What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 289 added, 239 removed, 397 unchanged (57% of the section changed)

9 unchanged sentences

For a discussion of the Company's earnings, refer to the Results of Operations section below.

On June 1, 2023, the Company completed its acquisition of certain upstream assets located primarily in Tioga County, Pennsylvania from SWN Production Company, LLC ("SWN") for total consideration of $124.8 million.

As part of the transaction, the Company acquired approximately 34,000 net acres in an area that is contiguous with existing Company-owned upstream assets.

This transaction was accounted for as an asset acquisition and, as such, the purchase price was allocated to property, plant and equipment.

On June 30, 2022, the Company completed the sale of Seneca’s California assets to Sentinel Peak Resources California LLC for a total sale price of $253.5 million, consisting of $240.9 million in cash and contingent consideration valued at $12.6 million at closing.

3 unchanged sentences

Under the full cost method of accounting for oil and natural gas properties, $220.7 million of the sale price at closing was accounted for as a reduction of capitalized costs since the disposition did not alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center.

The remainder of the sale price ($32.8 million) was applied against assets that are not subject to the full cost method of accounting, with the Company recognizing a gain of $12.7 million on the sale of such assets.

The remainder of the sale price ($32.8 million) was applied

Table of Content

against assets that are not subject to the full cost method of accounting, with the Company recognizing a gain of $12.7 million on the sale of such assets.

The majority of this gain related to the sale of emission allowances.

On June 30, 2022, the Company entered into a new 364-Day Credit Agreement (the "364-Day Credit Agreement") with a syndicate of five banks, all of which are also lenders under the Credit Agreement.

The 364-Day Credit Agreement provides an additional $250.0 million unsecured committed delayed draw term loan credit facility with a maturity date of June 29, 2023.

From a rate perspective, Distribution Corporation, in its Pennsylvania jurisdiction, reached a settlement with the parties to its rate case proceeding.

On June 15, 2023, the PaPUC issued an order adopting the settlement in full.

The settlement authorizes an increase in Distribution Corporation's annual base rate operating revenues of $23 million effective August 1, 2023.

In addition, Supply Corporation filed a NGA Section 4 rate case at FERC on July 31, 2023.

For further discussion of Distribution Corporation and Supply Corporation rate matters, refer to the Rate Matters section below.

From a financing perspective, on June 30, 2022, the Company entered into a 364-Day Credit Agreement (the "364-Day Credit Agreement") with a syndicate of five banks, all of which are also lenders under the Credit Agreement.

The 364-Day Credit Agreement provided an additional $250.0 million unsecured committed delayed draw term loan credit facility with a maturity date of June 29, 2023.

The Company elected to draw $250.0 million under the facility on October 27, 2022.

The Company is using the proceeds for general corporate purposes, which included using $150.0 million for the November 2022 redemption of a portion of the Company's outstanding long-term debt with a maturity date in March 2023.

The Company used the proceeds for general corporate purposes, which included using $150.0 million for the November 2022 redemption of a portion of the Company's outstanding long-term debt with a maturity date in March 2023.

In March 2023, the Company utilized short-term borrowings and cash on hand to redeem the remaining long-term debt that had maturity dates in March 2023, which included $350.0 million of 3.75% notes and $49.0 million of 7.395% notes.

From a financing perspective, the Company expects to use cash on hand, cash from operations, and short-term or long-term borrowings, as needed, to meet its financing needs for the remainder of fiscal 2023.

On May 18, 2023, the Company issued $300.0 million of 5.50% notes due October 1, 2026.

The proceeds of this debt issuance were used for general corporate purposes, including to repay all indebtedness under the $250.0 million unsecured committed delayed draw term loan under the 364-Day Credit Agreement mentioned above.

The Company expects to use cash on hand, cash from operations, and short-term borrowings, as needed, to meet its financing needs for the remainder of fiscal 2023.

The Company continues to evaluate these financing needs and options to meet them.

Given the current economic conditions, which include continued inflationary pressures and rising interest rates, the cost and/or availability of capital may be impacted, but the Company continues to expect to meet its financing needs as discussed above.

Recent turmoil with certain financial institutions has created uncertainty in the economy.

While the Company has not been directly impacted, it continues to closely monitor any potential future impacts on the business.

The Company has a diverse group of twelve banks that participate in its multi-year and 364-day credit facilities.

In early 2023, turmoil with certain financial institutions created uncertainty in the economy.

While the Company was not directly impacted, it continues to closely monitor any potential future impacts on the business.

The Company has a diverse group of twelve banks that participate in its multi-year credit facility.

All of these banks have solid investment grade credit ratings.

11 unchanged sentences

If the book value of the oil and gas properties exceeds the ceiling, a non-cash impairment charge must be recorded to reduce the book value of the oil and gas properties to the calculated ceiling.

At March 31, 2023, the ceiling exceeded the book value of the oil and gas properties by approximately $2.7 billion.

The 12-month average of the first day of the month price for natural gas for each month during the twelve months ended March 31, 2023, based on the quoted Henry Hub spot price for natural gas, was $5.96 per MMBtu.

Because actual pricing of the Company’s producing properties vary depending on their location and hedging, the prices used to calculate the ceiling may differ from the Henry Hub price, which is only indicative of 12-month average prices for the twelve months ended March 31, 2023.

Actual realized pricing includes adjustments for regional market differentials, transportation fees and contractual arrangements.) In regard to the sensitivity of the ceiling test calculation to commodity price changes, if natural gas prices were $0.25 per MMBtu lower than the average prices used at March 31, 2023 in the ceiling test calculation, the ceiling would have exceeded the book value of the Company's oil and gas properties by approximately $2.4 billion (after-tax), which would not have resulted in an impairment charge.

At June 30, 2023, the ceiling exceeded the book value of the oil and gas properties by approximately $1.8 billion.

The 12-month average of the first day of the month price for natural gas for each month during the twelve months ended June 30, 2023, based on the quoted Henry Hub spot price for natural gas, was $4.76 per MMBtu.

Actual realized pricing includes adjustments for regional market differentials, transportation fees and contractual arrangements.) In

Table of Content

regard to the sensitivity of the ceiling test calculation to commodity price changes, if natural gas prices were $0.25 per MMBtu lower than the average prices used at June 30, 2023 in the ceiling test calculation, the ceiling would have exceeded the book value of the Company's oil and gas properties by approximately $1.5 billion (after-tax), which would not have resulted in an impairment charge.

This calculated amount is based solely on price changes and does not take into account any other changes to the ceiling test calculation, including, among others, changes in reserve quantities and future cost estimates.

3 unchanged sentences

RESULTS OF OPERATIONS

The Company's earnings were $140.9 million for the quarter ended March 31, 2023 compared to earnings of $167.3 million for the quarter ended March 31, 2022.

The decrease in earnings of $26.4 million is primarily the result of lower earnings in the Exploration and Production segment, Pipeline and Storage segment and Utility segment.

Higher earnings in the Gathering segment and the Corporate category partially offset these decreases.

The Company's earnings were $310.6 million for the six months ended March 31, 2023 compared to earnings of $299.7 million for the six months ended March 31, 2022.

The increase in earnings of $10.9 million is primarily the result of higher earnings in the Exploration and Production segment, Pipeline and Storage segment, Gathering segment and Corporate category.

Lower earnings in the Utility segment and a loss in the All Other category partially offset these increases.

The Company's earnings for the quarter and six months ended March 31, 2022 include the reduction of an OPEB regulatory liability that increased Utility segment earnings by $18.5 million ($14.6 million after-tax) in accordance with a regulatory proceeding in Distribution Corporation's Pennsylvania service territory.

The Company's earnings were $92.6 million for the quarter ended June 30, 2023 compared to earnings of $108.2 million for the quarter ended June 30, 2022.

The decrease in earnings of $15.6 million is primarily the result of lower earnings in all reportable segments, as well as a loss in the All Other category.

Higher earnings in the Corporate category partially offset these decreases.

The Company's earnings were $403.2 million for the nine months ended June 30, 2023 compared to earnings of $407.9 million for the nine months ended June 30, 2022.

The decrease in earnings of $4.7 million is primarily the result of lower earnings in the Utility segment and Pipeline and Storage segment, as well as a loss in the All Other category.

Higher earnings in the Exploration and Production segment, Gathering segment and Corporate category partially offset these decreases.

The Company's earnings for the quarter and nine months ended June 30, 2022 included the impact of several items in the Company's Exploration and Production segment related to the completion of the sale of Seneca’s California assets, as discussed above.

The Company recorded a gain on the sale of these assets of $12.7 million ($9.5 million after-tax) related to a portion of the sales price that was applied to assets that were not subject to the full cost method of accounting.

The Company also recorded a loss of $44.6 million ($33.3 million after-tax) related to the termination of its remaining crude oil derivative contracts as a result of the sale.

In addition, the Company incurred transaction and severance costs of $9.7 million ($7.2 million after-tax) related to the California asset sale.

The Company's earnings for the nine months ended June 30, 2022 also included the reduction of an OPEB regulatory liability that increased earnings by $18.5 million ($14.6 million after-tax) recorded during the quarter ended March 31, 2022 in the Utility segment in accordance with a regulatory proceeding in Distribution Corporation's Pennsylvania service territory.

Additional discussion of earnings in each of the business segments can be found in the business segment information that follows.

2 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(Thousands) 2023 2022 Increase

8 unchanged sentences

Total Consolidated $ 92,620 $ 108,158 $ (15,538) $ 403,189 $ 407,879 $ (4,690)

Table of Content

Exploration and Production

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(Thousands) 2023 2022 Increase

2 unchanged sentences

Oil (after Hedging) (1)

483 40,867 (40,384) 1,637 112,907 (111,270)

Gas Processing Plant 284 1,016 (732) 867 3,029 (2,162)

3 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 Increase

10 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 Increase

10 unchanged sentences

Weighted Average After Hedging (1)

$ 69.66 $ 77.65 $ (7.99) $ 75.50 $ 70.71 $ 4.79

(1) Oil revenue and weighted average oil price after hedging for the three months and nine months ended June 30, 2022 excludes a loss on discontinuance of crude oil cash flow hedges of $44.6 million.

This loss is presented in other revenue in the table above.

N/M - Not Meaningful (as a result of the sale of Seneca's West Coast assets in June 2022)

Table of Content

2023 Compared with 2022

Operating revenues for the Exploration and Production segment decreased $17.0 million for the quarter ended March 31, 2023 as compared with the quarter ended March 31, 2022.

Gas production revenue after hedging increased $22.5 million due to the impact of a 9.3 Bcf increase in natural gas production, offset by a $0.02 per Mcf decrease in the weighted average price of natural gas after hedging.

Operating revenues for the Exploration and Production segment decreased $36.1 million for the quarter ended June 30, 2023 as compared with the quarter ended June 30, 2022.

Gas production revenue after hedging decreased $40.9 million due to the impact of a $0.60 per Mcf decrease in the weighted average price of natural gas after hedging, offset by a 5.5 Bcf increase in natural gas production.

Natural gas production increased largely due to additional production from new Marcellus and Utica wells in the Appalachian region.

Oil production revenue after hedging decreased $40.4 million due to the sale of the Exploration and Production segment's California assets on June 30, 2022.

