CHESAPEAKE UTILITIES CORP 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2023, including the audited consolidated financial statements and notes thereto. Safe Harbor for Forward-Looking Statements We make statements in this Quarterly Report on Form 10-Q (this "Quarterly Report") that do not directly or exclusively relate to historical facts. Such statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995. One can typically identify forward-looking statements by the use of forward-looking words, such as “project,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “continue,” “potential,” “forecast” or other similar words, or future or conditional verbs such as “may,” “will,” “should,” “would” or “could.” These statements represent our intentions, plans, expectations, assumptions and beliefs about future financial performance, business strategy, projected plans and objectives of the Company. Forward-looking statements speak only as of the date they are made or as of the date indicated and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise. These statements are subject to many risks and uncertainties. In addition to the risk factors described under Item 1A., Risk Factors in our 2023 Annual Report on Form 10-K, the following important factors, among others, could cause actual future results to differ materially from those expressed in the forward-looking statements: • state and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed and the degree to which competition enters the electric and natural gas industries; • the outcomes of regulatory, environmental and legal matters, including whether pending matters are resolved within current estimates and whether the related costs are adequately covered by insurance or recoverable in rates; • the impact of climate change, including the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; • the impact of significant changes to current tax regulations and rates; • the timing of certification authorizations associated with new capital projects and the ability to construct facilities at or below estimated costs; • changes in environmental and other laws and regulations to which we are subject and environmental conditions of property that we now, or may in the future, own or operate; • 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; • the availability and reliability of adequate technology, including our ability to adapt to technological advances, effectively implement new technologies and manage the related costs; • the inherent hazards and risks involved in transporting and distributing natural gas, electricity and propane; • the economy in our service territories or markets, the nation, and worldwide, including the impact of economic conditions (which we do not control) on demand for natural gas, electricity, propane or other fuels; • risks related to cyber-attacks or cyber-terrorism that could disrupt our business operations or result in failure of information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; • adverse weather conditions, including the effects of hurricanes, ice storms and other damaging weather events; • customers' preferred energy sources; • industrial, commercial and residential growth or contraction in our markets or service territories; • the effect of competition on our businesses from other energy suppliers and alternative forms of energy; • the timing and extent of changes in commodity prices and interest rates; • the effect of spot, forward and future market prices on our various energy businesses; • the extent of our success in connecting natural gas and electric supplies to our transmission systems, establishing and maintaining key supply sources, and expanding natural gas and electric markets; • the creditworthiness of counterparties with which we are engaged in transactions; • the capital-intensive nature of our regulated energy businesses; • our ability to access the credit and capital markets to execute our business strategy, including our ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; • the ability to successfully execute, manage and integrate a merger, acquisition or divestiture of assets or businesses and the related regulatory or other conditions associated with the merger, acquisition or divestiture; 30 Table of Contents • the impact on our costs and funding obligations, under our pension and other postretirement benefit plans, of potential downturns in the financial markets, lower discount rates, and costs associated with health care legislation and regulation; • the ability to continue to hire, train and retain appropriately qualified personnel; • the availability of, and competition for, qualified personnel supporting our natural gas, electricity and propane businesses; • the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and • the impacts associated with a pandemic, including the duration and scope of the pandemic the corresponding impact on our supply chains, our personnel, our contract counterparties, general economic conditions and growth, the financial markets and any costs to comply with governmental mandates. Introduction Chesapeake Utilities is a Delaware corporation formed in 1947. We are a diversified energy company engaged, through our operating divisions and subsidiaries, in regulated energy, unregulated energy and other businesses. We operate primarily on the east coast of the United States and provide natural gas distribution and transmission; electric distribution and generation; propane gas distribution; mobile compressed natural gas services; steam generation; and other energy-related services. Our strategy is focused on growing earnings from a stable regulated energy delivery foundation and investing in related businesses and services that provide opportunities for returns greater than traditional utility returns. We seek to identify and develop opportunities across the energy value chain, with emphasis on midstream and downstream investments that are accretive to earnings per share, consistent with our long-term growth strategy and create opportunities to continue our record of top tier returns on equity relative to our peer group. Our growth strategy includes the continued investment and expansion of our regulated operations that provide a stable base of earnings, as well as investments in other related non-regulated businesses and services including sustainable energy initiatives. By investing in these related business and services, we create opportunities to sustain our track record of higher returns, as compared to a traditional utility. Currently, our growth strategy is focused on the following platforms, including: • 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. ◦ Identification and pursuit of additional pipeline expansions, including new interstate and intrastate transmission projects. ◦ Growth of Marlin Gas Services’ CNG transport business and expansion into LNG and RNG transport services as well as methane capture. ◦ Identifying and undertaking additional strategic propane acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets. ◦ 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. Revenue and earnings are typically greater during the first and fourth quarters, when consumption of energy is normally highest due to colder temperatures. Sustainability Initiatives We continue to remain steadfast in regards to our sustainability commitments, including the following: • Maintaining a leading role in the journey to a lower carbon future in our service areas. • Continuing to promote a diverse and inclusive workplace and further the sustainability of the communities we serve. • Operating our businesses with integrity and the highest ethical standards. These commitments guide our mission to deliver energy that makes life better for the people and communities we serve. They impact every aspect of the relationships we have with our stakeholders. In April of 2024, we unveiled our first in a series of 31 Table of Contents 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, 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 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 On November 30, 2023, we completed the acquisition of FCG for $ 922.8 million in cash, which included working capital adjustments as defined in the agreement that were settled during the first quarter of 2024, pursuant to the previously disclosed stock purchase agreement with Florida Power & Light Company. Upon completion of the acquisition, FCG became a wholly-owned subsidiary of the Company and is included within our Regulated Energy segment. FCG serves approximately 120,000 residential and commercial natural gas customers across eight counties in Florida, including Miami-Dade, Broward, Brevard, Palm Beach, Hendry, Martin, St. Lucie and Indian River. Its natural gas system includes approximately 3,800 miles of distribution main and 80 miles of transmission pipe. In June 2023, FCG received approval from the Florida PSC for a $23.3 million total increase in base revenue in connection with its May 2022 rate case filing. The new rates, which became effective as of May 1, 2023, included the transfer of its SAFE program provisions from a rider clause to base rates, an increase in rates associated with a liquefied natural gas facility, and approval of FCG's proposed RSAM with a $25.0 million reserve amount. The RSAM is recorded as either an increase or decrease to accrued removal costs on the balance sheet, with a corresponding increase or decrease to depreciation and amortization expense. The impact of FCG's results from the acquisition date and effects on our liquidity are discussed further below and throughout Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Unless otherwise noted, EPS and Adjusted EPS information are presented on a diluted basis. Non-GAAP Financial Measures This document, including the tables herein, include references to both Generally Accepted Accounting Principles ("GAAP") and non-GAAP financial measures, including Adjusted Gross Margin, Adjusted Net Income and Adjusted EPS. A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that includes or excludes amounts, or that is subject to adjustments, so as to be different from the most directly comparable measure calculated or presented in accordance with GAAP. Our management believes certain non-GAAP financial measures, when considered together with GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. We calculate Adjusted Gross Margin by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues. The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements. We calculate Adjusted Net Income and Adjusted EPS by deducting non-recurring costs and expenses associated with significant acquisitions that may affect the comparison of period-over-period results. These non-GAAP financial measures are not in accordance with, or an alternative to, GAAP and should be considered in addition to, and not as a substitute for, the comparable GAAP measures. The Company believes that these non-GAAP financial measures are useful and meaningful to investors as a basis for making investment decisions, and provide investors with information that demonstrates the profitability achieved by the Company under allowed rates for regulated energy operations and under the Company's competitive pricing structures for unregulated energy operations. The Company's management uses these non-GAAP financial measures in assessing a business unit's and the overall Company performance. Other companies may calculate these non-GAAP financial measures in a different manner. The following tables reconcile Gross Margin, Net Income, and EPS, all as defined under GAAP, to our non-GAAP financial measures of Adjusted Gross Margin, Adjusted Net Income and Adjusted EPS for the three and nine months ended September 30, 2024 and 2023: 32 Table of Contents Adjusted Gross Margin For the Three Months Ended September 30, 2024 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Operating Revenues $ 130,633 $ 35,567 $ (6,062) $ 160,138 Cost of Sales: Natural gas, propane and electric costs (28,366) (15,868) 6,033 (38,201) Depreciation & amortization (12,301) (4,553) 3 (16,851) Operations & maintenance expenses (1) (10,722) (8,058) — (18,780) Gross Margin (GAAP) 79,244 7,088 (26) 86,306 Operations & maintenance expenses (1) 10,722 8,058 — 18,780 Depreciation & amortization 12,301 4,553 (3) 16,851 Adjusted Gross Margin (Non-GAAP) $ 102,267 $ 19,699 $ (29) $ 121,937 For the Three Months Ended September 30, 2023 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Operating Revenues $ 102,411 $ 34,970 $ (5,834) $ 131,547 Cost of Sales: Natural gas, propane and electric costs (26,518) (16,381) 5,805 (37,094) Depreciation & amortization (13,192) (4,420) 2 (17,610) Operations & maintenance expenses (1) (4,819) (7,532) (382) (12,733) Gross Margin (GAAP) 57,882 6,637 (409) 64,110 Operations & maintenance expenses (1) 4,819 7,532 382 12,733 Depreciation & amortization 13,192 4,420 (2) 17,610 Adjusted Gross Margin (Non-GAAP) $ 75,893 $ 18,589 $ (29) $ 94,453 For the Nine Months Ended September 30, 2024 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Operating Revenues $ 429,684 $ 160,089 $ (17,619) $ 572,154 Cost of Sales: Natural gas, propane and electric costs (105,662) (70,928) 17,532 (159,058) Depreciation & amortization (39,495) (12,257) 8 (51,744) Operations & maintenance expenses (1) (35,713) (24,373) 1 (60,085) Gross Margin (GAAP) 248,814 52,531 (78) 301,267 Operations & maintenance expenses (1) 35,713 24,373 (1) 60,085 Depreciation & amortization 39,495 12,257 (8) 51,744 Adjusted Gross Margin (Non-GAAP) $ 324,022 $ 89,161 $ (87) $ 413,096 33 Table of Contents For the Nine Months Ended September 30, 2023 (in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Operating Revenues $ 345,822 $ 158,886 $ (19,439) $ 485,269 Cost of Sales: Natural gas, propane and electric costs (105,692) (75,068) 19,282 (161,478) Depreciation & amortization (39,179) (12,923) 6 (52,096) Operations & maintenance expenses (1) (23,346) (23,528) (377) (47,251) Gross Margin (GAAP) 177,605 47,367 (528) 224,444 Operations & maintenance expenses (1) 23,346 23,528 377 47,251 Depreciation & amortization 39,179 12,923 (6) 52,096 Adjusted Gross Margin (Non-GAAP) $ 240,130 $ 83,818 $ (157) $ 323,791 (1) Operations & maintenance expenses within the condensed consolidated statements of income are presented in accordance with regulatory requirements and to provide comparability within the industry. Operations & maintenance expenses which are deemed to be directly attributable to revenue producing activities have been separately presented above in order to calculate Gross Margin as defined under U.S. GAAP. 2024 to 2023 Gross Margin (GAAP) Variance – Regulated Energy 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 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. 34 Table of Contents Adjusted Net Income and Adjusted EPS Three Months Ended Nine Months Ended September 30, September 30, (in thousands, except per share data) 2024 2023 2024 2023 Net Income (GAAP) $ 17,507 $ 9,407 $ 81,946 $ 61,884 FCG transaction and transition-related expenses, net (1) 593 2,804 2,276 2,898 Adjusted Net Income (Non-GAAP) $ 18,100 $ 12,211 $ 84,222 $ 64,782 Weighted average common shares outstanding - diluted (2) 22,564 17,858 22,402 17,847 Earnings Per Share - Diluted (GAAP) $ 0.78 $ 0.53 $ 3.66 $ 3.47 FCG transaction and transition-related expenses, net (1) 0.02 0.16 0.10 0.16 Adjusted Earnings Per Share - Diluted (Non-GAAP) $ 0.80 $ 0.69 $ 3.76 $ 3.63 (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 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 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 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. 35 Table of Contents Results of Operations for the Three and Nine Months Ended September 30, 2024 Operational Highlights 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 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. 36 Table of Contents Three Months Ended September 30, Increase 2024 2023 (Decrease) (in thousands, except per share data) Adjusted Gross Margin Regulated Energy segment $ 102,267 $ 75,893 $ 26,374 Unregulated Energy segment 19,699 18,589 1,110 Other businesses and eliminations (29) (29) — Total Adjusted Gross Margin $ 121,937 $ 94,453 $ 27,484 Operating Income (Loss) Regulated Energy segment $ 43,935 $ 24,912 $ 19,023 Unregulated Energy segment (3,061) (4,723) 1,662 Other businesses and eliminations 44 39 5 Total Operating Income 40,918 20,228 20,690 Other income (expense), net 400 (72) 472 Interest charges 17,022 7,076 9,946 Income Before Income Taxes 24,296 13,080 11,216 Income taxes 6,789 3,673 3,116 Net Income $ 17,507 $ 9,407 $ 8,100 Weighted Average Common Shares Outstanding: (1) Basic 22,501 17,797 4,704 Diluted 22,564 17,858 4,706 Earnings Per Share of Common Stock Basic $ 0.78 $ 0.53 $ 0.25 Diluted $ 0.78 $ 0.53 $ 0.25 Adjusted Net Income and Adjusted Earnings Per Share Net Income (GAAP) $ 17,507 $ 9,407 $ 8,100 FCG transaction and transition-related expenses, net (2) 593 2,804 (2,211) Adjusted Net Income (Non-GAAP) $ 18,100 $ 12,211 $ 5,889 Earnings Per Share - Diluted (GAAP) $ 0.78 $ 0.53 $ 0.25 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 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. 37 Table of Contents Key variances between the third quarter of 2023 and 2024 included: (in thousands, except per share data) Pre-tax Income Net Income Earnings Per Share Third Quarter of 2023 Adjusted Results** $ 16,979 $ 12,211 $ 0.69 Increased Adjusted Gross Margins: Contributions from acquisitions 23,534 16,958 0.75 Margin from regulated infrastructure programs* 1,806 1,301 0.06 Natural gas transmission service expansions, including interim services* 1,548 1,115 0.05 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 Increased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs): FCG operating expenses (8,680) (6,255) (0.28) Payroll, benefits and other employee-related expenses (708) (510) (0.02) (9,388) (6,765) (0.30) Interest charges (9,946) (7,167) (0.32) Increase in shares outstanding due to 2023 and 2024 equity offerings*** — — (0.14) Net other changes (878) (605) (0.04) (10,824) (7,772) (0.50) Third Quarter of 2024 Adjusted Results** $ 25,115 $ 18,100 $ 0.80 * 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 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 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 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. 38 Table of Contents Nine Months Ended September 30, Increase 2024 2023 (Decrease) (in thousands, except per share data) Adjusted Gross Margin Regulated Energy segment $ 324,022 $ 240,130 $ 83,892 Unregulated Energy segment 89,161 83,818 5,343 Other businesses and eliminations (87) (157) 70 Total Adjusted Gross Margin $ 413,096 $ 323,791 $ 89,305 Operating Income Regulated Energy segment $ 142,549 $ 91,828 $ 50,721 Unregulated Energy segment 18,606 11,529 7,077 Other businesses and eliminations 138 131 7 Total Operating Income 161,293 103,488 57,805 Other income, net 1,705 1,036 669 Interest charges 50,861 21,272 29,589 Income Before Income Taxes 112,137 83,252 28,885 Income taxes 30,191 21,368 8,823 Net Income $ 81,946 $ 61,884 $ 20,062 Weighted Average Common Shares Outstanding: (1) Basic 22,346 17,784 4,562 Diluted 22,402 17,847 4,555 Earnings Per Share of Common Stock Basic $ 3.67 $ 3.48 $ 0.19 Diluted $ 3.66 $ 3.47 $ 0.19 Adjusted Net Income and Adjusted Earnings Per Share Net Income (GAAP) $ 81,946 $ 61,884 $ 20,062 FCG transaction and transition-related expenses, net (2) 2,276 2,898 (622) Adjusted Net Income (Non-GAAP) $ 84,222 $ 64,782 $ 19,440 Earnings Per Share - Diluted (GAAP) $ 3.66 $ 3.47 $ 0.19 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 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. (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. 39 Table of Contents Key variances between the nine months ended September 30, 2023 and September 30, 2024 included: (in thousands, except per share data) Pre-tax Income Net Income Earnings Per Share Nine months ended September 30, 2023 Adjusted Results** $ 87,151 $ 64,782 $ 3.63 Non-recurring Items: 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: Contributions from acquisitions 72,458 52,952 2.36 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 Rate changes associated with the Florida natural gas base rate proceeding* 1,630 1,191 0.05 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 90,960 66,473 2.96 (Increased) Decreased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs): 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) Payroll, benefits and other employee-related expenses 1,484 1,084 0.05 (31,877) (23,297) (1.04) Interest charges (29,589) (21,623) (0.97) Increase in shares outstanding due to 2023 and 2024 equity offerings*** — — (0.74) Net other changes (1,394) (829) (0.02) (30,983) (22,452) (1.73) Nine months ended September 30, 2024 Adjusted Results** $ 115,251 $ 84,222 $ 3.76 * 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 and shares also issued in 2024. 40 Table of Contents Summary of Key Factors Recently Completed and Ongoing Major Projects and Initiatives We continuously pursue and develop additional projects and initiatives to serve existing and new customers, further grow our businesses and earnings, and increase shareholder value. The following table includes all major projects and initiatives that are currently underway or recently completed. Our practice is to add 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 Nine Months ended Year Ended Estimate for September 30, September 30, December 31, Fiscal (in thousands) 2024 2023 2024 2023 2023 2024 2025 Pipeline Expansions: Southern Expansion $ 586 $ 100 $ 1,758 $ 586 $ 586 $ 2,344 $ 2,344 Beachside Pipeline Expansion 603 603 1,809 1,206 1,810 2,451 2,414 St. Cloud / Twin Lakes Expansion 146 118 438 118 264 584 2,752 Wildlight 566 178 970 271 471 1,423 2,996 Lake Wales 114 114 342 152 265 454 454 Newberry 646 — 718 — — 1,364 2,585 Boynton Beach — — — — — — 3,342 New Smyrna Beach — — — — — — 1,710 Central Florida Reinforcement — — — — — 98 1,959 Warwick — — — — — 258 1,858 Renewable Natural Gas Supply Projects — — — — — — 5,460 Total Pipeline Expansions 2,661 1,113 6,035 2,333 3,396 8,976 27,874 CNG/RNG/LNG Transportation and Infrastructure 3,498 2,385 10,438 8,811 11,181 14,000 15,000 Regulatory Initiatives: Florida GUARD program 982 90 2,436 90 353 3,566 6,333 FCG SAFE Program 1,051 — 2,152 — — 3,337 6,534 Capital Cost Surcharge Programs 765 687 2,373 2,110 2,829 3,167 4,374 Florida Rate Case Proceeding (1) 3,991 3,991 13,591 11,961 15,835 17,153 17,153 Maryland Rate Case (2) — — — — — 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 Total Regulatory Initiatives 7,506 5,066 22,576 15,101 20,343 30,356 39,975 Total $ 13,665 $ 8,564 $ 39,049 $ 26,245 $ 34,920 $ 53,332 $ 82,849 (1) Includes adjusted gross margin during 2023 comprised of both interim rates and permanent base rates which became effective in March 2023. (2) Rate case application and depreciation study filed with the Maryland PSC in January 2024. See additional information provided below. (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. 41 Table of Contents Detailed Discussion of Major Projects and Initiatives Pipeline Expansions Southern Expansion Eastern Shore installed a new natural gas driven compressor skid unit at its existing Bridgeville, Delaware compressor station that provides 7,300 Dts of incremental firm transportation pipeline capacity. The project was placed in service in the fourth quarter of 2023. The project generated additional adjusted gross margin of $0.5 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 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. The project went into service in April 2023. Subsequent to the acquisition of FCG, the agreement is now an affiliate agreement. The project generated additional adjusted gross margin of $0.6 million for the nine months ended September 30, 2024, and is expected to produce adjusted gross margin of approximately $2.4 million in 2024 and thereafter. St. Cloud / Twin Lakes Expansion In July 2022, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 2,400 Dts/d of firm service in the St. Cloud, Florida area. As part of this agreement, Peninsula Pipeline constructed a pipeline extension and regulator station for FPU. The extension supports new incremental load due to growth in the area, including providing service, most immediately, to the residential development, Twin Lakes. The expansion also improves reliability and provides operational benefits to FPU’s existing distribution system in the area, supporting future growth. This project was placed into service during July 2023 and generated additional adjusted gross margin of $0.3 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 a project that will support additional supply to communities in the St. Cloud, Florida 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. We expect this expansion to generate approximately $2.2 million of adjusted gross margin in 2025. Wildlight Expansion In August 2022, Peninsula Pipeline and FPU filed a joint petition with the Florida PSC for approval of its Transportation Service Agreement associated with the Wildlight planned community located in Nassau County, Florida. The project enables us to meet the significant growing demand for service in Yulee, Florida. The 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. Phase one consists of three extensions with associated facilities, and a gas injection interconnect with associated facilities. Phase two will consist of two additional pipeline extensions. 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 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 $0.2 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. 42 Table of Contents Newberry Expansion In April 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 8,000 Dts/d of firm service in the Newberry, Florida area. The petition was approved by the Florida PSC in the third quarter of 2023. Peninsula Pipeline will construct a pipeline extension, which will be used by FPU to support the development of a natural gas distribution system to provide gas service to the City of Newberry. A filing to address the acquisition and conversion of existing Company owned propane community gas systems in Newberry was made in November 2023. The Florida PSC approved it in April 2024, 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 In August 2023, Eastern Shore filed an application with the FERC requesting authorization to construct the Worcester Resiliency Upgrade, which consists of a mixture of storage and transmission facilities in Sussex County, DE and Wicomico, Worcester, and Somerset Counties in Maryland. The project will provide long-term incremental supply necessary to support the growing demand of the participating shippers. Eastern Shore has requested certificate authorization by December 2024, with a target in-service date by the third quarter of 2025. 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 In December 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreements with FPU for projects that will support additional supply to communities on the East Coast of Florida. The projects are driven by the need for increased supply to coastal portions of the state that are experiencing significant population growth. Peninsula Pipeline will construct several pipeline extensions which will support FPU’s distribution system in the areas of Boynton Beach and New Smyrna Beach with an additional 15,000 Dts/d and 3,400 Dts/d, respectively. The Florida PSC approved the projects in March 2024. 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. Central Florida Reinforcement Projects In February 2024, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreements with FPU for projects that will support additional supply to communities located in Central Florida. The projects are driven by the need for increased supply to communities in central Florida that are experiencing significant population growth. Peninsula Pipeline will construct several pipeline extensions which will support FPU’s distribution system 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 $0.1 million in 2024 and $2.0 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 natural gas service 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 In March 2024, Peninsula Pipeline filed a petition with the Florida PSC for its approval of Firm Transportation Service Agreements with both FCG and FPU for a project that will support greater supply growth of natural gas service in southeast Florida. The project consists of the transfer of a pipeline asset from FCG to Peninsula Pipeline. Peninsula Pipeline will proceed to provide transportation service to both FCG and FPU using the pipeline asset, which supports continued customer growth and system reinforcement of these distribution systems. The Florida PSC approved the petition in July 2024. 43 Table of Contents Renewable Natural Gas Supply 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 renewable energy supply to FCG. 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 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. CNG/RNG/LNG Transportation and Infrastructure We have made a commitment to meet customer demand for CNG, RNG and LNG in the markets we serve. This has included making investments within Marlin Gas Services to be able to transport these products through its virtual pipeline fleet to customers. To date, we have also made an infrastructure investment in Ohio, enabling RNG to fuel a third party landfill fleet and to transport RNG to end use customers off our pipeline system. We are also involved in various other projects, all at various stages and all with different opportunities to participate across the energy value chain. In many of these projects, Marlin will play a key role in ensuring the RNG is transported to one of our many pipeline systems where it will be injected. We include our RNG transportation services and infrastructure related adjusted gross margin from across the organization in combination with our CNG and LNG projects. We estimate annual adjusted gross margin, including amounts attributable to the Full Circle Dairy and Noble Road projects described below, of approximately $14.0 million in 2024 and $15.0 million in 2025 for these transportation related services, with potential for additional growth in future years. Full Circle Dairy In February 2023, we announced plans to construct, own and operate a dairy manure RNG facility at Full Circle Dairy in Madison County, Florida. The project consists of a facility converting dairy manure to RNG and transportation assets to bring the gas to market. The first injection of RNG 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. The RNG volume represents more than 10 percent of Aspire Energy’s gas gathering volumes. 44 Table of Contents Regulatory Initiatives Florida GUARD Program In February 2023, FPU filed a petition with the Florida PSC for approval of the GUARD program. GUARD is a ten-year program to enhance the safety, reliability, and accessibility of portions of our natural gas distribution system. We identified various categories of projects to be included in GUARD, which include the relocation of mains and service lines located in rear easements and other difficult to access areas to the front of the street, the replacement of problematic distribution mains, service lines, and maintenance and repair equipment and system reliability projects. In August 2023, the Florida PSC approved the GUARD program, which included $205.0 million of capital expenditures projected to be spent over a 10-year period. 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. FCG SAFE Program In June 2023, the Florida PSC issued the approval order for the continuation of the SAFE program beyond its 2025 expiration date and inclusion of 150 miles of additional mains and services located in rear property easements. The SAFE program is designed to relocate certain mains and facilities associated with rear lot easements to street front locations to improve FCG's ability to inspect and maintain the facilities and reduce opportunities for damage and theft. In the same order, the 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 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. In April 2024, FCG filed a petition with the Florida PSC to more closely align the SAFE Program with FPU's GUARD program. Specifically, the requested modifications will enable FCG to accelerate remediation related to problematic pipe and facilities consisting of obsolete and exposed pipe. 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 In December 2019, the FERC approved Eastern Shore’s capital cost surcharge to become effective January 1, 2020. The surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows Eastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the replacement of existing Eastern Shore facilities. For t he three and 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. Florida Natural Gas Base Rate Proceeding In May 2022, our legacy natural gas distribution businesses in Florida filed a consolidated natural gas rate case with the Florida PSC. The application included a request for the following: (i) permanent rate relief of approximately $24.1 million, effective January 1, 2023, (ii) a depreciation study also submitted with the filing; (iii) authorization to make certain changes to tariffs to include the consolidation of rates and rate structure across the businesses and to unify the Florida Natural Gas distribution business under FPU; (iv) authorization to retain the acquisition adjustment recorded at the time of the FPU merger in our revenue requirement; and (v) authorization to establish an environmental remediation surcharge for the purposes of addressing future expected remediation costs for FPU MGP sites. In August 2022, interim rates were approved by the Florida PSC in the amount of approximately $7.7 million on an annualized basis, effective for all meter readings in September 2022. The discovery process and related hearings were concluded during the fourth quarter of 2022 and briefs were submitted in the same quarter of 2022. In January 2023, the Florida PSC approved the application for consolidation and permanent rate relief of approximately $17.2 million on an annual basis. Actual rates in connection with the rate relief were approved by the Florida PSC in February 2023 with an effective date of March 1, 2023. The proceeding is expected to generate $17.2 million of total adjusted gross margin in 2024 and thereafter. 45 Table of Contents Maryland Natural Gas Rate Case In January 2024, our natural gas distribution businesses in Maryland, CUC-Maryland Division, Sandpiper Energy, Inc., and Elkton Gas Company (collectively, “Maryland natural gas distribution businesses”) filed a joint application for a natural gas rate case with the Maryland PSC. In connection with the application, we are seeking approval of the following: (i) permanent rate relief of approximately $6.9 million 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. 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, 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 In 2020, the Florida PSC implemented the Storm Protection Plan ("SPP") and Storm Protection Plan Cost Recovery Clause ("SPPCRC"), which require electric utilities to petition the Florida PSC for approval of a Transmission and Distribution Storm Protection Plan that covers the utility’s immediate 10-year planning period with updates to the plan at least every 3 years. The SPPCRC rules allow the utility to file for recovery of associated costs related to its SPP. Our Florida electric distribution operation's SPP and SPPCRC were filed d uring the first quarter of 2022 and approved in the fourth quarter of 2022, with modifications, by the Florida PSC. 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 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 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 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. 46 Table of Contents Three Months Ended Nine Months Ended September 30, September 30, 2024 2023 Variance 2024 2023 Variance Delmarva Peninsula Actual HDD 6 19 (13) 2,287 2,069 218 10-Year Average HDD ("Normal") 27 38 (11) 2,635 2,731 (96) Variance from Normal (21) (19) (348) (662) Florida Actual HDD — 1 (1) 511 371 140 10-Year Average HDD ("Normal") 1 1 — 512 550 (38) Variance from Normal (1) — (1) (179) Ohio Actual HDD 43 86 (43) 3,180 3,148 32 10-Year Average HDD ("Normal") 65 65 — 3,661 3,661 — Variance from Normal (22) 21 (481) (513) Florida Actual CDD 1,528 1,533 (5) 2,824 2,793 31 10-Year Average CDD ("Normal") 1,420 1,391 29 2,615 2,535 80 Variance from Normal 108 142 209 258 Natural Gas Distribution Growth 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 Nine Months Ended September 30, 2024 September 30, 2024 (in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida Customer Growth: Residential $ 276 $ 470 $ 1,118 $ 1,997 Commercial and industrial 172 95 452 615 Total Customer Growth (1) $ 448 $ 565 $ 1,570 $ 2,612 (1) Customer growth amounts for our legacy Florida operations include the effects of revised rates associated with the Company's natural gas base rate proceeding, but exclude the effects of FCG. 47 Table of Contents Regulated Energy Segment For the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023: Three Months Ended September 30, 2024 2023 Increase (in thousands) Revenue $ 130,633 $ 102,411 $ 28,222 Regulated natural gas and electric costs 28,366 26,518 1,848 Adjusted gross margin (1) 102,267 75,893 26,374 Operations & maintenance 37,669 28,600 9,069 Depreciation & amortization 12,301 13,192 (891) FCG transaction and transition-related expenses (2) 819 3,899 (3,080) Other taxes 7,543 5,290 2,253 Total operating expenses 58,332 50,981 7,351 Operating income $ 43,935 $ 24,912 $ 19,023 (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. (2) Transaction 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. 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, 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. 48 Table of Contents Items contributing to the quarter-over-quarter increase in adjusted gross margin are listed in the following table: (in thousands) Contribution from FCG $ 23,399 Margin from regulated infrastructure programs 1,806 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 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 September 30, 2024. Margin from Regulated Infrastructure Programs 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 $0.6 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 Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table: (in thousands) 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) (3,080) Other variances 549 Quarter-over-quarter increase in operating expenses $ 7,351 (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. 49 Table of Contents 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) (in thousands) Revenue $ 429,684 $ 345,822 $ 83,862 Regulated natural gas and electric costs 105,662 105,692 (30) Adjusted gross margin (1) 324,022 240,130 83,892 Operations & maintenance 115,942 88,298 27,644 Depreciation & amortization 39,495 39,179 316 FCG transaction and transition-related expenses (2) 3,114 3,899 (785) Other taxes 22,922 16,926 5,996 Total operating expenses 181,473 148,302 33,171 Operating income $ 142,549 $ 91,828 $ 50,721 (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. (2) Transaction 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. 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. 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: (in thousands) Contribution from FCG $ 71,725 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) 1,630 Eastern Shore contracted rate adjustments (238) Other variances (1,533) Period-over-period increase in adjusted gross margin $ 83,892 (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 $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 $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. 50 Table of Contents 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 $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 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 Items contributing to the period-over-period increase in operating expenses are listed in the following table: (in thousands) FCG operating expenses $ 28,813 Depreciation, amortization and property taxes 3,805 Facilities, maintenance costs and outside services 677 Insurance related costs 651 FCG transaction and transition-related expenses (1) (785) Other variances 10 Period-over-period increase in operating expenses $ 33,171 (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. 51 Table of Contents Unregulated Energy Segment For the quarter ended September 30, 2024 compared to the quarter ended September 30, 2023: Three Months Ended September 30, Increase 2024 2023 (Decrease) (in thousands) Revenue $ 35,567 $ 34,970 $ 597 Unregulated propane and natural gas costs 15,868 16,381 (513) Adjusted gross margin (1) 19,699 18,589 1,110 Operations & maintenance 16,986 17,817 (831) Depreciation & amortization 4,553 4,420 133 Other taxes 1,221 1,075 146 Total operating expenses 22,760 23,312 (552) 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 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: (in thousands) Propane Operations Contributions from acquisition $ 135 CNG/RNG/LNG Transportation and Infrastructure Increased level of virtual pipeline services 1,098 Other variances (123) Quarter-over-quarter increase in adjusted gross margin $ 1,110 The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. Propane Operations • 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. CNG/RNG/LNG Transportation and Infrastructure • 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 Items contributing to the quarter-over-quarter decrease in operating expenses are listed in the following table: (in thousands) 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) 52 Table of Contents 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) (in thousands) Revenue $ 160,089 $ 158,886 $ 1,203 Unregulated propane and natural gas costs 70,928 75,068 (4,140) Adjusted gross margin (1) 89,161 83,818 5,343 Operations & maintenance 54,225 55,627 (1,402) Depreciation & amortization 12,257 12,923 (666) Other taxes 4,073 3,739 334 Total operating expenses 70,555 72,289 (1,734) Operating income $ 18,606 $ 11,529 $ 7,077 (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. Operating results for the Unregulated Energy segment for the nine months ended September 30, 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. 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 $ 1,261 Contributions from acquisition 733 Increased propane margins and service fees 521 CNG/RNG/LNG Transportation and Infrastructure Increased level of virtual pipeline services 1,585 Aspire Energy Increased margins - rate changes and gathering fees 1,267 Other variances (24) Period-over-period increase in adjusted gross margin $ 5,343 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 $1.3 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 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 $1.6 million during the first nine 53 Table of Contents months of 2024 as compared to the same period in the prior year largely due to increased levels of CNG hold services. Aspire Energy • Increased margins - Adjusted gross margin increased by $1.3 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) 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 (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 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 5.8 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 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 5.8 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 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 54 Table of Contents 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 Our capital requirements reflect the capital-intensive and seasonal nature of our business and are principally attributable to investment in new plant and equipment, retirement of outstanding debt and seasonal variability in working capital. We rely on cash generated from operations, short-term borrowings, and other sources to meet normal working capital requirements and to temporarily finance capital expenditures. We may also issue long-term debt and equity to fund capital expenditures and to maintain our capital structure within our target capital structure range. We maintain an effective shelf registration statement with the SEC for the issuance of shares of common stock in various types of equity offerings, including 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. Our energy businesses are weather-sensitive and seasonal. We normally generate a large portion of our annual net income and subsequent increases in our accounts receivable in the first and fourth quarters of each year due to significant volumes of natural gas, electricity, and propane delivered by our distribution operations, and our natural gas transmission operations to customers during the peak-heating season. In addition, our natural gas and propane inventories, which usually peak in the fall months, are largely drawn down in the heating season and provide a source of cash as the inventory is used to satisfy winter sales demand. Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements. Our capital expenditures were $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: 2024 (in thousands) Low High Regulated Energy: Natural gas distribution $ 160,000 $ 190,000 Natural gas transmission 75,000 90,000 Electric distribution 30,000 38,000 Total Regulated Energy 265,000 318,000 Unregulated Energy: Propane distribution 13,000 15,000 Energy transmission 5,000 6,000 Other unregulated energy 13,000 15,000 Total Unregulated Energy 31,000 36,000 Other: Corporate and other businesses 4,000 6,000 Total 2024 Forecasted Capital Expenditures $ 300,000 $ 360,000 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 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. The regulatory application and approval process has lengthened in the past few years, and we expect this trend to continue. 55 Table of Contents Capital Structure We are committed to maintaining a sound capital structure and strong credit ratings. This commitment, along with adequate and timely rate relief for our regulated energy operations, is intended to ensure our ability to attract capital from outside sources at a reasonable cost, which will benefit our customers, creditors, employees and stockholders. The following table presents our capitalization, excluding and including short-term borrowings, as of September 30, 2024 and December 31, 2023: September 30, 2024 December 31, 2023 (in thousands) Long-term debt, net of current maturities $ 1,172,956 47 % $ 1,187,075 49 % Stockholders’ equity 1,348,272 53 % 1,246,104 51 % Total capitalization, excluding short-term debt $ 2,521,228 100 % $ 2,433,179 100 % September 30, 2024 December 31, 2023 (in thousands) Short-term debt $ 214,753 8 % $ 179,853 7 % Long-term debt, including current maturities 1,191,478 43 % 1,205,580 46 % Stockholders’ equity 1,348,272 49 % 1,246,104 47 % Total capitalization, including short-term debt $ 2,754,503 100 % $ 2,631,537 100 % Our target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. Our equity to total capitalization ratio, including short-term borrowings, was 49 percent as of September 30, 2024. We seek to align permanent financing with the in-service dates of our capital projects. We may utilize more temporary short-term debt when the financing cost is attractive as a bridge to the permanent long-term financing or if the equity markets are volatile. In November 2023, in connection with our acquisition of FCG, we completed an equity offering resulting in the issuance of approximately 4.4 million shares of our common stock at a price per share of $82.72 (net of underwriter discounts and commissions). We received net proceeds of $366.4 million which were used to partially finance the acquisition. During the first 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 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. 56 Table of Contents Short-term Borrowings 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. 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. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in the Revolver's loan documents. We are required by the financial covenants in the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio as described above. 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. The letters of credit reduce the available borrowings under the Revolver. In connection with our acquisition of FCG, we entered into a 364-day Bridge Facility commitment with Barclays Bank PLC and other lending parties for up to $965.0 million. Upon closing of the FCG acquisition in November 2023, and with the completion of other financing activities as defined in the lending agreement, this facility was terminated with no funds drawn to finance the transaction. For additional information regarding the acquisition and related financing, see Note 3, Acquisitions, Note 9, Stockholders Equity , and Note 14, Long-Term Debt. 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. 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 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. 57 Table of Contents Cash Flows 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 Net cash provided by (used in): Operating activities $ 217,668 $ 183,347 Investing activities (256,007) (135,743) Financing activities 35,044 (52,015) Net decrease in cash and cash equivalents (3,295) (4,411) Cash and cash equivalents—beginning of period 4,904 6,204 Cash and cash equivalents—end of period $ 1,609 $ 1,793 Cash Flows Provided by Operating Activities Changes in our cash flows from operating activities are attributable primarily to changes in net income, adjusted for non-cash items such as depreciation and amortization, changes in deferred income taxes, share-based compensation expense and working capital. Working capital requirements are determined by a variety of factors, including weather, the prices of natural gas, electricity and propane, the timing of customer collections, payments for purchases of natural gas, electricity and propane, and deferred fuel cost recoveries. During the 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; and • 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. Cash Flows Used in Investing Activities 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; and • Long-term debt repayments of $14.6 million. Off-Balance Sheet Arrangements The Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain letters of credit securing our subsidiaries' obligations. The maximum authorized liability under such guarantees and letters of credit as of September 30, 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 September 30, 2024 was $4.0 million. 58 Table of Contents 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. Contractual Obligations There has been no material change in the contractual obligations presented in our 2023 Annual Report on Form 10-K. Rates and Regulatory Matters Our natural gas distribution operations in Delaware, Maryland and Florida and electric distribution operation in Florida are subject to regulation by the respective state PSC; Eastern Shore is subject to regulation by the FERC; and Peninsula Pipeline and Aspire Energy Express, our intrastate pipeline subsidiaries, are subject to regulation (excluding cost of service) by the Florida PSC and Public Utilities Commission of Ohio, respectively. We regularly are involved in regulatory matters in each of the jurisdictions in which we operate. Our significant regulatory matters are fully described in Note 5 , Rates and Other Regulatory Activities , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Recent Authoritative Pronouncements on Financial Reporting and Accounting Recent accounting developments, applicable to us, and their expected impact on our financial position, results of operations and cash flows, are described in Note 1 , Summary of Accounting Policies , to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.