Operational Performance and Strategic Positioning
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Performance was characterized by a 'tale of two halves' geographically, where a 3% volume increase in the East due to sustained cold was offset by a 10% volume decline in the West caused by near-record warmth.
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Management successfully mitigated regional demand volatility by redeploying resources from Western territories to support high-demand Eastern markets during harsh winter storms.
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The renewable natural gas (RNG) segment achieved a 16% sequential increase in average daily D3 RNG injection, driven by improved facility uptime and process improvements at the Stanfield, Arizona plant.
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The partnership is 'suburbanizing' its RNG platform, a strategic effort to apply the same operational discipline and hyperlocal model used in its core propane business to its newer renewable assets.
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Propane unit margins increased by $0.03 per gallon, or 1.7%, as the company effectively managed selling prices despite a volatile commodity environment influenced by Middle East conflicts.
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Strategic growth is being targeted in unique propane applications, including EV charging stations, port equipment power, and backup generation for data center construction.
Growth Initiatives and Regulatory Outlook
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Two major RNG expansion projects in Upstate New York and Columbus, Ohio remain on schedule for completion in the second half of fiscal 2026, expected to add 200,000 MMBtus of annual production.
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Management expects to begin earning Production Tax Credits (PTCs) for the Upstate New York facility once D3 production comes online, following favorable clarity in Treasury regulations.
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The partnership is pursuing increased feedstock intake for manure and food waste at the Stanfield facility to utilize currently untapped production capacity.
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Regulatory actions by the California Air Resources Board are expected to continue favorably impacting LCFS credit values by rebalancing the supply-demand equation.
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Full-year capital spending for existing RNG projects is estimated at $35 million to $40 million as the company nears the completion of its current construction cycle.
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Financial Adjustments and Risk Factors
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Recognized $3.5 million in Section 45Z Production Tax Credits, which included a $2.8 million 'catch-up' adjustment for production dating back to January 2025.
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Operating expenses were partially offset by a $2.9 million insurance recovery related to the partial settlement of claims from the December 2022 RNG acquisition.
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Wholesale propane prices remained in the mid-$0.60 range through the end of the second quarter, but have recently risen to approximately $0.90 per gallon due to geopolitical disruptions in global energy markets.
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Total outstanding debt was reduced by more than $64 million during the quarter, utilizing excess cash flow as the company moves into its seasonally stronger cash-generation period.
