UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549




	~~FORM 10-Q~~



☒FORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: March 31, ~~2020~~2021



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-11590




CHESAPEAKE UTILITIES CORPORATION (Exact name of registrant as specified in its charter)



Delaware						51-0064146
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

909 Silver Lake Boulevard,, Dover,, Delaware19904

(Address of principal executive offices, including Zip Code)

(~~302~~) (302) 734-6799

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock - par value per share $0.4867	CPK	New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

~~Table of Contents~~

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

~~Large accelerated filer~~

☒

~~Accelerated filer~~

☐

~~Non-accelerated filer~~

☐

~~Smaller reporting company~~

☐

Emerging growth company

☐

Table of Contents

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Common Stock, par value ~~$0.4867~~$0.4867 — ~~16,435,835~~17,532,046 shares outstanding as of April 30, ~~2020.~~2021.

Table of Contents




PART I—FINANCIAL INFORMATION	1

ITEM 1.		FINANCIAL STATEMENTS	1

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	3429

ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5247

ITEM 4.		CONTROLS AND PROCEDURES	5448

PART II—OTHER INFORMATION			5549

ITEM 1.		LEGAL PROCEEDINGS	5549

ITEM 1A.		RISK FACTORS	5549

ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5649

ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	5649

ITEM 5.		OTHER INFORMATION	5649

ITEM 6.		EXHIBITS	5750

SIGNATURES			5851

Table of Contents

GLOSSARY OF DEFINITIONS

~~ASC:~~ ~~Accounting Standards Codification issued by the FASB~~

Aspire Energy: Aspire Energy of Ohio, LLC, a wholly-owned subsidiary of Chesapeake Utilities

Aspire Energy Express: Aspire Energy Express, LLC, a wholly-owned subsidiary of Chesapeake Utilities

ASU: Accounting Standards Update issued by the FASB

~~Boulden:~~ATM ~~Boulden, Inc., an entity from whom we acquired certain propane operating assets~~: At-the-market

CDC: U.S. Centers for Disease Control and Prevention

CDD: Cooling Degree-Day

~~CGS:~~ ~~Community Gas Systems~~

Chesapeake or Chesapeake Utilities: Chesapeake Utilities Corporation, ~~and~~ its ~~direct~~divisions and ~~indirect~~ subsidiaries, as appropriate in the context of the disclosure

CHP: Combined ~~heat~~Heat and ~~power plant~~Power Plant

Company: Chesapeake Utilities Corporation, ~~and~~ its ~~direct~~divisions and ~~indirect~~ subsidiaries, as appropriate in the context of the disclosure

COVID-19: An infectious disease caused by a newly discovered coronavirus

~~Degree-Day:~~CNG: Compressed natural gas

Degree-day: A degree-day is the measure of the variation in the weather based on the extent to which the average daily temperature (from 10:00 am to 10:00 am) falls above (CDD) or below (HDD) 65 degrees Fahrenheit

Delmarva Peninsula: A peninsula on the east coast of the U.S. occupied by Delaware and portions of Maryland and Virginia

DRIP: Dividend Reinvestment and Direct Stock Purchase Plan

Dt(s): Dekatherm(s), which is a natural gas unit of measurement that includes a standard measure for heating value

Dts/d: Dekatherms per day

Eastern Shore: Eastern Shore Natural Gas Company, a wholly-owned subsidiary of Chesapeake Utilities

Eight Flags: Eight Flags Energy, LLC, a subsidiary of Chesapeake OnSight Services, LLC

Elkton Gas: Elkton Gas Company, a wholly-owned subsidiary of ~~SJI that we entered into an agreement to acquire in December 2019~~Chesapeake Utilities

FASB: Financial Accounting Standards Board

FERC: Federal Energy Regulatory Commission

FGT: Florida Gas Transmission Company

FPU: Florida Public Utilities Company, a wholly-owned subsidiary of Chesapeake Utilities

GAAP: Generally Accepted Accounting ~~principles generally accepted in the United States of America~~Principles

GRIP: Gas Reliability Infrastructure Program

Gross Margin: a non-GAAP measure defined as operating revenues less the cost of sales. The Company's cost of sales includes purchased fuel cost for natural gas, electricity and propane and the cost of labor spent on direct revenue-producing activities and excludes depreciation, amortization and accretion

Gulfstream: Gulfstream Natural Gas System, LLC, an unaffiliated pipeline network that supplies natural gas to FPU

HDD: Heating Degree-Day

LNG: Liquefied Natural Gas

Marlin Gas Services: Marlin Gas Services, LLC, a wholly-owned subsidiary of Chesapeake Utilities ~~that acquired certain operating assets~~

Table of ~~Marlin Gas Transport, Inc.~~Contents

MetLife: MetLife Investment Advisors, an institutional debt investment management firm, with which we have previously issued Senior Notes and which is a party to the current MetLife Shelf Agreement, as amended

MGP: Manufactured gas plant, which is a site where coal was previously used to manufacture gaseous fuel for industrial, commercial and residential use

~~Table of Contents~~

NYL: New York Life Investors LLC, an institutional debt investment management firm, with which Chesapeake Utilities entered into a Shelf Agreement and issued Shelf Notes

Peninsula Pipeline: Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities

~~Peoples Gas:~~ ~~Peoples Gas System division of Tampa Electric Company~~

PESCO: Peninsula Energy Services Company, Inc., aan inactive wholly-owned subsidiary of Chesapeake Utilities

Prudential: Prudential Investment Management Inc., an institutional investment management firm, with which Chesapeake Utilities entered into a previous Shelf Agreement, which has been subsequently amended, and issued Shelf Notes

PSC: Public Service Commission, which is the state agency that regulates utility rates and/or services in certain of our jurisdictions

Revolver:Our $375 million unsecured revolving credit facility with certain lenders

RNG: Renewable natural gas

Sandpiper Energy: Sandpiper Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities

SEC: ~~U.S.~~ Securities and Exchange Commission

Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates

Sharp: Sharp Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities

Shelf Agreement: An agreement entered into by Chesapeake Utilities and a counterparty pursuant to which Chesapeake Utilities may request that the counterparty purchase our unsecured senior debt with a fixed interest rate and a maturity date not to exceed 20 years from the date of issuance

Shelf Notes: Unsecured senior promissory notes issuable under the Shelf Agreement executed with various counterparties

SICP: 2013 Stock and Incentive Compensation Plan

~~SJI:~~ ~~South Jersey Industries, Inc.~~

TCJA: Tax Cuts and Jobs Act enacted on December 22, 2017

TETLP: Texas Eastern Transmission, LP, an interstate pipeline interconnected with Eastern Shore's pipeline

Uncollateralized Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates

U.S.: The United States of America

Western Natural Gas:Western Natural Gas Company

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)


	Three Months Ended							Three Months Ended
	March 31,							March 31,
	2020			2019				2021		2020
(in thousands, except shares and per share data)							(in thousands, except shares and per share data)
Operating Revenues							Operating Revenues
Regulated Energy	$	102,955		$	103,618		Regulated Energy	$	121,197	$	102,955
Unregulated Energy and other	49,755			56,846			Unregulated Energy and other	69,990		49,735
Total Operating Revenues	152,710			160,464			Total Operating Revenues	191,187		152,690
Operating Expenses							Operating Expenses
Regulated Energy cost of sales	34,832			36,516			Regulated Energy cost of sales	43,043		34,832
Unregulated Energy and other cost of sales	18,036			24,411			Unregulated Energy and other cost of sales	31,254		18,038
Operations	35,992			35,413			Operations	39,437		35,951
Maintenance	3,836			3,680			Maintenance	4,042		3,836
Depreciation and amortization	12,252			10,928			Depreciation and amortization	15,365		12,252
Other taxes	5,649			5,392			Other taxes	6,449		5,647
Total Operating Expenses	110,597			116,340			Total Operating Expenses	139,590		110,556
Operating Income	42,113			44,124			Operating Income	51,597		42,134
Other income (expense), net	3,318			(57		)
Other income, net							Other income, net	385		3,319
Interest charges	5,814			5,628			Interest charges	5,105		5,814
Income from Continuing Operations Before Income Taxes	39,617			38,439			Income from Continuing Operations Before Income Taxes	46,877		39,639
Income Taxes on Continuing Operations	10,591			9,625			Income Taxes on Continuing Operations	12,405		10,598
Income from Continuing Operations	29,026			28,814			Income from Continuing Operations	34,472		29,041
Loss from Discontinued Operations, Net of Tax	(96		)	(150		)	Loss from Discontinued Operations, Net of Tax	(6)		(111)
Net Income	$	28,930		$	28,664		Net Income	$	34,466	$	28,930
Weighted Average Common Shares Outstanding:							Weighted Average Common Shares Outstanding:
Basic	16,414,773			16,384,927			Basic	17,485,866		16,414,773
Diluted	16,471,827			16,432,852			Diluted	17,553,167		16,471,827

Basic Earnings Per Share of Common Stock:							Basic Earnings Per Share of Common Stock:
Earnings from Continuing Operations	$	1.77		$	1.76		Earnings from Continuing Operations	$	1.97	$	1.77
Loss from Discontinued Operations	(0.01		)	(0.01		)	Loss from Discontinued Operations	0		(0.01)
Basic Earnings Per Share of Common Stock	$	1.76		$	1.75		Basic Earnings Per Share of Common Stock	$	1.97	$	1.76

Diluted Earnings Per Share of Common Stock:							Diluted Earnings Per Share of Common Stock:
Earnings from Continuing Operations	$	1.77		$	1.75		Earnings from Continuing Operations	$	1.96	$	1.77
Loss from Discontinued Operations	(0.01		)	(0.01		)	Loss from Discontinued Operations	0		(0.01)
Diluted Earnings Per Share of Common Stock	$	1.76		$	1.74		Diluted Earnings Per Share of Common Stock	$	1.96	$	1.76

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended							Three Months Ended
	March 31,							March 31,
	2020			2019				2021		2020
(in thousands)							(in thousands)
Net Income	$	28,930		$	28,664		Net Income	$	34,466	$	28,930
Other Comprehensive Income (Loss), net of tax:							Other Comprehensive Income (Loss), net of tax:
Employee Benefits, net of tax:							Employee Benefits, net of tax:
Amortization of prior service cost, net of tax of $(5), and $(5), respectively	(14		)	(14		)
Net gain, net of tax of $28, and $42, respectively	80			121
Amortization of prior service cost, net of tax of $(5) and $(5), respectively							Amortization of prior service cost, net of tax of $(5) and $(5), respectively	(14)		(14)
Net gain, net of tax of $27 and $28, respectively							Net gain, net of tax of $27 and $28, respectively	77		80
Cash Flow Hedges, net of tax:							Cash Flow Hedges, net of tax:
Unrealized gain on commodity contract cash flow hedges, net of tax of $2, and $1,194, respectively	7			2,982
Unrealized gain on commodity contract cash flow hedges, net of tax of $63 and $2, respectively							Unrealized gain on commodity contract cash flow hedges, net of tax of $63 and $2, respectively	166		7
Unrealized loss on interest rate swap cash flow hedges, net of tax of $(1)							Unrealized loss on interest rate swap cash flow hedges, net of tax of $(1)	(2)		—
Total Other Comprehensive Income, net of tax	73			3,089			Total Other Comprehensive Income, net of tax	227		73
Comprehensive Income	$	29,003		$	31,753		Comprehensive Income	$	34,693	$	29,003

The accompanying notes are an integral part of these financial statements.

Table of Contents

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Assets	March 31, 2020			December 31, 2019			Assets	March 31, 2021		December 31, 2020
(in thousands, except shares and per share data)							(in thousands, except shares and per share data)
Property, Plant and Equipment							Property, Plant and Equipment
Regulated Energy	$	1,447,089		$	1,441,473		Regulated Energy	$	1,595,744	$	1,577,576
Unregulated Energy	274,970			265,209			Unregulated Energy	306,291		300,647
Other businesses and eliminations	39,370			39,850			Other businesses and eliminations	34,439		30,769
Total property, plant and equipment	1,761,429			1,746,532			Total property, plant and equipment	1,936,474		1,908,992
Less: Accumulated depreciation and amortization	(345,206		)	(336,876		)	Less: Accumulated depreciation and amortization	(380,839)		(368,743)
Plus: Construction work in progress	75,510			54,141			Plus: Construction work in progress	80,061		60,929
Net property, plant and equipment	1,491,733			1,463,797			Net property, plant and equipment	1,635,696		1,601,178
Current Assets							Current Assets
Cash and cash equivalents	3,982			6,985			Cash and cash equivalents	5,575		3,499
Trade and other receivables	46,730			50,899			Trade and other receivables	62,309		61,675
Less: Allowance for credit losses	(1,421		)	(1,337		)	Less: Allowance for credit losses	(4,243)		(4,785)
Trade receivables, net	45,309			49,562
Trade and other receivables, net							Trade and other receivables, net	58,066		56,890
Accrued revenue	16,931			20,846			Accrued revenue	20,835		21,527
Propane inventory, at average cost	5,136			5,824			Propane inventory, at average cost	6,229		5,906
Other inventory, at average cost	5,621			6,067			Other inventory, at average cost	5,884		5,539
Regulatory assets	4,441			5,144			Regulatory assets	9,145		10,786
Storage gas prepayments	753			3,541			Storage gas prepayments	417		2,455
Income taxes receivable	15,230			20,050			Income taxes receivable	6,792		12,885
Prepaid expenses	10,707			13,928			Prepaid expenses	11,512		13,239
Derivative assets, at fair value	151			—			Derivative assets, at fair value	3,462		3,269
Other current assets	3,666			2,879			Other current assets	635		436
Total current assets	111,927			134,826			Total current assets	128,552		136,431
Deferred Charges and Other Assets							Deferred Charges and Other Assets
Goodwill	32,668			32,668			Goodwill	38,731		38,731
Other intangible assets, net	7,824			8,129			Other intangible assets, net	7,958		8,292
Investments, at fair value	7,217			9,229			Investments, at fair value	10,883		10,776
Operating lease right-of-use assets	11,696			11,563			Operating lease right-of-use assets	10,510		11,194
Regulatory assets	73,552			73,407			Regulatory assets	111,566		113,806
Receivables and other deferred charges	51,602			49,579			Receivables and other deferred charges	10,054		12,079
Total deferred charges and other assets	184,559			184,575			Total deferred charges and other assets	189,702		194,878
Total Assets	$	1,788,219		$	1,783,198		Total Assets	$	1,953,950	$	1,932,487

The accompanying notes are an integral part of these financial statements.

Table of Contents

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Capitalization and Liabilities	March 31, 2020			December 31, 2019			Capitalization and Liabilities	March 31, 2021		December 31, 2020
(in thousands, except shares and per share data)							(in thousands, except shares and per share data)
Capitalization							Capitalization
Stockholders’ equity							Stockholders’ equity
Preferred stock, par value $0.01 per share (authorized 2,000,000 shares), no shares issued and outstanding	$	—		$	—		Preferred stock, par value $0.01 per share (authorized 2,000,000 shares), no shares issued and outstanding	$	0	$	0
Common stock, par value $0.4867 per share (authorized 50,000,000 shares)	7,998			7,984			Common stock, par value $0.4867 per share (authorized 50,000,000 shares)	8,528		8,499
Additional paid-in capital	259,521			259,253			Additional paid-in capital	350,875		348,482
Retained earnings	322,804			300,607			Retained earnings	369,623		342,969
Accumulated other comprehensive loss	(6,194		)	(6,267		)	Accumulated other comprehensive loss	(2,638)		(2,865)
Deferred compensation obligation	5,468			4,543			Deferred compensation obligation	6,992		5,679
Treasury stock	(5,468		)	(4,543		)	Treasury stock	(6,992)		(5,679)
Total stockholders’ equity	584,129			561,577			Total stockholders’ equity	726,388		697,085
Long-term debt, net of current maturities	440,183			440,168			Long-term debt, net of current maturities	508,525		508,499
Total capitalization	1,024,312			1,001,745			Total capitalization	1,234,913		1,205,584
Current Liabilities							Current Liabilities
Current portion of long-term debt	15,600			45,600			Current portion of long-term debt	13,600		13,600
Short-term borrowing	254,339			247,371			Short-term borrowing	156,123		175,644
Accounts payable	52,568			54,068			Accounts payable	58,167		60,253
Customer deposits and refunds	29,122			30,939			Customer deposits and refunds	32,455		33,302
Accrued interest	5,014			2,554			Accrued interest	4,837		2,905
Dividends payable	6,655			6,644			Dividends payable	7,709		7,683
Accrued compensation	7,518			16,236			Accrued compensation	8,990		13,994
Regulatory liabilities	13,524			5,991			Regulatory liabilities	19,677		6,284
Derivative liabilities, at fair value	1,986			1,844			Derivative liabilities, at fair value	84		127
Other accrued liabilities	16,170			12,077			Other accrued liabilities	14,360		15,240
Total current liabilities	402,496			423,324			Total current liabilities	316,002		329,032
Deferred Credits and Other Liabilities							Deferred Credits and Other Liabilities
Deferred income taxes	186,431			180,656			Deferred income taxes	211,801		205,388
Regulatory liabilities	128,027			127,744			Regulatory liabilities	143,291		142,736
Environmental liabilities	6,046			6,468			Environmental liabilities	4,052		4,299
Other pension and benefit costs	28,043			30,569			Other pension and benefit costs	29,856		30,673
Operating lease liabilities	10,165			9,896
Operating lease - liabilities							Operating lease - liabilities	9,125		9,872
Deferred investment tax credits and other liabilities	2,699			2,796			Deferred investment tax credits and other liabilities	4,910		4,903
Total deferred credits and other liabilities	361,411			358,129			Total deferred credits and other liabilities	403,035		397,871
Environmental and other commitments and contingencies (Notes 6 and 7)							Environmental and other commitments and contingencies (Notes 6 and 7)	0		0
Total Capitalization and Liabilities	$	1,788,219		$	1,783,198		Total Capitalization and Liabilities	$	1,953,950	$	1,932,487

The accompanying notes are an integral part of these financial statements.

Table of Contents

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Three Months Ended							Three Months Ended
	March 31,							March 31,
	2020			2019				2021		2020
(in thousands)							(in thousands)
Operating Activities							Operating Activities
Net income	$	28,930		$	28,664		Net income	$	34,466	$	28,930
Adjustments to reconcile net income to net cash provided by operating activities:							Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	12,252			11,074			Depreciation and amortization	15,365		12,252
Depreciation and accretion included in other costs	2,361			2,135			Depreciation and accretion included in other costs	2,568		2,361
Deferred income taxes	5,738			3,430			Deferred income taxes	6,334		5,738

Realized gain on commodity contracts and sale of assets	(4,458		)	(363		)	Realized gain on commodity contracts and sale of assets	(3,514)		(4,458)
Unrealized loss (gain) on investments and commodity contracts	1,511			(721		)
Unrealized (gain) loss on investments/commodity contracts							Unrealized (gain) loss on investments/commodity contracts	(389)		1,511
Employee benefits and compensation	11			382			Employee benefits and compensation	(173)		11
Share-based compensation	1,056			487			Share-based compensation	1,876		1,056

Changes in assets and liabilities:							Changes in assets and liabilities:
Accounts receivable and accrued revenue	8,139			18,147			Accounts receivable and accrued revenue	(484)		8,139
Propane inventory, storage gas and other inventory	3,921			7,207			Propane inventory, storage gas and other inventory	1,371		3,921
Regulatory assets/liabilities, net	7,309			3,121			Regulatory assets/liabilities, net	14,123		7,309
Prepaid expenses and other current assets	3,359			11,873			Prepaid expenses and other current assets	4,171		3,359
Accounts payable and other accrued liabilities	(4,243		)	(44,783		)	Accounts payable and other accrued liabilities	766		(4,243)
Income taxes receivable	4,820			6,241
Income taxes (payable) receivable							Income taxes (payable) receivable	6,093		4,820
Customer deposits and refunds	(1,817		)	(4,445		)	Customer deposits and refunds	(847)		(1,817)
Accrued compensation	(8,766		)	(5,548		)	Accrued compensation	(5,105)		(8,766)
Other assets and liabilities, net	(1,315		)	3,585			Other assets and liabilities, net	3,761		(1,315)
Net cash provided by operating activities	58,808			40,486			Net cash provided by operating activities	80,382		58,808
Investing Activities							Investing Activities
Property, plant and equipment expenditures	(35,182		)	(43,216		)	Property, plant and equipment expenditures	(51,994)		(35,182)
Proceeds from sale of assets	4,106			115			Proceeds from sale of assets	394		4,106

Environmental expenditures	(422		)	(268		)	Environmental expenditures	(247)		(422)
Net cash used in investing activities	(31,498		)	(43,369		)	Net cash used in investing activities	(51,847)		(31,498)
Financing Activities							Financing Activities
Common stock dividends	(6,483		)	(5,877		)	Common stock dividends	(7,513)		(6,483)
Issuance (repurchase) of stock under the Dividend Reinvestment Plan	192			(183		)
Issuance of stock under the Dividend Reinvestment Plan, net of offering fees							Issuance of stock under the Dividend Reinvestment Plan, net of offering fees	2,053		192
Tax withholding payments related to net settled stock compensation	(977		)	(692		)	Tax withholding payments related to net settled stock compensation	(1,478)		(977)
Change in cash overdrafts due to outstanding checks	(4,727		)	84			Change in cash overdrafts due to outstanding checks	7		(1,747)
Net borrowings (repayments) under line of credit agreements	11,695			(18,149		)
Net repayments under line of credit agreements							Net repayments under line of credit agreements	(19,528)		8,715
Proceeds from issuance of long-term debt, net of offering fees	(13		)	30,000			Proceeds from issuance of long-term debt, net of offering fees	0		(13)
Repayment of long-term debt and capital lease obligation	(30,000		)	(414		)
Net cash (used) provided by financing activities	(30,313		)	4,769
Repayment of long-term debt							Repayment of long-term debt	0		(30,000)
Net cash used in financing activities							Net cash used in financing activities	(26,459)		(30,313)
Net Increase (Decrease) in Cash and Cash Equivalents	(3,003		)	1,886			Net Increase (Decrease) in Cash and Cash Equivalents	2,076		(3,003)
Cash and Cash Equivalents—Beginning of Period	6,985			6,089			Cash and Cash Equivalents—Beginning of Period	3,499		6,985
Cash and Cash Equivalents—End of Period	$	3,982		$	7,975		Cash and Cash Equivalents—End of Period	$	5,575	$	3,982

The accompanying notes are an integral part of these financial statements.

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)


																						Common Stock (1)
(in thousands, except shares and per share data)																					(in thousands, except shares and per share data)	Number of Shares(2)	Par Value		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Deferred Compensation		Treasury Stock		Total
Balance at December 31, 2019																					Balance at December 31, 2019	16,403,776	$	7,984	$	259,253	$	300,607	$	(6,267)	$	4,543	$	(4,543)	$	561,577
Net income																					Net income	—	—		—		28,930		—		—		—		28,930
Other comprehensive gain																					Other comprehensive gain	—	—		—		—		73		—		—		73
Dividend declared ($0.4050 per share)																					Dividend declared ($0.4050 per share)	—	—		—		(6,703)		—		—		—		(6,703)
Dividend reinvestment plan																					Dividend reinvestment plan	3,743	2		352		—		—		—		—		354
Share-based compensation and tax benefit (3)(4)																					Share-based compensation and tax benefit (3)(4)	25,586	12		(84)		—		—		—		—		(72)
Treasury stock activities																					Treasury stock activities	—	—		—		—		—		925		(925)		—
Cumulative effect of the adoption of ASU 2016-13																					Cumulative effect of the adoption of ASU 2016-13	—	—		—		(30)		—		—		—		(30)
Balance at March 31, 2020																					Balance at March 31, 2020	16,433,105	$	7,998	$	259,521	$	322,804	$	(6,194)	$	5,468	$	(5,468)	$	584,129

	Common Stock ⁽¹⁾
(in thousands, except shares and per share data)	Number of Shares⁽²⁾	Par Value		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Deferred Compensation		Treasury Stock			Total
Balance at December 31, 2018	16,378,545	$	7,971	$	255,651		$	261,530		$	(6,713	)	$	3,854	$	(3,854	)	$	518,439
Net income	—	—		—			28,664			—			—		—			28,664
Prior period reclassification	—	—		—			115			(115		)	—		—			—
Other comprehensive income	—	—		—			—			3,089			—		—			3,089
Dividend declared ($0.3700 per share)	—	—		—			(6,198		)	—			—		—			(6,198		)
Dividend reinvestment plan	—	—		(1		)	—			—			—		—			(1		)
Share-based compensation and tax benefit ⁽³⁾⁽⁴⁾	18,472	9		(343		)	—			—			—		—			(334		)
Treasury stock activities	—	—		—			—			—			522		(522		)	—
Balance at March 31, 2019	16,397,017	$	7,980	$	255,307		$	284,111		$	(3,739	)	$	4,376	$	(4,376	)	$	543,659

Balance at December 31, 2019	16,403,776	$	7,984	$	259,253		$	300,607		$	(6,267	)	$	4,543	$	(4,543	)	$	561,577

Balance at December 31, 2020																					Balance at December 31, 2020	17,461,841	$	8,499	$	348,482	$	342,969	$	(2,865)	$	5,679	$	(5,679)	$	697,085
Net income	—	—		—			28,930			—			—		—			28,930			Net income	—	—		—		34,466		—		—		—		34,466
Other comprehensive income	—	—		—			—			73			—		—			73			Other comprehensive income	—	—		—		—		227		—		—		227
Dividend declared ($0.4050 per share)	—	—		—			(6,703		)	—			—		—			(6,703		)
Dividend declared ($0.440 per share)																					Dividend declared ($0.440 per share)	—	—		—		(7,812)		—		—		—		(7,812)
Dividend reinvestment plan	3,743	2		352			—			—			—		—			354			Dividend reinvestment plan	20,511	10		2,204		—		—		—		—		2,214
Share-based compensation and tax benefit ⁽³⁾ ⁽⁴⁾	25,586	12		(84		)	—			—			—		—			(72		)	Share-based compensation and tax benefit (3) (4)	39,141	19		189		—		—		—		—		208
Treasury stock activities	—	—		—			—			—			925		(925		)	—			Treasury stock activities	—	—		—		—		—		1,313		(1,313)		0
Cumulative effect of the adoption of ASU 2016-13	—	—		—			(30		)	—			—		—			(30		)
Balance at March 31, 2020	16,433,105	$	7,998	$	259,521		$	322,804		$	(6,194	)	$	5,468	$	(5,468	)	$	584,129
Balance at March 31, 2021																					Balance at March 31, 2021	17,521,493	$	8,528	$	350,875	$	369,623	$	(2,638)	$	6,992	$	(6,992)	$	726,388


~~(1)~~	2,000,000 shares of preferred stock at $0.01 par value have been authorized. No shares have been issued or are outstanding; accordingly, no information has been included in the statements of stockholders’ equity.

~~(2)~~

(1)2,000,000 shares of preferred stock at $0.01 par value have been authorized. No shares have been issued or are outstanding; accordingly, no information has been included in the statements of stockholders’ equity.

(2)Includes 116,751, 105,087, 104,871, and 95,329 shares at March 31, 2021, December 31, 2020, March 31, 2020 and ~~95,329 shares at~~ December 31, 2019, respectively, held in a Rabbi Trust related to our Non-Qualified Deferred Compensation Plan.

(3)Includes amounts for shares issued for directors’ compensation.

(4)The shares issued under the SICP are net of shares withheld for employee taxes. For the three months ended March 31, 2021 and 2020, we withheld 14,020 and 10,319 shares, respectively, for employee taxes.

, ~~respectively, held in a Rabbi Trust related to our Non-Qualified Deferred Compensation Plan.~~


~~(3)~~	~~Includes amounts for shares issued for directors’ compensation.~~


~~(4)~~	The shares issued under the SICP are net of shares withheld for employee taxes. For the three months ended March 31, 2020 and 2019, we withheld 10,319 and 7,635 shares, respectively, for employee taxes.

The accompanying notes are an integral part of these financial statements.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Summary of Accounting Policies

Basis of Presentation

References in this document to the “Company,” “Chesapeake Utilities,” “we,” “us” and “our” are intended to mean Chesapeake Utilities Corporation, its divisions and/or its subsidiaries, as appropriate in the context of the disclosure.

The accompanying unaudited condensed consolidated financial statements have been prepared in compliance with the rules and regulations of the SEC and GAAP. In accordance with these rules and regulations, certain information and disclosures normally required for audited financial statements have been condensed or omitted. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto, included in our latest Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair presentation of our results of operations, financial position and cash flows for the interim periods presented.

Where necessary to improve comparability, prior period amounts have been changed to conform to current period presentation.

Due to the seasonality onof 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 highest due to colder temperatures.

Beginning in the third quarter of 2019, our management began executing a strategy to sell the operating assets of PESCO. In connection with this strategy, during the third and fourth quarter of 2019, we reached agreements with four entities to sell PESCO's assets and contracts. These transactions closed during the fourth quarter of 2019. As a result of the sale, we have fully exited the natural gas marketing business, which provided natural gas management and supply services to commercial and industrial customers in Florida, Delaware, Maryland, Pennsylvania, Ohio and other states. Accordingly, PESCO’s historical financial results are reflected in our condensed consolidated financial statements as discontinued operations, which required retrospective application to financial information for all periods presented. Refer to Note 3, ~~Acquisitions and Divestitures~~ ~~for further information.~~

Effects of COVID-19

In March ~~13,~~ 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 within the United States, federal, state and local governments throughout the country ~~have~~ 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 ~~have~~ significantly impacted economic conditions in the United States in 2020 and continued into 2021. At this time, restrictions continue to lift as vaccines have become more available in the ~~economic impact~~United States. Regardless, Chesapeake Utilities is ~~expected to continue as long as the social distancing restrictions remain in place. We are~~ considered an “essential business,” which ~~allows~~has allowed us to continue operational activities and construction projects ~~while the~~despite any social distancing restrictions ~~remain~~that are in place. ~~In response to~~Despite the ~~COVID-19 pandemic and related~~early changes in restrictions, we ~~have implemented~~continue to operate under our pandemic response plan, which includes having all employees who can work remotely do so in order to promote social distancing and providing personal protective equipment to field employees to reduce the spread of COVID-19. For the first quarter of 2020, the COVID-19 impact on our results of operations or financial position was immaterial. Any future impact on our results of operations, liquidity or financial position from COVID-19, particularly from continued social distancing and other restrictions recommended or required by federal, state and local authorities, cannot be estimated at this time. We are committed to communicating timely updates and will continue to monitor developments affecting ~~our~~ employees, customers, suppliers, ~~and shareholders~~stockholders and take ~~additional~~all precautions as warranted to operate safely and to comply with the CDC, Occupational Safety and Health Administration, and state and local requirements in order to protect our employees, customers and the ~~communities we serve.~~ communities. 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.

FASB Statements and Other Authoritative Pronouncements

~~Recently Adopted Accounting Standards~~

There are no new accounting pronouncements issued that are applicable to us.

~~Financial Instruments - Credit Losses (ASC 326)~~

~~- In June 2016, the FASB issued ASU 2016-13,~~

~~Measurement of Credit Losses on Financial Instruments~~

, which changes how entities account for credit losses for most financial assets and certain other instruments, and subsequent guidance which served to clarify or amend the original standard. ASU 2016-13 and the related amendments require entities to estimate lifetime expected credit losses for trade receivables and to provide additional disclosure related to credit losses. We adopted ASU 2016-13 on January 1, 2020 and recorded an immaterial cumulative effect in retained earnings as of that date. As a result, prior period financial information has not been recast and continues to be reported under the accounting guidance that was effective during those periods.

Table of Contents

2. Calculation of Earnings Per Share

Our estimate for expected credit losses has been developed by analyzing our portfolio of financial assets that present potential credit exposure risk. These assets consist solely of our trade receivables from customers and contract assets. The estimate is based on five years of historical collections experience, a review of current economic and operating conditions in our service territories, and an examination of economic indicators which provide a reasonable and supportable basis of potential future activity. Those indicators include metrics which we believe provide insight into the future collectability of our trade receivables such as unemployment rates and economic growth statistics in our service territories.


	Three Months Ended
	March 31,
	2021		2020
(in thousands, except shares and per share data)
Calculation of Basic Earnings Per Share:
Income from Continuing Operations	$	34,472	$	29,041
Loss from Discontinued Operations	(6)		(111)
Net Income	$	34,466	$	28,930

Weighted average shares outstanding	17,485,866		16,414,773
Basic Earnings Per Share from Continuing Operations	$	1.97	$	1.77
Basic Loss Per Share from Discontinued Operations	0		(0.01)
Basic Earnings Per Share	$	1.97	$	1.76

Calculation of Diluted Earnings Per Share:
Reconciliation of Denominator:
Weighted shares outstanding—Basic	17,485,866		16,414,773
Effect of dilutive securities—Share-based compensation	67,301		57,054
Adjusted denominator—Diluted	17,553,167		16,471,827
Diluted Earnings Per Share from Continuing Operations	$	1.96	$	1.77
Diluted Loss Per Share from Discontinued Operations	0		(0.01)
Diluted Earnings Per Share	$	1.96	$	1.76

When determining estimated credit losses we analyzed the balance of our trade receivables based on the underlying service line they pertain to. This resulted in an examination of trade receivables from our energy distribution, energy transmission, energy delivery services and propane operations service lines. Our energy distribution service line consists of all our regulated distribution utility operations on the Delmarva Peninsula and throughout Florida. These business units have the ability to recover their costs through the rate making process, which can include consideration for amounts historically written off as a component of their rate base. Therefore, they possess a mechanism to recover credit losses which we believe reduces their exposure to credit risk. Our energy transmission and energy delivery service business units consist of our natural gas pipelines and our mobile CNG delivery operations. The majority of the customer base these business units serve are regulated distribution utilities who also have the ability to recover their costs. We believe this cost recovery mechanism significantly reduces the amount of credit risk they present. Our propane operations are unregulated and do not have the same ability to recover their costs as our regulated operations. However, historically our propane operations have not had material write offs relative to the amounts of revenues earned.

Our estimate of expected credit losses reflects our anticipated losses associated with our trade receivables as a result of non-payment from our customers beginning the day the trade receivable is established. We believe the risk of loss associated with trade receivables classified as current presents the least amount of credit exposure risk and therefore, we assign a lower estimate to our current trade receivables. As our trade receivables age outside of their expected due date, our estimate increases. Our allowance for credit losses relative to the balance of our trade receivables has historically been immaterial as a result of on time payment activity from our customers.

During the first quarter of 2020, the COVID-19 virus began to rapidly spread within the United States. Federal, state and local governments throughout the country imposed restrictions to promote social distancing to slow the spread of the virus, which has also had the effect of limiting commercial activity. These measures have resulted in significant job loss and a slowing of economic activity across the United States and in the areas that we serve. At this time it is unclear as to when these restrictions might be eased or lifted, and the timing and extent to which they are lifted or eased may be determined by the state and local authorities with guidance from the CDC. We have been identified as an “essential business” which allows us to continue operational activity and construction projects with social distancing restrictions in place. We considered the impact of the COVID-19 virus for the first quarter of 2020 and will continue to monitor developments which impact our customers’ ability to pay and revise our estimates as new information becomes available.

Our prior estimates for expected credit losses had not included an evaluation of current conditions or forward-looking economic indicators as we were not required to consider those factors under the previous incurred loss accounting guidance. The below table provides a reconciliation of our allowance for credit losses at March 31, 2020:

(in thousands)
Balance at December 31, 2019 $ 1,337
Additions:
Provision for credit losses 273
Recoveries 84
Deductions:
Write offs (273 )
Balance at March 31, 2020 $ 1,421

~~Fair Value Measurement (ASC 820)~~ ~~- In August 2018, the FASB issued ASU 2018-13,~~ ~~Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement~~, which removes, modifies and adds certain disclosure requirements on fair value measurements in ASC 820. We adopted ASU 2018-13 for our annual and interim financial statements beginning January 1, 2020 and, since the changes only impacted disclosures, its adoption did not have a material impact on our financial position or results of operations.

3. Acquisitions

~~Table of Contents~~

~~Intangibles - Goodwill (ASC 350)~~ ~~- In January 2017, the FASB issued ASU 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~, which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. ASU 2017-04 was effective for our annual and interim financial statements beginning January 1, 2020. The amendments included in this ASU are to be applied prospectively, and are not expected to have a material impact on our financial position or results of operations.


2.	~~Calculation of Earnings Per Share~~

Three Months Ended
March 31,
2020 2019
(in thousands, except shares and per share data)
Calculation of Basic Earnings Per Share:
Income from Continuing Operations $ 29,026
$ 28,814
Loss from Discontinued Operations (96 ) (150 )
Net Income $ 28,930
$ 28,664

Weighted average shares outstanding 16,414,773
16,384,927

Basic Earnings Per Share from Continuing Operations $ 1.77
$ 1.76
Basic Loss Per Share from Discontinued Operations (0.01 ) (0.01 )
Basic Earnings Per Share $ 1.76
$ 1.75

Calculation of Diluted Earnings Per Share:
Reconciliation of Denominator:
Weighted shares outstanding—Basic 16,414,773
16,384,927
Effect of dilutive securities—Share-based compensation 57,054
47,925
Adjusted denominator—Diluted 16,471,827
16,432,852

Diluted Earnings Per Share from Continuing Operations $ 1.77
$ 1.75
Diluted Loss Per Share from Discontinued Operations (0.01 ) (0.01 )
Diluted Earnings Per Share $ 1.76
$ 1.74


3.	~~Acquisitions and Divestitures~~

Acquisition of ~~Elkton~~Western Natural Gas

In December 2019, we entered into an agreement with SJI to acquire its subsidiary, Elkton Gas which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil County, Maryland. Upon completion of the transaction, Elkton Gas will become our wholly-owned subsidiary. The acquisition, which is expected to close in the third quarter ofOctober 2020, is subject to approval by the Maryland PSC. Elkton Gas’ territory is contiguous to our franchised service territory in Cecil County, Maryland. Elkton Gas will continue to operate out of its existing office with the same local personnel who are also expected to serve our existing franchised service territory in Cecil County.

~~Acquisition of Boulden~~

~~In December 2019,~~ Sharp acquired certain propane operating assets of ~~Boulden~~Western Natural Gas, which provides propane distribution service ~~to approximately 5,200 customers in Delaware, Maryland~~throughout Jacksonville, Florida and ~~Pennsylvania,~~the surrounding communities, for approximately ~~$24.6~~$6.7 million, net of cash acquired. Additionally, the purchase price included ~~$0.2~~$0.3 million of working capital. We recorded contingent consideration of ~~$0.6~~$0.3 million related to the seller's adherence to various provisions contained in the ~~contract~~purchase agreement through the first anniversary of the transaction closing. We accounted for ~~the purchase of the operating assets of Boulden~~this acquisition as a business combination ~~and integrated~~within our Unregulated Energy segment beginning in the ~~business into our Sharp operation.~~fourth quarter of 2020. There are multiple strategic benefits to this acquisition

~~Table of Contents~~

including it: (i) ~~overlays with the Elkton Gas acquisition to establish an integrated energy delivery platform~~expands our propane territory serviced in ~~Cecil County, Maryland;~~Florida and (ii) includes an established customer base with additional opportunities for future growth; (iii) enables operational synergies, including supply, for the northern Delmarva Peninsula; and (iv) provides opportunities to market additional services and pricing programs to these customers.growth.

In connection with this acquisition, we recorded ~~$8.3~~$3.5 million in property plant and equipment, ~~$5.1~~$1.4 million in intangible assets associated with customer relationships and non-compete agreements and ~~$11.2~~$1.8 million in goodwill, all of which is deductible for income tax purposes. The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based on contractual ~~provisions and~~provisions. The purchase price allocation will be finalized in the fourth quarter of ~~2020.~~2021. For the ~~quarter~~three months ended March 31, ~~2020, Boulden~~2021, Western Natural Gas generated operating revenue and income of ~~$2.8~~$0.8 million and ~~$1.4~~$0.2 million, respectively.

~~Divestiture~~Acquisition of ~~PESCO~~Elkton Gas

~~During~~In July 2020, we closed on the ~~fourth quarter~~acquisition of ~~2019,~~Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil County, Maryland for approximately, $15.6 million, net of cash acquired. Additionally, the purchase price included $0.6 million of working capital. Elkton Gas’ territory is contiguous to our franchised service territory in Cecil County, Maryland.

In connection with this acquisition, we ~~sold PESCO's~~recorded $15.9 million in property, plant and equipment, $0.6 million in accounts receivable, $2.6 million in other liabilities, $2.6 million in regulatory liabilities and $4.3 million in goodwill, all of which is deductible for income tax purposes. All of the assets and ~~contracts~~liabilities are recorded in ~~4 separate transactions~~the Regulated Energy segment. The amounts recorded in conjunction with the acquisition are preliminary, and ~~exited the natural gas marketing business. As a result~~subject to adjustment based

Table of ~~the sales agreements, we began to report PESCO as discontinued operations during~~Contents

on contractual provisions. The purchase price allocation will be finalized in the third quarter of ~~2019 and excluded PESCO's performance from continuing operations for all periods presented and classified its assets and liabilities as held for sale where applicable.~~

~~We received a total of $22.9 million in cash consideration from the buyers, inclusive of working capital of $8.0 million. We recognized a pre-tax gain of $7.3 million ($5.4 million after tax) in connection with the closing of these transactions during the fourth quarter of 2019.~~

Operating revenues and costs of sales from the previous reporting periods, which were previously eliminated in consolidation, have been grossed up and are now reflected as a component of operating revenues and costs of sales for2021. For the three months ended March 31, ~~2019. We recast these amounts because, upon completion~~2021, Elkton Gas generated operating revenue and income of ~~the sales transactions, we continued to provide~~$2.6 million and ~~receive services from the buyers through the remainder of the contractual terms.~~$0.6 million, respectively.

~~A summary of discontinued operations presented in the condensed consolidated statements of income includes the following:~~

Three Months Ended
March 31,
(in thousands) 2020 2019
Operating revenues⁽¹⁾
$ —
$ 77,022
Cost of sales⁽¹⁾
(9 ) 75,162
Other operating expenses 116
1,991
Operating loss (107 )
(131 )
Interest and other expense (24 ) (70 )
Loss from Discontinued Operations before income taxes (131 )
(201 )
Income tax benefit (35 ) (51 )
Loss from Discontinued Operations, Net of Tax $ (96 ) $ (150 )

⁽¹⁾ Included in operating revenues and cost of sales for the three months ended March 31, 2019, is $9.9 million representing amounts which had been previously eliminated in consolidation related to intercompany activity that will continue with the buyers after the disposition of the assets of PESCO.

Since the disposition of the assets and contracts of PESCO was completed in the fourth quarter 2019, there were no assets or liabilities classified as held for sale at March 31, 2020 and December 31, 2019.

We have elected not to separately disclose discontinued operations on the condensed consolidated statements of cash flows. The following table summarizes significant statements of cash flows data related to the discontinued operations of PESCO:

(in thousands)
Three Months Ended
March 31, 2019
Depreciation and amortization $ 146
Deferred income taxes $ 1,396
Realized loss on commodity contracts $ 584

~~Table of Contents~~

Our Delmarva Peninsula natural gas distribution operations had asset management agreements with PESCO to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2017, and expired on March 31, 2020. As a result of the sale of the assets of PESCO, effective October 1, 2019, these agreements were managed by New Jersey Resource Energy Services Company through the remainder of the contract term. In March 2020, our Delmarva Peninsula natural gas distribution operations entered into asset management agreements with a third party to manage their natural gas transportation and storage capacity. The agreements were effective as of April 1, 2020, and expire on March 31, 2023. In addition to the asset management agreements, Eastern Shore had several firm transportation and capacity arrangements with PESCO which were included in the assets sold to United Energy Trading, LLC. Eastern Shore will continue to fulfill these arrangements throughout the remainder of their contractual term. These agreements currently have expiration dates of November 30, 2021.

4. Revenue Recognition

We recognize revenue when our performance obligations under contracts with customers have been satisfied, which generally occurs when our businesses have delivered or transported natural gas, electricity or propane to customers. We exclude sales taxes and other similar taxes from the transaction price. Typically, our customers pay for the goods and/or services we provide in the month following the satisfaction of our performance obligation. The ~~revenues in the following tables exclude operating revenues from PESCO that are now reflected as discontinued operations. The~~ following table displays our revenue from continuing operations by major source based on product and service type for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:

~~Table of Contents~~


	Three months ended March 31, 2020												Three Months Ended March 31, 2019													Three months ended March 31, 2021								Three Months Ended March 31, 2020
(in thousands)	Regulated Energy			Unregulated Energy			Other and Eliminations			Total			Regulated Energy			Unregulated Energy			Other and Eliminations			Total			(in thousands)	Regulated Energy		Unregulated Energy		Other and Eliminations		Total		Regulated Energy		Unregulated Energy		Other and Eliminations		Total
Energy distribution																									Energy distribution
Delaware natural gas division	$	26,567		$	—		$	—		$	26,567		$	27,549		$	—		$	—		$	27,549		Delaware natural gas division	$	33,272	$	—	$	—	$	33,272	$	26,567	$	—	$	—	$	26,567
Florida natural gas division	8,477			—			—			8,477			7,900			—			—			7,900			Florida natural gas division	8,956		—		—		8,956		8,477		—		—		8,477
FPU electric distribution	14,219			—			—			14,219			14,378			—			—			14,378			FPU electric distribution	18,551		—		—		18,551		14,219		—		—		14,219
FPU natural gas distribution	25,444			—			—			25,444			23,786			—			—			23,786			FPU natural gas distribution	26,861		—		—		26,861		25,444		—		—		25,444
Maryland natural gas division	9,138			—			—			9,138			10,047			—			—			10,047			Maryland natural gas division	10,466		—		—		10,466		9,138		—		—		9,138
Sandpiper Energy natural gas/propane operations	6,292			—			—			6,292			7,082			—			—			7,082
Sandpiper natural gas/propane operations																									Sandpiper natural gas/propane operations	8,071		—		—		8,071		6,292		—		—		6,292
Elkton Gas																									Elkton Gas	2,635		—		—		2,635		—		—		—		—
Total energy distribution	90,137			—			—			90,137			90,742			—			—			90,742			Total energy distribution	108,812		—		—		108,812		90,137		—		—		90,137

Energy transmission																									Energy transmission
Aspire Energy	—			9,781			—			9,781			—			13,470			—			13,470			Aspire Energy	—		12,905		—		12,905		—		9,781		—		9,781
Aspire Energy Express																									Aspire Energy Express	47		—		—		47		—		—		—		—
Eastern Shore	19,279			—			—			19,279			19,056			—			—			19,056			Eastern Shore	19,972		—		—		19,972		19,279		—		—		19,279
Peninsula Pipeline	4,824			—			—			4,824			3,565			—			—			3,565			Peninsula Pipeline	6,467		—		—		6,467		4,824		—		—		4,824
Total energy transmission	24,103			9,781			—			33,884			22,621			13,470			—			36,091			Total energy transmission	26,486		12,905		—		39,391		24,103		9,781		—		33,884

Energy generation																									Energy generation
Eight Flags	—			4,323			—			4,323			—			4,142			—			4,142			Eight Flags	—		4,329		—		4,329		—		4,323		—		4,323

Propane operations																									Propane operations
Propane delivery operations	—			38,282			—			38,282			—			46,125			—			46,125			Propane delivery operations	—		55,264		—		55,264		—		38,623		—		38,623

Energy delivery services																									Energy delivery services
Marlin Gas Services	—			1,309			—			1,309			—			2,434			—			2,434			Marlin Gas Services	—		2,352		—		2,352		—		1,309		—		1,309
Other	—			20			—			20			—			—			—			—
Total energy delivery services	—			1,329			—			1,329			—			2,434			—			2,434

Other and eliminations																									Other and eliminations
Eliminations	(11,285		)	(25		)	(4,409		)	(15,719		)	(9,745		)	(5,496		)	(4,366		)	(19,607		)	Eliminations	(14,101)		(91)		(4,901)		(19,093)		(11,285)		(24)		(4,409)		(15,718)
Other	—			341			133			474			—			405			132			537			Other	—		0		132		132		—		0		132		132
Total other and eliminations	(11,285		)	316			(4,276		)	(15,245		)	(9,745		)	(5,091		)	(4,234		)	(19,070		)	Total other and eliminations	(14,101)		(91)		(4,769)		(18,961)		(11,285)		(24)		(4,277)		(15,586)

Total operating revenues⁽¹⁾	$	102,955		$	54,031		$	(4,276	)	$	152,710		$	103,618		$	61,080		$	(4,234	)	$	160,464		Total operating revenues (1)	$	121,197	$	74,759	$	(4,769)	$	191,187	$	102,955	$	54,012	$	(4,277)	$	152,690

⁽¹⁾ Total operating revenues for the three months ended March 31, ~~2020,~~2021, include other revenue (revenues from sources other than contracts with customers) of ~~$0.7~~$(0.3) million and $0.1 million for our Regulated and Unregulated Energy segments, respectively, and ~~$0.1~~$0.7 million and $0.1 million for our Regulated and Unregulated Energy segments, respectively, for the three months ended March 31, ~~2019.~~2020. The sources of other revenues include revenue from alternative revenue programs related to revenue normalization for the Maryland division and Sandpiper and late ~~fees~~fees.

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Contract balances

The timing of revenue recognition, customer billings and cash collections results in trade receivables, unbilled receivables (contract assets), and customer advances (contract liabilities) in our condensed consolidated balance sheets. The balances of our trade receivables, contract assets, and contract liabilities as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 were as follows:

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Trade Receivables Contract Assets (Current) Contract Assets (Non-current) Contract Liabilities (Current)
(in thousands)
Balance at 12/31/2019 $ 47,430
$ 18
$ 3,465
$ 589
Balance at 3/31/2020 43,614
18
4,098
428
Increase (decrease) $ (3,816 ) $ —
$ 633
$ (161 )


	Trade Receivables		Contract Assets (Current)		Contract Assets (Non-current)		Contract Liabilities (Current)
(in thousands)
Balance at 12/31/2020	$	55,600	$	18	$	4,816	$	644
Balance at 3/31/2021	56,577		18		5,034		433
Increase (decrease)	$	977	$	0	$	218	$	(211)

Our trade receivables are included in trade and other receivables in the condensed consolidated balance sheets. Our current contract assets are included in other current assets in the condensed consolidated balance ~~sheets.~~sheet. Our non-current contract assets are included in ~~receivables and~~ other ~~deferred charges~~assets in the condensed consolidated balance ~~sheets~~sheet and primarily relate to operations and maintenance costs incurred by Eight Flags that have not yet been recovered through rates for the sale of electricity to our electric distribution operation pursuant to a long-term service agreement.

At times, we receive advances or deposits from our customers before we satisfy our performance obligation, resulting in contract liabilities. Contract liabilities are included in other accrued liabilities in the condensed consolidated balance sheets and relate to non-refundable prepaid fixed fees for our Mid-Atlantic propane delivery operation's retail offerings. Our performance obligation is satisfied over the term of the respective retail offering plan on a ratable basis. For each of the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, we recognized revenue of $0.4 ~~million and $0.3 million, respectively.~~million.

Remaining performance obligations

Our businesses have long-term fixed fee contracts with customers in which revenues are recognized when performance obligations are satisfied over the contract term. Revenue for these businesses for the remaining performance obligations, at March 31, ~~2020,~~2021, are expected to be recognized as follows:


(in thousands)	2021		2022		2023		2024		2025		2026		2027 and thereafter
Eastern Shore and Peninsula Pipeline	$	26,814	$	30,415	$	23,129	$	20,970	$	20,117	$	19,387	$	156,500
Natural gas distribution operations	4,239		6,521		6,064		5,835		5,299		5,071		33,465
FPU electric distribution	489		652		652		652		275		275		550
Total revenue contracts with remaining performance obligations	$	31,542	$	37,588	$	29,845	$	27,457	$	25,691	$	24,733	$	190,515

(in thousands) 2020 2021 2022 2023 2024 2025 2026 and thereafter
Eastern Shore and Peninsula Pipeline $ 28,084
$ 34,404
$ 27,249
$ 21,795
$ 19,548
$ 18,699
$ 177,607
Natural gas distribution operations 2,992
4,124
5,167
4,936
4,699
4,166
32,996
FPU electric distribution 424
566
566
566
566
275
825
Total revenue contracts with remaining performance obligations $ 31,500
$ 39,094
$ 32,982
$ 27,297
$ 24,813
$ 23,140
$ 211,428

5. Rates and Other Regulatory Activities


5.	~~Rates and Other Regulatory Activities~~

Our natural gas and electric distribution operations in Delaware, Maryland and Florida are subject to regulation by their respective PSC; Eastern Shore, our natural gas transmission subsidiary, is subject to regulation by the FERC; and Peninsula Pipeline and Aspire Energy Express, our intrastate pipeline ~~subsidiary, is~~subsidiaries, are subject to regulation (excluding cost of service) by the Florida ~~PSC.~~PSC and Public Utilities Commission of Ohio, respectively.

Delaware

~~CGS:~~

There were no material regulatory activities during the first quarter of 2021.

Maryland

Strategic Infrastructure Development and Enhancement (“STRIDE”) plan: In August 2019, we filed with the Delaware PSC an application seeking an order that will establish the regulatory accounting treatment and valuation methodology for the acquisition of propane CGS owned by our affiliate, Sharp, and the conversion of the CGS to natural gas service. We propose to acquire each CGS one at a time and to pay replacement cost for each CGS system. In addition, we are requesting authorization to pay for and capitalize the CGS residents’ behind-the-meter conversion costs. Our existing natural gas customers will be protected against subsidizing the acquisitions and conversions of the CGS systems because we will complete only those systems that meet our economic test. In September 2019, the Delaware PSC issued an order to open a docket for the purpose of reviewing our application and to conduct evidentiary hearings on the matter. A final order is anticipated in the second quarter of 2020.

~~Maryland~~

~~Approval of the~~March 2021, Elkton Gas ~~Acquisition:~~In December 2019, we entered into an agreement with SJI to acquire its subsidiary, Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil County, Maryland. Upon completion of the transaction, Elkton Gas will become our

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wholly-owned subsidiary. The acquisition, which is expected to close in the third quarter of 2020, is subject to approval by the Maryland PSC. Elkton Gas territory is contiguous to our franchised service territory in Cecil County, Maryland. We expect Elkton Gas will continue to operate out of its existing office with the same local personnel.

~~Application for Authority to Exercise a Franchise:~~ ~~In March 2020, we~~ filed with the Maryland PSC ~~an application seeking approval~~a strategic infrastructure development and enhancement plan. The STRIDE plan proposes to ~~exercise~~increase the speed of Elkton Gas' Aldyl-A pipeline replacement program and to recover the costs of the plan through a ~~franchise granted to us~~

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proposed 5-year surcharge. Under Elkton Gas’ proposed STRIDE plan, the Aldyl-A pipelines would be replaced by 2023. The procedural schedule for the ~~Board of County Commissioners of Somerset County, Maryland dated December 2019. We are anticipating a decision by the Maryland PSC in the second quarter of 2020.~~ case is underway, with hearings scheduled for June 2021.

Florida

~~Electric Limited Proceeding-Storm Recovery (Pre-Hurricane Michael~~): In February 2018, FPU filed a petition with the Florida PSC, requesting recovery of incremental storm restoration costs related to several hurricanes and tropical storms, along with the replenishment of the storm reserve to its pre-storm level of $1.5 million. As a result of these hurricanes and tropical storms, FPU’s storm reserve was depleted and, at the time of filing the petition, had a deficit of $0.8 million. This matter went to hearing in December 2018 and was subsequently approved at the March 2019 Agenda with the Final Order issued on March 25, 2019. FPU received approval to begin a surcharge on customer bills for two years beginning in April 2019, to recover storm-related costs and replenish the storm reserve.

Hurricane Michael: In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest ~~Florida. The hurricane~~Florida and caused widespread and severe damage to FPU's infrastructure resulting in the loss of electric service to 100 percent of its customers in the Northwest Florida service territory. FPU, after exerting extraordinary hurricane restoration efforts, restored service to those customers who were able to accept it. FPU expended more than $65.0 million to restore service, which was recorded as new plant and equipment, charged against FPU’s accumulated depreciation or charged against FPU’s storm reserve. Additionally, amounts currently being reviewed by the Florida PSC for regulatory asset treatment have been recorded as receivables and other deferred charges.

In August 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. FPU also requested treatment and recovery of certain storm-related costs as regulatory assets for items currently not allowed to be recovered through the storm reserve as well as the recovery of capital replaced as a result of the storm. Recovery of these costs includes a component of an overall return on capital additions and regulatory assets. In the fourth quarter of 2019, FPU along with the Office of Public Counsel in Florida, filed a joint motion with the Florida PSC to approve an interim rate increase, subject to refund, pending the final ruling on the recovery of the restoration costs incurred. The petition was approved by the Florida PSC in November 2019 and temporary rate increases were implemented effective January 2020. The Company has fully reserved these interim rates, pending a final resolution and settlement of the limited proceeding.

In March 2020, we filed an update to our original filing to account for actual charges incurred through December 2019, revised the amortization period of the storm-related costs from 30 years as originally requested to 10 years, and included costs related to Hurricane Dorian of approximately $1.2 million in this filing. ~~We continue to work with~~

In late 2019, the Florida PSC approved an interim rate increase, subject to refund, effective January 1, 2020, associated with the restoration effort following Hurricane Michael. We fully reserved these interim rates, pending a final resolution and settlement of the ~~petition is currently on the schedule for approval at~~limited proceeding.In September 2020, the Florida PSC ~~Agenda~~approved a settlement agreement between FPU and the Office of the Public Counsel regarding final cost recovery and rates associated with Hurricane Michael. 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 ~~September~~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 and a regulatory asset for cost of removal and undepreciated plant. The new base rates and storm surcharge were effective on November 1, 2020.

Electric Depreciation Study: In September 2019, FPU filed a petition, with the Florida PSC, for approval of its consolidated electric depreciation rates. ~~Once approved, we expect the new rates to be retroactively effective to January 1, 2020.~~ The petition ~~is currently on~~was joined to the ~~schedule for approval~~Hurricane Michael docket, and was approved at the Florida PSC ~~agenda~~Agenda in September 2020. The approved rates were retroactively applied effective January 1, 2020.

~~Western~~

West Palm Beach Expansion Project: In June 2019, Peninsula Pipeline filed with the Florida PSC for approval of its Transportation Service Agreement with FPU. Peninsula Pipeline will construct several new interconnection points and pipeline expansions in Palm Beach County, Florida, which will enable FPU to serve an industrial research park and several new residential developments. Peninsula Pipeline will provide transportation service to FPU, increasing reliability, system pressure as well as introducing diversity in fuel source for natural gas to serve the increased demand in these areas. The petition was approved by the Florida PSC at the August 6, 2019 Agenda. Interim services began in the fourth quarter of 2019. ~~The Company expects~~We expect to complete the remainder of the project in phases through the third quarter of ~~2020.~~2021.

~~Callahan Pipeline, Nassau County:~~ In July 2019, Peninsula Pipeline filed a petition for approval of the firm transportation service agreement with FPU and the restructuring of the business and operational agreements between Peoples Gas, FPU and Seacoast Gas Transmission. This petition was approved by the Florida PSC at the December 10, 2019 Agenda. Peninsula Pipeline and Seacoast Gas Transmission are constructing a jointly owned 26-mile, 16-inch steel pipeline that interconnects to the Cypress Pipeline interstate system in western Nassau County in order to serve growing demand in both Nassau and Duval counties, Florida. The Callahan pipeline will terminate into the existing Peninsula Pipeline-Peoples Gas jointly owned pipeline, which serves Amelia Island and the Peoples Gas distribution system. The Callahan Pipeline will enhance FPU’s ability to expand service into Nassau County and will enable Peoples Gas to enhance its

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~~system pressure and the reliability of its service in Duval County. The project is expected to be placed in-service during the third quarter of 2020.~~

Eastern Shore

Del-Mar Energy Pathway Project: In December 2019, the FERC issued an order approving the construction of the Del-Mar Energy Pathway project. The order ~~which was applied for in September 2018 by Eastern Shore,~~ approved the construction and operation of new facilities that will provide an additional 14,300 Dts/d of firm service to 4 customers. Facilities to be constructed include 6 miles of pipeline looping in Delaware; 13 miles of new mainline extension in Sussex County, Delaware and Wicomico and Somerset Counties in Maryland; and new pressure control and delivery stations in these counties. The benefits of this project include: (i) additional natural gas transmission pipeline infrastructure in eastern Sussex County, Delaware, and (ii) extension of Eastern Shore’s pipeline system, for the first time, into Somerset County, Maryland. Construction on the project began in January 2020, and Eastern Shore anticipates that this project will be fully in-service by the ~~beginning of the fourth quarter~~end of 2021.

~~Capital Cost Surcharge:~~ In December 2019, the FERC approved Eastern Shore’s proposed capital cost surcharge to become effective January 1, 2020. The surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows Eastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the replacement of existing Eastern Shore facilities. Eastern Shore expects to recover ~~$0.5 million~~ ~~in capital cost surcharges on an annual basis.~~

~~Renewable Natural Gas Tariff:~~ In October 2019, Eastern Shore filed an application with the FERC to include renewable natural gas (biogas) utilization and standards in its tariff. Eastern Shore had proposed changes to its gas quality specifications that would enable it to accommodate renewable natural gas at various receipt points on its system. Changes to the gas quality specifications would ensure interchangeability of renewable natural gas with the natural gas currently delivered to Eastern Shore. The tariffs became effective in November 2019.

COVID-19 Impact

We are monitoring the global outbreak of COVID-19 and taking steps to mitigate the potential risks posed by its spread. At this time, we have begun to see some early indications of these restrictions lifting. We provide an “essential

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service” to our customers, which means that it is paramount that we keep our employees who operate our business safe and informed. We have taken and are continuously monitoring and updating precautions and protocols to ensure the safety of our employees and customers. As an ~~“essential~~“essential business” we are allowed to continue operational activity and construction projects with appropriate safety precautions, personal protective equipment and social distancing restrictions in place. ~~We have taken steps to assure our customers that disconnections for non-payment will be temporarily suspended.~~ We are ~~also~~ working with our suppliers to understand the potential impacts to our supply chain; if material negative impacts are identified, we will work to mitigate them. This is a ~~rapidly~~continuously evolving situation, and ~~could lead~~has led to extended disruption of economic activity in our markets. We will continue to monitor developments affecting our employees, customers, suppliers and shareholders, and will take additional precautions as warranted to comply with the CDC, state and local requirements and recommendations to protect our employees, customers and the communities we serve.

~~As a result of these measures,~~In response to the COVID-19 pandemic and related restrictions, we ~~are incurring costs associated with crisis management and the~~implemented our pandemic response ~~including restrictions put~~plan, which includes having all employees who can work remotely do so in ~~place by the state PSCs on utility disconnects for non-payment, technology costs incurred~~order to ~~expand work from home capabilities, additional sanitation~~promote social distancing and ~~cleaning costs and costs of acquiring~~providing personal protective equipment ~~as well as other expenses. We are tracking~~to field employees to reduce the spread of COVID-19. Impacts from the restrictions imposed in our service territories and ~~analyzing whether~~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 ~~costs qualify for cost recovery and could be classified as regulatory assets.~~unprecedented times.

In April 2020, the Maryland PSC issued an order that authorized utilities to establish a regulatory asset to record prudently incurred incremental costs related to COVID-19, ~~for the period~~ beginning on March 16, 2020. The Maryland PSC found that the creation of a regulatory asset for COVID-19 related expenses will facilitate the recovery of those costs prudently incurred to serve customers during this period, and that the deferral of such costs is appropriate because the current catastrophic health emergency is outside the control of the utility and is a non-recurring event. We

In May 2020, the Delaware PSC issued an order that authorized Delaware utilities to establish a regulatory asset to record COVID-19 related incremental costs incurred to ensure customers have essential utility services, for the period beginning on March 24, 2020 and ending 30 days after the state of emergency ends. At the present time, the state of emergency has not ended. The creation of the regulatory asset for COVID-19 related costs offers utilities the ability to seek recovery of those costs.

In October 2020, the Florida PSC approved a joint petition of our natural gas and electric distribution utilities in Florida to establish regulatory asset to record incremental expenses incurred due to COVID-19. This regulatory asset will ~~continue~~allow us to ~~monitor similar orders issued~~seek recovery of these costs in our next base rate proceeding. On November 16, 2020, the Office of Public Counsel filed a protest to the order approving the establishment of this regulatory asset, contending that the order should be a reversed or modified and to request a hearing on the protest. The hearing date has been scheduled for June 16, 2021.

In the fourth quarter of 2020, we began recording regulatory assets based on the net incremental expense resulting from the COVID-19 pandemic for our natural gas distribution and electric businesses as currently authorized by the ~~FERC or~~Delaware and Maryland PSCs and as initially authorized by the ~~respective PSCs in our service territories to identify additional relief which could be available to our regulated businesses.~~Florida PSC.

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Summary TCJA Table

Customer rates for our regulated businesses were adjusted as approved by the regulators, prior to 2020 with the exception of Elkton Gas, which implemented a one-time bill credit in May 2020. The following table summarizes the regulatory liabilities related to accumulated deferred taxes ("ADIT") associated with TCJA ~~impact on~~for our regulated businesses as of March 31, 2021 and December 31, 2020:



	~~Regulatory Liabilities related to Accumulated Deferred Income Taxes ("ADIT")~~
~~Operation and Regulatory Jurisdiction~~	~~Amount (in thousands)~~	~~Status~~	~~Status of Customer Rate impact related to lower federal corporate income tax rate~~
~~Eastern Shore (FERC)~~	~~$34,190~~	~~Will be addressed in Eastern Shore's next rate case filing.~~	~~Implemented one-time bill credit (totaling $0.9 million) in April 2018. Customer rates were adjusted in April 2018.~~
~~Delaware Division (Delaware PSC)~~	~~$12,818~~	~~PSC approved amortization of ADIT in January 2019.~~	~~Implemented one-time bill credit (totaling $1.5 million) in April 2019. Customer rates were adjusted in March 2019.~~
~~Maryland Division (Maryland PSC)~~	~~$4,058~~	~~PSC approved amortization of ADIT in May 2018.~~	~~Implemented one-time bill credit (totaling $0.4 million) in July 2018. Customer rates were adjusted in May 2018.~~
~~Sandpiper Energy (Maryland PSC)~~	~~$3,752~~	~~PSC approved amortization of ADIT in May 2018.~~	~~Implemented one-time bill credit (totaling $0.6 million) in July 2018. Customer rates were adjusted in May 2018.~~
~~Chesapeake Florida Gas Division/Central Florida Gas (Florida PSC)~~	~~$8,274~~	~~PSC issued order authorizing amortization and retention of net ADIT liability by the Company in February 2019.~~	Florida PSC's final order was issued in February 2019. Excluding GRIP, tax savings arising from the TCJA rate reduction will be retained by the Company. GRIP: Tax savings for 2018 will be refunded to customers in 2020 through the annual GRIP cost recovery mechanism. Future customer GRIP surcharges will be adjusted to reflect tax savings associated with TCJA.
~~FPU Natural Gas (excludes Fort Meade and Indiantown) (Florida PSC)~~	~~$19,209~~	~~Same treatment on a net basis as Chesapeake Florida Gas Division (above).~~	~~Same treatment on a net basis as Chesapeake Florida Gas Division (above).~~
~~FPU Fort Meade and Indiantown Divisions~~	~~$291~~	~~Same treatment on a net basis as Chesapeake Florida Gas Division (above).~~	Tax rate reduction: The impact was immaterial for the divisions. GRIP (Applicable to Fort Meade division only): Same treatment as Chesapeake Florida Gas Division (above).
~~FPU Electric (Florida PSC)~~	~~$5,704~~	~~In January 2019, PSC issued order approving amortization of ADIT through purchased power cost recovery, storm reserve and rates.~~	~~TCJA benefit is provided to customers through a combination of reductions to the fuel cost recovery rate, base rates, as well as application to the storm reserve over the next several years.~~


	Amount (in thousands)
Operation and Regulatory Jurisdiction	March 31, 2021	December 31, 2020	Status
Eastern Shore (FERC)	$34,190	$34,190	Will be addressed in Eastern Shore's next rate case filing.
Delaware Division (Delaware PSC)	$12,694	$12,728	PSC approved amortization of ADIT in January 2019.
Maryland Division (Maryland PSC)	$3,938	$3,970	PSC approved amortization of ADIT in May 2018.
Sandpiper Energy (Maryland PSC)	$3,699	$3,713	PSC approved amortization of ADIT in May 2018.
Chesapeake Florida Gas Division/Central Florida Gas (Florida PSC)	$8,146	$8,184	PSC issued order authorizing amortization and retention of net ADIT liability by the Company in February 2019.
FPU Natural Gas (excludes Fort Meade and Indiantown) (Florida PSC)	$19,166	$19,257	Same treatment on a net basis as Chesapeake Florida Gas Division (above).
FPU Fort Meade and Indiantown Divisions	$306	$309	Same treatment on a net basis as Chesapeake Florida Gas Division (above).
FPU Electric (Florida PSC)	$6,631	$6,694	In January 2019, PSC issued order approving amortization of ADIT through purchased power cost recovery, storm reserve and rates.
Elkton Gas (Maryland PSC)	$1,124	$1,124	PSC approved amortization of ADIT in March 2018.

6. Environmental Commitments and Contingencies

We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remediate, at current and former operating sites, the effect on the environment of the disposal or release of specified substances.

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MGP Sites

We have participated in the investigation, assessment or remediation of, and have exposures at, 7 former MGP sites. We have received approval for recovery of clean-up costs in rates for sites located in Salisbury, Maryland; Seaford, Delaware; and Winter Haven, Key West, Pensacola, Sanford and West Palm Beach, Florida.

As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, we had approximately ~~$7.6~~$5.7 million and ~~$8.0~~$5.9 million, respectively, in environmental liabilities related to FPU’s MGP sites in Key West, Pensacola, Sanford and West Palm Beach. FPU has approval to recover, from insurance and ~~from customers~~ through customer rates, up to $14.0 million of its environmental costs related to its MGP sites. As of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, we had recovered approximately ~~$12.1~~$12.5 million and ~~$11.9~~$12.4 million, respectively, leaving approximately ~~$1.9~~$1.5 million and ~~$2.1~~$1.6 million, respectively, in regulatory assets for future recovery of environmental costs from FPU’s customers.

Environmental liabilities for our MGP sites are recorded on an undiscounted basis based on the estimate of future costs provided by independent consultants. We continue to expect that all costs related to environmental remediation and related activities, including any potential future remediation costs for which we do not currently have approval for regulatory recovery, will be recoverable from customers through rates.

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The following is a summary of our remediation status and estimated costs to implement clean-up of our key MGP ~~sites:~~site:



MGP Site (Jurisdiction)			Status		Estimated ~~Cost to Clean up~~ ~~(Expect to Recover through Rates with Customers)~~ Clean-Up Costs
West Palm Beach (Florida)			Remedial actions approved by the Florida Department of Environmental Protection have been implemented on the east parcel of the site. ~~We expect to implement similar~~Similar remedial actions have been initiated on the site's west parcel, and construction of active remedial systems are expected be completed in ~~2020.~~2021.		Between ~~$4.5~~$3.3 million to ~~$15.4~~$14.2 million, including costs associated with the relocation of FPU’s operations at this site, and any potential costs associated with future redevelopment of the properties.
~~Sanford (Florida)~~			In March 2018, the United States Environmental Protection Agency ("EPA") approved a "site-wide ready for anticipated use" status, which is the final step before delisting a site. Construction has been completed and restrictive covenants are in place to ensure protection of human health. The only remaining activity is long-term groundwater monitoring.	~~FPU's remaining remediation expenses, including attorneys' fees and costs, are anticipated to be immaterial.~~
~~Winter Haven (Florida)~~	~~Remediation is ongoing.~~	~~Not expected to exceed $0.4 million.~~
~~Seaford (Delaware)~~	Conducted investigations of on-site and off-site impacts in the vicinity of the site, from 2014 through 2018, and submitted the findings to Delaware Department of Natural Resources and Environmental Control ("DNREC") in a March 2019 report. An interim action involving air-sparging/vapor extraction is being implemented, in accordance with the DNREC-approved Work Plan.	~~Between $0.2 million and $0.5 million.~~

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7.			~~Other Commitments and Contingencies~~

The Environmental Protection Agency has approved a "site-wide ready for anticipated use" status for the Sanford, Florida MGP site, which is the final step before delisting a site. The remaining remediation expenses for the Sanford MGP site are immaterial. Remediation is ongoing for the Winter Haven, Florida and the Seaford, Delaware MGP sites and the estimated clean-up costs are between $0.2 million to $0.9 million for both sites.

7. Other Commitments and Contingencies

Natural Gas and Electric

In March 2020, our Delmarva Peninsula natural gas distribution operations entered into asset management agreements with a third party to manage their natural gas transportation and storage capacity. The agreements ~~are~~were effective as of April 1, 2020 and expire on March 31, 2023. ~~Previously, our Delmarva Peninsula natural gas distribution operations had asset management agreements with PESCO to manage their natural gas transportation and storage capacity. See Note 3,~~ ~~Acquisitions and Divestitures~~ ~~for additional details regarding the sale of PESCO's assets and contracts.~~

~~In May 2019, our~~FPU natural gas distribution operations and Eight Flags have entered into separate asset management agreements with Emera Energy Services, Inc. to manage their natural gas transportation capacity. ~~The parties entered into short-term~~These agreements ~~for a one-year term beginning July 2019 through July 2020. The parties also entered into long-term agreements~~are for a 10-year term that ~~will commence~~commenced in ~~July 2020.~~November 2020 and expire in October 2030.

Chesapeake Utilities' Florida Division has firm transportation service contracts with ~~Florida Gas Transmission Company ("FGT")~~FGT and ~~Gulfstream Natural Gas System, LLC ("Gulfstream").~~Gulfstream. Pursuant to a capacity release program approved by the Florida PSC, all of the capacity under these agreements has been released to various third parties. Under the terms of these capacity release agreements, Chesapeake Utilities is contingently liable to FGT and Gulfstream should any party, that acquired the capacity through release, fail to pay the capacity charge. To date, Chesapeake Utilities has not been required to make a payment resulting from this contingency.

FPU’s electric supply contracts require FPU to maintain an acceptable standard of creditworthiness based on specific financial ratios. FPU’s agreement with Florida Power & Light Company requires FPU to meet or exceed a debt service coverage ratio of 1.25 times based on the results of the prior 12 months. If FPU fails to meet this ratio, it must provide an irrevocable letter of credit or pay all amounts outstanding under the agreement within five business days. FPU’s electric supply agreement with Gulf Power requires FPU to meet the following ratios based on the average of the prior 6 quarters: (a) funds from operations interest coverage ratio (minimum of 2 times), and (b) total debt to total capital (maximum of 65 percent). If FPU fails to meet the requirements, it has to provide the supplier a written explanation of actions taken, or proposed to be taken, to become compliant. Failure to comply with the ratios specified in the Gulf Power agreement could also result in FPU having to provide an irrevocable letter of credit. As of March 31, ~~2020,~~2021, FPU was in compliance with all of the requirements of its fuel supply contracts.

Eight Flags provides electricity and steam generation services through its CHP plant located on Amelia Island, Florida. In June 2016, Eight Flags began selling power generated from the CHP plant to FPU pursuant to a 20-year power purchase agreement for distribution to our electric customers. In July 2016, Eight Flags also started selling steam, pursuant to a separate 20-year contract, to the landowner on which the CHP plant is located. The CHP plant is powered by natural gas transported by FPU through its distribution system and Peninsula Pipeline through its intrastate pipeline.

Corporate Guarantees

The Board of Directors has authorized us to issue corporate guarantees securing obligations of our subsidiaries and to obtain letters of credit securing our subsidiaries' obligations. The maximum authorized liability under such guarantees and letters of credit as of March 31, ~~2020~~2021 was ~~$37.0~~$20.0 million. The aggregate amount guaranteed at March 31, ~~2020~~2021 was approximately ~~$17.9~~$8.3 million with the guarantees expiring on various dates through March ~~2, 2021. The amounts related to PESCO were $6.8 million and are expected to be terminated or transferred in the second quarter~~30, 2022.

Table of ~~2020. See Note 3,~~ ~~Acquisitions and Divestitures, for additional details on the sale of assets and contracts for PESCO.~~Contents

Chesapeake Utilities also guarantees the payment of FPU’s first mortgage bonds. The maximum exposure under this guarantee is the outstanding principal plus accrued interest balances. The outstanding principal balances of FPU’s first mortgage bonds approximate their carrying values (see Note 15
~~, Long-Term Debt, for further details).~~

As of March 31, ~~2020,~~2021, we have issued letters of credit totaling approximately ~~$5.4~~$4.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions and our current and previous primary insurance carriers. These letters of credit have various expiration dates through October ~~22, 2020. There~~5, 2021. We have ~~been no draws~~not drawn on these letters of credit as of March 31, ~~2020. We~~2021 and do not anticipate that the counterparties will draw upon these letters of ~~credit, and we~~credit. We expect that they will be renewed to the extent necessary in the future. The outstanding letters of credit as of March 31, 2020 also included those issued to support the operations of our divested subsidiary, PESCO. As a result of the sale of assets and contracts for PESCO, letters of credit associated with PESCO are expected to be terminated or transferred in the second quarter of 2020.

~~Table of Contents~~

8. Segment Information


8.	~~Segment Information~~

We use the management approach to identify operating segments. We organize our business around differences in regulatory environment ~~and/or products or services,~~ and the operating results of each segment are regularly reviewed by the chief operating decision maker (our Chief Executive Officer) in order to make decisions about resources and to assess performance.

Our operations are entirely domestic and are comprised of 2 reportable segments:

•

•Regulated Energy. Includes energy distribution and transmission services (natural gas distribution, natural gas transmission and electric distribution operations). All operations in this segment are regulated, as to their rates and services, by the PSC having jurisdiction in each operating territory or by the FERC in the case of Eastern Shore.

•Unregulated Energy. Includes energy transmission, energy generation (the operations of our Eight Flags' CHP plant), propane operations, and mobile compressed natural gas distribution and pipeline solutions subsidiary. Also included in this segment are other unregulated energy services, such as energy-related merchandise sales and heating, ventilation and air conditioning, plumbing and electrical services. These operations are unregulated as to their rates and services. Effective in the third quarter of 2019, the natural gas marketing and related services subsidiary (PESCO), previously reported in the Unregulated Energy segment, was reflected in discontinued operations.

•

~~Unregulated Energy.~~ Includes energy transmission, energy generation (the operations of our Eight Flags' CHP plant), propane operations, and our mobile compressed natural gas and pipeline solutions subsidiary. Also included in this segment are other unregulated energy services, such as energy-related merchandise sales and heating, ventilation and air conditioning, plumbing and electrical services. These operations are unregulated as to their rates and services. Effective in the third quarter of 2019, the natural gas marketing and related services subsidiary (PESCO), previously reported in the Unregulated Energy segment, are reflected in discontinued operations. See Note 3, ~~Acquisitions and Divestitures~~ ~~for additional details of the sale of PESCO.~~

The remainder of our operations are presented as “Other businesses and eliminations,” which consists of unregulated subsidiaries that own real estate leased to Chesapeake Utilities, as well as certain corporate costs not allocated to other operations.

The following table presents financial information about our reportable segments:

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	Three Months Ended							Three Months Ended
	March 31,							March 31,
	2020			2019				2021		2020
(in thousands)							(in thousands)
Operating Revenues, Unaffiliated Customers							Operating Revenues, Unaffiliated Customers
Regulated Energy	$	102,494		$	103,071		Regulated Energy	$	120,721	$	102,469
Unregulated Energy	50,216			57,393			Unregulated Energy	70,466		50,221
Total operating revenues, unaffiliated customers	$	152,710		$	160,464		Total operating revenues, unaffiliated customers	$	191,187	$	152,690
Intersegment Revenues ⁽¹⁾							Intersegment Revenues (1)
Regulated Energy	$	461		$	547		Regulated Energy	$	476	$	486
Unregulated Energy	3,815			3,687			Unregulated Energy	4,293		3,791
Other businesses	132			132			Other businesses	132		132
Total intersegment revenues	$	4,408		$	4,366		Total intersegment revenues	$	4,901	$	4,409
Operating Income							Operating Income
Regulated Energy	$	27,888		$	29,741		Regulated Energy	$	32,864	$	27,888
Unregulated Energy	13,841			15,258			Unregulated Energy	19,105		13,862
Other businesses and eliminations	384			(875		)	Other businesses and eliminations	(372)		384
Operating income	42,113			44,124			Operating income	51,597		42,134
Other income (expense), net	3,318			(57		)
Other income, net							Other income, net	385		3,319
Interest charges	5,814			5,628			Interest charges	5,105		5,814
Income from Continuing Operations before Income Taxes	39,617			38,439			Income from Continuing Operations before Income Taxes	46,877		39,639
Income Taxes on Continuing Operations	10,591			9,625			Income Taxes on Continuing Operations	12,405		10,598
Income from Continuing Operations	29,026			28,814			Income from Continuing Operations	34,472		29,041
Loss from Discontinued Operations, net of tax	(96		)	(150		)
Loss from Discontinued Operations, Net of Tax							Loss from Discontinued Operations, Net of Tax	(6)		(111)
Net Income	$	28,930		$	28,664		Net Income	$	34,466	$	28,930

⁽¹⁾ All significant intersegment revenues are billed at market rates and have been eliminated from consolidated operating revenues.


(in thousands)	March 31, 2021		December 31, 2020
Identifiable Assets
Regulated Energy segment	$	1,559,260	$	1,547,619
Unregulated Energy segment	352,271		347,665
Other businesses and eliminations	42,419		37,203
Total identifiable assets	$	1,953,950	$	1,932,487

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9. Stockholders' Equity

Common Stock Issuances

(in thousands) March 31, 2020 December 31, 2019
Identifiable Assets
Regulated Energy segment $ 1,448,114
$ 1,434,066
Unregulated Energy segment 295,470
296,810
Other businesses and eliminations 44,635
52,322
Total identifiable assets $ 1,788,219
$ 1,783,198

In June 2020, we filed a shelf registration statement with the SEC to facilitate the issuance of our common stock from time to time. In August 2020, we filed a prospectus supplement under the shelf registration statement for an ATM equity program under which we may issue and sell shares of our common stock up to an aggregate offering price of $75.0 million. In the third and fourth quarters of 2020, we issued 0.7 million shares of common stock at an average price per share of $82.93 and received net proceeds of approximately $61.0 million, after deducting commissions and other fees of $1.5 million.

We maintain an effective shelf registration statement with the SEC for the issuance of shares under our DRIP. Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may issue additional shares under the direct stock purchase component of the DRIP. In the third and fourth quarters of 2020, we issued 0.3 million shares at an average price per share of $86.12 and received net proceeds of $22.0 million under the DRIP. In the first quarter of 2021, we issued less than 0.1 million shares at an average price per share of $109.05 and received net proceeds of $1.9 million under the DRIP. In April of 2021, we issued less than 0.1 million shares at an average price per share of $115.35 and received net proceeds of $1.0 million under the DRIP.


9.	~~Stockholder's Equity~~

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.

Accumulated Other Comprehensive Loss

Defined benefit pension and postretirement plan items, unrealized gains (losses) of our propane swap agreements ~~and natural gas swaps and futures contracts,~~ designated as commodity contracts cash flow hedges, and the unrealized gains (losses) of our interest rate swap agreements designated as cash flow hedges are the components of our accumulated other comprehensive loss. The following tables present the changes in the balance of accumulated other comprehensive ~~(loss)/income~~loss as of March 31, ~~2020~~2021 and ~~2019.~~2020. All amounts ~~except~~in the ~~stranded tax reclassification~~following tables are presented net of tax.


	Defined Benefit			Commodity							Defined Benefit		Commodity		Interest Rate
	Pension and			Contract							Pension and		Contracts		Swap
	Postretirement			Cash Flow							Postretirement		Cash Flow		Cash Flow
	Plan Items			Hedges			Total				Plan Items		Hedges		Hedges		Total
(in thousands)										(in thousands)
As of December 31, 2019	$	(4,933	)	$	(1,334	)	$	(6,267	)
As of December 31, 2020										As of December 31, 2020	$	(5,146)	$	2,309	$	(28)	$	(2,865)
Other comprehensive income before reclassifications	—			895			895			Other comprehensive income before reclassifications	0		2,371		1		2,372
Amounts reclassified from accumulated other comprehensive income (loss)	66			(888		)	(822		)	Amounts reclassified from accumulated other comprehensive income (loss)	63		(2,205)		(3)		(2,145)
Net current-period other comprehensive income	66			7			73
As of March 31, 2020	$	(4,867	)	$	(1,327	)	$	(6,194	)
Net current-period other comprehensive income (loss)										Net current-period other comprehensive income (loss)	63		166		(2)		227

As of March 31, 2021										As of March 31, 2021	$	(5,083)	$	2,475	$	(30)	$	(2,638)


(in thousands)
As of December 31, 2019	$	(4,933)	$	(1,334)	$	—	$	(6,267)
Other comprehensive income before reclassifications	—		895		—		895
Amounts reclassified from accumulated other comprehensive income/(loss)	66		(888)		—		(822)
Net prior-period other comprehensive income	66		7		—		73
As of March 31, 2020	$	(4,867)	$	(1,327)	$	—	$	(6,194)

(in thousands)
As of December 31, 2018 $ (5,928 ) $ (785 ) $ (6,713 )
Other comprehensive income before reclassifications —
3,021
3,021
Amounts reclassified from accumulated other comprehensive income 107
(39 ) 68
Net prior-period other comprehensive income 107
2,982
3,089
Prior-year reclassification

(115 ) (115 )
As of March 31, 2019 $ (5,821 ) $ 2,082
$ (3,739 )

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The following table presents amounts reclassified out of accumulated other comprehensive ~~loss~~income (loss) for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. Deferred gains or losses for our commodity ~~contract~~contracts and interest rate swap cash flow hedges are recognized in earnings upon settlement.

~~Table of Contents~~

Three Months Ended
March 31,
2020 2019
(in thousands)
Amortization of defined benefit pension and postretirement plan items:
Prior service credit ⁽¹⁾
$ 19
$ 19
Net loss⁽¹⁾
(108 ) (163 )
Total before income taxes (89 )
(144 )
Income tax benefit 23
37
Net of tax $ (66 ) $ (107 )
Gains and losses on commodity contracts cash flow hedges:
Propane swap agreements ⁽²⁾
$ 1,227
$ 606
Natural gas swaps ⁽²⁾⁽³⁾
—
11
Natural gas futures ⁽²⁾⁽³⁾
—
(573 )
Total before income taxes 1,227
44
Income tax benefit (expense) (339 ) (5 )
Net of tax 888
39
Total reclassifications for the period $ 822
$ (68 )


	Three Months Ended
	March 31,
	2021		2020
(in thousands)
Amortization of defined benefit pension and postretirement plan items:
Prior service credit (1)	$	19	$	19
Net loss(1)	(104)		(108)
Total before income taxes	(85)		(89)
Income tax benefit	22		23
Net of tax	$	(63)	$	(66)

Gains and losses on commodity contracts cash flow hedges:
Propane swap agreements (2)	$	3,047	$	1,227



Income tax expense	(842)		(339)
Net of tax	$	2,205	$	888

Gains on interest rate swap cash flow hedges:
Interest rate swap agreements	$	4	$	—

Income tax expense	(1)		0
Net of tax	$	3	$	0

Total reclassifications for the period	$	2,145	$	822

⁽¹⁾ These amounts are included in the computation of net periodic costs (benefits). See Note 10, Employee Benefit Plans, for additional details.

⁽²⁾These amounts are included in the effects of gains and losses from derivative instruments. See Note 13, Derivative Instruments, for additional details.

⁽³⁾ ~~PESCO's results for the first quarter of 2019 are reflected as discontinued operations in our condensed consolidated statements of income.~~

Amortization of defined benefit pension and postretirement plan items is included in other expense, net gains and losses on propane swap agreements, ~~call options~~natural gas swaps, and natural gas futures contracts are included in cost of sales, the realized gain or loss on interest rate swap agreements is recognized as a component of interest charges in the accompanying condensed consolidated statements of income. The income tax benefit is included in income tax expense in the accompanying condensed consolidated statements of income.

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10. Employee Benefit Plans


~~10.~~	~~Employee Benefit Plans~~

Net periodic benefit costs for our pension and post-retirement benefits plans for the three months ended March 31, ~~2020~~2021 and ~~2019~~2020 are set forth in the following tables:


	Chesapeake Pension Plan				FPU Pension Plan				Chesapeake SERP				Chesapeake Postretirement Plan				FPU Medical Plan
For the Three Months Ended March 31,	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
(in thousands)
Interest cost	$	34	$	46	$	429	$	518	$	12	$	16	$	6	$	8	$	6	$	10
Expected return on plan assets	(40)		(42)		(830)		(745)		—		—		—		—		—		—
Amortization of prior service credit	—		—		—		—		—		—		(19)		(19)		—		—
Amortization of net (gain) loss	60		65		155		135		7		5		8		12		(2)		—
Net periodic cost (benefit)	54		69		(246)		(92)		19		21		(5)		1		4		10
Amortization of pre-merger regulatory asset	—		—		0		0		—		—		—		—		0		2
Total periodic cost (benefit)	$	54	$	69	$	(246)	$	(92)	$	19	$	21	$	(5)	$	1	$	4	$	12

Chesapeake
Pension Plan FPU
Pension Plan Chesapeake SERP Chesapeake
Postretirement
Plan FPU
Medical
Plan
For the Three Months Ended March 31, 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
(in thousands)
Interest cost $ 46
$ 105
$ 518
$ 615
$ 16
$ 21
$ 8
$ 10
$ 10
$ 12
Expected return on plan assets (42 ) (127 ) (745 ) (693 ) —
—
—
—
—
—
Amortization of prior service credit —
—
—
—
—
—
(19 ) (19 ) —
—
Amortization of net loss 65
101
135
129
5
26
12
12
—
—
Net periodic cost (benefit) 69
79
(92 ) 51
21
47
1
3
10
12
Amortization of pre-merger regulatory asset —
—
—
190
—
—
—
—
2
2
Total periodic cost $ 69
$ 79
$ (92 ) $ 241
$ 21
$ 47
$ 1
$ 3

$ 12
$ 14

We expect to record ~~immaterial~~$0.7 million in pension and ~~postretirement~~post-retirement benefit ~~costs~~ for ~~2020.~~2021. The components of our net periodic costs have been recorded or reclassified to other expense, net in the condensed consolidated statements of income. Pursuant to a Florida PSC order, FPU continues to record, as a regulatory asset, a portion of the unrecognized postretirement benefit costs related to its regulated operations after the FPU merger. The portion of the unrecognized pension and postretirement benefit costs related to FPU’s unregulated operations and Chesapeake Utilities' operations is recorded to accumulated other comprehensive loss.

The following tables present the amounts included in the regulatory asset and accumulated other comprehensive loss that were recognized as components of net periodic benefit cost during the three ~~months~~ ended March 31, ~~2020~~2021 and ~~2019:~~2020:


For the Three Months Ended March 31, 2021	Chesapeake Pension Plan		FPU Pension Plan		Chesapeake SERP		Chesapeake Postretirement Plan		FPU Medical Plan		Total
(in thousands)
Prior service credit	$	—	$	—	$	—	$	(19)	$	—	$	(19)
Net loss	60		155		7		8		(2)		228
Total recognized in net periodic benefit cost	60		155		7		(11)		(2)		209
Recognized from accumulated other comprehensive loss/(gain) (1)	60		29		7		(11)		—		85
Recognized from regulatory asset	—		126		—		—		(2)		124
Total	$	60	$	155	$	7	$	(11)	$	(2)	$	209

For the Three Months Ended March 31, 2020 Chesapeake
Pension
Plan FPU
Pension
Plan Chesapeake SERP Chesapeake
Postretirement
Plan FPU
Medical
Plan Total
(in thousands)
Prior service credit $ —
$ —
$ —
$ (19 ) $ —
$ (19 )
Net loss 65
135
5
12
—
217
Total recognized in net periodic benefit cost 65
135
5
(7 ) —
198

Recognized from accumulated other comprehensive loss/(gain) ⁽¹⁾
65
26
5
(7 ) —
89
Recognized from regulatory asset —
109
—
—
—
109
Total $ 65
$ 135
$ 5
$ (7 ) $ —
$ 198


For the Three Months Ended March 31, 2020	Chesapeake Pension Plan		FPU Pension Plan		Chesapeake SERP		Chesapeake Postretirement Plan		FPU Medical Plan		Total
(in thousands)
Prior service credit	$	—	$	—	$	—	$	(19)	$	—	$	(19)
Net loss	65		135		5		12		—		217
Total recognized in net periodic benefit cost	65		135		5		(7)		—		198
Recognized from accumulated other comprehensive loss/(gain) (1)	65		26		5		(7)		—		89
Recognized from regulatory asset	—		109		—		—		—		109
Total	$	65	$	135	$	5	$	(7)	$	—	$	198

For the Three Months Ended March 31, 2019 Chesapeake
Pension
Plan FPU
Pension
Plan Chesapeake SERP Chesapeake
Postretirement
Plan FPU
Medical
Plan Total
(in thousands)
Prior service credit $ —
$ —
$ —
$ (19 ) $ —
$ (19 )
Net loss 101
129
26
12
—
268
Total recognized in net periodic benefit cost 101
129
26
(7 ) —
249

Recognized from accumulated other comprehensive loss/(gain) ⁽¹⁾
101
24
26
(7 ) —
144
Recognized from regulatory asset —
105
—
—
—
105
Total $ 101
$ 129
$ 26

$ (7 )
$ —

$ 249

~~Table of Contents~~

(1)⁽¹⁾See Note 9, ~~Stockholder's~~Stockholders' Equity.

Table of Contents

During the three months ended March 31, ~~2020,~~2021, we contributed approximately ~~$0.3~~$0.1 million to the Chesapeake Pension Plan and approximately $0.4 million to the FPU Pension Plan. ~~Our contribution to the Chesapeake Pension Plan was immaterial.~~ We expect to contribute approximately $0.3 million and ~~$3.2~~$2.1 million, respectively, to the Chesapeake Pension Plan and FPU Pension Plans ~~respectively,~~ during ~~2020,~~2021, which represents the minimum annual contribution payments required. A provision in the Coronavirus Aid, Relief, and Economy Stimulus Act, which was passed by Congress and signed into law by President Trump in March 2020, authorized the deferral of 2020 pension contributions to January 1, 2021. Despite this authorization, we will not defer any of our pension plan contributions to 2021.

The Chesapeake SERP, the Chesapeake Postretirement Plan and the FPU Medical Plan are unfunded and are expected to be paid out of our general funds. Cash benefits paid under the Chesapeake SERP for the three months ended March 31, ~~2020~~2021 were immaterial. We expect to pay total cash benefits of approximately $0.2 million under the Chesapeake SERP in ~~2020.~~2021. Cash benefits paid under the Chesapeake Postretirement Plan, primarily for medical claims for the three months ended March 31, ~~2020~~2021 were ~~immaterial.~~$0.2 million. We estimate that approximately ~~$0.1~~$0.2 million will be paid for such benefits under the Chesapeake Postretirement Plan in ~~2020.~~2021. Cash benefits paid under the FPU Medical Plan, primarily for medical claims for the three months ended March 31, ~~2020~~2021, were immaterial. We estimate that approximately $0.1 million will be paid for such benefits under the FPU Medical Plan in ~~2020.~~2021.


~~11.~~	~~Investments~~

11. Investments

The investment balances at March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, consisted of the following:

(in thousands) March 31,
2020 December 31,
2019
Rabbi trust (associated with the Non-Qualified Deferred Compensation Plan) $ 7,194
$ 9,202
Investments in equity securities 23
27
Total $ 7,217
$ 9,229


(in thousands)	March 31, 2021		December 31, 2020
Rabbi trust (associated with the Non-Qualified Deferred Compensation Plan)	$	10,860	$	10,755
Investments in equity securities	23		21
Total	$	10,883	$	10,776

We classify these investments as trading securities and report them at their fair value. For the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, we recorded a net unrealized gain of approximately $0.4 million and a net unrealized loss of approximately $1.5 million, ~~and a net unrealized gain of approximately $0.7 million,~~ respectively, in other ~~expense,~~income, net in the condensed consolidated statements of income related to these investments. For the investment in the Rabbi Trust, we also have recorded an associated liability, which is included in other pension and benefit costs in the ~~condensed~~ consolidated balance sheets and is adjusted each period for the gains and losses incurred by the investments in the Rabbi Trust.


~~12.~~	~~Share-Based Compensation~~

12. Share-Based Compensation

Our non-employee directors and key employees are granted share-based awards through our SICP. We record these share-based awards as compensation costs over the respective service period for which services are received in exchange for an award of equity or equity-based compensation. The compensation cost is based primarily on the fair value of the shares awarded, using the estimated fair value of each share on the date it was granted and the number of shares to be issued at the end of the service period.

The table below presents the amounts included in net income related to share-based compensation expense for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended
	March 31,
	2021		2020
(in thousands)
Awards to non-employee directors	$	188	$	176
Awards to key employees	1,688		880
Total compensation expense	1,876		1,056
Less: tax benefit	(496)		(275)
Share-based compensation amounts included in net income	$	1,380	$	781

Three Months Ended
March 31,
2020 2019
(in thousands)
Awards to non-employee directors $ 176
$ 149
Awards to key employees 880
338
Total compensation expense 1,056
487
Less: tax benefit (276 ) (127 )
Share-based compensation amounts included in net income $ 780
$ 360

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Non-employee Directors

Shares granted to non-employee directors are issued in advance of the directors’ service periods and are fully vested as of the ~~date of the grant.~~grant date. We record a deferred expense equal to the fair value of the shares issued and amortize the expense equally over a service period of one year. In May ~~2019,~~2020, after the most recent election of directors, each of our ~~continuing~~ non-employee directors received an annual retainer of ~~751~~887 shares of common stock under the SICP for service as a director through the ~~2020~~2021 Annual Meeting of Stockholders; accordingly, ~~6,759~~8,870 shares, with a weighted average fair value of ~~$93.14~~$84.47 per share, were issued and vested in ~~2019.~~

In January 2020, a newly appointed member of the Board of Directors received a pro-rated retainer of 254 shares of common stock under the SICP to serve as a non-employee director through the 2020 Annual Meeting of Stockholders. The shares awarded to the non-employee director immediately vested upon issuance in January 2020, had a weighted average fair value of $95.83 per share, and the expense will be recognized over the remaining service period ending on the date of the 2020 Annual Meeting of Stockholders.

2020. At March 31, ~~2020,~~2021, there was approximately ~~$0.1~~$0.1 million of unrecognized compensation expense related to shares granted to non-employee directors. This expense will be recognized over the remaining service period ending on the date of the ~~2020~~2021 Annual Meeting of Stockholders.

Key Employees

The table below presents the summary of the stock activity for awards to key employees for the three months ended March 31, ~~2020:~~2021:

Number of Shares
Weighted Average
Fair Value
Outstanding—December 31, 2019 157,817
$ 80.28
Granted 65,775
$ 92.78
Vested (35,651 ) $ 66.48
Expired (5,302 ) $ 65.32
Outstanding—March 31, 2020 182,639
$ 87.01


	Number of Shares	Weighted Average Fair Value
Outstanding—December 31, 2020	186,878	$	87.06
Granted	66,425	$	102.73
Vested	(53,147)	$	76.31
Expired	(852)	$	74.85
Forfeited	(5,384)	$	93.39
Outstanding—March 31, 2021	193,920	$	94.61

In February ~~2020, our Board of Directors~~2021, we granted awards of ~~65,775~~66,425 shares of common stock to key employees under the SICP. The shares granted are multi-year awards that will vest at the end of the three-year service period ending December 31, ~~2022.~~2023. All of these stock awards are earned based upon the successful achievement of long-term financial results, which comprise market-based and performance-based conditions or targets. The fair value of each performance-based condition or target is equal to the market price of our common stock on the grant date of each award. For the market-based conditions, we used the Monte Carlo valuation to estimate the fair value of each market-based award granted.

In March ~~2020,~~2021, upon the election of certain of our executive officers, we withheld shares with a value at least equivalent to each such executive officer’s minimum statutory obligation for applicable income and other employment taxes related to shares that ~~we awarded~~vested and were paid in February ~~2020~~2021 for the performance period ended December 31, ~~2019,~~2020, remitted the cash to the appropriate taxing authorities, and paid the balance of such awarded shares to each such executive officer. We withheld ~~10,319~~14,020 shares, based on the value of the shares on their award date. Total combined payments for the employees’ tax obligations to the taxing authorities were approximately ~~$1.0~~$1.5 million.

At March 31, ~~2020,~~2021, the aggregate intrinsic value of the SICP awards granted to key employees was approximately ~~$15.7~~$22.5 million. At March 31, ~~2020,~~2021, there was approximately ~~$6.7~~$7.3 million of unrecognized compensation cost related to these awards, which is expected to be recognized as expense ~~from~~for the remainder of ~~2020~~2021 through ~~2022.~~2023.

Stock Options

There were no stock options outstanding or issued during the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

13. Derivative Instruments

We use derivative and non-derivative contracts to manage risks related to obtaining adequate supplies and the price fluctuations of natural gas, electricity and ~~propane.~~propane and to mitigate interest rate risk. Our natural gas, electric and propane distribution operations have entered into agreements with suppliers to purchase natural gas, electricity and propane for resale to our customers. ~~Aspire Energy~~Our natural gas gathering and transmission company has entered into contracts with producers to secure natural gas to meet its obligations. Purchases under these

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contracts typically either do not meet the definition of derivatives or are considered “normal purchases and normal sales” and are accounted for on an accrual basis. Our propane distribution operations may also enter into fair value hedges of their inventory or cash flow hedges of their future purchase commitments in order to mitigate the impact of wholesale price fluctuations. We have also entered into interest rate swap agreements to mitigate risk associated with changes in short-term borrowing rates. As of March 31, ~~2020,~~2021, our natural gas and electric distribution operations did not have any outstanding derivative contracts.

~~PESCO's Derivative Instruments~~

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~~As discussed in Note 3,~~

~~Acquisitions and Divestitures, during the fourth quarter of 2019, we sold PESCO's assets and contracts, and therefore, no longer have natural gas futures and contracts recorded in our condensed consolidated financial statements.~~

Volume of Derivative Activity

As of March 31, ~~2020,~~2021, the volume of our commodity derivative contracts were as follows:

Business unit

Commodity

Quantity hedged (in millions)

Designation

Longest Expiration date of hedge

Sharp

Propane (gallons)

~~15.9~~18.2

Cash flows hedges

~~June 2022~~March 2024

Sharp entered into futures and swap agreements to mitigate the risk of fluctuations in wholesale propane index prices associated with the propane volumes expected to be purchased during the heating season. Under the futures and swap agreements, Sharp will receive the difference ~~between:~~between (i) the index prices (Mont Belvieu prices ~~for~~in March ~~2020~~2021 through March 2024), and (ii) the per gallon propane swap prices, to the extent the index prices exceed the contracted prices. If the index prices are lower than the swap prices, Sharp will pay the difference. We designated and accounted for the propane swaps as cash flows hedges. The change in the fair value of the swap agreements is recorded as unrealized gain (loss) in other comprehensive income (loss) and later recognized in the statement of income in the same period and in the same line item as the hedged transaction. We expect to reclassify approximately ~~$1.5~~$3.2 million from accumulated other comprehensive ~~loss~~income (loss) to earnings during the next 12-month period ended March 31, ~~2021.~~2022.

Interest Rate Swap Activities

We manage interest rate risk by entering into derivative contracts to hedge the variability in cash flows attributable to changes in the short-term borrowing rates. In the fourth quarter of 2020, we entered into interest rate swaps with notional amount of $60.0 million through December 2021 with pricing of 0.20 and 0.205 percent for the period associated with our outstanding borrowing under the Revolver. In February 2021, we entered into an additional interest rate swap with a notional amount of $40.0 million through December 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.

We designated and accounted for interest rate swaps as cash flows hedges. Accordingly, unrealized gains and losses associated with the interest rate swaps are recorded as a component of accumulated other comprehensive income (loss). When the interest rate swaps settle, the realized gain or loss will be recorded in the income statement and recognized as a component of interest charges. We expect to reclassify less than $0.1 million from accumulated other comprehensive income (loss) to earnings during the next 12-month period ended March 31, 2022.

Broker Margin

Futures exchanges have contract specific margin requirements that require the posting of cash or cash equivalents relating to traded contracts. Margin requirements consist of initial margin that is posted upon the initiation of a position, maintenance margin that is usually expressed as a percent of initial margin, and variation margin that fluctuates based on the daily mark-to-market relative to maintenance margin requirements. We currently maintain a broker margin account for Sharp, with the balance related to the account is as follows:

(in thousands) Balance Sheet Location March 31, 2020 December 31, 2019
Sharp Other Current Assets $ 3,111
$ 2,317


(in thousands)	Balance Sheet Location	March 31, 2021		December 31, 2020

Sharp	Other Current Liabilities	$	1,060	$	1,505

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Financial Statements Presentation

The following tables present information about the fair value and related gains and losses of our derivative contracts. We did not have any derivative contracts with a credit-risk-related contingency.

~~As of March 31, 2020 and December 31, 2019, we did not have material fair value hedges.~~

The fair values of the derivative contracts recorded in the condensed consolidated balance sheets as of March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, are as follows:


	Derivative Assets
		Fair Value As Of
(in thousands)	Balance Sheet Location	March 31, 2021		December 31, 2020
Derivatives designated as fair value hedges
Propane put options	Derivative assets, at fair value	$	—	$	14
Derivatives designated as cash flow hedges
Propane swap agreements	Derivative assets, at fair value	3,462		3,255
Total asset derivatives		$	3,462	$	3,269


	Derivative Assets						Derivative Liabilities
		Fair Value As Of						Fair Value As Of
(in thousands)	Balance Sheet Location	March 31, 2020		December 31, 2019		(in thousands)	Balance Sheet Location	March 31, 2021		December 31, 2020
Derivatives designated as fair value hedges						Derivatives designated as fair value hedges
Propane put options						Propane put options	Derivative liabilities, at fair value	$	—	$	23
Derivatives designated as cash flow hedges						Derivatives designated as cash flow hedges
Propane swap agreements	Derivative assets, at fair value	$	151	$	—	Propane swap agreements	Derivative liabilities, at fair value	42		64
Total asset derivatives		$	151	$	—
Interest rate swap agreements						Interest rate swap agreements	Derivative liabilities, at fair value	42		40
Total liability derivatives						Total liability derivatives		$	84	$	127

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Derivative Liabilities
Fair Value As Of
(in thousands) Balance Sheet Location March 31, 2020 December 31, 2019
Derivatives designated as cash flow hedges
Propane swap agreements Derivative liabilities, at fair value $ 1,986
$ 1,844
Total liability derivatives $ 1,986
$ 1,844

The effects of gains and losses from derivative instruments on the condensed consolidated financial statements are as follows:


		Amount of Gain (Loss) on Derivatives:							Amount of Gain (Loss) on Derivatives:
	Location of Gain	For the Three Months Ended March 31,						Location of Gain	For the Three Months Ended March 31,
(in thousands)	(Loss) on Derivatives	2020		2019			(in thousands)	(Loss) on Derivatives	2021		2020
Derivatives designated as fair value hedges							Derivatives designated as fair value hedges
Propane put options							Propane put options	Cost of sales	$	(24)	$	—
Derivatives designated as cash flow hedges							Derivatives designated as cash flow hedges
Propane swap agreements	Cost of sales	$	1,227	$	606		Propane swap agreements	Cost of sales	3,047		1,227
Propane swap agreements	Other comprehensive income	9		1,009			Propane swap agreements	Other comprehensive income (loss)	229		9
Natural gas swap contracts	Other comprehensive loss	—		(59		)
Natural gas futures contracts	Other comprehensive income	—		3,226
Interest rate swap agreements							Interest rate swap agreements	Interest expense	4		0
Interest rate swap agreements							Interest rate swap agreements	Other comprehensive income (loss)	(3)		0

Total		$	1,236	$	4,782		Total		$	3,253	$	1,236

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~~14.~~	~~Fair Value of Financial Instruments~~

14. Fair Value of Financial Instruments

GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value. The three levels of the fair value hierarchy are the following:



Fair Value Hierarchy	Description of Fair Value Level	Fair Value Technique Utilized
Level 1	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities	Investments - equity securities - The fair values of these trading securities are recorded at fair value based on unadjusted quoted prices in active markets for identical securities. Investments - mutual funds and other - The fair values of these investments, comprised of money market and mutual funds, are recorded at fair value based on quoted net asset values of the shares.
Level 2	Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability	Derivative assets and liabilities - The fair value of the propane put/call options, propane and interest rate swap agreements are measured using market transactions for similar assets and liabilities in either the listed or over-the-counter markets.
Level 3	Prices or valuation techniques requiring inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity)	Investments - guaranteed income fund - The fair values of these investments are recorded at the contract value, which approximates their fair value.

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Financial Assets and Liabilities Measured at Fair Value

The following tables summarize our financial assets and liabilities that are measured at fair value on a recurring basis and the fair value measurements, by level, within the fair value hierarchy as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


												Fair Value Measurements Using:
			Fair Value Measurements Using:
As of March 31, 2020	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
As of March 31, 2021									As of March 31, 2021	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)									(in thousands)
Assets:									Assets:
Investments—equity securities	$	23	$	23	$	—	$	—	Investments—equity securities	$	23	$	23	$	—	$	—
Investments—guaranteed income fund	835		—		—		835		Investments—guaranteed income fund	2,148		—		—		2,148
Investments—mutual funds and other	6,359		6,359		—		—		Investments—mutual funds and other	8,712		8,712		—		—
Total investments	7,217		6,382		—		835		Total investments	10,883		8,735		—		2,148
Derivative assets	151		—		151		—		Derivative assets	3,462		—		3,462		—
Total assets	$	7,368	$	6,382	$	151	$	835	Total assets	$	14,345	$	8,735	$	3,462	$	2,148
Liabilities:									Liabilities:
Derivative liabilities	$	1,986	$	—	$	1,986	$	—	Derivative liabilities	$	84	$	—	$	84	$	—

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Fair Value Measurements Using:
As of December 31, 2019 Fair Value
Quoted Prices in
Active Markets
(Level 1)

Significant Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
(in thousands)
Assets:
Investments—equity securities $ 27
$ 27
$ —
$ —
Investments—guaranteed income fund 803
—
—
803
Investments—mutual funds and other 8,399
8,399
—
—
Total investments 9,229
8,426

—

803
Derivative assets —
—
—
—
Total assets $ 9,229

$ 8,426

$ —

$ 803
Liabilities:
Derivative liabilities $ 1,844
$ —
$ 1,844
$ —


			Fair Value Measurements Using:
As of December 31, 2020	Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
(in thousands)
Assets:
Investments—equity securities	$	21	$	21	$	—	$	—
Investments—guaranteed income fund	2,156		—		—		2,156
Investments—mutual funds and other	8,599		8,599		—		—
Total investments	10,776		8,620		—		2,156
Derivative assets	3,269		—		3,269		—
Total assets	$	14,045	$	8,620	$	3,269	$	2,156
Liabilities:
Derivative liabilities	$	127	$	—	$	127	$	—

The following table sets forth the summary of the changes in the fair value of Level 3 investments for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended March 31,						Three months ended March 31,
	2020			2019			2021		2020
(in thousands)						(in thousands)
Beginning Balance	$	803		$	686	Beginning Balance	$	2,156	$	803
Purchases and adjustments	9			6		Purchases and adjustments	22		9
Transfers	57			—		Transfers	0		57
Distribution	(38		)	—		Distribution	(38)		(38)
Investment income	4			3		Investment income	8		4
Ending Balance	$	835		$	695	Ending Balance	$	2,148	$	835

Investment income from the Level 3 investments is reflected in other expense, (net) in the condensed consolidated statements of income.

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At March 31, ~~2020,~~2021, there were no non-financial assets or liabilities required to be reported at fair value. We review our non-financial assets for impairment at least on an annual basis, as required.

Other Financial Assets and Liabilities

Financial assets with carrying values approximating fair value include cash and cash equivalents and accounts receivable. Financial liabilities with carrying values approximating fair value include accounts payable and other accrued liabilities and short-term debt. The fair value of cash and cash equivalents is measured using the comparable value in the active market and approximates its carrying value (Level 1 measurement). The fair value of short-term debt approximates the carrying value due to its near-term maturities and because interest rates approximate current market rates (Level 3 measurement).

At March 31, ~~2020~~,2021, long-term debt, which includes current maturities but excludes debt issuance costs, had a carrying value of approximately ~~$456.6~~$523.0 million, compared to the estimated fair value of ~~$447.8~~$537.7 million. At December 31, ~~2019,~~2020, long-term debt, which includes the current maturities but excludes debt issuance costs, had a carrying value of approximately ~~$486.6~~$523.0 million, compared to a fair value of approximately ~~$505.0~~$548.5 million. The fair value was calculated using a discounted cash flow methodology that incorporates a market interest rate based on published corporate borrowing rates for debt instruments with similar terms and average maturities, and with adjustments for duration, optionality, and risk profile. The valuation technique used to estimate the fair value of long-term debt would be considered a Level 3 measurement.

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15. Long-Term Debt


~~15.~~	~~Long-Term Debt~~

Our outstanding long-term debt is shown below:


	March 31,		December 31,
(in thousands)	2021		2020
Uncollateralized senior notes:
5.93% note, due October 31, 2023	$	9,000	$	9,000
5.68% note, due June 30, 2026	17,400		17,400
6.43% note, due May 2, 2028	5,600		5,600
3.73% note, due December 16, 2028	16,000		16,000
3.88% note, due May 15, 2029	45,000		45,000
3.25% note, due April 30, 2032	70,000		70,000
3.48% note, due May 31, 2038	50,000		50,000
3.58% note, due November 30, 2038	50,000		50,000
3.98% note, due August 20, 2039	100,000		100,000
2.98% note, due December 20, 2034	70,000		70,000
3.00% note, due July 15, 2035	50,000		50,000
2.96% note, due August 15, 2035	40,000		40,000
Less: debt issuance costs	(875)		(901)
Total long-term debt	522,125		522,099
Less: current maturities	(13,600)		(13,600)
Total long-term debt, net of current maturities	$	508,525	$	508,499

March 31, December 31,
(in thousands) 2020 2019
FPU secured first mortgage bonds ⁽¹⁾:

9.08% bond, due June 1, 2022 $ 7,991
$ 7,990
Uncollateralized senior notes:
5.50% note, due October 12, 2020 2,000
2,000
5.93% note, due October 31, 2023 12,000
12,000
5.68% note, due June 30, 2026 20,300
20,300
6.43% note, due May 2, 2028 6,300
6,300
3.73% note, due December 16, 2028 18,000
18,000
3.88% note, due May 15, 2029 50,000
50,000
3.25% note, due April 30, 2032 70,000
70,000
3.48% note, due May 31, 2038 50,000
50,000
3.58% note, due November 30, 2038 50,000
50,000
3.98% note, due August 20, 2039 100,000
100,000
2.98% note, due December 20, 2034 70,000
70,000
Term Note due February 28, 2020
—
30,000
Less: debt issuance costs (808 ) (822 )
Total long-term debt 455,783
485,768
Less: current maturities (15,600 ) (45,600 )
Total long-term debt, net of current maturities $ 440,183

$ 440,168
.

⁽¹⁾ ~~FPU secured first mortgage bonds are guaranteed by Chesapeake Utilities.~~

~~Term Notes~~

In January 2019, we issued a $30.0 million unsecured term note through Branch Banking and Trust Company, with a maturity date of February 28, 2020. This note was paid in full in February 2020 utilizing our short-term borrowing facilities.

Shelf Agreements

We have entered into Shelf Agreements with Prudential, MetLife and NYL, ~~with~~whom are under no ~~party under any~~ obligation to purchase any unsecured debt. The Prudential Shelf Agreement totaling $150.0 million was entered into in October 2015 and we issued $70.0 million of 3.25 percent unsecured debt in April 2017. The Prudential Shelf Agreement was then amended in September 2018 to increase the borrowing capacity back to $150.0 million, and in August 2019, we issued $100.0 million of 3.98 percent unsecured debt. In January 2020, we submitted a request for Prudential to purchase $50.0 million of our unsecured debt which was accepted and confirmed by Prudential. The Shelf Notes will bear interest at the rate of 3.00 percent per annum and the proceeds received from the issuance will be used to reduce short-term borrowings under our revolving credit facility, lines of credit and/or to fund capital expenditures. The closing of the issuance of the Shelf Notes is expected to occur on or before July 15, 2020. In April 2020, the Prudential Shelf Agreement was amended to reinstate and increase the available borrowing capacity back to $150.0 million.

The NYL Shelf Agreement totaling $100.0 million was entered into in March 2017 and we issued unsecured debt totaling $100.0 million during 2018. The NYL Shelf Agreement was amended in November 2018 to provide additional borrowing capacity of $50.0 million. In February 2020, we submitted a request for NYL to purchase $40.0 million of our unsecured debt which was accepted and confirmed by NYL. The Shelf Notes will bear interest at the rate of 2.96 percent per annum and the proceeds received from the issuance will be used to reduce short-term borrowings under our revolving credit facility, lines of credit and/or to fund capital expenditures. The closing of the issuance of the Shelf Notes is expected to occur on or before August 14, 2020.

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~~agreed to commercial terms with MetLife to provide a new $150.0 million MetLife Shelf Agreement for a three-year term ending March 31, 2023. The MetLife Shelf Agreement will be finalized in May 2020.~~

~~The~~ following table summarizes ~~the available borrowing capacity under~~ our Shelf Agreements ~~and is reflective of activity that occurred subsequent to~~at March 31, ~~2020:~~2021:


(in thousands)	Total Borrowing Capacity		Less: Amount of Debt Issued		Less: Unfunded Commitments		Remaining Borrowing 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 March 31, 2021	$	670,000	$	(360,000)	$	0	$	310,000

(in thousands) Total Borrowing Capacity Less: Amount of Debt Issued Less: Unfunded Commitments Remaining Borrowing Capacity
Shelf Agreement
Prudential Shelf Agreement⁽¹⁾
$ 220,000
$ (170,000 ) $ (50,000 ) $ —
NYL Shelf Agreement ⁽²⁾
150,000
(100,000 ) (40,000 ) 10,000
Total Shelf Agreements as of March 31, 2020 370,000
(270,000 ) (90,000 ) 10,000

Subsequent amendments / renewals:
Prudential Shelf Agreement⁽³⁾
150,000
—
—
150,000
MetLife Shelf Agreement ⁽⁴⁾
150,000
—
—
150,000
Total Shelf Agreements added after March 31, 2020 300,000
—
—
300,000
Total Shelf Agreements as of May 5, 2020 $ 670,000
$ (270,000 ) $ (90,000 ) $ 310,000

(1) The Prudential, MetLife and NYL Shelf Agreements expire in April 2023, May 2023 and November 2021, respectively.

⁽¹⁾
~~In January 2020, we requested and Prudential accepted our request to purchase $50.0 million of our unsecured debt.~~

⁽²⁾ ~~In February 2020, we requested and NYL accepted our request to purchase $40.0 million of our unsecured debt.~~

⁽³⁾ ~~In April 2020, the Prudential Shelf Agreement was amended to reinstate and increase the available borrowing capacity back to $150.0 million.~~

⁽⁴⁾ In April 2020, we agreed to commercial terms with MetLife to provide a new $150.0 million MetLife Shelf Agreement for a three-year term ending March 31, 2023. The MetLife Shelf Agreement will be finalized in May 2020.

The Uncollateralized 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.


~~16.~~	16. Short-Term Borrowings

We are authorized by our Board of Directors to borrow up to $400.0 million of short-term debt, as required, from among our various short-term debt facilities. These facilities are 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.

At March 31, ~~2020~~2021 and December 31, ~~2019,~~2020, we had ~~$254.3~~$156.1 million and ~~$247.4~~$175.6 million, respectively, of short-term borrowings outstanding at ~~the~~a weighted average interest ~~rates~~rate of ~~2.30~~1.11 percent and ~~2.62 percent, respectively. We have an aggregate of $370.0~~1.28 percent. Included in the March 31, 2021 balance, is $100.0 million in ~~credit lines comprised of 4 unsecured bank credit facilities with 4 financial institutions, with $220.0~~short-term debt for which we have entered into interest rate swap agreements.

In September 2020, we entered into a $375.0 million ~~in total available credit, and a~~syndicated Revolver with 5six participating Lenders totaling $150.0 million. All of these facilities expire in October 2020. The following table summarizes our short-term borrowing facilities information at March 31, 2020 and December 31, 2019:

~~Table of Contents~~

Outstanding borrowings at
(in thousands) Total Facility LIBOR Based Interest Rate March 31, 2020 December 31, 2019 Available at March 31, 2020
Bank Credit Facility
Committed revolving credit facility A $ 55,000
plus 0.75 percent $ 55,000
$ 55,000
$ —
Committed revolving credit facility B 80,000
plus 0.75 percent 72,389
57,150
7,611
Committed revolving credit facility C 45,000
plus 0.75 percent 35,515
42,040
9,485
Committed revolving credit facility D 40,000
plus 0.85 percent 40,000
40,000
—
Committed revolving credit facility E⁽²⁾
150,000
plus 1.125 percent 50,000
50,000
100,000
Total short term credit facilities $ 370,000
252,904
244,190
$ 117,096
Book overdrafts⁽¹⁾
1,435
3,181

Total short-term borrowing $ 254,339
$ 247,371

⁽¹⁾ ~~If presented, these book overdrafts would be funded through the bank revolving credit facilities.~~

⁽²⁾~~This committed revolving credit facility includes a restriction that our short-term borrowings, excluding any borrowings under the committed revolving credit facility, shall not exceed $350.0 million.~~

lenders. As a result of entering into the ~~uncertainty regarding the length of and depth of the impacts of the COVID-19 pandemic,~~Revolver, in ~~April~~September 2020, we ~~received commitments for an additional $50.0 million~~terminated and paid all outstanding balances under the previously existing bilateral lines of ~~short-term debt capacity through two~~ credit ~~facilities that mature on October 31, 2020. These facilities have a commitment fee~~and the previous revolving credit facility.

Table of 35 basis points with an interest rate of 175 basis points over LIBOR, to the extent we borrow under these facilities. Additionally, we have also agreed to commercial terms for 2 additional short-term credit facilities totaling $45.0 million that mature on October 31, 2020. These credit facilities are expected to be finalized in May 2020.Contents

The availability of funds under ~~our credit facilities~~the Revolver is subject to conditions specified in the ~~respective~~ credit ~~agreements,~~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 ~~our revolving credit facilities~~the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio of no greater than 65 percent. As of March 31, ~~2020,~~2021, we are in compliance with ~~all~~this covenant.

The Revolver expires on September 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 ~~debt covenants.~~

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 total indebtedness to total capitalization ratio. As of March 31, 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 Revolver at March 31, 2021 was $214.1 million. As of March 31, 2021, we had issued $4.8 million in letters of credit to various counterparties under the syndicated Revolver. Although the letters of credit are not included in the outstanding short-term borrowings and we do not anticipate they will be drawn upon by the counterparties, the letters of credit reduce the available borrowings under our syndicated Revolver.

In ~~April~~the fourth quarter of 2020, we entered into interest rate swaps with a notional ~~amounts totaling $70.0~~amount of $60.0 million ~~associated~~through December 2021 with 2pricing of ~~our short-term lines of credit for a six-month term beginning April 2020~~0.20 and terminating in October 2020. The interest rate swaps were entered to hedge the variability in cash flows attributable to changes in the short-term borrowing rates during this period. The respective fixed swap rates will be 0.3875 and 0.2750.205 percent for the ~~period.~~period associated with our outstanding borrowing under the Revolver. In February 2021, we entered into an additional interest rate swap with a notional amount of $40.0 million through December 2021 with pricing of 0.17 percent. Our short-term borrowing ~~will be~~is based on the 30-day LIBOR rate. The interest ~~swap will be~~rate swaps are cash settled monthly as the counter-party ~~will pay~~pays us the 30-day LIBOR rate less the fixed rate.

We are authorized by our Board of Directors to borrow up to $375.0 million of short-term debt, as required.


~~17.~~	~~Leases~~

17. Leases

We have entered into lease arrangements for office space, land, equipment, pipeline facilities and warehouses. These lease arrangements enable us to better conduct business operations in the regions in which we operate. Office space is leased to provide adequate workspace for all our employees in several locations throughout the Mid-Atlantic, Mid-West and in Florida. We lease land at various locations throughout our service territories to enable us to inject natural gas into underground storage and distribution systems, for bulk storage capacity, for our propane operations and for storage of equipment used in repairs and maintenance of our infrastructure. We lease natural gas compressors to ensure timely and reliable transportation of natural gas to our customers. Additionally, we lease a pipeline to deliver natural gas to an industrial customer in Polk County, Florida. We also lease warehouses to store equipment and materials used in repairs and maintenance for our businesses.

Some of our leases are subject to annual changes in the Consumer Price Index (“CPI”). While lease liabilities are not re-measured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. A 100-basis-point increase in CPI would not have resulted in material additional annual lease costs. Most of our leases include options to renew, with renewal terms that

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can extend the lease term from 1one to 25 years or more. The exercise of lease renewal options is at our sole discretion. The amounts disclosed in our ~~condensed~~ consolidated balance sheet at March 31, ~~2020~~2021, pertaining to the right-of-use assets and lease liabilities, are measured based on our current expectations of exercising our available renewal options. Our existing leases are not subject to any restrictions or covenants which preclude our ability to pay dividends, obtain financing or enter into additional leases. As of March 31, ~~2020,~~2021, we have not entered into any leases, which have not yet commenced, that would entitle us to significant rights or create additional obligations. The following table presents information related to our total lease cost included in our ~~condensed~~ consolidated statements of income:

Three Months Ended
March 31,
( in thousands) Classification 2020 2019
Operating lease cost ⁽¹⁾
Operations expense $ 626
$ 635
Finance lease cost:
Amortization of lease assets Depreciation and amortization —
401
Interest on lease liabilities Interest expense —
4
Net lease cost $ 626
$ 1,040


		Three Months Ended
		March 31,
( in thousands)	Classification	2021		2020
Operating lease cost (1)	Operations expense	$	523	$	626

⁽¹⁾ Includes short-term leases and variable lease costs, which are immaterial.

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The following table presents the balance and classifications of our right of use assets and lease liabilities included in our condensed consolidated balance sheet at March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


(in thousands)	Balance sheet classification	March 31, 2020		December 31, 2019		(in thousands)	Balance sheet classification	March 31, 2021		December 31, 2020
Assets						Assets
Operating lease assets	Operating lease right-of-use assets	$	11,696	$	11,563	Operating lease assets	Operating lease right-of-use assets	$	10,510	$	11,194
Total lease assets		$	11,696	$	11,563
Liabilities						Liabilities
Current						Current
Operating lease liabilities	Other accrued liabilities	$	1,608	$	1,705	Operating lease liabilities	Other accrued liabilities	$	1,724	$	1,747
Noncurrent						Noncurrent
Operating lease liabilities	Operating lease - liabilities	10,165		9,896		Operating lease liabilities	Operating lease - liabilities	9,125		9,872
Total lease liabilities		$	11,773	$	11,601	Total lease liabilities		$	10,849	$	11,619

The following table presents our weighted-average remaining lease terms and weighted-average discount rates for our operating and financing leases at March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


	March 31, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Weighted-average remaining lease term (in years)					Weighted-average remaining lease term (in years)
Operating leases	8.75		8.88		Operating leases	8.77		8.70

Weighted-average discount rate					Weighted-average discount rate
Operating leases	3.8	%	3.8	%	Operating leases	3.8	%	3.8	%

The following table presents additional information related to cash paid for amounts included in the measurement of lease liabilities included in our condensed consolidated statements of cash flows as of March 31, ~~2020~~2021 and ~~2019:~~2020:

Three Months Ended
March 31,
(in thousands) 2020 2019
Operating cash flows from operating leases $ 527
$ 537
Operating cash flows from finance leases $ —
$ 4
Financing cash flows from finance leases $ —
$ 401


	Three Months Ended
	March 31,
(in thousands)	2021		2020
Operating cash flows from operating leases	$	471	$	527

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The following table presents the future undiscounted maturities of our operating and financing leases at March 31, ~~2020~~2021 and for each of the next five years and thereafter:


(in thousands)	Operating Leases ⁽¹⁾		(in thousands)	Operating Leases (1)
Remainder of 2020	$	1,545
2021	2,010
Remainder of 2021			Remainder of 2021	$	1,531
2022	1,916		2022	1,854
2023	1,852		2023	1,770
2024	1,597		2024	1,615
2025	1,363		2025	1,400
2026			2026	966
Thereafter	3,787		Thereafter	3,621
Total lease payments	$	14,070	Total lease payments	$	12,757
Less: Interest	2,297		Less: Interest	1,908
Present value of lease liabilities	$	11,773	Present value of lease liabilities	$	10,849

⁽¹⁾ Operating lease payments include ~~$4.1~~$2.1 million related to options to extend lease terms that are reasonably certain of being exercised.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is designed to provide a reader of the financial statements with a narrative report on our financial condition, results of operations and liquidity. This discussion and analysis should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~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 ~~2019~~2020 Annual Report on Form 10-K, ~~and Item 1A, Risk Factors, in this Quarterly Report on Form 10-Q,~~ 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;

•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 ~~electricity;~~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 ~~electricity,~~ 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;~~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;

•the effect of accounting pronouncements issued periodically by accounting standard-setting bodies; and

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•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, ~~propane~~electricity, and ~~electricity;~~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, ~~and~~ consistent with our long-term growth ~~strategy.~~

strategyand create opportunities to continue our record of top tier returns on equity relative to our peer group.



~~Our~~Currently, our growth strategy is ~~to consistently produce industry leading total shareholder return by profitably investing capital~~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 for collaboration and efficiencies across the organization. •Growth of Marlin Gas Services’ CNG transport business and expansion into ~~opportunities~~LNG and RNG transport services as well as methane capture. •Identifying and undertaking additional strategic propane acquisitions that ~~leverage~~provide a larger foundation in current markets and expand our ~~skills~~brand and ~~expertise in energy distribution and transmission to achieve high levels~~presence into new strategic growth markets. •Pursuit of ~~service and growth. The key elements of our strategy include:~~ • ~~capital investment in~~ growth opportunities that ~~generate~~enable us to utilize our ~~target returns;~~integrated set of energy delivery businesses to participate in renewable energy opportunities. • ~~expanding our energy distribution and transmission operations within our existing service areas as well as into new geographic areas;~~ • ~~providing new services in our current service areas;~~ • ~~expanding our footprint in potential growth markets through strategic acquisitions that complement our businesses;~~ • ~~entering new energy markets and businesses that complement our existing operations and growth strategy; and~~ • ~~operating as a customer-centric full-service energy supplier/partner/provider, while providing safe and reliable service.~~ ~~Our employees strive to build meaningful connections that generate opportunities to grow our businesses, develop new markets, and enrich the communities in which we live, work and serve.~~

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 ~~Months~~months Ended March 31, ~~2020~~2021

Overview

Chesapeake Utilities is a Delaware corporation formed in 1947. We are a diversified energy company engaged, through our operating divisions and subsidiaries, in regulated energy, unregulated energy and other businesses. We operate primarily on the Delmarva Peninsula and in Florida, Pennsylvania and Ohio and provide natural gas distribution and transmission; electric distribution and generation; propane ~~operations;~~gas distribution; mobile compressed natural gas services; steam generation; and other energy-related services.

In the fourth quarter of 2019, we completed the sale of the assets and contracts of PESCO. As a result, PESCO’s results for all periods presented have been separately reported as discontinued operations.

On March ~~13,~~ 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 within the United States, federal, state and local governments throughout the country ~~have~~ 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 ~~have~~ significantly impacted economic conditions in the United States in 2020 and continued into 2021. At this time, restrictions continue to lift as vaccines have become more available in the ~~economic impact~~United States. Regardless, Chesapeake Utilities is ~~expected to continue as long as the social distancing restrictions remain in place. We are~~ considered an “essential business,” which ~~allows~~has allowed us to continue operational activities and construction projects ~~while the~~despite any social distancing restrictions ~~remain~~that are in place. In response to the COVID-19 pandemic and related restrictions, we ~~have~~ implemented our pandemic response plan, which includes having all employees who can work remotely do so in order to promote social distancing and providing personal protective equipment to field employees to reduce the spread of COVID-19. ~~For~~

Impacts from the ~~first~~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. In the fourth quarter of 2020, we began recording regulatory assets, as currently authorized by the ~~COVID-19 impact on~~Delaware and Maryland PSCs and as initially provided for by the Florida PSC, associated with the incremental expenses incurred by our ~~results~~natural gas and electric distribution businesses as a result of ~~operations or financial position was immaterial. Any future impact on our results of operations, liquidity, or financial position from COVID-19, particularly from continued social distancing and other~~the pandemic. Despite the early changes in restrictions, ~~recommended or required by federal, state and local authorities, cannot be estimated at this time. We are committed to communicating timely updates and will~~we continue to operate under our pandemic response plan, monitor developments affecting ~~our~~ employees, customers, suppliers, ~~and shareholders~~stockholders and take ~~additional~~all precautions as warranted to operate safely and to comply with the CDC, Occupational Safety and Health Administration, and state and local requirements in order to protect our employees, customers and the ~~communities we serve.~~communities. 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

Operational Highlights

Our net income for the quarter ended March 31, 2020 was $28.9 million, compared to $28.7 million for the same quarter of 2019. Our earnings per share for the quarter ended March 31, 2020 increased $0.02 to $1.76 per share, compared to the same quarter of 2019.

Our income from continuing operations for the ~~quarter~~three months ended March 31, ~~2020~~2021 was $34.5 million, or $1.96 per share, compared to $29.0 million, ~~compared to $28.8 million~~or $1.77 per share, for the same quarter of ~~2019. Our earnings per share from continuing operations~~2020. Operating income for the ~~quarter~~three months ended March 31, ~~2020~~2021 increased ~~$0.02 to $1.77 per share, compared to the same quarter of 2019. Operating income decreased~~ by ~~$2.0~~$9.5 million, ~~for the quarter ended March 31, 2020, compared to~~or 22.5 percent, over the same period in 2020. Higher earnings for the ~~prior year. Weather during~~first quarter of 2021 reflected a return to more normal weather compared to weather in the first quarter of 2020 that was ~~20 and 17~~20.4 percent warmer than the first quarter of 2019, on the Delmarva Peninsula and in Ohio, respectively, which was a significant driver of lower consumption and reduced operating income by $4.2 million. This decrease was largely offset by growth innormal. Our earnings also increased from ~~our organic growth~~pipeline expansion projects, favorable regulatory initiatives and contributions from the ~~December 2019 acquisition~~2020 acquisitions of ~~certain~~Elkton Gas and Western Natural Gas. Increased retail propane ~~assets of Boulden. The decrease~~margins per gallon, organic growth in ~~operating income was offset by a $3.2 million gain~~the natural gas distribution operations and increased margin from ~~the sale of two properties as we consolidate our facilities in support of our strategic initiatives.~~

Marlin Gas Services, also generated additional earnings.

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	Three Months Ended
	March 31,				Increase
	2021		2020		(decrease)
(in thousands except per share)
Gross Margin
Regulated Energy segment	$	78,154	$	68,123	$	10,031
Unregulated Energy segment	38,776		31,782		6,994
Other businesses and eliminations	(40)		(85)		45
Total Gross Margin	$	116,890	$	99,820	$	17,070

Operating Income
Regulated Energy segment	$	32,864	$	27,888	$	4,976
Unregulated Energy segment	19,105		13,862		5,243
Other businesses and eliminations	(372)		384		(756)
Total Operating Income	51,597		42,134		9,463
Other expense, net	385		3,319		(2,934)
Interest charges	5,105		5,814		(709)
Income from Continuing Operations Before Income Taxes	46,877		39,639		7,238
Income Taxes on Continuing Operations	12,405		10,598		1,807
Income from Continuing operations	34,472		29,041		5,431
Loss from Discontinued Operations	(6)		(111)		105
Net Income	$	34,466	$	28,930	$	5,536
Basic Earnings Per Share of Common Stock
Earnings from Continuing Operations	$	1.97	$	1.77	$	0.20
Loss from Discontinued Operations	—		(0.01)		0.01
Basic Earnings Per Share of Common Stock	$	1.97	$	1.76	$	0.21
Diluted Earnings Per Share of Common Stock
Earnings from Continuing Operations	$	1.96	$	1.77	$	0.19
Loss from Discontinued Operations	—		(0.01)		0.01
Diluted Earnings Per Share of Common Stock	$	1.96	$	1.76	$	0.20

Three Months Ended
March 31, Increase
2020 2019 (decrease)
(in thousands except per share)
Gross Margin
Regulated Energy segment $ 68,123
$ 67,102
$ 1,021
Unregulated Energy segment 31,803
32,542
(739 )
Other businesses and eliminations (85 ) (107 ) 22
Total Gross Margin $ 99,841
$ 99,537
$ 304

Operating Income
Regulated Energy segment $ 27,888
$ 29,741
$ (1,853 )
Unregulated Energy segment 13,841
15,258
(1,417 )
Other businesses and eliminations 384
(875 ) 1,259
Total Operating Income 42,113
44,124
(2,011 )
Other income (expense), net 3,318
(57 ) 3,375
Interest charges 5,814
5,628
186
Income from Continuing Operations Before Income Taxes 39,617
38,439
1,178
Income Taxes on Continuing Operations 10,591
9,625
966
Income from Continuing operations 29,026
28,814
212
Loss from Discontinued Operations (96 ) (150 ) 54
Net Income $ 28,930
$ 28,664
$ 266
Basic Earnings Per Share of Common Stock
Earnings from Continuing Operations $ 1.77
$ 1.76
$ 0.01
Loss from Discontinued Operations (0.01 ) (0.01 ) —
Basic Earnings Per Share of Common Stock $ 1.76
$ 1.75
$ 0.01

Diluted Earnings Per Share of Common Stock
Earnings from Continuing Operations $ 1.77
$ 1.75
$ 0.02
Loss from Discontinued Operations (0.01 ) (0.01 ) —
Diluted Earnings Per Share of Common Stock $ 1.76
$ 1.74
$ 0.02

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Key variances in continuing operations, between the first quarter of ~~2020~~2021 and the first quarter of ~~2019,~~2020, included:

(in thousands, except per share data) Pre-tax
Income Net
Income Earnings
Per Share
First Quarter of 2019 Reported Results from Continuing Operations $ 38,439
$ 28,814
$ 1.75

Adjusting for Unusual Items:
Decreased customer consumption primarily due to warmer weather (4,220 ) (3,092 ) (0.19 )
Absence of Florida tax savings (net of GRIP refunds) recorded in Q1 2019 for 2018 (910 ) (667 ) (0.04 )
Gains from sales of assets 3,162
2,317
0.14
(1,968 )
(1,442 )
(0.09 )

Increased (Decreased) Gross Margins:
Margin contribution from Boulden acquisition (completed December 2019)* 1,888
1,383
0.08
Increased retail propane margins per gallon 1,217
892
0.05
Natural gas distribution growth (excluding service expansions) 1,096
803
0.05
Peninsula Pipeline service expansions* 1,039
761
0.05
Higher Aspire Energy margins from negotiated rate increases 388
284
0.02
Marlin Gas Services - higher level of pipeline integrity services for existing customers in 2019* (982 ) (720 ) (0.04 )
4,646
3,403
0.21

(Increased) Decreased Operating Expenses (Excluding Cost of Sales):
Depreciation, amortization and property tax costs due to new capital investments (1,347 ) (987 ) (0.06 )
Insurance expense (non-health) - both insured and self-insured (1,028 ) (753 ) (0.05 )
Operating expenses from Boulden acquisition (completed December 2019) (535 ) (392 ) (0.02 )
Facilities maintenance costs and outside services (462 ) (338 ) (0.02 )
Payroll, Benefits and other employee-related expenses 1,293
947
0.06
(2,079 ) (1,523 ) (0.09 )

Interest Charges (186 ) (136 ) (0.01 )
Other income tax effects —
(651 ) (0.04 )
Net other changes 765
561
0.04
579
(226 ) (0.01 )

First Quarter of 2020 Reported Results from Continuing Operations $ 39,617
$ 29,026
$ 1.77


(in thousands, except per share data)	Pre-tax Income		Net Income		Earnings Per Share
First Quarter of 2020 Reported Results from Continuing Operations	$	39,639	$	29,041	$	1.77

Adjusting for Unusual Items:
Gain from sales of assets in the first quarter of 2020	(3,162)		(2,317)		(0.14)

Increased (Decreased) Gross Margins:
Increased customer consumption - primarily weather related	6,430		4,728		0.26
Eastern Shore and Peninsula Pipeline service expansions*	2,749		2,022		0.11
Hurricane Michael Settlement margin impact *	2,575		1,894		0.11
Margin contributions from Elkton Gas and Western Natural Gas*	1,862		1,369		0.08
Increased retail propane margins per gallon	1,340		986		0.06
Natural gas growth (excluding service expansions)	939		691		0.04
Increased gross margin from demand for Marlin Gas Services *	731		537		0.03
Florida GRIP*	370		272		0.02
	16,996		12,499		0.71

(Increased) Decreased Operating Expenses (Excluding Cost of Sales):
Payroll, Benefits and other employee-related expenses due to growth	(1,995)		(1,467)		(0.08)
Hurricane Michael settlement agreement - depreciation and amortization impact	(1,776)		(1,306)		(0.07)
Depreciation, amortization and property tax costs due to new capital investments	(1,733)		(1,274)		(0.07)
Facilities, maintenance and outside services costs	(1,130)		(831)		(0.05)
Operating expenses for Elkton Gas and Western Natural Gas acquisitions	(1,029)		(757)		(0.04)
	(7,663)		(5,635)		(0.31)

Interest charges (1)	709		521		0.03
Net other changes	358		363		0.02
Change in shares outstanding due to 2020 and 2021 equity offerings	—		—		(0.12)
	1,067		884		(0.07)
First Quarter of 2021 Reported Results from Continuing Operations	$	46,877	$	34,472	$	1.96

*See the Major Projects and Initiatives table.

(1) Interest charges includes amortization of a regulatory liability of $0.3 million related to the Hurricane Michael regulatory proceeding settlement.

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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 ~~represent~~summary represents the major projects/initiatives recently completed and currently underway. Major ~~projects/~~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 ~~final~~completed and the associated earnings can be estimated.


	Gross Margin for the Period
	Three Months Ended				Year Ended		Estimate for
	March 31,				December 31,		Fiscal
in thousands	2021		2020		2020		2021		2022
Pipeline Expansions:
Western Palm Beach County, Florida Expansion (1)	$	1,167	$	1,000	$	4,167	$	4,984	$	5,227
Del-Mar Energy Pathway (1) (2)	884		189		2,462		4,134		6,708
Callahan Intrastate Pipeline (2)	1,887		—		3,851		7,564		7,598
Guernsey Power Station	47		—		—		514		1,486
Total Pipeline Expansions	3,985		1,189		10,480		17,196		21,019

CNG Transportation	2,077		1,347		7,231		7,900		8,500

RNG Transportation	—		—		—		150		1,000

Acquisitions:
Elkton Gas	1,312		—		1,344		3,992		4,200
Western Natural Gas	550		—		389		1,800		1,854
Total Acquisitions	1,862		—		1,733		5,792		6,054

Regulatory Initiatives:
Florida GRIP	4,065		3,695		15,178		16,739		17,712
Hurricane Michael regulatory proceeding	2,575		—		10,864		11,014		11,014
Capital Cost Surcharge Programs	136		133		523		1,350		2,350
Total Regulatory Initiatives	6,776		3,828		26,565		29,103		31,076

Total	$	14,700	$	6,364	$	46,009	$	60,141	$	67,649

Gross Margin for the Period
Three Months Ended Year Ended Estimate for
March 31, December 31, Fiscal
in thousands 2020 2019 2019 2020 2021
Expansions:
Western Palm Beach County, Florida Expansion - including interim services $ 1,000
$ 131
$ 2,139
$ 5,227
$ 5,227
Del-Mar Energy Pathway - including interim services 189
165
731
2,512
4,100
Auburndale 170
—
283
679
679
Callahan Intrastate Pipeline —
—
—
3,219
6,400
Guernsey Power Station —
—
—
—
700
Marlin Gas Services 1,347
2,329
5,410
6,400
7,000
Total Expansions 2,706
2,625
8,563
18,037
24,106
Acquisitions:
Boulden Propane 1,888
—
329
3,800
4,200
Elkton Gas —
—
—
TBD
TBD
Total Acquisitions 1,888
—
329
3,800
4,200
Regulatory Initiatives
Florida GRIP ⁽¹⁾
3,695
3,782
13,528
14,858
15,831
Hurricane Michael regulatory proceeding —
—
—
TBD
TBD
Total Regulatory Initiatives 3,695
3,782
13,528
14,858
15,831

Total $ 8,289
$ 6,407
$ 22,420
$ 36,695
$ 44,137

(1) In the first quarter of 2020, we recorded a reduction in depreciation expense totaling $0.3 million, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. We also recorded $0.2 million in lower GRIP Includes gross margin ~~due to a concurrent reduction in the surcharge collected~~generated from ~~customers as a result of the reduced depreciation rates during the first quarter of 2020.~~interim services.

(2) Includes gross margin from natural gas distribution services.

Detailed Discussion of Major Projects and Initiatives

Pipeline Expansions

~~Western~~West Palm Beach County, Florida Expansion

Peninsula Pipeline is constructing four transmission lines to bring additional natural gas to our distribution system in West Palm Beach, Florida. The first phase of this project was placed into service in December 2018 and generated incremental gross margin of ~~$0.9~~$0.2 million ~~including interim services,~~ for the three months ended March 31, ~~2020~~2021 compared to ~~2019.~~2020. We expect to complete the remainder of the project in phases through the third quarter of ~~2020,~~2021, and estimate that the project will generate annual gross margin of $5.0 million in 2021 and $5.2 million in ~~2020 and beyond.~~2022.

Del-Mar Energy Pathway

In December 2019, the FERC 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 provide:~~will: (i) ensure an additional 14,300 Dts/d of firm service to four customers, (ii) provide additional natural gas transmission pipeline

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infrastructure in eastern Sussex County, Delaware, and (iii) represent the first extension of Eastern Shore’s pipeline system into Somerset County, Maryland. Construction of the project began in January 2020, and interim services in advance of this project generated ~~$0.2 million~~additional gross margin ~~for the three months ended March 31, 2020. The estimated gross margin from this project is approximately $2.5 million in 2020, $4.1 million in 2021 and $5.1 million annually thereafter.~~

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~~Auburndale~~

In August 2019, the Florida PSC approved Peninsula Pipeline's Transportation Service Agreement with the Florida Division of Chesapeake Utilities. Peninsula Pipeline purchased an existing pipeline owned by the Florida Division of Chesapeake Utilities and Calpine and has completed the construction of pipeline facilities in Polk County, Florida. Peninsula Pipeline provides transportation service to the Florida Division of Chesapeake Utilities increasing both delivery capacity and downstream pressure as well as introducing a secondary source of natural gas for the Florida Division of Chesapeake Utilities' distribution system. Peninsula Pipeline generated gross margin from this project of $0.2$0.7 million for the three months ended March 31, ~~2020 and expects to generate~~2021. The estimated annual gross margin ~~of $0.7~~from this project including natural gas distribution service in Somerset County, Maryland, is approximately $4.1 million in ~~2020~~2021 and ~~beyond.~~$6.7 million annually thereafter.

Callahan Intrastate Pipeline

~~In May 2018,~~ Peninsula Pipeline ~~announced a plan to construct~~completed the construction of a jointly owned intrastate transmission pipeline with Seacoast GasTransmission in Nassau County, Florida ~~with Seacoast Gas Transmission.~~in June 2020. The 26-mile pipeline ~~having an initial capacity of 148,000 Dts/d, will serve~~serves growing demand for energy in both Nassau and Duval ~~Counties, Florida. Construction of~~Counties. For the three months ended March 31, 2021, the project ~~is currently ongoing and it is expected to be placed in-service during the third quarter of 2020. Peninsula Pipeline expects to generate~~generated $1.9 million in additional gross margin, ~~of $3.2~~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 ~~2020~~2021 and ~~$6.4 million annually thereafter.~~beyond.

Guernsey Power Station

Guernsey Power Station ~~LLC ("Guernsey Power Station")~~ and our affiliate, Aspire Energy Express, ~~LLC ("Aspire Energy Express"),~~ entered into a precedent firm transportation capacity agreement whereby Guernsey 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 in October 2019. In the second quarter of 2021, Aspire Energy Express ~~is expected to commence~~commenced construction of the gas transmission facilities to provide the firm transportation service to the power generation ~~facility in~~facility. For the ~~second quarter~~three months ended March 31, 2021, we received approximately $47,000 related to the construction delay of ~~2021. This~~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 ~~$0.7~~$0.5 million in 2021 and $1.5 million in ~~2022.~~ 2022 and beyond.

~~Marlin Gas Services~~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. For the three months ended March 31, 2021, Marlin Gas Services generated additional gross margin of $0.7 million. We estimate that Marlin Gas Services will generate annual gross margin of approximately ~~$6.4 million in 2020 and $7.0~~$7.9 million in 2021 and ~~beyond.~~$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 ~~needs~~opportunities and ~~to aid in the transportation of~~ renewable natural gas transportation opportunities from ~~the~~diverse supply sources to various pipeline interconnection ~~points.~~points, as further outlined below.

RNG Transportation

Noble Road Landfill RNG Project

In September 2020, Fortistar and Rumpke Waste & Recycling announced commencement of construction of the Noble Road Landfill RNG Project in Shiloh, Ohio. The project includes the construction of a new state-of-the-art facility that will utilize 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 will utilize its existing natural gas gathering assets 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

In June 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 renewable natural gas 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.

The renewable natural gas resource created from organic material at BDC's anaerobic digestion facilities in Delaware, will be processed for use by our Delmarva natural gas operations. Marlin Gas Services will transport the sustainable fuel from the BDC facility to an Eastern Shore interconnection, where it will be introduced to the distribution system and ultimately distributed to our natural gas customers.

CleanBay Project

In July 2020, our Delmarva natural gas operations and CleanBay Renewables Inc. ("CleanBay") announced a new partnership to bring renewable natural gas to our operations. As part of this partnership, we will transport the renewable natural gas produced at CleanBay's planned Westover, Maryland bio-refinery, to our natural gas infrastructure in the Delmarva Peninsula

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region. Eastern Shore and Marlin Gas Services, will transport the renewable natural gas 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 renewable natural gas 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 at a future time.

Acquisitions

~~Boulden Propane~~Western Natural Gas

In ~~December 2019,~~October 2020, Sharp acquired certain propane ~~customers and~~ operating assets of ~~Boulden~~Western Natural Gas, which provides propane distribution service tothroughout Jacksonville, Florida and the surrounding communities, for approximately ~~5,200 customers~~$6.7 million, net of cash acquired. The acquisition was accounted for as a business combination within our Unregulated Energy Segment in ~~Delaware, Maryland and Pennsylvania. The customers and assets acquired from Boulden have been assimilated into Sharp. The operations acquired from Boulden~~the fourth quarter of 2020. We generated ~~$1.9~~$0.6 million ~~of incremental~~in additional gross margin ~~for the three months ended March 31, 2020. We~~ from Western Natural Gas in 2020 and we estimate that this acquisition will generate ~~annual~~ gross margin of approximately ~~$3.8~~$1.8 million ~~in 2020, and~~ ~~$4.2 million~~ in 2021 with ~~the potential~~additional opportunities for ~~additional growth in future years.~~growth.

Elkton Gas

In ~~December 2019,~~July 2020, we ~~entered into an agreement with SJI to acquire~~closed on the acquisition of Elkton Gas, which provides natural gas distribution service to approximately 7,000 residential and commercial customers within a franchised area of Cecil 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 in Cecil County, ~~Maryland contiguous to our existing franchise territory~~Maryland. We generated $1.3 million in ~~Cecil County. The~~additional gross margin from Elkton Gas and estimate that this acquisition ~~is expected to close~~will generate gross margin of approximately $4.0 million in ~~third quarter of 2020, subject to approval by the Maryland PSC.~~2021 and $4.2 million in 2022.

Regulatory Initiatives

Florida GRIP

Florida GRIP is a natural gas pipe replacement program approved by the Florida PSC that allows automatic recovery, through rates, of costs associated with the replacement of mains and services. Since the program's inception in August 2012, we have invested ~~$148.7~~$173.9 million of capital expenditures to replace ~~303~~333 miles of qualifying distribution mains, including ~~$4.8~~$8.0 million of new pipes during the first three months of ~~2020. GRIP~~2021. We expect to generate annual gross margin ~~increased by $0.1 million for the three months ended March 31, 2020 compared to 2019, on a gross basis.~~

~~In the first quarter~~ of ~~2020, we recorded a reduction in depreciation expense totaling $0.3 million, as a result of a Florida PSC approved depreciation study that lowered annual depreciation rates. We also recorded $0.2~~approximately $16.7 million in ~~lower GRIP margin due to a concurrent reduction~~2021, and $17.7 million in ~~the surcharge collected from customers as a result of the reduced depreciation rates during the first~~2022.

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~~quarter of 2020. Including this impact, gross margin generated from Florida GRIP for the first quarter of 2020 decreased on a net basis by $0.1 million.~~

Hurricane Michael

In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest Florida. The hurricane caused widespread and severe damage to FPU's infrastructure resulting in 100 percent of its customers in the Northwest Florida service territory losing electrical service. FPU expended more than $65.0 million to restore service as quickly as possible, which has been recorded as new plant and equipment, charged against FPU’s accumulated depreciation or charged against FPU’s storm reserve. Additionally, amounts currently being reviewed by the Florida PSC for regulatory asset treatment have been recorded as receivables and other deferred charges.

In August 2019, FPU filed a limited proceeding requesting recovery of storm-related costs associated with Hurricane Michael ~~(plant investment~~(capital and expenses) through a change in base rates. FPU also requested treatment and recovery of certain storm-related costs as a regulatory asset for items currently not allowed to be recovered through the storm reserve as well as the recovery of plant investment replaced as a result of the storm. FPU has proposed an overall return component on both the plant additions and the proposed regulatory assets. In the fourth quarter of 2019, FPU along with the Office of Public Counsel in Florida, filed a joint motion with the Florida PSC to approve an interim rate increase, subject to refund, pending the final ruling on the recovery of the restoration costs incurred. The petition was approved by the Florida PSC in November 2019 and interim rate increases were implemented effective January 2020. At this time, the Company has recorded a reserve for the interim rate increases, pending a final resolution of the proceeding.

In March 2020, ~~FPU~~we filed an update to ~~the~~our original filing to account for actual charges incurred through December 2019, revised the amortization period of the storm-related costs from 30 years as originally requested, to 10 years, and included costs related to Hurricane Dorian of approximately $1.2 million in this filing.

In September 2019, FPU ~~continues to work~~filed a petition with the Florida PSC, ~~and the petition is currently on the schedule~~ for approval atof its consolidated electric depreciation rates. The petition was joined to the Hurricane Michael docket. The approved rates, which were part of the settlement agreement in September 2020 that is described below, were retroactively applied effective January 1, 2020.

In September 2020, the Florida PSC ~~Agenda~~approved a settlement agreement between FPU and the Office of the Public Counsel regarding final cost recovery and rates associated with Hurricane Michael. Previously, in ~~September~~late 2019, the Florida PSC approved an interim rate increase, subject to refund, effective January 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 on November 1, 2020. The following table summarizes the impact of Hurricane Michael regulatory proceeding for the three months ended March 31, 2021:

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	Three Months Ended
(in thousands)	March 31, 2021
Gross Margin	$	2,575
Depreciation	(303)
Amortization of regulatory assets	2,079
Operating income	799
Amortization of liability associated with interest expense	(327)
Pre-tax income	1,126
Income tax expense	298
Net income	$	828

Capital Cost Surcharge Programs

In December 2019, the FERC approved Eastern Shore’s capital cost surcharge which became effective January 1, 2020. The surcharge, an approved item in the settlement of Eastern Shore’s last general rate case, allows Eastern Shore to recover capital costs associated with mandated highway or railroad relocation projects that required the replacement of existing Eastern Shore facilities. Eastern Shore expects to produce gross margin of approximately $1.4 million in 2021 and $2.4 million in 2022 from relocation projects and is dependent upon the completion of capital projects and timing of filings.

Other major factors influencing gross margin

Weather and Consumption

~~Significantly warmer temperatures~~Weather conditions accounted for a $6.4 million increase in gross margin during the three months ended March 31, 2020, had a negative impact on gross margin for the quarter. Lower customer consumption, directly attributable to warmer than normal temperatures during the three months ended March 31, 2020, reduced gross margin by $4.2 millionfirst quarter of 2021, compared to the same ~~quarter~~period in ~~2019~~2020, primarily due to a 13.8 percent increase in HDDs in the Delmarva Peninsula and ~~$5.1 million compared~~Ohio that resulted in increased customer consumption. Compared to normal temperatures, as ~~defined below.~~detailed below, gross margin was higher by $1.3 million. The following table summarizes ~~heating degree day ("HDD")~~HDD and ~~cooling degree day (“CDD”)~~CDD variances from the 10-year average HDD/CDD ("Normal") ~~for~~ the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.


	Three Months Ended
	March 31,
	2021	2020	Variance
Delmarva Peninsula
Actual HDD	2,186	1,859	327
10-Year Average HDD ("Normal")	2,280	2,349	(69)
Variance from Normal	(94)	(490)
Florida
Actual HDD	503	369	134
10-Year Average HDD ("Normal")	506	570	(64)
Variance from Normal	(3)	(201)
Ohio
Actual HDD	2,772	2,496	276
10-Year Average HDD ("Normal")	2,959	3,019	(60)
Variance from Normal	(187)	(523)
Florida
Actual CDD	184	323	(139)
10-Year Average CDD ("Normal")	195	168	27
Variance from Normal	(11)	155

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Three Months Ended
March 31,
2020 2019 Variance
Delmarva
Actual HDD 1,859
2,322
(463 )
10-Year Average HDD ("Normal") 2,349
2,362
(13 )
Variance from Normal (490 ) (40 )
Florida
Actual HDD 334
361
(27 )
10-Year Average HDD ("Normal") 495
518
(23 )
Variance from Normal (161 ) (157 )
Ohio
Actual HDD 2,496
2,996
(500 )
10-Year Average HDD ("Normal") 3,019
3,045
(26 )
Variance from Normal (523 ) (49 )
Florida
Actual CDD 226
134
92
10-Year Average CDD ("Normal") 105
97
8
Variance from Normal 121
37

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 ~~$1.1~~$0.9 million of additional margin for the three months ended March 31, ~~2020 compared to 2019.~~2021. The average number of residential customers served on the Delmarva Peninsula and in Florida increased

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by ~~3.9~~4.5 percent and ~~3.8~~5.0 percent, respectively, during the first quarter of ~~2020. Growth in~~2021. A larger 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 also contributed additional margin during 2020.~~customers. The details for the three months ended March 31, 2021 are provided in the following table:


	Three Months Ended
	March 31, 2021
(in thousands)	Delmarva Peninsula		Florida
Customer Growth:
Residential	$	490	$	307
Commercial and industrial	70		72
Total Customer Growth	$	560	$	379

Gross Margin Increase
Three Months Ended March 31, 2020
Customer growth: Delmarva Peninsula Florida
Residential $ 441
$ 223
Commercial and industrial 154
278
Total customer growth $ 595
$ 501

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Regulated Energy Segment

For the quarter ended March 31, ~~2020,~~2021, compared to the quarter ended March 31, ~~2019:~~2020:


	Three Months Ended								Three Months Ended
	March 31,				Increase				March 31,				Increase
	2020		2019		(decrease)				2021		2020		(decrease)
(in thousands)								(in thousands)
Revenue	$	102,955	$	103,618	$	(663	)	Revenue	$	121,197	$	102,955	$	18,242
Cost of sales	34,832		36,516		(1,684		)	Cost of sales	43,043		34,832		8,211
Gross margin	68,123		67,102		1,021			Gross margin	78,154		68,123		10,031
Operations & maintenance	26,241		24,548		1,693			Operations & maintenance	28,006		26,241		1,765
Depreciation & amortization	9,319		8,446		873			Depreciation & amortization	12,030		9,319		2,711
Other taxes	4,675		4,367		308			Other taxes	5,254		4,675		579
Total operating expenses	40,235		37,361		2,874			Total operating expenses	45,290		40,235		5,055
Operating income	$	27,888	$	29,741	$	(1,853	)	Operating income	$	32,864	$	27,888	$	4,976

Operating income for the Regulated Energy segment for the first quarter of 2021 was $32.9 million, an increase of $5.0 million or 17.8 percent for the three months ended March 31, 2021 over the same period in 2020. Higher operating income reflects increased consumption driven primarily by colder weather compared to the first quarter of 2020, ~~was $27.9~~continued pipeline expansions by Eastern Shore and Peninsula Pipeline, contributions from the Hurricane Michael regulatory proceeding settlement, organic growth in the Company's natural gas distribution businesses and operating results from the Elkton Gas acquisition completed in the third quarter of 2020. These 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 with Elkton Gas, and higher other operating expenses.

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


(in thousands)
Eastern Shore and Peninsula Pipeline service expansions	$	2,749
Margin contribution from Hurricane Michael regulatory proceeding settlement	2,575
Increased customer consumption - primarily weather related	1,641
Margin contribution from the Elkton Gas acquisition (completed in July 2020)	1,312
Natural gas growth (excluding service expansions)	939
Florida GRIP	370
Other variances	445
Quarter-over-quarter increase in gross margin	$	10,031

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The following narrative discussion provides further detail and analysis of the significant items in the foregoing table.

Eastern Shore and Peninsula Pipeline Service Expansions

We generated additional gross margin of $2.1 million from Peninsula Pipeline's Western Palm Beach County and Callahan projects and $0.7 million from Eastern Shore's Del-Mar Energy Pathway project.

Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement

We generated $2.6 million in additional gross margin as a ~~decrease~~result of ~~$1.9~~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.

Increased Customer Consumption - Primarily Weather Related

Gross margin increased by $1.6 million for the for the three months ended March 31, 2021, compared to the same period in ~~2019. The decreased operating income~~2020, primarily due to an 18 percent increase in HDDs on the Delmarva Peninsula and a 36 percent increase in HDDs in Florida that resulted in increased customer consumption of energy.

Elkton Gas

Gross margin increased by $1.3 million due to margin contributed from ~~increased~~Elkton Gas which was acquired in July 2020.

Natural Gas Distribution Customer Growth

We generated additional gross margin of ~~$1.0~~$0.9 million from natural gas customer growth. Gross margin increased by $0.4 million in Florida and $0.5 million on the Delmarva Peninsula for the three months ended March 31, 2021, as compared to the same period in 2020, due primarily to residential customer growth of 4.5 percent and 5.0 percent on the Delmarva Peninsula and in Florida, respectively.

Florida GRIP

Continued investment in the Florida GRIP generated additional gross margin of $0.4 million in first 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	$	1,776
Depreciation, asset removal and property tax costs due to new capital investments	1,390
Facilities and maintenance costs and outside services	885
Payroll, benefits and other employee-related expenses due to growth	802
Operating expenses from the Elkton Gas acquisition	524
Other variances	(322)
Quarter-over-quarter increase in operating expenses	$	5,055

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Unregulated Energy Segment

For the quarter ended March 31, 2021, compared to the quarter ended March 31, 2020:


	Three Months Ended
	March 31,				Increase
	2021		2020		(decrease)
(in thousands)
Revenue	$	74,759	$	54,011	$	20,748
Cost of sales	35,983		22,229		13,754
Gross margin	38,776		31,782		6,994
Operations & maintenance	15,162		14,034		1,128
Depreciation & amortization	3,323		2,918		405
Other taxes	1,186		968		218
Total operating expenses	19,671		17,920		1,751
Operating income	$	19,105	$	13,862	$	5,243

Operating income for the Unregulated Energy segment for the first quarter of 2021 was $19.1 million, an increase of $5.2 million or 37.8 percent, over the same period in 2020. Higher operating income reflects increased consumption driven primarily by colder weather compared to the first quarter of 2020, higher retail propane margins per gallon, contribution from the acquisition of the Western Natural Gas propane assets and increased demand for Marlin Gas Services' CNG transportation services. These increases were partially offset by ~~$2.9 million in~~ higher depreciation, amortization and property taxes related to recent capital investments and new expenses associated with Western Natural Gas and higher other operating expenses.

Gross Margin

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

(in thousands) Margin Impact
Natural gas distribution growth (excluding service expansions) $ 1,096
Peninsula Pipeline service expansions 1,039
Tax savings (net of GRIP refunds) recorded in Q1 2019 for 2018 associated with lower federal tax rates for certain Florida natural gas distribution operations (910 )
Decreased customer consumption - primarily due to warmer weather (521 )
Other variances 317
Quarter-over-quarter increase in gross margin $ 1,021


(in thousands)	Margin Impact
Propane Operations
Increased customer consumption - primarily weather related	$	3,847
Increased retail propane margins per gallon driven by favorable supply costs	1,340
Western Natural Gas acquisition (completed in October 2020)	550
Marlin Gas Services
Increased demand for CNG services	731
Aspire Energy
Increased customer consumption - primarily weather related	942
Other variances	(416)
Quarter-over-quarter increase in gross margin	$	6,994

The following ~~is a~~ narrative discussion provides further detail and analysis of the significant items in the foregoing ~~table,~~table.

Propane Operations

•Increased Customer Consumption Primarily Weather Related - Gross margin increased by $3.8 million, as weather on the Delmarva Peninsula was 18 percent colder during the first quarter of 2021 compared to the same period in 2020.

•Increased Retail Propane Margins - Gross margin increased by $1.3 million, due to lower propane inventory costs and favorable market conditions. These market conditions, which ~~we believe is necessary to understand~~include competition with other propane suppliers, as well as the ~~information disclosed~~availability and price of alternative energy sources, may fluctuate based on changes in ~~the table.~~demand, supply and other energy commodity prices.

•Western Natural Gas ~~Distribution Customer Growth~~

~~We generated additional gross margin of $1.1 million from natural gas distribution customer growth.~~ - Gross margin increased by $0.6 million ondue to the ~~Delmarva Peninsula and $0.5~~margin generated from Western Natural Gas, which was acquired by Sharp in October 2020.

Marlin Gas Services

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•Gross margin increased by $0.7 million ~~in Florida for~~during the ~~three months ended March 31, 2020,~~first quarter of 2021, as compared to the same period in ~~2019. These increases were~~ the result of residential customer growth of 3.9 percent and 3.8 percent on the Delmarva Peninsula and in Florida, respectively, as well as increases in the number of commercial and industrial customers served.prior year due to higher demand for CNG hold services.

~~Peninsula Pipeline Service Expansions~~

~~We generated additional gross margin of $1.0 million from Peninsula Pipeline's Western Palm Beach County and Auburndale Projects.~~

Aspire Energy

~~Absence of Florida Tax Savings Recorded in the First Quarter of 2019~~•Increased Customer Consumption Primarily Weather Related

- Gross margin ~~decreased~~increased by $0.9 million ~~for the three months ended March 31, 2020,~~due to higher consumption of gas as ~~compared to the same period~~weather in ~~2019, due primarily to the TCJA related tax savings from 2018 that the Florida PSC allowed us to retain~~Ohio was approximately 11 percent colder during the first quarter of 2019. In February 2019, the Florida PSC issued a final order regarding the treatment of the TCJA impact, allowing us to retain the savings associated with lower federal tax rates for certain of our natural gas distribution operations. As a result, refunds to GRIP customers and reserves for customer refunds, recorded in 2018 were reversed in the first quarter of 2019.

~~Decreased Customer Consumption - Primarily Due to Warmer Weather~~

~~Gross margin decreased by $0.5 million due to lower weather-related usage as weather on the Delmarva Peninsula and in Florida~~

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~~was approximately 20 percent and 7 percent, respectively, warmer for the three months ended March 31, 2020, compared to~~2021 over the same period in ~~2019.~~2020.

Other Operating Expenses

Items contributing to the quarter-over-quarter increase in ~~other~~ operating expenses are listed in the following table:


(in thousands)
Depreciation, amortization and property tax costs due to new capital investments	$	529
Payroll, benefits and other employee-related expenses due to growth	506
Operating expenses from the Western Natural Gas acquisition	338
Facilities and maintenance costs	251
Other variances	127
Quarter-over-quarter increase in operating expenses	$	1,751

(in thousands)
Depreciation, amortization and property tax costs due to growth investments $ 1,227
Insurance expense (non-health) - both insured and self-insured components 834
Outside services, regulatory, and facilities maintenance costs 540
Payroll, benefits and other employee-related expenses 200
Other variances 73
Quarter-over-quarter increase in other operating expenses $ 2,874

~~Unregulated Energy Segment~~

OTHER EXPENSE, NET

For the quarter ended March 31, ~~2020,~~2021 compared to the quarter ended March 31, ~~2019:~~

Three Months Ended
March 31, Increase
2020 2019 (decrease)
(in thousands)
Revenue $ 54,031
$ 61,081
$ (7,050 )
Cost of sales 22,228
28,539
(6,311 )
Gross margin 31,803
32,542
(739 )
Operations & maintenance 14,076
13,823
253
Depreciation & amortization 2,918
2,465
453
Other taxes 968
996
(28 )
Total operating expenses 17,962
17,284
678
Operating income $ 13,841
$ 15,258
$ (1,417 )

~~Operating income for the Unregulated Energy segment for the first quarter of~~ 2020 was $13.8 million a 9.3 percent decrease over the same period in 2019. The decreased operating income reflects $3.7 million in lower gross margin primarily due to the impact of warmer weather during the first quarter of 2020. These decreases were partially offset by the incremental margin from the Boulden assets and higher propane retail margins per gallon.

~~Gross Margin~~

~~Items contributing to the quarter-over-quarter decrease in gross margin are listed in the following table:~~

~~Table of Contents~~

(in thousands) Margin Impact
Propane Operations
Decrease in customer consumption - primarily due to warmer weather $ (2,799 )
Boulden acquisition (assets acquired in December 2019) 1,888
Increased retail propane margins per gallon driven by favorable market conditions and supply management 1,217
Aspire Energy
Decrease in customer consumption - primarily due to warmer weather (900 )
Higher margins from negotiated rate increases 388
Marlin Gas Services - higher level of pipeline integrity services for existing customers in 2019 (982 )
Other variances 449
Quarter-over-quarter decrease in gross margin $ (739 )

~~The following is a narrative discussion of the significant items in the foregoing table, which we believe is necessary to understand the information disclosed in the table.~~

~~Propane Operations~~


•	~~Decreased Customer Consumption Primarily Driven by Weather -~~ Gross margin decreased by $2.7 million for the Mid-Atlantic propane operations and by $0.1 million in Florida as weather on the Delmarva Peninsula and in Florida was approximately 20 and 7 percent, respectively, warmer for the three months ended March 31, 2020 compared to the same period in 2019.


•	~~Propane Operations - Boulden -~~ ~~Gross margin increased by $1.9 million due to the inclusion of operating results from Boulden, which was acquired by Sharp in December 2019.~~

•

~~Increased Retail Propane Margins -~~ Gross Margin increased by $1.2 million, in the first quarter of 2020, as compared to the same period in the prior year, 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.

~~Aspire Energy~~


•	~~Decreased Customer Consumption Primarily Driven by Weather -~~ Gross margin decreased by $0.9 million due to decreased consumption as weather in Ohio was approximately 17 percent warmer for the three months ended March 31, 2020 compared to the same period in 2019.


•	~~Increased Margin Driven by Changes in Rates -~~ ~~Gross margin increased by $0.4 million in the first quarter of 2020, as compared to the same period in the prior year, due primarily to higher margins from negotiated rate increases.~~

~~Marlin Gas Services~~

Gross margin decreased by $1.0 million in the first quarter of 2020, as compared to the same period in the prior year. First quarter 2019 results included gross margin from existing customers for a higher level of pipeline integrity services.

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Other ~~Operating Expenses~~

~~Items contributing to the quarter-over-quarter increase in other operating expenses are listed in the following table:~~

(in thousands)
Operating expenses for Boulden (assets acquired in December 2019) $ 342
Depreciation, amortization and property taxes due to new capital investments 448
Insurance expense (non-health) - both insured and self-insured components 194
Payroll, benefits and other employee-related expenses (292 )
Other variances (14 )
Quarter-over-quarter increase in other operating expenses $ 678

~~Divestiture of PESCO~~

~~As discussed in Note 3,~~ ~~Acquisitions and Divestitures~~, during the fourth quarter of 2019, we sold PESCO's assets and contracts and accordingly have exited the natural gas marketing business. This was done in an effort to enable us to focus on the strategies that support our core energy delivery business. As a result, we began to report PESCO as discontinued operations during the third quarter of 2019 and excluded PESCO's performance f~~rom continuing operations for all periods presented and classified its assets and liabilities as held for sale, where applicable.~~

~~OTHER INCOME (EXPENSE), NET~~

~~For the quarter ended March 31, 2020 compared to the quarter ended March 31, 2019~~

~~Other income (expense),~~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~~decreased by ~~$3.4~~$2.9 million in the first quarter of ~~2020,~~2021, compared to the same period in ~~2019.~~2020. The ~~increase~~decrease was primarily due to gains ~~from the sale of~~on two ~~properties. The~~ property sales ~~related to operations~~ which ~~have been consolidated into our state-of-the-art Energy Lane campus and through~~were completed in the ~~completion~~first quarter of ~~the conversion of the piped propane system in Ocean City, Maryland to natural gas service.~~ 2020.

INTEREST CHARGES

For the quarter ended March 31, ~~2020~~2021 compared to the quarter ended March 31, ~~2019~~2020

Interest charges for the quarter ended March 31, ~~2020 increased~~2021 decreased by ~~$0.2~~$0.7 million, compared to the same period in ~~2019,~~2020, attributable primarily to an increase of $1.4 million in interest expense on long-term debt as a result of the issuance of $100.0 million of Prudential Shelf Notes in August 2019 and $70.0 million of uncollateralized senior notes in December 2019; offset by a decrease of ~~$1.0~~$0.7 million in lower interest expense ~~primarily on~~from lower levels outstanding under our revolving credit facilities, and ~~lower rates on short-term borrowings and~~$0.3 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 $0.2 million in ~~higher capitalization~~interest expense as a result of ~~interest associated with a completed building~~several long-term debt placements in ~~Florida.~~2020.

INCOME TAXES

For the quarter ended March 31, ~~2020~~2021 compared to the quarter ended March 31, ~~2019~~2020

Income tax expense was ~~$10.6 million and $9.6~~$12.4 million for the ~~quarters~~quarter ended March 31, ~~2020 and 2019, respectively.~~2021, compared to $10.6 million for the quarter ended March 31, 2021. Our effective income tax rate was 26.5 percent and 26.7 percent, for the three months ended March 31, 2021 and 2020, compared to 25.0 percent for the three months ended March 31, 2019. The lower effective tax rate for the first quarter of 2019 was principally due to the impact of a gross up in deferred taxes associated with the TCJA for certain of our Florida natural gas distribution operations.

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 ~~more closely align~~maintain our capital structure ~~with~~within our target capital ~~structure.~~structure range. We maintain an effective shelf registration statement with the SEC for the issuance of shares of common stock in various types of equity offerings, including shares of common stock under our ~~Dividend Reinvestment and Direct Stock Purchase Plan (the “DRIP”).~~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.~~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 ~~$41.2~~$48.7 million for the three months ended March 31, ~~2020. The following~~2021. In the table ~~shows~~below, we have provided a range of ~~the expected 2020~~our forecasted capital expenditures ~~by segment and by business line:~~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	$	175,000	$	200,000

2020
(dollars in thousands) Low High
Regulated Energy:
Natural gas distribution $ 72,000
$ 83,000
Natural gas transmission 83,000
96,000
Electric distribution 5,000
7,000
Total Regulated Energy 160,000
186,000
Unregulated Energy:
Propane distribution 10,000
11,000
Energy transmission 6,000
6,000
Other unregulated energy 6,000
8,000
Total Unregulated Energy 22,000
25,000
Other:
Corporate and other businesses 3,000
4,000
Total Other 3,000
4,000
Total 2020 Expected Capital Expenditures $ 185,000
$ 215,000

The ~~2020 budget, excluding~~2021 forecast, which excludes any potential acquisitions, ~~includes:~~includes capital expenditures associated with the following projects: Delmarva Natural Gas distribution's Somerset County expansion and the Bioenergy Devco RNG Project, Eastern Shore's Del-Mar Energy Pathway ~~Project,~~and the CleanBay RNG project, Florida's ~~Callahan and~~Western Palm Beach County ~~Western Expansion~~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.

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 ~~because of~~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.

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Capital Structure

We are committed to maintaining a sound capital structure and strong credit ~~ratings to provide the financial flexibility needed to access capital markets when required.~~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.

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The following table presents our capitalization, excluding and including short-term borrowings, as of March 31, ~~2020~~2021 and December 31, ~~2019:~~2020:


	March 31, 2020				December 31, 2019					March 31, 2021				December 31, 2020
(in thousands)									(in thousands)
Long-term debt, net of current maturities	$	440,183	43	%	$	440,168	44	%	Long-term debt, net of current maturities	$	508,525	41	%	$	508,499	42	%
Stockholders’ equity	584,129		57	%	561,577		56	%	Stockholders’ equity	726,388		59	%	697,085		58	%
Total capitalization, excluding short-term debt	$	1,024,312	100	%	$	1,001,745	100	%	Total capitalization, excluding short-term debt	$	1,234,913	100	%	$	1,205,584	100	%

	March 31, 2020				December 31, 2019					March 31, 2021				December 31, 2020
(in thousands)									(in thousands)
Short-term debt	$	254,339	20	%	$	247,371	19	%	Short-term debt	$	156,123	11	%	$	175,644	13	%
Long-term debt, including current maturities	455,783		35	%	485,768		38	%	Long-term debt, including current maturities	522,125		37	%	522,099		37	%
Stockholders’ equity	584,129		45	%	561,577		43	%	Stockholders’ equity	726,388		52	%	697,085		50	%
Total capitalization, including short-term debt	$	1,294,251	100	%	$	1,294,716	100	%	Total capitalization, including short-term debt	$	1,404,636	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 4552 percent as of March 31, ~~2020.~~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.

~~Term Notes~~

In ~~January 2019,~~the third and fourth quarters of 2020, we issued ~~a $30.0~~1.0 million ~~unsecured term note~~shares of common stock through ~~Branch Banking~~our DRIP and ~~Trust Company, with a maturity date~~the ATM programs and received net proceeds of ~~February 28, 2020. This note was~~approximately $83.0 million which were added to the general funds. In the first quarter of 2021 we issued less than 0.1 million shares at an average price per share of $109.05 and received net proceeds of $1.9 million under the DRIP. In April 2021, we also issued less than 0.1 million shares at an average price per share of $115.35 and received net proceeds of $1.0 million under the DRIP. See Note 9, Stockholders’ Equity, in the condensed consolidated financial statements for additional information on commissions and fees paid in ~~full~~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 ~~February 2020 utilizing our short-term borrowing facilities.~~subsidiaries, and general working capital purposes.

Shelf Agreements

The MetLife Shelf Agreement was entered into in March 2017 and it expired in March 2020. As of March 31, 2020, we had not requested that MetLife purchase unsecured senior debt under the MetLife Shelf Agreement. In April 2020, we agreed to commercial terms with MetLife to provide a new $150.0 million MetLife Shelf Agreement for a three-year term ending March 31, 2023. The MetLife Shelf Agreement will be finalized in May 2020.

~~Table of Contents~~

~~The~~ following table summarizes ~~the available borrowing capacity under~~ our Shelf Agreements ~~and is reflective of activity that occurred subsequent to~~at March 31, ~~2020:~~2021:


(in thousands)	Total Borrowing Capacity		Less: Amount of Debt Issued		Less: Unfunded Commitments		Remaining Borrowing 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 March 31, 2021	$	670,000	$	(360,000)	$	—	$	310,000

(1) ~~In January 2020, we requested~~The Prudential, MetLife and ~~Prudential accepted our request to purchase $50.0 million of our unsecured debt.~~NYL Shelf Agreements expire in April 2023, May 2023 and November 2021, respectively.

⁽²⁾ ~~In February 2020, we requested and NYL accepted our request to purchase $40.0 million of our unsecured debt.~~

⁽³⁾ ~~In April 2020, the Prudential Shelf Agreement was amended to reinstate and increase the available borrowing capacity back to $150.0 million.~~

⁽⁴⁾ ~~In April 2020, we agreed to commercial terms with MetLife to provide a new $150.0 million MetLife Shelf Agreement for a three-year term ending March 31, 2023.~~ The ~~MetLife Shelf Agreement will be finalized in the May 2020.~~

~~The Uncollateralized~~ 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~~At March 31, 2021 and December 31, 2020, we had $156.1 million and $175.6 million, respectively, of short-term ~~debt, as required, from among our various~~borrowings outstanding at a weighted average interest rate of 1.11 percent and 1.28 percent, respectively. Included in the March 31, 2021 balance is $100.0 million in short-term debt ~~facilities. We utilize bank~~for which we have entered into interest rate swap agreements.

In September 2020, we entered into a $375.0 million syndicated Revolver with six participating lenders. As a result of entering into the Revolver, in September 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 of March 31, 2021, we are in compliance with this covenant.

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 of March 31, 2020, we had five unsecured bank credit facilities with four financial institutions totaling $220.0 million in available credit. In addition, we have a $150.0 million Revolver under which borrowings can be designated as short-term debt. The terms of2021, the Revolver are further described below. None of the unsecured bank lines of credit requires compensating balances. Our outstanding short-term borrowings at March 31, 2020 and December 31, 2019 were $254.3 million and $247.4 million at weighted average interest rates of 2.30 percent and 2.62 percent, respectively.

The $150.0 million Revolver is available through October 8, 2020 and is subject to the terms and conditions set forth in the credit agreement among us and the lenders related to the Revolver ("Credit Agreement"). Borrowingspricing under the Revolver will be used for general corporate purposes, including repayments of short-term borrowings, working capital requirements and capital expenditures. Borrowings under the Revolver will bear interest at: (i) the LIBOR rate plusincluded an applicable margin of 1.125 percent or less, with such margin based on total indebtedness as a percentage of total capitalization, both as defined by the Credit Agreement, or (ii) the base rate plus 0.125 percent or less. Interest is payable quarterly, and the Revolver is subject to a commitment fee on the unused portion of the facility. We have the right, under certain circumstances, to extend the expiration date for up to two years on any anniversary date of the Revolver, with such extension subject to the lenders' approval. We may also request the lenders to increase the Revolver to $200.0 million, with any increase at the sole discretion of each lender.

As a result of the uncertainty regarding the length of and depth of the impacts of the COVID-19 pandemic, in April 2020, we received commitments for an additional $50.0 million of short-term debt capacity through two credit facilities that mature on October 31, 2020. These facilities have a commitment fee of ~~35 basis points with~~0.15 percent and an interest rate of ~~175 basis points~~1.0 percent over ~~LIBOR,~~LIBOR. Our available credit under the new Revolver at March 31, 2021 was $214.1 million. As of March 31, 2021, we had issued $4.8 million in letters of credit to various counterparties under the ~~extent~~syndicated Revolver. Although the letters of credit are not included in the outstanding short-term borrowings and we ~~borrow~~do not anticipate they will be drawn upon by the counterparties, the letters of credit reduce the available borrowings under these facilities. Additionally, we have also agreed to commercial terms for two additional short-term credit facilities totaling $45.0 million that mature on October 31, 2020. These credit facilities are expected to be finalized in May 2020.

~~Table of Contents~~our syndicated Revolver.

In ~~April~~the fourth quarter of 2020, we entered into interest rate swaps with a notional ~~amounts totaling $70.0~~amount of $60.0 million ~~associated~~through December 2021 with ~~two~~pricing of ~~our short-term lines of credit for a six-month term beginning April 2020~~0.20 and terminating in October 2020. The interest rate swaps were entered to hedge the variability in cash flows attributable to changes in the short-term borrowing rates during this period. The respective fixed swap rates will be 0.3875 and 0.2750.205 percent for the ~~period.~~period associated with our outstanding borrowing under the Revolver. In February 2021, we entered into an additional interest rate swap with a notional amount of $40.0 million through December 2021 with pricing of 0.17 percent. Our short-term borrowing ~~will be~~is based on the 30-day LIBOR rate. The interest ~~swap will be~~rate swaps are cash settled monthly as the counter-party ~~will pay~~pays us the 30-day LIBOR rate less the fixed rate.

We are authorized by our Board of Directors to borrow up to $375 million of short-term debt, as required.

Cash Flows

The following table provides a summary of our operating, investing and financing cash flows for the three months ended March 31, ~~2020~~2021 and ~~2019:~~2020:


	Three Months Ended
	March 31,
(in thousands)	2021		2020
Net cash provided by (used in):
Operating activities	$	80,382	$	58,808
Investing activities	(51,847)		(31,498)
Financing activities	(26,459)		(30,313)
Net increase (decrease) in cash and cash equivalents	2,076		(3,003)
Cash and cash equivalents—beginning of period	3,499		6,985
Cash and cash equivalents—end of period	$	5,575	$	3,982

Three Months Ended
March 31,
2020 2019
(in thousands)
Net cash provided by (used in):
Operating activities $ 58,808
$ 40,486
Investing activities (31,498 ) (43,369 )
Financing activities (30,313 ) 4,769
Net increase (decrease) in cash and cash equivalents (3,003 ) 1,886
Cash and cash equivalents—beginning of period 6,985
6,089
Cash and cash equivalents—end of period $ 3,982
$ 7,975

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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 three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, net cash provided by operating activities was ~~$58.8~~$80.4 million and ~~$40.5~~$58.8 million, respectively, resulting in an increase in cash flows of ~~$18.3~~$21.6 million. Significant operating activities generating the cash flows change were as follows:

•Changes in net ~~accounts receivable~~prepaid expenses and other current assets, customer deposits and refunds, accrued ~~revenue~~compensation and ~~accounts payable~~other net assets and ~~accrued~~ liabilities, increased cash flows by ~~$30.5~~$10.5 million;

•Net income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by $9.1 million, due ~~in part~~primarily to ~~the timing~~higher net income, depreciation and ~~receipt~~amortization and gain on sale of ~~payments and the absence of PESCO, whose assets and contracts we sold in the fourth quarter of 2019;~~assets;

•Changes in net regulatory assets and liabilities increased cash flows by ~~$4.2~~$6.8 million due primarily to the change in fuel costs collected through the various cost recovery mechanisms;

Net income, adjusted for reconciling activities, increased cash flows by $2.3 million, due primarily to deferred income taxes, unrealized loss from investments and commodity contracts and depreciation and amortization, offset by realized gain from property sales due to consolidation of facilities in line with our strategic initiatives;

•Changes in net ~~prepaid expenses~~accounts receivable and ~~other current assets,~~ accrued ~~compensation~~revenue and ~~other assets~~accounts payable and accrued liabilities ~~net~~ decreased cash flows by ~~$16.6~~$3.6 million; ~~and~~

•Net cash flows from changes in propane inventory, storage gas and other inventories decreased by approximately ~~$3.3~~$2.6 million; and

•Net cash flows from income taxes receivable increased by $1.3 million.

Cash Flows Used in Investing Activities

Net cash used in investing activities totaled ~~$31.5~~$51.8 million and ~~$43.4~~$31.5 million during the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively, resulting in a decrease in cash flows of $20.3 million. Cash paid for capital expenditures was $52.0 million for the first three months of 2021, compared to $35.2 million for the same period in 2020, resulting in decreased cash flows of $16.8 million.

Cash Flows Used in Financing Activities

Net cash used in financing activities totaled $26.5 million during the three months ended March 31, 2021 compared to $30.3 million of net cash used in financing activities over the same period in 2020, resulting in an increase in cash flows of $11.9 million. Proceeds from sale of assets increased by $4.0 million due primarily to the sale of two properties in the first quarter of 2020. Cash paid for capital expenditures was $35.2 million for the first three months of 2020, compared to $43.2 million for the same period in 2019, resulting in increased cash flows of $8.0 million.

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~~Cash Flows Provided by Financing Activities~~

Net cash used by financing activities totaled $30.3 million during the three months ended March 31, 2020 compared to net cash provided of $4.8 million used in financing activities during the prior year period resulting in an decrease in cash flows of $35.1$3.8 million. The ~~decrease~~increase in net cash provided by financing activities resulted primarily from the following:

~~Decreased cash flows of $59.6 million from repayments of term notes of $29.6 million during the three months ended March 31, 2020 and decreased~~•Increased cash flows of $30.0 million from the ~~issuance~~absence of ~~term notes in January 2019;~~repayments of long-term debt;

•Increased cash flows ~~from short-term borrowing~~ of ~~$29.8~~$1.8 million ~~under our line~~as a result of ~~credit arrangements; and~~changes in cash overdrafts in 2021;

•Cash dividends of ~~$6.5~~$7.5 million paid during the three months ended March 31, ~~2020,~~2021, compared to ~~$5.9~~$6.5 million for the three months ended March 31, ~~2019.~~2020;

•Decreased cash flows from short-term borrowing of $28.2 million under our line of credit arrangements; and

•Increased cash flows of $1.9 million as a result of issuing shares of our common stock under the DRIP program.

Off-Balance Sheet Arrangements

~~We have issued~~The Board of Directors has authorized us to issue corporate guarantees ~~to certain vendors~~securing obligations of our subsidiaries ~~that provide for the payment~~and to obtain letters of ~~propane~~credit securing our subsidiaries' obligations. The maximum authorized liability under such guarantees and ~~natural gas purchases in the event~~letters of ~~the subsidiary’s default. The liabilities for these purchases are recorded in our financial statements when incurred.~~credit as of March 31, 2021 was $20.0 million. The aggregate amount guaranteed at March 31, ~~2020~~2021 was ~~$17.9~~$8.3 million, with the guarantees expiring on various dates through March ~~2, 2021.~~

~~The amounts related to PESCO were $6.8 million and are expected to be terminated or transferred in the second quarter of 2020. See Note 3,~~ ~~Acquisitions and Divestitures, for additional details on the sale of assets and contracts for PESCO.~~30, 2022.

As of March 31, ~~2020,~~2021, we have issued letters of credit totaling approximately ~~$5.4~~$4.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions, to our current and previous primary insurance ~~carriers as well as PESCO.~~carriers. These letters of credit have various expiration dates through October ~~22, 2020. There~~5, 2021. We have ~~been no draws on~~not drawn upon these letters of credit as of March 31, ~~2020. We~~2021 and do not anticipate that the counterparties will draw upon these letters of ~~credit, and we~~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. ~~As a result~~

Table of ~~the sale of assets and contracts for PESCO, letters of credit associated with PESCO are expected to be terminated or transferred in the second quarter of 2020. See Note 3,~~ ~~Acquisitions and Divestitures, for additional details on the sale of PESCO.~~Contents

Contractual Obligations

There has been no material change in the contractual obligations presented in our ~~2019~~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 at March 31, ~~2020:~~2021:


	Payments Due by Period											Payments Due by Period
	Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total			Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years		Total
(in thousands)											(in thousands)
Purchase obligations - Commodity ⁽¹⁾	8,276		6,402		—		—		14,678		Purchase obligations - Commodity (1)	$	23,190	$	16,546	$	—	$	—	$	39,736
Total	$	8,276	$	6,402	$	—	$	—	$	14,678	Total	$	23,190	$	16,546	$	—	$	—	$	39,736

⁽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 is subject to regulation by the Florida PSC. At March 31, ~~2020,~~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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Item 3. Quantitative and Qualitative Disclosures about Market Risk

INTEREST RATE RISK

Long-term debt is subject to potential losses based on changes in interest rates. ~~Our long-term debt at March 31, 2020, consists of fixed-rate Senior Notes and $8.0 million of fixed-rate secured debt.~~ We evaluate whether to refinance existing debt or permanently refinance existing short-term borrowings based in part on the fluctuation in interest rates. The fluctuation in interest rates expose us to potential increased cost we could incur when we issue debt instruments or to provide financing and liquidity for our business activities. We utilize interest rate swap agreements to mitigate short-term borrowing rate risk. Additional information about our long-term debt and short-term borrowing is disclosed in Note 15, ~~Long-term~~Long-Term Debt,and Note 16, Short-Term Borrowings, respectively, in the condensed consolidated financial statements.

COMMODITY PRICE RISK

Regulated Energy Segment

We have entered into agreements with various wholesale suppliers to purchase natural gas and electricity for resale to our customers. Our regulated energy distribution businesses that sell natural gas or electricity to end-use customers have fuel cost recovery mechanisms authorized by the respective PSCs that allow us to recover all of the costs prudently incurred in purchasing natural gas and electricity for our customers. Therefore, our regulated energy distribution operations have limited commodity price risk exposure.

Unregulated Energy Segment

Our propane operations are exposed to commodity price risk as a result of the competitive nature of retail pricing offered to our customers. In order to mitigate this risk, we utilize propane storage activities and forward contracts for supply.

We can store up to approximately ~~8.0~~8.3 million gallons of propane (including leased storage and rail cars) during the winter season to meet our customers’ peak requirements and to serve metered customers. Decreases in the wholesale price of propane may cause the value of stored propane to decline, particularly if we utilize fixed price forward contracts for supply. To mitigate the risk of propane commodity price fluctuations on the inventory valuation, we have adopted a Risk Management Policy that allows our propane distribution operation to enter into fair value hedges, cash flow hedges or other economic hedges of our inventory.

Aspire Energy is exposed to commodity price risk, primarily during the winter season, to the extent we are not successful in balancing our natural gas purchases and sales and have to secure natural gas from alternative sources at higher spot prices. In order to mitigate this risk, we procure firm capacity that meets our estimated volume requirements and we continue to seek out new producers in order to fulfill our natural gas purchase requirements.

The following table reflects the changes in the fair market value of financial derivatives contracts related to propane purchases and sales from December 31, ~~2019~~2020 to March 31, ~~2020:~~2021:


(in thousands)	Balance at December 31, 2019			Increase (Decrease) in Fair Market Value			Less Amounts Settled		Balance at March 31, 2020			(in thousands)	Balance at December 31, 2020		Increase (Decrease) in Fair Market Value		Less Amounts Settled		Balance at March 31, 2021
Sharp	$	(1,844	)	$	(1,218	)	$	1,227	$	(1,835	)	Sharp	$	3,182	$	3,285	$	(3,047)	$	3,420
Total	$	(1,844	)	$	(1,218	)	$	1,227	$	(1,835	)	Total	$	3,182	$	3,285	$	(3,047)	$	3,420

There were no changes in methods of valuations during the three months ended March 31, ~~2020.~~2021.

The following is a summary of fair market value of financial derivatives as of March 31, ~~2020,~~2021, by method of valuation and by maturity for each fiscal year period.


(in thousands)	2021		2022		2023		2024		2025		Total Fair Value
Price based on Mont Belvieu - Sharp	$	2,071	$	1,279	$	86	$	(16)	$	—	$	3,420
Total	$	2,071	$	1,279	$	86	$	(16)	$	—	$	3,420

(in thousands) 2020 2021 2022 2023 2024 Total Fair Value
Price based on Mont Belvieu - Sharp $ (1,083 ) $ (681 ) $ (71 ) $ —
$ —
$ (1,835 )
Total $ (1,083 ) $ (681 ) $ (71 ) $ —
$ —
$ (1,835 )

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WHOLESALE CREDIT RISK

The Risk Management Committee reviews credit risks associated with counterparties to commodity derivative contracts prior to such contracts being approved.

Additional information about our derivative instruments is disclosed in Note 13, Derivative Instruments, in the condensed consolidated financial statements.

~~Table of Contents~~

INFLATION

Inflation affects the cost of supply, labor, products and services required for operations, maintenance and capital improvements. To help cope with the effects of inflation on our capital investments and returns, we periodically seek rate increases from regulatory commissions for our regulated operations and closely monitor the returns of our unregulated energy business operations. To compensate for fluctuations in propane gas prices, we adjust propane sales prices to the extent allowed by the market.

~~Table of Contents~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer of Chesapeake Utilities, with the participation of other Company officials, have evaluated our “disclosure controls and procedures” (as such term is defined under Rules 13a-15(e) and 15d-15(e), promulgated under the Securities Exchange Act of 1934, as amended) as of March 31, ~~2020.~~2021. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, ~~2020.~~2021.

Changes in Internal Control over Financial Reporting

In response to the COVID-19 pandemic and the current social distancing restrictions that have been established in our service territories, we have implemented our pandemic response plan, which includes having office staff work remotely to promote social distancing in efforts to reduce the spread of COVID-19. During the quarter ended March 31, ~~2020, the implementation of~~2021, our pandemic response plan did not result in a change in the design or operations of our internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

As disclosed in Note 7, Other Commitments and Contingencies, of the condensed consolidated financial statements in this Quarterly Report on Form 10-Q, we are involved in certain legal actions and claims arising in the normal course of business. We are also involved in certain legal and administrative proceedings before various governmental or regulatory agencies concerning rates and other regulatory actions. In the opinion of management, the ultimate disposition of these proceedings and claims will not have a material effect on our condensed consolidated financial position, results of operations or cash flows.

Item 1A. Risk Factors

Our business, operations, and financial condition are subject to various risks and uncertainties. The risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K, for the year ended December 31, ~~2019,~~2020, should be carefully considered, together with the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q and in our other filings with the SEC in connection with evaluating Chesapeake Utilities, our business and the forward-looking statements contained in this Quarterly Report on Form 10-Q.

~~We could be negatively impacted by the recent outbreak of COVID-19.~~

The outbreak of COVID-19 poses a health and financial crisis in the United States and globally, and related government restrictions and requirements and private sector responses could adversely affect our business operations. It is impossible to predict the effect and ultimate impact of COVID-19 pandemic as the situation is rapidly evolving. We are responding to COVID-19 by taking steps to mitigate the potential risks to us posed by its spread. We provide a critical service to our customers, which means that it is paramount that we keep our employees who operate our businesses safe and minimize unnecessary risk of exposure to COVID-19. We have a Pandemic Response Plan that dates back to 2007. As soon as there were indications that the virus was spreading from China to other countries, we updated this plan, and continue to modify and adapt given the fluid situation. This plan guides our emergency response, business continuity, and the precautionary measures we are taking on behalf of our employees, our customer and the communities we serve. We have taken extra precautions for our employees who work in the field and for employees who continue to work in our facilities, and we have implemented work from home policies where appropriate. We have canceled travel plans, stopped movement between offices, transitioned to virtual, or on-line meetings and events, and instituted “social distancing” as directed by the CDC and state and local governments in the areas we serve. We temporarily suspended walk-in customer access to our natural gas, propane and electric offices, and reminded customers of our on-line and direct mail payment options. We also established critical teams and task forces to guide us through key aspects of this pandemic. This is a rapidly evolving situation that could lead to extended disruption of economic activity in our markets. We have instituted measures to ensure our supply chains remain open to us; however, there could be global shortages that will impact our maintenance and capital programs that we currently cannot anticipate. We will continue to monitor developments affecting our workforce, our customers and our suppliers, and we will take additional precautions that we determine are necessary in order to mitigate the impacts. We continue to implement measures to ensure that our systems remain functional in order to both serve our operational needs with a remote workforce and keep them running to ensure uninterrupted service to our customers. We currently cannot estimate the potential impacts to our financial position, results of operations, and cash flows.

Although it is not possible to reliably estimate the duration or severity of the pandemic and, hence, its financial impact on the Company, the extent to which COVID-19 impacts our results, financial position and liquidity will depend on future developments, which are highly uncertain and cannot be predicted, including new information, which may emerge concerning the severity and duration of the pandemic, the actions mandated by governmental authorities to contain COVID-19 and the availability for vaccines or therapies to treat its impact, among others.

Additional risks and uncertainties not known to us at present, or that we currently deem immaterial, also may affect Chesapeake Utilities. The occurrence of any of these known or unknown risks could have a material adverse impact on our business, financial condition and results of operations.

~~Table of Contents~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Total
Number of
Shares

Average
Price Paid

Total Number of Shares
Purchased as Part of
Publicly Announced Plans

Maximum Number of
Shares That May Yet Be
Purchased Under the Plans
Period Purchased per Share
or Programs ⁽²⁾

or Programs ⁽²⁾
January 1, 2020
through January 31, 2020 ⁽¹⁾
411
$ 93.41
—
—
February 1, 2020
through February 29, 2020 —
—
—
—
March 1, 2020
through March 31, 2020 —
—
—
—
Total 411
$ 93.41
—
—


	Total Number of Shares	Average Price Paid		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares That May Yet Be Purchased Under the Plans
Period	Purchased	per Share		or Programs (2)	or Programs (2)
January 1, 2021 through January 31, 2021(1)	440	$	103.54	—	—
February 1, 2021 through February 28, 2021	—	—		—	—
March 1, 2021 through March 31, 2021	—	—		—	—
Total	440	$	103.54	—	—

⁽¹⁾ Chesapeake Utilities purchased shares of common stock on the open market for the purpose of reinvesting the dividend on shares held in the Rabbi Trust accounts for certain directors and senior executives under the Non-Qualified Deferred Compensation Plan. The Non-Qualified Deferred Compensation Plan is discussed in detail in Item 8 under the heading “Notes to the Consolidated Financial Statements—Note 9, Employee Benefit Plans,” in our latest Annual Report on Form 10-K for the year ended December 31, ~~2019~~.2020. During the quarter ended March 31, ~~2020, 411~~2021, 440 shares were purchased through the reinvestment of dividends on deferred stock units.

⁽²⁾ Except for the purposes described in Footnote (1), Chesapeake Utilities has no publicly announced plans or programs to repurchase its shares.

Item 3. Defaults upon Senior Securities

None.

Item 5. Other Information

None.

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Item 6. Exhibits


~~Item 6.~~	~~Exhibits~~




10.131.1		~~Executive Employment Agreement dated May 6, 2020 between Chesapeake Utilities Corporation and Beth W. Cooper.~~

10.2*	~~Executive Employment Agreement dated May 6, 2020 between Chesapeake Utilities Corporation and James F. Moriarty.~~

10.3*	~~Loan Agreement dated April 24, 2020, between Chesapeake Utilities Corporation and PNC Bank, National Association.~~

10.4*	~~Loan Agreement dated April 27, 2020, between Chesapeake Utilities Corporation and Bank of America, N.A.~~

10.5*	~~Revolving Line of Credit Note dated April 24, 2020, issued by Chesapeake Utilities Corporation in favor of PNC Bank, National Association.~~

10.6*	~~Promissory Note dated April 27, 2020, issued by Chesapeake Utilities Corporation in favor of Bank of America, N.A.~~

31.1*	Certificate of Chief Executive Officer of Chesapeake Utilities Corporation pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2*			Certificate of Chief Financial Officer of Chesapeake Utilities Corporation pursuant to Rule 13a-14(a) under the Securities Exchange Act of ~~1934.~~1934.

32.1*			Certificate of Chief Executive Officer of Chesapeake Utilities Corporation pursuant to 18 U.S.C. Section 1350.

32.2*			Certificate of Chief Financial Officer of Chesapeake Utilities Corporation pursuant to 18 U.S.C. Section 1350.

101.INS*			XBRL Instance Document.

101.SCH*			XBRL Taxonomy Extension Schema Document.

101.CAL*			XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF*			XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB*			XBRL Taxonomy Extension Label Linkbase Document.

101.PRE*			XBRL Taxonomy Extension Presentation Linkbase Document.

104			Cover Page Interactive Data File - formatted in Inline XBRL and contained in Exhibit 101

*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CHESAPEAKE UTILITIES CORPORATION

/S/ BETH W. COOPER
Beth W. Cooper Executive Vice President, Chief Financial Officer, and Assistant Corporate Secretary

Date: May ~~6, 2020~~4, 2021

~~- 58~~51



(in thousands)
Balance at December 31, 2019	$	1,337
Additions:
Provision for credit losses	273
Recoveries	84
Deductions:
Write offs	(273		)
Balance at March 31, 2020	$	1,421



(in thousands)	Three Months Ended March 31, 2019
Depreciation and amortization	$	146
Deferred income taxes	$	1,396
Realized loss on commodity contracts	$	584



(in thousands)
As of December 31, 2018	$	(5,928	)	$	(785	)	$	(6,713	)
Other comprehensive income before reclassifications	—			3,021			3,021
Amounts reclassified from accumulated other comprehensive income	107			(39		)	68
Net prior-period other comprehensive income	107			2,982			3,089
Prior-year reclassification				(115		)	(115		)
As of March 31, 2019	$	(5,821	)	$	2,082		$	(3,739	)



	Number of Shares		Weighted Average Fair Value
Outstanding—December 31, 2019	157,817		$	80.28
Granted	65,775		$	92.78
Vested	(35,651	)	$	66.48
Expired	(5,302	)	$	65.32
Outstanding—March 31, 2020	182,639		$	87.01



				Outstanding borrowings at
(in thousands)	Total Facility		LIBOR Based Interest Rate	March 31, 2020		December 31, 2019		Available at March 31, 2020
Bank Credit Facility
Committed revolving credit facility A	$	55,000	plus 0.75 percent	$	55,000	$	55,000	$	—
Committed revolving credit facility B	80,000		plus 0.75 percent	72,389		57,150		7,611
Committed revolving credit facility C	45,000		plus 0.75 percent	35,515		42,040		9,485
Committed revolving credit facility D	40,000		plus 0.85 percent	40,000		40,000		—
Committed revolving credit facility E⁽²⁾	150,000		plus 1.125 percent	50,000		50,000		100,000
Total short term credit facilities	$	370,000		252,904		244,190		$	117,096
Book overdrafts⁽¹⁾				1,435		3,181
Total short-term borrowing				$	254,339	$	247,371



	Gross Margin Increase
	Three Months Ended March 31, 2020
Customer growth:	Delmarva Peninsula		Florida
Residential	$	441	$	223
Commercial and industrial	154		278
Total customer growth	$	595	$	501



(in thousands)	Margin Impact
Natural gas distribution growth (excluding service expansions)	$	1,096
Peninsula Pipeline service expansions	1,039
Tax savings (net of GRIP refunds) recorded in Q1 2019 for 2018 associated with lower federal tax rates for certain Florida natural gas distribution operations	(910		)
Decreased customer consumption - primarily due to warmer weather	(521		)
Other variances	317
Quarter-over-quarter increase in gross margin	$	1,021



(in thousands)
Operating expenses for Boulden (assets acquired in December 2019)	$	342
Depreciation, amortization and property taxes due to new capital investments	448
Insurance expense (non-health) - both insured and self-insured components	194
Payroll, benefits and other employee-related expenses	(292		)
Other variances	(14		)
Quarter-over-quarter increase in other operating expenses	$	678