While temperatures were colder than the prior-year period, they were approximately 11.7 percent and 10.3 percent warmer, respectively, compared to normal temperatures in our Delmarva and Ohio service territories.

Assuming normal temperatures, as detailed below, we estimate that operating income would have been

higher by approximately $1.5 million, or $0.05 per share.

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three months ended March 31, 2024 and 2023.

Three Months Ended

2024 2023 Variance

Delmarva Peninsula

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Variance from Normal (36) 131

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 5.6 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.

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

The details are provided in the following table:

Three Months Ended Nine Months Ended

September 30, 2023 September 30, 2023

(in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida

Natural Gas Distribution Growth

The average number of residential customers served on the Delmarva Peninsula and our legacy Florida Natural Gas distribution business increased by approximately 4.2 percent and 3.6 percent, respectively, for the three months ended March 31, 2024.

The details of the adjusted gross margin increase are provided in the following table:

Adjusted Gross Margin

For the Three Months Ended March 31, 2024

(in thousands) Delmarva Peninsula Florida

Customer Growth:

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$ 646 $ 1,270

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

(1) Customer growth amounts for our legacy Florida operations include the effects of revised rates associated with the Company's natural gas base rate proceeding, but exclude the effects of FCG.

Regulated Energy Segment

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

For the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023:

Three Months Ended

September 30, Increase

March 31, Increase

2024 2023 (Decrease)

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Depreciation & amortization 12,537 12,952 (415)

Transaction-related expenses (2)

3,899 — 3,899

FCG transaction and transition-related expenses (2)

Other taxes 7,982 6,069 1,913

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

(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.

Operating income for the Regulated Energy segment for the first quarter of 2024 was $58.1 million, an increase of $20.5 million, or 54.4 percent, over the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $21.4 million or 56.9 percent compared to the same period in 2023.

Higher operating income reflects incremental contributions from FCG, organic growth in our natural gas distribution businesses and continued pipeline expansion projects, and incremental contributions associated with regulatory initiatives.

Excluding the transaction and transition-related expenses described above, operating expenses increased by $10.1 million.

Increases in depreciation and amortization expense attributable to growth projects and FCG were partially offset by reductions related to revised depreciation rates in the Company's electric depreciation study filing and a $3.4 million RSAM adjustment from FCG.

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

(in thousands)

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

Natural gas transmission service expansions 1,382

Contribution from FCG $ 24,959

Natural gas growth including conversions (excluding service expansions) 1,916

Natural gas transmission service expansions 1,622

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

Contributions from regulated infrastructure programs 1,278

Changes in customer consumption (259)

Other variances 253

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

Rate Changes Associated with the Florida Natural Gas Base Rate Proceeding

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

These permanent rates contributed additional adjusted gross margin of $3.5 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.

Contribution from Acquisition of FCG

FCG contributed adjusted gross margin of $25.0 million for the three months ended March 31, 2024.

Natural Gas Distribution Customer Growth

We generated additional adjusted gross margin of $1.9 million from natural gas customer growth.

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 $0.6 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

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

Operating Expenses

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

(in thousands)

Transaction-related expenses (1)

Increased payroll, benefits and other employee-related expenses 749

Depreciation, amortization and property taxes 297

Other variances (33)

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

(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)

(in thousands)

Revenue $ 345,822 $ 311,064 $ 34,758

Regulated natural gas and electric costs 105,692 88,264 17,428

Adjusted gross margin (1)

240,130 222,800 17,330

Operations & maintenance 88,298 83,288 5,010

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

Transaction-related expenses (2)

3,899 — 3,899

Other taxes 16,926 15,814 1,112

Total operating expenses 148,302 138,598 9,704

Operating income $ 91,828 $ 84,202 $ 7,626

(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.

(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.

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:

(in thousands)

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

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

Adjusted gross margin increased by $1.3 million for our Florida Natural Gas distribution business and $0.6 million on the Delmarva Peninsula for the three months ended March 31, 2024, as compared to the same period in 2023, due primarily to residential customer growth of 3.6 percent and 4.2 percent in Florida and on the Delmarva Peninsula, respectively, as well as commercial and industrial growth in Florida.

Natural Gas Transmission Service Expansions

Contributions from regulated infrastructure programs 1,756

Changes in customer consumption (3,272)

Other variances (248)

Period-over-period increase in adjusted gross margin $ 17,330

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

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

We generated increased adjusted gross margin of $1.6 million for the three months ended March 31, 2024 from natural gas transmission service expansions of Peninsula Pipeline and Eastern Shore.

Rate Changes Associated with the Florida Natural Gas Base Rate Proceeding

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

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

These interim and permanent rates contributed additional adjusted gross margin of $11.4 million.

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

Natural Gas Distribution Customer Growth

We generated additional adjusted gross margin of $4.7 million from natural gas customer growth.

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 $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.

Permanent rates associated with the Florida Natural Gas base rate proceeding, effective on March 1, 2023, contributed additional adjusted gross margin of $1.5 million for the three months ended March 31, 2024.

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

Contributions from Regulated Infrastructure Programs

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.

Contributions from regulated infrastructure programs generated incremental adjusted gross margin of $1.3 million in the first quarter of 2024.

The increase in adjusted gross margin was primarily related to FPU Electric's storm protection plan, Florida's GUARD program and Eastern Shore's capital surcharge program.

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

Changes in Customer Consumption

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

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

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

(in thousands)

Transaction-related expenses (1)

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

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

FCG operating expenses $ 10,413

FCG transaction and transition-related expenses (1)

Other variances (292)

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.

Quarter-over-quarter increase in operating expenses $ 11,042

(1) Transaction and transition-related expenses represent costs incurred attributable to the acquisition and integration of FCG including, but not limited to, transition services, consulting, system integration, rebranding and legal fees.

Unregulated Energy Segment

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

For the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023:

Three Months Ended

September 30, Increase

March 31, Increase

2024 2023 (Decrease)

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Total operating expenses 24,620 25,349 (729)

Operating Income (Loss) $ (4,723) $ (5,056) $ 333

Operating Income $ 21,429 $ 17,245 $ 4,184

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

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

Operating results for the Unregulated Energy segment for the third quarter of 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.

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 as well as increased property taxes.

Operating results for the Unregulated Energy segment for the first quarter of 2024 reflect a $4.2 million improvement compared to the same period in 2023.

Adjusted gross margin in the Unregulated Energy segment during the first quarter increased due to increased propane usage and higher propane margins and fees, as well as increased rate margins and customer consumption at Aspire.

Additionally, we experienced decreased operating expenses associated with lower employee costs, which was partially offset by increased depreciation and property taxes.

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

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Propane Operations

Increased propane customer consumption $ 1,388

Increased propane margins and service fees 559

Reduced propane customer consumption (659)

CNG/RNG/LNG Transportation and Infrastructure

Lower level of virtual pipeline services (428)

Contributions from acquisition 438

Aspire Energy

Increased margins - rate changes and gathering fees 938

Increased customer consumption 309

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Propane Operations

• 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.

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

CNG/RNG/LNG Transportation and Infrastructure

• 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

• 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

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

(in thousands)

Increased payroll, benefits and other employee-related expenses $ 889

Increased depreciation, amortization and property tax costs 395

Other variances (174)

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

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)

(in thousands)

Revenue $ 158,886 $ 202,669 $ (43,783)

Unregulated propane and natural gas costs 75,068 120,476 (45,408)

Adjusted gross margin (1)

83,818 82,193 1,625

Operations & maintenance 55,627 51,301 4,326

Depreciation & amortization 12,923 12,025 898

Other taxes 3,739 3,310 429

Total operating expenses 72,289 66,636 5,653

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

(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:

(in thousands)

Propane Operations

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 level of virtual pipeline services 1,338

Aspire Energy

Reduced customer consumption - primarily weather related (254)

Other variances 391

Period-over-period increase in adjusted gross margin $ 1,625

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

Propane Operations

• Increased Propane Margins and Service Fees - Adjusted g ross margin increased by $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 increased by $1.4 million due to increased customer consumption due to colder weather during the first three months of the year compared to the first quarter 2023.

• Increased propane margins and service fees - Adjusted g ross margin increased by $0.6 million for the three months ended March 31, 2024, mainly due to increased margins and customer service fees.

• 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 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.

• Contributions from acquisition - Adjusted gross margin increased by $0.4 million from the acquisition of J.T.

Lee and Son's that was completed in December 2023.

Aspire Energy

• 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.

• Increased rate margins - Adjusted gross margin increased by $0.9 million primarily due to favorable rate changes and increased gathering charges associated with a large commercial customer.

• 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 primarily related to colder weather in the Ohio region during the first quarter of 2024.

Operating Expenses

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

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

(in thousands)

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

Decreased payroll, benefits and other employee-related expenses $ (1,177)

Increased depreciation, amortization and property tax costs 333

Increased facilities expenses, maintenance costs and outside services 836

Other variances 115

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

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.

Quarter-over-quarter decrease in operating expenses $ (729)

O THER I NCOME , N ET

For the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023

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, was $0.2 million in the first quarter of 2024 compared to $0.3 million during the prior-year period.

I NTEREST C HARGES

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.

For the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023

Interest charges for the three months ended March 31, 2024 increased by $9.8 million compared to the same period in 2023, attributable primarily to the Senior Notes issued in November 2023 in connection with the FCG acquisition.

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

The weighted-average interest rate on our Revolver borrowings was 5.8 percent during the quarter ended March 31, 2024 compared to 5.2 percent during the prior-year period as a result of the Federal Reserve raising interest rates throughout 2023.

I NCOME T AXES

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.

For the quarter ended March 31, 2024 compared to the quarter ended March 31, 2023

Income tax expense was $16.6 million and $11.6 million for the quarters ended March 31, 2024 and March 31, 2023, respectively, resulting in an effective income tax rate of 26.4 percent and 24.2 percent, respectively, during the periods then ended.

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

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

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

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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.

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.

Our energy businesses are weather-sensitive and seasonal.

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

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):

Our capital expenditures were $70.6 million for the three months ended March 31, 2024.

In the table below, we have provided the range of our forecasted capital expenditures for 2024:

(in thousands) Low High

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Total 2024 Forecasted Capital Expenditures $ 300,000 $ 360,000

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

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

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

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.

Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, supply chain disruptions, capital delays that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital and other factors discussed in Item 1A.

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

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

The timing of capital expenditures can vary based

on delays in regulatory approvals, securing environmental approvals and other permits.

The timing of capital expenditures can vary based on delays in regulatory approvals, securing environmental approvals and other permits.

The regulatory application and approval process has lengthened in the past few years, and we expect this trend to continue.

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

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

September 30, 2023 December 31, 2022

The following table presents our capitalization, excluding and including short-term borrowings, as of March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

(in thousands)

2 unchanged sentences

Total capitalization, excluding short-term debt $ 2,466,069 100 % $ 2,433,179 100 %

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(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 September 30, 2023.

Our equity to total capitalization ratio, including short-term borrowings, was 48 percent as of March 31, 2024.

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 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.

In November 2023, in connection with our acquisition of FCG, we completed an equity offering resulting in the issuance of approximately 4.4 million shares of our common stock at a price per share of $82.72 (net of underwriter discounts and commissions).

We received net proceeds of $366.4 million which were used to partially finance the acquisition.

During the first three months of 2024, we received net proceeds of $0.1 million under the DRIP.

In 2023, there were no issuances under the DRIP.

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 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:

Amount of Debt Issued Less:

Unfunded Commitments Remaining Borrowing Capacity

Shelf Agreement (1)

Prudential Shelf Agreement

$ 405,000 $ (300,000) $ — $ 105,000

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

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

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

We have entered into Shelf Agreements with Prudential and MetLife, whom are under no obligation to purchase any unsecured debt, with terms that extend through February 2026.

At March 31, 2024, a total of $255.0 million of borrowing capacity was available under these agreements.

The Uncollateralized Senior Notes set forth certain business covenants to which we are subject when any note is outstanding, including covenants that limit or restrict our ability, and the ability of our subsidiaries, to incur indebtedness, or place or permit liens and encumbrances on any of our property or the property of our subsidiaries.

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We are authorized by our Board of Directors to borrow up to $375.0 million of short-term debt, as required.

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.

At March 31, 2024 and December 31, 2023, we had $170.4 million and $179.9 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 5.83 percent during each period.

There were no borrowings outstanding under the sustainable investment sublimit of the 364-day tranche at March 31, 2024.

We have entered into several amendments to our Revolver which resulted in modifications to both tranches of the facility.

The amendment in October 2023, increased our funded indebtedness ratio from 65 percent to 70 percent during the quarter in which the acquisition of FCG was consummated and the quarter subsequent to the closing of the acquisition.

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

Additionally, the amendment under the 364-day tranche prescribed that borrowings would 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, solely at our discretion.

Further, this amendment provided that borrowings under the 364-day green loan sublimit would 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, solely at our discretion.

The amendment entered into in 2022 reset the benchmark interest rate to SOFR and eliminated 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.

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.

As of March 31, 2024, the pricing under the 364-day tranche of the Revolver included an unused commitment fee of 10 basis points and maintains an interest rate of 80 basis points over SOFR plus a 10-basis point SOFR adjustment.

As of March 31, 2024, the pricing under the five-year tranche of the Revolver included a commitment fee of 10-basis points on undrawn amounts and an interest rate of 100 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.

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

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

As of 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.

We are required by the financial covenants in the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio as described above.

As of March 31, 2024, we were in compliance with this covenant.

Our total available credit under the Revolver at March 31, 2024 was $197.6 million.

As of March 31, 2024, we had issued $7.0 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.

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

Upon closing of the FCG acquisition in November 2023, and with the completion of other financing activities as defined in the lending agreement, this facility was terminated with no funds drawn to finance the transaction.

For additional information regarding the acquisition and related financing, see Note 3, Acquisitions, Note 9, Stockholders Equity , and Note 14, Long-Term Debt.

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

Long-Term Debt

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

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

On November 20, 2023, we issued Senior Notes in the aggregate principal amount of $550.0 million at an average interest rate of 6.54 percent that were used to partially finance our acquisition of FCG which closed during the fourth quarter of 2023.

These notes have varying maturity dates of between three and 15 years, and the outstanding principal balance of the notes will be due on their respective maturity dates with interest payments payable semiannually until the principal has been paid in full.

These Senior Notes have similar covenants and default provisions as our other Senior Notes.

On March 14, 2023 we issued 5.43 percent Senior Notes due in March 2038 in the aggregate principal amount of $80.0 million and used the proceeds received from the issuances of the Senior Notes to reduce short-term borrowings under our Revolver credit facility and to fund capital expenditures.

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

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

Nine Months Ended

September 30,

The following table provides a summary of our operating, investing and financing cash flows for the three months ended March 31, 2024 and 2023:

Three Months Ended

(in thousands) 2024 2023

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Working capital requirements are determined by a variety of factors, including weather, the prices of natural gas, electricity and propane, the timing of customer collections, payments for purchases of natural gas, electricity and propane, and deferred fuel cost recoveries.

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

During the three months ended March 31, 2024, net cash provided by operating activities was $97.3 million.

Operating cash flows were primarily impacted by the following:

1 unchanged sentence

• Changes in net regulatory assets and liabilities due primarily to the change in fuel costs collected through the various cost recovery mechanisms resulted in a $10.1 million source of cash;

• Other working capital changes, impacted primarily by a reduction in net receivables and propane inventory levels, resulted in a $15.5 million source of cash;

• An increased level of deferred taxes associated with incremental tax depreciation from growth investments resulted in a source of cash of $11.9 million;

• Other working capital changes, impacted primarily by a reduction in net receivables and propane inventory levels, resulted in a $8.8 million source of cash.

Cash Flows Used in Investing Activities

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.

Net cash used in investing activities totaled $74.7 million during the three months ended March 31, 2024, largely driven by $75.5 million for new capital expenditures.

Cash Flows Used in Financing Activities

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;

• A use of cash of $29.5 million for dividend payments in 2023;

partially offset by

• A net increase in long-term debt borrowings of $63.8 million to permanently finance investment in growth initiatives.

Net cash used in financing activities totaled $25.8 million during the three months ended March 31, 2024 and included the following:

• A $12.9 million use of cash for dividend payments in 2024;

• Net repayments under lines of credit resulting in a use of cash of $10.2 million;

• Long-term debt repayments of $2.0 million.

Off-Balance Sheet Arrangements

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

The maximum authorized liability under such guarantees and letters of credit as of 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.

The maximum authorized liability under such guarantees and letters of credit as of March 31, 2024 was $35.0 million.

The aggregate amount guaranteed related to our subsidiaries at March 31, 2024 was $24.4 million, with the guarantees expiring on various dates through March 2025.

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

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.

The amount of specific purpose guarantees outstanding at March 31, 2024 was $4.0 million.

As of March 31, 2024, we have issued letters of credit totaling approximately $7.0 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, the capacity agreement between NEXUS and Aspire, the storage agreement between Bay Gas Storage Company and

FCG as well as our primary insurance carriers.

These letters of credit have various expiration dates through February 2025 and to date, none have been used.

We do not anticipate that the counterparties will draw upon these letters of credit and we expect that they will be renewed to the extent necessary in the future.

Additional information is presented in Note 7 , Other Commitments and Contingencies, in the condensed consolidated financial statements.

Contractual Obligations

There has been no material change in the contractual obligations presented in our 2022 Annual Report on Form 10-K, except for commodity purchase obligations entered into in the ordinary course of our business.

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

Payments Due by Period

Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total

(in thousands)

Purchase obligations - Commodity (1)

$ 45,743 $ — $ — $ — $ 45,743

Total $ 45,743 $ — $ — $ — $ 45,743

(1) In addition to the obligations noted above, we have agreements with commodity suppliers that have provisions with no minimum purchase requirements.

There are no monetary penalties for reducing the amounts purchased;

however, the propane contracts allow the suppliers to reduce the amounts available in the winter season if we do not purchase specified amounts during the summer season.

Under these contracts, the commodity prices will fluctuate as market prices fluctuate.

There has been no material change in the contractual obligations presented in our 2023 Annual Report on Form 10-K.

Rates and Regulatory Matters

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Recent Authoritative Pronouncements on Financial Reporting and Accounting

Recent accounting developments, applicable to us, and their impact on our financial position, results of operations and cash flows are described in Note 1 , Summary of Accounting Policies , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

Recent accounting developments, applicable to us, and their expected impact on our financial position, results of operations and cash flows, are described in Note 1 , Summary of Accounting Policies , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.

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