What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-07 compared with 2024-08-08 · 256 added, 237 removed, 722 unchanged (41% 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;

• changes in the current political environment, including the effect of the U.S.

Presidential election on the economy and consumer confidence;

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

32 unchanged sentences

Currently, our growth strategy is focused on the following platforms, including:

• Prudently deploying investment capital.

◦ Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions, and new products and services as well as increased opportunities to transform the Company with a focus on people, process, technology and organizational structure.

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◦ Identifying and undertaking additional strategic propane acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets.

• Pursuit of growth opportunities that enable us to utilize our integrated set of energy delivery businesses to participate in sustainable energy opportunities.

◦ Leveraging our current capabilities, including our integrated set of energy delivery businesses, to support and contribute to a more sustainable future.

• Proactively managing our regulatory agenda.

◦ Driving regulatory initiatives that align with our growth strategy and investment plans.

• Continually executing on our business transformation initiatives.

◦ Increased opportunities to transform the Company with a focus on people, process, technology and organizational structure.

Due to the seasonality of our business, results for interim periods are not necessarily indicative of results for the entire fiscal year.

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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.

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.

The second report, published in September 2024, focused 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 early 2025, 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.

We encourage our investors to review the micro-reports, 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

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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 six months ended June 30, 2024 and 2023:

Adjusted Gross Margin

For the Three Months Ended June 30, 2024

For the Three Months Ended September 30, 2024

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

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Adjusted Gross Margin (Non-GAAP) $ 102,267 $ 19,699 $ (29) $ 121,937

For the Three Months Ended June 30, 2023

For the Three Months Ended September 30, 2023

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

10 unchanged sentences

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

For the Six Months Ended June 30, 2024

For the Nine Months Ended September 30, 2024

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

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Adjusted Gross Margin (Non-GAAP) $ 324,022 $ 89,161 $ (87) $ 413,096

For the Six Months Ended June 30, 2023

For the Nine Months Ended September 30, 2023

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

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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 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.

Gross Margin (GAAP) for the Regulated Energy segment for the quarter ended September 30, 2024 was $79.2 million, an increase of $21.4 million, or 36.9 percent, compared to the same period in 2023.

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

Gross Margin (GAAP) for the Regulated Energy segment for the nine months ended September 30, 2024 was $248.8 million, an increase of $71.2 million, or 40.1 percent, compared to the same period in 2023.

The increase in gross margin for the nine-month period is primarily attributable to the factors impacting the third quarter discussed above.

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

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.

Gross Margin (GAAP) for the Unregulated Energy segment for the quarter ended September 30, 2024 was $7.1 million, an increase of $0.5 million, or 6.8 percent, compared to the same period in 2023.

The increase in gross margin was primarily attributable to an increased level of virtual pipeline services.

Gross Margin (GAAP) for the Unregulated Energy segment for the nine months ended September 30, 2024 was $52.5 million, an increase of $5.2 million, or 10.9 percent, compared to the same period in 2023.

Higher gross margin reflects higher contributions from our propane operations, an increased level of virtual pipeline services, and improved performance at Aspire.

Adjusted Net Income and Adjusted EPS

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

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

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(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.

(2) Weighted average shares for the three and nine months ended September 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 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.

Net income (GAAP) for the quarter ended September 30, 2024 was $17.5 million, or $0.78 per share, compared to $9.4 million, or $0.53 per share, for the same quarter of 2023.

Net income for the three months ended September 30, 2024 included $0.6 million of transaction and transition-related expenses in connection with the acquisition and integration of FCG.

Excluding these costs, net income increased by $5.9 million or 48.2 percent compared to the same period in the prior year.

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.

Net income (GAAP) for the nine months ended September 30, 2024 was $81.9 million, or $3.66 per share, compared to $61.9 million, or $3.47 per share, for the same period in 2023.

Net income for the nine months ended September 30, 2024 and 2023 included $2.3 million and $2.9 million, respectively, of transaction and transition-related expenses in connection with the acquisition and integration of FCG.

Excluding these costs, net income increased by $19.4 million or 30.0 percent compared to the same period in the prior year.

