Derivative Instruments

12 Months Ended

Dec. 31, 2024

8. 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 into interest rate swap agreements to mitigate risk associated with changes in short-term borrowing rates. As of December 31, 2024 and 2023, our natural gas and electric distribution operations did not have any outstanding derivative contracts.

Volume of Derivative Activity

As of December 31, 2024, the volume of our open commodity derivative contracts were as follows:

Business unit

Commodity

Contract Type

Quantity hedged (in millions)

Designation

Longest expiration date of hedge

Sharp

Propane (gallons)

Purchases

10.8

Cash flow hedges

March 2027

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 and/or sold during the heating season. Under the futures and swap agreements, Sharp will receive or pay the difference between (i) the index prices (Mont Belvieu prices in December 2024 through March 2027) and (ii) the per gallon propane contracted prices, to the extent the index prices deviate from the contracted prices. We designated and accounted for the propane swaps as cash flow hedges. The change in the fair value of the swap

agreements is initially recorded as a component of accumulated other comprehensive income (loss) and later recognized in our consolidated statement of income in the same period and in the same line item as the hedged transaction. We expect to reclassify approximately $0.5 million of unrealized gains related to our propane derivatives from accumulated other comprehensive income (loss) to earnings during the next 12-month period.

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 September 2022, we entered into an interest rate swap with a notional amount of $50.0 million through September 2025, with pricing of 3.98 percent. In August 2024, we entered into an additional interest rate swap through August 2029, at a notional amount of $50.0 million and pricing of 3.97 percent. Our interest rate swaps are cash settled monthly as the counter-party pays us the 30-day SOFR rate less the fixed rate.

We designate and account for interest rate swaps as cash flow hedges. Accordingly, unrealized gains and losses associated with the interest rate swaps are initially recorded as a component of accumulated other comprehensive income (loss). As the interest rate swap settles, the realized gain or loss is recorded in the income statement and is recognized as a component of interest charges.

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 included within other current assets on the consolidated balance sheets which had a balance of $1.9 million and $2.1 million as of December 31, 2024 and December 31, 2023, respectively.

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. Fair values of the derivative contracts recorded in the consolidated balance sheets as of December 31, 2024 and 2023 are as follows:


	Derivative Assets
		Fair Value as of
(in millions)	Balance Sheet Location	December 31, 2024		December 31, 2023




Derivatives designated as cash flow hedges
Propane swap agreements	Derivative assets, at fair value	$	0.6	$	0.7
Interest rate swap agreements	Derivative assets, at fair value	0.1		0.3
Total Derivative Assets (1)		$	0.7	$	1.0

(1) Derivative assets, at fair value included $0.6 million and $1.0 million in current assets in the consolidated balance sheets at December 31, 2024 and 2023, respectively, with the remainder of the balance classified as long-term.


	Derivative Liabilities
		Fair Value as of
(in millions)	Balance Sheet Location	December 31, 2024		December 31, 2023




Derivatives designated as cash flow hedges
Propane swap agreements	Derivative liabilities, at fair value	$	—	$	1.1
Interest rate swap agreements	Derivative liabilities, at fair value	0.1		0.2
Total Derivative Liabilities (1)		$	0.1	$	1.3

(1) There were no current derivative liabilities at December 31, 2024. At December 31, 2023, current derivative liabilities amounted to $0.4 million with the remainder of the balance classified as long-term.

The effects of gains and losses from derivative instruments and their location in the consolidated statements of income are as follows:


	Amount of Gain (Loss) on Derivatives:
	Location of Gain (Loss) on Derivatives	For the Year Ended December 31,
(in millions)		2024		2023		2022
Derivatives not designated as hedging instruments

Propane swap agreements	Propane and natural gas costs	$	—	$	—	$	0.1



Derivatives designated as cash flow hedges
Propane swap agreements	Revenues	(0.3)		1.2		(0.4)
Propane swap agreements	Propane and natural gas costs	1.3		(1.1)		3.8

Interest rate swap agreements	Interest expense	0.8		0.5		—



Total		$	1.8	$	0.6	$	3.5