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, 2021 , including the audited consolidated financial statements and notes thereto.
Safe Harbor for Forward-Looking Statements
We make statements in this Quarterly Report on Form 10-Q (this " Quarterly
Report") that do not directly or exclusively relate to historical facts. Such
statements are "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended, Section 21E of the Securities Exchange
Act of 1934, as amended, and the Private Securities Litigation Reform Act of
1995. One can typically identify forward-looking statements by the use of
forward-looking words, such as "project," "believe," "expect," "anticipate,"
"intend," "plan," "estimate," "continue," "potential," "forecast" or other
similar words, or future or conditional verbs such as "may," "will," "should,"
"would" or "could." These statements represent our intentions, plans,
expectations, assumptions and beliefs about future financial performance,
business strategy, projected plans and objectives of the Company.
Forward-looking statements speak only as of the date they are made or as of the
date indicated and we do not undertake any obligation to update forward-looking
statements as a result of new information, future events or otherwise. These
statements are subject to many risks and uncertainties. In addition to the risk
factors described under Item 1A, Risk Factors in our 2021 Annual Report on Form
10-K, the following important factors, among others, could cause actual future
results to differ materially from those expressed in the forward-looking
statements:
•state and federal legislative and regulatory initiatives that affect cost and
investment recovery, have an impact on rate structures, and affect the speed and
the degree to which competition enters the electric and natural gas industries;
•the outcomes of regulatory, environmental and legal matters, including whether
pending matters are resolved within current estimates and whether the related
costs are adequately covered by insurance or recoverable in rates;
•the impact of climate change, including the impact of greenhouse gas emissions
or other legislation or regulations intended to address climate change;
•the impact of significant changes to current tax regulations and rates;
•the timing of certification authorizations associated with new capital projects
and the ability to construct facilities at or below estimated costs;
•changes in environmental and other laws and regulations to which we are subject
and environmental conditions of property that we now, or may in the future, own
or operate;
•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;
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•the availability of, and competition for, qualified personnel supporting our natural gas, electricity and propane businesses; •the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and •the impacts associated with the outbreak of a pandemic, including the duration and scope of the pandemic the corresponding impact on our supply chains, our personnel, our contract counterparties, general economic conditions and growth, the financial markets and any costs to comply with governmental mandates.
Introduction
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 regulated energy delivery foundation and investing in related businesses and services that provide opportunities for returns greater than traditional utility returns. We seek to identify and develop opportunities across the energy value chain, with emphasis on midstream and downstream investments that are accretive to earnings per share, consistent with our long-term growth strategy and create opportunities to continue our record of top tier returns on equity relative to our peer group. 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, and new products and services as well as increased opportunities to transform the Company with a focus on people, process, technology and organizational structure. •Identification and pursuit of additional pipeline expansions, including new interstate and intrastate transmission projects. •Growth of Marlin Gas Services' CNG transport business and expansion into LNG and RNG transport services as well as methane capture. •Identifying and undertaking additional strategic propane acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets. •Pursuit of growth opportunities that enable us to utilize our integrated set of energy delivery businesses to participate in sustainable 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.
Earnings per share information is presented on a diluted basis, unless otherwise noted.
The following discussions and those later in the document on operating income and segment results include the use of the term Adjusted Gross Margin which is a non-GAAP measure throughout our discussion on operating results. Adjusted Gross Margin is calculated by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues. The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements. Adjusted Gross Margin should not be considered an alternative to Gross Margin underU.S. GAAP which is defined as the excess of sales over cost of goods sold. We believe that Adjusted 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 our unregulated energy operations. Our management uses Adjusted Gross Margin as one of the financial measures in assessing our business units' performance. Other companies may calculate Adjusted Gross Margin in a different manner. The below tables reconcile Gross Margin as defined under GAAP to our non-GAAP measure of Adjusted Gross Margin for the three and six months endedJune 30, 2022 and 2021: 33
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For the Three Months Ended June 30, 2022
Other and
(in thousands) Regulated Energy Unregulated Energy Eliminations Total
Operating Revenues $ 92,193 $ 53,463 $ (6,186) $ 139,470
Cost of Sales:
Natural gas, propane and
electric costs (21,573) (31,701) 6,158 (47,116)
Depreciation & amortization (13,140) (4,074) (2) (17,216)
Operations & maintenance
expense (1) (8,324) (6,699) (521) (15,544)
Gross Margin (GAAP) 49,156 10,989 (551) 59,594
Operations & maintenance
expense (1) 8,324 6,699 521 15,544
Depreciation & amortization 13,140 4,074 2 17,216
Adjusted Gross Margin
(Non-GAAP) $ 70,620 $ 21,762 $ (28) $ 92,354
For the Three Months Ended June 30, 2021
Other and
(in thousands) Regulated Energy Unregulated Energy Eliminations Total
Operating Revenues $ 80,910 $ 34,773 $ (4,601) $ 111,082
Cost of Sales:
Natural gas, propane and
electric costs (14,447) (16,821) 4,567 (26,701)
Depreciation & amortization (11,830) (3,456) (12) (15,298)
Operations & maintenance
expense (1) (8,320) (5,807) 67 (14,060)
Gross Margin (GAAP) 46,313 8,689 21 55,023
Operations & maintenance
expense (1) 8,320 5,807 (67) 14,060
Depreciation & amortization 11,830 3,456 12 15,298
Adjusted Gross Margin
(Non-GAAP) $ 66,463 $ 17,952 $ (34) $ 84,381
For the Six Months Ended June 30, 2022
Other and
(in thousands) Regulated Energy Unregulated Energy Eliminations Total
Operating Revenues $ 220,084 $ 154,754 $ (12,488) $ 362,350
Cost of Sales:
Natural gas, propane and
electric costs (67,016) (89,708) 12,427 (144,297)
Depreciation & amortization (26,225) (7,954) (14) (34,193)
Operations & maintenance
expense (1) (16,485) (13,756) (944) (31,185)
Gross Margin (GAAP) 110,358 43,336 (1,019) 152,675
Operations & maintenance
expense (1) 16,485 13,756 944 31,185
Depreciation & amortization 26,225 7,954 14 34,193
Adjusted Gross Margin
(Non-GAAP) $ 153,068 $ 65,046 $ (61) $ 218,053
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For the Six Months Ended June 30, 2021
Other and
(in thousands) Regulated Energy Unregulated Energy Eliminations Total
Operating Revenues $ 202,107 $ 109,532 $ (9,371) $ 302,268
Cost of Sales:
Natural gas, propane and
electric costs (57,491) (52,804) 9,298 (100,997)
Depreciation & amortization (23,860) (6,780) (22) (30,662)
Operations & maintenance
expense (1) (16,585) (12,120) 292 (28,413)
Gross Margin (GAAP) 104,171 37,828 197 142,196
Operations & maintenance
expense (1) 16,585 12,120 (292) 28,413
Depreciation & amortization 23,860 6,780 22 30,662
Adjusted Gross Margin
(Non-GAAP) $ 144,616 $ 56,728 $ (73) $ 201,271
(1)Operations & maintenance expenses within the Consolidated Statements of
Income are presented in accordance with regulatory requirements and to provide
comparability within the industry. Operations & maintenance expenses which are
deemed to be directly attributable to revenue producing activities have been
separately presented above in order to calculate Gross Margin as defined under
U.S. GAAP.
2022 to 2021 Gross Margin (GAAP) Variance - Regulated Energy
Gross Margin (GAAP) for the Regulated Energy segment for the quarter endedJune 30, 2022 was$49.2 million , an increase of$2.8 million , or 6.1 percent, compared to the same period in 2021. Higher gross margin reflects continued pipeline expansions byEastern Shore , Peninsula Pipeline, and Aspire Energy Express through contributions from the new Guernsey pipeline, organic growth in the natural gas distribution businesses and operating results from the 2021 Escambia Meter acquisition. These increases were partially offset by higher depreciation and amortization related to recent capital investments. Gross Margin (GAAP) for the Regulated Energy segment for the six months endedJune 30, 2022 was$110.4 million , an increase of$6.2 million , or 5.9 percent, compared to the same period in 2021. Higher gross margin reflects continued pipeline expansions byEastern Shore , Peninsula Pipeline, and Aspire Energy Express through contributions from the new Guernsey pipeline, organic growth in the natural gas distribution businesses and operating results from the 2021 Escambia Meter acquisition. These increases were partially offset by higher depreciation and amortization related to recent capital investments as well as, increased payroll, benefits and other employee related costs.
2022 to 2021 Gross Margin (GAAP) Variance - Unregulated Energy
Gross Margin (GAAP) for the Unregulated Energy segment for the quarter endedJune 30, 2022 was$11.0 million , an increase of$2.3 million , or 26.5 percent, compared to the same period in 2021. Higher gross margin is a result of increased propane margins per gallon and service fees, along with improved performance in our other unregulated businesses. These increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and acquisitions and higher vehicle expenses primarily driven by increased fuel costs. Gross Margin (GAAP) for the Unregulated Energy segment for the six months endedJune 30, 2022 was$43.3 million , an increase of$5.5 million , or 14.6 percent, compared to the same period in 2021. Higher gross margin is a result of contributions from the propane acquisition of Diversified Energy completed in 2021, increased propane margins per gallon and service fees, along with increased demand for CNG services and higher rates for Aspire Energy. These increases were partially offset by higher depreciation, amortization and property taxes related to recent capital investments and acquisitions, increased payroll, benefits and employee related costs and higher vehicle expenses primarily driven by increased fuel costs. 35
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Results of Operations for the Three and Six Months Ended
Overview
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 the east coast ofthe United States and provide natural gas distribution and transmission; electric distribution and generation; propane gas distribution; mobile compressed natural gas services; steam generation; and other energy-related services. 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 beginning in 2020 and persisted throughout 2021, though to a lesser extent.Chesapeake Utilities is considered an "essential business," which allowed us to continue operational activities and construction projects while social distancing restrictions were in place. As ofJune 30, 2022 , these restrictions have predominantly been lifted as vaccines have become widely available inthe United States . Previously existing states of emergency in all of our service territories expired during the second and third quarters of 2021, eliminating a majority of restrictions initially implemented to slow the spread of the virus. The expiration of the states of emergency along with the settlement of our limited proceeding inFlorida , has concluded our ability to defer incremental pandemic related costs for consideration through the applicable regulatory process. We have adjusted our operating practices accordingly to ensure the safety of our operations and will take the necessary actions to comply with the CDC, and theOccupational Safety and Health Administration , as new developments occur.
Environmental, Social and Governance Initiatives
ESG initiatives are at the core of our well-established culture, guiding our
strategy and informing our ongoing business decisions. In
•Chesapeake Utilities will be a leader in the transition to a lower carbon future. •We will continue to promote a diverse and inclusive workplace and further the sustainability of the communities we serve. •Our businesses will be operated with integrity and the highest ethical standards. These commitments guide our mission to deliver energy that makes life better for the people and communities we serve. They impact every aspect of our company and the relationships we have with our stakeholders. We encourage our investors to review the report and welcome feedback as we continue to enhance our ESG disclosures.
Some of our most recent ESG advancements include the following:
Environmental:
•We were joined by the Governor of the state ofMaryland to celebrate the public-private partnership resulting from the extension of natural gas transmission and distribution pipeline intoSomerset County, MD , enabling conversion for two state-funded entities to natural gas, improving their facilities' environmental profile. •In ourFlorida operating area, we participated in an event that showcases model homes filled with the latest designs and technologies for energy conservation.
Social:
•We announcedSharon Grant's appointment as our new assistant vice president and diversity officer;Ms. Grant will have direct oversight responsibilities for our equity, diversity, and inclusion (EDI) strategy and will collaborate across the organization with the teams responsible for the enterprise-wide environmental, social, and governance plan. •We participated in events and made donations to organizations and fundraising initiatives within our local communities through our Employee Resource Groups and company community giving programs.
Governance:
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•InJuly 2022 , we announced the appointment ofStephanie N. Gary andSheree M. Petrone to serve as members of our Board of Directors as part of an ongoing succession planning strategy. that is aligned with our EDI commitments. •We recently joined governance leaders as a member of theAdvisory Board for the John L. Weinberg Center for Corporate Governance . •We were recognized for the Best Corporate Governance in theU.S. for 2022 byWorld Finance magazine . Earlier this year, we established our Environmental Sustainability Office ("ESO") and ESG Committee ("ESGC"). The ESO was established to identify and manage emission-reducing projects both internally, as well as those that support our customers' sustainability goals. The ESGC was established to bring together a cross-functional team of leaders across the organization to identify, assess, execute and advance the Company's strategic ESG initiatives. 37
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Operational Highlights
Our net income for the three months endedJune 30, 2022 was$17.1 million , or$0.96 per share, compared to$13.8 million , or$0.78 per share, for the same quarter of 2021. Operating income for the three months endedJune 30, 2022 increased by$3.9 million , or 17.2 percent, over the same period in 2021. Higher performance in the second quarter of 2022 was generated primarily from continued pipeline expansion projects, increased propane margins per gallon and fees, incremental contributions associated with regulated infrastructure programs, organic growth in our natural gas distribution businesses, increased customer consumption, and improved performance in our other unregulated businesses. We recorded higher depreciation, amortization and property taxes related to recent capital investments and higher operating expenses associated primarily with growth initiatives. We closely managed our operating expense increases, given anticipated future interest and other inflationary expense increases. Three Months Ended June 30, Increase 2022 2021 (decrease) (in thousands except per share) Adjusted Gross Margin Regulated Energy segment$ 70,620 $ 66,463 $ 4,157 Unregulated Energy segment 21,762 17,952 3,810 Other businesses and eliminations (28) (34) 6 Total Adjusted Gross Margin$ 92,354 $ 84,381 $ 7,973 Operating Income Regulated Energy segment$ 25,841 $ 22,760 $ 3,081 Unregulated Energy segment 560 (465) 1,025 Other businesses and eliminations 68 283 (215) Total Operating Income 26,469 22,578 3,891 Other income, net 2,584 1,453 1,131 Interest charges 5,825 5,054 771 Income from Before Income Taxes 23,228 18,977 4,251 Income Taxes 6,177 5,164 1,013 Net Income$ 17,051 $ 13,813 $ 3,238
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common Stock
$ 0.18 38
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Key variances between the second quarter of 2022 and the second quarter of 2021,
included:
Pre-tax Net Earnings
(in thousands, except per share data) Income Income Per Share
Second Quarter of 2021 Reported Results $ 18,977 $ 13,813 $ 0.78
Adjusting for Unusual Items:
Gain from sales of assets 1,902 1,396 0.08
1,902 1,396 0.08
Increased (Decreased) Adjusted Gross Margins:
Contributions from acquisitions* 1,657 1,216 0.07
Natural gas transmission service expansions* 1,291 948 0.05
Increased propane margins and fees 1,104 810 0.05
Contributions from regulated infrastructure programs * 1,080 793 0.04
Natural gas growth (excluding service expansions) 938 689 0.04
Increased customer consumption - Inclusive of weather 773 567 0.03
Increased margins related to demand for Marlin Gas Services*
547 402 0.02
Higher operating results from Aspire Energy 203 149 0.01
7,593 5,574 0.31
(Increased) Decreased Operating Expenses (
(2,258) (1,657) (0.09)
Depreciation, amortization and property taxes (1,899) (1,394) (0.08)
Vehicle expenses (407) (299) (0.02)
Customer service related costs (200) (147) (0.01)
Facilities expenses, maintenance costs and outside services 559 410 0.02
Payroll, benefits and other employee-related expenses 343 252 0.01
(3,862) (2,835) (0.17)
Interest charges (771) (566) (0.03)
Net other changes (611) (331) (0.01)
(1,382) (897) (0.04)
Second Quarter of 2022 Reported Results $ 23,228 *See the Major Projects and Initiatives table.
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Our net income for the six months endedJune 30, 2022 was$54.0 million , or$3.04 per share, compared to$48.3 million , or$2.75 per share, for the same period of 2021. Operating income for the six months endedJune 30, 2022 increased by$7.2 million , or 9.7 percent, over the same period in 2021. Higher performance in the first six months of 2022 was generated from propane and natural gas acquisitions completed in 2021, continued pipeline expansion projects, organic growth in our natural gas distribution businesses, incremental contributions associated with regulated infrastructure programs, increased propane margins per gallon and fees and improved performance in our other unregulated businesses. We recorded higher depreciation, amortization and property taxes related to recent capital investments and operating expenses associated primarily with growth initiatives, as well as increased vehicle expenses due to higher fuel costs. Six Months Ended June 30, Increase 2022 2021 (decrease) (in thousands except per share) Adjusted Gross Margin Regulated Energy segment$ 153,068 $ 144,616 $ 8,452 Unregulated Energy segment 65,046 56,728 8,318 Other businesses and eliminations (61) (73) 12 Total Adjusted Gross Margin$ 218,053 $ 201,271 $ 16,782 Operating Income Regulated Energy segment$ 60,539 $ 55,466 $ 5,073 Unregulated Energy segment 20,613 18,575 2,038 Other businesses and eliminations 182 134 48 Total Operating Income 81,334 74,175 7,159 Other income, net 3,498 1,828 1,670 Interest charges 11,164 10,159 1,005 Income from Before Income Taxes 73,668 65,844 7,824 Income Taxes 19,683 17,565 2,118 Net Income$ 53,985 $ 48,279 $ 5,706
Basic Earnings Per Share of Common Stock
Diluted Earnings Per Share of Common Stock
$ 0.29 40
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Key variances between the six months ended
Pre-tax Net Earnings
(in thousands, except per share data) Income Income Per Share
Six Months Ended June 30, 2021 Reported Results $ 65,844 $ 48,279 $ 2.75
Adjusting for Unusual Items:
Gain from sales of assets 1,902 1,394 0.08
1,902 1,394 0.08
Increased (Decreased) Adjusted Gross Margins:
Contributions from acquisitions* 5,882 4,312 0.24
Natural gas transmission service expansions* 2,518 1,846 0.10
Natural gas growth (excluding service expansions) 2,132 1,563 0.09
Contributions from regulated infrastructure programs * 2,004 1,469 0.08
Increased propane margins and fees 1,823 1,336 0.08
Higher operating results from Aspire Energy 1,131 829 0.05
Increased margins related to demand for Marlin Gas Services*
612 448 0.03
Increased customer consumption - Inclusive of weather 337 247 0.01
16,439 12,050 0.68
(Increased) Decreased Operating Expenses (
(4,708) (3,451) (0.19)
Depreciation, amortization and property tax costs (3,436) (2,519) (0.14)
Vehicle expenses (662) (485) (0.03)
Payroll, benefits and other employee-related expenses (503) (369) (0.02)
Facilities expenses, maintenance costs and outside services 615 451 0.03
(8,694) (6,373) (0.35)
Interest charges (1,004) (736) (0.04)
Net other changes (819) (629) (0.05)Change in shares outstanding due to 2021 and 2022 equity offerings
- - (0.03)
(1,823) (1,365) (0.12)
Six Months Ended June 30, 2022 Reported Results $ 73,668 *See the Major Projects and Initiatives table.
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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 adjusted
gross 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.
Adjusted Gross Margin
Three Months Ended Six Months Ended Year Ended Estimate for
June 30, June 30, December 31, Fiscal
in thousands 2022 2021 2022 2021 2021 2022 2023
Pipeline Expansions:
Western Palm Beach County,
Florida Expansion (1) $ 1,307 $ 1,172 $ 2,615 $ 2,340 $ 4,729 $ 5,227 $ 5,227
Del-Mar Energy Pathway (1)
(2) 1,728 921 3,450 1,805 4,584 6,980 6,980
Guernsey Power Station 368 47 631 94 187 1,380 1,486
Southern Expansion - - - - - - 586
Winter Haven Expansion 28 - 61 - - 401 976
Beachside Pipeline Expansion - - - - - - 1,825
North Ocean City Connector - - - - - - 400St. Cloud /Twin Lakes Expansion - - - - - - 584 Total Pipeline Expansions 3,431 2,140 6,757 4,239 9,500 13,988 18,064 CNG/RNG/LNG Transportation and Infrastructure 2,427 1,708 4,660 3,785 7,566 9,500 10,500 Acquisitions: Propane Acquisitions 1,491 - 5,466 - 603 11,300 12,000 Escambia Meter Station 249 83 499 83 583 1,000 1,000 Total Acquisitions 1,740 83 5,965 83 1,186 12,300 13,000 Regulatory Initiatives: Florida GRIP 4,950 4,181 9,802 8,236 16,995 18,797 19,475 Capital Cost Surcharge Programs 497 120 1,014 257 1,199 2,018 1,936 Elkton Gas STRIDE Plan 66 - 140 - 26 241 354 Florida Rate Case Proceeding(3) - - - - - TBD TBD Total Regulatory Initiatives 5,513 4,301 10,956 8,493 18,220 21,056 21,765 Total$ 13,111 $ 8,232 $ 28,338 $ 16,600 $ 36,472 $ 56,844 $ 63,329
(1) Includes adjusted gross margin generated from interim services. (2) Includes adjusted gross margin from natural gas distribution services. (3) Subject to approval from the Florida PSC.
Detailed Discussion of Major Projects and Initiatives
Pipeline Expansions
WestPalm Beach County, Florida Expansion Peninsula Pipeline has constructed 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 with multiple phases placed into service leading up to the project's final completion in the fourth quarter of 2021. The project generated incremental adjusted gross margin for the three and six months endedJune 30, 2022 of$0.1 million and$0.3 million , respectively, compared to 2021. We estimate that the project will generate annual adjusted gross margin of$5.2 million in 2022 and beyond. 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. The project was placed into service in the fourth quarter of 2021. The new facilities: (i) include an additional 14,300 Dts/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 . Including interim services in advance of completion, the project generated additional adjusted gross margin for the three and six months endedJune 30, 2022 of$0.8 million and$1.6 million , respectively. The estimated annual adjusted gross margin from this project, including natural gas distribution service inSomerset County, Maryland , is approximately$7.0 million in 2022 and beyond.Guernsey Power Station Guernsey Power Station and the Company's affiliate, Aspire Energy Express, entered into a precedent agreement for firm transportation capacity 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 . Aspire Energy Express completed construction of the gas transmission facilities in the fourth quarter of 2021. This project added$0.3 million and$0.5 million of adjusted gross margin for the three and six months endedJune 30, 2022 , respectively, and is expected to produce adjusted gross margin of approximately$1.4 million in 2022 and$1.5 million in 2023 and beyond. Southern Expansion PendingFERC authorization,Eastern Shore plans to install a new natural gas driven compressor skid unit at its existingBridgeville, Delaware compressor station that will provide 7,300 Dts of incremental firm transportation pipeline capacity. The project is currently estimated to go into service in the fourth quarter of 2023.Eastern Shore expects the Southern Expansion project to generate annual adjusted gross margin of$0.6 million in 2023 and annual adjusted gross margin of$2.3 million in 2024 and thereafter. 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. The additional firm service will be used 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 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 be in service in the third quarter of 2022 and expect to generate adjusted gross margin of$0.4 million in 2022 once complete and$1.0 million in 2023 and thereafter. 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 theIntercoastal Waterway and southward on the barrier island. Construction is underway and is expected to be complete in the second quarter of 2023. We expect this extension to generate additional annual adjusted gross margin of$1.8 million in 2023 and$2.5 million thereafter. North Ocean City Connector During the second quarter, we began construction of an extension of service intoNorth Ocean City, Maryland . OurDelaware natural gas division and Sandpiper plan to install approximately 5.7 miles of pipeline across southernSussex County, Delaware toFenwick Island, Delaware andWorcester County, Maryland . The project will produce additional capacity to serve new customers and reinforce our existing system inOcean City, Maryland . We expect this expansion to generate additional annual adjusted gross margin of$0.4 million in 2023 and beyond, with additional margin opportunities from incremental growth.St.Cloud / Twin Lakes Expansion InJuly 2022 , Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 2,400 Dt/day of firm service in theSt. Cloud, Florida area. As part of this agreement, Peninsula Pipeline will construct a pipeline extension and regulator station for FPU. The extension will be used to support new incremental load due to growth in the area, including providing service, most immediately, to the residential developmentTwin Lakes . The expansion will also improve reliability and operational benefits to FPU's existing distribution system in the area, supporting future growth in the area. We expect this expansion to be in service in the first quarter of 2023 and generate adjusted gross margin of$0.6 million in 2023 and thereafter. 43
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CNG/RNG/LNG Transportation and Infrastructure
We have made a commitment to meet customer demand for CNG, RNG and LNG in the markets we serve. This has included making investments withinMarlin Gas Services to be able to transport these products through its virtual pipeline fleet to customers.To date, we have also made an infrastructure investment inOhio , enabling RNG to fuel a third party landfill fleet and to transport RNG to end use customers off our pipeline system. Similarly, we announced inMarch 2022 , the opening of a high-capacity CNG truck and tube trailer fueling station inPort Wentworth, Georgia . As one of the largest public access CNG stations on theEast Coast , it will offer a RNG option to customers in the near future. We constructed the station in partnership withAtlanta Gas Light , a subsidiary ofSouthern Company Gas . In 2020,Atlanta Gas Light announced thatChesapeake Utilities would be constructing, maintaining the station and ensuring access to CNG and RNG for the many customers expected to fuel at the station. We are also involved in various other projects, all at various stages and all with different opportunities to participate across the energy value chain. In many of these projects, Marlin will play a key role in ensuring the RNG is transported to one of our many pipeline systems where it will be injected. Accordingly, given the overlapping role of Marlin in many of these projects, we have combined our transportation services and infrastructure adjusted gross margin discussion into one section. For the three and six months endedJune 30, 2022 , the Company generated$0.7 million and$0.9 million in additional adjusted gross margin associated with the transportation of CNG and RNG by Marlin's virtual pipeline and Aspire Energy's Noble Road RNG pipeline. The Company estimates annual adjusted gross margin of approximately$9.5 million in 2022, and$10.5 million in 2023 for these transportation related services, with potential for additional growth in future years. Discussed below are some of the recently completed projects as well as a sample of the growth projects in which we are currently involved. As new projects are solidified, we will provide additional detail on those projects at that time.Noble Road Landfill RNG Project InOctober 2021 , Aspire Energy completed construction of its Noble Road Landfill RNG pipeline project, a 33.1-mile pipeline, which transports RNG generated from the Noble Road landfill to Aspire Energy's pipeline system, displacing conventionally produced natural gas. In conjunction with this expansion, Aspire Energy also upgraded an existing compressor station and installed two new metering and regulation sites. The RNG volume is expected to represent nearly 10 percent of Aspire Energy's gas gathering volumes. 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. Acquisitions Propane Acquisitions OnDecember 15, 2021 , Sharp Energy acquired the propane operating assets of Diversified Energy for approximately$37.5 million net of cash acquired. There are multiple strategic benefits to this acquisition including it: (i) expanded the Company's propane territory intoNorth Carolina andSouth Carolina while also expanding our existing footprint inPennsylvania andVirginia , and (ii) included an established customer base with opportunities for future growth. Through this acquisition, the Company added approximately 19,000 residential, commercial and agricultural customers, along with distribution of approximately 10.0 million gallons of propane annually. 44
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OnJune 13, 2022 , Sharp acquired the propane operating assets ofDavenport Energy'sSiler City propane division for approximately$2.0 million . Through this acquisition, the Company expands its operating footprint further intoNorth Carolina , where customers will be served by Sharp Energy's Diversified Energy division. The acquisition adds approximately 850 customers and distribution of approximately 406,000 gallons of propane annually to Sharp Energy's territory. For the three and six months endedJune 30, 2022 , these acquisitions contributed$1.5 million and$5.5 million , respectively, in adjusted gross margin and are expected to generate$11.3 million of additional adjusted gross margin in 2022 and$12.0 million in 2023.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 . The Company generated$0.2 million and$0.4 million , respectively, in additional adjusted gross margin for the three and six months endedJune 30, 2022 and estimates that this acquisition will generate adjusted gross margin of approximately$1.0 million in 2022 and beyond.
Regulatory Initiatives
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 , the Company has invested$198.7 million of capital expenditures to replace 351 miles of qualifying distribution mains, including$9.2 million of new pipes during the first six month of 2022. GRIP generated additional gross margin of$0.8 million and$1.6 million , respectively, for the three and six months endedJune 30, 2022 compared to 2021. We are currently projecting to complete this program in 2022 and expect to generate adjusted gross margin of$18.8 million and$19.5 million in 2022 and 2023, respectively. The adjusted gross margin on GRIP investments will continue to be generated as we have included the investments, and the associated expenses, in the base rate proceeding that was filed inMay 2022 . Capital Cost Surcharge Programs InDecember 2019 , theFERC approvedEastern Shore 's capital cost surcharge to become 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. For the three and six months endedJune 30, 2022 , there was$0.4 million and$0.8 million , respectively, of adjusted gross margin generated pursuant to the program.Eastern Shore expects to produce adjusted gross margin of approximately$2.0 million in 2022 and$1.9 million in 2023 from relocation projects, which is ultimately dependent upon the timing of filings and the completion of construction. Elkton Gas STRIDE Plan InJune 2021 , we reached a settlement with the Maryland PSC Staff and theMaryland Office of the Peoples Counsel regarding a five-year plan to replace Aldyl-A pipelines and recover the associated costs of those replacements through a fixed charge rider.The STRIDE plan went into service inSeptember 2021 and is expected to generate$0.2 million of adjusted gross margin 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 allows 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. The Company'sFlorida regulated business units reached a settlement with the Florida OPC inJune 2021 . The settlement allowed 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 are amortizing the amount over two years effectiveJanuary 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 adjusted gross margin of$1.0 million that will be offset by a corresponding amortization of regulatory asset expense for both 2022 and 2023. 45
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Florida Natural Gas Base Rate Proceeding InMay 2022 , our natural gas distribution businesses inFlorida , FPU, FPU-Indiantown division, FPU-Fort Meade division and Chesapeake Utilities CFG division (collectively, "Florida natural gas distribution businesses") filed a consolidated natural gas rate case with the Florida PSC. In connection with the application, the Company is seeking approval of the following: (i) interim rate relief of approximately$7.2 million on an annualized basis, subject to refund, pending the outcome of the rate case proceeding; (ii) a permanent rate relief of approximately$24.1 million , effectiveJanuary 1, 2023 , (iii) a depreciation study also submitted with filing; (iv) authorization to make certain changes to tariffs to include the consolidation of rates and rate structure across the businesses and to unify theFlorida natural gas distribution businesses under FPU; (v) authorization to retain acquisition adjustment in the revenue requirement; and (vi) authorization to establish an environmental remediation surcharge for the purposes of addressing future expected remediation costs for manufactured gas plant sites. InAugust 2022 , interim rates were approved by the Florida PSC in the amount of approximately$7.7 million on an annualized basis, effective for all meter readings inSeptember 2022 . The interim rates are subject to refund pending the final outcome of the rate case proceeding. The discovery process has commenced and hearing for the proceeding has been scheduled forOctober 2022 . The outcome of the application is subject to review and approval by the Florida PSC. Storm Protection Plan In 2020, the Florida PSC implemented the SPP and SPPCR rules, which require electric utilities to petition the Florida PSC for approval of a Transmission and Distribution Storm Protection Plan that covers the utility's immediate 10-year planning period with updates to the plan at least every 3 years. The SPPCR rules allow the utility to file for recovery of associated costs related to its SPP. The Company's SPP plan was filed inApril 2022 , with hearings scheduled for earlyAugust 2022 . The SPPCRC was filed inMay 2022 with requested rates effectiveJanuary 1, 2023 . The SPPCRC hearing is scheduled forNovember 2022 .
Other major factors influencing adjusted gross margin
Weather Impact
Weather was not a significant factor during the second quarter and the first
half of 2022. The following table summarizes HDD and CDD variances from the
10-year average HDD/CDD ("Normal") for the three and six months ended June 30,
2022 and 2021.
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 Variance 2022 2021 Variance
Delmarva Peninsula
Actual HDD 394 400 (6) 2,575 2,586 (11)
10-Year Average HDD
("Normal") 412 396 16 2,667 2,676 (9)
Variance from Normal (18) 4 (92) (90)
Florida
Actual HDD 37 69 (32) 534 572 (38)
10-Year Average HDD
("Normal") 45 43 2 542 549 (7)
Variance from Normal (8) 26 (8) 23
Ohio
Actual HDD 604 676 (72) 3,530 3,448 82
10-Year Average HDD
("Normal") 630 623 7 3,542 3,582 (40)
Variance from Normal (26) 53 (12) (134)
Florida
Actual CDD 988 826 162 1,183 1,010 173
10-Year Average CDD
("Normal") 945 966 (21) 1,142 1,161 (19)
Variance from Normal 43 (140) 41 (151)
Natural Gas Distribution Adjusted Gross 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 $0.9 million and $2.1 million of
additional adjusted gross margin for the three and six months ended June 30,
2022 . The average number of residential customers served on the
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Delmarva Peninsula increased by 5.7 percent and 5.5 percent for the three and six months endedJune 30, 2022 , whileFlorida customers increased by 4.1 percent for both the three and six month periods. A larger percentage of the adjusted gross margin growth was generated from residential growth given the expansion of natural gas into new housing communities and conversions to natural gas as our distribution infrastructure continues to build out. We anticipate continued customer growth, as new communities continue to build out due to population growth and additional infrastructure is added to support the growth. The details for the three and six months endedJune 30, 2022 are provided in the following table: Three Months Ended Six Months Ended June 30, 2022 June 30, 2022 (in thousands) Delmarva Peninsula Florida Delmarva Peninsula Florida Customer Growth: Residential$ 552 $ 223 $ 1,256 $ 494 Commercial and industrial 68 95 159 223 Total Customer Growth$ 620 $ 318 $ 1,415 $ 717 Regulated Energy Segment For the quarter endedJune 30, 2022 , compared to the quarter endedJune 30, 2021 : Three Months Ended June 30, Increase 2022 2021 (decrease) (in thousands) Revenue$ 92,193 $ 80,910 $ 11,283 Regulated natural gas and electric costs 21,573 14,447
7,126
Adjusted gross margin (1) 70,620 66,463
4,157
Operations & maintenance 26,489 26,930
(441)
Depreciation & amortization 13,140 11,830
1,310
Other taxes 5,150 4,943
207
Total operating expenses 44,779 43,703 1,076 Operating income$ 25,841 $ 22,760 $ 3,081 (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. Operating income for the Regulated Energy segment for the second quarter of 2022 was$25.8 million , an increase of$3.1 million , or 13.5 percent, over the same period in 2021. Higher operating income reflects continued pipeline expansions byEastern Shore , Peninsula Pipeline and Aspire Energy Express, incremental contributions from regulated infrastructure programs, organic growth in our natural gas distribution businesses, increased customer consumption, and operating results from theEscambia Meter Station acquisition completed in 2021. Operating expenses increased by$1.1 million compared to the prior year quarter due to higher depreciation, amortization and property taxes and increased vehicle expense resulting from higher fuel costs. The increase was partially offset by reductions in various areas including facilities, maintenance and outside services costs, as well as a lower level of payroll and benefits expenses.
Items contributing to the quarter-over-quarter increase in adjusted gross margin are listed in the following table:
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(in thousands) Natural gas transmission service expansions$ 1,291
Contributions from regulated infrastructure programs 1,080 Natural gas growth (excluding service expansions)
938
Changes in customer consumption 636
Escambia Meter Station acquisition 166
Other variances 46
Quarter-over-quarter increase in adjusted gross margin
The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Natural Gas Transmission Service Expansions
We generated increased adjusted gross margin of
Contributions from Regulated Infrastructure Programs Contributions from regulated infrastructure programs generated incremental adjusted gross margin of$1.1 million in the second quarter of 2022. The increase in adjusted gross margin was primarily related to continued investment in the Florida GRIP,Eastern Shore 's capital surcharge program and theElkton Gas STRIDE Plan. Refer to Note 5, Rates and Other Regulatory Activities, in the condensed consolidated financial statements for additional information. Natural Gas Distribution Customer Growth We generated additional adjusted gross margin of$0.9 million from natural gas customer growth. Adjusted gross margin increased by$0.3 million inFlorida and$0.6 million on theDelmarva Peninsula for the three months endedJune 30, 2022 , as compared to the same period in 2021, due primarily to residential customer growth of 4.1 percent and 5.7 percent inFlorida and on theDelmarva Peninsula , respectively. Changes in Customer Consumption Increased customer consumption contributed additional adjusted gross margin of$0.6 million in the second quarter of 2022.
Acquisitions
Adjusted gross margin increased by
Operating Expenses
Items contributing to the quarter-over-quarter increase in operating expenses
are listed in the following table:
(in thousands)
Depreciation, amortization and property taxes $ 1,643
Vehicle expenses 207
Facilities maintenance costs and outside services (635)
Payroll, benefits and other employee related costs (506)
Other variances 367
Quarter-over-quarter increase in operating expenses $ 1,076 For the six months ended
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Six Months Ended
June 30, Increase
2022 2021 (decrease)
(in thousands)
Revenue $ 220,084 $ 202,107 $ 17,977
Regulated natural gas and electric costs 67,016 57,491 9,525
Adjusted gross margin (1) 153,068 144,616
8,452
Operations & maintenance 55,621 55,093
528
Depreciation & amortization 26,225 23,860
2,365
Other taxes 10,683 10,197
486
Total operating expenses 92,529 89,150 3,379 Operating income$ 60,539 $ 55,466 $ 5,073 (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. Operating income for the Regulated Energy segment for the six months endedJune 30, 2022 was$60.5 million , an increase of$5.1 million , or 9.1 percent, over the same period in 2021. Higher operating income reflects continued pipeline expansions byEastern Shore , Peninsula Pipeline and Aspire Energy Express, organic growth in our natural gas distribution businesses, incremental contributions from regulated infrastructure programs, increased customer consumption, and operating results from theEscambia Meter Station acquisition completed in 2021. Operating expenses increased by$3.4 million compared to the prior year due to higher depreciation, amortization and property taxes, payroll, benefits and other employee related expenses.
Items contributing to the period-over-period increase in adjusted gross margin are listed in the following table:
(in thousands) Natural gas transmission service expansions$ 2,518
Natural gas growth (excluding service expansions) 2,132 Contributions from regulated infrastructure programs 2,004 Changes in customer consumption
449
Escambia Meter Station acquisition 416
Other variances 933
Period-over-period increase in adjusted gross margin
The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Natural Gas Transmission Service Expansions We generated increased adjusted gross margin of$2.5 million for the six months endedJune 30, 2022 from natural gas transmission service expansions including, Peninsula Pipeline'sWestern Palm Beach County project,Eastern Shore 's Del-Mar Energy Pathway project and the Guernsey pipeline expansion. Natural Gas Distribution Customer Growth We generated additional adjusted gross margin of$2.1 million from natural gas customer growth. Adjusted gross margin increased by$0.7 million inFlorida and$1.4 million on theDelmarva Peninsula for the six months endedJune 30, 2022 , as compared to the same period in 2021, due primarily to residential customer growth of 4.1 percent and 5.5 percent inFlorida and on theDelmarva Peninsula , respectively. Contributions from Regulated Infrastructure Programs Contributions from regulated infrastructure programs generated incremental adjusted gross margin of$2.0 million for the six months endedJune 30, 2022 . The increase in adjusted gross margin was primarily related to continued investment in the Florida GRIP,Eastern Shore 's capital surcharge program and the Elkton Gas STRIDE Plan. Refer to Note 5, Rates and Other Regulatory Activities, in the condensed consolidated financial statements for additional information.
Changes in Customer Consumption
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Increased customer consumption contributed additional adjusted gross margin of
Acquisitions
Adjusted gross margin increased by
Operating Expenses
Items contributing to the period-over-period increase in operating expenses are listed in the following table:
(in thousands)
Depreciation, amortization and property taxes $ 2,977
Customer service related costs 414
Payroll, benefits and other employee-related expenses 188
Other variances (200)
Period-over-period increase in operating expenses $ 3,379
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Unregulated Energy Segment
For the quarter endedJune 30, 2022 , compared to the quarter endedJune 30, 2021 : Three Months Ended June 30, Increase 2022 2021 (decrease) (in thousands) Revenue$ 53,463 $ 34,773 $ 18,690 Unregulated propane and natural gas costs 31,701 16,821 14,880 Adjusted gross margin (1) 21,762 17,952 3,810 Operations & maintenance 16,127 14,037 2,090 Depreciation & amortization 4,074 3,456
618
Other taxes 1,001 924 77 Total operating expenses 21,202 18,417
2,785
Operating Income (loss)$ 560 $ (465)
(1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. Operating results for the Unregulated Energy segment for the second quarter of 2022 increased by$1.0 million compared to the same period in 2021. The operating results for this segment typically are impacted by seasonal variances, with the first and fourth quarters generating a significantly larger portion of adjusted gross margin as a result of colder temperatures generally contributing to higher customer demand. Operating results for the second and third quarters historically have been lower due to reduced customer demand during the warmer periods of the year. The impact to operating income may not align with the seasonal variations as many of the operating expenses are recognized ratably over the course of the year. Higher operating results during the second quarter were driven by contributions from the acquisition of Diversified Energy, increased propane margins including higher service fees, increased demand for CNG from Marlin Gas Services and margin improvement from Aspire Energy. Additionally, we experienced increased operating expenses associated with the acquisition of Diversified Energy as well as depreciation, amortization and property taxes and increased vehicle expenses due to rising fuel costs.
Items contributing to the quarter-over-quarter increase in adjusted gross margin are listed in the following table:
(in thousands) Propane Operations Diversified Energy acquisition (completed inDecember 2021 ) $
1,491
Increased propane margins and service fees
1,104
Marlin Gas Services Increased demand for CNG services
547
Aspire Energy Increased margins - rate changes and natural gas liquid processing 203 Other variances
465
Quarter-over-quarter increase in adjusted gross margin $
3,810
The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Propane Operations
•Acquisition of Diversified Energy - Adjusted gross margin increased by
•Increased Retail Propane Margins and Service Fees - Adjusted gross margin increased by$1.1 million for the three months endedJune 30, 2022 , mainly due to increased customer service fees. Propane margins also increased due to gains with our SWAP agreements. These market conditions, which include market pricing and competition with other 51
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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.
Marlin Gas Services
•Increased demand for CNG services - Adjusted gross margin increased by$0.5 million during the second quarter as compared to the same period in the prior year due to higher demand for CNG hold services. Aspire Energy •Increased Margins - Adjusted gross margin increased by$0.2 million during the second quarter of 2022 over the same period in 2021, including rate changes and improvements from natural gas liquid processing.
Operating Expenses
Items contributing to the quarter-over-quarter increase in operating expenses are listed in the following table:
(in thousands)
Operating expenses from the Diversified Energy acquisition
199
Other variances 64
Quarter-over-quarter increase in operating expenses $ 2,785
Diversified Energy's operating results reflected lower adjusted gross margins
during the second quarter of 2022 which is in line with the seasonality
typically experienced during the second and third quarters by our legacy propane
distribution businesses.
For the six months ended June 30, 2022 , compared to the six months ended
June 30, 2021 :
Six Months Ended
June 30, Increase
2022 2021 (decrease)
(in thousands)
Revenue $ 154,754 $ 109,532 $ 45,222
Unregulated propane and natural gas costs 89,708 52,804 36,904
Adjusted gross margin (1) 65,046 56,728 8,318
Operations & maintenance 34,211 29,263 4,948
Depreciation & amortization 7,954 6,780 1,174
Other taxes 2,268 2,110
158
Total operating expenses 44,433 38,153 6,280 Operating Income$ 20,613 $ 18,575 $ 2,038 (1) Adjusted Gross Margin is a non-GAAP measure utilized by Management to review business unit performance. For a more detailed discussion on the differences between Gross Margin (GAAP) and Adjusted Gross Margin, see the Reconciliation of GAAP to Non-GAAP Measures presented above. Operating results for the Unregulated Energy segment for the for the six months endedJune 30, 2022 increased by$2.0 million or, 11.0 percent compared to the same period in 2021. Higher operating results during the first half of 2022 were driven by contributions from the acquisition of Diversified Energy, increased propane margins including higher service fees margin, increased demand for CNG from Marlin Gas Services and margin improvement from Aspire Energy. These increases were partially offset by reduced consumption in our propane operations. Additionally, we experienced increased operating expenses associated with the acquisition of Diversified Energy as well as increased payroll, benefits and employee related expenses, depreciation, amortization and property taxes, and increased vehicle expenses due to rising fuel costs. 52
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Items contributing to the period-over-period increase in adjusted gross margin are listed in the following table:
(in thousands) Propane Operations Diversified Energy acquisition (completed in December 2021)$ 5,466 Increased propane margins and service fees 1,823
Decreased customer consumption - intra-quarter weather volatility
(577)
Decreased customer consumption due to conversion of customers to our natural gas system
(478)
Marlin Gas Services
Increased demand for CNG services 612
Aspire Energy
Increased margins - rate changes and natural gas liquid processing 1,131
Increased customer consumption - primarily weather related 465
Other variances (124)
Period-over-period increase in adjusted gross margin The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.
Propane Operations
•Acquisition of Diversified Energy - Adjusted gross margin increased by
•Increased Retail Propane Margins and Service Fees - Adjusted gross margin increased by$1.8 million for the six months endedJune 30, 2022 , mainly due to increased customer service fees. Propane margins also increased due to gains with our SWAP agreements. These market conditions, which include market pricing and competition with other propane suppliers, as well as the availability and price of alternative energy sources, may fluctuate based on changes in demand, supply and other energy commodity prices. •Decreased Customer Consumption due to weather - Adjusted gross margin decreased by$0.6 million due to reduced customer consumption during the first quarter of 2022 compared to the same period in 2021 due to intra-quarter weather volatility. •Decreased customer consumption due to conversion of customers to natural gas - Adjusted gross margin decreased by$0.5 million as more customers converted from propane to natural gas. Marlin Gas Services •Increased demand for CNG services - Adjusted gross margin increased by$0.6 million during the second quarter as compared to the same period in the prior year due to higher demand for CNG hold services. Aspire Energy •Increased Margins - Adjusted gross margin increased by$1.1 million during the second quarter of 2022 over the same period in 2021, including rate changes and improvements from natural gas liquid processing. •Increased Customer Consumption Primarily Weather Related - Adjusted gross margin increased by$0.5 million due to higher consumption of gas as weather inOhio was approximately 2 percent colder for the six months endedJune 30, 2022 over the same period in 2021. Operating Expenses
Items contributing to the period-over-period increase in operating expenses are listed in the following table:
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(in thousands)
Operating expenses from the Diversified Energy acquisition
476
Increased vehicle expenses due to higher fuel costs 385
Other variances 104
Period-over-period increase in operating expenses $ 6,280
OTHER INCOME, NET
For the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021
Other income, net, which includes non-operating investment income, interest
income, late fees charged to customers, gains or losses from the sale of assets
and pension and other benefits expense, increased by $1.1 million in the second
quarter of 2022, compared to the same period in 2021. The increase was primarily
due to gains recognized on the sale of assets.
For the six months ended June 30, 2022 compared to the six months ended June 30,
2021
Other income, net, which includes non-operating investment income, interest
income, late fees charged to customers, gains or losses from the sale of assets
and pension and other benefits expense, increased by $1.7 million in the six
months of 2022, compared to the same period in 2021. The increase was primarily
due to gains recognized on the sale of assets.
INTEREST CHARGES
For the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021
Interest charges for the three months ended June 30, 2022 increased by $0.8
million , compared to the same period in 2021, attributable primarily to an
increase of $0.6 million in interest expense as a result of a long-term debt
placement in 2022, $0.1 million due to lower capitalized interest associated
with growth projects, $0.1 million related to amounts assessed by state and
local taxing authorities, and $0.1 million of an amortization credit/increase in
interest expense associated with a regulatory liability that was established in
connection with the Hurricane Michael regulatory proceeding settlement in 2020.
Partially offsetting the interest charges was a $0.1 million decrease in lower
interest expense from lower levels of outstanding borrowings under our Revolver.
During the second quarter of 2022, the interest rate associated with our
Revolver increased by 1.22 percent as a result of Federal Reserve raising
interest rates. Any additional increases in interest rates by the Federal
Reserve would have a corresponding increase in the interest rates charged under
our Revolver.
For the six months ended June 30, 2022 compared to the six months ended June 30,
2021
Interest charges for the six months ended June 30, 2022 increased by $1.0
million , compared to the same period in 2021, attributable primarily to an
increase of $0.9 million in interest expense as a result of a long-term debt
placement in 2022, $0.2 million due to lower capitalized interest associated
with growth projects, $0.1 million related to amounts assessed by state and
local taxing authorities, and $0.1 million of an amortization credit/increase in
interest expense associated with a regulatory liability that was established in
connection with the Hurricane Michael regulatory proceeding settlement in 2020.
Partially offsetting the interest charges was a $0.3 million decrease in lower
interest expense from lower levels of outstanding borrowings under our Revolver.
During the first six months of 2022, the interest rate associated with our
Revolver increased by 1.56 percent as a result of Federal Reserve raising
interest rates. Any additional increases in interest rates by the Federal
Reserve would have a corresponding increase in the interest rates charged under
our Revolver.
INCOME TAXES
For the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021
Income tax expense was $6.2 million for the quarter ended June 30, 2022 ,
compared to $5.2 million for the quarter ended June 30, 2021 . Our effective
income tax rate was 26.6 percent and 27.2 percent, for the three months ended
June 30, 2022 and 2021, respectively.
For the six months ended June 30, 2022 compared to the six months ended June 30,
2021
Income tax expense was $19.7 million for the six months ended June 30, 2022 ,
compared to $17.6 million for the six months ended June 30, 2021 . Our effective
income tax rate was 26.7 percent for both the six months ended June 30, 2022 and
2021, respectively.
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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. 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$61.0 million for the six months endedJune 30, 2022 . In the table below, we have provided an updated range of our forecasted capital expenditures for 2022: 2022 (dollars in thousands) Low High Regulated Energy: Natural gas distribution$ 72,000 $
81,000
Natural gas transmission 32,000 36,000
Electric distribution 7,000 12,000
Total Regulated Energy 111,000 129,000
Unregulated Energy:
Propane distribution 10,000 14,000
Energy transmission 7,000 10,000
Other unregulated energy 10,000 18,000
Total Unregulated Energy 27,000 42,000
Other:
Corporate and other businesses 2,000 4,000
Total Other 2,000 4,000
Total 2022 Forecasted Capital Expenditures
The 2022 forecast, excluding acquisitions, includes capital expenditures associated with the following: Pipeline expansions related to theEastern Shore Southern Expansion project and the Florida Beachside Pipeline as well as amounts for the expansion intoSomerset County, Maryland . Furthermore, the 2022 forecast includes continued expenditures under the Florida GRIP, the capital cost surcharge program and the Elkton Gas STRIDE program as well as further expansion of our natural gas distribution and transmission systems, information technology systems, and other strategic initiatives and investments. The capital expenditure projection is subject to continuous review and modification. During the first half of 2022, the Company experienced a reduced level of new capital investments due to regulatory delays and supply chain disruptions. As a result, the Company is decreasing its capital expenditure guidance range to$140 million to$175 million for 2022. The Company expects these delays in timing to be temporary.Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, supply chain disruptions, capital delays that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital. 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 of
June 30, 2022 December 31, 2021
(in thousands)
Long-term debt, net of current maturities $ 585,805 42 % $ 549,903 42 %
Stockholders' equity 815,701 58 % 774,130 58 %
Total capitalization, excluding short-term debt $ 1,401,506 100 % $ 1,324,033 100 %
June 30, 2022 December 31, 2021
(in thousands)
Short-term debt $ 137,024 9 % $ 221,634 14 %
Long-term debt, including current maturities 607,277 39 % 567,865 36 %
Stockholders' equity 815,701 52 % 774,130 50 %
Total capitalization, including short-term debt $ 1,560,002 100 % $ 1,563,629 100 %
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 of June 30, 2022 . 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 2022, we issued less than 0.1 million shares at an average price per share of
$137.24 and received net proceeds of $4.3 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.
Shelf Agreements
We have entered into Shelf Agreements with Prudential and MetLife, whom are
under no obligation to purchase any unsecured debt. The following table
summarizes our Shelf Agreements at
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 (50,000) - 100,000
Total Shelf Agreements as of March 31,
2022 $ 520,000 $ (270,000) $ - $ 250,000 (1) The Prudential and MetLife 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$400.0 million of short-term debt, as required. AtJune 30, 2022 andDecember 31, 2021 , we had$137.0 million and$221.6 million , respectively, of short-term borrowings outstanding at a weighted average interest rate of 2.38 percent and 0.83 percent respectively. InAugust 2021 we amended and restated our Revolver into a multi-tranche facility totaling$400.0 million with multiple participating lenders. The two tranches of the facility consist of one$200.0 million 364-day short-term debt tranche and a$200.0 million five-year tranche, both of which have three one-year extension options, which can be authorized by the Chief Financial Officer. We are eligible to establish the repayment term for individual borrowings under the five year tranche of the facility and to the extent that an individual loan under the revolver exceeded 12 months, the outstanding balance would be classified as a component of long-term debt. 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, 2022 , we are in compliance with this covenant. The 364-day tranche of the Revolver expires inAugust 2022 and the five-year tranche expires inAugust 2026 . Both tranches are available to fund our short-term cash needs to meet seasonal working capital requirements and to temporarily fund portions of our capital expenditures. Borrowings under both tranches of 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 total indebtedness to total capitalization ratio. As ofJune 30, 2022 , the pricing under the 364-day tranche of the Revolver does not include an unused commitment fee and maintains an interest rate of 0.70 percent over LIBOR. As ofJune 30, 2022 , the pricing under the five-year tranche of the Revolver included an unused commitment fee of 0.09 percent and an interest rate of 0.95 percent over LIBOR. We are currently in discussions with the various lending institutions regarding the renewal of the 364-day tranche. At that time, the reference interest rate for the 364-day and five-year tranche will transition from LIBOR which is being retired by financial institutions to the Standard Overnight Financing Rate ("SOFR"). We do not expect this transition to have a material impact on our financial condition. Our total available credit under the Revolver atJune 30, 2022 was$257.7 million . As ofJune 30, 2022 , we had issued$5.3 million in letters of credit to various counterparties under the syndicated Revolvers. 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 two$30.0 million interest rate swaps with a total notional amount of$60.0 million throughDecember 2021 with pricing of 0.205 and 0.20 percent, respectively. 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. AtDecember 31, 2021 , all of our interest rate swaps had expired and we have not entered into any new derivative contracts associated with our outstanding short-term borrowings.
Long-Term Debt
OnMarch 15, 2022 we issued 2.95 percent Senior Notes dueMarch 15, 2042 to MetLife in the aggregate principal amount of$50 million . We used the proceeds received from the issuances of the Senior Notes to reduce short-term borrowings under our Revolver and to fund capital expenditures. These Senior Notes have similar covenants and default provisions as the existing senior notes, and have an annual principal payment beginning in the eleventh year after the issuance. 57
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The following table provides a summary of our operating, investing and financing
cash flows for the six months ended
Six Months Ended
June 30,
(in thousands) 2022 2021
Net cash provided by (used in):
Operating activities $ 123,795 $ 134,216
Investing activities (64,167) (104,529)
Financing activities (60,418) (28,175)
Net increase in cash and cash equivalents (790) 1,512
Cash and cash equivalents-beginning of period 4,976 3,499 Cash and cash equivalents-end of period
$ 4,186 $ 5,011
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. Working capital requirements are determined by a variety of factors, including weather, the prices of natural gas, electricity and propane, the timing of customer collections, payments for purchases of natural gas, electricity and propane, and deferred fuel cost recoveries. During the six months endedJune 30, 2022 , net cash provided by operating activities was$123.8 million . Operating cash flows were primarily impacted by the following: •Net income, adjusted for non-cash adjustments, provided a$92.0 million source of cash; •An increased level of deferred taxes associated with incremental tax depreciation from growth investments resulted in a source of cash of$11.4 million ; •Changes in net regulatory assets and liabilities due primarily to the change in fuel costs collected through the various cost recovery mechanisms resulted in a$6.4 million outflow of cash; •Other working capital changes, impacted primarily by propane inventory purchases and hedging activities, resulted in a$21.7 million use of cash; and •A decrease in income tax receivables increased cash inflows by$5.1 million .
Cash Flows Used in Investing Activities
Net cash used in investing activities totaled
Cash Flows Used in Financing Activities
Net cash used in financing activities totaled$60.4 million during the six months endedJune 30, 2022 . Net cash used in financing activities: •Repayments under lines of credit resulted in a use of cash of$83.4 million ; •Net increase in long-term debt borrowings resulted in a source of cash of$39.4 million to permanently finance investment in growth initiatives,$49.9 million , offset by long-term repayments of$10.5 million ; •Source of cash of$4.3 million from issuance of stock under the DRIP; and •A use of cash of$16.6 million for dividend payments in 2022.
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, 2022 was$20.0 million . The aggregate amount guaranteed related to our subsidiaries atJune 30, 2022 was$11.4 million , with the guarantees expiring on various dates throughMay 22, 2023 . In addition, the Board has authorized us to issue specific 58
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purpose corporate guarantees. The amount of specific purpose guarantees outstanding atJune 30, 2022 was$2.0 million . InJuly 2022 , in connection with theFlorida rate case, we entered into a guarantee in the amount of$7.1 million with the Florida PSC. As ofJune 30, 2022 , we have issued letters of credit totaling approximately$5.3 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 25, 2022 . We have not drawn upon these letters of credit as ofJune 30, 2022 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 2021 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, 2022 : 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) $ 45,935$ 40,058 $ - $ -$ 85,993 Total $ 45,935$ 40,058 $ - $ -$ 85,993 (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 inDelaware ,Maryland andFlorida and electric distribution operation inFlorida are subject to regulation by the respective state PSC;Eastern Shore is subject to regulation by theFERC ; and Peninsula Pipeline and Aspire Energy Express, our intrastate pipeline subsidiaries, are subject to regulation (excluding cost of service) by theFlorida PSC and Public Utilities Commission of Ohio , respectively. We regularly are involved in regulatory matters in each of the jurisdictions in which we operate. Our significant regulatory matters are fully described in Note 5, Rates and Other Regulatory Activities, to the condensed consolidated financial statements in this Quarterly Report on Form 10-Q.
Recent Authoritative Pronouncements on Financial Reporting and Accounting
Recent accounting developments, applicable to us, and their 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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