In addition, other revenue decreased $2.5 million and gas processing plant revenue decreased $0.8 million.

The decrease in other revenue was attributed to higher temporary capacity releases during the quarter ended March 31, 2022 when compared to the quarter ended March 31, 2023.

The decrease in gas processing plant revenue was mainly attributed to the sale of the California assets.

Operating revenues for the Exploration and Production segment increased $15.7 million for the six months ended March 31, 2023 as compared with the six months ended March 31, 2022.

Gas production revenue after hedging increased $89.9 million due to the impact of an 18.1 Bcf increase in natural gas production combined with a $0.24 per Mcf increase in the weighted average price of natural gas after hedging.

The increase in natural gas production was largely due to additional production from new Marcellus and Utica wells in the Appalachian region during the six months ended March 31, 2023 as compared with the six months ended March 31, 2022.

In addition, other revenue increased $45.9 million and gas processing plant revenue decreased $0.7 million.

The increase in other revenue is primarily attributable to a loss on discontinuance of crude oil cash flow hedges as a result of the sale of the California assets combined with royalty shut-in payments made in accordance with lease agreements, both occurring in the quarter ended June 30, 2022.

The decrease in gas processing plant revenue was mainly attributable to the sale of the California assets.

Operating revenues for the Exploration and Production segment decreased $20.3 million for the nine months ended June 30, 2023 as compared with the nine months ended June 30, 2022.

Gas production revenue after hedging increased $49.1 million due to the impact of a 23.5 Bcf increase in natural gas production offset by a $0.05 per Mcf decrease in the weighted average price of natural gas after hedging.

The increase in natural gas production was largely due to additional production from new Marcellus and Utica wells in the Appalachian region during the nine months ended June 30, 2023 as compared with the nine months ended June 30, 2022.

Oil production revenue after hedging decreased $111.3 million due to the sale of the California assets.

In addition, other revenue decreased $1.9 million and gas processing plant revenue decreased $1.4 million.

The decrease in other revenue was attributed to higher temporary capacity releases during the six months ended March 31, 2022 when compared to the six months ended March 31, 2023, combined with a decrease in operating revenue from this segment's water treatment plants.

The decrease in gas processing plant revenue was mainly attributed to the sale of the California assets.

The Exploration and Production segment's earnings for the quarter ended March 31, 2023 were $61.0 million, a decrease of $10.1 million when compared with earnings of $71.1 million for the quarter ended March 31, 2022.

The decrease in earnings was attributed to lower natural gas prices after hedging ($1.3 million), lower oil production ($28.7 million), higher depletion expense ($6.4 million) and an unrealized loss on contingent consideration received as part of the California asset sale ($1.8 million).

A decrease in other revenue ($2.0 million) and gas processing plant revenue ($0.6 million), both of which are discussed above, also contributed to the decrease in earnings.

These decreases were partially offset by higher natural gas production ($19.1 million), lower lease operating and transportation expenses ($5.3 million), lower other operating expenses ($3.2 million), lower other taxes ($1.9 million) and higher other income ($1.0 million).

In addition, gas processing plant revenue decreased $2.2 million as a result of the sale of the California assets.

Other revenue increased $44.1 million primarily attributable to a loss on discontinuance of crude oil cash flow hedges combined with royalty shut-in payments made in accordance with lease agreements, both occurring in the quarter ended June 30, 2022.

These were partially offset by decreases due to higher temporary capacity releases during the nine months ended June 30, 2022 when compared to the nine months ended June 30, 2023 and a decrease in operating revenue from this segment's water treatment plants.

The Exploration and Production segment's earnings for the quarter ended June 30, 2023 were $43.3 million, a decrease of $13.2 million when compared with earnings of $56.5 million for the quarter ended June 30, 2022.

The decrease in earnings was attributable to lower natural gas prices after hedging ($44.6 million), lower oil production ($31.9 million), higher depletion expense ($4.3 million) and an unrealized loss on contingent consideration received as part of the California asset sale ($1.0 million).

These decreases were partially offset by higher natural gas production ($12.4 million), lower lease operating and transportation expenses ($14.0 million), lower other operating expenses ($6.1 million), lower other taxes ($3.8 million), a decrease in interest expense ($0.8 million) and higher other income ($0.5 million).

Finally, in the quarter ended June 30, 2022, the Company also had a loss related to discontinuance of its crude oil cash flow hedges ($33.3 million) and had transaction and severance costs ($7.2 million), offset by a gain that was recognized on the sale of Seneca's California non-full cost pool assets ($9.5 million), all of which were driven by the sale of its California assets.

The increase in depletion expense was primarily due to the net increase in production combined with a $0.04 per Mcf increase in the depletion rate.

The decrease in lease operating and transportation expenses was primarily the result of the sale of the California assets, partially offset by higher gathering and transportation costs combined with higher lease operating expenses in the Appalachian region.

The decrease in other operating expenses was primarily attributed to the California asset sale.

The decrease in other taxes was primarily

attributed to both the impact of the sale of Seneca's California assets as well as lower Impact Fees in the Appalachian region.

The increase in other income was attributed to higher interest income, as well as non-service pension and post-retirement benefit income in the quarter ended March 31, 2023 compared to non-service pension and post-retirement benefit costs in the quarter ended March 31, 2022.

The Exploration and Production segment's earnings for the six months ended March 31, 2023 were $152.2 million, an increase of $18.7 million when compared with earnings of $133.5 million for the six months ended March 31, 2022.

The increase in earnings was primarily attributable to higher natural gas production ($36.5 million) and higher natural gas prices after hedging ($34.5 million) as discussed above.

Other factors contributing to the earnings increase included lower lease operating and transportation expenses ($11.3 million), lower other operating expenses ($6.5 million), lower other taxes ($0.9 million) and higher other income ($2.3 million).

Partially offsetting these items, the Exploration and Production segment experienced lower oil production ($56.1 million), lower other revenue ($1.5 million) and lower gas processing plant revenue ($1.1 million), all of which are discussed above.

Other factors that decreased earnings included higher depletion expense ($11.1 million), higher interest expense ($0.9 million), higher income tax expense ($1.1 million) and an unrealized loss on contingent consideration received as part of the California asset sale ($1.7 million).

The decrease in other operating expenses was primarily attributable to the California asset sale and recognizing abandonment costs related to certain offshore Gulf of Mexico wells that were formerly owned by Seneca, both occurring in the quarter ended June 30, 2022.

The decrease in other taxes was primarily attributable to both the impact of the sale of Seneca's California assets as well as lower Impact Fees in the Appalachian region.

The decrease in interest expense can largely be attributed to lower interest on intercompany long-term borrowings as a result of the Company's redemption of $500.0 million of 3.75% notes that was redeemed in March 2023, partially offset by additional interest on intercompany long-term borrowings related to the Company’s May 2023 debt issuance of $300.0 million of 5.50% notes and a higher average interest rate on intercompany short-term borrowings.

The increase in other income was attributable to higher interest income, as well as non-service pension and post-retirement benefit income in the quarter ended June 30, 2023 compared to non-service pension and post-retirement benefit costs in the quarter ended June 30, 2022.

The Exploration and Production segment's earnings for the nine months ended June 30, 2023 were $195.5 million, an increase of $5.5 million when compared with earnings of $190.0 million for the nine months ended June 30, 2022.

The increase in earnings was primarily attributable to higher natural gas production ($49.6 million), as discussed above, combined with lower lease operating and transportation expenses ($25.3 million), lower other operating expenses ($12.6 million), lower other taxes ($4.7 million), and higher other income ($2.8 million).

Also, in the nine months ended June 30, 2022, the Company had a loss related to discontinuance of its crude oil cash flow hedges ($33.3 million) and had transaction and severance costs ($7.2 million), offset by a gain that was recognized on the sale of Seneca's California non-full cost pool assets ($9.5 million), all of which were driven by the sale of its California assets.

Partially offsetting these items, the Exploration and Production

Table of Content

segment experienced lower natural gas prices after hedging ($10.8 million), lower oil production ($88.0 million), lower other revenue ($0.5 million) and lower gas processing plant revenue ($1.7 million), all of which are discussed above.

Other factors that decreased earnings included higher depletion expense ($15.5 million), higher income tax expense ($1.8 million) and an unrealized loss on contingent consideration received as part of the California asset sale ($2.7 million).

The decrease in other operating expenses was primarily attributed to the California asset sale.

The decrease in other taxes was attributed to the impact of the California asset sale, partially offset by higher Impact Fees in the Appalachian region.

The increase in other income was attributed to higher interest income, as well as non-service pension and post-retirement income in the six months ended March 31, 2023 compared to non-service pension and post-retirement benefit costs in the six months ended March 31, 2022.

The decrease in other taxes was attributable to the impact of the California asset sale, combined with lower Impact Fees in the Appalachian region.

The increase in other income was attributable to higher interest income, as well as non-service pension and post-retirement income in the nine months ended June 30, 2023 compared to non-service pension and post-retirement benefit costs in the nine months ended June 30, 2022.

The increase in depletion expense was primarily due to the net increase in production combined with a $0.04 per Mcf increase in the depletion rate.

The increase in interest expense can largely be attributed to a higher average interest rate on intercompany short-term borrowings partially offset by lower interest on intercompany long-term borrowings due to the Company's redemption of $500.0 million of 3.75% notes during the six months ended March 31, 2023.

The increase in income tax expense was primarily driven by a prior-year benefit realized from the Enhanced Oil Recovery tax credit, which did not recur in the current year as a result of the sale of the California assets.

2 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(Thousands) 2023 2022 Increase

9 unchanged sentences

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(MMcf) 2023 2022 Increase

4 unchanged sentences

2023 Compared with 2022

Operating revenues for the Pipeline and Storage segment decreased $0.3 million for the quarter ended March 31, 2023 as compared with the quarter ended March 31, 2022.

The decrease in operating revenues was primarily due to a decrease in other revenue of $1.4 million, partially offset by an increase in transportation revenues of $1.1 million.

The decrease in other revenue primarily reflects an adjustment to electric surcharge revenues and lower cashout revenues.

Operating revenues for the Pipeline and Storage segment decreased $3.2 million for the quarter ended June 30, 2023 as compared with the quarter ended June 30, 2022.

The decrease in operating revenues was primarily due to a decrease in transportation revenues of $4.4 million, partially offset by an increase in other revenues of $1.2 million.

The decrease in transportation revenues is primarily due to contract expirations, partially offset by an increase in new short-term contracts.

The increase in other revenues primarily reflects an adjustment to electric surcharge revenues and higher cashout revenues.

All customer surcharges and related adjustments for the electric surcharge mechanism are completely offset by an equal amount of electric power costs recorded in operation and maintenance expense.

Cashout revenues are completely offset by purchased gas expense.

The increase in transportation revenues was primarily attributable to Period 2 Rates that went into effect April 1, 2022.

These Period 2 Rates were a negotiated revenue step-up as part of the FM100 Project that was placed into service in December 2021, as specified in Supply Corporation's 2020 rate case settlement.

An increase in short-term contracts also contributed to the increase in transportation revenues.

These increases were partially offset by a decline in revenues associated with miscellaneous contract terminations and revisions.

Operating revenues for the Pipeline and Storage segment increased $9.0 million for the six months ended March 31, 2023 as compared with the six months ended March 31, 2022.

The increase in operating revenues was primarily due to an increase in transportation revenues of $11.1 million and an increase in storage revenues of $0.5 million, partially offset by a decrease in other revenue of $2.5 million.

The increase in transportation revenues was primarily attributable to new demand charges for transportation service from Supply Corporation's FM100 Project, which was placed into service in December 2021.

The increase from the FM100 Project includes the impact of a negotiated revenue step-up to Period 2 Rates that went into effect April 1, 2022, as mentioned above.

Operating revenues for the Pipeline and Storage segment increased $5.9 million for the nine months ended June 30, 2023 as compared with the nine months ended June 30, 2022.

The increase in operating revenues was primarily due to an increase in transportation revenues of $6.7 million and an increase in storage revenues of $0.6 million, partially offset by a decrease in other revenues of $1.4 million.

The increase in transportation revenues was primarily attributable to new demand

Table of Content

charges for transportation service from Supply Corporation's FM100 Project, which was placed into service in December 2021.

The increase from the FM100 Project includes the impact of a negotiated revenue step-up to Period 2 Rates that went into effect April 1, 2022, as specified in Supply Corporation's 2020 rate case settlement.

An increase in short-term contracts also contributed to the increase in transportation revenues.

These increases were partially offset by a decline in revenues associated with miscellaneous contract terminations and revisions.

These increases were partially offset by a decline in revenues associated with certain contract expirations and revisions.

The increase in storage revenues was mainly due to the Period 2 Rates that went into effect April 1, 2022 related to the FM100 Project, as discussed above, as well as an increase in reservation charges for storage service from several new contracts that went into effect.

The decrease in other revenue primarily reflects an adjustment to electric surcharge revenues and lower cashout revenues.

Transportation volume for the quarter ended March 31, 2023 decreased by 1.1 Bcf from the prior year's quarter ended March 31, 2022.

For the six months ended March 31, 2023, transportation volume increased by 30.5 Bcf from the prior year's six-month period ended March 31, 2022.

The increase in transportation volume for the six-month period primarily reflects an increase in volume from the FM100 Project, which was brought online in December 2021, as well as an increase in short-term contracts.

These were partially offset by certain contract terminations during the six months ended March 31, 2023.

The decrease in other revenues primarily reflects an adjustment to electric surcharge revenues and lower cashout revenues.

Transportation volume for the quarter ended June 30, 2023 increased by 5.5 Bcf from the prior year's quarter ended June 30, 2022.

For the nine months ended June 30, 2023, transportation volume increased by 36.0 Bcf from the prior year's nine-month period ended June 30, 2022.

The increase in transportation volume for the quarter ended June 30, 2023 is primarily due to an increase in volume from various short-term contracts, partially offset by a decrease in volume from certain contract expirations.

The increase in transportation volume for the nine-month period primarily reflects an increase in short-term contracts, as well as an increase in volume from the FM100 Project, which was brought online in December 2021.

These were partially offset by certain contract expirations during the nine months ended June 30, 2023.

Volume fluctuations, other than those caused by the addition or termination of contracts, generally do not have a significant impact on revenues as a result of the straight fixed-variable rate design utilized by Supply Corporation and Empire.

The Pipeline and Storage segment’s earnings for the quarter ended March 31, 2023 were $23.9 million, a decrease of $1.6 million when compared with earnings of $25.5 million for the quarter ended March 31, 2022.

The decrease in earnings was primarily due to an increase in operating expenses of $2.2 million, combined with the earnings impact of lower operating revenues of $0.2 million, as discussed above.

The Pipeline and Storage segment’s earnings for the quarter ended June 30, 2023 were $23.8 million, a decrease of $2.8 million when compared with earnings of $26.6 million for the quarter ended June 30, 2022.

The decrease in earnings was primarily due to the earnings impact of lower operating revenues of $2.5 million, as discussed above, combined with an increase in operating expenses of $1.2 million and an increase in depreciation expense of $0.3 million.

The increase in operating expenses was primarily due to higher personnel costs, higher pipeline integrity costs and an increase in compressor maintenance costs.

This was partially offset by lower power costs related to Empire's electric motor drive compressor station.

This reduction in electric power costs is offset by an equal reduction in revenue, as discussed above.

The increase in depreciation expense was primarily due to new modernization projects going into service since the prior-year third quarter.

These earnings decreases were partially offset by an increase in other income of $1.3 million, which was primarily due to a higher weighted average interest rate on intercompany short-term notes receivables along with higher non-service pension and post-retirement benefit income.

This was partially offset by a decrease in the allowance for funds used during construction (equity component) related to an annual adjustment that was recorded during the current quarter.

The Pipeline and Storage segment’s earnings for the six months ended March 31, 2023 were $53.3 million, an increase of $2.7 million when compared with earnings of $50.6 million for the six months ended March 31, 2022.

The increase in earnings was primarily due to the earnings impact of higher operating revenues of $7.1 million, as discussed above, combined with an increase in other income ($1.5 million).

The increase in other income is primarily due to a higher weighted average interest rate on intercompany short-term notes receivables along with higher non-service pension and post-retirement benefit income.

This was partially offset by a decrease in allowance for funds used during construction (equity component) related to the construction of the FM100 Project that was placed into service in December 2021 along with an annual adjustment that was recorded during the current fiscal year.

These earnings increases were partially offset by increases in operating expenses ($3.7 million), depreciation expense ($1.6 million) and interest expense ($0.9 million).

The Pipeline and Storage segment’s earnings for the nine months ended June 30, 2023 were $77.1 million, a decrease of $0.1 million when compared with earnings of $77.2 million for the nine months ended June 30, 2022.

The decrease in earnings was primarily due to an increase in operating expenses ($4.9 million), an increase in depreciation expense ($1.9 million) and an increase in interest expense ($0.9 million).

The increase in operating expenses was primarily due to higher personnel costs, higher pipeline integrity costs and an increase in compressor maintenance costs.

This was partially offset by lower power costs related to Empire's electric motor drive compressor station.

This reduction in electric

power costs is offset by an equal reduction in revenue, as discussed above.

This reduction in electric power costs is offset by an equal reduction in revenue, as discussed above.

The increase in depreciation expense was primarily due to incremental depreciation from the FM100 Project going into service in December 2021.

The increase in interest expense was mainly due to higher interest rates on security deposits and intercompany short-term borrowings, partially offset by a decrease in interest on intercompany long-term borrowings due to the Company's redemption of $500.0 million of 3.75% notes during the six months ended March 31, 2023.

The increase in interest expense was mainly due to an increase in intercompany short-term borrowings, partially offset by a decrease in interest on intercompany long-term borrowings primarily due to the Company's redemption of $500.0 million of 3.75% notes during the nine months ended June 30, 2023.

These earnings decreases were partially offset by the earnings impact of higher operating revenues of $4.6 million, as discussed above, combined with an increase in other income ($2.8 million).

Gathering Operating Revenues

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(Thousands) 2023 2022 Increase

1 unchanged sentence

Gathering Revenues $ 58,906 $ 55,931 $ 2,975 $ 172,300 $ 160,759 $ 11,541

Table of Content

Gathering Volume

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

2023 2022 Increase

2 unchanged sentences

2023 Compared with 2022

Operating revenues for the Ga thering segment increased $4.4 million for the quarter ended March 31, 2023 as compared with the quarter ended March 31, 2022, which was driven primarily by a 5.6 Bcf increase in gathered volume.

The increase in gathered volume can be attributed primarily to an increase in natural gas production on the Covington and Clermont gathering systems, which recorded increases of 14.9 Bcf and 4.2 Bcf, respectively, partially offset by decreases on the Trout Run and Wellsboro gathering systems, which recorded decreases of 8.6 Bcf and 4.9 Bcf, respectively.

The net increase can be attributed to an increase in gross natural gas production in the Appalachian region by producers connected to the aforementioned gathering systems.

Operating revenue s for the Gathering segment increased $8.6 million for the six months ended March 31, 2023 as compared with the six months ended March 31, 2022, which was driven primarily by a 12.5 Bcf increase in gathered volume.

Operating revenues for the Ga thering segment increased $3.0 million for the quarter ended June 30, 2023 as compared with the quarter ended June 30, 2022, which was driven primarily by an 8.9 Bcf increase in gathered volume.

Gathered volume on the Wellsboro, Trout Run, Covington and Clermont gathering systems increased 5.0 Bcf, 2.9 Bcf, 0.6 Bcf and 0.4 Bcf, respectively.

The increase can be attributed to an increase in gross natural gas production in the Appalachian region by producers connected to the aforementioned gathering systems.

Operating revenue s for the Gathering segment increased $11.5 million for the nine months ended June 30, 2023 as compared with the nine months ended June 30, 2022, which was driven primarily by a 21.5 Bcf increase in gathered volume.

Contributors to the increase included the Covington and Clermont gathering systems, which recorded increases of 31.8 Bcf and 6.2 Bcf, respectively, partially offset by the Trout Run and Wellsboro gathering systems, which recorded decreases of 15.7 Bcf and 0.8 Bcf, respectively.

The net increase can be attributed to an increase in gross natural gas production in the Appalachian region by producers connected to the aforementioned gathering systems.

The Gathering segment’s earnings for the quarter ended March 31, 2023 were $24.3 million, an increase of $2.2 million when compared with earnings of $22.1 million for the quarter ended March 31, 2022.

The increase in earnings was mainly due to higher gathering revenues ($3.5 million) driven by the increase in gathered volume, as discussed above.

These increases were partially offset by higher operating expenses ($0.9 million) and higher depreciation expense ($0.4 million).

The increase in operating expenses was largely attributable to higher leased compression and material costs on the Trout Run and Covington gathering systems combined with higher labor costs across all of the gathering systems.

The increase in depreciation expense was largely due to higher plant balances associated with the Covington and Clermont gathering systems.

The Gathering segment’s earnings for the six months ended March 31, 2023 were $49.1 million, an increase of $3.9 million when compared with earnings of $45.2 million for the six months ended March 31, 2022.

The increase in earnings was mainly due to higher gathering revenues ($6.8 million) driven by the increase in gathered volume, as discussed above.

This increase was partially offset by higher operating expenses ($2.1 million) and higher depreciation expense ($0.7 million).

The increase in operating expenses was largely attributable to higher leased compression costs on the Trout Run and Covington gathering systems, higher material costs on the Clermont and Covington gathering systems and higher labor costs across all of the gathering systems.

The Gathering segment’s earnings for the quarter ended June 30, 2023 were $24.1 million, a decrease of $0.6 million when compared with earnings of $24.7 million for the quarter ended June 30, 2022.

The decrease in earnings reflects higher operating expenses ($2.4 million), higher income tax expense ($0.6 million) and higher depreciation expense ($0.3 million), partially offset by higher gathering revenues ($2.4 million) and lower interest expense ($0.4 million).

The increase in operating expenses was largely attributable to higher outside service costs associated with preventative maintenance overhauls as well as higher leased compression expense.

The increase in gathering revenues was driven by the increase in gathered volume, as discussed above.

The Gathering segment’s earnings for the nine months ended June 30, 2023 were $73.2 million, an increase of $3.3 million when compared with earnings of $69.9 million for the nine months ended June 30, 2022.

The increase in earnings was mainly due to higher gathering revenues ($9.1 million) driven by the increase in gathered volume, as discussed above, coupled with lower interest expense ($0.7 million) and lower other deductions ($0.5 million).

These increases were partially offset by higher operating expenses ($4.5 million), higher income tax expense ($1.4 million) and higher depreciation expense ($1.0 million).

The increase in operating expenses was largely attributable to higher outside service costs associated with preventative maintenance overhauls, higher leased compression expense, higher personnel costs and higher material costs.

The increase in income tax expense was primarily driven by a higher effective state income tax rate.

The increase in depreciation expense was largely due to higher plant balances associated with the Covington and Clermont gathering systems.

1 unchanged sentence

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(Thousands) 2023 2022 Increase

8 unchanged sentences

$ 144,617 $ 179,948 $ (35,331) $ 863,414 $ 785,909 $ 77,505

Table of Content

Utility Throughput

Three Months Ended

March 31, Six Months Ended

June 30, Nine Months Ended

(MMcf) 2023 2022 Increase

7 unchanged sentences

23,589 24,865 (1,276) 120,521 125,582 (5,061)

Three Months Ended March 31, Percent Colder (Warmer) Than

Three Months Ended June 30, Percent Colder (Warmer) Than

Normal 2023 2022 Normal (1)

2 unchanged sentences

Erie, PA 871 802 741 (7.9) % 8.2 %

Six Months Ended March 31,

Nine Months Ended June 30,

Buffalo, NY 6,455 5,656 5,662 (12.4) % (0.1) %

2 unchanged sentences

2023 Compared with 2022

Operating revenues for the Utility segment increased $37.9 million for the quarter ended March 31, 2023 as compared with the quarter ended March 31, 2022.

The increase resulted largely from a $40.2 million increase in retail gas sales revenue.

This increase primarily reflects an increase in the cost of gas sold (per Mcf), partially offset by a 4.7 Bcf decrease in throughput due to warmer weather and a decrease in base rates.

It should be noted that under its purchased gas adjustment clauses in New York and Pennsylvania, Distribution Corporation is not allowed to profit from fluctuations in gas costs.

Operating revenues for the Utility segment decreased $35.3 million for the quarter ended June 30, 2023 as compared with the quarter ended June 30, 2022.

The decrease resulted largely from a $33.4 million decrease in retail gas sales revenue and a $2.1 million decrease in transportation revenue.

These decreases reflect a decrease in the cost of gas sold (per Mcf) (mostly for retail sales), a decrease in throughput, and a decrease in base rates.

It should be noted that under its purchased gas adjustment clauses in New York and Pennsylvania, Distribution Corporation's earnings are not impacted by fluctuations in gas costs.

Purchased gas expense recorded on the consolidated income statement matches the revenues collected from customers.

Revenues collected in 2023 reflect not only the current cost of gas but also the collection of previously deferred under collected gas costs.

The decrease in base rates is related to a tariff filing approved by the NYPSC, which created a surcredit that temporarily eliminates pension and

OPEB cost recovery from base rates effective October 1, 2022.

The decrease in base rates is related to a tariff filing approved by the NYPSC, which created a surcredit that temporarily eliminates pension and OPEB cost recovery from base rates effective October 1, 2022.

Additional details related to the regulatory proceeding are discussed in the Rate Matters section and in Item 1 at Note 11 - Regulatory Matters.

In addition to the overall increase in retail gas sales revenue, there was a $2.3 million increase in other revenues.

The increase in other revenues is the result of higher capacity release revenues ($1.1 million) and a smaller estimated refund provision from the income tax benefits resulting from the 2017 Tax Reform Act ($1.4 million).

Partially offsetting the impact of higher retail gas sales revenue and other revenues, there was a $4.6 million decrease in transportation revenues.

The decrease in transportation revenues is mainly attributable to a decrease in base rates, as a result of the NYPSC tariff filing related to pension and OPEB costs discussed above, as well as a 3.0 Bcf decrease in throughput due to warmer weather.

The decrease in transportation revenues was partially offset by an increase in the system modernization tracker allocation to transportation customers.

Operating revenues for the Utility segment increased $112.8 million for the six months ended March 31, 2023 as compared with the six months ended March 31, 2022.

The increase largely resulted from a $113.5 million increase in retail gas sales revenue and a $4.0 million increase in other revenues, which were partially offset by a $4.7 million decrease in transportation revenues.

The increase in retail gas sales revenue was primarily due to a considerable increase in the cost of gas sold (per Mcf) partially offset by a decrease in base rates, as a result of the NYPSC tariff filing related to pension and OPEB costs discussed above, as well as a 1.5 Bcf decrease in throughput due to warmer weather.

The increase in other revenues was largely due to higher capacity release revenues ($1.8 million), a smaller estimated refund provision from the income tax benefits resulting from the 2017 Tax Reform Act ($0.9 million), a positive regulatory adjustment ($0.9 million), and higher late payment charges billed to customers ($0.5 million).

The decrease in transportation revenues was largely due to a 2.2 Bcf decrease in transportation throughput during the six months ended March 31, 2023 and the decrease in base rates, as previously mentioned.

The decrease in transportation revenues was partially offset by an increase in the system modernization tracker allocation to transportation customers.

The Utility segment’s earnings for the quarter ended March 31, 2023 were $31.7 million, a decrease of $21.3 million when compared with earnings of $53.0 million for the quarter ended March 31, 2022.

The decrease in earnings was primarily attributable to the non-recurrence of an adjustment that increased earnings by $14.6 million during the quarter ended March 31, 2022.

The adjustment, which resulted from the conclusion of a proceeding in the Utility's Pennsylvania service territory, recognized the cumulative amount of OPEB income in that jurisdiction that previously had been deferred as a regulatory liability.

In addition to the non-recurrence of this transaction, there was a decrease in OPEB income ($1.7 million) in the Utility's Pennsylvania service territory quarter over quarter.

Other factors contributing to the decrease included a decrease in usage due to warmer weather ($2.9 million), higher interest expense ($3.4 million), and higher operating expenses ($1.7 million).

The decreases in retail gas sales revenue and transportation revenue were partially offset by an increase in revenues earned under the system modernization and system improvement tracker mechanisms in Distribution Corporation's New York jurisdiction, which allow for the recovery of investments in leak prone pipe replacement.

These decreases were partially offset by a $0.2 million increase in other revenues consisting of higher capacity release revenues ($0.2 million) and a smaller estimated refund provision from the income tax benefits resulting from the 2017 Tax Reform Act ($0.2 million).

These increases in other revenues were reduced by lower late payment charges billed to customers ($0.3 million).

Operating revenues for the Utility segment increased $77.5 million for the nine months ended June 30, 2023 as compared with the nine months ended June 30, 2022.

The increase largely resulted from an $80.1 million increase in retail gas sales revenue and a $4.2 million increase in other revenues, which were partially offset by a $6.8 million decrease in transportation revenue.

The increase in retail gas sales revenue was primarily due to an increase in the cost of gas sold (per Mcf), partially offset by a decrease in base rates, as a result of the NYPSC tariff filing related to pension and OPEB costs discussed above, as well as a 2.4 Bcf decrease in throughput due to warmer weather during the winter months.

Revenues collected in 2023 reflect not only the current cost of gas but also the collection of previously deferred undercollected gas costs.

The increase in other revenues was largely due to higher capacity release revenues ($2.0 million), a smaller estimated refund provision from the income tax benefits resulting from the 2017 Tax Reform Act ($1.1 million), and a positive regulatory adjustment ($0.9 million).

The decrease in transportation revenue was largely due to a 2.7 Bcf decrease in transportation

Table of Content

throughput due to warmer weather in the winter months and the decrease in base rates, as previously mentioned.

The decrease in transportation revenue was partially offset by an increase in revenues earned under the system modernization and system improvement tracker mechanisms in Distribution Corporation's New York jurisdiction.

The Utility segment’s earnings for the quarter ended June 30, 2023 were less than $0.1 million compared to earnings of $4.6 million for the quarter ended June 30, 2022.

The decrease was primarily due to higher operating expenses ($3.1 million), higher interest expense ($2.2 million), and higher income tax expense ($0.9 million).

The increase in operating expenses was mainly due to higher personnel costs and outside services.

The increase in interest expense was largely the result of a higher weighted average interest rate on intercompany short-term borrowings.

The increase in operating expenses was mainly due to higher personnel costs and an increase in the accrual for uncollectible accounts.

An additional decrease of $6.3 million resulted from a reduction in the New York jurisdiction’s base rates as a result of the NYPSC tariff filing related to pension and OPEB costs discussed above, which temporarily eliminated the recovery of pension and OPEB expenses effective October 1, 2022.

This was offset by a decrease in non-service pension and post-retirement benefit costs ($6.6 million), as Distribution Corporation’s New York service territory ceased recognizing pension and OPEB expenses.

Partially offsetting these decreases, the Utility segment also experienced the positive earnings impact of a system modernization tracker in New York ($1.7 million), interest earned on deferred gas costs ($0.7 million), and lower income tax expense ($0.8 million) when comparing the quarter ended March 31, 2023 to the quarter ended March 31, 2022.

Partially offsetting these decreases, the Utility segment's earnings benefited from the impact of the system modernization and system improvement trackers in New York ($0.9 million) and interest earned on deferred gas costs ($0.7 million).

The earnings impact of the reduction in the New York jurisdiction's base rates for the quarter ended June 30, 2023 resulting from the NYPSC tariff filing related to pension and OPEB costs discussed above ($2.0 million) was offset by a decrease in non-service pension and OPEB costs ($2.9 million).

With the elimination of pension and OPEB expenses in customer rates, Distribution Corporation’s New York service territory did not recognize any pension and OPEB expenses during the quarter ended June 30, 2023, compared to the prior year period when it recognized pension and OPEB expenses to match against the pension and OPEB amounts collected in base rates.

Lastly, there was a decrease in the Utility's Pennsylvania service territory OPEB income ($0.5 million) related to a regulatory proceeding that concluded during the quarter ended March 31, 2022, as discussed below.

The impact of weather variations on earnings in the Utility segment's New York rate jurisdiction is mitigated by that jurisdiction's weather normalization clause (WNC).

1 unchanged sentence

In addition, in periods of colder than normal weather, the WNC benefits the Utility segment's New York customers.

For the quarter ended March 31, 2023, the WNC increased earnings by approximately $3.3 million, as the weather was warmer than normal.

For the quarter ended March 31, 2022, the WNC increased earnings by approximately $1.5 million, as the weather was warmer than normal.

The Utility segment’s earnings for the six months ended March 31, 2023 were $55.5 million, a decrease of $19.7 million when compared with earnings of $75.2 million for the six months ended March 31, 2022.

The decrease is primarily attributable to the non-recurrence of an adjustment that increased earnings by $14.6 million during the quarter ended March 31, 2022, as discussed above.

In addition to the non-recurrence of this transaction, there was a decrease in OPEB income ($1.6 million) in the Utility's Pennsylvania service territory period over period.

The reduction in the New York jurisdiction's base rates resulting from the NYPSC tariff filing also discussed above ($10.1 million), higher interest expense primarily due to a

higher weighted average interest rate on intercompany short-term borrowings ($5.4 million), and higher operating expenses ($4.1 million) resulting from higher personnel costs and an increase in the accrual for uncollectible accounts also contributed to the decrease in earnings.

Given the elimination of pension and OPEB expense in customer rates, earnings benefited from a decrease in non-service pension and OPEB costs ($10.2 million) in Distribution Corporation's New York service territory, as a result of the NYPSC tariff filing, discussed above.

In addition, the impact of a system modernization tracker in New York ($2.6 million), higher other operating revenues ($1.7 million), and lower income tax expense ($0.7 million) partially offset the decrease in earnings when comparing the six months ended March 31, 2023, to the six months ended March 31, 2022.

Other operating revenues increased largely due to higher capacity release revenues.

For the six months ended March 31, 2023, the WNC increased earnings by approximately $4.2 million, as the weather was warmer than normal.

For the six months ended March 31, 2022, the WNC increased earnings by approximately $4.1 million, as the weather was warmer than normal.

For both the quarters ended June 30, 2023 and June 30, 2022, the WNC increased earnings by approximately $0.6 million, as the weather was warmer than normal.

The Utility segment’s earnings for the nine months ended June 30, 2023 were $55.6 million, a decrease of $24.2 million when compared with earnings of $79.8 million for the nine months ended June 30, 2022.

The decrease in earnings was primarily attributable to the impact of a proceeding in the Utility's Pennsylvania service territory during the quarter ended March 31, 2022 that allowed for a favorable one-time adjustment of $14.6 million to recognize the cumulative amount of OPEB income, previously deferred as a regulatory liability in that jurisdiction, which did not recur in the nine months ended June 30, 2023.

In addition to the non-recurrence of this transaction, there was a decrease in OPEB income ($2.2 million) in the Utility's Pennsylvania service territory.

The earnings impact of the reduction in the New York jurisdiction's base rates for the nine months ended June 30, 2023 resulting from the NYPSC tariff filing discussed above ($11.1 million) was offset by a decrease in non-service pension and OPEB costs ($13.2 million).

Other factors that contributed to the earnings decrease in the Utility segment included higher interest expense ($7.6 million), primarily due to a higher weighted average interest rate on intercompany short-term borrowings, and higher operating expenses ($7.2 million), resulting from higher personnel costs and outside services.

Factors that partially offset the earnings decrease in the Utility segment included the positive impact of a system modernization and system improvement tracker in New York ($3.5 million), interest earned on deferred gas costs ($1.9 million), and higher other operating revenues ($1.7 million).

Other operating revenues increased largely due to higher capacity release revenues, a smaller estimated refund provision from the income tax benefits resulting from the 2017 Tax Reform Act, and a positive regulatory adjustment.

For both the nine months ended June 30, 2023 and June 30, 2022, the WNC increased earnings by approximately $4.8 million, as the weather was warmer than normal.

Corporate and All Other

2023 Compared with 2022

Corporate and All Other operations had a net loss of less than $0.1 million for the quarter ended March 31, 2023, a decrease in net loss of $4.4 million when compared with the quarter ended March 31, 2022 .

The reduction in net loss was primarily attributable to changes in unrealized gains and losses on investments in equity securities.

During the quarter ended March 31, 2023, the Company recorded unrealized gains of $0.8 million.

During the quarter ended March 31, 2022, the Company recorded unrealized losses of $1.7 million.

Also contributing to the reduction in net loss were changes in cash surrender value of life insurance policies, which increased in value $0.4 million during the current quarter compared to a decrease in value of $0.7 million during the prior-year second quarter.

For the six months ended March 31, 2023, Corporate and All Other operations had earnings of $0.5 million, an increase of $5.3 million when compared with a net loss of $4.8 million for the six months ended March 31, 2022.

Corporate and All Other operations had earnings of $1.3 million for the quarter ended June 30, 2023, an increase of $5.5 million when compared with a net loss of $4.2 million for the quarter ended June 30, 2022 .

The increase was primarily attributable to changes in unrealized gains and losses on investments in equity securities.

During the quarter ended June 30, 2023, the Company recorded unrealized gains of $0.3 million.

During the quarter ended June 30, 2022, the Company recorded

Table of Content

unrealized losses of $2.7 million.

Also contributing to the increase in earnings were changes in the cash surrender value of life insurance policies ($1.1 million) and lower non-service pension and post-retirement benefit costs ($0.5 million).

For the nine months ended June 30, 2023, Corporate and All Other operations had earnings of $1.8 million, an increase of $10.8 million when compared with a net loss of $9.0 million for the nine months ended June 30, 2022.

The increase in earnings was primarily attributable to changes in unrealized gains and losses on investments in equity securities.

During the six months ended March 31, 2023, the Company recorded unrealized gains of $1.0 million.

During the six months ended March 31, 2022, the Company recorded unrealized losses of $5.3 million.

Lower non-service pension and post-retirement benefit costs ($1.0 million) also contributed to the increase in earnings.

During the nine months ended June 30, 2023, the Company recorded unrealized gains of $1.3 million.

During the nine months ended June 30, 2022, the Company recorded unrealized losses of $8.0 million.

Also contributing to the increase in earnings were changes in the cash surrender value of life insurance policies ($1.3 million) and lower non-service pension and post-retirement benefit costs ($1.6 million).

These changes were partially offset by a decrease in realized gains from sales of investments in equity securities ($2.9 million).

Other Income (Deductions)

Net other income on the Consolidated Statement of Income was $2.9 million for the quarter ended March 31, 2023, compared to net other income of $10.0 million for the quarter ended March 31, 2022.

This change is primarily attributable to an $11.2 million decrease in non-service pension and post-retirement benefit income quarter over quarter.

This is largely related to lower non-service post-retirement benefit income in the Utility’s Pennsylvania service territory stemming from the conclusion of a rate proceeding in the Utility’s Pennsylvania service territory during the quarter ended March 31, 2022.

As a result of that proceeding, a one-time adjustment was recorded to reduce a regulatory liability in that jurisdiction by $18.5 million.

This decrease in OPEB income was partially offset by an $8.3 million decrease in non-service pension and post-retirement benefit expense in the Utility’s New York Service territory as a result of a tariff filing that became effective October 1, 2022.

Additional details related to the regulatory proceedings are discussed in the Rate Matters section and in Item 1, Note 11 – Regulatory Matters.

Net other income on the Consolidated Statement of Income was $9.2 million for the six months ended March 31, 2023, compared to net other income of $8.9 million for the six months ended March 31, 2022.

Higher interest income of $4.6 million contributed to the increase.

This was primarily due to an increase in interest on temporary cash investments, increased interest on a larger undercollection of gas costs over the prior year in Distribution Corporation and an increase in interest received from hedging collateral deposits in the Exploration and Production segment.

Changes in unrealized and realized gains and losses on investments in equity securities also increased other income by $5.1 million period over period.

Offsetting these increases, there was a $5.0 million reduction in non-service pension and post-retirement benefit income period over period.

As discussed above, the Utility's Pennsylvania service territory recorded a one-time adjustment that resulted in $18.5 million of income during the quarter ended March 31, 2022.

The resulting earnings reduction in 2023 was largely offset by a $12.9 million decrease in non-service pension and post-retirement benefit expense in the Utility's New York service territory as a result of the

tariff filing that became effective October 1, 2022.

Other offsetting factors include a mark-to-market adjustment that reduced the value of the contingent consideration received from the sale of Seneca's California assets in June 2022 and a $1.9 million reduction in allowance for funds used during construction.

Net other income on the Consolidated Statements of Income was $3.6 million for the quarter ended June 30, 2023, compared to net other deductions of $5.6 million for the quarter ended June 30, 2022.

This variation can be attributed primarily to the quarter-over-quarter change in non-service pension and post-retirement benefit income/expense.

The Company recorded $1.4 million of non-service pension and post-retirement benefit income during the quarter ended June 30, 2023.

During the quarter ended June 30, 2022, the Company recorded $3.2 million of non-service pension and post-retirement benefit expense.

Changes in unrealized gains and losses on investments in equity securities also increased other income by $4.1 million, along with an increase in life insurance income of $1.1 million, period over period.

Higher interest income of $1.1 million also contributed to the increase.

This was primarily due to increased interest on a larger undercollection of gas costs quarter over quarter in Distribution Corporation.

These increases were partially offset by a mark-to-market adjustment that reduced the value of the contingent consideration received from the sale of Seneca's California assets in June 2022 of $1.4 million.

Net other income on the Consolidated Statements of Income was $12.8 million for the nine months ended June 30, 2023, compared to net other income of $3.3 million for the nine months ended June 30, 2022.

This was mostly due to changes in unrealized and realized gains and losses on investments in equity securities of $9.2 million, along with an increase in life insurance income of $1.3 million.

Higher interest income of $5.6 million also contributed to the increase.

Offsetting these increases were a mark-to-market adjustment that reduced the value of the contingent consideration received from the sale of Seneca's California assets in June 2022 by $3.7 million and a $2.1 million reduction in allowance for funds used during construction.

Also, there was a $0.5 million reduction in non-service pension and post-retirement benefit income year over year.

Interest Expense on Long-Term Debt

Interest expense on long-term debt on the Consolidated Statement of Income decreased $2.5 million for the quarter ended March 31, 2023 as compared to the quarter ended March 31, 2022.

For the six months ended March 31, 2023, interest expense on long-term debt decreased $3.0 million as compared with the six months ended March 31, 2022.

This was primarily due to the March 2023 redemptions of $350.0 million of the $500.0 million 3.75% note and the $49.0 million 7.395% note.

In addition, $150.0 million of the $500.0 million 3.75% note was redeemed in November 2022, which also contributed to the decrease.

Interest expense on long-term debt on the Consolidated Statement of Income decreased $3.8 million for the quarter ended June 30, 2023 as compared to the quarter ended June 30, 2022.

For the nine months ended June 30, 2023, interest expense on long-term debt decreased $6.8 million as compared with the nine months ended June 30, 2022.

This was primarily due to the March 2023 redemptions of $350.0 million of the $500.0 million 3.75% notes and the $49.0 million 7.395% notes.

In addition, $150.0 million of the $500.0 million 3.75% notes was redeemed in November 2022, which also contributed to the decrease.

These redemptions were partially offset by the issuance of $300.0 million 5.50% notes in May 2023.

CAPITAL RESOURCES AND LIQUIDITY

The Company’s primary sources of cash during the six-month period ended March 31, 2023 consisted of cash provided by operating activities, proceeds from short-term borrowings and proceeds from the sale of a fixed income mutual fund held in a grantor trust.

The Company’s primary sources of cash during the six-month period ended March 31, 2022 consisted of cash provided by operating activities, net proceeds from short-term borrowings, proceeds from the sale of a fixed income mutual fund held in a grantor trust and net proceeds from the sale of oil and gas properties.

The Company’s primary sources of cash during the nine-month period ended June 30, 2023 consisted of cash provided by operating activities, net proceeds from short-term and long-term borrowings and proceeds from the sale of a fixed income mutual fund held in a grantor trust.

The Company’s primary sources of cash during the nine-month period ended June 30, 2022 consisted of cash provided by operating activities, net proceeds from short-term borrowings, proceeds from the sale of a fixed income mutual fund held in a grantor trust and net proceeds from the sale of oil and gas properties.

The Company expects to have adequate amounts of cash available to meet both its short-term and long-term cash requirements for at least the next twelve months and for the foreseeable future thereafter.

During the remainder of 2023, cash provided by operating activities is expected to increase when compared to the same period in 2022 and will be used to fund the Company's capital expenditures.

Based on current commodity prices, cash provided by operating activities is expected to exceed capital expenditures in 2024.

This is expected to provide the Company with the option to consider additional growth investments, further reductions in short-term debt, and increasing the amount of cash flow returned to shareholders, either through increases to the Company’s dividend or via repurchases of common stock.

Cash provided by operating activities is expected to exceed capital expenditures in 2024.

These cash flow projections do not reflect the impact of acquisitions or divestitures that may arise in the future.

Table of Content

Operating Cash Flow

9 unchanged sentences

The Company uses various derivative financial instruments, including price swap agreements and no cost collars, in an attempt to manage this energy commodity price risk.

Net cash provided by operating activities totaled $711.2 million for the six months ended March 31, 2023, an increase of $285.6 million compared with $425.6 million provided by operating activities for the six months ended March 31, 2022.

The increase in cash provided by operating activities primarily reflects higher cash provided by operating activities in the Exploration and Production segment primarily due to higher cash receipts from natural gas production in the Appalachian region and higher realized natural gas prices, after hedging.

Net cash provided by operating activities totaled $1,055.1 million for the nine months ended June 30, 2023, an increase of $401.1 million compared with $654.0 million provided by operating activities for the nine months ended June 30, 2022.

The increase in cash provided by operating activities primarily reflects higher cash provided by operating activities in the Exploration and Production segment and Utility segment.

The increase in the Exploration and Production segment is primarily due to higher cash receipts from natural gas production.

The increase in the Utility segment is primarily due to the timing of gas cost recovery and the timing of customer receivable balances.

Table of Content

Investing Cash Flow

Expenditures for Long-Lived Assets

The Company’s expenditures for long-lived assets totaled $440.6 million during the six months ended March 31, 2023 and $376.2 million during the six months ended March 31, 2022.

The Company’s expenditures for long-lived assets totaled $804.1 million during the nine months ended June 30, 2023 and $564.2 million during the nine months ended June 30, 2022.

The table below presents these expenditures:

Total Expenditures for Long-Lived Assets

Six Months Ended March 31, 2023 2022 Increase (Decrease)

Nine Months Ended June 30, 2023 2022 Increase (Decrease)

Exploration and Production:

Capital Expenditures (1)

$ 592.8 (2) $ 405.7 (3) $ 187.1

Pipeline and Storage:

4 unchanged sentences

$ 804.1 $ 564.2 $ 239.9

(1) At March 31, 2023, capital expenditures for the Exploration and Production segment, the Pipeline and Storage segment, the Gathering segment and the Utility segment include $56.1 million, $2.2 million, $2.0 million and $4.2 million, respectively, of non-cash capital expenditures.

(1) The nine months ended June 30, 2023 includes $124.8 million related to the acquisition of upstream assets acquired from SWN.

The acquisition cost is reported as a component of Acquisition of Upstream Assets on the Consolidated Statement of Cash Flows.

(2) At June 30, 2023, capital expenditures for the Exploration and Production segment, the Pipeline and Storage segment, the Gathering segment and the Utility segment include $52.8 million, $7.7 million, $2.8 million and $8.5 million, respectively, of non-cash capital expenditures.

At September 30, 2022, capital expenditures for the Exploration and Production segment, the Pipeline and Storage segment, the Gathering segment and the Utility segment included $83.0 million, $15.2 million, $10.7 million and $11.4 million, respectively, of non-cash capital expenditures.

(2) At March 31, 2022, capital expenditures for the Exploration and Production segment, the Pipeline and Storage segment, the Gathering segment and the Utility segment included $52.5 million, $3.5 million, $3.4 million and $4.1 million, respectively, of non-cash capital expenditures.

(3) At June 30, 2022, capital expenditures for the Exploration and Production segment, the Pipeline and Storage segment, the Gathering segment and the Utility segment included $62.0 million, $5.2 million, $2.5 million and $4.7 million, respectively, of non-cash capital expenditures.

At September 30, 2021, capital expenditures for the Exploration and Production segment, the Pipeline and Storage segment, the Gathering segment and the Utility segment included $47.9 million, $39.4 million, $4.8 million and $10.6 million, respectively, of non-cash capital expenditures.

Exploration and Production

The Exploration and Production segment capital expenditures for the six months ended March 31, 2023 were primarily well drilling and completion expenditures in the Appalachian region (including $143.2 million in the Marcellus Shale area and $172.4 million in the Utica Shale area).

The Exploration and Production segment capital expenditures for the nine months ended June 30, 2023 were primarily well drilling and completion expenditures in the Appalachian region, and also included $124.8 million of expenditures related to the acquisition of upstream assets from SWN on June 1, 2023, which is discussed further below.

Exploration and Production segment capital expenditures for the nine months ended June 30, 2023 included $229.6 million spent in the Marcellus Shale area and $352.2 million spent in the Utica Shale area.

These amounts included approximately $256.4 million spent to develop proved undeveloped reserves.

The Exploration and Production segment capital expenditures for the six months ended March 31, 2022 were primarily well drilling and completion expenditures and included approximately $258.8 million for the Appalachian region (including $84.8 million in the Marcellus Shale area and $166.8 million in the Utica Shale area) and $15.2 million for the West Coast region.

The Exploration and Production segment capital expenditures for the nine months ended June 30, 2022 were primarily well drilling and completion expenditures and included approximately $387.0 million for the Appalachian region (including $123.0 million in the Marcellus Shale area and $253.4 million in the Utica Shale area) and $18.7 million for the West Coast region.

These amounts included approximately $130.8 million spent to develop proved undeveloped reserves.

Pipeline and Storage

The Pipeline and Storage segment capital expenditures for the six months ended March 31, 2023 were primarily for additions, improvements and replacements to this segment's transmission and gas storage systems, which included system modernization expenditures that enhance the reliability and safety of the systems and reduce emissions.

The Pipeline and Storage segment capital expenditures for the six months ended March 31, 2022 were primarily for expenditures related to Supply Corporation's FM100 Project ($21.0 million).

In addition, the Pipeline and Storage segment capital expenditures for the

six months ended March 31, 2022 included additions, improvements and replacements to this segment’s transmission and gas storage systems.

The majority of the Gathering segment capital expenditures for the six months ended March 31, 2023 included expenditures related to the continued expansion of Midstream Company's Clermont, Covington, Trout Run and Wellsboro gathering systems, as discussed below.

Midstream Company spent $10.2 million, $10.4 million, $3.8 million and $6.4 million, respectively, during the six months ended March 31, 2023 on the development of the Clermont, Covington, Trout Run, and Wellsboro gathering systems.

The Pipeline and Storage segment capital expenditures for the nine months ended June 30, 2023 were primarily for additions, improvements and replacements to this segment's transmission and gas storage systems, which included system modernization expenditures that enhance the reliability and safety of the systems and reduce emissions.

The Pipeline and Storage segment capital expenditures for the nine months ended June 30, 2022 were primarily for additions, improvements and replacements to this segment’s transmission and gas storage systems.

In addition, the Pipeline and Storage segment capital expenditures for the nine months ended June 30, 2022 included expenditures related to Supply Corporation's FM100 Project ($23.0 million).

Table of Content

The majority of the Gathering segment capital expenditures for the nine months ended June 30, 2023 included expenditures related to the continued expansion of Midstream Company's Clermont, Covington, Trout Run and Wellsboro gathering systems, as discussed below.

Midstream Company spent $14.7 million, $25.3 million, $6.8 million and $8.4 million, respectively, during the nine months ended June 30, 2023 on the development of the Clermont, Covington, Trout Run, and Wellsboro gathering systems.

These expenditures were largely attributable to the installation of new in-field gathering pipelines, as well as the continued development of centralized station facilities, including increased compression horsepower, at the Clermont, Trout Run, and Wellsboro gathering systems.

In the Tioga gathering system, which is part of Midstream Covington, expenditures were largely attributable to the expansion of on-pad and centralized station facilities related to bringing new development online.

The majority of the Gathering segment capital expenditures for the six months ended March 31, 2022 included expenditures related to the continued expansion of Midstream Company's Clermont and Covington gathering systems.

Midstream Company spent $8.7 million and $10.6 million, respectively, during the six months ended March 31, 2022 on the development of the Clermont and Covington gathering systems.

In the Tioga gathering system, which is part of Midstream Covington, expenditures were largely attributable to the expansion of on-pad and centralized pipeline and station facilities related to bringing new development online.

The majority of the Gathering segment capital expenditures for the nine months ended June 30, 2022 included expenditures related to the continued expansion of Midstream Company's Clermont and Covington gathering systems.

Midstream Company spent $13.4 million and $12.9 million, respectively, during the nine months ended June 30, 2022 on the development of the Clermont and Covington gathering systems.

These expenditures were largely attributable to the installation of new in-field gathering pipelines in the Clermont gathering system, as well as the development of new gathering facilities, including new in-field gathering pipelines and station upgrades in the Tioga gathering system.

The majority of the Utility segment capital expenditures for the six months ended March 31, 2023 and March 31, 2022 were made for main and service line improvements and replacements that enhance the reliability and safety of the system and reduce emissions.

The majority of the Utility segment capital expenditures for the nine months ended June 30, 2023 and June 30, 2022 were made for main and service line improvements and replacements that enhance the reliability and safety of the system and reduce emissions.

Expenditures were also made for main extensions.

9 unchanged sentences

Since the disposition did not significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center, the Company did not record any gain or loss from this sale.

On June 30, 2022, the Company completed the sale of Seneca’s California assets, all of which are in the Exploration and Production segment, to Sentinel Peak Resources California LLC for a total sale price of $253.5 million, consisting of $240.9 million in cash and contingent consideration valued at $12.6 million at closing.

The fair value of the contingent consideration was $5.9 million at March 31, 2023.

On June 30, 2022, the Company completed the sale of Seneca’s California assets, all of which were in the Exploration and Production segment, to Sentinel Peak Resources California LLC for a total sale price of $253.5 million, consisting of $240.9 million in cash and contingent consideration valued at $12.6 million at closing.

The fair value of the contingent consideration was $4.5 million at June 30, 2023.

The Company pursued this sale given the strong commodity price environment and the Company’s strategic focus in the Appalachian Basin.

2 unchanged sentences

The remainder of the sale price ($32.8 million) was applied against assets that are not subject to the full cost method of accounting, with the Company

recognizing a gain of $12.7 million on the sale of such assets.

The majority of this gain related to the sale of emission allowances.

On March 22, 2023, the Company entered into a purchase and sale agreement to acquire certain upstream assets located in Potter and Tioga counties, Pennsylvania from SWN Production Company, LLC effective as of January 1, 2023 for total consideration of $127.0 million, subject to certain purchase price adjustments at closing.

These assets are contiguous with existing Company owned upstream assets in Pennsylvania.

The Company made a deposit of $12.7 million at the signing of the purchase and sale agreement and intends to finance the remaining acquisition cost using short and/or long-term borrowings.

The transaction is expected to close before the end of June 2023.

Table of Content

As part of the transaction, the Company acquired approximately 34,000 net acres in an area that is contiguous with existing Company-owned upstream assets.

This transaction was accounted for as an asset acquisition and, as such, the purchase price was allocated to property, plant and equipment.

On April 13, 2023, the Company completed its acquisition of certain upstream assets located in Lycoming County in Northeast Pennsylvania from EXCO Production Company (PA), LLC and EXCO Resources (PA), LLC (collectively referred to as "EXCO") for total consideration of $11.5 million.

As part of the transaction, the Company acquired approximately 1,145 net acres in that area of Pennsylvania.

This transaction was accounted for as an asset acquisition and, as such, the purchase price was allocated to property, plant and equipment.

Project Funding

Over the past two years, the Company has been financing capital expenditures with cash from operations, short-term debt and proceeds from the sale of the Company's California assets.

During the six months ended March 31, 2023 and March 31, 2022, capital expenditures were funded with cash from operations and short-term debt.

Over the past two years, the Company has been financing capital expenditures with cash from operations, short-term and long-term debt and proceeds from the sale of the Company's California assets.

During the nine months ended June 30, 2023 and June 30, 2022, capital expenditures were funded with cash from operations and short-term debt.

Going forward, the Company expects to use cash on hand, cash from operations and short-term or long-term borrowings, as needed, to finance capital expenditures.

The level of short-term and/or long-term borrowings will depend upon the amount of cash provided by operations, which, in turn, will likely be most impacted by natural gas production, and the associated commodity price realizations, as well as the level of hedging collateral deposits in the Exploration and Production segment.

The level of short-term and/or long-term borrowings will depend upon the amount of cash provided by operations, which, in turn, will likely be most impacted by natural gas production and the associated commodity price realizations in the Exploration and Production segment.

It will also likely depend on the timing of gas cost recovery in the Utility segment.

4 unchanged sentences

Financing Cash Flow

Consolidated short-term debt increased $350.0 million, to a total of $410.0 million, when comparing the balance sheet at March 31, 2023 to the balance sheet at September 30, 2022.

The maximum amount of short-term debt outstanding during the six months ended March 31, 2023 was $410.0 million.

In addition to cash provided by operating activities, the Company continues to consider short-term debt (consisting of short-term notes payable to banks and commercial paper) an important source of cash for temporarily financing capital expenditures, gas-in-storage inventory, unrecovered purchased gas costs, margin calls on derivative financial instruments, other working capital needs and repayment of long-term debt.

Consolidated short-term debt increased $78.5 million, to a total of $138.5 million, when comparing the balance sheet at June 30, 2023 to the balance sheet at September 30, 2022.

The maximum amount of short-term debt outstanding during the nine months ended June 30, 2023 was $422.3 million.

In addition to cash provided by operating activities, the Company continues to consider short-term debt (consisting of short-term notes payable to banks and commercial paper) an important source of cash for temporarily financing items such as capital expenditures, asset purchases, gas-in-storage inventory, unrecovered purchased gas costs, margin calls on derivative financial instruments, other working capital needs and repayment of long-term debt.

Fluctuations in these items can have a significant impact on the amount and timing of short-term debt.

For example, during the six months ended March 31, 2023, the Company repaid $549.0 million of long-term debt with maturity dates in March 2023.

For example, during fiscal 2023, the Company repaid $549.0 million of long-term debt with maturity dates in March 2023.

The Company utilized short-term borrowings and cash on hand to redeem the maturities, resulting in an increase in the short-term debt balance.

As of March 31, 2023, the Company had outstanding commercial paper of $160.0 million and short-term notes payable to banks of $250.0 million.

As of June 30, 2023, the Company had outstanding commercial paper of $138.5 million.

The Company did not have any short-term notes payable to banks as of June 30, 2023.

On February 28, 2022, the Company entered into a Credit Agreement (as amended from time to time, the "Credit Agreement") with a syndicate of twelve banks.

1 unchanged sentence

The Credit Agreement provides a $1.0 billion unsecured committed revolving credit facility with a maturity date of February 26, 2027.

On June 30, 2022, the Company entered into the 364-Day Credit Agreement with a syndicate of five banks, all of which are also lenders under the Credit Agreement.

The 364-Day Credit Agreement provides an additional $250.0 million unsecured committed delayed draw term loan credit facility with a maturity date of June 29, 2023.

On June 30, 2022, the Company entered into a 364-Day Credit Agreement with a syndicate of five banks, all of which are also lenders under the Credit Agreement.

The 364-Day Credit Agreement provided an additional $250.0 million unsecured committed delayed draw term loan credit facility with a maturity date of June 29, 2023.

The Company elected to draw $250.0 million under the facility on October 27, 2022.

The Company used the proceeds for general corporate purposes, which included using $150.0 million for the November 2022 redemption of a portion of the Company's outstanding long-term debt with a

Table of Content

maturity date in March 2023.

All indebtedness under the 364-Day Credit Agreement was repaid in May 2023 prior to its June 29, 2023 maturity date.

The Company also has uncommitted lines of credit with financial institutions for general corporate purposes.

7 unchanged sentences

Since July 1, 2018, the Company recorded non-cash, after-tax ceiling test impairments totaling $381.4 million.

As a result, at March 31, 2023, $190.7 million was added back to the Company's total capitalization for purposes of the calculation under the Credit Agreement and 364-Day Credit Agreement.

As a result, at June 30, 2023, $190.7 million was added back to the Company's total capitalization for purposes of the calculation under the Credit Agreement.

On May 3, 2022, the Company entered into Amendment No.

2 unchanged sentences

Under the Credit Agreement, such unrealized losses will not negatively affect the calculation of the debt to capitalization ratio, and such unrealized gains will not positively affect the calculation.

The 364-Day Credit Agreement includes the same debt to capitalization covenant and the same exclusions of unrealized gains or losses on derivative financial instruments as the Credit Agreement.

At March 31, 2023, the Company’s debt to capitalization ratio, as calculated under the Credit Agreement and 364-Day Credit Agreement, was .45.

The constraints specified in the Credit Agreement and 364-Day Credit Agreement would have permitted an additional $3.20 billion in short-term and/or long-term debt to be outstanding at March 31, 2023 before the Company’s debt to capitalization ratio exceeded .65.

At June 30, 2023, the Company’s debt to capitalization ratio, as calculated under the Credit Agreement was 0.45.

The constraints specified in the Credit Agreement would have permitted an additional $3.27 billion in short-term and/or long-term debt to be outstanding at June 30, 2023 before the Company’s debt to capitalization ratio exceeded 0.65.

A downgrade in the Company’s credit ratings could increase borrowing costs, negatively impact the availability of capital from banks, commercial paper purchasers and other sources, and require the Company's subsidiaries to post letters of credit, cash or other assets as collateral with certain counterparties.

1 unchanged sentence

However, the Company expects that it could borrow under its credit facilities or rely upon other liquidity sources.

The Credit Agreement and 364-Day Credit Agreement contain a cross-default provision whereby the failure by the Company or its significant subsidiaries to make payments under other borrowing arrangements, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the Credit Agreement and 364-Day Credit Agreement.

The Credit Agreement contains a cross-default provision whereby the failure by the Company or its significant subsidiaries to make payments under other borrowing arrangements, or the occurrence of certain events affecting those other borrowing arrangements, could trigger an obligation to repay any amounts outstanding under the Credit Agreement.

In particular, a repayment obligation could be triggered if (i) the Company or any of its significant subsidiaries fails to make a payment when due of any principal or interest on any other indebtedness aggregating $40.0 million or more or (ii) an event occurs that causes, or would permit the holders of any other indebtedness aggregating $40.0 million or more to cause, such indebtedness to become due prior to its stated maturity.

None of the Company's long-term debt as of March 31, 2023 had a maturity date within the following twelve-month period.

The Current Portion of Long-Term Debt at September 30, 2022 consisted of $500.0 million of 3.75% notes ($150.0 million of which was subsequently paid in November 2022) and $49.0 million of 7.395% notes, that each had maturity dates in March 2023.

On May 18, 2023, the Company issued $300.0 million of 5.50% notes due October 1, 2026.

After deducting underwriting discounts, commissions and other debt issuance costs, the net proceeds to the Company amounted to $297.5 million.

The holders of the notes may require the Company to repurchase their notes at a price equal to 101% of the principal amount in the event of both a change in control and a ratings downgrade to a rating below investment grade.

Additionally, the interest rate payable on the notes will be subject to adjustment from time to time, with a maximum adjustment of 2.00%, such that the coupon will not exceed 7.50%, if certain change of control events involving a material subsidiary result in a downgrade of the credit rating assigned to the notes to a rating below investment grade.

A downgrade with a resulting increase to the coupon does not preclude the coupon from returning to its original rate if the Company's credit rating is subsequently upgraded.

None of the Company's long-term debt as of June 30, 2023 had a maturity date within the following twelve-month period.

The Current Portion of Long-Term Debt at September 30, 2022 consisted of $500.0 million of 3.75% notes and $49.0 million of 7.395% notes, that each had maturity dates in March 2023.

The Company utilized short-term borrowings and cash on hand to repay $150.0 million of these maturities in November 2022 and the remaining $399.0 million in March 2023.

The Company’s embedded cost of long-term debt was 4.58% at March 31, 2023 and 4.48% at March 31, 2022.

Under the Company’s existing indenture covenants at March 31, 2023, the Company would have been permitted to issue up to a maximum of approximately $3.73 billion in additional unsubordinated long-term indebtedness at then current market interest rates, in addition to being able to issue new indebtedness to replace existing debt (further limited by debt to capitalization ratio constraints under the Company's Credit Agreement, as discussed above).

Table of Content

The Company’s embedded cost of long-term debt was 4.70% at June 30, 2023 and 4.48% at June 30, 2022.

Under the Company’s existing indenture covenants at June 30, 2023, the Company would have been permitted to issue up to a maximum of approximately $3.53 billion in additional unsubordinated long-term indebtedness at then current market interest rates, in addition to being able to issue new indebtedness to replace existing debt (further limited by the debt to capitalization ratio constraint under the Company's Credit Agreement, as discussed above).

The Company's present liquidity position is believed to be adequate to satisfy known demands.

1 unchanged sentence

Losses incurred as a result of significant impairments of oil and gas properties have in the past resulted in such temporary restrictions.

The indenture covenants would not preclude the Company from issuing new long-term debt to replace existing long-term debt,

or from issuing additional short-term debt.

The indenture covenants would not preclude the Company from issuing new long-term debt to replace existing long-term debt, or from issuing additional short-term debt.

Please refer to the Critical Accounting Estimates section above for a sensitivity analysis concerning commodity price changes and their impact on the ceiling test.

The Company’s 1974 indenture pursuant to which $50.0 million (or 2.4%) of the Company’s long-term debt (as of March 31, 2023) was issued, contains a cross-default provision whereby the failure by the Company to perform certain obligations under other borrowing arrangements could trigger an obligation to repay the debt outstanding under the indenture.

The Company’s 1974 indenture pursuant to which $50.0 million (or 2.1%) of the Company’s long-term debt (as of June 30, 2023) was issued, contains a cross-default provision whereby the failure by the Company to perform certain obligations under other borrowing arrangements could trigger an obligation to repay the debt outstanding under the indenture.

In particular, a repayment obligation could be triggered if the Company fails (i) to pay any scheduled principal or interest on any debt under any other indenture or agreement or (ii) to perform any other term in any other such indenture or agreement, and the effect of the failure causes, or would permit the holders of the debt to cause, the debt under such indenture or agreement to become due prior to its stated maturity, unless cured or waived.

10 unchanged sentences

The Company will update the $500 million preliminary cost estimate and expected in-service date for the project when there is further clarity on the timing of receipt of necessary regulatory approvals.

As of March 31, 2023, approximately $55.9 million has been spent on the Northern Access project, including $24.3 million that has been spent to study the project.

The remaining $31.6 million spent on the project is included in Property, Plant and Equipment on the Consolidated Balance Sheet at March 31, 2023.

The Company did not make any contributions to its tax-qualified, noncontributory defined benefit retirement plan (Retirement Plan) or its VEBA trusts for its other post-retirement benefits during the six months ended March 31, 2023, and does not anticipate making any such contributions during the remainder of fiscal 2023.

As of June 30, 2023, approximately $55.8 million has been spent on the Northern Access project, including $24.2 million that has been spent to study the project.

The remaining $31.6 million spent on the project is included in Property, Plant and Equipment on the Consolidated Balance Sheet at June 30, 2023.

The Company did not make any contributions to its tax-qualified, noncontributory defined benefit retirement plan (Retirement Plan) or its VEBA trusts for its other post-retirement benefits during the nine months ended June 30, 2023, and does not anticipate making any such contributions during the remainder of fiscal 2023.

Market Risk Sensitive Instruments

3 unchanged sentences

Rules adopted by the CFTC and other regulators could adversely impact the Company.

While many of those rules place specific conditions on the operations of swap dealers rather than directly on the Company, concern remains that swap dealers with whom the Company may transact will pass along their increased costs stemming from final rules through higher transaction costs and prices or other direct or indirect costs.

While many of

Table of Content

those rules place specific conditions on the operations of swap dealers rather than directly on the Company, concern remains that swap dealers with whom the Company may transact will pass along their increased costs stemming from final rules through higher transaction costs and prices or other direct or indirect costs.

Some of those rules also may apply directly to the Company and adversely impact its ability to trade swaps and over-the-counter derivatives, whether due to increased costs, limitations on trading capacity or for other reasons.

3 unchanged sentences

The authoritative guidance for fair value measurements and disclosures require consideration of the impact of nonperformance risk (including credit risk) from a market participant perspective in the measurement of the fair value of assets and liabilities.

At March 31, 2023, the Company determined that nonperformance risk associated with its natural gas price swap agreements, natural gas no cost collars and foreign currency contracts would have no material impact on its financial position or results of operation.

At June 30, 2023, the Company determined that nonperformance risk associated with its natural gas price swap agreements, natural gas no cost collars and foreign currency contracts would have no material impact on its financial position or results of operation.

To assess nonperformance risk, the Company considered information such as any applicable collateral posted, master netting arrangements, and applied a market-based method by using the counterparty's (assuming the derivative is in a gain position) or the Company’s (assuming the derivative is in a loss position) credit default swaps rates.

14 unchanged sentences

On December 9, 2022, the Company filed a petition with the NYPSC to effectuate a system improvement tracker through which qualified pipeline replacement costs through September 30, 2024 would be tracked and recovered, and to recover certain deferred costs associated with the existing system modernization tracker, effective April 1, 2023.

The NYPSC approved the petition via order dated March 17, 2023 contingent on the Company not filing a base rate case that would result in new rates becoming effective prior to October 1, 2024.

The NYPSC approved the petition by order dated March 17, 2023 contingent on the Company not filing a base rate case that would result in new rates becoming effective prior to October 1, 2024.

On January 19, 2023, the NYPSC issued an order in its Effects of COVID-19 on Utility Service (20-M-0266) and Energy Affordability for Low Income Utility Customers (14-M-0565) proceedings whereby a Phase 2 Utility Arrears Relief Program was authorized.

Specifically, the order directed Distribution Corporation and certain other New York utilities to, among other things, address arrears on residential non-energy affordability program (EAP) ratepayer accounts that did not receive a credit under the NYPSC’s Phase 1 program and small commercial ratepayer accounts by issuing a one-time bill credit to such customers to reduce or eliminate accrued arrears through May 1, 2022.

The credits shall be processed within 90 days of the effective date of the order, provided that residential non-EAP customers who had their service disconnected for non-payment in 2022 shall be allowed the opportunity to have their service reinstated in order to receive the credit through June 30, 2023.

The credits shall be processed within 90 days of

Table of Content

the effective date of the order, provided that residential non-EAP customers who had their service disconnected for non-payment in 2022 shall be allowed the opportunity to have their service reinstated in order to receive the credit through June 30, 2023.

The order further directs utilities to suspend residential service terminations for non-payment while arrears credits are applied to accounts through March 1, 2023, or 30 days after credits have been applied, whichever is later.

1 unchanged sentence

Utilities proposed various offsets to Phase 2 program costs, and Distribution Corporation has proposed certain offsets as part of an uncollectible expense reconciliation proposal.

On February 17, 2023, Distribution Corporation made a filing with the NYPSC seeking approval of its uncollectible expense reconciliation mechanism and a determination is pending.

On February 17, 2023, Distribution Corporation made a filing with the NYPSC seeking approval of its uncollectible expense reconciliation mechanism.

On July 19, 2023, the NYPSC noticed Distribution Corporation’s filing in the New York State Register indicating that public comment will be received on the filing until sixty days after publication or until September 18, 2023.

Application of the proposed offsets and collection periods will be determined when the NYPSC rules on the uncollectible expense reconciliation filing.

Pennsylvania Jurisdiction

Distribution Corporation’s current delivery rates in its Pennsylvania jurisdiction were approved by the PaPUC on November 30, 2006 as part of a settlement agreement that became effective January 1, 2007.

Distribution Corporation’s delivery rates effective through July 31, 2023 in its Pennsylvania jurisdiction were approved by the PaPUC on November 30, 2006 as part of a settlement agreement that became effective January 1, 2007.

On October 28, 2022, Distribution Corporation made a filing with the PaPUC seeking an increase in its annual base rate operating revenues of $28.1 million with a proposed effective date of December 27, 2022.

2 unchanged sentences

On April 13, 2023, Distribution Corporation filed a joint petition with the PaPUC seeking approval of the settlement on behalf of all active parties to the proceeding.

The joint petition is currently pending before the PaPUC.

On June 15, 2023, the PaPUC issued an order granting the joint petition and adopting the settlement in full, without modification or correction.

Effective October 1, 2021, pursuant to a tariff supplement filed with the PaPUC, Distribution Corporation reduced base rates by $7.7 million in order to stop collecting OPEB expenses from customers.

6 unchanged sentences

Pipeline and Storage

Supply Corporation’s 2020 rate settlement provides that no party may make a rate filing for new rates to be effective before February 1, 2024, except that Supply Corporation may file an NGA general Section 4 rate case to change rates if the corporate federal income tax rate is increased.

If no case has been filed, Supply Corporation must file for rates to be effective February 1, 2025.

Supply Corporation filed a NGA Section 4 rate case at FERC on July 31, 2023 proposing rate increases to be effective February 1, 2024.

The proposed rates reflect an annual cost of service of $385.4 million, a rate base of $1.32 billion and a proposed cost of equity of 15.12%.

If the proposed rate increases finally approved at the end of the proceeding exceed the rates that were in effect at July 31, 2023, but are less than rates put into effect subject to refund on February 1, 2024, Supply Corporation would be required to refund the difference between the rates collected subject to refund and the final approved rates, with interest at the FERC-approved rate.

If the rates approved at the end of the proceeding are lower than the rates in effect at July 31, 2023, such lower rates will become effective prospectively from the effective date provided by the applicable FERC order, and refunds with interest will be limited to the difference between the rates collected subject to refund and the rates in effect at July 31, 2023.

Empire’s 2019 rate settlement provides that Empire must make a rate case filing no later than May 1, 2025.

2 unchanged sentences

The Company has established procedures for the ongoing evaluation of its operations to identify potential environmental exposures and comply with regulatory requirements.

In 2021, the Company set methane intensity reduction targets at each of its businesses, an absolute greenhouse gas emissions reduction target for the consolidated Company, and greenhouse gas reduction targets associated with the Company’s utility delivery system.

In 2021, the Company set methane intensity reduction targets at each of its businesses, an absolute greenhouse gas emissions reduction target for the consolidated Company, and

Table of Content

greenhouse gas reduction targets associated with the Company’s utility delivery system.

In 2022, the Company began measuring progress against these reduction targets.

7 unchanged sentences

This portion of the IRA is to be administered by the EPA and potential fees will begin with emissions reported for calendar year 2024.

The EPA regulates greenhouse gas

emissions pursuant to the Clean Air Act.

The EPA regulates greenhouse gas emissions pursuant to the Clean Air Act.

The regulations implemented by the EPA impose more stringent leak detection and repair requirements, and further address reporting and control of methane and volatile organic compound emissions.

6 unchanged sentences

The CLCPA also requires electric generators to meet 70% of demand with renewable energy by 2030 and 100% with zero emissions generation by 2040.

In May 2023, New York State passed legislation that prohibits the installation of fossil fuel burning equipment and building systems in new buildings commencing on or after December 31, 2025, subject to certain exemptions.

These climate change and greenhouse gas initiatives could impact the Company's customer base and assets depending on the promulgation of final regulations and on regulatory treatment afforded in the process.

Thus far, the only regulations promulgated in connection with the CLCPA are statewide greenhouse gas emissions limits established by the NYDEC in 6 NYCRR Part 496, effective December 30, 2020.

The NYDEC has until January 1, 2024 to issue further rules and regulations implementing the statute and had indicated that it will initiate regulatory proceedings to investigate development of a cap-and-invest program in New York.

The NYDEC has until January 1, 2024 to issue further rules and regulations implementing the statute and has commenced pre-proposal outreach initiatives to investigate development of a cap-and-invest program in New York.

The above-enumerated initiatives could also increase the Company’s cost of environmental compliance by increasing reporting requirements, requiring retrofitting of existing equipment, requiring installation of new equipment, and/or requiring the purchase of emission allowances.

7 unchanged sentences

The Company is including the following cautionary statement in this Quarterly Report on Form 10-Q to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, the Company.

Forward-looking statements include statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements which are other than statements of historical facts.

Forward-looking statements include statements concerning plans, objectives, goals, projections, strategies, future events or performance, and underlying assumptions and other statements

Table of Content

which are other than statements of historical facts.

From time to time, the Company may publish or otherwise make available forward-looking statements of this nature.

18 unchanged sentences

Increasing health care costs and the resulting effect on health insurance premiums and on the obligation to provide other post-retirement benefits;

Table of Content

Other changes in price differentials between similar quantities of natural gas having different quality, heating value, hydrocarbon mix or delivery date;

15 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis