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 — ~~17,460,906~~17,532,046 shares outstanding as of ~~October~~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	3729

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	6347

ITEM 4.	CONTROLS AND PROCEDURES	6448

PART II—OTHER INFORMATION		6549

ITEM 1.	LEGAL PROCEEDINGS	6549

ITEM 1A.	RISK FACTORS	6549

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	6549

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	6549

ITEM 5.	OTHER INFORMATION	6549

ITEM 6.	EXHIBITS	6650

SIGNATURES		6751

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

ATM: At-the-market

~~Boulden:~~ ~~Boulden, Inc., an entity from whom we acquired certain propane operating assets~~

~~CARES Act:~~ ~~Coronavirus Aid, Relief, and Economic Security Act~~

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

CNG: Compressed natural gas

~~Degree-Day:~~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 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: Aa 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:

~~Table of Contents~~ Liquefied Natural Gas

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

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

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., an 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 ~~new~~ $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

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
(in thousands, except shares and per share data)	(in thousands, except shares and per share data)									(in thousands, except shares and per share data)
Operating Revenues	Operating Revenues									Operating Revenues
Regulated Energy	Regulated Energy	$	82,762	$	74,580	$	259,235	$	251,601	Regulated Energy	$	121,197	$	102,955
Unregulated Energy and other	Unregulated Energy and other	18,657		18,046		91,925		96,029		Unregulated Energy and other	69,990		49,735
Total Operating Revenues	Total Operating Revenues	101,419		92,626		351,160		347,630		Total Operating Revenues	191,187		152,690
Operating Expenses	Operating Expenses									Operating Expenses
Regulated Energy cost of sales	Regulated Energy cost of sales	16,271		19,619		67,490		74,452		Regulated Energy cost of sales	43,043		34,832
Unregulated Energy and other cost of sales	Unregulated Energy and other cost of sales	5,640		5,709		30,250		36,975		Unregulated Energy and other cost of sales	31,254		18,038
Operations	Operations	34,959		32,614		105,516		99,558		Operations	39,437		35,951
Maintenance	Maintenance	3,717		3,920		11,695		11,200		Maintenance	4,042		3,836
Gain from a settlement		—		—		(130)		(130)
Depreciation and amortization	Depreciation and amortization	18,293		11,220		42,793		33,612		Depreciation and amortization	15,365		12,252
Other taxes	Other taxes	5,133		5,187		16,028		15,318		Other taxes	6,449		5,647
Total Operating Expenses	Total Operating Expenses	84,013		78,269		273,642		270,985		Total Operating Expenses	139,590		110,556
Operating Income	Operating Income	17,406		14,357		77,518		76,645		Operating Income	51,597		42,134
Other income (expense), net		(40)		(351)		2,997		(731)
Other income, net										Other income, net	385		3,319
Interest charges	Interest charges	4,584		5,403		15,452		16,583		Interest charges	5,105		5,814
Income from Continuing Operations Before Income Taxes	Income from Continuing Operations Before Income Taxes	12,782		8,603		65,063		59,331		Income from Continuing Operations Before Income Taxes	46,877		39,639
Income Taxes on Continuing Operations	Income Taxes on Continuing Operations	3,502		2,352		16,082		15,354		Income Taxes on Continuing Operations	12,405		10,598
Income from Continuing Operations	Income from Continuing Operations	9,280		6,251		48,981		43,977		Income from Continuing Operations	34,472		29,041
Income (loss) from Discontinued Operations, Net of Tax		(19)		(630)		165		(1,388)
Loss from Discontinued Operations, Net of Tax										Loss from Discontinued Operations, Net of Tax	(6)		(111)
Net Income	Net Income	$	9,261	$	5,621	$	49,146	$	42,589	Net Income	$	34,466	$	28,930
Weighted Average Common Shares Outstanding:	Weighted Average Common Shares Outstanding:									Weighted Average Common Shares Outstanding:
Basic	Basic	16,533,748		16,403,776		16,466,106		16,396,646		Basic	17,485,866		16,414,773
Diluted	Diluted	16,592,842		16,453,867		16,523,200		16,444,231		Diluted	17,553,167		16,471,827
Basic Earnings Per Share of Common Stock:	Basic Earnings Per Share of Common Stock:									Basic Earnings Per Share of Common Stock:
Earnings from Continuing Operations	Earnings from Continuing Operations	$	0.56	$	0.38	$	2.97	$	2.68	Earnings from Continuing Operations	$	1.97	$	1.77
Earnings (loss) from Discontinued Operations		0		(0.04)		0.01		(0.08)
Loss from Discontinued Operations										Loss from Discontinued Operations	0		(0.01)
Basic Earnings Per Share of Common Stock	Basic Earnings Per Share of Common Stock	$	0.56	$	0.34	$	2.98	$	2.60	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:									Diluted Earnings Per Share of Common Stock:
Earnings from Continuing Operations	Earnings from Continuing Operations	$	0.56	$	0.38	$	2.96	$	2.67	Earnings from Continuing Operations	$	1.96	$	1.77
Earnings (loss) from Discontinued Operations		0		(0.04)		0.01		(0.08)
Loss from Discontinued Operations										Loss from Discontinued Operations	0		(0.01)
Diluted Earnings Per Share of Common Stock	Diluted Earnings Per Share of Common Stock	$	0.56	$	0.34	$	2.97	$	2.59	Diluted Earnings Per Share of Common Stock	$	1.96	$	1.76

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

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
(in thousands)	(in thousands)									(in thousands)
Net Income	Net Income	$	9,261	$	5,621	$	49,146	$	42,589	Net Income	$	34,466	$	28,930
Other Comprehensive Income (Loss), net of tax:	Other Comprehensive Income (Loss), net of tax:									Other Comprehensive Income (Loss), net of tax:
Employee Benefits, net of tax:	Employee Benefits, net of tax:									Employee Benefits, net of tax:
Amortization of prior service cost, net of tax of $(5), $(5), $(15) and $(15), respectively		(14)		(14)		(42)		(43)
Net gain, net of tax of $28, $10, $83 and $95, respectively		80		34		240		275
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:									Cash Flow Hedges, net of tax:
Unrealized gain on commodity contract cash flow hedges, net of tax of $282, $152, $935 and $496, respectively		740		324		2,450		1,193
Unrealized loss (gain) on interest rate swap cash flow hedges, net of tax of $10, $0, $(4) and $0, respectively		27		—		(10)		—
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	Total Other Comprehensive Income, net of tax	833		344		2,638		1,425		Total Other Comprehensive Income, net of tax	227		73
Comprehensive Income	Comprehensive Income	$	10,094	$	5,965	$	51,784	$	44,014	Comprehensive Income	$	34,693	$	29,003

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

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Assets	Assets	September 30, 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)					(in thousands, except shares and per share data)
Property, Plant and Equipment	Property, Plant and Equipment					Property, Plant and Equipment
Regulated Energy	Regulated Energy	$	1,564,420	$	1,441,473	Regulated Energy	$	1,595,744	$	1,577,576
Unregulated Energy	Unregulated Energy	278,897		265,209		Unregulated Energy	306,291		300,647
Other businesses and eliminations	Other businesses and eliminations	30,365		39,850		Other businesses and eliminations	34,439		30,769
Total property, plant and equipment	Total property, plant and equipment	1,873,682		1,746,532		Total property, plant and equipment	1,936,474		1,908,992
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(358,851)		(336,876)		Less: Accumulated depreciation and amortization	(380,839)		(368,743)
Plus: Construction work in progress	Plus: Construction work in progress	52,519		54,141		Plus: Construction work in progress	80,061		60,929
Net property, plant and equipment	Net property, plant and equipment	1,567,350		1,463,797		Net property, plant and equipment	1,635,696		1,601,178
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	3,056		6,985		Cash and cash equivalents	5,575		3,499
Trade and other receivables	Trade and other receivables	53,132		50,899		Trade and other receivables	62,309		61,675
Less: Allowance for credit losses	Less: Allowance for credit losses	(4,130)		(1,337)		Less: Allowance for credit losses	(4,243)		(4,785)
Trade receivables, net		49,002		49,562
Trade and other receivables, net						Trade and other receivables, net	58,066		56,890
Accrued revenue	Accrued revenue	11,545		20,846		Accrued revenue	20,835		21,527
Propane inventory, at average cost	Propane inventory, at average cost	4,099		5,824		Propane inventory, at average cost	6,229		5,906
Other inventory, at average cost	Other inventory, at average cost	5,583		6,067		Other inventory, at average cost	5,884		5,539
Regulatory assets	Regulatory assets	10,372		5,144		Regulatory assets	9,145		10,786
Storage gas prepayments	Storage gas prepayments	2,971		3,541		Storage gas prepayments	417		2,455
Income taxes receivable	Income taxes receivable	15,156		20,050		Income taxes receivable	6,792		12,885
Prepaid expenses	Prepaid expenses	14,817		13,928		Prepaid expenses	11,512		13,239
Derivative assets, at fair value	Derivative assets, at fair value	1,967		0		Derivative assets, at fair value	3,462		3,269
Other current assets	Other current assets	753		2,879		Other current assets	635		436
Total current assets	Total current assets	119,321		134,826		Total current assets	128,552		136,431
Deferred Charges and Other Assets	Deferred Charges and Other Assets					Deferred Charges and Other Assets
Goodwill	Goodwill	36,930		32,668		Goodwill	38,731		38,731
Other intangible assets, net	Other intangible assets, net	7,215		8,129		Other intangible assets, net	7,958		8,292
Investments, at fair value	Investments, at fair value	9,680		9,229		Investments, at fair value	10,883		10,776
Operating lease right-of-use assets	Operating lease right-of-use assets	11,077		11,563		Operating lease right-of-use assets	10,510		11,194
Regulatory assets	Regulatory assets	112,650		73,407		Regulatory assets	111,566		113,806
Receivables and other deferred charges	Receivables and other deferred charges	23,865		49,579		Receivables and other deferred charges	10,054		12,079
Total deferred charges and other assets	Total deferred charges and other assets	201,417		184,575		Total deferred charges and other assets	189,702		194,878
Total Assets	Total Assets	$	1,888,088	$	1,783,198	Total Assets	$	1,953,950	$	1,932,487

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

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Capitalization and Liabilities	Capitalization and Liabilities	September 30, 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)					(in thousands, except shares and per share data)
Capitalization	Capitalization					Capitalization
Stockholders’ equity	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	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)	Common stock, par value $0.4867 per share (authorized 50,000,000 shares)	8,126		7,984		Common stock, par value $0.4867 per share (authorized 50,000,000 shares)	8,528		8,499
Additional paid-in capital	Additional paid-in capital	283,836		259,253		Additional paid-in capital	350,875		348,482
Retained earnings	Retained earnings	328,357		300,607		Retained earnings	369,623		342,969
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(3,629)		(6,267)		Accumulated other comprehensive loss	(2,638)		(2,865)
Deferred compensation obligation	Deferred compensation obligation	5,634		4,543		Deferred compensation obligation	6,992		5,679
Treasury stock	Treasury stock	(5,634)		(4,543)		Treasury stock	(6,992)		(5,679)
Total stockholders’ equity	Total stockholders’ equity	616,690		561,577		Total stockholders’ equity	726,388		697,085
Long-term debt, net of current maturities	Long-term debt, net of current maturities	519,971		440,168		Long-term debt, net of current maturities	508,525		508,499
Total capitalization	Total capitalization	1,136,661		1,001,745		Total capitalization	1,234,913		1,205,584
Current Liabilities	Current Liabilities					Current Liabilities
Current portion of long-term debt	Current portion of long-term debt	15,600		45,600		Current portion of long-term debt	13,600		13,600
Short-term borrowing	Short-term borrowing	216,388		247,371		Short-term borrowing	156,123		175,644
Accounts payable	Accounts payable	46,492		54,068		Accounts payable	58,167		60,253
Customer deposits and refunds	Customer deposits and refunds	32,635		30,939		Customer deposits and refunds	32,455		33,302
Accrued interest	Accrued interest	5,231		2,554		Accrued interest	4,837		2,905
Dividends payable	Dividends payable	7,293		6,644		Dividends payable	7,709		7,683
Accrued compensation	Accrued compensation	10,903		16,236		Accrued compensation	8,990		13,994
Regulatory liabilities	Regulatory liabilities	6,460		5,991		Regulatory liabilities	19,677		6,284
Derivative liabilities, at fair value	Derivative liabilities, at fair value	439		1,844		Derivative liabilities, at fair value	84		127
Other accrued liabilities	Other accrued liabilities	18,531		12,077		Other accrued liabilities	14,360		15,240
Total current liabilities	Total current liabilities	359,972		423,324		Total current liabilities	316,002		329,032
Deferred Credits and Other Liabilities	Deferred Credits and Other Liabilities					Deferred Credits and Other Liabilities
Deferred income taxes	Deferred income taxes	202,649		180,656		Deferred income taxes	211,801		205,388
Regulatory liabilities	Regulatory liabilities	142,280		127,744		Regulatory liabilities	143,291		142,736
Environmental liabilities	Environmental liabilities	4,447		6,468		Environmental liabilities	4,052		4,299
Other pension and benefit costs	Other pension and benefit costs	27,462		30,569		Other pension and benefit costs	29,856		30,673
Operating lease - liabilities	Operating lease - liabilities	9,681		9,896		Operating lease - liabilities	9,125		9,872
Deferred investment tax credits and other liabilities	Deferred investment tax credits and other liabilities	4,936		2,796		Deferred investment tax credits and other liabilities	4,910		4,903
Total deferred credits and other liabilities	Total deferred credits and other liabilities	391,455		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)					Environmental and other commitments and contingencies (Notes 6 and 7)	0		0
Total Capitalization and Liabilities	Total Capitalization and Liabilities	$	1,888,088	$	1,783,198	Total Capitalization and Liabilities	$	1,953,950	$	1,932,487

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

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
(in thousands)	(in thousands)					(in thousands)
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	49,146	$	42,589	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:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	42,793		34,049		Depreciation and amortization	15,365		12,252
Depreciation and accretion included in other costs	Depreciation and accretion included in other costs	7,062		6,380		Depreciation and accretion included in other costs	2,568		2,361
Deferred income taxes	Deferred income taxes	22,184		8,789		Deferred income taxes	6,334		5,738
Gain on sale of discontinued operations		(200)		0

Realized gain on commodity contracts and sale of assets	Realized gain on commodity contracts and sale of assets	(4,876)		(1,087)		Realized gain on commodity contracts and sale of assets	(3,514)		(4,458)
Unrealized gain on investments/commodity contracts		(432)		(1,025)
Unrealized (gain) loss on investments/commodity contracts						Unrealized (gain) loss on investments/commodity contracts	(389)		1,511
Employee benefits and compensation	Employee benefits and compensation	32		1,163		Employee benefits and compensation	(173)		11
Share-based compensation	Share-based compensation	3,654		2,305		Share-based compensation	1,876		1,056

Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Accounts receivable and accrued revenue	Accounts receivable and accrued revenue	10,255		51,997		Accounts receivable and accrued revenue	(484)		8,139
Propane inventory, storage gas and other inventory	Propane inventory, storage gas and other inventory	2,824		7,996		Propane inventory, storage gas and other inventory	1,371		3,921
Regulatory assets/liabilities, net	Regulatory assets/liabilities, net	(2,284)		(7,160)		Regulatory assets/liabilities, net	14,123		7,309
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,135		13,959		Prepaid expenses and other current assets	4,171		3,359
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	(924)		(51,550)		Accounts payable and other accrued liabilities	766		(4,243)
Income taxes (payable) receivable	Income taxes (payable) receivable	(6,809)		4,200		Income taxes (payable) receivable	6,093		4,820
Customer deposits and refunds	Customer deposits and refunds	1,572		(2,992)		Customer deposits and refunds	(847)		(1,817)
Accrued compensation	Accrued compensation	(5,506)		(3,747)		Accrued compensation	(5,105)		(8,766)
Other assets and liabilities, net	Other assets and liabilities, net	(3,746)		(1,927)		Other assets and liabilities, net	3,761		(1,315)
Net cash provided by operating activities	Net cash provided by operating activities	115,880		103,939		Net cash provided by operating activities	80,382		58,808
Investing Activities	Investing Activities					Investing Activities
Property, plant and equipment expenditures	Property, plant and equipment expenditures	(123,421)		(139,315)		Property, plant and equipment expenditures	(51,994)		(35,182)
Proceeds from sale of assets	Proceeds from sale of assets	4,320		327		Proceeds from sale of assets	394		4,106
Acquisitions, net of cash acquired		(15,629)		0
Proceeds from the sale of discontinued operations		200		0

Environmental expenditures	Environmental expenditures	(2,021)		(925)		Environmental expenditures	(247)		(422)
Net cash used in investing activities	Net cash used in investing activities	(136,551)		(139,913)		Net cash used in investing activities	(51,847)		(31,498)
Financing Activities	Financing Activities					Financing Activities
Common stock dividends	Common stock dividends	(20,044)		(18,235)		Common stock dividends	(7,513)		(6,483)
Issuance (repurchase) of stock under equity issuance plans, net of offering fees		19,731		(536)
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	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	Change in cash overdrafts due to outstanding checks	(2,310)		(2,406)		Change in cash overdrafts due to outstanding checks	7		(1,747)
Net repayments under line of credit agreements	Net repayments under line of credit agreements	(29,385)		(67,308)		Net repayments under line of credit agreements	(19,528)		8,715
Proceeds from issuance of long-term debt, net of offering fees	Proceeds from issuance of long-term debt, net of offering fees	89,827		129,817		Proceeds from issuance of long-term debt, net of offering fees	0		(13)
Repayment of long-term debt and capital lease obligation		(40,100)		(6,435)
Net cash provided by financing activities		16,742		34,205
Net Decrease in Cash and Cash Equivalents		(3,929)		(1,769)
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						Net Increase (Decrease) in Cash and Cash Equivalents	2,076		(3,003)
Cash and Cash Equivalents—Beginning of Period	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	Cash and Cash Equivalents—End of Period	$	3,056	$	4,320	Cash and Cash Equivalents—End of Period	$	5,575	$	3,982

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

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)


		Common Stock (1)																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		(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 June 30, 2019		16,403,776	$	7,984	$	256,385	$	285,762	$	(5,747)	$	4,694	$	(4,694)	$	544,384
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	—	—		—		5,621		—		—		—		5,621		Net income	—	—		—		28,930		—		—		—		28,930
Other comprehensive loss		—	—		—		—		344		—		—		344
Other comprehensive gain																	Other comprehensive gain	—	—		—		—		73		—		—		73
Dividend declared ($0.4050 per share)	Dividend declared ($0.4050 per share)	—	—		—		(6,689)		—		—		—		(6,689)		Dividend declared ($0.4050 per share)	—	—		—		(6,703)		—		—		—		(6,703)
Dividend reinvestment plan	Dividend reinvestment plan	—	—		(1)		—		—		—		—		(1)		Dividend reinvestment plan	3,743	2		352		—		—		—		—		354
Share-based compensation and tax benefit (3)(4)	Share-based compensation and tax benefit (3)(4)	0	0		1,052		—		—		—		—		1,052		Share-based compensation and tax benefit (3)(4)	25,586	12		(84)		—		—		—		—		(72)
Treasury stock activities	Treasury stock activities	—	—		—		—		—		(189)		189		—		Treasury stock activities	—	—		—		—		—		925		(925)		—
Balance at September 30, 2019		16,403,776	$	7,984	$	257,436	$	284,694	$	(5,403)	$	4,505	$	(4,505)	$	544,711
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

Balance at December 31, 2018		16,378,545	$	7,971	$	255,651	$	261,530	$	(6,713)	$	3,854	$	(3,854)	$	518,439
Net income		—	—		—		42,589		—		—		—		42,589
Prior period reclassification		—	—		—		115		(115)		—		—		0
Other comprehensive income		—	—		—		—		1,425		—		—		1,425
Dividend declared ($1.1800 per share)		—	—		—		(19,540)		—		—		—		(19,540)
Dividend reinvestment plan		0	0		(3)		—		—		—		—		(3)
Share-based compensation and tax benefit (3)(4)		25,231	13		1,788		—		—		—		—		1,801
Treasury stock activities		—	—		—		—		—		651		(651)		0
Balance at September 30, 2019		16,403,776	$	7,984	$	257,436	$	284,694	$	(5,403)	$	4,505	$	(4,505)	$	544,711

Balance at June 30, 2020		16,463,808	$	8,013	$	263,272	$	326,454	$	(4,462)	$	5,659	$	(5,659)	$	593,277

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	Net income	—	—		—		9,261		—		—		—		9,261		Net income	—	—		—		34,466		—		—		—		34,466
Other comprehensive income	Other comprehensive income	—	—		—		—		833		—		—		833		Other comprehensive income	—	—		—		—		227		—		—		227
Dividend declared ($0.440 per share)	Dividend declared ($0.440 per share)	—	—		—		(7,358)		—		—		—		(7,358)		Dividend declared ($0.440 per share)	—	—		—		(7,812)		—		—		—		(7,812)
Equity issuances under various plans (5)		232,684	113		19,420		—		—		—		—		19,533
Dividend reinvestment plan																	Dividend reinvestment plan	20,511	10		2,204		—		—		—		—		2,214
Share-based compensation and tax benefit (3) (4)	Share-based compensation and tax benefit (3) (4)				1,144		—		—		—		—		1,144		Share-based compensation and tax benefit (3) (4)	39,141	19		189		—		—		—		—		208
Treasury stock activities	Treasury stock activities	—	—		—		—		—		(25)		25		0		Treasury stock activities	—	—		—		—		—		1,313		(1,313)		0
Balance at September 30, 2020		16,696,492	$	8,126	$	283,836	$	328,357	$	(3,629)	$	5,634	$	(5,634)	$	616,690
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

Balance at December 31, 2019		16,403,776	$	7,984	$	259,253	$	300,607	$	(6,267)	$	4,543	$	(4,543)	$	561,577
Net income		—	—		—		49,146		—		—		—		49,146
Other comprehensive income		—	—		—		—		2,638		—		—		2,638
Dividend declared ($1.285 per share)		—	—		—		(21,366)		—		—		—		(21,366)
Equity issuances under various plans (5)		258,260	126		21,693		—		—		—		—		21,819
Share-based compensation and tax benefit (3) (4)		34,456	16		2,890		—		—		—		—		2,906
Treasury stock activities		—	—		—		—		—		1,091		(1,091)		0
Cumulative effect of the adoption of ASU 2016-13		—	—		—		(30)		—		—		—		(30)
Balance at September 30, 2020		16,696,492	$	8,126	$	283,836	$	328,357	$	(3,629)	$	5,634	$	(5,634)	$	616,690

(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 ~~104,119 shares at September 30, 2020,~~116,751, 105,087, 104,871, and 95,329 shares at March 31, 2021, December 31, 2020, March 31, 2020 and December 31, 2019, ~~94,923 shares at September 30, 2019 and 97,053 shares at December 31, 2018,~~ 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 ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we withheld ~~10,319~~14,020 and ~~7,635~~10,319 shares, respectively, for employee taxes.

~~(5)Includes the Retirement Savings Plan, DRIP and ATM equity issuances.~~

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

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 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 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 the fourth quarter of 2019, we closed on 4 separate transactions to sell PESCO's assets and contracts. As a result of these sales, 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

OnIn 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 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 continued to~~ significantly ~~impact~~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 United States. ~~We are~~Regardless, Chesapeake Utilities is considered an “essential business,” which ~~allows~~has allowed us to continue ~~our~~ 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 ~~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. Impacts from the restrictions imposed in our service territories and the implementation of our pandemic response plan, included reduced consumption of energy largely in the commercial and industrial sectors, higher bad debt expenses and incremental expenses associated with COVID-19, including personal protective equipment and premium pay for field personnel. The additional operating expenses we incurred support the ongoing delivery of our essential services during these unprecedented times. As the COVID-19 pandemic is still ongoing, we are continuing to assess recoverability and to date, have not established regulatory assets associated with the incremental net expense impacts, as currently authorized by the Delaware, Maryland and Florida PSCs. We are committed to communicating timely updates and will continue to monitor developments affecting ~~our~~ employees, customers, suppliers, ~~and~~ 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, and update and communicate the ongoing financial impact on our results once determined.~~communities. Refer to Note 5, Rates and Other Regulatory Activities, for further information on the ~~potential deferral~~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.

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.

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 services business units consist of our natural gas pipelines and our mobile compressed natural gas ("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, COVID-19 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 losses and a slowing of economic activity across the United States and in the areas that we serve. We have been identified as an “essential business,” which allowed us to continue operational activity and construction projects with social distancing restrictions in place. We have considered the impact of COVID-19 for the nine months ended September 30, 2020, monitored developments that impact our customers’ ability to pay and have revised our estimates of expected credit losses.

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 September 30, 2020:


~~(in thousands)~~
~~Balance at December 31, 2019~~	$	~~1,337~~
~~Additions:~~
~~Provision for credit losses~~	~~2,810~~
~~Recoveries~~	~~577~~
~~Deductions:~~
~~Write offs~~	~~(594)~~
~~Balance at September 30, 2020~~	$	~~4,130~~

~~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 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.

~~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 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				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
(in thousands, except shares and per share data)	(in thousands, except shares and per share data)									(in thousands, except shares and per share data)
Calculation of Basic Earnings Per Share:	Calculation of Basic Earnings Per Share:									Calculation of Basic Earnings Per Share:
Income from Continuing Operations	Income from Continuing Operations	$	9,280	$	6,251	$	48,981	$	43,977	Income from Continuing Operations	$	34,472	$	29,041
Income (Loss) from Discontinued Operations		(19)		(630)		165		(1,388)
Loss from Discontinued Operations										Loss from Discontinued Operations	(6)		(111)
Net Income	Net Income	$	9,261	$	5,621	$	49,146	$	42,589	Net Income	$	34,466	$	28,930

Weighted average shares outstanding	Weighted average shares outstanding	16,533,748		16,403,776		16,466,106		16,396,646		Weighted average shares outstanding	17,485,866		16,414,773
Basic Earnings Per Share from Continuing Operations	Basic Earnings Per Share from Continuing Operations	$	0.56	$	0.38	$	2.97	$	2.68	Basic Earnings Per Share from Continuing Operations	$	1.97	$	1.77
Basic Earnings (Loss) Per Share from Discontinued Operations		0		(0.04)		0.01		(0.08)
Basic Loss Per Share from Discontinued Operations										Basic Loss Per Share from Discontinued Operations	0		(0.01)
Basic Earnings Per Share	Basic Earnings Per Share	$	0.56	$	0.34	$	2.98	$	2.60	Basic Earnings Per Share	$	1.97	$	1.76

Calculation of Diluted Earnings Per Share:	Calculation of Diluted Earnings Per Share:									Calculation of Diluted Earnings Per Share:
Reconciliation of Denominator:	Reconciliation of Denominator:									Reconciliation of Denominator:
Weighted shares outstanding—Basic	Weighted shares outstanding—Basic	16,533,748		16,403,776		16,466,106		16,396,646		Weighted shares outstanding—Basic	17,485,866		16,414,773
Effect of dilutive securities—Share-based compensation	Effect of dilutive securities—Share-based compensation	59,094		50,091		57,094		47,585		Effect of dilutive securities—Share-based compensation	67,301		57,054
Adjusted denominator—Diluted	Adjusted denominator—Diluted	16,592,842		16,453,867		16,523,200		16,444,231		Adjusted denominator—Diluted	17,553,167		16,471,827
Diluted Earnings Per Share from Continuing Operations	Diluted Earnings Per Share from Continuing Operations	$	0.56	$	0.38	$	2.96	$	2.67	Diluted Earnings Per Share from Continuing Operations	$	1.96	$	1.77
Diluted Earnings (Loss) Per Share from Discontinued Operations		0		(0.04)		0.01		(0.08)
Diluted Loss Per Share from Discontinued Operations										Diluted Loss Per Share from Discontinued Operations	0		(0.01)
Diluted Earnings Per Share	Diluted Earnings Per Share	$	0.56	$	0.34	$	2.97	$	2.59	Diluted Earnings Per Share	$	1.96	$	1.76

3. Acquisitions ~~and Divestitures~~

Acquisition of Western Natural Gas ~~Company~~

In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas, ~~Company,~~ which provides propane distribution service throughout Jacksonville, Florida and the surrounding communities, for approximately $6.7 million, net of cash acquired. ~~The acquisition will be~~Additionally, the purchase price included $0.3 million of working capital. We recorded contingent consideration of $0.3 million related to the seller's adherence to various provisions contained in the purchase agreement through the first anniversary of the transaction closing. We accounted for this acquisition as a business combination within our Unregulated Energy ~~Segment~~segment beginning in the fourth quarter of 2020. There are multiple strategic benefits to this acquisition including it: (i) expands our propane territory serviced in ~~Florida;~~Florida and (ii) includes an established customer base with additional opportunities for future ~~growth;~~growth.

In connection with this acquisition, we recorded $3.5 million in property plant and ~~(iii) provides opportunities~~equipment, $1.4 million in intangible assets associated with customer relationships and non-compete agreements and $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 ~~market additional services~~adjustment based on contractual provisions. The purchase price allocation will be finalized in the fourth quarter of 2021. For the three months ended March 31, 2021, Western Natural Gas generated operating revenue and ~~pricing programs to these customers.~~income of $0.8 million and $0.2 million, respectively.

Acquisition of Elkton Gas

In July 2020, we 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 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. ~~Elkton Gas continues to operate out of its existing office with the same local personnel who are now also serving our existing franchised service territory in Cecil County.~~

In connection with this acquisition, we 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 liabilities are recorded in the Regulated Energy segment. The amounts recorded in conjunction with the acquisition are preliminary, and subject to adjustment based

on contractual provisions. The purchase price allocation will be finalized in the third quarter of 2021. For the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, Elkton Gas generated operating revenue of $0.6 million and an operating loss of less than $0.1 million, respectively. The immaterial operating loss is reflective of less than a full quarter of results; in addition, the third quarter is typically the warmest quarter of the year.

~~Acquisition of Boulden~~

In December 2019, Sharp acquired certain propane operating assets of Boulden, which provides propane distribution service to approximately 5,200 customers in Delaware, Maryland and Pennsylvania, for approximately $24.6 million, net of cash acquired. Additionally, the purchase price included $0.2 million of working capital. We recorded contingent consideration of $0.6 million related to the seller's adherence to various provisions contained in the contract through the first anniversary of the transaction closing. We accounted for the purchase of the operating assets of Boulden as a business combination and integrated the business into our Sharp operation. There are multiple strategic benefits to this acquisition including it: (i) overlays with the Elkton Gas acquisition to establish an integrated energy delivery platform in Cecil County, Maryland; (ii) includes an established customer base with 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.

In connection with this acquisition, we recorded $8.3 million in property, plant and equipment, $5.1 million in intangible assets associated with customer relationships and non-compete agreements and $11.2 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 will be finalized in the fourth quarter of 2020. For the three months ended September 30, 2020, Boulden generated operating revenue of $0.4 million and an operating loss of $0.2 million, respectively. For the nine months ended September 30, 2020, Boulden generated operating revenue and income of ~~$4.1~~$2.6 million and ~~$1.2~~$0.6 million, respectively. ~~The third quarter is typically the warmest quarter of the year, with the smallest amount of gallons being delivered during that quarter.~~

~~Divestiture of PESCO~~

During the fourth quarter of 2019, we sold PESCO's assets and contracts in 4 separate transactions and exited the natural gas marketing business. As a result of the sales agreements, we began to report PESCO as discontinued operations during the third quarter of 2019, 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 $23.1 million in cash consideration from the buyers, inclusive of working capital of $8.0 million and recognized total pre-tax gain of $7.5 million ($5.4 million after tax) in connection with these transactions of which, $7.3 million of this gain was recognized in 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 for the three and nine months ended September 30, 2019. We recast these amounts because, upon completion of the sales transactions, we continued to provide and receive services from the buyers through the remainder of the contractual terms.

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

Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 2020
2019 (1)
2020
2019 (1)
Operating revenues(1)
$ 3 $ 34,271 $ 26 $ 152,573
Cost of sales(1)
(40) 33,763 (39) 149,464
Other operating expenses 75 1,360 272 4,819
Operating loss (32) (852) (207) (1,710)
Interest and other expense 6 (74) (23) (242)
Loss from Discontinued Operations before income taxes (26) (926) (230) (1,952)
Gain on sale of Discontinued Operations — — 200 0
Income tax benefit (7) (296) (195) (564)
Gain (Loss) from Discontinued Operations, Net of Tax $ (19) $ (630) $ 165 $ (1,388)

~~(1)~~ Included in operating revenues and cost of sales for the three and nine months ended September 30, 2019, is $4.3 million and $19.1 million, respectively, representing amounts which had been previously eliminated in consolidation related to intercompany activity that continued 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 of 2019, there were no assets or liabilities classified as held for sale at September 30, 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:


	~~Nine Months Ended September 30, 2019~~
~~In thousands~~
~~Depreciation and amortization~~	$	~~437~~
~~Deferred income taxes~~	$	~~513~~
~~Realized gain on commodity contracts~~	$	~~(623)~~

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 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 ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Three months ended September 30, 2020								Three Months Ended September 30, 2019									Three months ended March 31, 2021								Three Months Ended March 31, 2020
(in thousands)	(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																	Energy distribution
Delaware natural gas division	Delaware natural gas division	$	7,243	$	—	$	—	$	7,243	$	6,953	$	—	$	—	$	6,953	Delaware natural gas division	$	33,272	$	—	$	—	$	33,272	$	26,567	$	—	$	—	$	26,567
Florida natural gas division	Florida natural gas division	7,309		—		—		7,309		6,710		—		—		6,710		Florida natural gas division	8,956		—		—		8,956		8,477		—		—		8,477
FPU electric distribution	FPU electric distribution	29,051		—		—		29,051		24,174		—		—		24,174		FPU electric distribution	18,551		—		—		18,551		14,219		—		—		14,219
FPU natural gas distribution	FPU natural gas distribution	19,935		—		—		19,935		17,908		—		—		17,908		FPU natural gas distribution	26,861		—		—		26,861		25,444		—		—		25,444
Maryland natural gas division	Maryland natural gas division	2,824		—		—		2,824		2,634		—		—		2,634		Maryland natural gas division	10,466		—		—		10,466		9,138		—		—		9,138
Sandpiper natural gas/propane operations	Sandpiper natural gas/propane operations	3,290		—		—		3,290		3,673		—		—		3,673		Sandpiper natural gas/propane operations	8,071		—		—		8,071		6,292		—		—		6,292
Elkton Gas	Elkton Gas	623		—		—		623		—		—		—		—		Elkton Gas	2,635		—		—		2,635		—		—		—		—
Total energy distribution	Total energy distribution	70,275		—		—		70,275		62,052		—		—		62,052		Total energy distribution	108,812		—		—		108,812		90,137		—		—		90,137

Energy transmission	Energy transmission																	Energy transmission
Aspire Energy	Aspire Energy	—		3,449		—		3,449		—		4,247		—		4,247		Aspire Energy	—		12,905		—		12,905		—		9,781		—		9,781
Aspire Energy Express																		Aspire Energy Express	47		—		—		47		—		—		—		—
Eastern Shore	Eastern Shore	18,389		—		—		18,389		17,573		—		—		17,573		Eastern Shore	19,972		—		—		19,972		19,279		—		—		19,279
Peninsula Pipeline	Peninsula Pipeline	6,433		—		—		6,433		4,442		—		—		4,442		Peninsula Pipeline	6,467		—		—		6,467		4,824		—		—		4,824
Total energy transmission	Total energy transmission	24,822		3,449		—		28,271		22,015		4,247		—		26,262		Total energy transmission	26,486		12,905		—		39,391		24,103		9,781		—		33,884

Energy generation	Energy generation																	Energy generation
Eight Flags	Eight Flags	—		3,882		—		3,882		—		4,027		—		4,027		Eight Flags	—		4,329		—		4,329		—		4,323		—		4,323

Propane operations	Propane operations																	Propane operations
Propane delivery operations	Propane delivery operations	—		13,710		—		13,710		—		14,200		—		14,200		Propane delivery operations	—		55,264		—		55,264		—		38,623		—		38,623

Energy delivery services	Energy delivery services																	Energy delivery services
Marlin Gas Services	Marlin Gas Services	—		1,708		—		1,708		—		1,059		—		1,059		Marlin Gas Services	—		2,352		—		2,352		—		1,309		—		1,309

Other and eliminations	Other and eliminations																	Other and eliminations
Eliminations	Eliminations	(12,335)		(35)		(4,188)		(16,558)		(9,487)		(1,253)		(4,367)		(15,107)		Eliminations	(14,101)		(91)		(4,901)		(19,093)		(11,285)		(24)		(4,409)		(15,718)
Other	Other	—		0		131		131		—		0		133		133		Other	—		0		132		132		—		0		132		132
Total other and eliminations	Total other and eliminations	(12,335)		(35)		(4,057)		(16,427)		(9,487)		(1,253)		(4,234)		(14,974)		Total other and eliminations	(14,101)		(91)		(4,769)		(18,961)		(11,285)		(24)		(4,277)		(15,586)

Total operating revenues (1)	Total operating revenues (1)	$	82,762	$	22,714	$	(4,057)	$	101,419	$	74,580	$	22,280	$	(4,234)	$	92,626	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 ~~September 30, 2020,~~March 31, 2021, include other revenue (revenues from sources other than contracts with customers) of ~~$0.2~~$(0.3) million and ~~$0.05~~$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 ~~September 30, 2019. The sources of other revenues include revenue from alternative revenue programs related to revenue normalization for the Maryland division and Sandpiper and late fees.~~

~~The following table displays our revenue from continuing operations by major source based on product and service type for the nine months ended September 30, 2020 and 2019:~~

Nine months ended September 30, 2020 Nine months ended September 30, 2019
(in thousands) Regulated Energy Unregulated Energy Other and Eliminations Total Regulated Energy Unregulated Energy Other and Eliminations Total
Energy distribution
Delaware natural gas division $ 45,568 $ — $ — $ 45,568 $ 42,758 $ — $ — $ 42,758
Florida natural gas division 23,018 — — 23,018 21,625 — — 21,625
FPU electric distribution 58,972 — — 58,972 59,016 — — 59,016
FPU natural gas distribution 64,877 — — 64,877 60,357 — — 60,357
Maryland natural gas division 15,941 — — 15,941 15,867 — — 15,867
Sandpiper natural gas/propane operations 12,440 — — 12,440 14,237 — — 14,237
Elkton Gas 623 — — 623 — — — —
Total energy distribution 221,439 — — 221,439 213,860 — — 213,860
Energy transmission
Aspire Energy — 17,784 — 17,784 — 23,139 — 23,139
Eastern Shore 55,944 — — 55,944 54,368 — — 54,368
Peninsula Pipeline 16,618 — — 16,618 11,573 — — 11,573
Total energy transmission 72,562 17,784 — 90,346 65,941 23,139 — 89,080
Energy generation
Eight Flags — 11,898 — 11,898 — 12,405 — 12,405
Propane operations
Propane delivery operations — 69,593 — 69,593 — 78,217 — 78,217
Energy delivery services
Marlin Gas Services — 5,266 — 5,266 — 4,601 — 4,601
Other and eliminations
Eliminations (34,766) (75) (12,937) (47,778) (28,200) (9,377) (13,351) (50,928)
Other — 0 396 396 — 0 395 395
Total other and eliminations (34,766) (75) (12,541) (47,382) (28,200) (9,377) (12,956) (50,533)
Total operating revenues (1)
$ 259,235 $ 104,466 $ (12,541) $ 351,160 $ 251,601 $ 108,985 $ (12,956) $ 347,630

~~(1)~~Total operating revenues for the nine months ended September 30, 2020, include other revenue (revenues from sources other than contracts with customers) of $1.0 million and $0.2 million for our Regulated and Unregulated Energy segments, respectively, and $(0.1) million and $0.3 million for our Regulated and Unregulated Energy segments, respectively, for the nine months ended September 30, 2019.March 31, 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.

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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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were as follows:


		Trade Receivables		Contract Assets (Current)		Contract Assets (Non-current)		Contract Liabilities (Current)			Trade Receivables		Contract Assets (Current)		Contract Assets (Non-current)		Contract Liabilities (Current)
(in thousands)	(in thousands)									(in thousands)
Balance at 12/31/2019		$	47,430	$	18	$	3,465	$	589
Balance at 9/30/2020		37,190		18		4,537		971
Balance at 12/31/2020										Balance at 12/31/2020	$	55,600	$	18	$	4,816	$	644
Balance at 3/31/2021										Balance at 3/31/2021	56,577		18		5,034		433
Increase (decrease)	Increase (decrease)	$	(10,240)	$	0	$	1,072	$	382	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 sheet. Our non-current contract assets are included in other assets in the condensed consolidated balance 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 ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ we recognized revenue of ~~$0.2~~$0.4 million. ~~For the nine months ended September 30, 2020 and 2019, we recognized revenue of $0.8 million and $0.7 million, respectively.~~

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 ~~September 30, 2020,~~March 31, 2021, are expected to be recognized as follows:


(in thousands)	(in thousands)	2020		2021		2022		2023		2024		2025		2026 and thereafter		(in thousands)	2021		2022		2023		2024		2025		2026		2027 and thereafter
Eastern Shore and Peninsula Pipeline	Eastern Shore and Peninsula Pipeline	$	9,115	$	34,541	$	27,047	$	21,664	$	19,587	$	18,736	$	174,774	Eastern Shore and Peninsula Pipeline	$	26,814	$	30,415	$	23,129	$	20,970	$	20,117	$	19,387	$	156,500
Natural gas distribution operations	Natural gas distribution operations	970		4,351		5,394		4,937		4,705		4,172		32,996		Natural gas distribution operations	4,239		6,521		6,064		5,835		5,299		5,071		33,465
FPU electric distribution	FPU electric distribution	141		566		566		566		566		275		825		FPU electric distribution	489		652		652		652		275		275		550
Total revenue contracts with remaining performance obligations	Total revenue contracts with remaining performance obligations	$	10,226	$	39,458	$	33,007	$	27,167	$	24,858	$	23,183	$	208,595	Total revenue contracts with remaining performance obligations	$	31,542	$	37,588	$	29,845	$	27,457	$	25,691	$	24,733	$	190,515

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

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

~~CGS:~~

Maryland

Strategic Infrastructure Development and Enhancement (“STRIDE”) plan: ~~August 2019, we~~In March 2021, Elkton Gas filed with the ~~Delaware~~Maryland PSC ~~an application seeking an order that will establish~~a strategic infrastructure development and enhancement plan. The STRIDE plan proposes to increase the ~~regulatory accounting treatment~~speed of Elkton Gas' Aldyl-A pipeline replacement program and ~~valuation methodology for~~to recover the ~~acquisition of propane CGS owned by our affiliate, Sharp and the conversion~~costs of the ~~CGS to natural gas service. We proposed to acquire each CGS one at~~plan through a time and to pay replacement cost for each CGS system. In addition, we requested authorization to pay for and capitalize the CGS residents’ behind-the-meter conversion costs. Our existing natural gas customers will be protected against subsidizing

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proposed 5-year surcharge. Under Elkton Gas’ proposed STRIDE plan, the ~~acquisitions and conversions of~~Aldyl-A pipelines would be replaced by 2023. The procedural schedule for the ~~CGS systems because we will complete only those systems that meet our economic test. The application was reviewed by the Delaware PSC, who approved and issued a final order in~~case is underway, with hearings scheduled for June ~~2020.~~

~~Maryland~~2021.

~~Approval of the 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. Elkton Gas territory is contiguous to our franchised service territory in Cecil County, Maryland. On June 29, 2020, the Maryland PSC issued a final order approving the settlement agreement, therefore, enabling the transaction to move forward.~~In July 2020, the transaction closed and we acquired Elkton Gas as our wholly-owned subsidiary.~~Florida

~~Application for Authority to Exercise a Franchise:~~ In March 2020, we filed with the Maryland PSC an application seeking approval to exercise a franchise granted to us by the Board of County Commissioners of Somerset County, Maryland in December 2019. The application was approved in June 2020.

~~Florida~~

Hurricane Michael: In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest 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 undergoing review by the Florida PSC for regulatory asset treatment were 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 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.

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 limited proceeding. In September 2020, the Florida PSC 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 the amount of $45.8 million including interest which will be amortized over six years; ~~(b)~~(c) recover these storm costs through a surcharge for a total of $7.7 million annually; and ~~(c)~~(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. The petition was joined to the Hurricane Michael docket, and was approved at the Florida PSC Agenda in September 2020. The approved rates were retroactively applied effective January 1, 2020.

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. We expect to complete the remainder of the project in phases through the ~~second~~third quarter of 2021.

~~Callahan Pipeline, Nassau County:~~ ~~In the second quarter of 2020, Peninsula Pipeline and Seacoast Gas Transmission completed construction of 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 terminates into the existing Peninsula Pipeline-Peoples Gas jointly owned pipeline, which serves Amelia Island and the Peoples Gas distribution system. The Callahan Pipeline has enhanced FPU’s ability to expand service into Nassau County and has enabled Peoples Gas to enhance its system pressure and the reliability of its service in Duval County.

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~~end of ~~the fourth quarter 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. As Eastern Shore continues to relocate its pipeline and incur capital expenditures, we will continue to utilize the surcharge to seek recovery of its costs.

~~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.

~~Ohio~~

~~Aspire Energy Express:~~ In October 2020, the Public Utilities Commission of Ohio approved the request by Aspire Energy Express for authority to operate as an intrastate pipeline company in Ohio and also approved the submitted tariff. Aspire Energy Express will utilize the pipeline to provide natural gas transportation service in Ohio, including delivery to the Guernsey Power Station and other potential customers elsewhere in Ohio. Aspire Energy Express has entered into agreements with the Guernsey Power Station to construct the pipeline and provide natural gas transportation service to the facility pending approval of the application. Aspire Energy Express intends to own and operate the proposed intrastate pipeline facilities that will interconnect with the Rockies Express Pipeline and other potential points of receipt. The pipeline facilities that will be initially constructed are near the Guernsey Power Station. Aspire Energy Express will be subject to ongoing jurisdiction and supervision of the Public Utilities Commission of Ohio with respect to the gas pipeline safety standards and requirements.

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

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, 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.

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 allow us to 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.

AsIn the fourth quarter of 2020, we began recording regulatory assets based on the net incremental expense resulting from the COVID-19 pandemic ~~is still ongoing, to date we have not established regulatory assets associated with the incremental expense impacts,~~for our natural gas distribution and electric businesses as currently authorized by the Delaware and Maryland PSCs and as initially authorized by the Florida ~~PSCs.~~PSC.

1712

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:~~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)~~

~~$12,758~~

~~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)~~

~~$4,000~~

~~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)~~

~~$3,726~~

~~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)~~

~~$8,214~~

~~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)~~

~~$19,192~~

~~Same treatment on a net basis as Chesapeake Florida Gas Division (above).~~

~~FPU Fort Meade and Indiantown Divisions~~

~~$309~~

~~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)~~

~~$6,758~~

~~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.~~

~~Elkton Gas (Maryland PSC)~~

~~$1,124~~

~~PSC approved amortization of ADIT in March 2018.~~

~~Implemented one-time bill credit (totaling less than $0.1 million) in May 2020.Customer rates were adjusted in April 2020.~~


	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.

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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had approximately ~~$6.2~~$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 through customer rates, up to $14.0 million of its environmental costs related to its MGP sites. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had recovered approximately ~~$12.3~~$12.5 million and ~~$11.9~~$12.4 million, respectively, leaving approximately ~~$1.7~~$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.

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 ~~Clean Up~~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. Similar remedial actions have been initiated on the site's west parcel, and construction of active remedial systems are expected be completed in 2021.	Between $3.3 million to $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.~~

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 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,~~ 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 also entered into long-term~~These agreements are for a 10-year term that 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 ~~September 30, 2020,~~March 31, 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 ~~September 30, 2020~~March 31, 2021 was $20.0 million. The aggregate amount guaranteed at ~~September 30, 2020~~March 31, 2021 was approximately ~~$7.9~~$8.3 million with the guarantees expiring on various dates through ~~September 24, 2021. The amounts related to PESCO were immaterial and were fully terminated in October 2020. See Note 3,~~ March 30, 2022.

~~Acquisitions and Divestitures, for additional details on the sale~~Table 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 ~~September 30, 2020,~~March 31, 2021, we have issued letters of credit totaling approximately $4.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions and our current and previous primary insurance carriers. These letters of credit have various expiration dates through October 5, 2021. ~~There~~We have ~~been no drawings~~not drawn on these letters of credit as of ~~September 30, 2020. We~~March 31, 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. ~~At September 30, 2020, letters of credit associated with PESCO were fully terminated.~~

8. Segment Information

We use the management approach to identify operating segments. We organize our business around differences in regulatory environment 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 ~~the new~~ 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. ~~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:

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(in thousands)
Operating Revenues, Unaffiliated Customers
Regulated Energy $ 82,297 $ 74,027 $ 257,810 $ 249,978
Unregulated Energy 19,122 18,599 93,350 97,652
Total operating revenues, unaffiliated customers $ 101,419 $ 92,626 $ 351,160 $ 347,630
Intersegment Revenues (1)
Regulated Energy $ 465 $ 553 $ 1,425 $ 1,623
Unregulated Energy 3,592 3,681 11,116 11,333
Other businesses 131 133 396 395
Total intersegment revenues $ 4,188 $ 4,367 $ 12,937 $ 13,351
Operating Income
Regulated Energy $ 20,482 $ 17,540 $ 66,376 $ 65,310
Unregulated Energy (3,092) (3,169) 11,050 11,317
Other businesses and eliminations 16 (14) 92 18
Operating income 17,406 14,357 77,518 76,645
Other income (expense), net (40) (351) 2,997 (731)
Interest charges 4,584 5,403 15,452 16,583
Income from Continuing Operations before Income Taxes 12,782 8,603 65,063 59,331
Income Taxes on Continuing Operations 3,502 2,352 16,082 15,354
Income from Continuing Operations 9,280 6,251 48,981 43,977
Income (loss) from Discontinued Operations, Net of Tax (19) (630) 165 (1,388)
Net Income $ 9,261 $ 5,621 $ 49,146 $ 42,589


	Three Months Ended
	March 31,
	2021		2020
(in thousands)
Operating Revenues, Unaffiliated Customers
Regulated Energy	$	120,721	$	102,469
Unregulated Energy	70,466		50,221
Total operating revenues, unaffiliated customers	$	191,187	$	152,690
Intersegment Revenues (1)
Regulated Energy	$	476	$	486
Unregulated Energy	4,293		3,791
Other businesses	132		132
Total intersegment revenues	$	4,901	$	4,409
Operating Income
Regulated Energy	$	32,864	$	27,888
Unregulated Energy	19,105		13,862
Other businesses and eliminations	(372)		384
Operating income	51,597		42,134
Other income, net	385		3,319
Interest charges	5,105		5,814
Income from Continuing Operations before Income Taxes	46,877		39,639
Income Taxes on Continuing Operations	12,405		10,598
Income from Continuing Operations	34,472		29,041
Loss from Discontinued Operations, Net of Tax	(6)		(111)
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)	(in thousands)	September 30, 2020		December 31, 2019		(in thousands)	March 31, 2021		December 31, 2020
Identifiable Assets	Identifiable Assets					Identifiable Assets
Regulated Energy segment	Regulated Energy segment	$	1,530,689	$	1,434,066	Regulated Energy segment	$	1,559,260	$	1,547,619
Unregulated Energy segment	Unregulated Energy segment	305,536		296,810		Unregulated Energy segment	352,271		347,665
Other businesses and eliminations	Other businesses and eliminations	51,863		52,322		Other businesses and eliminations	42,419		37,203
Total identifiable assets	Total identifiable assets	$	1,888,088	$	1,783,198	Total identifiable assets	$	1,953,950	$	1,932,487

9. Stockholders' Equity

Common Stock Issuances

OnIn June ~~30,~~ 2020, we filed a shelf registration statement with the SEC to facilitate the issuance of our common stock from time to time. OnIn August ~~17,~~ 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 ~~September~~the third and fourth quarters of 2020, we issued ~~0.1~~0.7 million shares of common stock at an average price per share of ~~$83.21~~$82.93 and received net proceeds of approximately ~~$10.2~~$61.0 million, after deducting commissions and other fees of ~~$0.4~~$1.5 million. In October 2020, we issued an additional 0.6 million shares at price per share of $82.88 and received approximately $50.8 million in net proceeds, after deducting commissions and other fees of $1.1 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 ~~consider issuing~~issue additional shares under the direct stock purchase component of the DRIP. In the third ~~quarter~~and fourth quarters of 2020, we issued ~~0.1~~0.3 million shares at an average price per share of ~~$84.90~~$86.12 and received net proceeds of ~~$9.0~~$22.0 million under the DRIP. In ~~October 2020,~~the first quarter of 2021, we issued ~~an additional~~less than 0.1 million shares at an average price per share of ~~$86.99~~$109.05 and received ~~approximately $13.0~~net proceeds of $1.9 million inunder 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.~~proceeds of $1.0 million under the DRIP.

We ~~intend to use~~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 ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. All amounts ~~except~~in the ~~stranded tax reclassification~~following tables are presented net of tax.

Defined Benefit Commodity Interest Rate
Pension and Contracts Swap
Postretirement Cash Flow Cash Flow
Plan Items Hedges Hedges Total
(in thousands)
As of December 31, 2019 $ (4,933) $ (1,334) $ — $ (6,267)
Other comprehensive income before reclassifications 0 3,594 23 3,617
Amounts reclassified from accumulated other comprehensive income (loss) 198 (1,144) (33) (979)
Net current-period other comprehensive income 198 2,450 (10) 2,638
As of September 30, 2020 $ (4,735) $ 1,116 $ (10) $ (3,629)


	Defined Benefit		Commodity		Interest Rate
	Pension and		Contracts		Swap
	Postretirement		Cash Flow		Cash Flow
	Plan Items		Hedges		Hedges		Total
(in thousands)
As of December 31, 2020	$	(5,146)	$	2,309	$	(28)	$	(2,865)
Other comprehensive income before reclassifications	0		2,371		1		2,372
Amounts reclassified from accumulated other comprehensive income (loss)	63		(2,205)		(3)		(2,145)
Net current-period other comprehensive income (loss)	63		166		(2)		227

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)

2217

(in thousands)
As of December 31, 2018 $ (5,928) $ (785) $ — $ (6,713)
Other comprehensive income (loss) before reclassifications (80) 1,780 — 1,700
Amounts reclassified from accumulated other comprehensive income/(loss) 312 (587) — (275)
Net prior-period other comprehensive income 232 1,193 — 1,425
Prior-year reclassification 0 (115) — (115)
As of September 30, 2019 $ (5,696) $ 293 $ — $ (5,403)

The following table presents amounts reclassified out of accumulated other comprehensive ~~loss~~income (loss) for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020. Deferred gains or losses for our commodity contracts and interest rate swap cash flow hedges are recognized in earnings upon settlement.


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
(in thousands)	(in thousands)									(in thousands)
Amortization of defined benefit pension and postretirement plan items:	Amortization of defined benefit pension and postretirement plan items:									Amortization of defined benefit pension and postretirement plan items:
Prior service credit (1)	Prior service credit (1)	$	19	$	19	$	57	$	58	Prior service credit (1)	$	19	$	19
Net loss(1)	Net loss(1)	(108)		(44)		(323)		(370)		Net loss(1)	(104)		(108)
Total before income taxes	Total before income taxes	(89)		(25)		(266)		(312)		Total before income taxes	(85)		(89)
Income tax benefit	Income tax benefit	23		5		68		80		Income tax benefit	22		23
Net of tax	Net of tax	(66)		(20)		(198)		(232)		Net of tax	$	(63)	$	(66)

Gains and losses on commodity contracts cash flow hedges:	Gains and losses on commodity contracts cash flow hedges:									Gains and losses on commodity contracts cash flow hedges:
Propane swap agreements (2)	Propane swap agreements (2)	116		290		1,581		1,148		Propane swap agreements (2)	$	3,047	$	1,227
Natural gas swaps (2)(3)		—		(4)		—		7
Natural gas futures (2)(3)		0		348		0		(350)
Total before income taxes		116		634		1,581		805

Income tax expense	Income tax expense	(32)		(179)		(437)		(218)		Income tax expense	(842)		(339)
Net of tax	Net of tax	84		455		1,144		587		Net of tax	$	2,205	$	888

Gains on interest rate swap cash flow hedges:	Gains on interest rate swap cash flow hedges:									Gains on interest rate swap cash flow hedges:
Interest rate swap agreements	Interest rate swap agreements	34		—		45		—		Interest rate swap agreements	$	4	$	—
Total before income taxes		34		0		45		0

Income tax expense	Income tax expense	(9)		0		(12)		0		Income tax expense	(1)		0
Net of tax	Net of tax	25		0		33		0		Net of tax	$	3	$	0

Total reclassifications for the period	Total reclassifications for the period	$	43	$	435	$	979	$	355	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 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, 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.

2318

10. Employee Benefit Plans

Net periodic benefit costs for our pension and post-retirement benefits plans for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ 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 September 30, 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
(in thousands)
Interest cost $ 46 $ 104 $ 518 $ 614 $ 16 $ 16 $ 8 $ 10 $ 10 $ 12
Expected return on plan assets (42) (127) (745) (693) — — — — — —
Amortization of prior service credit — — — — — — (19) (19) — —
Amortization of net loss 65 101 135 128 5 17 12 11 — —
Net periodic cost (benefit) 69 78 (92) 49 21 33 1 2 10 12
Settlement expense — — — — — 58 — — — —
Amortization of pre-merger regulatory asset — — 0 162 — — — — 2 2
Total periodic cost $ 69 $ 78 $ (92) $ 211 $ 21 $ 91 $ 1 $ 2 $ 12 $ 14


		Chesapeake Pension Plan				FPU Pension Plan				Chesapeake SERP				Chesapeake Postretirement Plan				FPU Medical Plan					Chesapeake Pension Plan				FPU Pension Plan				Chesapeake SERP				Chesapeake Postretirement Plan				FPU Medical Plan
For the Nine Months Ended September 30,		2020		2019		2020		2019		2020		2019		2020		2019		2020		2019
For the Three Months Ended March 31,																						For the Three Months Ended March 31,	2021		2020		2021		2020		2021		2020		2021		2020		2021		2020
(in thousands)	(in thousands)																					(in thousands)
Interest cost	Interest cost	$	138	$	314	$	1,554	$	1,844	$	48	$	58	$	24	$	29	$	30	$	36	Interest cost	$	34	$	46	$	429	$	518	$	12	$	16	$	6	$	8	$	6	$	10
Expected return on plan assets	Expected return on plan assets	(126)		(381)		(2,235)		(2,079)		—		—		—		—		—		—		Expected return on plan assets	(40)		(42)		(830)		(745)		—		—		—		—		—		—
Amortization of prior service credit	Amortization of prior service credit	—		—		—		—		—		—		(57)		(58)		—		—		Amortization of prior service credit	—		—		—		—		—		—		(19)		(19)		—		—
Amortization of net loss		195		304		405		386		15		68		36		35		—		—
Amortization of net (gain) loss																						Amortization of net (gain) loss	60		65		155		135		7		5		8		12		(2)		—
Net periodic cost (benefit)	Net periodic cost (benefit)	207		237		(276)		151		63		126		3		6		30		36		Net periodic cost (benefit)	54		69		(246)		(92)		19		21		(5)		1		4		10
Settlement expense		—		—		—		—		—		58		—		—		—		—
Amortization of pre-merger regulatory asset	Amortization of pre-merger regulatory asset	—		—		0		543		—		—		—		—		6		6		Amortization of pre-merger regulatory asset	—		—		0		0		—		—		—		—		0		2
Total periodic cost		$	207	$	237	$	(276)	$	694	$	63	$	184	$	3	$	6	$	36	$	42
Total periodic cost (benefit)																						Total periodic cost (benefit)	$	54	$	69	$	(246)	$	(92)	$	19	$	21	$	(5)	$	1	$	4	$	12

We expect to record ~~immaterial~~$0.7 million in pension and 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 ended March 31, 2021 and ~~nine months ended September 30, 2020 and 2019:~~2020:


For the Three Months Ended September 30, 2020		Chesapeake Pension Plan		FPU Pension Plan		Chesapeake SERP		Chesapeake Postretirement Plan		FPU Medical Plan		Total
For the Three Months Ended March 31, 2021														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)	(in thousands)													(in thousands)
Prior service credit	Prior service credit	$	—	$	—	$	—	$	(19)	$	—	$	(19)	Prior service credit	$	—	$	—	$	—	$	(19)	$	—	$	(19)
Net loss	Net loss	65		135		5		12		—		217		Net loss	60		155		7		8		(2)		228
Total recognized in net periodic benefit cost	Total recognized in net periodic benefit cost	65		135		5		(7)		—		198		Total recognized in net periodic benefit cost	60		155		7		(11)		(2)		209
Recognized from accumulated other comprehensive loss/(gain) (1)	Recognized from accumulated other comprehensive loss/(gain) (1)	65		26		5		(7)		—		89		Recognized from accumulated other comprehensive loss/(gain) (1)	60		29		7		(11)		—		85
Recognized from regulatory asset	Recognized from regulatory asset	—		109		—		—		—		109		Recognized from regulatory asset	—		126		—		—		(2)		124
Total	Total	$	65	$	135	$	5	$	(7)	$	—	$	198	Total	$	60	$	155	$	7	$	(11)	$	(2)	$	209

For the Three Months Ended September 30, 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 101 128 17 11 — 257
Total recognized in net periodic benefit cost 101 128 17 (8) — 238
Recognized from accumulated other comprehensive loss/(gain) (1)
101 24 (93) (8) — 24
Recognized from regulatory asset — 104 — — — 104
Total $ 101 $ 128 $ (93) $ (8) $ — $ 128

For the Nine Months Ended September 30, 2020 Chesapeake
Pension
Plan FPU
Pension
Plan Chesapeake SERP Chesapeake
Postretirement
Plan FPU
Medical
Plan Total
(in thousands)
Prior service credit $ — $ — $ — $ (57) $ — $ (57)
Net loss 195 405 15 36 — 651
Total recognized in net periodic benefit cost 195 405 15 (21) — 594
Recognized from accumulated other comprehensive loss/(gain) (1)
195 78 15 (21) — 267
Recognized from regulatory asset — 327 — — — 327
Total $ 195 $ 405 $ 15 $ (21) $ — $ 594


For the Nine Months Ended September 30, 2019		Chesapeake Pension Plan		FPU Pension Plan		Chesapeake SERP		Chesapeake Postretirement Plan		FPU Medical Plan		Total
For the Three Months Ended March 31, 2020														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)	(in thousands)													(in thousands)
Prior service credit	Prior service credit	$	—	$	—	$	—	$	(58)	$	—	$	(58)	Prior service credit	$	—	$	—	$	—	$	(19)	$	—	$	(19)
Net loss	Net loss	304		386		(42)		35		—		683		Net loss	65		135		5		12		—		217
Total recognized in net periodic benefit cost	Total recognized in net periodic benefit cost	304		386		(42)		(23)		—		625		Total recognized in net periodic benefit cost	65		135		5		(7)		—		198
Recognized from accumulated other comprehensive loss/(gain) (1)	Recognized from accumulated other comprehensive loss/(gain) (1)	304		73		(42)		(23)		—		312		Recognized from accumulated other comprehensive loss/(gain) (1)	65		26		5		(7)		—		89
Recognized from regulatory asset	Recognized from regulatory asset	—		313		—		—		—		313		Recognized from regulatory asset	—		109		—		—		—		109
Total	Total	$	304	$	386	$	(42)	$	(23)	$	—	$	625	Total	$	65	$	135	$	5	$	(7)	$	—	$	198

(1) See Note 9, Stockholders' Equity.

2519

During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, we contributed approximately $0.1 million ~~and $0.3 million, respectively,~~ to the Chesapeake Pension Plan and approximately ~~$0.5~~$0.4 million ~~and $2.6 million, respectively,~~ to the FPU Pension Plan. We expect to contribute approximately $0.3 million and ~~$3.2~~$2.1 million, respectively, to the Chesapeake Pension Plan and FPU Pension Plans during ~~2020,~~2021, which represents the minimum annual contribution payments required. A provision in the CARES 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 have not deferred, and do not expect to defer, any of our 2020 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 ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 were ~~immaterial and $0.1 million, respectively.~~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 ~~and nine~~ months ended ~~September 30, 2020~~March 31, 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 ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 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

The investment balances at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, consisted of the following:


(in thousands)	(in thousands)	September 30, 2020		December 31, 2019		(in thousands)	March 31, 2021		December 31, 2020
Rabbi trust (associated with the Non-Qualified Deferred Compensation Plan)	Rabbi trust (associated with the Non-Qualified Deferred Compensation Plan)	$	9,663	$	9,202	Rabbi trust (associated with the Non-Qualified Deferred Compensation Plan)	$	10,860	$	10,755
Investments in equity securities	Investments in equity securities	17		27		Investments in equity securities	23		21
Total	Total	$	9,680	$	9,229	Total	$	10,883	$	10,776

We classify these investments as trading securities and report them at their fair value. For the three months ended ~~September 30,~~March 31, 2021 and 2020, and 2019, we recorded a net unrealized gain of approximately $0.6 million and a net unrealized loss of approximately $0.1 million, respectively, in other expense, net in the condensed consolidated statements of income related to these investments. For the nine months ended September 30, 2020 and 2019, we recorded a net unrealized gain of approximately $0.4 million and ~~$1.0~~a net unrealized loss of approximately $1.5 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

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 ~~and nine~~ months ended ~~September 30, 2020~~March 31, 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

2620

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
(in thousands)
Awards to non-employee directors $ 188 $ 158 $ 545 $ 463
Awards to key employees 1,144 1,052 3,109 1,842
Total compensation expense 1,332 1,210 3,654 2,305
Less: tax benefit (348) (315) (955) (600)
Share-based compensation amounts included in net income $ 984 $ 895 $ 2,699 $ 1,705

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 2020, after the most recent election of directors, each of our non-employee directors received an annual retainer of 887 shares of common stock under the SICP for service as a director through the 2021 Annual Meeting of Stockholders; accordingly, 8,870 shares, with a weighted average fair value of $84.47 per share, were issued and vested in 2020. At ~~September 30, 2020,~~March 31, 2021, there was approximately $~~0.4~~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 2021 Annual Meeting of Stockholders.

~~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 was recognized over the remaining service period ending on the date of the 2020 Annual Meeting of Stockholders.

Key Employees

The table below presents the summary of the stock activity for awards to key employees for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:


		Number of Shares	Weighted Average Fair Value			Number of Shares	Weighted Average Fair Value
Outstanding—December 31, 2019		157,817	$	80.28
Outstanding—December 31, 2020					Outstanding—December 31, 2020	186,878	$	87.06
Granted	Granted	69,345	$	92.78	Granted	66,425	$	102.73
Vested	Vested	(35,651)	$	66.48	Vested	(53,147)	$	76.31
Expired	Expired	(5,302)	$	65.32	Expired	(852)	$	74.85
Outstanding—September 30, 2020		186,209	$	86.98
Forfeited					Forfeited	(5,384)	$	93.39
Outstanding—March 31, 2021					Outstanding—March 31, 2021	193,920	$	94.61

In February ~~2020, our Board of Directors~~2021, we granted awards of ~~69,345~~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 ~~appointment~~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 ~~September 30, 2020,~~March 31, 2021, the aggregate intrinsic value of the SICP awards granted to key employees was approximately ~~$15.7~~$22.5 million. At ~~September 30, 2020,~~March 31, 2021, there was approximately ~~$4.9~~$7.3 million of unrecognized compensation cost related to these awards, which is expected to be recognized as expense for the remainder of ~~2020~~2021 through ~~2022.~~

2023.

Stock Options

There were no stock options outstanding or issued during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 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 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. Our natural gas gathering and transmission company has entered into contracts with producers to secure natural gas to meet its obligations. Purchases under these 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. ~~Occasionally, we may enter~~We have also entered into interest rate swap agreements to mitigate risk associated with changes in short-term borrowing rates. As of ~~September 30, 2020,~~March 31, 2021, our natural gas and electric distribution operations did not have any outstanding derivative contracts.

~~PESCO's~~Volume of Derivative ~~Instruments~~Activity

~~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.~~

~~Commodity Derivative Activities~~

As of ~~September 30, 2020,~~March 31, 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)

~~21.7~~18.2

Cash flows hedges

~~May 2023~~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 September 2020~~in March 2021 through ~~May 2023),~~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 ~~$1.0~~$3.2 million from accumulated other comprehensive income (loss) to earnings during the next 12-month period ended ~~September 30, 2021.~~March 31, 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 ~~second~~fourth quarter of 2020, we entered into interest rate swaps with notional ~~amounts totaling $100.0~~amount of $60.0 million ~~associated~~through December 2021 with 3pricing of our short-term lines of credit through 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. Pricing on the interest rate swaps range between 0.26150.20 and ~~0.3875~~0.205 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 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 ~~September 30, 2021.~~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 September 30, 2020 December 31, 2019
Sharp Other Current Assets $ 177 $ 2,317


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

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

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 September 30, 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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, are as follows:

Derivative Assets

Fair Value As Of

(in thousands)

Balance Sheet Location

September 30, 2020

December 31, 2019

(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

—

Derivatives designated as cash flow hedges

Propane swap agreements

Derivative assets, at fair value

1,967

Propane swap agreements

Derivative assets, at fair value

3,462

3,255

Total asset derivatives

1,967

Total asset derivatives

3,462

3,269

Derivative Liabilities

Fair Value As Of

(in thousands)

Balance Sheet Location

September 30, 2020

December 31, 2019

(in thousands)

Balance Sheet Location

March 31, 2021

December 31, 2020

Derivatives designated as fair value hedges

Propane put options

Derivative liabilities, at fair value

—

Derivatives designated as cash flow hedges

Propane swap agreements

Derivative liabilities, at fair value

426

1,844

Propane swap agreements

Derivative liabilities, at fair value

Interest rate swap agreements

Derivative liabilities, at fair value

Interest rate swap agreements

Derivative liabilities, at fair value

Total liability derivatives

439

1,844

Total liability derivatives

127

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 September 30,				For the Nine Months Ended September 30,					Location of Gain	For the Three Months Ended March 31,
(in thousands)	(in thousands)	(Loss) on Derivatives	2020		2019		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										Derivatives designated as cash flow hedges
Propane swap agreements	Propane swap agreements	Cost of sales	$	116	$	290	$	1,581	$	1,148	Propane swap agreements	Cost of sales	3,047		1,227
Propane swap agreements	Propane swap agreements	Other comprehensive income (loss)	1,022		(1,139)		3,385		(624)		Propane swap agreements	Other comprehensive income (loss)	229		9
Interest rate swap agreements	Interest rate swap agreements	Interest expense	34		0		45		0		Interest rate swap agreements	Interest expense	4		0
Interest rate swap agreements	Interest rate swap agreements	Other comprehensive income (loss)	37		0		(14)		0		Interest rate swap agreements	Other comprehensive income (loss)	(3)		0
Natural gas swap contracts		Other comprehensive income (loss)	0		4		0		(63)
Natural gas futures contracts		Other comprehensive income (loss)	0		1,612		0		2,376

Total	Total		$	1,209	$	767	$	4,997	$	2,837	Total		$	3,253	$	1,236

3023

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.

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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


				Fair Value Measurements Using:									Fair Value Measurements Using:
As of September 30, 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)									(in thousands)
Assets:	Assets:									Assets:
Investments—equity securities	Investments—equity securities	$	17	$	17	$	—	$	—	Investments—equity securities	$	23	$	23	$	—	$	—
Investments—guaranteed income fund	Investments—guaranteed income fund	2,129		—		—		2,129		Investments—guaranteed income fund	2,148		—		—		2,148
Investments—mutual funds and other	Investments—mutual funds and other	7,534		7,534		—		—		Investments—mutual funds and other	8,712		8,712		—		—
Total investments	Total investments	9,680		7,551		—		2,129		Total investments	10,883		8,735		—		2,148
Derivative assets	Derivative assets	1,967		—		1,967		—		Derivative assets	3,462		—		3,462		—
Total assets	Total assets	$	11,647	$	7,551	$	1,967	$	2,129	Total assets	$	14,345	$	8,735	$	3,462	$	2,148
Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	439	$	—	$	439	$	—	Derivative liabilities	$	84	$	—	$	84	$	—

3124


				Fair Value Measurements Using:									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)
As of December 31, 2020										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)	(in thousands)									(in thousands)
Assets:	Assets:									Assets:
Investments—equity securities	Investments—equity securities	$	27	$	27	$	—	$	—	Investments—equity securities	$	21	$	21	$	—	$	—
Investments—guaranteed income fund	Investments—guaranteed income fund	803		—		—		803		Investments—guaranteed income fund	2,156		—		—		2,156
Investments—mutual funds and other	Investments—mutual funds and other	8,399		8,399		—		—		Investments—mutual funds and other	8,599		8,599		—		—
Total investments	Total investments	9,229		8,426		—		803		Total investments	10,776		8,620		—		2,156
Derivative assets	Derivative assets	0		—		0		—		Derivative assets	3,269		—		3,269		—
Total assets	Total assets	$	9,229	$	8,426	$	0	$	803	Total assets	$	14,045	$	8,620	$	3,269	$	2,156
Liabilities:	Liabilities:									Liabilities:
Derivative liabilities	Derivative liabilities	$	1,844	$	—	$	1,844	$	—	Derivative liabilities	$	127	$	—	$	127	$	—

The following table sets forth the summary of the changes in the fair value of Level 3 investments for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Nine months ended September 30,					Three months ended March 31,
		2020		2019			2021		2020
(in thousands)	(in thousands)					(in thousands)
Beginning Balance	Beginning Balance	$	803	$	686	Beginning Balance	$	2,156	$	803
Purchases and adjustments	Purchases and adjustments	243		123		Purchases and adjustments	22		9
Transfers	Transfers	1,579		0		Transfers	0		57
Distribution	Distribution	(514)		(14)		Distribution	(38)		(38)
Investment income	Investment income	18		11		Investment income	8		4
Ending Balance	Ending Balance	$	2,129	$	806	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.

At ~~September 30, 2020,~~March 31, 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 ~~September 30, 2020,~~March 31, 2021, long-term debt, which includes current maturities but excludes debt issuance costs, had a carrying value of approximately ~~$536.5~~$523.0 million, compared to the estimated fair value of ~~$567.0~~$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.

3225

15. Long-Term Debt

Our outstanding long-term debt is shown below:


		September 30,		December 31,			March 31,		December 31,
(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
FPU secured first mortgage bonds (1) :
9.08% bond, due June 1, 2022		$	7,993	$	7,990
Uncollateralized senior notes:	Uncollateralized senior notes:					Uncollateralized senior notes:
5.50% note, due October 12, 2020		2,000		2,000
5.93% note, due October 31, 2023	5.93% note, due October 31, 2023	10,500		12,000		5.93% note, due October 31, 2023	$	9,000	$	9,000
5.68% note, due June 30, 2026	5.68% note, due June 30, 2026	17,400		20,300		5.68% note, due June 30, 2026	17,400		17,400
6.43% note, due May 2, 2028	6.43% note, due May 2, 2028	5,600		6,300		6.43% note, due May 2, 2028	5,600		5,600
3.73% note, due December 16, 2028	3.73% note, due December 16, 2028	18,000		18,000		3.73% note, due December 16, 2028	16,000		16,000
3.88% note, due May 15, 2029	3.88% note, due May 15, 2029	45,000		50,000		3.88% note, due May 15, 2029	45,000		45,000
3.25% note, due April 30, 2032	3.25% note, due April 30, 2032	70,000		70,000		3.25% note, due April 30, 2032	70,000		70,000
3.48% note, due May 31, 2038	3.48% note, due May 31, 2038	50,000		50,000		3.48% note, due May 31, 2038	50,000		50,000
3.58% note, due November 30, 2038	3.58% note, due November 30, 2038	50,000		50,000		3.58% note, due November 30, 2038	50,000		50,000
3.98% note, due August 20, 2039	3.98% note, due August 20, 2039	100,000		100,000		3.98% note, due August 20, 2039	100,000		100,000
2.98% note, due December 20, 2034	2.98% note, due December 20, 2034	70,000		70,000		2.98% note, due December 20, 2034	70,000		70,000
3.00% note, due July 15, 2035	3.00% note, due July 15, 2035	50,000		—		3.00% note, due July 15, 2035	50,000		50,000
2.96% note, due August 15, 2035	2.96% note, due August 15, 2035	40,000		—		2.96% note, due August 15, 2035	40,000		40,000
Term Note due February 28, 2020		0		30,000
Less: debt issuance costs	Less: debt issuance costs	(922)		(822)		Less: debt issuance costs	(875)		(901)
Total long-term debt	Total long-term debt	535,571		485,768		Total long-term debt	522,125		522,099
Less: current maturities	Less: current maturities	(15,600)		(45,600)		Less: current maturities	(13,600)		(13,600)
Total long-term debt, net of current maturities	Total long-term debt, net of current maturities	$	519,971	$	440,168	Total long-term debt, net of current maturities	$	508,525	$	508,499

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

~~Term Notes~~

In January 2019, we issued a $30 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, whom are under no obligation to purchase any unsecured debt. The following table summarizes our Shelf Agreements at ~~September 30, 2020:~~March 31, 2021:


(in thousands)	(in thousands)	Total Borrowing Capacity		Less: Amount of Debt Issued		Less: Unfunded Commitments		Remaining Borrowing Capacity		(in thousands)	Total Borrowing Capacity		Less: Amount of Debt Issued		Less: Unfunded Commitments		Remaining Borrowing Capacity
Shelf Agreement	Shelf Agreement									Shelf Agreement
Prudential Shelf Agreement (1) (2)		$	370,000	$	(220,000)	$	—	$	150,000
Prudential Shelf Agreement (1)										Prudential Shelf Agreement (1)	$	370,000	$	(220,000)	$	—	$	150,000
MetLife Shelf Agreement ~~(3)~~(1)	MetLife Shelf Agreement ~~(3)~~(1)	150,000		—		—		150,000		MetLife Shelf Agreement ~~(3)~~(1)	150,000		—		—		150,000
NYL Shelf Agreement ~~(4)~~(1)	NYL Shelf Agreement ~~(4)~~(1)	150,000		(140,000)		—		10,000		NYL Shelf Agreement ~~(4)~~(1)	150,000		(140,000)		—		10,000
Total Shelf Agreements as of September 30, 2020		$	670,000	$	(360,000)	$	0	$	310,000
Total Shelf Agreements as of March 31, 2021										Total Shelf Agreements as of March 31, 2021	$	670,000	$	(360,000)	$	0	$	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. We issued the~~NYL Shelf ~~Notes~~Agreements expire in ~~July 2020 at the rate of 3.00 percent per annum.~~April 2023, May 2023 and November 2021, respectively.

~~(2)~~
~~In April 2020, the Prudential Shelf Agreement was amended to increase the available borrowing capacity to $150.0 million. The Shelf Agreement expires in April 2023.~~

~~(3)~~ ~~In May 2020, we reached into an agreement with MetLife to provide a new $150.0 million MetLife Shelf Agreement for a three-year term ending May 2023.~~

~~(4)~~ In February 2020, we requested and NYL accepted our request to purchase $40.0 million of our unsecured debt. The Shelf Notes were issued in August 2020 at the rate of 2.96 percent per annum. The Shelf Agreement expires in November 2021.

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. Short-Term Borrowings

At ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we had ~~$216.4~~$156.1 million and ~~$247.4~~$175.6 million, respectively, of short-term borrowings outstanding at a weighted average interest ~~rates~~rate of ~~1.28~~1.11 percent and ~~2.62 percent, respectively. Our short-term borrowings balance at September 30, 2020 and December 31, 2019, included book overdrafts of $0.9 million and $3.2 million, respectively.~~1.28 percent. Included in the ~~September 30, 2020~~March 31, 2021 balance, is $100.0 million in short-term debt for which we have entered into interest rate swap agreements.

In the second quarter of 2020, we entered into interest rate swaps with notional amounts totaling $100.0 million associated with 3 of our short-term lines of credit through 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 fixed swap rates will range between 0.2615 and 0.3875 percent for the period. Our short-term borrowing is based on the 30-day LIBOR rate. The interest swap is cash settled monthly as the counter-party pays us the 30-day LIBOR rate less the fixed rate.

In September 2020, we entered into a ~~new~~ $375.0 million syndicated Revolver with six participating lenders. ~~The Revolver expires on September 29, 2021 and has a commitment fee of 0.175 percent and an interest rate of 1.125 percent over LIBOR.~~ As a result of entering into the Revolver, in September 2020, we terminated and paid all outstanding balances ~~for all of our~~under the previously existing bilateral lines of credit and the previous revolving credit facility. ~~Our available credit under the new Revolver at September 30, 2020 was $154.7 million.~~

The availability of funds under the Revolver is subject to conditions specified in the credit agreement, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in ~~the agreement.~~these agreements. We are required by the financial covenants ~~our~~in the Revolver to maintain, at the end of each fiscal year, a funded indebtedness ratio of no greater than 65 percent. As of ~~September 30, 2020,~~March 31, 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 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 the fourth quarter of 2020, we entered into interest rate swaps with a 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 are authorized by our Board of Directors to borrow up to $375.0 million of short-term debt, ~~covenants.~~as required.

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 ~~immaterial~~material additional annual lease costs. Most of our leases include options to renew, with renewal terms that 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 ~~September 30, 2020~~March 31, 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 ~~would~~ preclude our ability

to pay dividends, obtain financing or enter into additional leases. As of ~~September 30, 2020,~~March 31, 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 Nine Months Ended
September 30, September 30,
( in thousands) Classification 2020 2019 2020 2019
Operating lease cost (1)
Operations expense $ 627 $ 638 $ 1,882 $ 1,926
Finance lease cost:
Amortization of lease assets Depreciation and amortization 0 — 0 650
Interest on lease liabilities Interest expense 0 — 0 5
Net lease cost $ 627 $ 638 $ 1,882 $ 2,581


		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.

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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


(in thousands)	(in thousands)	Balance sheet classification	September 30, 2020		December 31, 2019		(in thousands)	Balance sheet classification	March 31, 2021		December 31, 2020
Assets	Assets						Assets
Operating lease assets	Operating lease assets	Operating lease right-of-use assets	$	11,077	$	11,563	Operating lease assets	Operating lease right-of-use assets	$	10,510	$	11,194
Total lease assets			$	11,077	$	11,563
Liabilities	Liabilities						Liabilities
Current	Current						Current
Operating lease liabilities	Operating lease liabilities	Other accrued liabilities	$	1,733	$	1,705	Operating lease liabilities	Other accrued liabilities	$	1,724	$	1,747
Noncurrent	Noncurrent						Noncurrent
Operating lease liabilities	Operating lease liabilities	Operating lease - liabilities	9,681		9,896		Operating lease liabilities	Operating lease - liabilities	9,125		9,872
Total lease liabilities	Total lease liabilities		$	11,414	$	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 ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:

September 30, 2020 December 31, 2019
Weighted-average remaining lease term (in years)

Operating leases 8.5 8.88
Weighted-average discount rate
Operating leases 3.8 % 3.8 %


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

Weighted-average discount rate
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 ~~September 30, 2020~~March 31, 2021 and ~~2019:~~

Nine Months Ended
September 30,
(in thousands) 2020 2019
Operating cash flows from operating leases $ 1,435 $ 1,580
Operating cash flows from finance leases $ 0 $ 5
Financing cash flows from finance leases $ 0 $ 650
2020:


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

The following table presents the future undiscounted maturities of our operating and financing leases at ~~September 30, 2020~~March 31, 2021 and for each of the next five years and thereafter:


(in thousands)	(in thousands)	Operating Leases (1)		(in thousands)	Operating Leases (1)
Remainder of 2020		$	602
2021		1,984
Remainder of 2021				Remainder of 2021	$	1,531
2022	2022	1,939		2022	1,854
2023	2023	1,874		2023	1,770
2024	2024	1,619		2024	1,615
2025	2025	1,383		2025	1,400
2026				2026	966
Thereafter	Thereafter	3,876		Thereafter	3,621
Total lease payments	Total lease payments	$	13,277	Total lease payments	$	12,757
Less: Interest	Less: Interest	1,863		Less: Interest	1,908
Present value of lease liabilities	Present value of lease liabilities	$	11,414	Present value of lease liabilities	$	10,849

(1) Operating lease payments include ~~$3.9~~$2.1 million related to options to extend lease terms that are reasonably certain of being exercised.

3628

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 the Quarterly Report on Form 10-Q for the quarter ended March 31, 2020,~~ 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

•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 into opportunities that leverage our skills and expertise in energy distribution and transmission to achieve high levels of service and growth. The key elements of our strategy include:focused on the following platforms, including: •~~capital investment~~Optimizing the earnings growth in our existing businesses, which includes organic growth, territory expansions, and new products and services as well as increased opportunities ~~that generate our target returns;~~for collaboration and efficiencies across the organization. •~~expanding~~Growth of Marlin Gas Services’ CNG transport business and expansion into LNG and RNG transport services as well as methane capture. •Identifying and undertaking additional strategic propane acquisitions that provide a larger foundation in current markets and expand our brand and presence into new strategic growth markets. •Pursuit of growth opportunities that enable us to utilize our integrated set of energy delivery businesses ~~within our existing service areas as well as into new geographic areas;~~ •~~providing new services~~to participate in ~~our current service areas;~~ •~~expanding our footprint in potential growth markets through strategic acquisitions that complement our businesses;~~ •~~entering new~~renewable energy ~~markets and businesses that complement our existing operations and growth strategy; and~~opportunities. •~~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.~~

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.

3930

Results of Operations for the Three ~~and Nine~~months Ended ~~September 30, 2020~~March 31, 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 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.

In March 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 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 continued to~~ significantly ~~impact~~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 United States. Regardless, Chesapeake Utilities is considered an “essential business,” which ~~allows~~has allowed us to continue ~~its~~ 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 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 ~~three~~restrictions imposed in our service territories and ~~nine months ended September 30, 2020,~~ the ~~estimated impacts that COVID-19 had on~~implementation of our ~~earnings were approximately $0.7 million and $1.9 million, respectively, primarily driven by~~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 ~~personal~~ 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. AsIn the ~~COVID-19 pandemic is still ongoing,~~fourth quarter of 2020, we ~~are continuing to assess recoverability and to date, have not established~~began recording regulatory assets, ~~associated with the incremental expense impacts,~~ as currently authorized by the Delaware and Maryland PSCs and as initially provided for by the Florida ~~PSCs. We are committed to communicating timely updates~~PSC, associated with the incremental expenses incurred by our natural gas and ~~will~~electric distribution businesses as a result of the pandemic. Despite the early changes in restrictions, we continue to operate under our pandemic response plan, monitor developments affecting ~~our~~ employees, customers, suppliers, 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 ~~its~~our employees, customers and the communities. Refer to Note 5, Rates and Other Regulatory Activities, for further information on the ~~potential deferral~~regulated assets established as a result of the incremental expenses incurred associated with ~~COVID-19.~~COVID-19

Operational Highlights

~~Our net income for the three months ended September 30, 2020 was $9.3 million, or $0.56 per share, compared to $5.6 million, or $0.34 per share, for the same quarter of 2019.~~

Our income from continuing operations for the three months ended ~~September 30, 2020~~March 31, 2021 was ~~$9.3~~$34.5 million, or ~~$0.56~~$1.96 per share, compared to ~~$6.3~~$29.0 million, or ~~$0.38~~$1.77 per share, for the same quarter of ~~2019.~~2020. Operating income for the three months ended ~~September 30, 2020~~March 31, 2021 increased by ~~$3.0~~$9.5 million, or ~~21.2~~22.5 percent, ~~compared to~~over the same period in ~~2019. The increase~~2020. Higher earnings for the first quarter of 2021 reflected a return to more normal weather compared to weather in ~~operating income was largely driven by~~ the ~~settlement~~first quarter of ~~the Hurricane Michael regulatory proceeding which improved operating income by $2.9 million, including $1.9 million in operating income~~2020 that was ~~previously billed under interim rates during~~20.4 percent warmer than normal. Our earnings also increased from pipeline expansion projects, favorable regulatory initiatives and contributions from the ~~first half~~2020 acquisitions of 2020. Operating income for the quarter was reduced by an estimated $1.9 million due to unfavorable impacts of COVID-19. For additional details on the Hurricane Michael regulatory proceeding, see the Major ProjectsElkton Gas and ~~Initiatives discussion below.~~

~~Further contributing to the improved performance for the quarter was margin growth from our~~Western Natural Gas. Increased retail propane margins per gallon, organic growth ~~projects, increased margins from investments~~ in ~~Florida GRIP~~the natural gas distribution operations and increased ~~demand for~~margin from Marlin Gas ~~Services' CNG transportation services. These increases were partially offset by higher operating expenses related to growth initiatives.~~

Services, also generated additional earnings
.

4031


		Three Months Ended							Three Months Ended
		September 30,				Increase /			March 31,				Increase
		2020		2019		(decrease)			2021		2020		(decrease)
(in thousands except per share)	(in thousands except per share)							(in thousands except per share)
Gross Margin	Gross Margin							Gross Margin
Regulated Energy segment	Regulated Energy segment	$	66,491	$	54,961	$	11,530	Regulated Energy segment	$	78,154	$	68,123	$	10,031
Unregulated Energy segment	Unregulated Energy segment	13,068		12,418		650		Unregulated Energy segment	38,776		31,782		6,994
Other businesses and eliminations	Other businesses and eliminations	(51)		(81)		30		Other businesses and eliminations	(40)		(85)		45
Total Gross Margin	Total Gross Margin	$	79,508	$	67,298	$	12,210	Total Gross Margin	$	116,890	$	99,820	$	17,070

Operating Income	Operating Income							Operating Income
Regulated Energy segment	Regulated Energy segment	$	20,482	$	17,540	$	2,942	Regulated Energy segment	$	32,864	$	27,888	$	4,976
Unregulated Energy segment	Unregulated Energy segment	(3,092)		(3,169)		77		Unregulated Energy segment	19,105		13,862		5,243
Other businesses and eliminations	Other businesses and eliminations	16		(14)		30		Other businesses and eliminations	(372)		384		(756)
Total Operating Income	Total Operating Income	17,406		14,357		3,049		Total Operating Income	51,597		42,134		9,463
Other expense, net	Other expense, net	(40)		(351)		311		Other expense, net	385		3,319		(2,934)
Interest charges	Interest charges	4,584		5,403		(819)		Interest charges	5,105		5,814		(709)
Income from Continuing Operations Before Income Taxes	Income from Continuing Operations Before Income Taxes	12,782		8,603		4,179		Income from Continuing Operations Before Income Taxes	46,877		39,639		7,238
Income Taxes on Continuing Operations	Income Taxes on Continuing Operations	3,502		2,352		1,150		Income Taxes on Continuing Operations	12,405		10,598		1,807
Income from Continuing operations	Income from Continuing operations	9,280		6,251		3,029		Income from Continuing operations	34,472		29,041		5,431
Loss from Discontinued Operations	Loss from Discontinued Operations	(19)		(630)		611		Loss from Discontinued Operations	(6)		(111)		105
Net Income	Net Income	$	9,261	$	5,621	$	3,640	Net Income	$	34,466	$	28,930	$	5,536
Basic Earnings Per Share of Common Stock	Basic Earnings Per Share of Common Stock							Basic Earnings Per Share of Common Stock
Earnings from Continuing Operations	Earnings from Continuing Operations	$	0.56	$	0.38	$	0.18	Earnings from Continuing Operations	$	1.97	$	1.77	$	0.20
Loss from Discontinued Operations	Loss from Discontinued Operations	—		(0.04)		0.04		Loss from Discontinued Operations	—		(0.01)		0.01
Basic Earnings Per Share of Common Stock	Basic Earnings Per Share of Common Stock	$	0.56	$	0.34	$	0.22	Basic Earnings Per Share of Common Stock	$	1.97	$	1.76	$	0.21

Diluted Earnings Per Share of Common Stock	Diluted Earnings Per Share of Common Stock							Diluted Earnings Per Share of Common Stock
Earnings from Continuing Operations	Earnings from Continuing Operations	$	0.56	$	0.38	$	0.18	Earnings from Continuing Operations	$	1.96	$	1.77	$	0.19
Loss from Discontinued Operations	Loss from Discontinued Operations	—		(0.04)		0.04		Loss from Discontinued Operations	—		(0.01)		0.01
Diluted Earnings Per Share of Common Stock	Diluted Earnings Per Share of Common Stock	$	0.56	$	0.34	$	0.22	Diluted Earnings Per Share of Common Stock	$	1.96	$	1.76	$	0.20

4132

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

(in thousands, except per share data) Pre-tax
Income Net
Income Earnings
Per Share
Third Quarter of 2019 Reported Results from Continuing Operations $ 8,603 $ 6,251 $ 0.38
Adjusting for Unusual Items:
Hurricane Michael (net impact of the first and second quarter of 2020)(1)
2,705 1,964 0.12
Unfavorable COVID-19 impacts (1,023) (742) (0.04)
Decreased customer consumption - primarily weather related (1,005) (729) (0.05)
677 493 0.03
Increased (Decreased) Gross Margins:
Margin contribution from the Hurricane Michael regulatory proceeding settlement* 2,754 1,999 0.12
Eastern Shore and Peninsula Pipeline service expansions* 2,677 1,943 0.12
Natural gas growth (excluding service expansions) 797 578 0.03
Florida GRIP* 685 498 0.03
Margin contributions from Boulden and Elkton Gas acquisitions (completed July 2020 and December 2019, respectively)* 684 496 0.03
Increased demand for CNG services for Marlin Gas Services* 599 435 0.03
8,196 5,949 0.36
(Increased) Decreased Operating Expenses (Excluding Cost of Sales):
Depreciation and amortization associated with Hurricane Michael regulatory proceeding settlement (1,781) (1,293) (0.08)
Depreciation, amortization and property tax costs due to new capital investments (1,312) (952) (0.06)
Operating expenses from Elkton Gas and Boulden acquisitions (completed July 2020 and December 2019, respectively) (867) (630) (0.04)
Facilities, maintenance and outside services costs (414) (301) (0.02)
Insurance expense (non-health) - both insured and self-insured (323) (234) (0.01)
(4,697) (3,410) (0.21)
Interest charges (841) (611) (0.04)
Lower pension expense 388 282 0.02
Net other changes 456 326 0.02
3 (3) —
Third Quarter of 2020 Reported Results from Continuing Operations $ 12,782 $ 9,280 $ 0.56

*See the Major Projects and Initiatives table.

~~(1)~~ ~~Includes amortization of regulatory liability associated with interest expense of $0.8 million related to the Hurricane Michael regulatory proceeding settlement.~~

Our net income for the nine months ended September 30, 2020 was $49.1 million, or $2.97 per share, compared to $42.6 million, or $2.59 per share for the same period of 2019. Our net income from continuing operations for the nine months ended September 30, 2020 was $49.0 million, or $2.96 per share compared to $44.0 million, or $2.67 per share, for the same period of 2019. Operating income for the nine months ended September 30, 2020 increased by $0.9 million compared to the same period in 2019. Operating income for the period was reduced by an estimated $6.7 million due to unfavorable impacts of COVID-19, inclusive of an increase in bad debt expense of $1.9 million compared to the same period in 2019. Excluding this impact, operating income for the quarter increased by $7.6 million which included operating income of $2.9 million from the settlement of the Hurricane Michael regulatory proceeding, higher operating income from organic growth projects, gross margin contributions from the Boulden and Elkton Gas asset acquisitions completed in December 2019 and July 2020,

~~respectively, and higher retail propane margins per gallon, partially offset by decreased margin from customer consumption associated with milder weather during 2020.~~

Nine Months Ended
September 30, Increase
2020 2019 (decrease)
(in thousands except per share)
Gross Margin
Regulated Energy segment $ 191,745 $ 177,149 $ 14,596
Unregulated Energy segment 61,883 59,340 2,543
Other businesses and eliminations (210) (286) 76
Total Gross Margin $ 253,418 $ 236,203 $ 17,215
Operating Income
Regulated Energy segment $ 66,376 $ 65,310 $ 1,066
Unregulated Energy segment 11,050 11,317 (267)
Other businesses and eliminations 92 18 74
Total Operating Income 77,518 76,645 873
Other income (expense), net 2,997 (731) 3,728
Interest charges 15,452 16,583 (1,131)
Income from Continuing Operations Before Income Taxes 65,063 59,331 5,732
Income taxes on Continuing Operations 16,082 15,354 728
Income from Continuing operations 48,981 43,977 5,004
Income (loss) from Discontinued Operations 165 (1,388) 1,553
Net Income $ 49,146 $ 42,589 $ 6,557
Basic Earnings Per Share of Common Stock
Earnings from Continuing Operations $ 2.97 $ 2.68 $ 0.29
Earnings (loss) from Discontinued Operations 0.01 (0.08) 0.09
Basic Earnings Per Share of Common Stock $ 2.98 $ 2.60 $ 0.38
Diluted Earnings Per Share of Common Stock
Earnings from Continuing Operations $ 2.96 $ 2.67 $ 0.29
Earnings (loss) from Discontinued Operations 0.01 (0.08) 0.09
Diluted Earnings Per Share of Common Stock $ 2.97 $ 2.59 $ 0.38

~~Key variances in continuing operations, between the nine months ended 2020 and the nine months ended 2019, included:~~

(in thousands, except per share data) Pre-tax
Income Net
Income Earnings
Per Share
Nine Months Ended September 30, 2019 Reported Results from Continuing Operations: $ 59,331 $ 43,977 $ 2.67
Adjusting for Unusual Items:
Unfavorable COVID-19 impacts (4,933) (3,587) (0.22)
Decreased customer consumption - primarily weather related (3,090) (2,247) (0.14)
Absence of Florida tax savings (net of GRIP refunds) recorded in first quarter of 2019 for 2018 (910) (667) (0.04)
Gains from sales of assets 3,162 2,317 0.14
Favorable income tax impact associated with net operating loss carryback — 1,669 0.10
(5,771) (2,515) (0.16)
Increased (Decreased) Gross Margins:
Margin contribution from the Hurricane Michael regulatory proceeding settlement* 8,261 6,007 0.36
Eastern Shore and Peninsula Pipeline service expansions* 5,485 3,988 0.24
Margin contribution from Elkton Gas and Boulden acquisitions (completed July 2020 and December 2019, respectively)* 3,120 2,269 0.14
Natural gas growth (excluding service expansions) 2,497 1,816 0.11
Increased retail propane margins per gallon 1,892 1,375 0.08
Eastern Shore margin from capital improvements and non-service expansion projects 793 576 0.04
Increased demand for CNG services for Marlin Gas Services* 694 505 0.03
Florida GRIP* 678 493 0.03
Aspire Energy rate increases 443 322 0.02
23,863 17,351 1.05
(Increased) Decreased Operating Expenses (Excluding Cost of Sales):
Depreciation and amortization associated with Hurricane Michael regulatory proceeding settlement (5,355) (3,894) (0.24)
Depreciation, amortization and property tax costs due to new capital investments (3,732) (2,714) (0.16)
Insurance expense (non-health) - both insured and self-insured (1,900) (1,382) (0.08)
Operating expenses from Elkton Gas and Boulden acquisitions (completed July 2020 and December 2019, respectively) (1,900) (1,382) (0.08)
Facilities maintenance and outside services costs (1,294) (941) (0.06)
(14,181) (10,313) (0.62)
Other income tax effects — (914) (0.06)
Interest charges (1)
(852) (620) (0.04)
Lower pension expense 1,131 822 0.05
Net other changes 1,542 1,193 0.07
1,821 481 0.02
Nine Months Ended September 30, 2020 Reported Results from Continuing Operations $ 65,063 $ 48,981 $ 2.96


(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 ~~$1.1~~$0.3 million related to the Hurricane Michael regulatory proceeding settlement.

4433

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 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 Nine Months Ended Year Ended Estimate for
September 30, September 30, December 31, Fiscal
in thousands 2020 2019 2020 2019 2019 2020 2021
Pipeline Expansions:
Regulated Energy
West Palm Beach County, Florida Expansion(1)
$ 1,020 $ 745 $ 2,988 $ 1,068 $ 2,139 $ 4,076 $ 4,984
Del-Mar Energy Pathway(1)
925 189 1,565 542 731 2,398 4,100
Auburndale 170 113 509 113 283 679 679
Callahan Intrastate Pipeline (including related natural gas distribution services) 1,609 — 2,146 — — 4,039 6,437
Guernsey Power Station — — — — — — 514
Total Pipeline Expansions 3,724 1,047 7,208 1,723 3,153 11,192 16,714
Virtual Pipeline Growth:
Compressed Natural Gas Transportation 1,592 993 5,047 4,353 5,410 7,000 8,000
Renewable Natural Gas Transportation — — — — — — 1,000
Total Virtual Pipeline Growth 1,592 993 5,047 4,353 5,410 7,000 9,000
Acquisitions:
Boulden Propane 327 — 2,763 — 329 4,000 4,200
Elkton Gas 357 — 357 — — 1,365 3,992
Western Natural Gas Company — — — — — 250 1,800
Total Acquisitions 684 — 3,120 — 329 5,615 9,992
Regulatory Initiatives:
Florida GRIP 3,831 3,146 11,135 10,457 13,939 14,976 16,739
Hurricane Michael regulatory proceeding(2)
8,261 — 8,261 — — 11,014 11,014
Total Regulatory Initiatives 12,092 3,146 19,396 10,457 13,939 25,990 27,753
Total $ 18,092 $ 5,186 $ 34,771 $ 16,533 $ 22,831 $ 49,797 $ 63,459


	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

(1) Includes gross margin generated from interim services.

(2) ~~This amount includes $5.5 million of~~Includes gross margin ~~previously invoiced under interim rates that was not recognized in revenue during the first and second quarters of 2020.~~from natural gas distribution services.

Detailed Discussion of Major Projects and Initiatives

Pipeline Expansions ~~- Regulated Energy~~

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 ~~$0.3 million and $1.9 million in additional~~incremental gross margin of $0.2 million for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 compared to ~~2019,~~

~~respectively.~~2020. We expect to complete the remainder of the project in phases through the ~~second~~third quarter of 2021, and estimate that the project will generate annual gross margin of ~~$4.1~~$5.0 million in ~~2020~~2021 and ~~$5.0~~$5.2 million ~~annually thereafter.~~in 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: (i) ensure an additional 14,300 Dts/d of firm service to four customers, (ii) provide additional natural gas transmission pipeline

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 ~~$0.9 million and $1.6~~additional gross margin of $0.7 million for the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~March 31, 2021. The estimated annual gross margin from this project including natural gas distribution service in Somerset County, Maryland, is approximately ~~$2.4 million in 2020,~~ $4.1 million in 2021 and ~~$5.1~~$6.7 million annually thereafter.

~~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 additional gross margin from this project of $0.2 million and $0.5 million for the three and nine months ended September 30, 2020, respectively, and expects to generate annual gross margin of $0.7 million in 2020 and beyond.

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 Gas Transmission in Nassau County, Florida. in June 2020. The 26-mile pipeline ~~will serve~~serves growing demand for energy in both Nassau and Duval Counties. ~~This~~For the three months ended March 31, 2021, the project ~~was placed in service in June 2020, one month earlier than initially forecasted, and~~ generated ~~$1.6 million and $2.1~~$1.9 million in additional gross ~~for the three and nine months ended September 30, 2020, respectively. Peninsula Pipeline expects to generate~~margin, which includes margin from natural gas distribution service. The estimated annual gross margin ~~of $4.0~~from this project including natural gas distribution service is approximately $7.6 million in ~~2020~~2021 and ~~$6.4 million annually thereafter.~~beyond.

~~Pipeline Expansions - Unregulated Energy~~

Guernsey Power Station

Guernsey Power Station ~~LLC ("Guernsey Power Station")~~ and our affiliate, 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~~facility. For the three months ended March 31, 2021, we received approximately $47,000 related to the construction delay of the in-service date of the project. The project is expected to be in service in the fourth quarter of ~~2021. This project is expected to~~2021, and produce gross margin of approximately $0.5 million in 2021 and $1.5 million in 2022 and beyond.

~~Virtual Pipeline Growth~~

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 ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, Marlin Gas Services generated additional gross margin of ~~$0.6 million and~~ $0.7 ~~million, respectively.~~million. We estimate that Marlin Gas Services will generate annual gross margin of approximately ~~$7.0 million in 2020 and $8.0~~$7.9 million in 2021 and $8.5 million in 2022, with the potential for additional growth in future years. Marlin Gas Services continues to actively expand the territories it serves, as well as leverage its patented technology to serve other markets, including pursuing liquefied natural gas transportation opportunities and ~~most recently, announcing its expansion into the transportation of~~ renewable natural gas transportation opportunities from diverse supply sources to various pipeline interconnection points, as further outlined below.

~~Renewable Natural Gas~~

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~~DevCo

In June 2020, our Delmarva natural gas operations and Bioenergy ~~Devco~~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 ~~remove excess organics~~extract renewable natural gas from poultry ~~waste and convert it into renewable natural gas.~~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. ~~This project provides us the opportunity to maintain the green attributes of~~

The renewable natural gas ~~as the gas is distributed to natural gas distribution customers.~~

~~The resources generated~~resource created from organic material at BDC's anaerobic digestion facilities in Delaware, will be processed for use by our Delmarva natural gas ~~operations and Eastern Shore, and Marlin Gas Services will facilitate the transportation and receipt of renewable natural gas for multiple suppliers through its interconnect facility and equipment.~~operations. Marlin Gas Services will transport the sustainable fuel from the BDC facility to an Eastern Shore interconnection, where it will be introduced to ~~our~~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

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 ~~have disclosed that we~~ expect to generate ~~$1.0~~$0.2 million in 2021 in incremental margin from these renewable natural gas transportation projects beginning in 2021. WeTiming 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 ~~some~~each of these ~~projects. Additional~~projects, additional information will be provided regarding incremental margin ~~on these projects~~ at a future ~~time, as contracts are finalized.~~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 ~~$0.3~~$0.6 million ~~and $2.8 million of incremental~~in additional gross margin ~~for the three~~from Western Natural Gas in 2020 and ~~nine months ended September 30, 2020, respectively. We~~we estimate that this acquisition will generate ~~annual~~ gross margin of approximately ~~$4.0 million in 2020, and $4.2~~$1.8 million in 2021 with ~~the potential~~additional opportunities for ~~additional growth in future years.~~growth.

Elkton Gas

In July 2020, we 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 iswas 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. We generated ~~$0.4~~$1.3 million in additional gross margin from Elkton Gas and estimate that this acquisition will generate gross margin of approximately ~~$1.4 million in 2020 and~~ $4.0 million in ~~2021.~~

~~Western Natural Gas Company~~

~~In October 2020, Sharp acquired certain propane operating assets of Western Natural Gas Company, which provides propane distribution service throughout Jacksonville, Florida~~2021 and the surrounding communities, for approximately $6.7 million, net of cash acquired. The acquisition will be accounted for as a business combination within our Unregulated Energy Segment beginning in the fourth quarter of 2020. We estimate that this acquisition will generate gross margin of approximately of $0.3$4.2 million in ~~2020 and $1.8 million in 2021.~~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 ~~$160.1~~$173.9 million of capital expenditures to replace ~~322~~333 miles of qualifying distribution mains, including ~~$16.1~~$8.0 million of new pipes during the first ~~nine~~three months of ~~2020.~~2021. We expect to generate annual gross margin of approximately ~~$15.0 million in 2020, and~~ $16.7 million in ~~2021.~~2021, and $17.7 million in 2022.

Hurricane Michael

In October 2018, Hurricane Michael passed through FPU's electric distribution operation's service territory in Northwest ~~Florida and~~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.

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 included a component of an overall return on capital additions and regulatory assets. 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.

In September 2019, FPU filed a petition with the Florida PSC, for approval of its consolidated electric depreciation rates. The petition was joined to the Hurricane Michael ~~docket, and was approved at the Florida PSC Agenda on September 21, 2020.~~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 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 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; ~~(b)~~(c) recover these storm costs through a surcharge for a total of $7.7 million annually; ~~(c)~~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 ~~and nine~~ months ended ~~September 30, 2020:~~March 31, 2021:

Three Months Ended Nine Months Ended
(in thousands)
September 30, 2020(1)
September 30, 2020
Gross Margin $ 2,754 $ 8,261
Depreciation (298) (883)
Amortization of regulatory assets 2,079 6,238
Operating income 973 2,906
Amortization of liability associated with interest expense (360) (1,132)
Pre-tax income 1,333 4,038
Income tax expense 365 1,106
Net income $ 968 $ 2,932


	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

~~(1)~~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 ~~The Hurricane Michael impact for three months ended September 30, 2020,~~in 2021 and $2.4 million in 2022 from relocation projects and is ~~presented for comparison purposes.~~dependent upon the completion of capital projects and timing of filings.

Other major factors influencing gross margin

Weather and Consumption

Weather conditions accounted for a ~~$1.0~~$6.4 million ~~decrease~~increase in gross margin during the ~~third~~first quarter of ~~2020,~~2021, compared to the same period in ~~2019,~~2020, primarily due to a 1713.8 percent ~~decrease~~increase in ~~CDDs~~HDDs in ~~Florida~~the Delmarva Peninsula and Ohio that resulted in ~~reduced~~increased customer ~~consumption for our electric operations.~~consumption. Compared to normal temperatures, as detailed below, gross margin was ~~lower~~higher by ~~$0.5~~$1.3 million. ~~For the nine-month period, overall milder temperatures decreased gross margin by $3.1 million compared to the same period in 2019 and $3.2 million compared to normal temperatures.~~ The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") ~~for~~ the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 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

~~The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and nine months ended September 30, 2020 and 2019.~~

Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 Variance 2020 2019 Variance
Delmarva
Actual HDD 43 7 36 2,416 2,576 (160)
10-Year Average HDD ("Normal") 48 61 (13) 2,797 2,846 (49)
Variance from Normal (5) (54) (381) (270)
Florida
Actual HDD — — — 343 379 (36)
10-Year Average HDD ("Normal") — — — 508 532 (24)
Variance from Normal — — (165) (153)
Ohio
Actual HDD 86 2 84 3,383 3,533 (150)
10-Year Average HDD ("Normal") 79 90 (11) 3,691 3,742 (51)
Variance from Normal 7 (88) (308) (209)
Florida
Actual CDD 1,337 1,620 (283) 2,412 2,840 (428)
10-Year Average CDD ("Normal") 1,573 1,553 20 2,666 2,625 41
Variance from Normal (236) 67 (254) 215

Natural Gas Distribution Margin Growth

Customer growth for our natural gas distribution operations, as a result of the addition of new customers and the conversion of customers from alternative fuel sources to natural gas service, generated ~~$0.8 million and $2.5~~$0.9 million of additional margin for the three ~~and nine~~ months ended ~~September 30, 2020, respectively.~~March 31, 2021. The average number of residential customers served on the Delmarva Peninsula and in Florida increased

by ~~4.9~~4.5 percent and ~~3.9~~5.0 percent, respectively, during the ~~third~~first quarter of ~~2020 and 4.0 percent and 3.8 percent, respectively, for the nine months ended September 30, 2020. On the Delmarva Peninsula, a~~2021. A larger percentage of the margin growth iswas generated from residential growth given the expansion of natural gas into new housing communities and conversions to natural gas as ~~our~~the Company's distribution infrastructure continues to build out. In addition, as new communities continue to build out ~~while in Florida, as gas heating~~due to population growth and infrastructure is ~~not a significant portion of residential use, a greater portion of~~added to support the ~~margin~~ growth, ~~occurred in the~~there is also increased load from new commercial and industrial ~~sectors.~~customers. The details for the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 are provided in the following table:


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30, 2020				September 30, 2020					March 31, 2021
(in thousands)	(in thousands)	Delmarva Peninsula		Florida		Delmarva Peninsula		Florida		(in thousands)	Delmarva Peninsula		Florida
Customer Growth:	Customer Growth:									Customer Growth:
Residential	Residential	$	302	$	166	$	1,069	$	560	Residential	$	490	$	307
Commercial and industrial	Commercial and industrial	78		251		302		566		Commercial and industrial	70		72
Total Customer Growth	Total Customer Growth	$	380	$	417	$	1,371	$	1,126	Total Customer Growth	$	560	$	379

Regulated Energy Segment

For the quarter ended ~~September 30, 2020,~~March 31, 2021, compared to the quarter ended ~~September 30, 2019:~~March 31, 2020:


		Three Months Ended							Three Months Ended
		September 30,				Increase			March 31,				Increase
		2020		2019		(decrease)			2021		2020		(decrease)
(in thousands)	(in thousands)							(in thousands)
Revenue	Revenue	$	82,762	$	74,580	$	8,182	Revenue	$	121,197	$	102,955	$	18,242
Cost of sales	Cost of sales	16,271		19,619		(3,348)		Cost of sales	43,043		34,832		8,211
Gross margin	Gross margin	66,491		54,961		11,530		Gross margin	78,154		68,123		10,031
Operations & maintenance	Operations & maintenance	26,364		24,374		1,990		Operations & maintenance	28,006		26,241		1,765
Depreciation & amortization	Depreciation & amortization	15,314		8,684		6,630		Depreciation & amortization	12,030		9,319		2,711
Other taxes	Other taxes	4,331		4,363		(32)		Other taxes	5,254		4,675		579
Total operating expenses	Total operating expenses	46,009		37,421		8,588		Total operating expenses	45,290		40,235		5,055
Operating income	Operating income	$	20,482	$	17,540	$	2,942	Operating income	$	32,864	$	27,888	$	4,976

Operating income for the Regulated Energy segment ~~increased by $2.9~~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 ~~September 30, 2020 compared to 2019, or 16.8 percent.~~March 31, 2021 over the same period in 2020. Higher operating income ~~was a result of the settlement of the Hurricane Michael regulatory proceeding, which included recognizing~~reflects increased consumption driven primarily by colder weather compared to the first ~~and second~~ quarter ~~rate impacts associated with the settlement, expansion projects completed and underway~~of 2020, continued pipeline expansions by Eastern Shore and Peninsula Pipeline, contributions from the Hurricane Michael regulatory proceeding settlement, organic growth in ~~our~~the Company's natural gas distribution businesses ~~margin from increased investments in Florida GRIP~~ and ~~the gross margin generated~~operating results from the Elkton Gas acquisition completed in the third quarter of ~~Elkton Gas.~~2020. These increases were ~~partially~~ 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. Operating income for the quarter was reduced by an estimated $1.5 million due to unfavorable impacts of COVID-19, which included an increase in bad debt expense of $1.3 million compared to the third quarter 2019.

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


(in thousands)
~~Margin contribution from Hurricane Michael regulatory proceeding settlement~~ ~~(1)~~	$	~~8,261~~
Eastern Shore and Peninsula Pipeline service expansions	~~2,677~~$	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)	~~797~~939
Florida GRIP	~~685~~
~~Margin contribution from Elkton Gas (acquisition completed in July 2020)~~	~~357~~
~~Decreased customer consumption - weather related~~	~~(1,013)~~370
Other variances	~~(234)~~445
Quarter-over-quarter increase in gross margin	$	~~11,530~~10,031

~~(1)This amount includes $5.5 million~~Table of ~~gross margin previously invoiced under interim rates that was not recognized in revenue during the first and second quarter of 2020.~~Contents

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

~~Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement~~

We generated $8.3 million in additional gross margin in the third quarter of 2020 as a result of the settlement of the Hurricane Michael regulatory proceeding which included $5.5 million of gross margin previously invoiced under interim rates that were not recognized in revenue during the first and second quarters.~~Refer to Note 5,~~ ~~Rates and Other Regulatory Activities~~,~~in the condensed consolidated financial statements for additional information.~~

Eastern Shore and Peninsula Pipeline Service Expansions

We generated additional gross margin of ~~$1.9~~$2.1 million from Peninsula Pipeline's Western Palm Beach County ~~Auburndale~~ 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 result of the settlement of the Hurricane Michael regulatory proceeding.Refer to Note 5, Rates and Other Regulatory Activities,in the condensed consolidated financial statements for additional information.

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 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 Elkton Gas which was acquired in July 2020.

Natural Gas Distribution Customer Growth

We generated additional gross margin of ~~$0.8~~$0.9 million from natural gas customer growth. Gross margin increased by $0.4 million in Florida and ~~$0.4~~$0.5 million on the Delmarva Peninsula for the three months ended ~~September 30, 2020,~~March 31, 2021, as compared to the same period in ~~2019,~~2020, due primarily to residential customer growth of ~~4.9~~4.5 percent and ~~3.9~~5.0 percent on the Delmarva Peninsula

and in Florida, respectively. On the Delmarva Peninsula, a larger percentage of the margin growth was generated from residential growth given the expansion of gas into new communities and conversions, while in Florida, as gas heating is not a significant portion of residential use, a greater portion of the margin growth occurred in the commercial and industrial sectors.

Florida GRIP

Continued investment in the Florida GRIP generated additional gross margin of ~~$0.7~~$0.4 million in ~~2020 compared to 2019.~~

~~Elkton Gas~~

~~Gross margin increased by $0.4 million due to the margin generated by Elkton Gas which was acquired in July 2020.~~

~~Decreased Customer Consumption - Weather Related~~

~~Gross margin decreased by $1.0 million for the for the three months ended September 30, 2020,~~first quarter of 2021 compared to the same period in ~~2019, primarily due to a 17 percent decrease in CDDs in Florida that resulted in reduced customer consumption for our electric operations.~~2020.

~~Other~~ Operating Expenses

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


(in thousands)
Hurricane Michael regulatory proceeding settlement - depreciation and amortization impact~~(1)~~	$	~~5,355~~
~~Unfavorable COVID-19 impacts (primarily bad debt expense)~~	~~1,334~~1,776
Depreciation, asset removal and property tax costs due to new capital investments	~~1,187~~1,390
Facilities and maintenance costs and outside services	885
Payroll, ~~Benefits~~benefits and other employee-related expenses due to growth	~~447~~802
Operating expenses from the Elkton Gas acquisition ~~(completed July 2020)~~	~~276~~524
Other variances	~~(11)~~(322)
Quarter-over-quarter increase in ~~other~~ operating expenses	$	~~8,588~~5,055

~~(1)This amount includes $3.6 million of depreciation and amortization for the first and second quarter of 2020.~~

Unregulated Energy Segment

For the ~~nine months~~quarter ended ~~September 30, 2020,~~March 31, 2021, compared to the ~~nine months~~quarter ended ~~September 30, 2019:~~March 31, 2020:


		Nine Months Ended							Three Months Ended
		September 30,				Increase			March 31,				Increase
		2020		2019		(decrease)			2021		2020		(decrease)
(in thousands)	(in thousands)							(in thousands)
Revenue	Revenue	$	259,235	$	251,601	$	7,634	Revenue	$	74,759	$	54,011	$	20,748
Cost of sales	Cost of sales	67,490		74,452		(6,962)		Cost of sales	35,983		22,229		13,754
Gross margin	Gross margin	191,745		177,149		14,596		Gross margin	38,776		31,782		6,994
Operations & maintenance	Operations & maintenance	78,062		73,071		4,991		Operations & maintenance	15,162		14,034		1,128
Depreciation & amortization	Depreciation & amortization	33,979		26,099		7,880		Depreciation & amortization	3,323		2,918		405
Other taxes	Other taxes	13,328		12,669		659		Other taxes	1,186		968		218
Total operating expenses	Total operating expenses	125,369		111,839		13,530		Total operating expenses	19,671		17,920		1,751
Operating income	Operating income	$	66,376	$	65,310	$	1,066	Operating income	$	19,105	$	13,862	$	5,243

Operating income for the ~~Regulated~~Unregulated Energy segment for the ~~nine months ended September 30, 2020~~first quarter of 2021 was ~~$66.4~~$19.1 million, an increase of ~~$1.1~~$5.2 million ~~compared to~~or 37.8 percent, over the same period in ~~2019. Excluding the estimated unfavorable COVID-19 impacts of $4.8 million, which included an increase in bad debt expense of $1.9 million,~~2020. Higher operating income reflects increased ~~$5.9 million as a result~~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 ~~Hurricane Michael regulatory proceeding settlement, higher gross margin from expansion projects completed by Eastern Shore~~Western Natural Gas propane assets and ~~Peninsula Pipeline and organic growth in our natural gas distribution businesses.~~increased demand for Marlin Gas Services' CNG transportation services. These increases were partially offset by higher depreciation, amortization and property taxes ~~including amortization of the regulatory asset~~related to recent capital investments and new expenses associated with ~~the Hurricane Michael regulatory proceeding settlement~~Western Natural Gas and higher other operating expenses.

~~Gross Margin~~

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


~~(in thousands)~~
~~Margin Contribution from Hurricane Michael regulatory proceeding settlement~~	$	~~8,261~~
~~Eastern Shore and Peninsula Pipeline service expansions~~	~~5,485~~
~~Natural gas distribution - customer growth (excluding service expansions)~~	~~2,497~~
~~Eastern Shore margin from capital improvements and non-service expansion projects~~	~~793~~
~~Florida GRIP~~	~~678~~
~~Margin contribution from Elkton Gas acquisition (completed July 2020)~~	~~357~~
~~Unfavorable COVID-19 impacts on gross margin~~	~~(2,634)~~
~~Absence of Florida tax savings (net of GRIP refunds) recorded in the first quarter of 2019 for 2018~~	~~(910)~~
~~Decreased customer consumption - weather related~~	~~(863)~~
~~Other variances~~	~~932~~
~~Period-over-period increase in gross margin~~	$	~~14,596~~

~~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.~~

~~Margin Contribution from Hurricane Michael Regulatory Proceeding Settlement~~

~~We generated $8.3 million in additional gross margin related as a result of the settlement of the Hurricane Michael regulatory proceeding. Refer to Note 5,~~ ~~Rates and Other Regulatory Activities~~,~~in the condensed consolidated financial statements for additional information.~~

~~Eastern Shore and Peninsula Pipeline Service Expansions~~

We generated additional gross margin of $4.5 million from Peninsula Pipeline's Western Palm Beach County, Auburndale and Callahan projects and $1.0 million from Eastern Shore's Del-Mar Energy Pathway project.

~~Natural Gas Distribution Customer Growth~~

We generated additional gross margin of $2.5 million from natural gas customer growth. Gross margin increased by $1.1 million in Florida and $1.4 million on the Delmarva Peninsula for the nine months ended September 30, 2020, as compared to the same period in 2019, due primarily to residential customer growth of 4.0 percent on the Delmarva Peninsula and 3.8 percent in Florida. On the Delmarva Peninsula, a larger percentage of the margin growth was generated from residential growth given the expansion of gas into new communities and conversions, while in Florida, as gas heating is not a significant portion of residential use, a greater portion of the margin growth occurred in the commercial and industrial sectors.

~~Eastern Shore margin from capital improvements and non-service expansion projects~~

~~We generated additional gross margin of $0.8 million from Eastern Shore's surcharge on capital spent on several relocation projects and non-service expansion projects.~~

~~Florida GRIP~~

~~Continued investment in the Florida GRIP generated additional gross margin of $0.7 million in 2020 compared to 2019.~~

~~Elkton Gas~~

~~Gross margin increased by $0.4 million due to the margin generated by Elkton Gas which we acquired in July 2020.~~

~~Unfavorable COVID-19 Impacts~~

Gross margin decreased by $2.6 million for the nine months ended September 30, 2020, as compared to the same period in 2019, as a result of the lower customer consumption, which was caused by the slowing of economic activities in our service territories as a result of restrictions imposed to promote social distancing and slow down the spread of COVID-19.

~~Absence of Florida Tax Savings Recorded in the First Quarter of 2019~~

Gross margin decreased by $0.9 million for the nine months ended September 30, 2020, as compared to the same period in 2019, due primarily to the absence of TCJA related tax savings from 2018 that the Florida PSC allowed us to retain 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 - Weather Related~~

~~Gross margin decreased by $0.9 million due to weather and other consumption on the Delmarva Peninsula and in Florida during the first nine months of 2020 compared to the same period in 2019.~~

~~Other Operating Expenses~~

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


~~(in thousands)~~
~~Hurricane Michael settlement agreement - depreciation and amortization impact~~	$	~~5,355~~
~~Depreciation, asset removal and property tax costs due to new capital investments~~	~~3,095~~
~~Unfavorable COVID-19 impacts (largely higher bad debt expense)~~	~~2,194~~
~~Insurance expense (non-health) - both insured and self-insured~~	~~1,377~~
~~Payroll, benefits and other employee-related expenses~~	~~1,029~~
~~Facilities maintenance and outside services costs~~	~~777~~
~~Operating expenses from Elkton acquisition (completed July 2020)~~	~~276~~

~~Other variances~~	~~(573)~~
~~Period-over-period increase in other operating expenses~~	$	~~13,530~~

~~Unregulated Energy Segment~~

~~For the quarter ended September 30, 2020, compared to the quarter ended September 30, 2019:~~

Three Months Ended
September 30, Increase
2020 2019 (decrease)
(in thousands)
Revenue $ 22,714 $ 22,280 $ 434
Cost of sales 9,646 9,862 (216)
Gross margin 13,068 12,418 650
Operations & maintenance 12,412 12,262 150
Depreciation & amortization 2,968 2,519 449
Other taxes 780 806 (26)
Total operating expenses 16,160 15,587 573
Operating loss $ (3,092) $ (3,169) $ 77

Operating results for the Unregulated Energy segment increased by $0.1 million for the third quarter, as compared to the third quarter of 2019. Excluding the estimated COVID-19 impacts of $0.3 million, operating income increased $0.4 million driven by margin growth from Marlin Gas Services and incremental margin from the Boulden assets. These increases were partially offset by higher depreciation, amortization and property taxes 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~~
~~Marlin Gas Services - increased gross margin from demand for CNG transportation services~~	$	~~599~~
~~Boulden acquisition (assets acquired in December 2019)~~	~~327~~
~~Unfavorable COVID-19 impacts on gross margin~~	~~(399)~~
~~Other variances~~	~~123~~
~~Quarter-over-quarter increase in gross margin~~	$	~~650~~

~~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.~~

~~Marlin Gas Services~~

•~~Gross margin increased by $0.6 million in the third quarter of 2020, as compared to the same period in the prior year due to higher demand for compressed natural gas hold services.~~

~~Boulden acquisition~~

•~~Gross margin increased by $0.3 million due to the margin generated from Boulden, which was acquired by Sharp in December 2019.~~

~~Unfavorable COVID-19 Impacts~~

•Gross margin decreased by $0.4 million as a result of the lower customer consumption, which was caused by the slowing of economic activities in our service territories as a result of restrictions imposed to promote social distancing and slow down the spread of COVID-19.

~~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~~	$	~~425~~
~~Operating expenses from Boulden acquisition (completed December 2019)~~	~~290~~
~~Payroll, Benefits and other employee-related expenses~~	~~(202)~~
~~Other variances~~	60
~~Quarter-over-quarter increase in other operating expenses~~	$	~~573~~

~~For the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019:~~

Nine Months Ended
September 30, Increase
2020 2019 (decrease)
(in thousands)
Revenue $ 104,466 $ 108,985 $ (4,519)
Cost of sales 42,583 49,645 (7,062)
Gross margin 61,883 59,340 2,543
Operations & maintenance 39,408 37,965 1,443
Depreciation & amortization 8,774 7,462 1,312
Other taxes 2,651 2,596 55
Total operating expenses 50,833 48,023 2,810
Operating income $ 11,050 $ 11,317 $ (267)

Operating income for the Unregulated Energy segment decreased by $0.3 million for the nine months ended September 30, 2020, compared to the same period in 2019. Excluding the estimated COVID-19 impacts of $1.6 million, operating income

increased $1.3 million as a result of incremental gross margin from the acquisition of the Boulden propane assets, higher retail propane margins per gallon and increased demand for Marlin Gas Services' CNG transportation services. These increases were partially offset by reduced gross margins from overall warmer temperatures, expenses associated with recent acquisitions, and increased insurance expense.

Gross Margin

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


(in thousands)	Margin Impact
Propane Operations
~~Boulden acquisition (assets acquired in December 2019)~~Increased customer consumption - primarily weather related	$	~~2,763~~3,847
Increased retail propane margins per gallon driven by favorable ~~market conditions and~~ supply ~~management~~costs	~~1,892~~1,340
~~Decreased customer consumption - primarily weather related~~Western Natural Gas acquisition (completed in October 2020)	~~(1,540)~~550
Marlin Gas Services
Increased demand for CNG services	~~694~~731
Aspire Energy
~~Decreased~~Increased customer consumption - primarily weather related	~~(687)~~
~~Higher margins from negotiated rate increases~~	~~443~~
~~Unfavorable COVID-19 impacts on gross margin~~	~~(1,145)~~942
Other variances	~~123~~ (416)
~~Period-over-period~~Quarter-over-quarter increase in gross margin	$	~~2,543~~6,994

Propane Operations

•~~Propane Operations~~Increased Customer Consumption Primarily Weather Related - ~~Boulden -~~ Gross margin increased by ~~$2.8~~$3.8 million, ~~due~~as weather on the Delmarva Peninsula was 18 percent colder during the first quarter of 2021 compared to the ~~margin generated from Boulden, which was acquired by Sharp~~same period in ~~December 2019.~~2020.

•Increased Retail Propane Margins - Gross margin increased by ~~$1.9~~$1.3 million, ~~for the nine months ended September 30, 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 ~~market pricing and~~ competition with other propane suppliers, as well as the availability and price of alternative energy sources, may fluctuate based on changes in demand, supply and other energy commodity prices.

•~~Decreased Customer Consumption Primarily Driven by Weather~~Western Natural Gas - Gross margin ~~decreased~~increased by ~~$1.5~~$0.6 million ~~primarily from the Mid-Atlantic propane operations as weather on the Delmarva Peninsula was 6 percent warmer for the nine months ended September 30, 2020 compared~~due to the ~~same period~~margin generated from Western Natural Gas, which was acquired by Sharp in ~~2019.~~

October 2020.

Marlin Gas Services

•Gross margin increased by $0.7 million ~~for~~during the ~~nine months ended September 30, 2020,~~first quarter of 2021, as compared to the same period in the prior year due to higher demand for ~~compressed natural gas~~CNG hold services.

Aspire Energy

•~~Decreased~~Increased Customer Consumption Primarily ~~Driven by~~ Weather Related - Gross margin ~~decreased~~increased by ~~$0.7~~$0.9 million due to ~~lower~~higher consumption of gas as weather in Ohio was approximately 411 percent ~~warmer for~~colder during the ~~nine months ended September 30, 2020 compared to~~first quarter of 2021 over the same period in ~~2019.~~2020.

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

~~Unfavorable COVID-19 Impacts~~

•Gross margin decreased by $1.1 million as a result of lower customer consumption, which was caused by the slowing of economic activities in our service territories as a result of restrictions imposed to promote social distancing and to slow down the spread of COVID-19.

Other Operating Expenses

Items contributing to the ~~period-over-period~~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	$	~~1,326~~529
Payroll, benefits and other employee-related expenses due to growth	506
Operating expenses from ~~Boulden~~the Western Natural Gas acquisition ~~(completed in December 2019)~~	~~939~~338
~~Insurance expense (non-health) - both insured~~Facilities and ~~self-insured~~maintenance costs	~~523~~
~~Unfavorable COVID-19 impacts (higher operating and bad debt expenses)~~	~~417~~251
Other variances	~~(395)~~127
~~Period-over-period~~Quarter-over-quarter increase in ~~other~~ operating expenses	$	~~2,810~~1,751

~~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 EXPENSE, NET

For the quarter ended ~~September 30, 2020~~March 31, 2021 compared to the quarter ended ~~September 30, 2019~~March 31, 2020

Other expense, net, which includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, ~~increased~~decreased by ~~$0.3~~$2.9 million in the ~~third~~first quarter of ~~2020,~~2021, compared to the same period in ~~2019.~~2020. The ~~increase was primarily due to lower pension expense.~~

~~For the nine months ended September 30, 2020 compared to for the nine months ended September 30, 2019~~

Other expense, net, which includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, increased by $3.7 million for the first nine months of 2020, compared to the same period in 2019. The increasedecrease was primarily due to gains ~~from the sale of~~on two ~~properties as well as lower pension expense. The~~ property sales which were ~~made possible due to changes~~completed in the ~~consolidation~~first quarter of ~~certain operations.~~2020.

INTEREST CHARGES

For the quarter ended ~~September 30, 2020~~March 31, 2021 compared to the quarter ended ~~September 30, 2019~~March 31, 2020

Interest charges for the quarter ended ~~September 30, 2020~~March 31, 2021 decreased by ~~$0.8~~$0.7 million, compared to the same period in ~~2019,~~2020, attributable primarily to ~~$1.1~~a decrease of $0.7 million in lower interest expense from lower levels outstanding under our revolving credit facilities, 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 offset by~~settlement. Partially offsetting the interest savings was an increase of $0.2 million in ~~lower capitalized interest associated with growth projects. Higher~~ interest expense ~~from long-term debt offset the decreased interest from short-term borrowings as we consummated several refinancing of short-term debt to long-term debt in mid-2019 and earlier this year.~~

~~For the nine months ended September 30, 2020 compared to for the nine months ended September 30, 2019~~

Interest charges for the nine months ended September 30, 2020 decreased by $1.1 million, compared to the same period in 2019, attributable primarily to a decrease of $3.6 million in interest expense primarily on lower levels outstanding under our revolving credit facilities and lower interest rates on short-term borrowings, $1.1 million in amortization expense associated with a regulatory liability that was established in connection with the Hurricane Michael regulatory proceeding settlement, and $0.3 million in higher capitalized interest associated with growth projects. This decrease was offset by an increase of $3.9 million in interest expense on long-term debt as a result of several long-term debt placements in ~~2019 and~~ 2020.

INCOME TAXES

For the quarter ended ~~September 30, 2020~~March 31, 2021 compared to the quarter ended ~~September 30, 2019~~March 31, 2020

Income tax expense was ~~$3.5~~$12.4 million for the quarter ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$2.4~~$10.6 million for the quarter ended ~~September 30, 2019.~~March 31, 2021. Our effective income tax rate was ~~27.4~~26.5 percent and ~~27.3~~26.7 percent, for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

~~For the nine months ended September 30, 2020 compared to for the nine months ended September 30, 2019~~

Income tax expense was $16.1 million for the nine months ended September 30, 2020, compared to $15.4 million in the same period in 2019. Our effective income tax rate was 24.7 percent and 25.9 percent for the nine months ended September 30, 2020

and 2019, respectively. During the nine months ended September 30, 2020, we implemented certain provisions of the CARES Act that allowed us to carryback net operating losses from 2018 and 2019 into prior year periods where the federal income tax rate was higher. As a result, we recognized a $1.7 million reduction in tax expense for the nine months ended September 30, 2020. Excluding this impact of the CARES Act, our effective tax rate for the nine months ended September 30, 2020 was 27.3 percent.

5741

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 ATM equity program, as well as an effective registration statement with respect to the DRIP. Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may consider issuing additional shares under the direct share purchase component of the DRIP and/or under the ATM equity program. Beginning in the third quarter of 2020, we issued shares of common stock under both the DRIP and the ATM equity program.

Our energy businesses are weather-sensitive and seasonal. We normally generate a large portion of our annual net income and subsequent increases in our accounts receivable in the first and fourth quarters of each year due to significant volumes of natural gas, electricity, and propane delivered by our distribution operations, and our natural gas transmission operations to customers during the peak heating season. In addition, our natural gas and propane inventories, which usually peak in the fall months, are largely drawn down in the heating season and provide a source of cash as the inventory is used to satisfy winter sales demand.

Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements. Our capital expenditures were ~~$143.9~~$48.7 million for the ~~nine~~three months ended ~~September 30, 2020. The following~~March 31, 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:


		2020					2021
(dollars in thousands)	(dollars in thousands)	Low		High		(dollars in thousands)	Low		High
Regulated Energy:	Regulated Energy:					Regulated Energy:
Natural gas distribution	Natural gas distribution	$	77,000	$	85,000	Natural gas distribution	$	79,000	$	85,000
Natural gas transmission	Natural gas transmission	70,000		74,000		Natural gas transmission	55,000		60,000
Electric distribution	Electric distribution	3,000		5,000		Electric distribution	9,000		13,000
Total Regulated Energy	Total Regulated Energy	150,000		164,000		Total Regulated Energy	143,000		158,000
Unregulated Energy:	Unregulated Energy:					Unregulated Energy:
Propane distribution	Propane distribution	14,000		16,000		Propane distribution	9,000		12,000
Energy transmission	Energy transmission	17,000		18,000		Energy transmission	14,000		15,000
Other unregulated energy	Other unregulated energy	12,000		14,000		Other unregulated energy	8,000		12,000
Total Unregulated Energy	Total Unregulated Energy	43,000		48,000		Total Unregulated Energy	31,000		39,000
Other:	Other:					Other:
Corporate and other businesses	Corporate and other businesses	2,000		3,000		Corporate and other businesses	1,000		3,000
Total Other	Total Other	2,000		3,000		Total Other	1,000		3,000
Total 2020 Expected Capital Expenditures		$	195,000	$	215,000
Total 2021 Forecasted Capital Expenditures						Total 2021 Forecasted Capital Expenditures	$	175,000	$	200,000

The ~~2020 budget includes:~~2021 forecast, which excludes any potential acquisitions, 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 and the CleanBay RNG project, Florida's ~~Callahan and West~~Western Palm Beach County ~~Expansions~~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.

5842

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.

The following table presents our capitalization, excluding and including short-term borrowings, as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019:~~2020:


		September 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
(in thousands)	(in thousands)									(in thousands)
Long-term debt, net of current maturities	Long-term debt, net of current maturities	$	519,971	46	%	$	440,168	44	%	Long-term debt, net of current maturities	$	508,525	41	%	$	508,499	42	%
Stockholders’ equity	Stockholders’ equity	616,690		54	%	561,577		56	%	Stockholders’ equity	726,388		59	%	697,085		58	%
Total capitalization, excluding short-term debt	Total capitalization, excluding short-term debt	$	1,136,661	100	%	$	1,001,745	100	%	Total capitalization, excluding short-term debt	$	1,234,913	100	%	$	1,205,584	100	%

		September 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
(in thousands)	(in thousands)									(in thousands)
Short-term debt	Short-term debt	$	216,388	16	%	$	247,371	19	%	Short-term debt	$	156,123	11	%	$	175,644	13	%
Long-term debt, including current maturities	Long-term debt, including current maturities	535,571		39	%	485,768		38	%	Long-term debt, including current maturities	522,125		37	%	522,099		37	%
Stockholders’ equity	Stockholders’ equity	616,690		45	%	561,577		43	%	Stockholders’ equity	726,388		52	%	697,085		50	%
Total capitalization, including short-term debt	Total capitalization, including short-term debt	$	1,368,649	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 52 percent as of March 31, 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.

Our equity to total capitalization ratio, including short-term borrowings, was 45 percent as of September 30, 2020. As a result of issuing additional equity in October 2020, as described below, our equity to total capitalization ratio including short-term borrowings was approximately 50 percent at October 31, 2020.

In ~~September~~the third and fourth quarters of 2020, we issued ~~0.2~~1.0 million shares of common stock through our DRIP and the ATM programs and received net proceeds of approximately ~~$19.2~~$83.0 million which were added to ~~our~~the general funds. In ~~October 2020,~~the first quarter of 2021 we issued ~~an additional 0.7~~less than 0.1 million shares at an average price per share of ~~common stock through the same programs~~$109.05 and received ~~approximately $63.8 million in~~ net proceeds ~~for~~of $1.9 million under the ~~DRIP~~DRIP. In April 2021, we also issued less than 0.1 million shares at an average price per share of $115.35 and ~~ATM issuances.~~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 connection with these issuances.

~~Term Notes~~

~~In January 2019, we issued a $30.0 million unsecured term note through Branch Banking~~We used the net proceeds from the ATM equity program and ~~Trust Company, with a maturity date~~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 ~~February 28, 2020. This note was paid~~capital expenditures, repayment of short-term debt, financing acquisitions, investing in ~~full in February 2020 utilizing our short-term borrowing facilities.~~subsidiaries, and general working capital purposes.

Shelf Agreements


(in thousands)	(in thousands)	Total Borrowing Capacity		Less: Amount of Debt Issued		Less: Unfunded Commitments		Remaining Borrowing Capacity		(in thousands)	Total Borrowing Capacity		Less: Amount of Debt Issued		Less: Unfunded Commitments		Remaining Borrowing Capacity
Shelf Agreement	Shelf Agreement									Shelf Agreement
Prudential Shelf Agreement (1) (2)		$	370,000	$	(220,000)	$	—	$	150,000
Prudential Shelf Agreement (1)										Prudential Shelf Agreement (1)	$	370,000	$	(220,000)	$	—	$	150,000
MetLife Shelf Agreement ~~(3)~~(1)	MetLife Shelf Agreement ~~(3)~~(1)	150,000		—		—		150,000		MetLife Shelf Agreement ~~(3)~~(1)	150,000		—		—		150,000
NYL Shelf Agreement ~~(4)~~(1)	NYL Shelf Agreement ~~(4)~~(1)	150,000		(140,000)		—		10,000		NYL Shelf Agreement ~~(4)~~(1)	150,000		(140,000)		—		10,000
Total Shelf Agreements as of September 30, 2020		$	670,000	$	(360,000)	$	—	$	310,000
Total Shelf Agreements as of March 31, 2021										Total Shelf Agreements as of March 31, 2021	$	670,000	$	(360,000)	$	—	$	310,000

Table of Directors to borrow up to $375.0 million of short-term debt, as required, from among our various short-term debt facilities. We utilize bank lines of credit to provide funds for our short-term cash needs to meet seasonal working capital requirements and to temporarily fund portions of the capital expenditure program.Contents

~~(2)~~ ~~In April 2020, the Prudential Shelf Agreement was amended to increase the available borrowing capacity to $150.0 million. The Shelf Agreement expires in April 2023.~~

~~(3)~~ ~~In May 2020, we reached into an agreement with MetLife to provide a new $150.0 million MetLife Shelf Agreement for a three-year term ending May 2023.~~

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.

~~Short-term Borrowings~~

~~We are authorized by our Board~~

InShort-term Borrowings

At March 31, 2021 and December 31, 2020, we had $156.1 million and $175.6 million, respectively, of short-term borrowings outstanding at a weighted average interest rate of 1.11 percent and 1.28 percent, respectively. Included in the ~~second quarter of 2020,~~March 31, 2021 balance is $100.0 million in short-term debt for which we have entered into interest rate swaps with notional amounts totaling $100.0 million associated with three of our short-term lines of credit through 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 fixed swap rates ranged between 0.2615 and 0.3875 percent for the period. Our short-term borrowing is based on the 30-day LIBOR rate. The interest swap is cash settled monthly as the counter-party pays us the 30-day LIBOR rate less the fixed rate.agreements.

In September 2020, we entered into a ~~new~~ $375.0 million syndicated ~~revolving line of credit, the~~ Revolver with six participating lenders. ~~The Revolver expires on September 29, 2021 and has a commitment fee of 0.175 percent and an interest rate of 1.125 percent over LIBOR.~~ As a result of entering into the Revolver, in September 2020, we terminated and paid ~~the~~all outstanding balances ~~for all of our~~under the previously existing bilateral lines of credit and the previous revolving credit facility. Our available credit under the new Revolver at September 30, 2020 was $154.7 million. Our book overdrafts were $0.9 million and $3.2 million at September 30, 2020 and December 31, 2019, respectively. If presented, the book overdrafts would be funded through the Revolver.

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 capital expenditures.Borrowings under the Revolver are subject to a pricing grid, including the commitment fee and the interest rate charged.Our pricing is adjusted each quarter based upon our total indebtedness to total capitalization ratio. As 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 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 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.

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

Cash Flows

The following table provides a summary of our operating, investing and financing cash flows for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019:~~2020:


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
(in thousands)	(in thousands)	2020		2019		(in thousands)	2021		2020
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	115,880	$	103,939	Operating activities	$	80,382	$	58,808
Investing activities	Investing activities	(136,551)		(139,913)		Investing activities	(51,847)		(31,498)
Financing activities	Financing activities	16,742		34,205		Financing activities	(26,459)		(30,313)
Net decrease in cash and cash equivalents		(3,929)		(1,769)
Net increase (decrease) in cash and cash equivalents						Net increase (decrease) in cash and cash equivalents	2,076		(3,003)
Cash and cash equivalents—beginning of period	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	Cash and cash equivalents—end of period	$	3,056	$	4,320	Cash and cash equivalents—end of period	$	5,575	$	3,982

6044

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 ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ net cash provided by operating activities was ~~$115.9~~$80.4 million and ~~$103.9~~$58.8 million, respectively, resulting in an increase in cash flows of ~~$12.0~~$21.6 million. Significant operating activities generating the cash flows change were as follows:

•Net income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by $26.2 million, due primarily to deferred income taxes and depreciation and amortization, offset by realized gain on commodity contracts and sale of assets;

•Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities increased cash flows by $8.9 million, due in part to the timing and receipt of payments and the absence of PESCO, whose assets and contracts were sold in the fourth quarter of 2019;

•~~Changes in net regulatory assets and liabilities increased cash flows by $4.9 million due primarily to the change in fuel costs collected through the various cost recovery mechanisms;~~

•~~Net cash flows from income taxes receivable decreased by $11.0 million due primarily to the implementation of the federal tax law associated with the CARES Act;~~

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

•Net income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by $9.1 million, due primarily to higher net income, depreciation and amortization and gain on sale of assets;

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

•Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities decreased cash flows by ~~$11.8~~$3.6 million; ~~and~~

•Net cash flows from changes in propane inventory, storage gas and other inventories decreased by approximately ~~$5.2~~$2.6 million; and

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

~~Cash Flows Used in Investing Activities~~Regulated Energy Segment

~~Net cash used in investing activities totaled $136.6 million and $139.9 million during~~

For the ~~nine months~~quarter ended ~~September 30, 2020 and 2019, respectively, resulting in an increase in cash flows of $3.3 million. Cash paid~~March 31, 2021, compared to the quarter ended March 31, 2020:


	Three Months Ended
	March 31,				Increase
	2021		2020		(decrease)
(in thousands)
Revenue	$	121,197	$	102,955	$	18,242
Cost of sales	43,043		34,832		8,211
Gross margin	78,154		68,123		10,031
Operations & maintenance	28,006		26,241		1,765
Depreciation & amortization	12,030		9,319		2,711
Other taxes	5,254		4,675		579
Total operating expenses	45,290		40,235		5,055
Operating income	$	32,864	$	27,888	$	4,976

Operating income for ~~capital expenditures was $123.4 million~~the Regulated Energy segment for the first ~~nine~~quarter of 2021 was $32.9 million, an increase of $5.0 million or 17.8 percent for the three months ~~of 2020, compared to $139.3 million for~~ended March 31, 2021 over the same period in ~~2019, resulting~~2020. Higher operating income reflects increased consumption driven primarily by colder weather compared to the first quarter of 2020, 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

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

Increased Customer Consumption - Primarily Weather Related

Elkton Gas

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

Natural Gas Distribution Customer Growth

We generated additional gross margin of $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

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 ~~offset~~$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 ~~cash paid for~~colder weather compared to the first quarter of 2020, higher retail propane margins per gallon, contribution from the acquisition of ~~Elkton~~the Western Natural Gas propane assets and increased demand for Marlin Gas Services' CNG transportation services. These increases were partially offset by 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
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 narrative discussion provides further detail and analysis of ~~$15.6 million.~~the significant items in the foregoing table.

~~Cash Flows Provided by Financing Activities~~

Net cash used by financing activities totaled $16.7 million during the nine months ended September 30, 2020 compared to $34.2 million of net cash provided by financing activities during the prior year period resulting in a decrease in cash flows of $17.5 million. The decrease in net cash provided by financing activities resulted primarily from the following:Propane Operations

•~~Decreased cash flows~~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 ~~$40.0 million associated with issuance of long-term debt. For~~2021 compared to the ~~nine months ended September 30, 2020, we received $89.8 million from the issuance of Prudential Shelf Notes~~same period in ~~July 2020 and NYL Shelf Notes in August~~ 2020. ~~For the nine months ended September 30, 2019, we received $129.8 million from the issuance of the Prudential Shelf Notes in August 2019 and term notes in January 2019;~~

•~~Decreased cash flows of $33.7 million from repayments of long-term debt;~~

•Increased ~~cash flows~~Retail Propane Margins - Gross margin increased by $1.3 million, due to lower propane inventory costs and favorable market conditions. These market conditions, which include competition with other propane suppliers, as well as the availability and price of ~~$0.1~~alternative energy sources, may fluctuate based on changes in demand, supply and other energy commodity prices.

•Western Natural Gas - Gross margin increased by $0.6 million due to the margin generated from Western Natural Gas, which was acquired by Sharp in October 2020.

Marlin Gas Services

•Gross margin increased by $0.7 million during the first quarter of 2021, as compared to the same period in the prior year due to higher demand for CNG hold services.

Aspire Energy

•Increased Customer Consumption Primarily Weather Related - Gross margin increased by $0.9 million due to higher consumption of gas as weather in Ohio was approximately 11 percent colder during the first quarter of 2021 over the same period in 2020.

Other Operating Expenses

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


(in thousands)
Depreciation, amortization and property 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

OTHER EXPENSE, NET

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

Other expense, net, which includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, decreased by $2.9 million in the first quarter of 2021, compared to the same period in 2020. The decrease was primarily due to gains on two property sales which were completed in the first quarter of 2020.

INTEREST CHARGES

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

Interest charges for the quarter ended March 31, 2021 decreased by $0.7 million, compared to the same period in 2020, attributable primarily to a decrease of $0.7 million in lower interest expense from lower levels outstanding under our revolving credit facilities, 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 interest expense as a result of ~~changes~~several long-term debt placements in ~~cash overdrafts in 2020;~~2020.

•~~Cash dividends of $20.0 million paid during~~INCOME TAXES

For the ~~nine months~~quarter ended ~~September 30, 2020,~~March 31, 2021 compared to ~~$18.2~~the quarter ended March 31, 2020

Income tax expense was $12.4 million for the ~~nine~~quarter ended March 31, 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 ~~September 30, 2019;~~March 31, 2021 and 2020, respectively.

Table of ~~the subsidiary’s default.~~ Contents

•

F~~Increased~~INANCIAL POSITION, LIQUIDITYAND 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 ~~flows~~generated from operations, short-term ~~borrowing~~borrowings, and other sources to meet normal working capital requirements and to temporarily finance capital expenditures. We may also issue long-term debt and equity to fund capital expenditures and to maintain our capital structure within our target capital structure range. We maintain an effective shelf registration statement with the SEC for the issuance of ~~$37.9 million~~shares of common stock in various types of equity offerings, including shares of common stock under our ~~line~~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 ~~credit arrangements; and~~

•~~Increased cash flows~~the DRIP and/or under the ATM equity program. Beginning in the third quarter of ~~$20.3 million as a result~~2020, we issued shares of ~~issuing~~common stock under both the DRIP and the ATM equity program.

~~Off-Balance Sheet Arrangements~~

Our energy businesses are weather-sensitive and seasonal. We ~~have issued corporate guarantees to certain vendors~~normally generate a large portion of our ~~subsidiaries that~~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 $48.7 million for the ~~payment~~three months ended March 31, 2021. In the table below, we have provided a range of ~~propane~~our forecasted capital expenditures for 2021:


	2021
(dollars in thousands)	Low		High
Regulated Energy:
Natural gas distribution	$	79,000	$	85,000
Natural gas transmission	55,000		60,000
Electric distribution	9,000		13,000
Total Regulated Energy	143,000		158,000
Unregulated Energy:
Propane distribution	9,000		12,000
Energy transmission	14,000		15,000
Other unregulated energy	8,000		12,000
Total Unregulated Energy	31,000		39,000
Other:
Corporate and other businesses	1,000		3,000
Total Other	1,000		3,000
Total 2021 Forecasted Capital Expenditures	$	175,000	$	200,000

The 2021 forecast, which excludes any potential acquisitions, 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 and the CleanBay RNG project, Florida's Western Palm Beach County expansion and other potential pipeline projects, continued expenditures under the Florida GRIP, further expansions of our natural gas ~~purchases~~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 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 ~~event~~past few years, and we expect this trend to continue.

Capital Structure

We are committed to maintaining a sound capital structure and strong credit ratings. This commitment, along with adequate and timely rate relief for our regulated energy operations, is intended to ensure our ability to attract capital from outside sources at a reasonable cost, which will benefit our customers, creditors, employees and stockholders.

The ~~liabilities for these purchases are recorded in~~following table presents our ~~financial statements when incurred. The aggregate amount guaranteed at September 30, 2020~~capitalization, excluding and including short-term borrowings, as of March 31, 2021 and December 31, 2020:


	March 31, 2021				December 31, 2020
(in thousands)
Long-term debt, net of current maturities	$	508,525	41	%	$	508,499	42	%
Stockholders’ equity	726,388		59	%	697,085		58	%
Total capitalization, excluding short-term debt	$	1,234,913	100	%	$	1,205,584	100	%

	March 31, 2021				December 31, 2020
(in thousands)
Short-term debt	$	156,123	11	%	$	175,644	13	%
Long-term debt, including current maturities	522,125		37	%	522,099		37	%
Stockholders’ equity	726,388		52	%	697,085		50	%
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 ~~$7.9 million,~~52 percent as of March 31, 2021. We seek to align permanent financing with the ~~guarantees expiring on various~~in-service dates of our capital projects. We may utilize more temporary short-term debt when the financing cost is attractive as a bridge to the permanent long-term financing or if the equity markets are volatile.

In the third and fourth quarters of 2020, we issued 1.0 million shares of common stock through ~~September 24, 2021. The amounts related~~our DRIP and the ATM programs and received net proceeds of approximately $83.0 million which were added to ~~PESCO were immaterial~~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 ~~were fully terminated in October 2020.~~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 3,9, ~~Acquisitions and Divestitures~~Stockholders’ Equity, in the condensed consolidated financial statements for additional ~~details~~information on commissions and fees paid in connection with these issuances.

We used the ~~sale~~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 ~~assets~~capital expenditures, repayment of short-term debt, financing acquisitions, investing in subsidiaries, and ~~contracts for PESCO.~~general working capital purposes.

Shelf Agreements


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

The Senior Notes, Shelf Agreements or Shelf Notes set forth certain business covenants to which we are subject when any note is outstanding, including covenants that limit or restrict our ability, and the ability of our subsidiaries, to incur indebtedness, or place or permit liens and encumbrances on any of our property or the property of our subsidiaries.

6143

~~As of September 30,~~Short-term Borrowings

In September 2020, we entered into a $375.0 million syndicated Revolver with six participating lenders. As a result of ~~credit totaling approximately $4.8 million related to~~entering into the ~~electric transmission services for FPU's electric division,~~Revolver, in September 2020, we terminated and paid all outstanding balances under the firm transportation service agreement between TETLP and our Delaware and Maryland divisions, to our current and previous primary insurance carriers. These letters of credit have various expiration dates through October 5, 2021. There have been no draws on these letters of credit as of September 30, 2020. We do not anticipate that the counterparties will draw upon these letterspreviously existing bilateral lines of credit and ~~we expect that they will be renewed to~~ the ~~extent necessary in the future. Additional information is presented in~~previous revolving credit facility. ~~Note 7, Other Commitments and Contingencies,~~ ~~in the condensed consolidated financial statements. At September 30, 2020, letters of credit associated with PESCO were fully terminated. See Note 3,~~ ~~Acquisitions and Divestitures, in the condensed consolidated financial statements for additional details on the sale of PESCO.~~

~~Contractual Obligations~~

~~There has been no material change~~The availability of funds under the Revolver is subject to conditions specified in the ~~contractual obligations presented~~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.

The Revolver expires on September 29, 2021 and is available to provide funds for our ~~2019 Annual Report on Form 10-K, except for commodity purchase obligations~~short-term cash needs to meet seasonal working capital requirements and to temporarily fund portions of our capital expenditures.Borrowings under the Revolver are subject to a pricing grid, including the commitment fee and the interest rate charged.Our pricing is adjusted each quarter based upon our total indebtedness to total capitalization ratio. As 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 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 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 the fourth quarter of 2020, we entered into ininterest rate swaps with a notional amount of $60.0 million through December 2021 with pricing of 0.20 and 0.205 percent for the ~~ordinary course~~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 are authorized by our ~~business.~~ Board of Directors to borrow up to $375 million of short-term debt, as required.

Cash Flows

The following table ~~summarizes commodity purchase contract obligations at September 30,~~provides a summary of our operating, investing and financing cash flows for the three months ended March 31, 2021 and 2020:

Payments Due by Period
Less than 1 year 1 - 3 years 3 - 5 years More than 5 years Total
(in thousands)
Purchase obligations - Commodity (1)
13,732 17,502 — — 31,234
Total $ 13,732 $ 17,502 $ — $ — $ 31,234


	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

~~(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 September 30, 2020, 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.~~

6244

~~Item 3. Quantitative~~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 ~~Qualitative Disclosures about Market Risk~~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, 2021 and 2020, net cash provided by operating activities was $80.4 million and $58.8 million, respectively, resulting in an increase in cash flows of $21.6 million. Significant operating activities generating the cash flows change were as follows:

•~~NTEREST~~ R~~ATE~~ R~~ISK~~Changes in net prepaid expenses and other current assets, customer deposits and refunds, accrued compensation and other net assets and liabilities, increased cash flows by $10.5 million;

~~Long-term debt is subject~~•Net income, adjusted for non-cash adjustments and reconciling activities, increased cash flows by $9.1 million, due primarily to ~~potential losses based~~higher net income, depreciation and amortization and gain on sale of assets;

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

•Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities decreased cash flows by $3.6 million;

•Net cash flows from changes in ~~interest rates. Our long-term debt at September 30, 2020, consists of fixed-rate Senior Notes~~propane inventory, storage gas 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 financingother inventories decreased by approximately $2.6 million; and liquidity for our business activities. Occasionally, 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 Debt,~~ ~~and Note 16,~~ ~~Short-Term Borrowings, respectively,in the condensed consolidated financial statements.~~

C•~~OMMODITY~~ P~~RICE~~ R~~ISK~~Net cash flows from income taxes receivable increased by $1.3 million.

Regulated 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	$	121,197	$	102,955	$	18,242
Cost of sales	43,043		34,832		8,211
Gross margin	78,154		68,123		10,031
Operations & maintenance	28,006		26,241		1,765
Depreciation & amortization	12,030		9,319		2,711
Other taxes	5,254		4,675		579
Total operating expenses	45,290		40,235		5,055
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, 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

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

Increased Customer Consumption - Primarily Weather Related

Elkton Gas

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

Natural Gas Distribution Customer Growth

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

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

Propane Operations

•Increased Customer Consumption Primarily Weather Related - Gross margin increased by $3.8 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 include competition with other propane suppliers, as well as the availability and price of alternative energy sources, may fluctuate based on changes in demand, supply and other energy commodity prices.

•Western Natural Gas - Gross margin increased by $0.6 million due to the margin generated from Western Natural Gas, which was acquired by Sharp in October 2020.

Marlin Gas Services

•Gross margin increased by $0.7 million during the first quarter of 2021, as compared to the same period in the prior year due to higher demand for CNG hold services.

Aspire Energy

Other Operating Expenses

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


(in thousands)
Depreciation, amortization and property 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

OTHER EXPENSE, NET

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

Other expense, net, which includes non-operating investment income (expense), interest income, late fees charged to customers, gains or losses from the sale of assets and pension and other benefits expense, decreased by $2.9 million in the first quarter of 2021, compared to the same period in 2020. The decrease was primarily due to gains on two property sales which were completed in the first quarter of 2020.

INTEREST CHARGES

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

INCOME TAXES

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

Income tax expense was $12.4 million for the quarter ended March 31, 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, respectively.

FINANCIAL POSITION, LIQUIDITYAND CAPITAL RESOURCES

Our capital requirements reflect the capital-intensive and seasonal nature of our business and are principally attributable to investment in new plant and equipment, retirement of outstanding debt and seasonal variability in working capital. We rely on cash generated from operations, short-term borrowings, and other sources to meet normal working capital requirements and to temporarily finance capital expenditures. We may also issue long-term debt and equity to fund capital expenditures and to maintain our capital structure within our target capital structure range. We maintain an effective shelf registration statement with the SEC for the issuance of shares of common stock in various types of equity offerings, including shares of common stock under our ATM equity program, as well as an effective registration statement with respect to the DRIP. Depending on our capital needs and subject to market conditions, in addition to other possible debt and equity offerings, we may consider issuing additional shares under the direct share purchase component of the DRIP and/or under the ATM equity program. Beginning in the third quarter of 2020, we issued shares of common stock under both the DRIP and the ATM equity program.

Capital expenditures for investments in new or acquired plant and equipment are our largest capital requirements. Our capital expenditures were $48.7 million for the three months ended March 31, 2021. In the table below, we have provided a range of our forecasted capital expenditures for 2021:


	2021
(dollars in thousands)	Low		High
Regulated Energy:
Natural gas distribution	$	79,000	$	85,000
Natural gas transmission	55,000		60,000
Electric distribution	9,000		13,000
Total Regulated Energy	143,000		158,000
Unregulated Energy:
Propane distribution	9,000		12,000
Energy transmission	14,000		15,000
Other unregulated energy	8,000		12,000
Total Unregulated Energy	31,000		39,000
Other:
Corporate and other businesses	1,000		3,000
Total Other	1,000		3,000
Total 2021 Forecasted Capital Expenditures	$	175,000	$	200,000

The 2021 forecast, which excludes any potential acquisitions, 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 and the CleanBay RNG project, Florida's Western Palm Beach County expansion and other potential pipeline projects, continued expenditures under the Florida GRIP, further expansions of our natural gas distribution and transmission systems, continued natural gas and electric system infrastructure improvement activities, facilities to support Marlin Gas Services' CNG transport growth and expansion into RNG and LNG transport, information technology systems, and other strategic initiatives and investments.

The capital expenditure projection is subject to continuous review and modification. Actual capital requirements may vary from the above estimates due to a number of factors, including changing economic conditions, capital delays due to COVID-19 that are greater than currently anticipated, customer growth in existing areas, regulation, new growth or acquisition opportunities and availability of capital. Historically, actual capital expenditures have typically lagged behind the budgeted amounts.

Capital Structure

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


	March 31, 2021				December 31, 2020
(in thousands)
Long-term debt, net of current maturities	$	508,525	41	%	$	508,499	42	%
Stockholders’ equity	726,388		59	%	697,085		58	%
Total capitalization, excluding short-term debt	$	1,234,913	100	%	$	1,205,584	100	%

	March 31, 2021				December 31, 2020
(in thousands)
Short-term debt	$	156,123	11	%	$	175,644	13	%
Long-term debt, including current maturities	522,125		37	%	522,099		37	%
Stockholders’ equity	726,388		52	%	697,085		50	%
Total capitalization, including short-term debt	$	1,404,636	100	%	$	1,394,828	100	%

In the third and fourth quarters of 2020, we issued 1.0 million shares of common stock through our DRIP and the ATM programs and received net proceeds of approximately $83.0 million which 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 connection with these issuances.

We used the net proceeds from the ATM equity program and the DRIP, after deducting the commissions or other fees and related offering expenses payable by us, for general corporate purposes, including, but not limited to, financing of capital expenditures, repayment of short-term debt, financing acquisitions, investing in subsidiaries, and general working capital purposes.

Shelf Agreements


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

Short-term Borrowings

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.

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 capital expenditures.Borrowings under the Revolver are subject to a pricing grid, including the commitment fee and the interest rate charged.Our pricing is adjusted each quarter based upon our total indebtedness to total capitalization ratio. As 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 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 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.

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, 2021 and 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

Cash Flows Provided By Operating Activities

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

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

•Changes in net accounts receivable and accrued revenue and accounts payable and accrued liabilities decreased cash flows by $3.6 million;

•Net cash flows from changes in propane inventory, storage gas and other inventories decreased by approximately $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 $51.8 million and $31.5 million during the three months ended March 31, 2021 and 2020, 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 $3.8 million. The increase in net cash provided by financing activities resulted primarily from the following:

•Increased cash flows of $30.0 million from the absence of repayments of long-term debt;

•Increased cash flows of $1.8 million as a result of changes in cash overdrafts in 2021;

•Cash dividends of $7.5 million paid during the three months ended March 31, 2021, compared to $6.5 million for the three months ended March 31, 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

As of March 31, 2021, we have issued letters of credit totaling approximately $4.8 million related to the electric transmission services for FPU's electric division, the firm transportation service agreement between TETLP and our Delaware and Maryland divisions, to our current and previous primary insurance carriers. These letters of credit have various expiration dates through October 5, 2021. We have not drawn upon these letters of credit as of March 31, 2021 and do not anticipate that the counterparties will draw upon these letters of credit. We expect that they will be renewed to the extent necessary in the future. Additional information is presented inNote 7, Other Commitments and Contingencies, in the condensed consolidated financial statements.

Contractual Obligations

There has been no material change in the contractual obligations presented in our 2020 Annual Report on Form 10-K, except for commodity purchase obligations entered into in the ordinary course of our business. The following table summarizes commodity purchase contract obligations at March 31, 2021:


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

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. 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 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 ~~September 30, 2020:~~March 31, 2021:


(in thousands)	(in thousands)	Balance at December 31, 2019		Increase (Decrease) in Fair Market Value		Less Amounts Settled		Balance at September 30, 2020		(in thousands)	Balance at December 31, 2020		Increase (Decrease) in Fair Market Value		Less Amounts Settled		Balance at March 31, 2021
Sharp	Sharp	$	(1,844)	$	1,803	$	1,582	$	1,541	Sharp	$	3,182	$	3,285	$	(3,047)	$	3,420
Total	Total	$	(1,844)	$	1,803	$	1,582	$	1,541	Total	$	3,182	$	3,285	$	(3,047)	$	3,420

There were no changes in methods of valuations during the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021.

The following is a summary of fair market value of financial derivatives as of ~~September 30, 2020,~~March 31, 2021, by method of valuation and by maturity for each fiscal year period.


(in thousands)	(in thousands)	2020		2021		2022		2023		2024		Total Fair Value		(in thousands)	2021		2022		2023		2024		2025		Total Fair Value
Price based on Mont Belvieu - Sharp	Price based on Mont Belvieu - Sharp	$	460	$	834	$	244	$	3	$	—	$	1,541	Price based on Mont Belvieu - Sharp	$	2,071	$	1,279	$	86	$	(16)	$	—	$	3,420
Total	Total	$	460	$	834	$	244	$	3	$	—	$	1,541	Total	$	2,071	$	1,279	$	86	$	(16)	$	—	$	3,420

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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.

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.

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 ~~September 30, 2020.~~March 31, 2021. Based upon their evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~September 30, 2020.~~March 31, 2021.

Changes in Internal Control over Financial Reporting

In ~~September 2020, we implemented a new fixed assets tracking system. Throughout this system implementation, we appropriately considered internal controls over financial reporting. Additionally, 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 ~~September 30, 2020, the implementation of the new fixed asset tracking system and~~March 31, 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, and Part II, "Item 1A. Risk Factors" in our Quarterly Report on Form 10-Q, for the quarter ended March 31,~~ 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. 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.

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)
July 1, 2020 through July 31, 2020 (1)
556 $ 84.77 — —
August 1, 2020
through August 31, 2020 — — — —
September 1, 2020
through September 30, 2020 — — — —
Total 556 $ 84.77 — —


	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 ~~September 30, 2020, 556~~March 31, 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


~~1.1~~						Equity Distribution Agreement, dated August 17, 2020, by and between Chesapeake Utilities Corporation and each of RBC Capital Markets, LLC, BofA Securities, Inc., Wells Fargo Securities, LLC, Janney Montgomery Scott LLC, Guggenheim Securities, LLC, Maxim Group LLC, Sidoti & Company, LLC, and Siebert Williams Shank & Co., LLC, which was filed as Exhibit 1.1 to the Company’s Current Report on Form 8-K, filed August 18, 2020, File No. 001-11590

10.1*						~~Credit Agreement, dated September 30, 2020, by and between Chesapeake Utilities Corporation PNC Bank, National Association, and several other financial institutions named therein.~~

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.

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

6650