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

Results of Operations for the Three and Nine Months Ended September 30, 2024

Operational Highlights

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.

Our adjusted net income for the three months ended September 30, 2024 was $18.1 million, or $0.80 per share, compared to $12.2 million, or $0.69 per share, for the same quarter of 2023.

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

Operating income for the third quarter of 2024 was $40.9 million, an increase of $20.7 million compared to the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $17.6 million or 73.0 percent compared to the prior-year period.

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.

An increase in adjusted gross margin in the third quarter of 2024 was driven by contributions from the acquisition of FCG, incremental margin from regulatory initiatives, continued pipeline expansion projects, increased demand for virtual pipeline services and natural gas organic growth.

Higher operating expenses in the third quarter of 2024 were largely associated with the operating expenses of FCG and increased payroll, benefits and other employee-related 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 $3.2 million RSAM adjustment from FCG and lower depreciation from our electric operations and Maryland natural gas division resulting from revised rates included in approved depreciation studies.

Three Months Ended

June 30, Increase

September 30, Increase

2024 2023 (Decrease)

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Total Operating Income 40,918 20,228 20,690

Other income, net 1,110 831 279

Other income (expense), net 400 (72) 472

Interest charges 17,022 7,076 9,946

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

0.02 0.16 (0.14)

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 0.80 $ 0.69 $ 0.11

(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.

(1) Weighted average shares for the quarter ended September 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:

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

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

Income Earnings

Second Quarter of 2023 Adjusted Results

Third Quarter of 2023 Adjusted Results**

$ 16,979 $ 12,211 $ 0.69

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Margin from regulated infrastructure programs* 1,806 1,301 0.06

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* 1,548 1,115 0.05

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

Increased level of virtual pipeline services 1,098 791 0.04

Natural gas growth including conversions (excluding service expansions) 1,013 730 0.03

Changes in customer consumption (651) (469) (0.02)

28,348 20,426 0.91

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Payroll, benefits and other employee-related expenses (708) (510) (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)

(9,388) (6,765) (0.30)

3 unchanged sentences

(10,824) (7,772) (0.50)

Second Quarter of 2024 Adjusted Results**

Third Quarter of 2024 Adjusted Results**

$ 25,115 $ 18,100 $ 0.80

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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.

*** Reflects the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG and shares also issued in 2024.

Our adjusted net income for the nine months ended September 30, 2024 was $84.2 million, or $3.76 per share, compared to $64.8 million, or $3.63 per share, for the same period of 2023.

Adjusted net income for the nine months ended September 30, 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 partially offset by increased interest expense and common shares issued in connection with the acquisition of FCG.

Operating income for the nine months ended September 30, 2024 was $161.3 million, an increase of $57.8 million compared to the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $57.0 million or 53.1 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.

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

Higher operating expenses during the first nine months of 2024 were largely associated with FCG, as well as higher insurance related costs 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

Increases in depreciation and amortization expense attributable to growth projects and FCG were partially offset by an $8.9 million RSAM adjustment from FCG and lower depreciation from our electric operations and Maryland natural gas division due to revised rates resulting from approved depreciation studies.

Nine Months Ended

September 30, Increase

2024 2023 (Decrease)

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

0.10 0.16 (0.06)

Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 3.76 $ 3.63 $ 0.13

(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.

(1) Weighted average shares for the nine months ended September 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:

Key variances between the nine months ended September 30, 2023 and September 30, 2024 included:

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

Income Earnings

Six months ended June 30, 2023 Adjusted Results

Nine months ended September 30, 2023 Adjusted Results**

$ 87,151 $ 64,782 $ 3.63

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Contributions from acquisitions 72,458 52,952 2.36

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

Margin from regulated infrastructure programs* 4,424 3,233 0.14

Natural gas growth including conversions (excluding service expansions) 4,182 3,056 0.14

Natural gas transmission service expansions, including interim services* 3,702 2,706 0.12

Changes in customer consumption 1,842 1,352 0.06

Rate changes associated with the Florida natural gas base rate proceeding* 1,630 1,191 0.05

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

Increased level of virtual pipeline services 1,585 1,158 0.05

Improved Aspire Energy performance - rate changes and gathering fees 1,267 926 0.04

Changes in customer consumption 1,191 870 0.04

Increased propane margins and fees 521 381 0.02

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FCG operating expenses (28,813) (21,057) (0.94)

Depreciation, amortization and property tax costs (includes FCG) (3,441) (2,515) (0.11)

Insurance related costs (1,107) (809) (0.04)

Vehicle expenses (403) (295) (0.01)

Payroll, benefits and other employee-related expenses 1,484 1,084 0.05

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

(31,877) (23,297) (1.04)

3 unchanged sentences

(30,983) (22,452) (1.73)

Six months ended June 30, 2024 Adjusted Results**

Nine months ended September 30, 2024 Adjusted Results**

$ 115,251 $ 84,222 $ 3.76

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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.

*** Reflects the impact of 4.4 million common shares issued in November 2023 in connection with the acquisition of FCG and shares also issued in 2024.

Summary of Key Factors

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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.

Our practice is to add incremental margin associated with new projects and initiatives to this table once negotiations or details are substantially final and/or the associated earnings can be estimated.

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 Six Months ended Year Ended Estimate for

June 30, June 30, December 31, Fiscal

Three Months Ended Nine Months ended Year Ended Estimate for

September 30, September 30, December 31, Fiscal

(in thousands) 2024 2023 2024 2023 2023 2024 2025

2 unchanged sentences

Beachside Pipeline Expansion 603 603 1,809 1,206 1,810 2,451 2,414

North Ocean City Connector — — — — — — 494

Cloud / Twin Lakes Expansion 146 118 438 118 264 584 2,752

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— — — — — TBD TBD

Delaware Rate Case (3)

— — — — — TBD TBD

Electric Rate Case (4)

— — — — — TBD TBD

Electric Storm Protection Plan 717 298 2,024 940 1,326 3,133 5,581

4 unchanged sentences

See additional information provided below.

(3) Rate case application and depreciation study filed with the Delaware PSC in August 2024.

See additional information provided below.

(4) Rate case application filed with the Florida PSC in June 2024.

See additional information provided below.

Detailed Discussion of Major Projects and Initiatives

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

The project generated additional adjusted gross margin of $0.1 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.

The project generated additional adjusted gross margin of $0.5 million and $1.2 million, respectively, for the three and nine months ended September 30, 2024, and is expected to produce adjusted gross margin of $2.3 million in 2024 and thereafter.

Beachside Pipeline Expansion

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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 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

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.

The project reinforces our existing system in Ocean City, Maryland and enables incremental growth along the pipeline.

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

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.

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

Cloud / Twin Lakes Expansion

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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 $0.2 million and $0.3 million for the three and six months ended June 30, 2024, respectively.

This project was placed into service during July 2023 and generated additional adjusted gross margin of $0.3 million for the nine months ended September 30, 2024.

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.

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 a project that will support additional supply to communities 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 project is driven by the need to expand gas service to future communities that are expected in that area.

Peninsula Pipeline will construct pipeline expansions that will allow FPU to serve the expected new growth.

The expansion will provide FPU with an additional 10,000 Dts/d.

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

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

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.

The agreement enables us to construct the project during the 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.

1 unchanged sentence

Phase two will consist of two additional pipeline extensions.

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

The project generated 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.

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

The petition was approved by the Florida PSC in November 2022.

The project generated additional adjusted gross margin of $0.4 million and $0.7 million for the three and nine months ended September 30, 2024, respectively, and is expected to contribute adjusted gross margin of approximately $1.4 million in 2024 and $3.0 million thereafter.

Lake Wales Expansion

1 unchanged sentence

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 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.

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

Newberry Expansion

3 unchanged sentences

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.

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.

The Florida PSC approved it in April 2024, and conversions of the community gas systems began in the second quarter of 2024.

The project generated additional adjusted gross margin of $0.6 million and $0.7 million for the three and nine months ended September 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, 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.

In December 2023, the FERC issued its schedule for preparation of the Environmental Assessment ("EA").

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

The EA comment period closed in May 2024, and Eastern Shore responded to the one adverse comment received.

East Coast Reinforcement Projects

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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 will reinforce the supply and growth for our Delaware division distribution system and expand natural gas service further into Maryland for anticipated future growth.

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

3 unchanged sentences

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 supports continued customer growth and system reinforcement of these distribution systems.

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.

4 unchanged sentences

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.

The Florida PSC approved the petition at its 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.

10 unchanged sentences

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 second half of 2024.

The first injection of RNG occurred in the second quarter 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.

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.

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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 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.

For t he three and nine months ended September 30, 2024 , there was $0.9 million and $2.3 million, respectively, of incremental adjusted gross margin generated pursuant to the program.

The program is expected to generate $3.6 million of adjusted gross margin in 2024 and $6.3 million in 2025.

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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.

In the same order, the Florida PSC 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 $205.0 million over a 10-year period.

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.

For t he three and nine months ended September 30, 2024 , there was $1.1 million and $2.2 million, respectively, of incremental adjusted gross margin generated pursuant to the program.

The program is expected to generate $3.3 million of adjusted gross margin in 2024 and $6.5 million in 2025.

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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, 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.

These efforts will serve to improve the safety and reliability of service to FCG's customers, and the modifications 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 approximately $255.0 million over a 10-year period.

The Florida PSC approved the modifications 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 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.

For t he three and nine months ended September 30, 2024 , there was $0.1 million and $0.3 million , respectively, of incremental adjusted gross margin generated pursuant to the program.

Eastern Shore expects to produce adjusted gross margin of approximately $3.2 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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In connection with the application, we are seeking approval of the following:

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

(i) permanent rate relief of approximately $6.9 million with an ROE of 11.5 percent;

(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.

In August 2024, the Maryland natural gas distribution businesses, the Maryland Office of Peoples' Counsel ("OPC") and PSC Staff reached a settlement agreement which provided for, among other things, an increase in annual base rates of $2.6 million.

In September 2024, the Maryland Public Utility Judge issued an order approving the settlement agreement in part.

The $2.6 million increase in annual base rates was approved and we will file a Phase II filing to determine rate design across the Maryland natural gas distribution businesses, consolidation of the applicable tariffs and recovery of technology costs.

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.

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.

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, with new depreciation rates effective as of January 1, 2023.

The approved depreciation rates will result in an annual reduction in depreciation expense of approximately $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 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.

In October 2024, the Florida PSC approved the Company's projected 2025 SPP costs for both capital and operating expenses.

For the three and nine months ended September 30, 2024, this initiative generated additional adjusted gross margin of $0.4 million and $1.1 million, respectively, and is expected to generate $3.1 million of adjusted gross margin in 2024 and $5.6 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.

In August 2024, our Delaware natural gas division filed an application for a natural gas rate case with the Delaware PSC.

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

(i) permanent rate relief of approximately $12.1 million with a ROE of 11.50 percent;

(ii) proposed changes to depreciation rates which were part of a depreciation study also submitted with the filing;

and (iii) authorization to make certain changes to tariffs.

In September 2024, interim rates were approved by the Delaware PSC in the amount of $2.5 million on an annualized basis effective October 2024.

The discovery process has commenced and hearing for the proceeding has been scheduled for May 2025.

The outcome of the application is 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.

In August 2024, our Florida Electric division filed a petition with the Florida PSC seeking a general base rate increase of $12.6 million with a ROE of 11.3 percent based on a 2025 projected test year.

The outcome of the application will be subject to review and approval by the Florida PSC.

In October 2024, annualized interim rates of approximately $1.8 million were approved with an effective date of November 1, 2024.

Other Major Factors Influencing Adjusted Gross Margin

Weather Impact

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,

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

For the nine months ended September 30, 2024, higher consumption which includes the effects of colder weather conditions compared to the prior-year period resulted in a $1.2 million increase in adjusted gross margin.

While temperatures through September 30, 2024 were colder than the prior-year period, they were approximately 13.2 percent and 13.1 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 nine months ended September 30, 2024 and 2023.

Three Months Ended Nine Months Ended

September 30, September 30,

2024 2023 Variance 2024 2023 Variance

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Natural Gas Distribution Growth

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

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

Three Months Ended Six Months Ended

June 30, 2024 June 30, 2024

Three Months Ended Nine Months Ended

September 30, 2024 September 30, 2024

(in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida

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Regulated Energy Segment

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

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

Three Months Ended

September 30,

2024 2023 Increase

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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.

Operating income for the Regulated Energy segment for the third quarter of 2024 was $43.9 million, an increase of $19.0 million or 76.4 percent, over the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $15.9 million or 55.3 percent compared to the same period in 2023.

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.

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

Excluding the transaction and transition-related expenses described above, the increase in total operating expenses of $10.4 million was largely attributable to FCG's operating expenses and increased payroll, benefits and other employee-related expenses.

Increases in depreciation and amortization expense attributable to growth projects and FCG were offset by reductions related to revised rates from approved depreciation studies in our electric operations and Maryland natural gas division and a $3.2 million RSAM adjustment from FCG.

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

2 unchanged sentences

Margin from regulated infrastructure programs 1,806

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

Natural gas transmission service expansions, including interim services 1,548

Natural gas growth including conversions (excluding service expansions) 1,013

Changes in customer consumption (361)

Other variances (1,031)

Quarter-over-quarter increase in adjusted gross margin $ 26,374

(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 $23.4 million for the three months ended June 30, 2024.

FCG contributed adjusted gross margin of $23.4 million for the three months ended September 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.

Regulated infrastructure programs generated incremental adjusted gross margin of $1.8 million in the third quarter of 2024.

The increase in adjusted gross margin was primarily related to Florida's GUARD program and FPU Electric's SPP.

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

Natural Gas Transmission Service Expansions, including interim services

We generated increased adjusted gross margin of $1.5 million for the three months ended September 30, 2024 from natural gas transmission service expansions of Peninsula Pipeline and Eastern Shore.

Natural Gas Distribution Customer Growth

We generated additional adjusted gross margin of $1.0 million from natural gas customer growth.

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.

Adjusted gross margin increased by $0.6 million for our Florida Natural Gas distribution business and $0.4 million on the Delmarva Peninsula for the three months ended September 30, 2024, as compared to the same period in 2023, due primarily to residential customer growth of 3.9 percent both in Florida and on the Delmarva Peninsula.

Changes in Customer Consumption

We experienced reduced customer consumption in the third quarter of 2024 resulting in reduced adjusted gross margin of $0.4 million.

Operating Expenses

2 unchanged sentences

FCG operating expenses $ 8,680

Payroll, benefits and other employee-related expenses 1,223

Insurance related costs 222

Depreciation, amortization and property tax costs (243)

FCG transaction and transition-related expenses (1)

Payroll, benefits and other employee-related expenses 679

Other variances 549

1 unchanged sentence

(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

For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

Nine Months Ended

September 30, Increase

2024 2023 (Decrease)

14 unchanged sentences

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.

Operating income for the Regulated Energy segment for the nine months ended September 30, 2024 was $142.5 million, an increase of $50.7 million or 55.2 percent, over the same period in 2023.

Excluding transaction and transition-related expenses associated with the acquisition and integration of FCG, operating income increased $49.9 million or 52.2 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.

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

Excluding the transaction and transition-related expenses described above, the increase in total operating expenses of $34.0 million was largely attributable to FCG's operating expenses and higher insurance costs compared to the prior-year period.

Increases in depreciation and amortization expense attributable to growth projects and FCG were largely offset by reductions related to revised rates resulting from approved depreciation studies in our electric operations and Maryland natural gas division and an $8.9 million RSAM adjustment from FCG.

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

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Contribution from FCG $ 71,725

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

Margin from regulated infrastructure programs 4,424

Natural gas growth including conversions (excluding service expansions) 4,182

Natural gas transmission service expansions, including interim services 3,702

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

Eastern Shore contracted rate adjustments (238)

Other variances (1,533)

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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.

FCG contributed adjusted gross margin of $71.7 million for the nine months ended September 30, 2024.

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.

Regulated infrastructure programs generated incremental adjusted gross margin of $4.4 million for the nine months ended September 30, 2024.

The increase in adjusted gross margin was primarily related to Florida's GUARD program and FPU Electric's SPP.

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 $4.2 million from natural gas customer growth.

Adjusted gross margin increased by $2.6 million for our Florida Natural Gas distribution business and $1.6 million on the Delmarva Peninsula for the nine months ended September 30, 2024, as compared to the same period in 2023, due primarily to residential customer growth of 3.7 percent and 3.9 percent in Florida and on the Delmarva Peninsula, respectively.

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.

We generated increased adjusted gross margin of $3.7 million for the nine months ended September 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.

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 nine months ended September 30, 2024.

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

Eastern Shore Contracted Rate Adjustments

Adjustments to contracted rates charged to various Eastern Shore customers resulted in reduced adjusted gross margin of $0.2 million for the nine months ended September 30, 2024.

Operating Expenses

3 unchanged sentences

Depreciation, amortization and property taxes 3,805

FCG transaction and transition-related expenses (1)

Facilities, maintenance costs and outside services 677

Insurance related costs 651

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

FCG transaction and transition-related expenses (1)

Other variances 10

2 unchanged sentences

Unregulated Energy Segment

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

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

Three Months Ended

June 30, Increase

September 30, Increase

2024 2023 (Decrease)

8 unchanged sentences

Total operating expenses 22,760 23,312 (552)

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

Operating loss $ (3,061) $ (4,723) $ 1,662

(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 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.

Operating results for the Unregulated Energy segment for the third quarter of 2024 reflects a $1.7 million improvement compared to the same period in 2023.

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.

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

2 unchanged sentences

Contributions from acquisition $ 135

Increased propane customer consumption 117

CNG/RNG/LNG Transportation and Infrastructure

Increased level of virtual pipeline services 1,098

Aspire Energy

Increased margins - rate changes and gathering fees 251

Other variances (123)

2 unchanged sentences

Propane Operations

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

• Contributions from acquisition - Adjusted gross margin increased by $0.1 million resulting 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 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.

• Increased level of virtual pipeline services - Adjusted gross margin increased by $1.1 million during the third quarter of 2024 as compared to the same period in the prior year due to higher levels of CNG hold services.

Operating Expenses

1 unchanged sentence

(in thousands)

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

Increased insurance related costs 283

Increased vehicle expenses 246

Depreciation, amortization and property tax costs $ 242

Payroll, benefits and other employee-related expenses (515)

Other variances (279)

Quarter-over-quarter decrease in operating expenses $ (552)

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

Six Months Ended

June 30, Increase

For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023:

Nine Months Ended

September 30, Increase

2024 2023 (Decrease)

11 unchanged sentences

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

Operating results for the Unregulated Energy segment for the 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.

Operating results for the Unregulated Energy segment for the nine months ended September 30, 2024 reflect a $7.1 million improvement compared to the same period in 2023.

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

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

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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.

• Propane customer consumption - Adjusted gross margin increased by $1.3 million due to increased customer consumption including the impact of colder weather during the first half of the year compared to 2023.

• Contributions from acquisition - Adjusted gross margin increased by $0.7 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.

• Increased propane margins and service fees - Adjusted g ross margin increased by $0.5 million for the nine months ended September 30, 2024 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.

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.

• Increased level of virtual pipeline services - Adjusted gross margin increased by $1.6 million during the first nine

months of 2024 as compared to the same period in the prior year largely due to increased levels of CNG hold services.

Aspire Energy

3 unchanged sentences

(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

Vehicle expenses $ 575

Insurance related costs 456

Payroll, benefits and other employee-related expenses (1,598)

Facilities, maintenance costs, and outside services (631)

Depreciation, amortization and property tax costs (358)

Other variances (178)

Period-over-period decrease in operating expenses $ (1,734)

O THER I NCOME , N ET

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.

O THER I NCOME (E XPENSE ), N ET

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

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, amounted to $0.4 million of income in the third quarter of 2024 compared to expense of $0.1 million during the prior-year period.

For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

Other income, net, was $1.7 million for the nine months ended September 30, 2024 compared to $1.0 million during the prior-year period.

I NTEREST C HARGES

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.

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

Interest charges for the three months ended September 30, 2024 increased by $9.9 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.

The weighted-average interest rate on our Revolver borrowings was 5.8 percent for the three months ended September 30, 2024 compared to 5.5 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.

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.

For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

Interest charges for the nine months ended September 30, 2024 increased by $29.6 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.

The weighted-average interest rate on our Revolver borrowings was 5.8 percent for the nine months ended September 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 $1.9 million associated with capital projects.

I NCOME T AXES

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.

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

Income tax expense was $6.8 million and $3.7 million for the quarters ended September 30, 2024 and September 30, 2023, respectively, resulting in an effective income tax rate of 27.9 percent and 28.1 percent, respectively, during the periods then ended.

For the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023

Income tax expense was $30.2 million and $21.4 million for the nine months ended September 30, 2024 and 2023, respectively, resulting in an effective income tax rate of 26.9 percent and 25.7 percent, respectively, during the periods then ended.

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

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

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

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

Our capital expenditures were $256.8 million for the nine months ended September 30, 2024.

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

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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 2023 Annual Report on Form 10-K.

Actual capital requirements may vary from the above estimates due to a number of factors, including changing political and 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.

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 June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

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

September 30, 2024 December 31, 2023

(in thousands)

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Total capitalization, excluding short-term debt $ 2,521,228 100 % $ 2,433,179 100 %

June 30, 2024 December 31, 2023

September 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 June 30, 2024.

Our equity to total capitalization ratio, including short-term borrowings, was 49 percent as of September 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 half of 2024, we received net proceeds of $2.5 million under the DRIP.

In 2023, there were no issuances under the DRIP.

During the first nine months of 2024, we received net proceeds of $56.8 million under the DRIP.

There were no issuances under the DRIP in 2023.

Shelf 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.

At September 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

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.

As of September 30, 2024, we are authorized by our Board of Directors to borrow up to $450.0 million of short-term debt, as required.

At September 30, 2024 and December 31, 2023, we had $214.8 million and $179.9 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 5.35 percent and 5.83 percent, respectively.

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

In August 2024, we amended and restated our revolving credit agreement, which increased the total borrowing capacity under the Revolver 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 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.

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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 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.

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

Our total available credit under the Revolver at September 30, 2024 was $232.2 million.

As of September 30, 2024, we had issued $6.3 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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Long-Term Debt

On November 1, 2024, we issued 5.20 percent Senior Notes due in October 2029 in the aggregate principal amount of $100.0 million.

The proceeds received were used to reduce short-term borrowings under our Revolver and to fund capital expenditures.

These Senior Notes have similar covenants and default provisions as our other Senior Notes, and have semi-annual principal payments due on May 1 and November 1 of each year beginning in 2025.

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.

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

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

Six Months Ended

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

Nine Months Ended

September 30,

(in thousands) 2024 2023

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Financing activities 35,044 (52,015)

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

Net decrease in cash and cash equivalents (3,295) (4,411)

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

During the nine months ended September 30, 2024, net cash provided by operating activities was $217.7 million.

Operating cash flows were primarily impacted by the following:

• Net income, adjusted for non-cash adjustments, provided a $146.1 million source of cash;

• Other working capital changes, impacted largely by a reduction in net receivables, resulted in a $36.0 million source of cash;

• An increased level of deferred taxes associated largely with incremental tax depreciation from growth investments resulted in a source of cash of $30.6 million;

• 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 $5.1 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 $23.8 million;

• 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 $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 $10.1 million during the six months ended June 30, 2024 and included the following:

Net cash used in investing activities totaled $256.0 million during the nine months ended September 30, 2024, largely driven by $259.6 million for new capital expenditures.

Cash Flows Provided by Financing Activities

Net cash provided by financing activities totaled $35.0 million during the nine months ended September 30, 2024 and included the following:

• Net proceeds of $89.6 million from the issuance of stock under the DRIP and net borrowings under the Revolver;

partially offset by

• A $39.9 million use of cash for dividend payments in 2024;

• Long-term debt repayments of $14.6 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 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.

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

The aggregate amount guaranteed related to our subsidiaries at September 30, 2024 was $27.5 million, with the guarantees expiring on various dates through September 2025.

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

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.

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

As of September 30, 2024, we have issued letters of credit totaling $6.3 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 September 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.

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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