What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-08 · 425 added, 169 removed, 534 unchanged (53% of the section changed)

15 unchanged sentences

• changes in environmental and other laws and regulations to which we are subject and environmental conditions of property that we now, or may in the future, own or operate;

• changes in the current political environment;

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

75 unchanged sentences

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 months ended March 31, 2024 and 2023:

Adjusted Gross Margin

For the Three Months Ended March 31, 2024

For the Three Months Ended June 30, 2024

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

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Adjusted Gross Margin (Non-GAAP) $ 103,247 $ 23,413 $ (28) $ 126,632

For the Three Months Ended March 31, 2023

For the Three Months Ended June 30, 2023

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

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Adjusted Gross Margin (Non-GAAP) $ 77,255 $ 22,635 $ (90) $ 99,800

For the Six Months Ended June 30, 2024

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

Operating Revenues $ 299,051 $ 124,522 $ (11,557) $ 412,016

Cost of Sales:

Natural gas, propane and electric costs (77,296) (55,060) 11,499 (120,857)

Depreciation & amortization (27,194) (7,704) 5 (34,893)

Operations & maintenance expenses (1)

(24,991) (16,315) 1 (41,305)

Gross Margin (GAAP) 169,570 45,443 (52) 214,961

Operations & maintenance expenses (1)

24,991 16,315 (1) 41,305

Depreciation & amortization 27,194 7,704 (5) 34,893

Adjusted Gross Margin (Non-GAAP) $ 221,755 $ 69,462 $ (58) $ 291,159

For the Six Months Ended June 30, 2023

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

Operating Revenues $ 243,411 $ 123,916 $ (13,605) $ 353,722

Cost of Sales:

Natural gas, propane and electric costs (79,174) (58,687) 13,479 (124,382)

Depreciation & amortization (25,987) (8,503) 4 (34,486)

Operations & maintenance expenses (1)

(18,527) (15,996) 3 (34,520)

Gross Margin (GAAP) 119,723 40,730 (119) 160,334

Operations & maintenance expenses (1)

18,527 15,996 (3) 34,520

Depreciation & amortization 25,987 8,503 (4) 34,486

Adjusted Gross Margin (Non-GAAP) $ 164,237 $ 65,229 $ (126) $ 229,340

(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.

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

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.

Gross Margin (GAAP) for the Regulated Energy segment for the quarter ended June 30, 2024 was $76.4 million, an increase of $21.4 million, or 38.8 percent, compared to the same period in 2023.

The increase in gross margin reflects incremental margin attributable to FCG, organic growth in our natural gas distribution businesses and continued pipeline expansion projects, and incremental margin from regulatory initiatives.

Gross Margin (GAAP) for the Regulated Energy segment for the six months ended June 30, 2024 was $169.6 million, an increase of $49.8 million, or 41.6 percent, compared to the same period in 2023.

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

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.

Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended June 30, 2024 was $12.3 million, an increase of $1.5 million, or 13.4 percent, compared to the same period in 2023.

The increase in gross margin was primarily attributable to contributions from an increased level of virtual pipeline services and improved performance at Aspire.

Gross Margin (GAAP) for the Unregulated Energy segment for the six months ended June 30, 2024 was $45.4 million, an increase of $4.7 million, or 11.6 percent, compared to the same period in 2023.

Higher gross margin reflects higher contributions from propane including increased customer consumption, incremental margin from the JT Lee and Son's acquisition in late 2023, and higher margins and service fees;

improved performance at Aspire;

and an increased level of virtual pipeline services.

Adjusted Net Income and Adjusted EPS

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

(in thousands, except per share data) 2024 2023 2024 2023

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

1,006 — 1,683 —

Adjusted Net Income (Non-GAAP) $ 19,277 $ 16,133 $ 66,122 $ 52,477

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

0.04 — 0.07 —

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 0.86 $ 0.90 $ 2.96 $ 2.94

(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.

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

(2) Weighted average shares for the three and six months ended June 30, 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 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.

Net income (GAAP) for the quarter ended June 30, 2024 was $18.3 million, or $0.82 per share, compared to $16.1 million, or $0.90 per share, for the same quarter of 2023.

Net income for the three months ended June 30, 2024 included $1.0 million of transaction and transition-related expenses in connection with the acquisition and integration of FCG.

Excluding these costs, net income increased by $3.1 million or 19.5 percent compared to the same period in the prior year.

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

Net income (GAAP) for the six months ended June 30, 2024 was $64.4 million, or $2.89 per share, compared to $52.5 million, or $2.94 per share, for the same period in 2023.

Net income for the six months ended June 30, 2024 included $1.7 million of transaction and transition-related expenses in connection with the acquisition and integration of FCG.

Excluding these costs, net income increased by $13.6 million or 26.0 percent compared to the same period in the prior year.

Results of Operations for the Three and Six Months Ended June 30, 2024

Operational Highlights

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.

Our adjusted net income for the three months ended June 30, 2024 was $19.3 million, or $0.86 per share, compared to $16.1 million, or $0.90 per share, for the same quarter of 2023.

The improvements in business unit operating results discussed below were offset by the effects of increased interest expense and common shares issued in connection with the acquisition of FCG.

Operating income for the second quarter of 2024 was $40.8 million, an increase of $12.4 million or 43.9 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 $13.8 million or 48.7 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.

An increase in adjusted gross margin in the second quarter of 2024 was driven by contributions from the acquisition of FCG, natural gas organic growth and continued pipeline expansion projects, incremental margin from regulatory initiatives, and improvements from our unregulated businesses.

Higher operating expenses in the second quarter of 2024 were largely associated with FCG, increased payroll, benefits and other employee-related expenses, and higher insurance and vehicle expenses compared to the prior-year period.

Increases in depreciation, amortization and property taxes attributable to growth projects and FCG were partially offset by a $2.3 million RSAM adjustment from FCG and lower depreciation from our electric operations due to revised rates from an approved electric depreciation study.

Three Months Ended

March 31, Increase

June 30, Increase

2024 2023 (Decrease)

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Total Adjusted Gross Margin $ 126,632 $ 99,800 $ 26,832

Operating Income (Loss)

Regulated Energy segment $ 40,505 $ 29,291 $ 11,214

Unregulated Energy segment 238 (993) 1,231

Other businesses and eliminations 47 48 (1)

Total Operating Income 40,790 28,346 12,444

Other income, net 1,110 831 279

Interest charges 16,813 6,964 9,849

Income Before Income Taxes 25,087 22,213 2,874

Income taxes 6,816 6,080 736

Net Income $ 18,271 $ 16,133 $ 2,138

Weighted Average Common Shares Outstanding:

Basic 22,284 17,794 4,490

Diluted 22,335 17,852 4,483

Earnings Per Share of Common Stock

Basic $ 0.82 $ 0.91 $ (0.09)

Diluted $ 0.82 $ 0.90 $ (0.08)

Adjusted Net Income and Adjusted Earnings Per Share

Net Income (GAAP) $ 18,271 $ 16,133 $ 2,138

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

1,006 — 1,006

Adjusted Net Income (Non-GAAP) $ 19,277 $ 16,133 $ 3,144

Earnings Per Share - Diluted (GAAP) $ 0.82 $ 0.90 $ (0.08)

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

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 0.86 $ 0.90 $ (0.04)

(1) Weighted average shares for the quarter ended June 30, 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, transaction costs, transition services, consulting, system integration, rebranding and legal fees.

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

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

Income Earnings

Second Quarter of 2023 Adjusted Results

$ 22,213 $ 16,133 $ 0.90

Increased Adjusted Gross Margins:

Contributions from acquisitions 23,527 17,135 0.77

Margin from regulated infrastructure programs* 1,340 976 0.04

Natural gas growth including conversions (excluding service expansions) 1,253 912 0.04

Increased level of virtual pipeline services 587 428 0.02

Natural gas transmission service expansions, including interim services* 563 410 0.02

Improved Aspire Energy performance - rate changes and gathering fees 251 183 —

27,521 20,044 0.89

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

FCG operating expenses (9,720) (7,079) (0.32)

Payroll, benefits and other employee-related expenses (772) (562) (0.02)

Insurance related costs (559) (407) (0.02)

Vehicle expenses (250) (182) (0.01)

Depreciation, amortization and property tax costs (includes FCG) (1,951) (1,421) (0.06)

(13,252) (9,651) (0.43)

Interest charges (9,849) (7,173) (0.32)

Increase in shares outstanding due to 2023 and 2024 equity offerings*** — — (0.18)

Net other changes (172) (76) —

(10,021) (7,249) (0.50)

Second Quarter of 2024 Adjusted Results**

$ 26,461 $ 19,277 $ 0.86

* See the Major Projects and Initiatives table.

** 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.

*** Reflects the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG.

Our adjusted net income for the six months ended June 30, 2024 was $66.1 million, or $2.96 per share, compared to $52.5 million, or $2.94 per share, for the same period of 2023.

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

The improvements in business unit operating results discussed below were largely offset by increased interest expense and common shares issued in connection with the acquisition of FCG.

Operating income for the first half of 2024 was $120.4 million, an increase of $37.1 million or 44.6 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 $39.4 million or 47.3 percent compared to the prior-year period.

An increase in adjusted gross margin in the first half of 2024 was driven by contributions from the acquisition of FCG, natural gas organic growth and continued pipeline expansion projects, incremental margin from regulatory initiatives, higher customer consumption, and improvements from our unregulated businesses.

Higher operating expenses in the first half of 2024 were largely associated with FCG, as well as higher insurance and vehicle expenses compared to the prior-year period.

These increases were partially offset by lower payroll, benefits and other employee-related expenses.

Increases in depreciation and amortization expense attributable to growth projects and FCG were partially offset by a $5.7 million RSAM adjustment from FCG and lower depreciation from our electric operations due to revised rates from an approved electric depreciation study.

Six Months Ended

June 30, Increase

2024 2023 (Decrease)

(in thousands, except per share data)

Adjusted Gross Margin

Regulated Energy segment $ 221,755 $ 164,237 $ 57,518

Unregulated Energy segment 69,462 65,229 4,233

Other businesses and eliminations (58) (126) 68

Total Adjusted Gross Margin $ 291,159 $ 229,340 $ 61,819

Operating Income

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

1,683 — 1,683

Adjusted Net Income (Non-GAAP) $ 66,122 $ 52,477 $ 13,645

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Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 2.96 $ 2.94 $ 0.02

(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:

(1) Weighted average shares for the six months ended June 30, 2024 reflect the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG.

Key variances between the six months ended June 30, 2023 and June 30, 2024 included:

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

Income Earnings

First Quarter of 2023 Adjusted Results

Six months ended June 30, 2023 Adjusted Results

$ 70,172 $ 52,477 $ 2.94

Non-recurring Items:

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

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

— (1,284) (0.06)

Increased Adjusted Gross Margins:

Contribution from recent acquisitions 25,397 18,685 0.84

Contributions from acquisitions 48,924 35,891 1.61

Natural gas growth including conversions (excluding service expansions) 3,169 2,325 0.10

Margin from regulated infrastructure programs* 2,618 1,921 0.09

Natural gas transmission service expansions, including interim services* 2,154 1,580 0.07

Changes in customer consumption 1,842 1,352 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

Higher performance from Aspire Energy 938 690 0.03

Increased propane margins and service fees 559 411 0.02

Rate changes associated with the Florida natural gas base rate proceeding* 1,630 1,196 0.05

Improved Aspire Energy performance - rate changes and gathering fees 1,189 872 0.04

Increased level of virtual pipeline services 487 358 0.02

Increased propane margins and fees 463 340 0.01

62,476 45,835 2.05

1 unchanged sentence

FCG operating expenses (20,133) (14,770) (0.66)

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

Insurance related costs (1,084) (795) (0.04)

Vehicle expenses (403) (295) (0.01)

Payroll, benefits and other employee-related expenses 2,192 1,608 0.07

Depreciation, amortization and property tax costs (includes FCG) (3,449) (2,530) (0.11)

(22,877) (16,782) (0.75)

3 unchanged sentences

(19,635) (14,124) (1.22)

First Quarter of 2024 Adjusted Results**

Six months ended June 30, 2024 Adjusted Results**

$ 90,136 $ 66,122 $ 2.96

* See the Major Projects and Initiatives table.

** 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.

** 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.

*** Reflects the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG.

Summary of Key Factors

5 unchanged sentences

Adjusted Gross Margin

Three Months Ended Year Ended Estimate for

March 31, December 31, Fiscal

Three Months Ended Six Months ended Year Ended Estimate for

June 30, June 30, December 31, Fiscal

(in thousands) 2024 2023 2024 2023 2023 2024 2025

9 unchanged sentences

New Smyrna Beach — — — — — — 1,710

Central Florida Reinforcement — — — — — 476 1,182

Warwick — — — — — 258 1,858

Renewable Natural Gas Supply Projects — — — — — — 5,460

Total Pipeline Expansions 1,726 1,163 3,374 1,220 3,396 9,354 26,633

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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.

The project generated additional adjusted gross margin of $0.1 million and $0.7 million, for the three and six months ended June 30, 2024, respectively, 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 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.

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 FCG's 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.

1 unchanged sentence

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.

The project generated additional adjusted gross margin of $0.6 million for the six months ended June 30, 2024, and is expected to produce adjusted gross margin of approximately $2.4 million in 2024 and thereafter.

North Ocean City Connector

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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 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.

This project was placed into service during July 2023 and generated additional adjusted gross margin of $0.2 million and $0.3 million for the three and six months ended June 30, 2024, respectively.

We expect this extension to generate 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.

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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.

The Florida PSC approved the project in May 2024, and it is expected to be complete in the fourth quarter of 2025.

We expect this expansion to generate approximately $2.2 million of adjusted gross margin in 2025.

Wildlight Expansion

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

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

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

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

2 unchanged sentences

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

The project generated 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.

The project generated additional adjusted gross margin of $0.1 million and $0.3 million for the three and six months ended June 30, 2024, respectively, and is expected to contribute adjusted gross margin of approximately $1.4 million in 2024 and $2.0 million thereafter.

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 distribution business, FPU, for an additional 9,000 Dts/d of firm service in the Lake Wales, Florida area.

In February 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with 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.

The project generated additional adjusted gross margin of $0.1 million and $0.2 million for the three and six months ended June 30, 2024, respectively, and is expected to contribute adjusted gross margin of approximately $0.5 million in 2024 and beyond.

Newberry Expansion

4 unchanged sentences

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.

The Company began the conversions of the community gas systems in the second quarter of 2024.

The project generated additional adjusted gross margin of $0.1 million for the three and six months ended June 30, 2024, and is expected to contribute adjusted gross margin of approximately $1.4 million in 2024 and $2.6 million thereafter.

Worcester Resiliency Upgrade

2 unchanged sentences

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

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

4 unchanged sentences

The Florida PSC approved the projects in March 2024.

Construction is projected to be complete in the first and second quarters of 2025 for Boynton Beach and New Smyrna Beach, respectively.

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

2 unchanged sentences

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.

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

The Florida PSC approved the projects in May 2024.

Completion of the projects is projected for the fourth quarter of 2024 for Plant City and the fourth quarter of 2025 for Lake Mattie.

The projects are expected to contribute adjusted gross margin of approximately $0.5 million in 2024 and $1.2 million in 2025 and beyond.

Warwick Pipeline Project

In July 2024, we announced plans to extend Eastern Shore's transmission deliverability by constructing an additional 4.4 miles of six inch steel pipeline.

The project will reinforce the supply and growth for our Delaware division distribution system and expand further into Maryland for anticipated future growth.

The project is estimated to be in service during the fourth quarter of 2024.

The project is expected to contribute adjusted gross margin of approximately $0.3 million in 2024 and $1.9 million in 2025 and beyond.

Pioneer Supply Header Pipeline Project

1 unchanged sentence

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 proceed

to provide transportation service to both FCG and FPU using the pipeline asset, which supports continued customer growth and system reinforcement of these distribution systems.

The Florida PSC approved the petition in July 2024.

Renewable Natural Gas Supply Projects

The projects, located in Florida’s Brevard, Indian River and Miami-Dade counties, will bring renewable natural gas produced from local landfills into FCG’s natural gas distribution 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.

Benefits of these projects include increased gas supply to serve expected FCG growth, strengthened system reliability and additional system flexibility.

The Florida PSC approved the petition at it's July 2024 meeting with the projects estimated to be completed in the first half of 2025.

These three renewable projects cumulatively are projected to generate adjusted gross margin of approximately $5.5 million in 2025.

CNG/RNG/LNG Transportation and Infrastructure

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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.

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.

We estimate annual adjusted gross margin, including amounts attributable to the Full Circle Dairy and Noble Road projects described below, of approximately $13.5 million in 2024 and $14.5 million in 2025 for these transportation related services, with potential for additional growth in future years.

Full Circle Dairy

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

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

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

Noble Road Landfill RNG Project

In October 2021, Aspire Energy completed construction of its Noble Road Landfill RNG pipeline project, a 33.1-mile pipeline, which transports RNG generated from the Noble Road landfill to Aspire Energy’s pipeline system, displacing conventionally produced natural gas.

In conjunction with this expansion, Aspire Energy also upgraded an existing compressor station and installed two new metering and regulation sites.

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

In conjunction with this expansion, Aspire Energy also upgraded an existing compressor station and

installed two new metering and regulation sites.

The RNG volume represents more than 10 percent of Aspire Energy’s gas gathering volumes.

Regulatory Initiatives

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

For t he three and six months ended June 30, 2024 , there was $0.9 million and $1.5 million, respectively, 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.

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The program includes projected capital expenditures of $205.0 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.

For t he three and six months ended June 30, 2024 , there was $0.7 million and $1.1 million, respectively, 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.

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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.

These modifications, if approved, will 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.

The Commission decision is expected in September 2024.

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

For t he three and six months ended June 30, 2024 , there was $0.1 million and $0.2 million , respectively, 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.

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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 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.

The proceeding is expected to generate $17.2 million of total adjusted gross margin in 2024 and thereafter.

Maryland Natural Gas Rate Case

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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.

A settlement agreement between the Company, PSC staff and the OPC was reached and the final order approving the settlement agreement went into effect in July 2024 which will include an annual benefit of $1.2 million.

Storm Protection Plan

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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.

For the three and six months ended June 30, 2024, this initiative generated additional adjusted gross margin of $0.3 million and $0.7 million, respectively, 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.

Delaware Natural Gas Rate Case

In May 2024, our Delaware natural gas division provided notice to the Delaware PSC of its intent to file a petition seeking a general rate base increase based on a test period ending in December 2024.

The filing is expected to be submitted to the Delaware PSC in August 2024 and the outcome of the application will be subject to review and approval by the Delaware PSC.

FPU Electric Rate Case

In June 2024, our Florida Electric division provided notice to the Florida PSC of its intent to file a petition seeking a general rate base increase based on a 2025 projected test year.

The filing is expected to be submitted to the Florida PSC in August 2024 and the outcome of the application will be subject to review and approval by the Florida PSC.

Other Major Factors Influencing Adjusted Gross Margin

Weather Impact

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

Weather was not a significant factor to adjusted gross margin in the second quarter of 2024 compared to the same period in 2023.

For the six months ended June 30, 2024, higher consumption which includes the effects of colder weather conditions compared to the prior-year period resulted in a $1.8 million increase in adjusted gross margin.

While temperatures through June 30, 2024 were colder than the prior-year period, they were approximately 12.5 percent and 12.8 percent warmer, respectively, compared to normal temperatures in our Delmarva and Ohio service territories.

The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and six months ended June 30, 2024 and 2023.

Three Months Ended Six Months Ended

June 30, June 30,

2024 2023 Variance 2024 2023 Variance

Delmarva Peninsula

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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 average number of residential customers served on the Delmarva Peninsula increased by approximately 3.7 percent and 3.9 percent, respectively, for the three and six months ended June 30, 2024 while our legacy Florida Natural Gas distribution business increased by approximately 3.7 percent and 3.6 percent, respectively, for the three and six month periods.

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

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2024

(in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida

Customer Growth:

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Regulated Energy Segment

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

For the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023:

Three Months Ended

March 31, Increase

2024 2023 (Decrease)

2024 2023 Increase

(in thousands)

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FCG transaction and transition-related expenses (2)

1,374 — 1,374

Other taxes 7,397 5,567 1,830

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

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

Operating income for the Regulated Energy segment for the second quarter of 2024 was $40.5 million, an increase of $11.2 million, or 38.3 percent, over the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $12.6 million or 43.0 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.

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

Excluding the transaction and transition-related expenses described above, the increase in total operating expenses of $13.4 million was largely attributable to FCG's operating expenses, higher depreciation and amortization expense, and increased payroll, benefits and other employee-related expenses.

Increases in depreciation and amortization expense attributable to growth projects and FCG were partially offset by reductions related to revised rates from an approved electric depreciation study and a $2.3 million RSAM adjustment from FCG.

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

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Contribution from FCG $ 23,367

Margin from regulated infrastructure programs 1,340

Natural gas growth including conversions (excluding service expansions) 1,253

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

Natural gas transmission service expansions, including interim services 563

Other variances (531)

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Contribution from Acquisition of FCG

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

FCG contributed adjusted gross margin of $23.4 million for the three months ended June 30, 2024.

Margin from Regulated Infrastructure Programs

Regulated infrastructure programs generated incremental adjusted gross margin of $1.3 million in the second quarter of 2024.

The increase in adjusted gross margin was primarily related to Florida's GUARD 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.

Natural Gas Distribution Customer Growth

We generated additional adjusted gross margin of $1.3 million from natural gas customer growth.

Adjusted gross margin increased by $1.3 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

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.

Adjusted gross margin increased by $0.8 million for our Florida Natural Gas distribution business and $0.5 million on the Delmarva Peninsula for the three months ended June 30, 2024, as compared to the same period in 2023, due primarily to residential customer growth of 3.7 percent both in Florida and on the Delmarva Peninsula.

Natural Gas Transmission Service Expansions, including interim services

We generated increased adjusted gross margin of $0.6 million for the three months ended June 30, 2024 from natural gas transmission service expansions of Peninsula Pipeline and Eastern Shore.

Operating Expenses

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

(in thousands)

FCG operating expenses $ 9,720

Depreciation, amortization and property tax costs 2,884

FCG transaction and transition-related expenses (1)

Payroll, benefits and other employee-related expenses 679

Other variances 121

Quarter-over-quarter increase in operating expenses $ 14,778

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

For the six months ended June 30, 2024 compared to the six months ended June 30, 2023:

Six Months Ended

June 30, Increase

2024 2023 (Decrease)

(in thousands)

Revenue $ 299,051 $ 243,411 $ 55,640

Regulated natural gas and electric costs 77,296 79,174 (1,878)

Adjusted gross margin (1)

221,755 164,237 57,518

Operations & maintenance 78,273 59,698 18,575

Depreciation & amortization 27,194 25,987 1,207

FCG transaction and transition-related expenses (2)

2,295 — 2,295

Other taxes 15,379 11,636 3,743

Total operating expenses 123,141 97,321 25,820

Operating income $ 98,614 $ 66,916 $ 31,698

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

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

Operating income for the Regulated Energy segment for the six months ended June 30, 2024 was $98.6 million, an increase of $31.7 million, or 47.4 percent, over the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $34.0 million or 50.8 percent compared to the same period in 2023.

Excluding the transaction and transition-related expenses described above, the increase in total operating expenses of $23.5 million was largely attributable to FCG's operating expenses, higher depreciation and amortization expense, and higher property taxes, partially offset by lower payroll, benefits and other employee-related expenses compared to the prior-year period.

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

(in thousands)

Contribution from FCG $ 48,326

Natural gas growth including conversions (excluding service expansions) 3,169

Margin from regulated infrastructure programs 2,618

Natural gas transmission service expansions, including interim services 2,154

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

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.

Other variances (379)

Period-over-period increase in adjusted gross margin $ 57,518

(1) Includes adjusted gross margin contributions from permanent base rates that became effective in March 2023.

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

Contribution from Acquisition of FCG

FCG contributed adjusted gross margin of $48.3 million for the six months ended June 30, 2024.

Natural Gas Distribution Customer Growth

We generated additional adjusted gross margin of $3.2 million from natural gas customer growth.

Adjusted gross margin increased by $2.1 million for our Florida Natural Gas distribution business and $1.1 million on the Delmarva Peninsula for the six months ended June 30, 2024, as compared to the same period in 2023, due primarily to residential customer growth of 3.6 percent and 3.9 percent in Florida and on the Delmarva Peninsula, respectively.

Margin from Regulated Infrastructure Programs

Regulated infrastructure programs generated incremental adjusted gross margin of $2.6 million for the six months ended June 30, 2024.

The increase in adjusted gross margin was primarily related to Florida's GUARD 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.

Contributions from Regulated Infrastructure Programs

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.

Natural Gas Transmission Service Expansions, including interim services

We generated increased adjusted gross margin of $2.2 million for the six months ended June 30, 2024 from natural gas transmission service expansions of Peninsula Pipeline and Eastern Shore.

Rate Changes Associated with the Florida Natural Gas Base Rate Proceeding

Permanent rates associated with the Florida Natural Gas base rate proceeding, effective on March 1, 2023, contributed additional adjusted gross margin of $1.6 million for the six months ended June 30, 2024.

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

Operating Expenses

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

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

(in thousands)

FCG operating expenses $ 20,133

Depreciation, amortization and property taxes 4,048

FCG transaction and transition-related expenses (1)

Insurance related costs 429

Payroll, benefits and other employee-related expenses (1,109)

Other variances 24

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.

Period-over-period increase in operating expenses $ 25,820

Unregulated Energy Segment

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

For the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023:

Three Months Ended

March 31, Increase

June 30, Increase

2024 2023 (Decrease)

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Total operating expenses 23,175 23,628 (453)

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

Operating income (loss) $ 238 $ (993) $ 1,231

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

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

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

Operating income for the Unregulated Energy segment for the second quarter of 2024 reflects a $1.2 million improvement compared to the same period in 2023.

Adjusted gross margin in the Unregulated Energy segment increased during the second quarter of 2024 primarily due to increased levels of virtual pipeline services, as well as increased rates and gathering fees at Aspire.

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

Contributions from acquisition $ 160

Increased propane customer consumption 117

CNG/RNG/LNG Transportation and Infrastructure

Increased level of virtual pipeline services 587

Aspire Energy

Increased margins - rate changes and gathering fees 251

Increased customer consumption 309

Other variances (337)

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Propane Operations

• 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.

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.

• Contributions from acquisition - Adjusted gross margin increased by $0.2 million from the acquisition of J.T.

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

• Propane customer consumption - Adjusted gross margin increased by $0.1 million due to increased customer consumption.

CNG/RNG/LNG Transportation and Infrastructure

• Increased level of virtual pipeline services - Adjusted gross margin increased by $0.6 million during the second quarter of 2024 as compared to the same period in the prior year due to higher levels of CNG hold services.

Aspire Energy

• 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.

• Increased margins - Adjusted gross margin increased by $0.3 million primarily due to favorable rate changes and increased gathering charges associated with a large commercial customer.

Operating Expenses

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(in thousands)

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

Increased depreciation, amortization and property tax costs 333

Decreased depreciation, amortization and property tax costs $ (935)

Increased insurance related costs 283

Increased vehicle expenses 246

Other variances (47)

Quarter-over-quarter decrease in operating expenses $ (453)

For the six months ended June 30, 2024 compared to the six months ended June 30, 2023:

Six Months Ended

June 30, Increase

2024 2023 (Decrease)

(in thousands)

Revenue $ 124,522 $ 123,916 $ 606

Unregulated propane and natural gas costs 55,060 58,687 (3,627)

Adjusted gross margin (1)

69,462 65,229 4,233

Operations & maintenance 37,239 37,810 (571)

Depreciation & amortization 7,704 8,503 (799)

Other taxes 2,852 2,664 188

Total operating expenses 47,795 48,977 (1,182)

Operating income $ 21,667 $ 16,252 $ 5,415

(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 six months ended June 30, 2024 reflect a $5.4 million improvement compared to the same period in 2023.

Adjusted gross margin in the Unregulated Energy segment increased during the first half of 2024 primarily due to improved contributions from propane, higher rates and gathering fees at Aspire, and increased levels of virtual pipeline services.

Additionally, decreased operating expenses associated with lower employee costs were partially offset by higher insurance and vehicle costs compared to the prior-year period.

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

(in thousands)

Propane Operations

Increased propane customer consumption $ 1,505

Contributions from acquisition 598

Increased propane margins and service fees 463

CNG/RNG/LNG Transportation and Infrastructure

Increased level of virtual pipeline services 487

Aspire Energy

Increased margins - rate changes and gathering fees 1,189

Other variances (9)

Period-over-period increase in adjusted gross margin $ 4,233

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

Propane Operations

• Propane customer consumption - Adjusted gross margin increased by $1.5 million due to increased customer consumption including the impact of colder weather during the first half of the year compared 2023.

• Contributions from acquisition - Adjusted gross margin increased by $0.6 million from the acquisition of J.T.

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

• Increased propane margins and service fees - Adjusted g ross margin increased by $0.5 million for the six months ended June 30, 2024, mainly due to increased margins and customer service fees.

CNG/RNG/LNG Transportation and Infrastructure

• Increased level of virtual pipeline services - Adjusted gross margin increased by $0.5 million during the first six months of 2024 as compared to the same period in the prior year due to increased levels of CNG hold services.

Aspire Energy

• Increased margins - Adjusted gross margin increased by $1.2 million primarily due to favorable rate changes and increased gathering charges associated with a large commercial customer.

Operating Expenses

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

(in thousands)

Decreased payroll, benefits and other employee-related expenses $ (1,083)

Increased insurance related costs 655

Decreased depreciation, amortization and property tax costs (600)

Increased vehicle expenses 386

Other variances (540)

Period-over-period decrease in operating expenses $ (1,182)

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.

For the quarter ended June 30, 2024 compared to the quarter ended June 30, 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 $1.1 million in the second quarter of 2024 compared to $0.8 million during the prior-year period.

For the six months ended June 30, 2024 compared to the six months ended June 30, 2023

Other income, net, was $1.3 million for the six months ended June 30, 2024 compared to $1.1 million during the prior-year period.

I NTEREST C HARGES

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.

For the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023

Interest charges for the three months ended June 30, 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.

Higher interest expense on Revolver borrowings driven by higher average outstanding borrowings and interest rates compared to the prior year also contributed to the increase.

The weighted-average interest rate on our Revolver borrowings was 5.9 percent for the three months ended June 30, 2024 compared to 5.3 percent during the prior-year period as a result of the Federal Reserve raising interest rates throughout 2023.

These factors were partially offset by higher capitalized interest during the current period of $0.7 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.

For the six months ended June 30, 2024 compared to the six months ended June 30, 2023

Interest charges for the six months ended June 30, 2024 increased by $19.6 million compared to the same period in 2023, attributable primarily to the Senior Notes issued in November 2023 in connection with the FCG acquisition.

Higher interest expense on Revolver borrowings of driven by higher average outstanding borrowings and interest rates compared to the prior year also contributed to the increase.

The weighted-average interest rate on our Revolver borrowings was 5.9 percent for the six months ended June 30, 2024 compared to 5.2 percent during the prior-year period as a result of the Federal Reserve raising interest rates throughout 2023.

These factors were partially offset by higher capitalized interest during the current period of $1.2 million associated with capital projects.

I NCOME T AXES

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.

For the quarter ended June 30, 2024 compared to the quarter ended June 30, 2023

Income tax expense was $6.8 million and $6.1 million for the quarters ended June 30, 2024 and June 30, 2023, respectively, resulting in an effective income tax rate of 27.2 percent and 27.4 percent, respectively, during the periods then ended.

For the six months ended June 30, 2024 compared to the six months ended June 30, 2023

Income tax expense was $23.4 million and $17.7 million for the six months ended June 30, 2024 and 2023, respectively, resulting in an effective income tax rate of 26.6 percent and 25.2 percent, respectively, during the periods then ended.

Income tax expense for the six months ended June 30, 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 27.0 percent for the six months ended June 30, 2023.

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

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We may also issue long-term debt and equity to fund capital expenditures and to maintain our capital structure within our target capital structure range.

We maintain an effective shelf registration 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.

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

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

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

Our capital expenditures were $159.5 million for the six months ended June 30, 2024.

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

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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 2023 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.

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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 March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

The following table presents our capitalization, excluding and including short-term borrowings, as of June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

(in thousands)

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Total capitalization, excluding short-term debt $ 2,465,316 100 % $ 2,433,179 100 %

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

(in thousands)

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

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

Our equity to total capitalization ratio, including short-term borrowings, was 48 percent as of June 30, 2024.

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

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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.

During the first half of 2024, we received net proceeds of $2.5 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, 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.

We have entered into Shelf Agreements with Prudential and MetLife with terms that extend through February 2026, however neither of such lenders have any obligation to purchase debt thereunder.

At June 30, 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.

Short-term Borrowings

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

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 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.

As of June 30, 2024, we are authorized by our Board of Directors to borrow up to $375.0 million of short-term debt, as required.

At June 30, 2024 and December 31, 2023, we had $207.1 million and $179.9 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 5.95 percent and 5.83 percent, respectively.

There were no borrowings outstanding under the sustainable investment sublimit of the 364-day tranche at June 30, 2024.

In August 2024, we amended and restated our Revolver which increased the total borrowing capacity to $450.0 million, including $250.0 million available under the 364-day tranche which now expires in August 2025 and $200.0 million available under the five-year tranche which now expires in August 2029.

Borrowings under both tranches of the amended and restated Revolver continue to be 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.

The 364-day tranche continues to bear interest (i) based upon the 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.

The five-year tranche continues to bear interest (i) based upon the SOFR, plus a 10-basis point credit spread adjustment, and an applicable margin of 1.25 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.

As of June 30, 2024, the pricing under the 364-day tranche of the Revolver included a commitment fee of 10-basis points on undrawn amounts and an interest rate of 80-basis points over SOFR plus a 10-basis point SOFR adjustment on outstanding balances.

As of June 30, 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 on outstanding balances.

We also utilize interest rate swaps to manage rate risk under our Revolver.

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

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

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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.

As of June 30, 2024, we were in compliance with this covenant.

Our total available credit under the Revolver at June 30, 2024 was $163.0 million.

As of June 30, 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.

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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 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 notes have varying final maturity dates of between three and 15 years, and the outstanding principal balance of the notes (net of annual payments on the 6.73 percent notes which begin in 2029) 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 three months ended March 31, 2024 and 2023:

Three Months Ended

The following table provides a summary of our operating, investing and financing cash flows for the six months ended June 30, 2024 and 2023:

Six Months Ended

(in thousands) 2024 2023

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Financing activities (10,057) (62,027)

Net (decrease) increase in cash and cash equivalents (3,209) (3,139)

Net increase (decrease) in cash and cash equivalents 1,526 (2,035)

Cash and cash equivalents—beginning of period 4,904 6,204

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

During the six months ended June 30, 2024, net cash provided by operating activities was $167.4 million.

Operating cash flows were primarily impacted by the following:

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• An increased level of deferred taxes associated with incremental tax depreciation from growth investments resulted in a source of cash of $23.8 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.

• Other working capital changes, impacted largely by a reduction in net receivables and propane inventory levels, resulted in a $23.8 million source of cash.

Cash Flows Used in Investing Activities

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.

Net cash used in investing activities totaled $155.8 million during the six months ended June 30, 2024, largely driven by $158.0 million for new capital expenditures.

Cash Flows Used in Financing Activities

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

Net cash used in financing activities totaled $10.1 million during the six months ended June 30, 2024 and included the following:

• A $25.8 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 $12.5 million;

partially offset by

• Net borrowings under lines of credit resulting in a source of cash of $27.0 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 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.

The maximum authorized liability under such guarantees and letters of credit as of June 30, 2024 was $35.0 million.

The aggregate amount guaranteed related to our subsidiaries at June 30, 2024 was $27.0 million, with the guarantees expiring on various dates through June 2025.

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

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.

The amount of specific purpose guarantees outstanding at June 30, 2024 was $4.0 million.

As of June 30, 2024, we have issued letters of credit totaling $7.0 million related to various transportation, transmission, capacity and storage agreements 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.

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.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis