CHESAPEAKE UTILITIES CORPORATION Management's Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and our Annual Report on Form 10-K for the year endedDecember 31, 2020 , including the audited consolidated financial statements and notes thereto. Safe Harbor for Forward-Looking Statements We make statements in this Quarterly Report on Form 10-Q that do not directly or exclusively relate to historical facts. Such statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. One can typically identify forward-looking statements by the use of forward-looking words, such as "project," "believe," "expect," "anticipate," "intend," "plan," "estimate," "continue," "potential," "forecast" or other similar words, or future or conditional verbs such as "may," "will," "should," "would" or "could." These statements represent our intentions, plans, expectations, assumptions and beliefs about future financial performance, business strategy, projected plans and objectives of the Company. Forward-looking statements speak only as of the date they are made or as of the date indicated and we do not undertake any obligation to update forward-looking statements as a result of new information, future events or otherwise. These statements are subject to many risks, uncertainties and other important factors that could cause actual future results to differ materially from those expressed in the forward-looking statements. In addition to the risk factors described under Item 1A, Risk Factors in our 2020 Annual Report on Form 10-K, such factors include, but are not limited to: •state and federal legislative and regulatory initiatives that affect cost and investment recovery, have an impact on rate structures, and affect the speed and the degree to which competition enters the electric and natural gas industries; •the outcomes of regulatory, environmental and legal matters, including whether pending matters are resolved within current estimates and whether the related costs are adequately covered by insurance or recoverable in rates; •the impact of climate change, including the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; •the impact of significant changes to current tax regulations and rates; •the timing of certification authorizations associated with new capital projects and the ability to construct facilities at or below estimated costs; •the availability to materials necessary to construct new capital projects; •changes in environmental and other laws and regulations to which we are subject and environmental conditions of property that we now, or may in the future, own or operate; •possible increased federal, state and local regulation of the safety of our operations; •the inherent hazards and risks involved in transporting and distributing natural gas, electricity, and propane; •the economy in our service territories or markets, the nation, and worldwide, including the impact of economic conditions (which we do not control ) on demand for natural gas, electricity, propane or other fuels; •risks related to cyber-attacks or cyber-terrorism that could disrupt our business operations or result in failure of information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; •adverse weather conditions, including the effects of hurricanes, ice storms and other damaging weather events; •customers' preferred energy sources; •industrial, commercial and residential growth or contraction in our markets or service territories; •the effect of competition on our businesses from other energy suppliers and alternative forms of energy; •the timing and extent of changes in commodity prices and interest rates; •the effect of spot, forward and future market prices on our various energy businesses; •the extent of our success in connecting natural gas and electric supplies to our transmission systems, establishing and maintaining key supply sources, and expanding natural gas and electric markets; •the creditworthiness of counterparties with which we are engaged in transactions; •the capital-intensive nature of our regulated energy businesses; •our ability to access the credit and capital markets to execute our business strategy, including our ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general economic conditions; •the ability to successfully execute, manage and integrate a merger, acquisition or divestiture of assets or businesses and the related regulatory or other conditions associated with the merger, acquisition or divestiture; •the impact on our costs and funding obligations, under our pension and other post-retirement benefit plans, of potential downturns in the financial markets, lower discount rates, and costs associated with health care legislation and regulation; •the ability to continue to hire, train and retain appropriately qualified personnel; 33
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•the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and •risks related to the outbreak of a pandemic, including the duration and scope of the pandemic and the corresponding impact on our supply chains, our personnel, our contract counterparties, general economic conditions and growth, and the financial markets.
Introduction
We are an energy delivery company engaged in the distribution of natural gas,
electricity, and propane; the transmission of natural gas; the generation of
electricity and steam, and in providing related services to our customers.
Our strategy is focused on growing earnings from a stable utility foundation and
investing in related businesses and services that provide opportunities for
returns greater than traditional utility returns. We are focused on identifying
and developing opportunities across the energy value chain, with emphasis on
midstream and downstream investments that are accretive to earnings per share,
consistent with our long-term growth strategy and create opportunities to
continue our record of top tier returns on equity relative to our peer group.
Currently, our growth strategy is focused on the following platforms, including:
•Optimizing the earnings growth in our existing businesses, which includes organic growth,
territory expansions, new pipeline expansions, and new products and services as well as
increased opportunities for collaboration and efficiencies across the organization as a
result of our ongoing business transformation.
•Growth of Marlin Gas Services' CNG transport business and expansion into LNG and RNG
transport services as well as methane capture.
•Identifying and undertaking additional strategic propane and complementary business
acquisitions that provide a larger foundation in current markets and expand our brand and
presence into new strategic growth markets.
•Pursuit of growth opportunities that enable us to utilize our integrated set of energy
delivery businesses to participate in renewable energy opportunities.
Due to the seasonality of our business, results for interim periods are not
necessarily indicative of results for the entire fiscal year. Revenue and
earnings are typically greater during the first and fourth quarters, when
consumption of energy is normally highest due to colder temperatures.
The following discussions and those later in the document on operating income
and segment results include the use of the term "gross margin," which is
determined by deducting the cost of sales from operating revenue. Cost of sales
includes the purchased cost of natural gas, electricity and propane and the cost
of labor spent on direct revenue-producing activities, and excludes
depreciation, amortization and accretion. Gross margin should not be considered
an alternative to operating income or net income, which are determined in
accordance with GAAP. We believe that gross margin, although a non-GAAP measure,
is useful and meaningful to investors as a basis for making investment
decisions. It provides investors with information that demonstrates the
profitability achieved by us under our allowed rates for regulated energy
operations and under our competitive pricing structures for unregulated energy
operations. Our management uses gross margin in measuring our business units'
performance and has historically analyzed and reported gross margin information
publicly. Other companies may calculate gross margin in a different manner.
Earnings per share information is presented for continuing operations on a
diluted basis, unless otherwise noted.
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Results of Operations for the Three and Six Months Ended
Chesapeake Utilities is aDelaware corporation formed in 1947. We are a diversified energy company engaged, through our operating divisions and subsidiaries, in regulated energy, unregulated energy and other businesses. We operate primarily on theDelmarva Peninsula and inFlorida ,Pennsylvania andOhio and provide natural gas distribution and transmission; electric distribution and generation; propane gas distribution; mobile compressed natural gas services; steam generation; and other energy-related services. InMarch 2020 , the CDC declared a national emergency due to the rapidly growing outbreak of COVID-19. In response to this declaration and the rapid spread of COVID-19 withinthe United States , federal, state and local governments throughout the country imposed varying degrees of restrictions on social and commercial activity to promote social distancing in an effort to slow the spread of the illness. These restrictions significantly impacted economic conditions inthe United States in 2020 and continued into 2021.Chesapeake Utilities is considered an "essential business," which has allowed us to continue operational activities and construction projects while adhering to the social distancing restrictions that were in place. At this time, restrictions continue to be lifted as vaccines have become more available inthe United States . For example, the state of emergency inFlorida was terminated inMay 2021 followed byDelaware andMaryland inJuly 2021 , resulting in reduced restrictions. Despite these positive state orders and in light of the continued emergence and growing prevalence of the new variants of COVID-19, we continue to operate under our pandemic response plan, monitor developments affecting employees, customers, suppliers, stockholders and take all precautions warranted to operate safely and to comply with the CDC and theOccupational Safety and Health Administration , in order to protect our employees, customers and the communities. Impacts from the restrictions imposed in our service territories and the implementation of our pandemic response plan, included reduced consumption of energy largely in the commercial and industrial sectors, higher bad debt expenses and incremental expenses associated with COVID-19, including personal protective equipment and premium pay for field personnel. The additional operating expenses we incurred support the ongoing delivery of our essential services during these unprecedented times. Refer to Note 5, Rates and Other Regulatory Activities, for further information on the regulated assets established as a result of the incremental expenses incurred associated with COVID-19.
Environmental, Social and Governance Initiatives
ESG initiatives are embedded withinChesapeake Utilities culture and are an integral part of our strategy. ESG is at the core of our well-established culture and our informed business decisions. Over the years, we have reduced our greenhouse gas emissions, while responsibly growing our businesses. We have also helped to accelerate the reduction of emissions by many of our customers. Our combined efforts have enhanced the sustainability of our local communities. We look forward to publishing our inaugural Corporate Responsibility and Sustainability Report later this year. Below we have highlighted several ofChesapeake Utilities initiatives in each area of ESG: Advancing Environmental Initiatives Our three-part action plan continues to make progress. We are pursuing a three-part action plan that supports decarbonization and a lower carbon energy future. First, we are taking actions that will continue to reduce our greenhouse gas emissions. For example, we have largely completed our Florida GRIP, as we commonly refer to it, which replaces older portions of our natural gas distribution system. The remaining capital expenditures associated with this program will be invested through 2022. OurElkton Gas subsidiary also recently reached a settlement agreement with the Maryland PSC to accelerate its Aldyl-A pipeline replacement program and to recover the costs of the plan in the form of a fixed charge rider through a proposed 5-year surcharge. Throughout our pipeline system, we have also implemented improved emission detection technology at our pipeline compressor stations. The second component of our action plan is providing services and support to our customers who are reducing their greenhouse gas emissions. Our currentDel-Mar Energy Pathway Project , which is expected to be complete by the end of the year, will bring natural gas toSomerset County, Maryland for the first time. As part of this project, our services will support the conversion by two significant industrial customers inSomerset County from less environmentally friendly fuel sources, including in one case, wood chips. Similarly, several of our commercial customers continue to convert their vehicle fleet to compressed natural gas or propane, further reducing their greenhouse gas emissions and positively impacting the environment. 35
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We continue to see significant demand for new natural gas service in both our Delmarva andFlorida territories, with our growth rates more than double the industry's growth rates. In many of our local markets, natural gas is a cleaner fuel option than alternative energy sources. Natural gas is an important component of the country's energy transition and we are committed to responsibly expanding the infrastructure in our growing service areas. These same markets are also presenting RNG opportunities with ongoing projects to transform landfill, food, dairy and poultry waste into usable energy. The development of several RNG projects is the third component of our action plan. Our participation in these projects extends from transporting the RNG to market by pipeline or our Marlin Gas Services compressed natural gas trailers, to potential investments in biogas plants and, in some cases, the solar energy facilities to provide electricity to the plants and significantly improve the RNG carbon intensity score. To date, we've announced three projects that, if developed, will introduce RNG into two of our services territories for the first time. We are continuing to actively consider other renewable projects and the potential of increasing the number of RNG projects in our diversified energy portfolio. We are committed to remaining disciplined in our approach by pursuing projects that meet our return thresholds and strategic goals. We also have several other initiatives underway, including plans to add additional small solar facilities along our system, and our participation in a pilot program to blend hydrogen into the natural gas distribution system that serves our Eight Flags combined heat and power plant. We are optimistic about this pilot program and believe that hydrogen will continue to gain in efficiency and become more price competitive over time.
To finance these projects, we are working with many of our key banking partners to establish sustainable debt financing capacity at attractive pricing.
Advancing Social Initiatives
Promoting equity, diversity and inclusion ("EDI"). Our success is the direct
result of our employees and our strong culture that fully engages our team and
promotes equity, diversity, inclusion, integrity, accountability and
reliability. We believe that a combination of diverse team members and an
inclusive culture contributes to the success of our Company and to enhanced
societal advancement. Our eleven member Board of Directors includes, two female
directors, an African American Director and a Director who is of Middle Eastern
descent.
We established an EDI Council in 2020, complementing and broadening the work our
Women in Energy group started years ago. The Council oversees our efforts to
improve diversity in recruitment, employee development and advancement, cultural
awareness and related policies. These efforts are expanded through the broad
reach of our six Employee Resource Groups and other partnerships we have in the
community. Employees have access to communications and on-demand learning
sessions on an array of topics, including equity, diversity and inclusion,
through our "EDI Wise" webinars. We have also expanded our supplier diversity
program to gather information that will enable us to further expand, measure and
report on the diversity of our suppliers and associated spend.
Safety at the center of Chesapeake Utilities culture and the way we do business.
There is nothing more important than the safety of our team, our customers and
our communities. The importance of safety is exhibited throughout our
organization, with the direction and tone set by the Board of Directors and our
President and Chief Executive Officer. Employees are required to attend monthly
safety meetings and incorporate safety moments at operational and other
meetings. The achievement of superior safety performance is both an important
short and long-term strategic initiative in managing our operations. Our new
state-of-the-art training center, named 'Safety Town,' provides employees
hands-on training and simulated on-the-job field experiences, further developing
our team and enhancing the reliability and integrity of our systems. Safety Town
has also expanded our community outreach by offering safety training to many
regional first responders. Our second Safety Town facility will be located in
Florida and is in the final stages of planning.
Advancing Governance Initiatives
Commitment to sound governance practices. Consistent with our culture of
teamwork, the broad responsibility of ESG stewardship is supported across our
organization by the dedication and efforts of the Board and its Committees, as
well as the entrepreneurship and dedication of our team. As stewards of
long-term enterprise value, the Board is committed to overseeing the
sustainability of the Company. The Board and Corporate Governance Committee
annually reviews our corporate governance documents and practices to ensure that
they provide the appropriate framework under which we operate. In recent years,
we have received national recognition as the Governance Team of the Year, and
also Best for Corporate Governance Among North American Utilities . To learn more
about our corporate governance practices and transparency, stakeholder
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engagement, the experience and diversity of our Board members, and our Business Code of Ethics and Conduct, which highlights our commitment to the highest ethical standards and the importance of engaging in sustainable practices, please view our Proxy Statement filed with theSecurities and Exchange Commission onMarch 22, 2021 . Additionally, please viewChesapeake Utilities historical quarterly earnings conference calls for additional discussions on ESG and our sustainability practices. 37
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Operational Highlights
Our income from continuing operations for the three months endedJune 30, 2021 was$13.8 million , or$0.78 per share, compared to$10.7 million , or$0.64 per share, for the same quarter of 2020. Operating income for the three months endedJune 30, 2021 increased by$4.6 million , or 25.6 percent, over the same period in 2020. Higher earnings for the second quarter of 2021 reflected continued pipeline expansion projects, margin generated from consumption returning to pre-pandemic levels, contributions from 2020 acquisitions, natural gas distribution growth and margin growth from increased investment in GRIP, and the timing of the impact of the Hurricane Michael regulatory proceeding settlement. The margin increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and operating expenses associated primarily with growth initiatives and a return to pre-pandemic conditions, including payroll, benefits and other employee-related expenses and outside services costs. The operating expense increases were partially offset by$2.2 million of lower pandemic related costs and the regulatory deferral of COVID-19 expenses. Three Months Ended June 30, Increase 2021 2020 (decrease) (in thousands except per share) Gross Margin Regulated Energy segment$ 66,463 $ 57,131 $ 9,332 Unregulated Energy segment 17,952 17,032 920 Other businesses and eliminations (34) (73) 39 Total Gross Margin$ 84,381 $ 74,090 $ 10,291 Operating Income Regulated Energy segment$ 22,808 $ 18,006 $ 4,802 Unregulated Energy segment (445) 281 (726) Other businesses and eliminations 215 (310) 525 Total Operating Income 22,578 17,977 4,601 Other income (expense), net 1,456 (279) 1,735 Interest charges 5,054 5,054 - Income from Continuing Operations Before Income Taxes 18,980 12,644 6,336 Income Taxes on Continuing Operations 5,165 1,983 3,182 Income from Continuing operations 13,815 10,661 3,154 Income (Loss) from Discontinued Operations (2) 295 (297) Net Income$ 13,813 $ 10,956 $ 2,857 Basic Earnings Per Share of Common Stock Earnings from Continuing Operations$ 0.79 $ 0.65 $ 0.14 Earnings from Discontinued Operations - 0.02 (0.02) Basic Earnings Per Share of Common Stock$ 0.79 $ 0.67 $ 0.12 Diluted Earnings Per Share of Common Stock Earnings from Continuing Operations$ 0.78 $ 0.64 $ 0.14 Earnings from Discontinued Operations - 0.02 (0.02) Diluted Earnings Per Share of Common Stock$ 0.78 $ 0.66 $ 0.12 38
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Key variances in continuing operations, between the second quarter of 2021 and the second quarter of 2020, included:
Pre-tax Net Earnings
(in thousands, except per share data) Income Income Per Share
Second Quarter of 2020 Reported Results from Continuing
Operations $ 12,644 $ 10,661 $ 0.64
Adjusting for Unusual Items:
Gains from sales of assets 1,294 942 0.05
Regulatory deferral of COVID-19 expenses per PSCs orders 748 544 0.03
Absence of the favorable income tax impact associated with the CARES Act recorded in the second quarter of 2020
- (1,669) (0.10)
2,042 (183) (0.02)
Increased (Decreased) Gross Margins:
Hurricane Michael Settlement margin impact* 3,145 2,289 0.13
Eastern Shore and Peninsula Pipeline service expansions* 2,259 1,644 0.09
Increased customer consumption - primarily due to a return to pre-pandemic conditions
1,974 1,437 0.08
Margin contributions from
1,135 826 0.05
Natural gas growth (excluding service expansions) 752 547 0.04
Aspire Energy improved margin including natural gas liquid
processing 677 493 0.03
Florida GRIP* 572 416 0.02
10,514 7,652 0.44
(Increased) Decreased Operating Expenses (Excluding Cost of Sales): Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions
(2,268) (1,651) (0.09)
Hurricane Michael settlement agreement - depreciation and amortization impact
(1,774) (1,291) (0.07)
Depreciation, amortization and property tax costs due to new capital investments
(1,505) (1,095) (0.06)
Payroll, Benefits and other employee-related expenses (1,320) (961) (0.05)
Operating expenses for
(939) (683) (0.04)
Reduction in expenses associated with the COVID-19 pandemic 1,465
1,066 0.06
(6,341) (4,615) (0.25)
Other income tax effects - 214 0.01
Net other changes 121 86 -Change in shares outstanding due to 2020 and 2021 equity offerings
- - (0.04)
121 300 (0.03)
Second Quarter of 2021 Reported Results from Continuing Operations
$ 18,980
*See the Major Projects and Initiatives table.
Our income from continuing operations for the six months endedJune 30, 2021 was$48.3 million , or$2.75 per share, compared to$39.7 million , or$2.41 per share, for the same period of 2020. Operating income for the six months endedJune 30, 2021 increased by$14.1 million , or 23.4 percent, over the same period in 2020. Higher earnings for the first six months of 2021 reflected a return to more normal weather compared to 2020 that was warmer than normal. Our earnings also increased from expansion projects and acquisitions completed in 2020. Further contributing to the improved performance in the first six months of 2021 were organic growth, consumption returning to pre-pandemic levels, increased retail propane margins per gallon, and the timing of the impact of the Hurricane Michael regulatory proceeding settlement. The margin increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and operating expenses associated primarily with growth initiatives, including payroll, benefits and other employee-related 39
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expenses and outside services costs. The operating expense increases were
partially offset by
Six Months Ended
June 30, Increase
2021 2020 (decrease)
(in thousands except per share)
Gross Margin
Regulated Energy segment $ 144,616 $ 125,254 $ 19,362
Unregulated Energy segment 56,728 48,814 7,914
Other businesses and eliminations (73) (157) 84
Total Gross Margin $ 201,271 $ 173,911 $ 27,360
Operating Income
Regulated Energy segment $ 55,673 $ 45,894 $ 9,779
Unregulated Energy segment 18,660 14,142 4,518
Other businesses and eliminations (158) 75 (233)
Total Operating Income 74,175 60,111 14,064
Other income, net 1,841 3,039 (1,198)
Interest charges 10,159 10,868 (709)
Income from Continuing Operations Before Income Taxes 65,857 52,282 13,575
Income Taxes on Continuing Operations 17,570 12,580 4,990
Income from Continuing operations 48,287 39,702 8,585
Income (Loss) from Discontinued Operations (8) 184 (192)
Net Income $ 48,279 $ 39,886 $ 8,393
Basic Earnings Per Share of Common Stock
Earnings from Continuing Operations $ 2.76 $ 2.42 $ 0.34
Earnings from Discontinued Operations - 0.01 (0.01)
Basic Earnings Per Share of Common Stock $ 2.76 $ 2.43 $ 0.33
Diluted Earnings Per Share of Common Stock
Earnings from Continuing Operations $ 2.75 $ 2.41 $ 0.34
Earnings from Discontinued Operations - 0.01 (0.01)
Diluted Earnings Per Share of Common Stock $ 2.75 $ 2.42 $ 0.33
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Key variances in continuing operations, between the six months ended
Pre-tax Net Earnings
(in thousands, except per share data) Income Income Per Share
Six Months Ended June 30, 2020 Reported Results from
Continuing Operations $ 52,282 $ 39,702 $ 2.41
Adjusting for Unusual Items:
Gains from sales of assets (1,563) (1,146) (0.07)
Regulatory deferral of COVID-19 expenses per PSCs orders 944 692 0.04
Absence of the favorable income tax impact associated with the CARES Act recorded in the second quarter of 2020
- (1,669) (0.10)
(619) (2,123) (0.13)
Increased (Decreased) Gross Margins:
Increased customer consumption - primarily weather related 5,936 4,352 0.25
Hurricane Michael Settlement margin impact * 5,720 4,194 0.24
Eastern Shore and Peninsula Pipeline service expansions* 5,239 3,841 0.22
Margin contributions from
2,998 2,198 0.12
Increased customer consumption - primarily due to a return to pre-pandemic conditions
1,744 1,279 0.07
Natural gas growth (excluding service expansions) 1,691 1,240 0.07
Increased retail propane margins per gallon 1,137 834 0.05
Florida GRIP* 931 682 0.04
Aspire Energy improved margin including natural gas liquid processing
691 506 0.03
Sandpiper infrastructure rider associated with conversions 455 334 0.03
26,542 19,460 1.12
(Increased) Decreased Operating Expenses (Excluding Cost of Sales): Hurricane Michael settlement agreement - depreciation and amortization impact
(3,550) (2,603) (0.15)
Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions
(3,370) (2,471) (0.14)
Payroll, benefits and other employee-related expenses due to growth
(3,301) (2,421) (0.14)
Depreciation, amortization and property tax costs due to new capital investments
(3,215) (2,357) (0.13)
Operating expenses for
(1,968) (1,443) (0.08)
Insurance expense (non-health) - both insured and
self-insured (513) (376) (0.02)
Reduction in expenses associated with the COVID-19 pandemic 1,893
1,388 0.08
(14,024) (10,283) (0.58)
Interest charges (1) 765 561 0.03
Other income tax effects - 302 0.02
Net other changes 911 668 0.03Change in shares outstanding due to 2020 and 2021 equity offerings
- - (0.15)
1,676 1,531 (0.07)
Six Months Ended
$ 65,857
*See the Major Projects and Initiatives table.
(1) Interest charges include amortization of a regulatory liability of
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Summary of Key Factors
Recently Completed and Ongoing Major Projects and Initiatives
We constantly pursue and develop additional projects and initiatives to serve
existing and new customers, and to further grow our businesses and earnings,
with the intention to increase shareholder value. The following table includes
the major projects/initiatives recently completed and currently underway. Major
projects and initiatives that have generated consistent year-over-year margin
contributions are removed from the table. In the future, we will add new
projects and initiatives to this table once negotiations are substantially
completed and the associated earnings can be estimated.
Gross Margin for the Period
Three Months Ended Six Months Ended Year Ended Estimate for
June 30, June 30, December 31, Fiscal
in thousands 2021 2020 2021 2020 2020 2021 2022
Pipeline Expansions:
Western Palm Beach County,
Florida Expansion (1) $ 1,172 $ 967 $
2,340
921 452 1,805 641 2,462 4,134 6,708
Callahan Intrastate Pipeline (2) 2,121 536 4,239 536 3,851 7,564 7,598 Guernsey Power Station 47 - 94 - - 514 1,486 Winter Haven Expansion - - - - - - 426 Beachside Pipeline Expansion - - - - - - - Total Pipeline Expansions 4,261 1,955 8,478 3,145 10,480 17,023 21,445 CNG Transportation 1,708 2,107 3,785 3,454 7,231 7,900 8,500 RNG Transportation - - - - - 150 1,000 Acquisitions: Elkton Gas 746 - 2,058 - 1,344 3,992 4,113 Western Natural Gas 389 - 939 - 389 2,066 2,251 Escambia Meter Station 83 - 83 - - 583 1,000 Total Acquisitions 1,218 - 3,080 - 1,733 6,641 7,364 Regulatory Initiatives: Florida GRIP 4,181 3,609 8,236 7,305 15,178 16,848 17,882 Hurricane Michael Regulatory Proceeding 3,145 - 5,720 - 10,864 11,014 11,014 Capital Cost Surcharge Programs 120 128 257 261 523 1,186 1,985 Elkton STRIDE Plan - - - - - 45 299 Total Regulatory Initiatives 7,446 3,737 14,213 7,566 26,565 29,093 31,180 Total$ 14,633 $ 7,799 $ 29,556 $ 14,165 $ 46,009 $ 60,807 $ 69,489
(1) Includes gross margin generated from interim services. (2) Includes gross margin from natural gas distribution services.
Detailed Discussion of Major Projects and Initiatives
Pipeline Expansions
WestPalm Beach County, Florida Expansion Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to our distribution system inWest Palm Beach, Florida . The first phase of this project was placed into service inDecember 2018 and generated incremental gross margin of$0.2 million and$0.4 million for the three and six months endedJune 30, 2021 , respectively, compared to 2020. We expect to complete the remainder of the project in phases through the fourth quarter of 2021, and estimate that the project will generate annual gross margin of$4.8 million in 2021 and$5.2 million annually thereafter. 42
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Del-Mar Energy Pathway InDecember 2019 , theFERC issued an order approving the construction of the Del-Mar Energy Pathway project.Eastern Shore anticipates that this project will be fully in-service by the beginning of the fourth quarter of 2021. The new facilities will: (i) ensure an additional 14,300 Dekatherms per day ("Dts/d")/d of firm service to four customers, (ii) provide additional natural gas transmission pipeline infrastructure in easternSussex County, Delaware , and (iii) represent the first extension ofEastern Shore 's pipeline system intoSomerset County, Maryland . Construction of the project began inJanuary 2020 , and interim services in advance of this project generated additional gross margin of$0.5 million and$1.2 million for the three and six months endedJune 30, 2021 , respectively. The estimated annual gross margin from this project including natural gas distribution service inSomerset County, Maryland , is approximately$4.1 million in 2021 and$6.7 million annually thereafter. Callahan Intrastate Pipeline Peninsula Pipeline completed the construction of a jointly owned intrastate transmission pipeline with Seacoast Gas Transmission inNassau County, Florida inJune 2020 . The 26-mile pipeline serves growing demand for energy in bothNassau andDuval Counties. For the three and six months endedJune 30, 2021 , the project generated$1.6 million and$3.7 million , respectively, in additional gross margin, which includes margin from natural gas distribution service. The estimated annual gross margin from this project including natural gas distribution service is approximately$7.6 million in 2021 and beyond.Guernsey Power Station Guernsey Power Station and our affiliate, Aspire Energy Express, entered into a precedent firm transportation capacity agreement wherebyGuernsey Power Station will construct a power generation facility and Aspire Energy Express will provide firm natural gas transportation service to this facility.Guernsey Power Station commenced construction of the project inOctober 2019 . In the second quarter of 2021, Aspire Energy Express commenced construction of the gas transmission facilities to provide the firm transportation service to the power generation facility. For the six months endedJune 30, 2021 , we received approximately$0.1 million , related to the construction delay of the in-service date of the project. The project is expected to be in service in the fourth quarter of 2021, and produce gross margin of approximately$0.5 million in 2021 and$1.5 million in 2022 and beyond. Winter Haven Expansion InMay 2021 , Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with CFG for an incremental 6,800 Dts/d of firm service in theWinter Haven, Florida area. As part of this agreement, Peninsula Pipeline will construct a new interconnect with FGT and a new regulator station for CFG. CFG will use the additional firm service to support new incremental load due to growth in the area, including providing service most immediately to a new can manufacturing facility, as well as provide reliability and operational benefits to CFG's existing distribution system in the area. In connection with Peninsula Pipeline's new regulator station, CFG is also extending its distribution system to connect to the new station. We expect this expansion to generate additional gross margin of$0.4 million beginning in 2022 and beyond. Beachside Pipeline Expansion InJune 2021 ,Peninsula Pipeline and Florida City Gas entered into a Transportation Service Agreement for an incremental 10,176 Dts/d of firm service inIndian River County, Florida , to supportFlorida City Gas' growth along theIndian River's barrier island. As part of this agreement, Peninsula Pipeline will construct approximately 11.3 miles of pipeline from its existing pipeline in theSebastian, Florida , area east under the ICW and southward on the barrier island. We expect this expansion to generate additional annual gross margin of$2.5 million in 2023 and beyond.
CNG Transportation
Marlin Gas Services provides CNG temporary hold services, contracted pipeline integrity services, emergency services for damaged pipelines and specialized gas services for customers who have unique requirements. While margin was slightly down for the quarter by$0.4 million , on a year-to-date basis,Marlin Gas Services generated additional gross margin of$0.3 million . We estimate that Marlin Gas Services will generate annual gross margin of approximately$7.9 million in 2021 and$8.5 million in 2022, with the potential for additional growth in future years. Marlin Gas Services continues to actively expand the territories it serves, as well as leverage its patented technology to serve other markets, including pursuing liquefied natural gas transportation opportunities and RNG transportation opportunities from diverse supply sources to various pipeline interconnection points, as further outlined below.
RNG Transportation
Noble Road Landfill RNG Project InSeptember 2020 ,Fortistar andRumpke Waste & Recycling announced commencement of construction of theNoble Road Landfill RNG Project inShiloh, Ohio . The project includes the construction of a new state-of-the-art facility that will utilize 43
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advanced, patented technology to treat landfill gas by removing carbon dioxide and other components to purify the gas and produce pipeline quality RNG. Aspire Energy has begun constructing an approximately 17.5 mile pipeline to inject the RNG from this project to its system for distribution to end use customers. Once flowing, the RNG volume will represent nearly 10 percent of Aspire Energy's gas gathering volumes. Bioenergy DevCo InJune 2020 , our Delmarva natural gas operations and Bioenergy DevCo ("BDC"), a developer of anaerobic digestion facilities that create renewable energy and healthy soil products from organic material, entered into an agreement related to a project to extract RNG from poultry production waste. BDC and our affiliates are collaborating on this project in addition to several other project sites where organic waste can be converted into a carbon-negative energy source. Marlin Gas Services will transport the RNG created from the organic waste from the BDC facility to anEastern Shore interconnection, where the sustainable fuel will be introduced into our transmission system and ultimately distributed to our natural gas customers.CleanBay Project InJuly 2020 , our Delmarva natural gas operations andCleanBay Renewables Inc. ("CleanBay") announced a new partnership to bring RNG to our operations. As part of this partnership, we will transport the RNG produced at CleanBay's plannedWestover, Maryland bio-refinery, to our natural gas infrastructure in theDelmarva Peninsula region.Eastern Shore and Marlin Gas Services, will transport the RNG from CleanBay to our Delmarva natural gas distribution system where it is ultimately delivered to the Delmarva natural gas distribution end use customers. At the present time, we expect to generate$0.2 million in 2021 in incremental margin from these RNG transportation projects beginning in 2021. Timing of incremental margin from RNG transportation projects is dependent upon the construction schedules of each project. As we continue to finalize contract terms and complete the necessary permitting associated with each of these projects, additional information will be provided regarding incremental margin. In addition to these projects, the Company is continuing to pursue other RNG projects that provide opportunities for the Company across the entire value chain. AcquisitionsElkton Gas InJuly 2020 , we closed on the acquisition ofElkton Gas , which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area ofCecil County, Maryland . The purchase price was approximately$15.6 million , which included$0.6 million of working capital.Elkton Gas' territory is contiguous to our franchised service territory inCecil County, Maryland . For the three and six months endedJune 30, 2021 we generated$0.7 million and$2.1 million , respectively, in additional gross margin fromElkton Gas and estimate that this acquisition will generate gross margin of approximately$4.0 million in 2021 and$4.1 million thereafter.Western Natural Gas InOctober 2020 , Sharp acquired certain propane operating assets ofWestern Natural Gas , which provides propane distribution service throughoutJacksonville, Florida and the surrounding communities, for approximately$6.7 million , net of cash acquired. The acquisition was accounted for as a business combination within our Unregulated Energy Segment in the fourth quarter of 2020. We generated$0.4 million and$0.9 million in additional gross margin for the three and six months endedJune 30, 2021 , respectively, fromWestern Natural Gas and we estimate that this acquisition will generate gross margin of approximately$2.1 million in 2021 and growing to$2.3 million in 2022, with additional opportunities for growth.Escambia Meter Station InJune 2021 , Peninsula Pipeline purchased theEscambia Meter Station fromFlorida Power and Light and entered into a Transportation Service Agreement withGulf Power Company to provide up to 530,000 Dts/d of firm service from an interconnect with FGT toFlorida Power & Light's Crist Lateral pipeline. The Florida Power & Light Crist Lateral provides gas supply to their natural gas fired power plant owned byFlorida Power & Light inPensacola, Florida . We generated$0.1 million in additional gross margin in the second quarter of 2021 and we estimate that this acquisition will generate gross margin of approximately$0.6 million in 2021 and growing to$1.0 million in 2022. Regulatory Initiatives 44
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Florida GRIP Florida GRIP is a natural gas pipe replacement program approved by theFlorida PSC that allows automatic recovery, through rates, of costs associated with the replacement of mains and services. Since the program's inception inAugust 2012 , we have invested$178.9 million of capital expenditures to replace 333 miles of qualifying distribution mains, including$13.0 million of new pipes during the first six months of 2021. We expect to generate annual gross margin of approximately$16.8 million in 2021, and$17.9 million in 2022. Hurricane Michael InOctober 2018 , Hurricane Michael passed through FPU's electric distribution operation's service territory inNorthwest Florida . The hurricane caused widespread and severe damage to FPU's infrastructure resulting in 100 percent of its customers in theNorthwest Florida service territory losing electrical service. InAugust 2019 , FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael (capital and expenses) through a change in base rates. InMarch 2020 , we filed an update to our original filing to account for actual charges incurred throughDecember 2019 , revised the amortization period of the storm-related costs, and included costs related to Hurricane Dorian. InSeptember 2019 , FPU filed a petition with the Florida PSC, for approval of its consolidated electric depreciation rates. The petition was joined to the Hurricane Michael docket. The approved rates, which were part of the settlement agreement inSeptember 2020 that is described below, were retroactively applied effectiveJanuary 1, 2020 . InSeptember 2020 , the Florida PSC approved a settlement agreement between FPU and theOffice of the Public Counsel regarding final cost recovery and rates associated with Hurricane Michael. Previously, in late 2019, the Florida PSC approved an interim rate increase, subject to refund, effectiveJanuary 1, 2020 , associated with the restoration effort following Hurricane Michael. We fully reserved these interim rates, pending a final resolution and settlement of the limited proceeding. The settlement agreement allowed us to: (a) refund the over-collection of interim rates through the fuel clause; (b) record regulatory assets for storm costs in the amount of$45.8 million including interest which will be amortized over six years; (c) recover these storm costs through a surcharge for a total of$7.7 million annually; and (d) collect an annual increase in revenue of$3.3 million to recover capital costs associated with new plant investments and a regulatory asset for the cost of removal and undepreciated plant. The new base rates and storm surcharge were effective onNovember 1, 2020 . The following table summarizes the impact of Hurricane Michael regulatory proceeding for the three and six months endedJune 30, 2021 : Three Months Ended Six Months Ended (in thousands) June 30, 2021 June 30, 2021 Gross Margin $ 3,145 $ 5,720 Depreciation (305) (608) Amortization of regulatory assets 2,079 4,158 Operating income 1,371 2,170 Amortization of liability associated with interest expense (310) (637) Pre-tax income 1,681 2,807 Income tax expense 457 749 Net income $ 1,224 $ 2,058 Capital Cost Surcharge Programs InDecember 2019 , theFERC approvedEastern Shore 's capital cost surcharge which became effectiveJanuary 1, 2020 . The surcharge, an approved item in the settlement ofEastern Shore 's last general rate case, allowsEastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the replacement of existingEastern Shore facilities.Eastern Shore expects to produce gross margin of approximately$1.2 million in 2021 and$2.0 million in 2022 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction. Elkton Gas STRIDE Plan InMarch 2021 ,Elkton Gas filed a strategic infrastructure development and enhancement ("STRIDE") plan with the Maryland PSC. The STRIDE plan proposes to increase the speed ofElkton Gas' Aldyl-A pipeline replacement program and to recover the costs of the plan in the form of a fixed charge rider through a proposed 5-year surcharge. UnderElkton Gas' proposed STRIDE plan, the Aldyl-A pipelines would be replaced by 2023. InJune 2021 , we reached a settlement with the Maryland PSC Staff and 45
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theMaryland Office of the Peoples Counsel . The STRIDE plan is expected to go into service in the third quarter of 2021 and is expected to generate less than$0.1 million of margin for the remainder of the year. We expect to generate$0.3 million of additional gross margin from the STRIDE plan in 2022 and$0.4 million annually thereafter. COVID-19 Regulatory Proceeding InOctober 2020 , the Florida PSC approved a joint petition of our natural gas and electric distribution utilities inFlorida to establish a regulatory asset to record incremental expenses incurred due to COVID-19. The regulatory asset will allow us to seek recovery of these costs in the next base rate proceedings. InNovember 2020 , theOffice of Public Counsel filed a protest to the order approving the establishment of this regulatory asset treatment, contending that the order should be a reversed or modified and to request a hearing on the protest. The Company'sFlorida regulated business units reached a settlement withOffice of Public Counsel inJune 2021 . The settlement allows the business units to establish a regulatory asset of$2.1 million . This amount includes COVID-19 related incremental expenses for bad debt write-offs, personnel protective equipment, cleaning and business information services for remote work. OurFlorida regulated business units will amortize the amount over two years beginningJanuary 1, 2022 and recover the regulatory asset through the Purchased Gas Adjustment and Swing Service mechanisms for the natural gas business units and through the Fuel Purchased Power Cost Recovery clause for the electric division. This results in annual additional gross margin of$1.0 million that will be offset by a corresponding amortization of regulatory asset expense for both 2022 and 2023. Other major factors influencing gross margin Weather Impact Weather was not a significant factor in the second quarter. For the six-month period, weather conditions accounted for a$5.9 million increased gross margin compared to the same period in 2020, primarily due to an 8.7 percent increase in HDDs that resulted in increased customer consumption. Assuming normal temperatures, as detailed below, gross margin would have been higher by$1.9 million . The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") the three and six months endedJune 30, 2021 and 2020. Three Months Ended Six Months Ended June 30, June 30, 2021 2020 Variance 2021 2020 VarianceDelmarva Peninsula Actual HDD 400 514 (114) 2,586 2,373 213 10-Year Average HDD ("Normal") 396 400 (4) 2,676 2,749 (73) Variance from Normal 4 114 (90) (376) Florida Actual HDD 69 41 28 572 410 162 10-Year Average HDD ("Normal") 43 43 - 549 613 (64) Variance from Normal 26 (2) 23 (203) Ohio Actual HDD 676 801 (125) 3,448 3,297 151 10-Year Average HDD ("Normal") 623 593 30 3,582 3,612 (30) Variance from Normal 53 208 (134) (315) Florida Actual CDD 826 949 (123) 1,010 1,272 (262) 10-Year Average CDD ("Normal") 966 975 (9) 1,161 1,143 18 Variance from Normal (140) (26) (151) 129 Natural Gas Distribution Margin Growth Customer growth for our natural gas distribution operations, as a result of the addition of new customers and the conversion of customers from alternative fuel sources to natural gas service, generated$0.8 million and$1.7 million of additional margin for the three and six months endedJune 30, 2021 , respectively. The average number of residential customers served on theDelmarva Peninsula increased by 4.4 percent and 4.5 percent for the three and six months endedJune 30, 2021 , whileFlorida increased by and 5.2 percent and 5.1 percent, for the three and six months endedJune 30, 2021 , respectively. A larger 46
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percentage of the margin growth was generated from residential growth given the expansion of natural gas into new housing communities and conversions to natural gas as the Company's distribution infrastructure continues to build out. In addition, as new communities continue to build out due to population growth and infrastructure is added to support the growth, there is also increased load from new commercial and industrial customers. The details for the three and six months endedJune 30, 2021 are provided in the following table: Three Months Ended Six Months Ended June 30, 2021 June 30, 2021 (in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida Customer Growth: Residential$ 333 $ 274 $ 823 $ 580 Commercial and industrial 102 43 173 115 Total Customer Growth$ 435 $ 317 $ 996 $ 695 Regulated Energy Segment For the quarter endedJune 30, 2021 , compared to the quarter endedJune 30, 2020 : Three Months Ended June 30, Increase 2021 2020 (decrease) (in thousands) Revenue$ 80,910 $ 73,518 $ 7,392 Cost of sales 14,447 16,387 (1,940) Gross margin 66,463 57,131 9,332 Operations & maintenance 26,882 25,456 1,426 Depreciation & amortization 11,830 9,347 2,483 Other taxes 4,943 4,322 621 Total operating expenses 43,655 39,125 4,530 Operating income$ 22,808 $ 18,006 $ 4,802 Operating income for the Regulated Energy segment for the second quarter of 2021 was$22.8 million , an increase of$4.8 million , or 26.7 percent, over the same period in 2020. Higher operating income reflects continued pipeline expansions byEastern Shore and Peninsula Pipeline, increased consumption from return to pre-pandemic consumption levels, organic growth in our natural gas distribution businesses, operating results from theElkton Gas acquisition completed in the third quarter of 2020, and timing of the impact of the Hurricane Michael regulatory proceeding settlement, which was settled in the third quarter of 2020. The margin increases were offset by higher depreciation, amortization and property taxes, including amortization of the regulatory asset associated with the Hurricane Michael regulatory proceeding settlement, new expenses associated withElkton Gas , and higher other operating expenses. The operating expense increases were also partially offset by$1.6 million due to lower pandemic expenses and the regulatory deferral of COVID-19 expenses. While the Hurricane Michael settlement positively impacted the quarter, the full year impact for 2021 is expected to be negligible.
Items contributing to the quarter-over-quarter increase in gross margin are listed in the following table:
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(in thousands) Margin contribution from the Hurricane Michael regulatory proceeding settlement$ 3,145 Eastern Shore and Peninsula Pipeline service expansions 2,259
Increased customer consumption - primarily due to a return to pre-pandemic conditions
1,769
Natural gas growth (excluding service expansions) 752
Margin contribution from the Elkton Gas acquisition (completed in July 2020 ) 746
Florida GRIP 572
Other variances 89
Quarter-over-quarter increase in gross margin The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement We generated$3.1 million in additional gross margin as a result of the settlement of the Hurricane Michael regulatory proceeding. Refer to Note 5, Rates and Other Regulatory Activities, in the condensed consolidated financial statements for additional information. While the Hurricane Michael settlement positively impacted the period, on an annual basis, the incremental impact year-over-year (2021 vs. 2020) is expected to be negligible.Eastern Shore and Peninsula Pipeline Service Expansions We generated additional gross margin of$1.8 million from Peninsula Pipeline'sWestern Palm Beach County andCallahan projects and$0.5 million fromEastern Shore 's Del-Mar Energy Pathway project. Increased customer consumption - primarily due to return to a pre-pandemic consumption The absence of unfavorable COVID-19 impacts, resulted in a return to pre-pandemic consumption, positively impacting gross margin by$1.8 million for the three months endedJune 30, 2021 compared to the same period in 2020. Natural Gas Distribution Customer Growth We generated additional gross margin of$0.7 million from natural gas customer growth. Gross margin increased by$0.3 million inFlorida and$0.4 million on theDelmarva Peninsula for the three months endedJune 30, 2021 , as compared to the same period in 2020, due primarily to residential customer growth of 4.4 percent and 5.2 percent on theDelmarva Peninsula and inFlorida , respectively.Elkton Gas Gross margin increased by$0.7 million due to margin contributed fromElkton Gas which was acquired inJuly 2020 . Florida GRIP Continued investment in the Florida GRIP generated additional gross margin of$0.6 million in second quarter of 2021 compared to the same period in 2020. Operating Expenses Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table: (in thousands) Hurricane Michael regulatory proceeding settlement - depreciation and amortization impact
$ 1,774 Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions
1,568
Payroll, benefits and other employee-related expenses due to growth
1,157
Depreciation, asset removal and property tax costs due to new capital investments
1,108
Operating expenses from the Elkton Gas acquisition 510
Reduction in expenses associated with the COVID-19 pandemic (811)
Regulatory deferral of COVID-19 expenses per PSCs orders (748)
Other variances (28)
Quarter-over-quarter increase in operating expenses $ 4,530
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For the Six Months EndedJune 30, 2021 , compared to the six months endedJune 30, 2020 : Six Months Ended June 30, Increase 2021 2020 (decrease) (in thousands) Revenue$ 202,107 $ 176,473 $ 25,634 Cost of sales 57,491 51,219 6,272 Gross margin 144,616 125,254 19,362 Operations & maintenance 54,886 51,697 3,189 Depreciation & amortization 23,860 18,666 5,194 Other taxes 10,197 8,997 1,200 Total operating expenses 88,943 79,360 9,583 Operating income$ 55,673 $ 45,894 $ 9,779 Operating income for the Regulated Energy segment for the first six months of 2021 was$55.7 million , an increase of$9.8 million , or 21.3 percent, over the same period in 2020. Higher operating income reflects continued pipeline expansions byEastern Shore and Peninsula Pipeline, operating results from theElkton Gas acquisition completed in the third quarter of 2020, and increased consumption from a return to pre-pandemic consumption levels. Further contributing to the operating income growth was margin from organic growth in the our natural gas distribution businesses and increased consumption driven primarily by colder weather compared to the same period of 2020, and timing of the impact of the Hurricane Michael regulatory proceeding settlement. The margin increases were offset by higher depreciation, amortization and property taxes, including amortization of the regulatory asset associated with the Hurricane Michael regulatory proceeding settlement, new expenses associated withElkton Gas , and higher other operating expenses. The operating expense increases were partially offset by$2.0 million due to lower pandemic expenses and the regulatory deferral of COVID-19 expenses. While the Hurricane Michael settlement positively impacted the period, on an annual basis, the incremental impact year-over-year (2021 vs. 2020) is expected to be negligible.
Items contributing to the quarter-over-quarter increase in gross margin are listed in the following table:
(in thousands) Margin contribution from the Hurricane Michael regulatory proceeding settlement
$ 5,720 Eastern Shore and Peninsula Pipeline service expansions
5,239
Margin contribution from the
1,798
Natural gas growth (excluding service expansions)
1,691
Increased customer consumption - primarily weather related
1,314
Florida GRIP 931
Sandpiper Energy infrastructure rider associated with conversions
455
Other variances 155
Period-over-period increase in gross margin The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement We generated$5.7 million in additional gross margin as a result of the settlement of the Hurricane Michael regulatory proceeding. Refer to Note 5, Rates and Other Regulatory Activities, in the condensed consolidated financial statements for additional information. While the Hurricane Michael settlement positively impacted the period, on an annual basis, the incremental impact year-over-year (2021 vs. 2020) is expected to be negligible. 49
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Eastern Shore and Peninsula Pipeline Service Expansions We generated additional gross margin of$4.0 million from Peninsula Pipeline'sWestern Palm Beach County andCallahan projects and$1.2 million fromEastern Shore 's Del-Mar Energy Pathway project.Elkton Gas Gross margin increased by$2.1 million due to margin contributed fromElkton Gas which was acquired inJuly 2020 . Increased customer consumption - primarily due to return to pre-pandemic conditions The absence of unfavorable COVID-19 impacts during the first six months of 2021, resulted in a return to pre-pandemic consumption, positively impacting gross margin by$1.8 million compared to the same period in 2020. Natural Gas Distribution Customer Growth We generated additional gross margin of$1.7 million from natural gas customer growth. Gross margin increased by$0.7 million inFlorida and$1.0 million on theDelmarva Peninsula for the six months endedJune 30, 2021 , as compared to the same period in 2020, due primarily to residential customer growth of 4.5 percent and 5.1 percent on theDelmarva Peninsula and inFlorida , respectively. Increased Customer Consumption - Primarily Weather Related Gross margin increased by$1.3 million for the for the six months endedJune 30, 2021 , compared to the same period in 2020, primarily due to a 9 percent increase in HDDs on theDelmarva Peninsula and a 40 percent increase in HDDs inFlorida that resulted in increased customer consumption of energy. Florida GRIP Continued investment in the Florida GRIP generated additional gross margin of$0.9 million for the six months endedJune 30, 2021 compared to the same period in 2020. Sandpiper Infrastructure Rider Associated with Conversions We generated additional margin of$0.5 million associated with the conversion of Sandpiper's propane customers to natural gas customers for the six months endedJune 30, 2021 compared to the same period in 2020. Operating Expenses Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table: (in thousands) Hurricane Michael regulatory proceeding settlement - depreciation and amortization impact
$ 3,550 Depreciation, asset removal and property tax costs due to new capital investments
2,500
Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions
2,459
Payroll, benefits and other employee-related expenses due to growth
1,958
Operating expenses from the Elkton Gas acquisition 1,034
Reduction in expenses associated with the COVID-19 pandemic (1,078)
Regulatory deferral of COVID-19 expenses per PSCs orders (944)
Other variances 104
Period-over-period increase in operating expenses $ 9,583
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Unregulated Energy Segment
For the quarter endedJune 30, 2021 , compared to the quarter endedJune 30, 2020 : Three Months Ended June 30, Increase 2021 2020 (decrease) (in thousands) Revenue$ 34,773 $ 27,741 $ 7,032 Cost of sales 16,821 10,709 6,112 Gross margin 17,952 17,032 920 Operations & maintenance 14,017 12,959 1,058 Depreciation & amortization 3,456 2,889 567 Other taxes 924 903 21 Total operating expenses 18,397 16,751 1,646 Operating income$ (445) $ 281 $ (726) Operating results for the Unregulated Energy segment for the second quarter of 2021 declined by$0.7 million compared to the same period in 2020. The operating results for this segment typically exhibit seasonality with the first and fourth quarters producing higher results due to colder temperatures. The results for the second quarter are not indicative of the results for the entire year. Lower operating results during the second quarter were driven by higher operating expenses, depreciation, amortization and property taxes related to recent capital investments, and expenses associated withWestern Natural Gas . Lower performance by Marlin Gas Services resulting from reduced customer demand for pipeline integrity and emergency services during the quarter also contributed to this decrease. Operating expenses were partially offset by increased gross margin generated from the acquisition ofWestern Natural Gas and by Aspire Energy as well as consumption in the propane businesses returning towards pre-pandemic levels. Gross Margin Items contributing to the quarter-over-quarter increase in gross margin are listed in the following table: (in thousands) Propane OperationsWestern Natural Gas acquisition (completed inOctober 2020 )
204
Marlin Gas Services
Decreased demand for CNG services (400)
Aspire Energy
Increased margin including improvements from natural gas liquid processing 677
Other variances 50
Quarter-over-quarter increase in gross margin The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. Propane Operations •Western Natural Gas - Gross margin increased by$0.4 million due to the margin generated fromWestern Natural Gas , which was acquired by Sharp inOctober 2020 . •Increased Customer Consumption - primarily due to a return to pre-pandemic conditions - Gross margin increased due to the absence of unfavorable COVID-19 impacts, resulted in a return to pre-pandemic consumption, positively impacting gross margin by$0.2 million for the three months endedJune 30, 2021 compared to the same period in 2020. 51
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Marlin Gas Services •Gross margin decreased by$0.4 million during the second quarter of 2021, as compared to the same period in the prior year due to lower demand for CNG hold services. Aspire Energy •Gross margin increased by$0.7 million during the second quarter of 2021 over the same period in 2020, including improvements from natural gas liquid processing. Other Operating Expenses Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table: (in thousands) Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions
$ 705 Depreciation, amortization and property tax costs due to new capital investments
559
Operating expenses from the Western Natural Gas acquisition 269
Payroll, benefits and other employee-related expenses due to growth
231
Reduction in expenses associated with the COVID-19 pandemic (418)
Other variances 300
Quarter-over-quarter increase in operating expenses For the six months endedJune 30, 2021 , compared to the six months endedJune 30, 2020 : Six Months Ended June 30, Increase 2021 2020 (decrease) (in thousands) Revenue$ 109,532 $ 81,752 $ 27,780 Cost of sales 52,804 32,938 19,866 Gross margin 56,728 48,814 7,914 Operations & maintenance 29,178 26,996 2,182 Depreciation & amortization 6,780 5,806 974 Other taxes 2,110 1,870 240 Total operating expenses 38,068 34,672 3,396 Operating income$ 18,660 $ 14,142 $ 4,518 Operating income for the Unregulated Energy segment for the six months endedJune 30, 2021 was$18.7 million , an increase of$4.5 million or 31.9 percent, over the same period in 2020. Higher operating income resulted from increased consumption driven primarily by colder weather compared to the first half of 2020, higher retail propane margins per gallon, and contributions from the acquisition of theWestern Natural Gas propane assets. These margin increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments, new expenses associated withWestern Natural Gas and higher other operating expenses. The operating expense increases were partially offset by$0.6 million due to lower pandemic related costs. 52
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Gross Margin Items contributing to the period-over-period increase in gross margin are listed in the following table: (in thousands) Propane Operations Increased customer consumption - primarily weather related
1,137
Western Natural Gas acquisition (completed in October 2020 ) 939
Marlin Gas Services
Increased demand for CNG services 331
Aspire Energy
Increased customer consumption - primarily weather related 921
Improved margin including natural gas liquid processing 691
Other variances 194
Period-over-period increase in gross margin The following narrative discussion provides further detail and analysis of the significant items in the foregoing table. Propane Operations •Increased Customer Consumption Primarily Weather Related - Gross margin increased by$3.7 million , as weather on theDelmarva Peninsula was 9 percent colder for the six months endedJune 30, 2021 compared to the same period in 2020. •Increased Retail Propane Margins - Gross margin increased by$1.1 million , due to lower propane inventory costs and favorable market conditions. These market conditions, which include competition with other propane suppliers, as well as the availability and price of alternative energy sources, may fluctuate based on changes in demand, supply and other energy commodity prices. •Western Natural Gas - Gross margin increased by$0.9 million due to the margin generated fromWestern Natural Gas , which was acquired by Sharp inOctober 2020 . Marlin Gas Services •Gross margin increased by$0.3 million for the six months endedJune 30, 2021 , as compared to the same period in the prior year due to higher demand for CNG hold services. Aspire Energy •Increased Customer Consumption Primarily Weather Related - Gross margin increased by$0.9 million due to higher consumption of gas as weather inOhio was approximately 5 percent colder for the six months endedJune 30, 2021 over the same period in 2020. •Improved Margin including natural gas liquid processing - Gross margin increased by$0.7 million including improvements from natural gas liquid processing for the six months endedJune 30, 2021 , as compared to the same period in 2020. Other Operating Expenses Items contributing to the period-over-period increase in operating expenses are listed in the following table: 53
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(in thousands) Depreciation, amortization and property tax costs due to new capital investments
$ 1,066 Facilities and maintenance costs and outside services associated with a return to pre-pandemic conditions 921
Payroll, benefits and other employee-related expenses due to growth
723
Operating expenses from the Western Natural Gas acquisition 607
Insurance expense (non-health) 347
Reduction in expenses associated with the COVID-19 pandemic (620)
Other variances 352
Period-over-period increase in operating expenses $ 3,396
OTHER EXPENSE, NET
For the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020
Other expense, net, which includes non-operating investment income (expense),
interest income, late fees charged to customers, gains or losses from the sale
of assets and pension and other benefits expense, increased by $1.7 million in
the second quarter of 2021, compared to the same period in 2020. The increase
was primarily due to gains recognized on the sales of Community Gas Systems
("CGS") from our affiliate Sharp to our Delaware Division, in conjunction with
the acquisitions of the CGS and conversion of customers from propane to natural
gas service.
For the six months ended June 30, 2021 compared to the six months ended June 30,
2020
Other expense, net, which includes non-operating investment income (expense),
interest income, late fees charged to customers, gains or losses from the sale
of assets and pension and other benefits expense, decreased by $1.2 million in
the first six months of 2021, compared to the same period in 2020. The decrease
was primarily due to gains on two property sales which were completed in the
first quarter of 2020, partially offset by gains from the sales of CGS from
Sharp to our Delaware Division as discussed in the preceding paragraph.
INTEREST CHARGES
For the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020
Interest charges were $5.1 million for both quarters ended June 30, 2021 and
2020.
For the six months ended June 30, 2021 compared to the six months ended June 30,
2020
Interest charges for the six months ended June 30, 2021 decreased by $0.7
million , compared to the same period in 2020, attributable primarily to a
decrease of $0.9 million in lower interest expense from lower levels outstanding
under our revolving credit facilities, and $0.6 million of an amortization
credit/reduction in interest expense associated with a regulatory liability that
was established in connection with the Hurricane Michael regulatory proceeding
settlement. Partially offsetting the interest savings was an increase of $0.5
million in interest expense as a result of several long-term debt placements in
2020 and $0.4 million due to lower capitalized interest associated with growth
projects.
INCOME TAXES
For the quarter ended June 30, 2021 compared to the quarter ended June 30, 2020
Income tax expense was $5.2 million for the quarter ended June 30, 2021 ,
compared to $2.0 million for the quarter ended June 30, 2020 . Our effective
income tax rate was 27.2 percent and 15.7 percent, for the three months ended
June 30, 2021 and 2020, respectively. The second quarter of 2021 included a
favorable income tax impact associated with the CARES Act that reduced the
effective tax rate by 13.2 percent, from 28.9 percent to 15.7 percent.
For the six months ended June 30, 2021 compared to the six months ended June 30,
2020
Income tax expense was $17.6 million for the six months ended June 30, 2021 ,
compared to $12.6 million for the six months ended June 30, 2020 . Our effective
income tax rate was 26.7 percent and 24.1 percent, for the six months ended
June 30, 2021 and 2020, respectively. The second quarter included a favorable
income tax impact associated with the CARES Act that reduced the effective tax
rate on a year to date basis by 3.2 percent, from 27.3 percent to 24.1 percent.
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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES Our capital requirements reflect the capital-intensive and seasonal nature of our business and are principally attributable to investment in new plant and equipment, retirement of outstanding debt and seasonal variability in working capital. We rely on cash generated from operations, short-term borrowings, and other sources to meet normal working capital requirements and to temporarily finance capital expenditures. We may also issue long-term debt and equity to fund capital expenditures and to maintain our capital structure within our target capital structure range. We maintain an effective shelf registration statement with theSEC for the issuance of shares of common stock in various types of equity offerings, including shares of common stock under our ATM equity program, as well as an effective registration statement with respect to the DRIP. Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may consider issuing additional shares under the direct share purchase component of the DRIP and/or under the ATM equity program. Beginning in the third quarter of 2020, we issued shares of common stock under both the DRIP and the ATM equity program. Our energy businesses are weather-sensitive and seasonal. We normally generate a large portion of our annual net income and subsequent increases in our accounts receivable in the first and fourth quarters of each year due to significant volumes of natural gas, electricity, and propane delivered by our distribution operations, and our natural gas transmission operations to customers during the peak heating season. In addition, our natural gas and propane inventories, which usually peak in the fall months, are largely drawn down in the heating season and provide a source of cash as the inventory is used to satisfy winter sales demand. Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements. Our capital expenditures were$107.8 million for the six months endedJune 30, 2021 . In the table below, we have provided a range of our forecasted capital expenditures for 2021: 2021 (dollars in thousands) Low
High
Regulated Energy:
Natural gas distribution $ 79,000 $ 85,000
Natural gas transmission 55,000 60,000
Electric distribution 9,000 13,000
Total Regulated Energy 143,000 158,000
Unregulated Energy:
Propane distribution 9,000 12,000
Energy transmission 14,000 15,000
Other unregulated energy 8,000 12,000
Total Unregulated Energy 31,000 39,000
Other:
Corporate and other businesses 1,000 3,000
Total Other 1,000 3,000
Total 2021 Forecasted Capital Expenditures
The 2021 forecast, which excludes any potential acquisitions, includes capital expenditures associated with the following projects:Delmarva Natural Gas distribution'sSomerset County expansion,Eastern Shore 's Del-Mar Energy Pathway,Florida's Western Palm Beach County expansion and other potential pipeline projects, continued expenditures under the Florida GRIP, further expansions of our natural gas distribution and transmission systems, continued natural gas and electric system infrastructure improvement activities, facilities to support Marlin Gas Services' CNG transport growth and expansion into RNG and LNG transport, information technology systems, and other strategic initiatives and investments, including renewable energy investments. The capital expenditure projection is subject to continuous review and modification. Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, capital delays due to COVID-19 that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital. Historically, actual capital expenditures have typically lagged behind the budgeted amounts. The timing of capital expenditures can vary based on delays in regulatory approvals, securing environmental approvals and other permits. The regulatory application and approval process has lengthened in the past few years, and we expect this trend to continue. 55
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Capital Structure We are committed to maintaining a sound capital structure and strong credit ratings. This commitment, along with adequate and timely rate relief for our regulated energy operations, is intended to ensure our ability to attract capital from outside sources at a reasonable cost, which will benefit our customers, creditors, employees and stockholders. The following table presents our capitalization, excluding and including short-term borrowings, as ofJune 30, 2021 andDecember 31, 2020 : June 30, 2021 December 31, 2020 (in thousands) Long-term debt, net of current maturities$ 498,450 40 % $ 508,499 42 % Stockholders' equity 741,564 60 % 697,085 58 % Total capitalization, excluding short-term debt$ 1,240,014 100 %$ 1,205,584 100 % June 30, 2021 December 31, 2020 (in thousands) Short-term debt$ 169,294 12 % $ 175,644 13 % Long-term debt, including current maturities 512,050 36 % 522,099 37 % Stockholders' equity 741,564 52 % 697,085 50 % Total capitalization, including short-term debt$ 1,422,908 100 %$ 1,394,828 100 % Our target ratio of equity to total capitalization, including short-term borrowings, is between 50 and 60 percent. Our equity to total capitalization ratio, including short-term borrowings, was 52 percent as ofJune 30, 2021 . We seek to align permanent financing with the in-service dates of our capital projects. We may utilize more temporary short-term debt when the financing cost is attractive as a bridge to the permanent long-term financing or if the equity markets are volatile. In the third and fourth quarters of 2020, we issued 1.0 million shares of common stock through our DRIP and the ATM programs and received net proceeds of approximately$83.0 million which was added to the general funds and then used to pay down short-term borrowing. In the first six months of 2021, we issued less than 0.1 million shares at an average price per share of$113.51 and received net proceeds of$4.5 million under the DRIP. See Note 9, Stockholders' Equity, in the condensed consolidated financial statements for additional information on commissions and fees paid in connection with these issuances. We used the net proceeds from the ATM equity program and the DRIP, after deducting the commissions or other fees and related offering expenses payable by us, for general corporate purposes, including, but not limited to, financing of capital expenditures, repayment of short-term debt, financing acquisitions, investing in subsidiaries, and general working capital purposes. Shelf Agreements We have entered into Shelf Agreements with Prudential, MetLife and NYL, whom are under no obligation to purchase any unsecured debt. The following table summarizes our Shelf Agreements atJune 30, 2021 : Total Remaining Borrowing Less: Amount of Less: Unfunded Borrowing (in thousands) Capacity Debt Issued Commitments Capacity Shelf Agreement Prudential Shelf Agreement (1)$ 370,000 $ (220,000) $ -$ 150,000 MetLife Shelf Agreement (1) 150,000 - - 150,000 NYL Shelf Agreement (1) 150,000 (140,000) - 10,000 Total Shelf Agreements as of June 30, 2021$ 670,000 $ (360,000) $ -$ 310,000
(1) The Prudential, MetLife and NYL Shelf Agreements expire in
The Senior Notes, Shelf Agreements or Shelf Notes set forth certain business
covenants to which we are subject when any note is outstanding, including
covenants that limit or restrict our ability, and the ability of our
subsidiaries, to incur indebtedness, or place or permit liens and encumbrances
on any of our property or the property of our subsidiaries.
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Short-term Borrowings We are authorized by our Board of Directors to borrow up to$400 million of short-term debt, as required. AtJune 30, 2021 andDecember 31, 2020 , we had$169.3 million and$175.6 million , respectively, of short-term borrowings outstanding at a weighted average interest rate of 1.11 percent and 1.28 percent, respectively. Included in theJune 30, 2021 balance is$100.0 million in short-term debt for which we have entered into interest rate swap agreements. InSeptember 2020 , we entered into a$375.0 million syndicated Revolver with six participating lenders. As a result of entering into the Revolver, inSeptember 2020 , we terminated and paid all outstanding balances under the previously existing bilateral lines of credit and the previous revolving credit facility. The availability of funds under the Revolver is subject to conditions specified in the credit agreement, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio of no greater than 65 percent. As ofJune 30, 2021 , we are in compliance with this covenant. The Revolver expires onSeptember 29, 2021 and is available to provide funds for our short-term cash needs to meet seasonal working capital requirements and to temporarily fund portions of our capital expenditures. Borrowings under the Revolver are subject to a pricing grid, including the commitment fee and the interest rate charged. Our pricing is adjusted each quarter based upon our total indebtedness to total capitalization ratio. As ofJune 30, 2021 , the pricing under the Revolver included an unused commitment fee of 0.15 percent and an interest rate of 1.0 percent over LIBOR. Our available credit under the new Revolver atJune 30, 2021 was$200.9 million . As ofJune 30, 2021 , we had issued$4.8 million in letters of credit to various counterparties under the syndicated Revolver. These letters of credit are not included in the outstanding short-term borrowings and we do not anticipate that they will be drawn upon by the counterparties. The letters of credit reduce the available borrowings under our syndicated Revolver. In the fourth quarter of 2020, we entered into interest rate swaps with a notional amount of$60.0 million throughDecember 2021 with pricing of 0.20 and 0.205 percent for the period associated with our outstanding borrowing under the Revolver. InFebruary 2021 , we entered into an additional interest rate swap with a notional amount of$40.0 million throughDecember 2021 with pricing of 0.17 percent. Our short-term borrowing is based on the 30-day LIBOR rate. The interest rate swaps are cash settled monthly as the counter-party pays us the 30-day LIBOR rate less the fixed rate. Cash Flows The following table provides a summary of our operating, investing and financing cash flows for the six months endedJune 30, 2021 and 2020: Six Months Ended June 30, (in thousands) 2021 2020 Net cash provided by (used in): Operating activities$ 134,216 $ 91,678 Investing activities (104,529) (80,254) Financing activities (28,175) (14,819) Net increase (decrease) in cash and cash equivalents 1,512
(3,395)
Cash and cash equivalents-beginning of period 3,499
6,985
Cash and cash equivalents-end of period$ 5,011 $ 3,590 57
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Cash Flows Provided By Operating Activities Changes in our cash flows from operating activities are attributable primarily to changes in net income, adjusted for non-cash items such as depreciation and changes in deferred income taxes, and working capital. Changes in working capital are determined by a variety of factors, including weather, the prices of natural gas, electricity and propane, the timing of customer collections, payments for purchases of natural gas, electricity and propane, and deferred fuel cost recoveries. During the six months endedJune 30, 2021 and 2020, net cash provided by operating activities was$134.2 million and$91.7 million , respectively, resulting in an increase in cash flows of$42.5 million . Significant operating activities generating the cash flows change were as follows: •Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities increased cash flows by$20.4 million ; •Net income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by$13.2 million , due primarily to higher net income, depreciation and amortization and gain on sale of assets; •Net cash flows from income taxes receivable increased by$6.0 million ; •Changes in net prepaid expenses and other current assets, customer deposits and refunds, accrued compensation and other net assets and liabilities, increased cash flows by$4.6 million ; •Changes in net regulatory assets and liabilities increased cash flows by$3.6 million due primarily to the change in fuel costs collected through the various cost recovery mechanisms; and •Net cash flows from changes in propane inventory, storage gas and other inventories decreased by approximately$5.2 million .
Cash Flows Used in Investing Activities
Net cash used in investing activities totaled$104.5 million and$80.3 million during the six months endedJune 30, 2021 and 2020, respectively, resulting in a decrease in cash flows of$24.2 million . Cash paid for capital expenditures was$104.6 million for the first six months of 2021, compared to$82.8 million for the same period in 2020, resulting in decreased cash flows of$21.8 million . The remaining decrease was largely attributable to several property sales that occurred in the first quarter of 2020.
Cash Flows Used in Financing Activities
Net cash used in financing activities totaled$28.2 million during the six months endedJune 30, 2021 compared to$14.8 million of net cash used in financing activities over the same period in 2020, resulting in a decrease in cash flows of$13.4 million . The increase in net cash used in financing activities resulted primarily from the following: •Long-term debt repayments of$10.1 million and repayments of short-term debt of$5.2 million ; •Cash dividends of$15.0 million paid during the six months endedJune 30, 2021 , compared to$13.0 million for the six months endedJune 30, 2020 ; and •Cash flows of$4.8 million as a result of issuing shares of our common stock under the DRIP program Off-Balance Sheet Arrangements The Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain letters of credit securing our subsidiaries' obligations. The maximum authorized liability under such guarantees and letters of credit as ofJune 30, 2021 was$20.0 million . The aggregate amount guaranteed atJune 30, 2021 was$8.0 million , with the guarantees expiring on various dates throughMarch 30, 2022 . As ofJune 30, 2021 , we have issued letters of credit totaling approximately$4.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and ourDelaware andMaryland divisions, to our current and previous primary insurance carriers. These letters of credit have various expiration dates throughOctober 5, 2021 . We have not drawn upon these letters of credit as ofJune 30, 2021 and do not anticipate that the counterparties will draw upon these letters of credit. We expect that they will be renewed to the extent necessary in the future. Additional information is presented in Note 7, Other Commitments and Contingencies, in the condensed consolidated financial statements. Contractual Obligations There has been no material change in the contractual obligations presented in our 2020 Annual Report on Form 10-K, except for commodity purchase obligations entered into in the ordinary course of our business. The following table summarizes commodity purchase contract obligations atJune 30, 2021 : 58
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Payments Due by Period
Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total
(in thousands)
Purchase obligations - Commodity (1) $ 29,826 $ 27,879 $ - $ - $ 57,705
Total $ 29,826 $ 27,879 $ - $ - $ 57,705
(1) In addition to the obligations noted above, we have agreements with
commodity suppliers that have provisions with no minimum purchase requirements.
There are no monetary penalties for reducing the amounts purchased; however, the
propane contracts allow the suppliers to reduce the amounts available in the
winter season if we do not purchase specified amounts during the summer season.
Under these contracts, the commodity prices will fluctuate as market prices
fluctuate.
Rates and Regulatory Matters
Our natural gas distribution operations in Delaware , Maryland and Florida and
electric distribution operation in Florida are subject to regulation by the
respective state PSC; Eastern Shore is subject to regulation by the FERC ; and
Peninsula Pipeline and Aspire Energy Express, our intrastate pipeline
subsidiaries, are subject to regulation (excluding cost of service) by the
Florida PSC and Public Utilities Commission of Ohio , respectively. At June 30,
2021 , we were involved in regulatory matters in each of the jurisdictions in
which we operate. Our significant regulatory matters are fully described in Note
5, Rates and Other Regulatory Activities, to the condensed consolidated
financial statements in this Quarterly Report on Form 10-Q.
Recent Authoritative Pronouncements on Financial Reporting and Accounting
Recent accounting developments, applicable to us, and their impact on our
financial position, results of operations and cash flows are described in Note
1, Summary of Accounting Policies, to the condensed consolidated financial
statements in this Quarterly Report on Form 10-Q.
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