DOVER, Del., Nov. 7, 2019
/PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK)
("Chesapeake Utilities" or the "Company") today announced third
quarter financial results. The Company's net income for the quarter
ended September 30, 2019 was $5.6
million, compared to $5.5
million for the same quarter of 2018. Consolidated earnings
per share ("EPS") for both quarters ended September 30, 2019
and 2018 was $0.34 per share. Net
income for the nine months ended September 30, 2019 was
$42.6 million, or $2.59 per share, compared to $38.8 million, or $2.36 per share, for the same period in 2018.
On October 9, 2019, the Company
announced its exit from the natural gas marketing business through
the sale of the majority of the assets of Peninsula Energy Services
Company, Inc. (PESCO), the Company's natural gas marketing
subsidiary. As a result of this decision and announcement,
PESCO's results for all periods presented have been separately
reported as discontinued operations and its assets and liabilities
have been reclassified as held for sale. Additional details
on the transactions to sell PESCO's assets and contracts are
included on page 8 of this press release.
The Company's income from continuing operations for the quarter
ended September 30, 2019 was $6.2
million, compared to $6.1
million for the same quarter of 2018. EPS from continuing
operations for the quarter ended September 30, 2019 increased
$0.01 to $0.38 per share compared to the same quarter of
2018. Higher earnings for the third quarter primarily reflect
increased gross margin from recently completed and ongoing pipeline
expansion projects, organic growth in the natural gas distribution
operations and higher retail propane margins per gallon. These
increases were largely offset by an increase in operating expenses
and higher interest expense associated with financing the Company's
expansion projects.
For the nine months ended September 30, 2019, the Company
reported income from continuing operations of $44.0 million,
or $2.67 per share. This represents an increase
of $4.9 million or $0.29 per share compared to
the same period in 2018. Year-to-date earnings were impacted by the
factors noted above, along with strong contributions from
incremental margin from the acquisition of certain assets of the
Marlin Gas Transport, Inc. ("Marlin Gas Transport") and R. F. Ohl
Fuel Oil, Inc. ("Ohl") asset acquisitions, a Florida Public Service
Commission ("PSC") regulatory order that enabled the Company to
retain tax savings associated with lower federal tax rates
resulting from the United States Tax Cuts and Jobs Act ("TCJA") in
several natural gas distribution operations and continued growth in
gross margin from Aspire Energy of Ohio ("Aspire Energy"). These increases were
partially offset by higher interest expense. A detailed discussion
of operating results begins on page 4.
"For the first nine months of 2019, we have delivered strong
financial performance largely driven by new pipeline expansions,
organic growth, key regulatory initiatives and contributions from
the Marlin Gas Transport and Ohl acquisitions," stated Jeffrey Householder, President and Chief
Executive Officer of Chesapeake Utilities Corporation. "As
previously disclosed, as part of our ongoing strategic planning
process, we decided to exit the natural gas marketing business and
announced the sale of the PESCO assets. These actions will
improve our earnings outlook, reduce the volatility of future
earnings and recover our investment in the business. While the exit
of any business is never easy, the same conviction, drive and
determination to do what is right for the Company and our
constituents guided our decision and remains at the forefront of
each and every employee. I am proud of our employees who are
driving the growth of the Company in so many different ways."
Significant Items Impacting Earnings from Continuing
Operations
There were no significant items impacting
earnings from continuing operations during the third quarter of
2019 compared to the same period in 2018, however, results for the
nine months ended September 30, 2019 and 2018 were impacted by
the following significant items:
For the Nine
Months Ended September 30,
|
2019
|
|
2018
|
(in thousands,
except per share data)
|
Net
Income
|
|
EPS
|
|
Net
Income
|
|
EPS
|
Reported (GAAP)
Earnings from Continuing Operations
|
$
|
43,977
|
|
$
|
2.67
|
|
$
|
39,118
|
|
$
|
2.38
|
2018 portion of the
retained tax savings for certain Florida natural gas distribution
operations associated with the TCJA income tax rate
reduction
|
(990)
|
|
(0.06)
|
|
—
|
|
—
|
Nonrecurring
separation expenses associated with a former executive
|
—
|
|
—
|
|
1,421
|
|
0.09
|
Adjusted
(Non-GAAP) Earnings from Continuing Operations
|
$
|
42,987
|
|
$
|
2.61
|
|
$
|
40,539
|
|
$
|
2.47
|
For the nine months ended September 30, 2019, adjusted
earnings from continuing operations were $43.0 million, or $2.61 per share, an increase of 5.7 percent
compared to $40.5 million, or
$2.47 per share, for the nine months
ended September 30, 2018.
*Unless otherwise noted, earnings per share information is
presented for continuing operations on a diluted basis.
**This press release includes references to non-Generally
Accepted Accounting Principles ("GAAP") financial measures,
including gross margin, adjusted earnings and adjusted EPS from
continuing operations. A "non-GAAP financial measure" is
generally defined as a numerical measure of a company's historical
or future performance that includes or excludes amounts, or that is
subject to adjustments, so as to be different from the most
directly comparable measure calculated or presented in accordance
with GAAP. Our management believes certain non-GAAP financial
measures, when considered together with GAAP financial measures,
provide information that is useful to investors in understanding
period-over-period operating results separate and apart from items
that may, or could, have a disproportionately positive or negative
impact on results in any particular period.
The Company calculates "gross margin" by deducting the cost
of sales from operating revenue. Cost of sales includes the
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. Other companies
may calculate gross margin in a different manner. Gross margin
should not be considered an alternative to operating income or net
income, both of which are determined in accordance with GAAP.
The Company believes 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 the
Company under its allowed rates for regulated operations and under
its competitive pricing structures for unregulated
businesses. The Company's management uses gross margin in
measuring its business units' performance. The Company calculates
"adjusted earnings" by adjusting reported (GAAP) earnings from
continuing operations to exclude the impact of certain significant
non-cash items, including the impact of one-time charges, such as
severance charges, and any prior year tax savings retained by our
regulated businesses as a result of current year regulatory
authorizations. The Company calculates "adjusted EPS" from
continuing operations by dividing adjusted earnings from continuing
operations by the weighted average common shares
outstanding.
Operating Results for the Quarters Ended September 30,
2019 and 2018
Consolidated
Results
|
|
|
Three Months
Ended
September
30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
67,298
|
|
$
|
62,387
|
|
$
|
4,911
|
|
7.9
|
%
|
Depreciation,
amortization and property taxes
|
16,010
|
|
14,548
|
|
1,462
|
|
10.0
|
%
|
Other operating
expenses
|
36,930
|
|
34,960
|
|
1,970
|
|
5.6
|
%
|
Operating income
(1)
|
$
|
14,358
|
|
$
|
12,879
|
|
$
|
1,479
|
|
11.5
|
%
|
|
|
(1)
|
These results exclude
operating results from PESCO that are now reflected as discontinued
operations.
|
Operating income during the third quarter of 2019 increased by
$1.5 million, or 11.5 percent,
compared to the same period in 2018. The increase in operating
income was driven by gross margin growth of $4.9 million, or 7.9 percent, primarily in the
Company's natural gas transmission and distribution
operations. These increases were partially offset by higher
operating expenses associated with growth.
Regulated
Energy Segment
|
|
|
Three Months
Ended
September
30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
54,961
|
|
$
|
51,269
|
|
$
|
3,692
|
|
7.2
|
%
|
Depreciation,
amortization and property taxes
|
13,076
|
|
12,085
|
|
991
|
|
8.2
|
%
|
Other operating
expenses
|
24,345
|
|
23,269
|
|
1,076
|
|
4.6
|
%
|
Operating
income
|
$
|
17,540
|
|
$
|
15,915
|
|
$
|
1,625
|
|
10.2
|
%
|
Operating income for the Regulated Energy segment for the three
months ended September 30, 2019 was
$17.5 million, a 10.2 percent
increase over the same period in 2018. The growth in
operating income resulted primarily from increased gross margin of
$3.7 million partially offset
by $1.0 million in higher
depreciation, amortization and property taxes, and $1.1 million in higher other operating expenses
associated with growth.
The key components of the increase in gross margin are shown
below:
(in
thousands)
|
|
Eastern Shore Natural
Gas Company ("Eastern Shore") and Peninsula Pipeline Company
("Peninsula Pipeline") service expansions (including related
Florida natural gas distribution operation expansions)
|
$
|
2,312
|
Natural gas
distribution growth (excluding service expansions)
|
791
|
Sandpiper Energy,
Inc.'s ("Sandpiper") margin primarily from natural gas
conversions
|
224
|
Increased margin
primarily from the storm recovery surcharge for Florida electric
distribution operations
|
169
|
TCJA impact from the
2019 retained tax savings for certain Florida natural gas
operations
|
109
|
Florida GRIP
(1)
|
(144)
|
Other
variances
|
231
|
Quarter-over-quarter increase in gross
margin
|
$
|
3,692
|
|
(1) In the third
quarter of 2019, the Company recorded a reduction in depreciation
expense totaling $0.8 million retroactive to January 1, 2019, as a
result of a Florida PSC approved depreciation study that lowered
annual depreciation rates. The Company also recorded $0.4 million
in lower GRIP margin due to a concurrent reduction in surcharge
collected from customers as a result of the reduced depreciation
rates during the third quarter of 2019.
|
The major components of the increase in other operating expenses
are as follows:
(in
thousands)
|
|
Insurance expense -
both insured and self-insured components
|
$
|
718
|
Payroll, benefits and
other employee-related expenses
|
345
|
Other
variances
|
13
|
Quarter-over-quarter increase in other operating
expenses
|
$
|
1,076
|
Unregulated
Energy Segment
|
|
|
Three Months
Ended
September
30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
12,418
|
|
$
|
11,202
|
|
$
|
1,216
|
|
10.9
|
%
|
Depreciation,
amortization and property taxes
|
2,901
|
|
2,425
|
|
476
|
|
19.6
|
%
|
Other operating
expenses
|
12,685
|
|
11,867
|
|
818
|
|
6.9
|
%
|
Operating loss
(1)
|
$
|
(3,168)
|
|
$
|
(3,090)
|
|
$
|
(78)
|
|
2.5
|
%
|
|
|
(1)
|
These results exclude
operating results from PESCO that are now reflected as discontinued
operations.
|
Operating loss for the Unregulated Energy segment remained
largely unchanged for the three months ended September 30,
2019 compared to 2018, as higher gross margin was offset by higher
expenses to support growth. Due to the seasonality of the Company's
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. The third quarter has historically contributed
the smallest amount of a full year's results.
The major components of the increase in gross margin are shown
below:
(in
thousands)
|
|
|
Marlin Gas Services
(assets acquired in December 2018)
|
|
$
|
993
|
Propane
Operations
|
|
|
Increased retail
propane margins per gallon driven by favorable market conditions
and supply management
|
|
470
|
Ohl acquisition
(assets acquired in December 2018)
|
|
95
|
Aspire
Energy
|
|
|
Higher gas supply
costs
|
|
(233)
|
Other
variances
|
|
(109)
|
Quarter-over-quarter increase in gross
margin
|
|
$
|
1,216
|
The major components of the increase in other operating expenses
are as follows:
(in
thousands)
|
|
Operating expenses
for Marlin Gas Services and Ohl (Assets acquired in December 2018)
including costs to expand the future growth prospects for the
businesses
|
$
|
746
|
Insurance expense -
both insured and self-insured components
|
179
|
Other
variances
|
(107)
|
Quarter-over-quarter increase in other operating
expenses
|
$
|
818
|
Operating Results for the Nine Months Ended September 30, 2019 and 2018
Consolidated
Results
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
236,203
|
|
$
|
217,165
|
|
$
|
19,038
|
|
8.8
|
%
|
Depreciation,
amortization and property taxes
|
47,337
|
|
41,694
|
|
5,643
|
|
13.5
|
%
|
Other operating
expenses
|
112,222
|
|
109,503
|
|
2,719
|
|
2.5
|
%
|
Operating income
(1)
|
$
|
76,644
|
|
$
|
65,968
|
|
$
|
10,676
|
|
16.2
|
%
|
|
|
(1)
|
These results exclude
operating results from PESCO that are now reflected as discontinued
operations.
|
Operating income for the nine months ended September 30,
2019 increased by $10.7 million, or
16.2 percent, compared to the same period in 2018. The
increase in operating income reflects continued growth across the
Company, generated by organic growth within existing businesses,
recent expansion investments, regulatory initiatives and
rate/pricing mechanisms, the successful integration of the Ohl
acquisition, higher retail propane margins per gallon and the
strong performance of Marlin Gas Services. The impact of warmer
weather on 2019 results was offset by the positive impact of the
absence of a one-time non-recurring severance charge recorded in
2018.
Regulated
Energy Segment
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
177,149
|
|
$
|
162,926
|
|
$
|
14,223
|
|
8.7
|
%
|
Depreciation,
amortization and property taxes
|
38,694
|
|
34,402
|
|
4,292
|
|
12.5
|
%
|
Other operating
expenses
|
73,145
|
|
71,594
|
|
1,551
|
|
2.2
|
%
|
Operating
income
|
$
|
65,310
|
|
$
|
56,930
|
|
$
|
8,380
|
|
14.7
|
%
|
Operating income for the Regulated Energy segment for the nine
months ended September 30, 2019 was
$65.3 million, an increase of
$8.4 million or 14.7 percent,
compared to the same period in 2018. The increase in
operating income resulted from $14.2
million in additional gross margin, offset by $4.3 million in higher depreciation, amortization
and property taxes and a $1.5 million
increase in other operating expenses. On February 25, 2019, the Florida PSC issued a final
order regarding the treatment of the TCJA, allowing us to retain
the savings associated with lower federal tax rates for certain of
our natural gas distribution operations. As a result,
$1.3 million in reserves for customer
refunds, recorded in 2018, were reversed in the first quarter of
2019. Excluding the impact of the reversal, gross margin and
operating income for the nine months ended September 30, 2019 increased by $12.9 million and $7.1
million, or 7.9 percent and 12.4 percent, respectively.
The key components of the increase in gross margin are shown
below:
(in
thousands)
|
|
|
Eastern Shore and
Peninsula Pipeline service expansions (including related Florida
natural gas distribution operation expansions)
|
|
$
|
10,452
|
Natural gas
distribution - customer growth (excluding service
expansions)
|
|
3,446
|
2018 retained tax
savings for certain Florida natural gas distribution
operations
|
|
1,321
|
TCJA impact from the
2019 retained tax savings for certain Florida natural gas
operations
|
|
1,117
|
Sandpiper's margin
primarily from natural gas conversions
|
|
837
|
Florida GRIP
(1)
|
|
391
|
Decreased customer
consumption - primarily due to warmer weather
|
|
(3,248)
|
Other
variances
|
|
(93)
|
Period-over-period
increase in gross margin
|
|
$
|
14,223
|
|
(1) In the third
quarter of 2019, the Company recorded a reduction in depreciation
expense totaling $0.8 million retroactive to January 1, 2019, as a
result of a Florida PSC approved depreciation study that lowered
annual depreciation rates. The Company also recorded $0.4 million
in lower GRIP margin due to a concurrent reduction in surcharge
collected from customers as a result of the reduced depreciation
rates during the third quarter of 2019.
|
The major components of the increase in other operating expenses
are as follows:
(in
thousands)
|
|
Payroll, benefits and
other employee-related expenses
|
$
|
2,299
|
Insurance expense -
both insured and self-insured components
|
975
|
Vehicle expenses due
to additional fleet to support growth
|
168
|
Facilities and
maintenance costs due to the consolidation of facilities
|
(1,194)
|
Outside services and
regulatory costs due to lower consulting fees and timing of
expense
|
(1,062)
|
Other
variances
|
365
|
Period-over-period
increase in other operating expenses
|
$
|
1,551
|
Unregulated
Energy Segment
|
|
|
Nine Months
Ended
September 30,
|
|
|
|
|
(in
thousands)
|
2019
|
|
2018
|
|
Change
|
|
Percent
Change
|
Gross
margin
|
$
|
59,340
|
|
$
|
54,636
|
|
$
|
4,704
|
|
8.6
|
%
|
Depreciation,
amortization and property taxes
|
8,543
|
|
7,182
|
|
1,361
|
|
19.0
|
%
|
Other operating
expenses
|
39,481
|
|
36,935
|
|
2,546
|
|
6.9
|
%
|
Operating income
(1)
|
$
|
11,316
|
|
$
|
10,519
|
|
$
|
797
|
|
7.6
|
%
|
|
|
(1)
|
These results
exclude operating results from PESCO that are now reflected as
discontinued operations.
|
Operating income for the Unregulated Energy segment increased by
$0.8 million for the nine months
ended September 30, 2019, compared to
the same period in 2018. The increase in operating income was
driven by $4.7 million in additional
gross margin, partially offset by $1.4
million in higher depreciation, amortization and property
taxes and $2.5 million in higher
other operating expenses.
The major components of the $4.7
million increase in gross margin are shown below:
(in
thousands)
|
|
|
Marlin Gas Services
(acquired assets of Marlin Gas Transport in December
2018)
|
|
$
|
4,353
|
Propane
Operations
|
|
|
Increased retail
propane margins per gallon driven by favorable market conditions
and supply management
|
|
1,689
|
Ohl acquisition
(assets acquired in December 2018)
|
|
683
|
Decrease in customer
consumption due primarily to the absence of the 2018 Bomb
Cyclone
|
|
(1,559)
|
Decrease in wholesale
propane margins due primarily to the absence of the 2018 Bomb
Cyclone
|
|
(785)
|
Aspire
Energy
|
|
|
Rate
increases
|
|
858
|
Customer consumption
growth
|
|
296
|
Higher gas supply
costs
|
|
(429)
|
Other
variances
|
|
(402)
|
Period-over-period
increase in gross margin
|
|
$
|
4,704
|
The major components of the increase in other operating expenses
are as follows:
(in
thousands)
|
|
Operating expenses
for Marlin Gas Services and Ohl (Asset acquisitions in December
2018) including costs to expand the future growth prospects for the
businesses
|
$
|
2,435
|
Insurance expense -
both insured and self-insured components
|
244
|
Facilities and
maintenance costs primarily due to lower level of tank
refurbishments for propane operations
|
(380)
|
Other
variances
|
247
|
Period-over-period
increase in other operating expenses
|
$
|
2,546
|
Discontinued Operations - Natural Gas Marketing
Business
On October 9, 2019, the Company
announced that it was exiting the natural gas marketing business
with the sale of a majority of the assets of PESCO, the Company's
natural gas marketing subsidiary. To date, the Company has
executed the following three separate transactions to sell PESCO's
assets and contracts:
- PESCO's Florida retail
operations were sold to Gas South LLC. The initial closing for the
transaction was completed in November
2019 with subsequent closings expected in December 2019 and January
2020.
- PESCO's other non-Florida
retail operations and contracts were sold to United Energy Trading,
LLC in October 2019.
- PESCO's Mid-Atlantic wholesale contracts and Chesapeake
Utilities' Delaware division,
Maryland division and Sandpiper
Energy Asset Management agreements were sold to NJR Energy Services
Company in October 2019.
In addition to these transactions, the Company is actively
marketing PESCO's producer services portfolio and is targeting a
sale by the end of 2019. The Company expects to recognize a
pre-tax gain ranging from $5.0
million to $7.0 million in
connection with the closing of the three transactions during the
fourth quarter of 2019. The expected gain on the sale of the
assets will be included as a component of discontinued operations
in the fourth quarter of 2019.
As a result of the sales agreements, the Company began to report
PESCO as discontinued operations during the third quarter and has
excluded PESCO's performance from continuing operations and segment
results for all periods presented. The assets and liabilities of
PESCO presented have also been classified as assets and liabilities
held for sale for all periods shown.
Forward-Looking Statements
Matters included in this release may include forward-looking
statements that involve risks and uncertainties. Actual results may
differ materially from those in the forward-looking statements.
Please refer to the Safe Harbor for Forward-Looking Statements in
the Company's 2018 Annual Report on Form 10-K for further
information on the risks and uncertainties related to the Company's
forward-looking statements.
Conference Call
Chesapeake Utilities will host a conference call on Friday,
November 8, 2019 at 10:30 a.m. Eastern
Time to discuss the Company's financial results for the
three and nine months ended September 30, 2019. To
participate in this call, dial 855.801.6270 and reference
Chesapeake Utilities' 2019 Third Quarter Results Conference
Call. To access the replay recording of this call, the
accompanying transcript, and other pertinent quarterly information,
use the link CPK - Conference Call Audio Replay, or visit the
Investors/Events and Presentations section of Company's website at
www.chpk.com.
About Chesapeake Utilities Corporation
Chesapeake Utilities is a diversified energy company engaged in
natural gas distribution and transmission; electricity generation
and distribution; propane gas distribution; and other businesses.
Information about Chesapeake Utilities and its family of businesses
is available at www.chpk.com or through its Investor Relations (IR)
App.
Please note that Chesapeake Utilities Corporation is not
affiliated with Chesapeake Energy, an oil and natural gas
exploration company headquartered in Oklahoma City, Oklahoma.
For more information, contact:
Beth W. Cooper
Executive Vice President, Chief Financial Officer and Assistant
Corporate Secretary
302.734.6799
Financial
Summary
|
(in thousands,
except per share data)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Gross
Margin
|
|
|
|
|
|
|
|
Regulated
Energy segment
|
$
|
54,961
|
|
$
|
51,269
|
|
$
|
177,149
|
|
$
|
162,926
|
Unregulated
Energy segment
|
12,418
|
|
11,202
|
|
59,340
|
|
54,636
|
Other
businesses and eliminations
|
(81)
|
|
(84)
|
|
(286)
|
|
(397)
|
Total Gross
Margin
|
$
|
67,298
|
|
$
|
62,387
|
|
$
|
236,203
|
|
$
|
217,165
|
|
|
|
|
|
|
|
|
Operating
Income
|
|
|
|
|
|
|
|
Regulated Energy segment
|
$
|
17,540
|
|
$
|
15,915
|
|
$
|
65,310
|
|
$
|
56,930
|
Unregulated Energy segment
|
(3,168)
|
|
(3,090)
|
|
11,316
|
|
10,519
|
Other
businesses and eliminations
|
(14)
|
|
54
|
|
18
|
|
(1,481)
|
Total Operating
Income
|
14,358
|
|
12,879
|
|
76,644
|
|
65,968
|
Other expense,
net
|
(350)
|
|
(4)
|
|
(729)
|
|
(168)
|
Interest
Charges
|
5,403
|
|
4,357
|
|
16,583
|
|
11,764
|
Income from
Continuing Operations Before Income Taxes
|
8,605
|
|
8,518
|
|
59,332
|
|
54,036
|
Income Taxes on
Continuing Operations
|
2,360
|
|
2,428
|
|
15,355
|
|
14,918
|
Income from
Continuing Operations
|
6,245
|
|
6,090
|
|
43,977
|
|
39,118
|
Loss from
Discontinued Operations
|
(624)
|
|
(552)
|
|
(1,388)
|
|
(339)
|
Net
Income
|
$
|
5,621
|
|
$
|
5,538
|
|
$
|
42,589
|
|
$
|
38,779
|
|
|
|
|
|
|
|
|
Basic Earnings Per
Share of Common Stock
|
|
|
|
|
|
|
|
Earnings from
Continuing Operations
|
$
|
0.38
|
|
$
|
0.37
|
|
$
|
2.68
|
|
$
|
2.39
|
Earnings from
Discontinued Operations
|
(0.04)
|
|
(0.03)
|
|
(0.08)
|
|
(0.02)
|
Basic Earnings Per
Share of Common Stock
|
$
|
0.34
|
|
$
|
0.34
|
|
$
|
2.60
|
|
$
|
2.37
|
|
|
|
|
|
|
|
|
Diluted Earnings
Per Share of Common Stock
|
|
|
|
|
|
|
|
Earnings from
Continuing Operations
|
$
|
0.38
|
|
$
|
0.37
|
|
$
|
2.67
|
|
$
|
2.38
|
Earnings from
Discontinued Operations
|
(0.04)
|
|
(0.03)
|
|
(0.08)
|
|
(0.02)
|
Diluted Earnings Per
Share of Common Stock
|
$
|
0.34
|
|
$
|
0.34
|
|
$
|
2.59
|
|
$
|
2.36
|
Financial Summary Highlights
Key variances in continuing operations, between the three months
ended September 30, 2018 and 2019,
included:
(in thousands,
except per share data)
|
|
Pre-tax
Income
|
|
Net
Income
|
|
Earnings
Per Share
|
Third Quarter of
2018 Reported Results from Continuing Operations
|
|
$
|
8,518
|
|
$
|
6,090
|
|
$
|
0.37
|
|
|
|
|
|
|
|
Increased
(Decreased) Gross Margins:
|
|
|
|
|
|
|
Eastern Shore and
Peninsula Pipeline service expansions (including related Florida
natural gas distribution operation expansions)*
|
|
2,312
|
|
1,678
|
|
0.10
|
Margin contribution
from Marlin Gas Services and Ohl*
|
|
1,088
|
|
790
|
|
0.05
|
Natural gas
distribution growth (excluding service expansions)
|
|
791
|
|
574
|
|
0.04
|
Increased retail
propane margins per gallon
|
|
470
|
|
341
|
|
0.02
|
Sandpiper's margin
from natural gas conversions
|
|
224
|
|
162
|
|
0.01
|
Increased margin
primarily from the storm recovery surcharge for Florida electric
distribution operations
|
|
169
|
|
122
|
|
0.01
|
TCJA impact from the
2019 retained tax savings for certain Florida natural gas
operations*
|
|
109
|
|
79
|
|
0.01
|
Aspire Energy higher
gas supply costs
|
|
(233)
|
|
(169)
|
|
(0.01)
|
Florida GRIP*
(1)
|
|
(144)
|
|
(104)
|
|
(0.01)
|
|
|
4,786
|
|
3,473
|
|
0.22
|
|
|
|
|
|
|
|
(Increased)
Decreased Operating Expenses (Excluding Cost of
Sales):
|
|
|
|
|
|
|
Depreciation,
amortization and property tax costs due to growth
investments
|
|
(1,152)
|
|
(836)
|
|
(0.05)
|
Operating expenses
for Marlin Gas Services and Ohl including costs to expand the
future growth prospects for the businesses
|
|
(1,055)
|
|
(766)
|
|
(0.05)
|
Insurance - both
insured and self-insured components
|
|
(790)
|
|
(573)
|
|
(0.03)
|
Payroll, benefits and
other employee-related expenses
|
|
(392)
|
|
(285)
|
|
(0.02)
|
|
|
(3,389)
|
|
(2,460)
|
|
(0.15)
|
|
|
|
|
|
|
|
Change in effective
tax rate
|
|
—
|
|
23
|
|
—
|
Interest
charges
|
|
(1,046)
|
|
(759)
|
|
(0.05)
|
Net other
changes
|
|
(264)
|
|
(122)
|
|
(0.01)
|
|
|
(1,310)
|
|
(858)
|
|
(0.06)
|
|
|
|
|
|
|
|
Third Quarter of
2019 Reported Results from Continuing Operations
|
|
$
|
8,605
|
|
$
|
6,245
|
|
$
|
0.38
|
|
*See the
Major Projects and Initiatives table later in this press
release.
|
|
(1) In the third
quarter of 2019, the Company recorded a reduction in depreciation
expense totaling $0.8 million retroactive to January 1, 2019, as a
result of a Florida PSC approved depreciation study that lowered
annual depreciation rates. The Company also recorded $0.4 million
in lower GRIP margin due to a concurrent reduction in surcharge
collected from customers as a result of the reduced depreciation
rates during the third quarter of 2019.
|
Key variances in continuing operations, between the nine months
ended September 30, 2018 and 2019,
included:
(in thousands,
except per share data)
|
|
Pre-tax
Income
|
|
Net
Income
|
|
Earnings
Per Share
|
Nine Months Ended
September 30, 2018 Reported Results from Continuing
Operations
|
|
$
|
54,036
|
|
$
|
39,118
|
|
$
|
2.38
|
|
|
|
|
|
|
|
Adjusting for
Unusual Items:
|
|
|
|
|
|
|
Decreased customer
consumption - primarily due to warmer weather
|
|
(4,511)
|
|
(3,344)
|
|
(0.20)
|
Nonrecurring
separation expenses associated with a former executive
|
|
1,548
|
|
1,421
|
|
0.09
|
2018 retained tax
savings for certain Florida natural gas operations*
|
|
1,321
|
|
990
|
|
0.06
|
|
|
(1,642)
|
|
(933)
|
|
(0.05)
|
Increased
(Decreased) Gross Margins:
|
|
|
|
|
|
|
Eastern Shore and
Peninsula Pipeline service expansions (including new service in
Northwest Florida for related Florida natural gas distribution
operations)*
|
|
10,452
|
|
7,747
|
|
0.47
|
Margin contribution
from Marlin Gas Services and Ohl*
|
|
5,036
|
|
3,733
|
|
0.23
|
Natural gas
distribution growth (excluding service expansions)
|
|
3,446
|
|
2,554
|
|
0.16
|
Increased retail
propane margins per gallon
|
|
1,689
|
|
1,252
|
|
0.08
|
TCJA impact from the
2019 retained tax savings for certain Florida natural gas
operations*
|
|
1,117
|
|
828
|
|
0.05
|
Aspire Energy rate
increases
|
|
858
|
|
636
|
|
0.04
|
Sandpiper's margin
from natural gas conversions
|
|
837
|
|
621
|
|
0.04
|
Florida GRIP*
(1)
|
|
391
|
|
290
|
|
0.02
|
Absence of Bomb
Cyclone impact on wholesale propane margins
|
|
(785)
|
|
(582)
|
|
(0.04)
|
Aspire Energy higher
gas supply costs
|
|
(429)
|
|
(318)
|
|
(0.02)
|
|
|
22,612
|
|
16,761
|
|
1.03
|
(Increased)
Decreased Other Operating Expenses (Excluding Cost of
Sales):
|
|
|
|
|
|
|
Depreciation,
amortization and property tax costs due to new capital
investments
|
|
(4,711)
|
|
(3,492)
|
|
(0.21)
|
Operating expenses
for Marlin Gas Services and Ohl including costs to expand the
future growth prospects for the businesses
|
|
(3,367)
|
|
(2,496)
|
|
(0.15)
|
Payroll, benefits and
other employee-related expenses
|
|
(2,471)
|
|
(1,832)
|
|
(0.11)
|
Insurance - both
insured and self-insured components
|
|
(1,223)
|
|
(907)
|
|
(0.06)
|
Vehicle expenses due
to additional fleet to support growth
|
|
(331)
|
|
(246)
|
|
(0.01)
|
Facilities and
maintenance costs due to consolidation of facilities and lower
levels of tank refurbishments
|
|
1,425
|
|
1,056
|
|
0.06
|
Outside services and
regulatory costs due to lower consulting costs, absence of Eastern
Shore rate case and the timing of expenses
|
|
865
|
|
641
|
|
0.04
|
|
|
(9,813)
|
|
(7,276)
|
|
(0.44)
|
|
|
|
|
|
|
|
Change in effective
tax rate
|
—
|
|
556
|
|
0.03
|
Interest
Charges
|
|
(4,819)
|
|
(3,572)
|
|
(0.22)
|
Net other
changes
|
|
(1,042)
|
|
(677)
|
|
(0.06)
|
|
|
(5,861)
|
|
(3,693)
|
|
(0.25)
|
|
|
|
|
|
|
|
Nine Months Ended
September 30, 2019 Reported Results from Continuing
Operations
|
|
$
|
59,332
|
|
$
|
43,977
|
|
$
|
2.67
|
|
*See the
Major Projects and Initiatives table later in this press
release.
|
|
(1) In the third
quarter of 2019, the Company recorded a reduction in depreciation
expense totaling $0.8 million retroactive to January 1, 2019, as a
result of a Florida PSC approved depreciation study that lowered
annual depreciation rates. The Company also recorded $0.4 million
in lower GRIP margin due to a concurrent reduction in surcharge
collected from customers as a result of the reduced depreciation
rates during the third quarter of 2019.
|
Recently Completed and Ongoing Major Projects and
Initiatives
The Company constantly pursues and develops
additional projects and initiatives to serve existing and new
customers, and to further grow its businesses and earnings, with
the intention to increase shareholder value. The following
represent the major projects/initiatives recently completed and
currently underway. In the future, the Company will add new
projects and initiatives to this table once negotiations are
substantially final and the associated earnings can be
estimated.
|
|
Gross Margin for
the Period
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
Year
Ended
|
|
Estimate
for
|
Project/Initiative
|
|
September
30,
|
|
September
30,
|
|
December
31,
|
|
Fiscal
|
in
thousands
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2018
|
|
2019
|
|
2020
|
Expansions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 Eastern Shore
System Expansion - including interim services
|
|
$
|
3,671
|
|
$
|
2,409
|
|
$
|
12,116
|
|
$
|
5,527
|
|
$
|
9,103
|
|
$
|
16,209
|
|
$
|
15,799
|
Northwest Florida
Expansion (including related natural gas distribution
services)
|
|
1,592
|
|
1,589
|
|
4,881
|
|
2,741
|
|
4,350
|
|
6,500
|
|
6,500
|
Western Palm Beach
County, Florida Expansion
|
|
745
|
|
—
|
|
1,068
|
|
—
|
|
54
|
|
2,254
|
|
5,047
|
Del-Mar Energy
Pathway - including interim services
|
|
189
|
|
—
|
|
542
|
|
—
|
|
—
|
|
725
|
|
3,039
|
Auburndale
|
|
113
|
|
—
|
|
113
|
|
—
|
|
—
|
|
283
|
|
679
|
Callahan Intrastate
Pipeline
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,219
|
Total
Expansions
|
|
6,310
|
|
3,998
|
|
18,720
|
|
8,268
|
|
13,507
|
|
25,971
|
|
34,283
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marlin Gas
Services
|
|
993
|
|
—
|
|
4,353
|
|
—
|
|
110
|
|
5,500
|
|
6,400
|
Ohl Propane
Acquisition
|
|
95
|
|
—
|
|
683
|
|
—
|
|
—
|
|
1,200
|
|
1,236
|
Total
Acquisitions
|
|
1,088
|
|
—
|
|
5,036
|
|
—
|
|
110
|
|
6,700
|
|
7,636
|
Regulatory
Initiatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Florida GRIP (1)
(2)
|
|
3,145
|
|
3,289
|
|
10,050
|
|
9,659
|
|
13,323
|
|
13,587
|
|
14,854
|
Tax benefit retained
by certain Florida entities(3)
|
|
109
|
|
—
|
|
2,438
|
|
—
|
|
—
|
|
2,980
|
|
1,879
|
Total Regulatory
Initiatives
|
|
3,254
|
|
3,289
|
|
12,488
|
|
9,659
|
|
13,323
|
|
16,567
|
|
16,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,652
|
|
$
|
7,287
|
|
$
|
36,244
|
|
$
|
17,927
|
|
$
|
26,940
|
|
$
|
49,238
|
|
$
|
58,652
|
|
(1) All periods shown
have been adjusted to reflect the lower customer rates as a result
of the TCJA. Lower customer rates are offset by the
corresponding decrease in federal income tax expense and have no
negative impact on net income.
|
(2) In the third
quarter of 2019, the Company recorded a reduction in depreciation
expense totaling $0.8 million retroactive to January 1, 2019, as a
result of a Florida PSC approved depreciation study that lowered
annual depreciation rates. The Company also recorded $0.4 million
in lower GRIP margin due to a concurrent reduction in surcharge
collected from customers as a result of the reduced depreciation
rates during the third quarter of 2019.
|
(3) The amount
disclosed for the nine months ended September 30, 2019 includes tax
savings of $1.3 million for the year ended December 31, 2018.
The tax savings were recorded in the first quarter of 2019 due to
an order by the Florida PSC allowing reversal of a TCJA refund
reserve, recorded in 2018, which increased gross margin for the
nine months ended by that amount.
|
Detailed Discussion of Major Projects and
Initiatives
Expansions
2017 Eastern Shore System Expansion
Eastern
Shore has completed the construction of a system expansion project
that increased its capacity by 26 percent. The project generated
$1.3 million and $6.6 million in incremental gross margin during
the three and nine months ended September
30, 2019, respectively, compared to the same periods in
2018. The project is expected to produce gross margin of
approximately $16.2 million in 2019;
$15.8 million annually from 2020
through 2022 and $13.2 million
annually thereafter based on current customer capacity
commitments.
Northwest Florida Expansion
In May 2018, Peninsula Pipeline completed
construction of transmission lines, and our Florida natural gas division completed
construction of lateral distribution lines, to serve customers in
Northwest Florida. The project
generated incremental gross margin of $2.1
million for the nine months ended September 30, 2019, compared to the same periods
in 2018. The estimated annual gross margin from this project is
$6.5 million for 2019 and beyond,
with the opportunity for additional margin as the remaining
capacity is sold.
Western Palm Beach County,
Florida Expansion
Peninsula Pipeline is
constructing four transmission lines to bring additional natural
gas to the Company's distribution system in West Palm Beach, Florida. The first phase of
this project was placed into service in December 2018 and generated $0.7 million and $1.1
million in additional gross margin for the three and nine
months ended September 30, 2019,
respectively. The Company expects to complete the remainder of the
project in phases through early 2020, and estimates that it will
generate gross margin of $2.3 million
in 2019, $5.0 million in 2020 and
$5.2 million annually thereafter.
Del-Mar Energy Pathway
In September 2018, Eastern Shore filed for FERC
authorization to construct the Del-Mar Energy Pathway project to
provide an additional 14,300 dekatherms per day of capacity to four
customers. The project will provide additional natural gas
transmission pipeline infrastructure in eastern Sussex County, Delaware, and it will represent
the first extension of Eastern Shore's pipeline system into
Somerset County, Maryland. Interim
services in advance of this project generated $0.2 million and $0.5
million for the three and nine months ended September 30, 2019, respectively. The
estimated annual gross margin from this project is approximately
$0.7 million in 2019, $3.0 million in 2020, $4.1
million in 2021 and $5.1
million annually thereafter. Eastern Shore anticipates
that this project will be fully in-service by the beginning of the
fourth quarter of 2021, contingent upon FERC issuing authorization
for the project in the fourth quarter of 2019.
Auburndale
In
August 2019, the Florida PSC approved
Peninsula Pipeline's Transportation Service Agreement with the
Florida Division of Chesapeake Utilities. Peninsula Pipeline
will purchase existing pipeline owned by the Florida Division of
Chesapeake Utilities and Calpine and construct pipeline facilities
in Polk County,
Florida, increasing both delivery capacity and introducing a
secondary source of natural gas for the Company's distribution
system. Peninsula Pipeline generated gross margin of
$0.1 million in the three and nine
months ended September 30, 2019 from
this project. This project is expected to generate
$0.3 million in 2019 and $0.7 million annually thereafter.
Callahan Intrastate Pipeline
In May 2018, Peninsula Pipeline announced a plan to
construct a jointly owned intrastate transmission pipeline in
Nassau County, Florida with
Seacoast Gas Transmission. The 26-mile pipeline, having an
initial capacity of 148,000 dekatherms per day, will serve growing
demand in both Nassau and
Duval counties, Florida. The
project is expected to be placed in-service during the third
quarter of 2020 and is expected to generate gross margin of
$3.2 million in 2020 and $6.4 million annually thereafter.
Guernsey Power Station
In December 2017, Guernsey Power Station, LLC,
("Guernsey Power Station") and a Chesapeake Utilities affiliate,
Aspire Energy Express, LLC, ("Aspire Energy Express") entered into
a precedent firm transportation capacity agreement whereby Guernsey
Power Station will construct a power generation facility and Aspire
Energy Express will provide natural gas transportation service to
this facility. Aspire Energy Express will construct gas
transmission facilities connecting to a third party natural gas
supplier to provide the firm transportation service to the power
generation facility. The Aspire Energy Express facilities are
expected to be placed in service during the first quarter of 2021.
This project is expected to produce gross margin of approximately
$1.4 million annually once placed
into service in 2021.
Acquisitions
Marlin Gas Services
In December 2018, the Company acquired certain
operating assets of Marlin Gas Transport, a supplier of mobile
compressed natural gas distribution and pipeline solutions, and
created Marlin Gas Services, a new subsidiary which offers
compressed natural gas solutions to supply interruption scenarios
and provides other unique applications where pipeline supplies are
unavailable or inadequate to meet customer requirements. Marlin Gas
Services generated $1.0 million and
$4.4 million of gross margin for the
three and nine months ended September 30,
2019, respectively. The Company estimates that Marlin
Gas Services will generate gross margin of approximately
$5.5 million in 2019 and $6.4 million in 2020, and we expect gross margin
to continue to grow beyond 2020 as Marlin Gas Services continues to
actively expand the territories it serves as well as leverages its
patented technology to potentially serve liquefied natural gas
transportation needs.
Ohl Propane Acquisition
In December 2018, Sharp Energy, Inc.'s ("Sharp")
acquired certain propane customers and operating assets of
Ohl. Located between two of Sharp's existing districts, Ohl
provided propane distribution service to approximately 2,500
residential and commercial customers in Pennsylvania. The
customers and assets acquired from Ohl have been assimilated into
Sharp. The operations acquired from Ohl generated $0.1 million and $0.7
million of incremental gross margin for the three and nine
months ended September 30, 2019,
respectively. The Company estimates that this acquisition
will generate additional gross margin of approximately $1.2 million for Sharp in 2019, with the
potential for additional growth in future years.
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, the Company has invested
$139.8 million of capital
expenditures to replace 299 miles of qualifying distribution mains,
including $12.5 million of new pipes
during the first nine months of 2019. GRIP generated additional
gross margin of $0.4 million for the
nine months ended September 30, 2019, compared to the same
period in 2018.
In the third quarter of 2019, the Company recorded a reduction
in depreciation expense totaling $0.8
million retroactive to January 1,
2019, as a result of a Florida PSC approved depreciation
study that lowered annual depreciation rates. The Company also
recorded $0.4 million in lower GRIP
margin due to a concurrent reduction in surcharge collected from
customers as a result of the reduced depreciation rates during the
third quarter of 2019.
Florida Tax Savings Related to TCJA
In
February 2019, the Florida PSC issued
orders authorizing certain of the Company's natural gas
distribution operations to retain a portion of the tax savings
associated with the lower federal tax rates resulting from the
TCJA. In accordance with the PSC orders, the Company
recognized $1.3 million in margin
during the first quarter of 2019, reflecting the reversal of
reserves recorded during 2018. The Company expects the annual
savings beginning in 2019 to continue in future years, and
recognized additional margin of $0.1
million and $1.1 million
during the three and nine months ended September 30, 2019,
respectively.
Hurricane Michael
In October 2018, Hurricane Michael passed through
Florida Public Utilities Company's ("FPU") electric distribution
service territory in Northwest Florida. The hurricane caused
widespread and severe damage to FPU's infrastructure resulting in
100 percent of its customers in the Northwest Florida service territory losing
electrical service. FPU, 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 has been
recorded as new plant and equipment, charged against FPU's
accumulated depreciation or charged against FPU's storm reserve. In
conjunction with the hurricane-related expenditures, the Company
executed two 13-month unsecured term loans as temporary financing,
each in the amount of $30 million.
The interest cost associated with these loans is the one-month
LIBOR rate plus 75 points. One of the term loans was executed
in December 2018; the other was
executed in January 2019.
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 asset for items currently
not allowed to be recovered through the storm reserve as well as
the recovery of capital replaced as a result of the storm. Recovery
of these costs includes a component of an overall return on capital
additions and regulatory assets. In the fourth quarter of 2019, FPU
along with the Office of Public Counsel in Florida, filed a joint motion with the Florida
PSC to approve an interim rate increase, subject to
refund, pending the final ruling on the recovery of the
restoration costs incurred. The petition was approved by the
Florida PSC on November 5, 2019
and interim rate increases will be effective January 2, 2020. While there is a
short-term negative impact, the storm is not expected to have a
significant impact on our financial results going forward, assuming
permanent recovery is granted through the regulatory process.
Other major factors influencing gross margin
Weather and Consumption
Weather was not a
factor during the third quarter of 2019, compared to the same
period in 2018. For the nine months ended September 30,
2019, compared to the same period in 2018, weather conditions
accounted for a $4.5 million decrease
in gross margin. Lower period-over-period heating degree days
("HDD") in all of the Company's service territories and extreme
conditions due to the absence of the impact of the "Bomb
Cyclone" in early 2018 reduced consumption in the first nine months
of 2019 compared to the same period in 2018 and impacted both
Regulated and Unregulated Energy segments. In terms of normal
temperatures, the Company's results for the first nine months of
2019 were negatively impacted by $2.6
million due to warmer temperatures.
The following table summarizes HDD and cooling degree day
("CDD") variances from the 10-year average HDD/CDD ("Normal") for
the three and nine months ended September
30, 2019 and 2018.
|
Three Months
Ended
|
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
|
|
September
30,
|
|
|
|
2019
|
|
2018
|
|
Variance
|
|
2019
|
|
2018
|
|
Variance
|
Delmarva
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD
|
7
|
|
10
|
|
(3)
|
|
2,576
|
|
2,729
|
|
(153)
|
10-Year Average HDD
("Normal")
|
55
|
|
61
|
|
(6)
|
|
2,803
|
|
2,846
|
|
(43)
|
Variance from
Normal
|
(48)
|
|
(51)
|
|
|
|
(227)
|
|
(117)
|
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD
|
—
|
|
—
|
|
—
|
|
379
|
|
507
|
|
(128)
|
10-Year Average HDD
("Normal")
|
—
|
|
—
|
|
—
|
|
532
|
|
533
|
|
(1)
|
Variance from
Normal
|
—
|
|
—
|
|
|
|
(153)
|
|
(26)
|
|
|
Ohio
|
|
|
|
|
|
|
|
|
|
|
|
Actual HDD
|
2
|
|
55
|
|
(53)
|
|
3,533
|
|
3,707
|
|
(174)
|
10-Year Average HDD
("Normal")
|
90
|
|
91
|
|
(1)
|
|
3,742
|
|
3,774
|
|
(32)
|
Variance from
Normal
|
(88)
|
|
(36)
|
|
|
|
(209)
|
|
(67)
|
|
|
Florida
|
|
|
|
|
|
|
|
|
|
|
|
Actual CDD
|
1,620
|
|
1,613
|
|
7
|
|
2,840
|
|
2,704
|
|
136
|
10-Year Average CDD
("Normal")
|
1,553
|
|
1,535
|
|
18
|
|
2,625
|
|
2,593
|
|
32
|
Variance from
Normal
|
67
|
|
78
|
|
|
|
215
|
|
111
|
|
|
Natural Gas Distribution Margin Growth
New
customer growth in the Company's natural gas distribution
operations generated $0.8 million and
$3.4 million of additional margin for
the three and nine months ended September
30, 2019, respectively. The details for the three and
nine months ended September 30, 2019 are provided in the
following table:
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
(in
thousands)
|
|
September 30,
2019
|
|
September 30,
2019
|
Customer
Growth:
|
|
|
|
|
Residential
|
|
$
|
358
|
|
$
|
1,450
|
Commercial and
industrial
|
|
433
|
|
1,996
|
Total Customer
Growth
|
|
$
|
791
|
|
$
|
3,446
|
The additional margin from new customers reflects an increase of
approximately 3.8 percent in the average number of residential
customers served on the Delmarva Peninsula for both the three and
nine months ended September 30, 2019,
and approximately 4.3 percent and 3.8 percent growth in new
residential customers served in Florida. Additional gross
margin was also generated by growth in commercial and industrial
customers in Florida.
Capital Investment Growth and Associated Financing
Plans
The Company's capital expenditures were $124.2 million for the nine months ended
September 30, 2019. The following table shows a range of
the expected 2019 capital expenditures by segment and by business
line:
|
2019
|
(dollars in
thousands)
|
Low
|
|
High
|
Regulated
Energy:
|
|
|
|
Natural gas
distribution
|
$
|
63,000
|
|
$
|
65,000
|
Natural gas
transmission
|
62,000
|
|
64,000
|
Electric
distribution
|
4,000
|
|
6,000
|
Total Regulated
Energy
|
129,000
|
|
135,000
|
Unregulated
Energy:
|
|
|
|
Propane
distribution
|
12,000
|
|
13,000
|
Energy
transmission
|
11,000
|
|
12,000
|
Other unregulated
energy
|
8,000
|
|
14,000
|
Total Unregulated
Energy
|
31,000
|
|
39,000
|
Other:
|
|
|
|
Corporate and other
businesses
|
10,000
|
|
11,000
|
Total Other
|
10,000
|
|
11,000
|
Total 2019 Expected
Capital Expenditures
|
$
|
170,000
|
|
$
|
185,000
|
Beginning in this press release, the Company is providing a
range of capital expenditures for 2019 rather than a definitive
number to reflect the impact in timing of the approval of several
projects. 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, 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 Company's target ratio of equity to total capitalization,
including short-term borrowings, is between 50 and 60 percent. The
Company's equity to total capitalization ratio, including short
term borrowings, was 45 percent as of September 30, 2019.
Excluding the funds expended for Hurricane Michael restoration
activities, the Company's equity to total capitalization ratio,
including short-term borrowings, would have been approximately 47
percent.
The Company seeks to align permanent financing with the
in-service dates of its capital projects. The Company may
utilize more temporary short-term debt, when the financing cost is
attractive, as a bridge to the permanent long-term financing. In
October 2019, the Company reached
commercial terms with four financial institutions with respect to
the anticipated issuance of $70.0
million of 2.98% uncollateralized senior notes. The
note issuance to these institutions is subject to the
negotiation and execution of a note purchase agreement and
satisfaction of customary conditions included therein.
The Company expects to issue the notes in December 2019, with the notes having a maturity
date of December 2034. If issued, the Company anticipates
using the proceeds to refinance the term notes used as temporary
financing for Hurricane Michael restoration activities.
Chesapeake
Utilities Corporation and Subsidiaries
Condensed
Consolidated Statements of Income (Unaudited)
(in thousands,
except shares and per share data)
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Operating
Revenues
|
|
|
|
|
|
|
|
Regulated
Energy
|
$
|
74,580
|
|
$
|
72,770
|
|
$
|
251,601
|
|
$
|
252,667
|
Unregulated Energy
and other
|
18,046
|
|
20,630
|
|
96,029
|
|
103,435
|
Total Operating
Revenues
|
92,626
|
|
93,400
|
|
347,630
|
|
356,102
|
Operating
Expenses
|
|
|
|
|
|
|
|
Regulated Energy cost
of sales
|
19,619
|
|
21,501
|
|
74,452
|
|
89,741
|
Unregulated Energy
and other cost of sales
|
5,709
|
|
9,512
|
|
36,975
|
|
49,196
|
Operations
|
32,623
|
|
31,449
|
|
99,596
|
|
97,723
|
Maintenance
|
3,920
|
|
3,208
|
|
11,199
|
|
10,419
|
Gain from a
settlement
|
—
|
|
—
|
|
(130)
|
|
(130)
|
Depreciation and
amortization
|
11,219
|
|
10,487
|
|
33,612
|
|
29,739
|
Other
taxes
|
5,178
|
|
4,364
|
|
15,282
|
|
13,446
|
Total operating
expenses
|
78,268
|
|
80,521
|
|
270,986
|
|
290,134
|
Operating
Income
|
14,358
|
|
12,879
|
|
76,644
|
|
65,968
|
Other expense,
net
|
(350)
|
|
(4)
|
|
(729)
|
|
(168)
|
Interest
charges
|
5,403
|
|
4,357
|
|
16,583
|
|
11,764
|
Income from
Continuing Operations Before Income Taxes
|
8,605
|
|
8,518
|
|
59,332
|
|
54,036
|
Income Taxes on
Continuing Operations
|
2,360
|
|
2,428
|
|
15,355
|
|
14,918
|
Income from
Continuing Operations
|
6,245
|
|
6,090
|
|
43,977
|
|
39,118
|
Loss from
Discontinued Operations, Net of Tax
|
(624)
|
|
(552)
|
|
(1,388)
|
|
(339)
|
Net
Income
|
$
|
5,621
|
|
$
|
5,538
|
|
$
|
42,589
|
|
$
|
38,779
|
Weighted Average
Common Shares Outstanding:
|
|
|
|
|
|
|
|
Basic
|
16,403,776
|
|
16,378,545
|
|
16,396,646
|
|
16,366,608
|
Diluted
|
16,453,867
|
|
16,428,439
|
|
16,444,231
|
|
16,416,255
|
Basic Earnings Per
Share of Common Stock:
|
|
|
|
|
|
|
|
Earnings from
Continuing Operations
|
$
|
0.38
|
|
$
|
0.37
|
|
$
|
2.68
|
|
$
|
2.39
|
Earnings from
Discontinued Operations
|
(0.04)
|
|
(0.03)
|
|
(0.08)
|
|
(0.02)
|
Basic Earnings Per
Share of Common Stock
|
$
|
0.34
|
|
$
|
0.34
|
|
$
|
2.60
|
|
$
|
2.37
|
|
|
|
|
|
|
|
|
Diluted Earnings
Per Share of Common Stock:
|
|
|
|
|
|
|
|
Earnings from
Continuing Operations
|
$
|
0.38
|
|
$
|
0.37
|
|
$
|
2.67
|
|
$
|
2.38
|
Earnings from
Discontinued Operations
|
(0.04)
|
|
(0.03)
|
|
(0.08)
|
|
(0.02)
|
Diluted Earnings Per
Share of Common Stock
|
$
|
0.34
|
|
$
|
0.34
|
|
$
|
2.59
|
|
$
|
2.36
|
Chesapeake
Utilities Corporation and Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
|
|
Assets
|
|
September 30,
2019
|
|
December 31,
2018
|
(in thousands,
except shares and per share data)
|
|
|
|
|
Property,
Plant and Equipment
|
|
|
|
|
Regulated
Energy
|
|
$
|
1,407,371
|
|
$
|
1,297,416
|
Unregulated
Energy
|
|
250,826
|
|
236,440
|
Other businesses and
eliminations
|
|
30,596
|
|
34,585
|
Total property,
plant and equipment
|
|
1,688,793
|
|
1,568,441
|
Less:
Accumulated depreciation and amortization
|
|
(330,479)
|
|
(294,089)
|
Plus:
Construction work in progress
|
|
102,640
|
|
108,584
|
Net property,
plant and equipment
|
|
1,460,954
|
|
1,382,936
|
Current
Assets
|
|
|
|
|
Cash and cash
equivalents
|
|
4,320
|
|
6,089
|
Trade and other
receivables (less allowance for uncollectible accounts of $1,350
and $1,058, respectively)
|
|
34,504
|
|
53,837
|
Accrued
revenue
|
|
11,538
|
|
22,640
|
Propane inventory, at
average cost
|
|
4,370
|
|
9,791
|
Other inventory, at
average cost
|
|
6,037
|
|
7,127
|
Regulatory
assets
|
|
6,633
|
|
4,796
|
Storage gas
prepayments
|
|
2,158
|
|
3,433
|
Income taxes
receivable
|
|
11,100
|
|
15,300
|
Prepaid
expenses
|
|
10,571
|
|
10,079
|
Derivative assets, at
fair value
|
|
—
|
|
82
|
Other current
assets
|
|
2,489
|
|
5,682
|
Current assets held
for sale
|
|
21,155
|
|
52,681
|
Total current
assets
|
|
114,875
|
|
191,537
|
Deferred
Charges and Other Assets
|
|
|
|
|
Goodwill
|
|
21,516
|
|
21,568
|
Other intangible
assets, net
|
|
3,272
|
|
3,850
|
Investments, at fair
value
|
|
8,536
|
|
6,711
|
Operating lease
right-of-use assets (1)
|
|
12,004
|
|
—
|
Regulatory
assets
|
|
77,030
|
|
72,422
|
Other
assets
|
|
8,874
|
|
6,985
|
Noncurrent assets
held for sale
|
|
7,179
|
|
7,662
|
Total deferred
charges and other assets
|
|
138,411
|
|
119,198
|
Total
Assets
|
|
$
|
1,714,240
|
|
$
|
1,693,671
|
|
(1) During
the first quarter of 2019, the Company adopted a new lease
accounting standard, resulting in additional assets and liabilities
(both current and non-current portions) which total $12.0 million
at September 30, 2019.
|
Chesapeake
Utilities Corporation and Subsidiaries
Condensed
Consolidated Balance Sheets (Unaudited)
|
|
Capitalization and
Liabilities
|
|
September 30,
2019
|
|
December 31,
2018
|
(in thousands,
except shares and per share data)
|
|
|
|
|
Capitalization
|
|
|
|
|
Stockholders'
equity
|
|
|
|
|
Preferred stock, par
value $0.01 per share (authorized 2,000,000 shares), no shares
issued and outstanding
|
|
$
|
—
|
|
$
|
—
|
Common stock, par
value $0.4867 per share (authorized 50,000,000 shares)
|
|
7,984
|
|
7,971
|
Additional
paid-in capital
|
|
257,436
|
|
255,651
|
Retained
earnings
|
|
284,694
|
|
261,530
|
Accumulated
other comprehensive loss
|
|
(5,403)
|
|
(6,713)
|
Deferred
compensation obligation
|
|
4,505
|
|
3,854
|
Treasury
stock
|
|
(4,505)
|
|
(3,854)
|
Total
stockholders' equity
|
|
544,711
|
|
518,439
|
Long-term debt,
net of current maturities
|
|
375,810
|
|
316,020
|
Total
capitalization
|
|
920,521
|
|
834,459
|
Current
Liabilities
|
|
|
|
|
Current portion of
long-term debt
|
|
75,600
|
|
11,935
|
Short-term
borrowing
|
|
224,744
|
|
294,458
|
Accounts
payable
|
|
53,150
|
|
98,681
|
Customer deposits and
refunds
|
|
29,629
|
|
32,620
|
Accrued
interest
|
|
4,891
|
|
2,317
|
Dividends
payable
|
|
6,644
|
|
6,060
|
Accrued
compensation
|
|
10,362
|
|
13,923
|
Regulatory
liabilities
|
|
5,691
|
|
7,883
|
Derivative
liabilities, at fair value
|
|
2,216
|
|
1,604
|
Other accrued
liabilities (1)
|
|
15,210
|
|
10,081
|
Current liabilities
held for sale
|
|
18,110
|
|
48,672
|
Total current
liabilities
|
|
446,247
|
|
528,234
|
Deferred
Credits and Other Liabilities
|
|
|
|
|
Deferred income
taxes
|
|
165,492
|
|
156,820
|
Regulatory
liabilities
|
|
133,966
|
|
135,039
|
Environmental
liabilities
|
|
6,713
|
|
7,638
|
Other pension and
benefit costs
|
|
27,890
|
|
28,513
|
Operating lease -
liabilities (1)
|
|
10,392
|
|
—
|
Deferred investment
tax credits and other liabilities
|
|
3,019
|
|
2,968
|
Total deferred
credits and other liabilities
|
|
347,472
|
|
330,978
|
Total
Capitalization and Liabilities
|
|
$
|
1,714,240
|
|
$
|
1,693,671
|
|
(1) During
the first quarter of 2019, the Company adopted a new lease
accounting standard, resulting in additional assets and liabilities
(both current and non-current portions) which total $12.0 million
at September 30, 2019.
|
Chesapeake
Utilities Corporation and Subsidiaries
Distribution
Utility Statistical Data (Unaudited)
|
|
|
|
For the Three
Months Ended September 30, 2019
|
|
For the Three
Months Ended September 30, 2018
|
|
|
Delmarva
NG Distribution
|
|
Chesapeake
Utilities Florida
NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
|
Delmarva NG
Distribution
|
|
Chesapeake
Utilities Florida
NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
Operating
Revenues
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
7,314
|
|
$
|
1,349
|
|
$
|
5,671
|
|
$
|
14,460
|
|
$
|
5,497
|
|
$
|
1,290
|
|
$
|
5,601
|
|
$
|
13,991
|
Commercial
|
|
3,812
|
|
1,471
|
|
5,588
|
|
11,216
|
|
4,961
|
|
1,424
|
|
5,354
|
|
11,245
|
Industrial
|
|
1,678
|
|
3,063
|
|
5,707
|
|
591
|
|
1,722
|
|
3,068
|
|
4,723
|
|
361
|
Other
(1)
|
|
456
|
|
827
|
|
942
|
|
(2,093)
|
|
854
|
|
500
|
|
1,712
|
|
(1,767)
|
Total Operating
Revenues
|
|
$
|
13,260
|
|
$
|
6,710
|
|
$
|
17,908
|
|
$
|
24,174
|
|
$
|
13,034
|
|
$
|
6,282
|
|
$
|
17,390
|
|
$
|
23,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (in Dts
for natural gas and KWHs for electric)
|
Residential
|
|
183,998
|
|
52,805
|
|
214,521
|
|
97,537
|
|
180,396
|
|
53,051
|
|
214,213
|
|
96,218
|
Commercial
|
|
483,382
|
|
1,045,666
|
|
344,727
|
|
92,571
|
|
427,173
|
|
1,158,545
|
|
337,091
|
|
92,416
|
Industrial
|
|
1,233,019
|
|
7,019,573
|
|
1,114,359
|
|
7,460
|
|
1,213,527
|
|
6,511,997
|
|
1,130,299
|
|
3,180
|
Other
|
|
59,635
|
|
—
|
|
583,267
|
|
—
|
|
26,648
|
|
—
|
|
434,976
|
|
1,913
|
Total
|
|
1,960,034
|
|
8,118,044
|
|
2,256,874
|
|
197,568
|
|
1,847,744
|
|
7,723,593
|
|
2,116,579
|
|
193,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
73,454
|
|
17,342
|
|
57,999
|
|
24,624
|
|
70,795
|
|
16,484
|
|
55,763
|
|
24,811
|
Commercial(2)
|
|
7,040
|
|
1,555
|
|
3,934
|
|
7,240
|
|
6,907
|
|
1,509
|
|
3,912
|
|
7,507
|
Industrial(2)
|
|
168
|
|
17
|
|
2,440
|
|
2
|
|
161
|
|
17
|
|
2,329
|
|
2
|
Other
|
|
18
|
|
—
|
|
12
|
|
—
|
|
5
|
|
—
|
|
12
|
|
—
|
Total
|
|
80,680
|
|
18,914
|
|
64,385
|
|
31,866
|
|
77,868
|
|
18,010
|
|
62,016
|
|
32,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine
Months Ended September 30, 2019
|
|
For the Nine
Months Ended September 30, 2018
|
|
|
Delmarva NG
Distribution
|
|
Chesapeake
Utilities Florida
NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
|
Delmarva NG
Distribution
|
|
Chesapeake
Utilities Florida
NG Division
|
|
FPU NG
Distribution
|
|
FPU Electric
Distribution
|
Operating
Revenues
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
$
|
47,729
|
|
$
|
4,645
|
|
$
|
23,848
|
|
$
|
35,121
|
|
$
|
54,819
|
|
$
|
4,510
|
|
$
|
24,488
|
|
$
|
35,338
|
Commercial
|
|
23,307
|
|
4,796
|
|
19,924
|
|
28,838
|
|
28,655
|
|
4,669
|
|
20,489
|
|
28,879
|
Industrial
|
|
5,839
|
|
9,450
|
|
17,767
|
|
1,617
|
|
6,015
|
|
7,794
|
|
16,314
|
|
1,131
|
Other
(1)
|
|
(4,013)
|
|
2,734
|
|
(1,182)
|
|
(6,560)
|
|
(4,498)
|
|
1,489
|
|
(2,406)
|
|
(4,415)
|
Total Operating
Revenues
|
|
$
|
72,862
|
|
$
|
21,625
|
|
$
|
60,357
|
|
$
|
59,016
|
|
$
|
84,991
|
|
$
|
18,462
|
|
$
|
58,885
|
|
$
|
60,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume (in Dts
for natural gas and KWHs for electric)
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
2,962,532
|
|
268,993
|
|
1,036,872
|
|
235,406
|
|
3,180,160
|
|
278,976
|
|
1,066,559
|
|
241,428
|
Commercial
|
|
2,810,391
|
|
3,348,307
|
|
1,275,328
|
|
233,940
|
|
2,844,296
|
|
3,526,943
|
|
1,304,827
|
|
233,223
|
Industrial
|
|
3,960,447
|
|
21,419,122
|
|
3,688,370
|
|
18,383
|
|
4,030,716
|
|
13,278,643
|
|
3,680,779
|
|
11,810
|
Other
|
|
138,009
|
|
—
|
|
1,771,243
|
|
—
|
|
56,941
|
|
—
|
|
1,419,623
|
|
5,716
|
Total
|
|
9,871,379
|
|
25,036,422
|
|
7,771,813
|
|
487,729
|
|
10,112,113
|
|
17,084,562
|
|
7,471,788
|
|
492,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
73,698
|
|
17,178
|
|
57,444
|
|
24,511
|
|
71,022
|
|
16,366
|
|
55,541
|
|
24,723
|
Commercial(2)
|
|
7,090
|
|
1,543
|
|
3,923
|
|
7,233
|
|
6,975
|
|
1,509
|
|
3,923
|
|
7,494
|
Industrial(2)
|
|
168
|
|
17
|
|
2,430
|
|
2
|
|
155
|
|
16
|
|
2,289
|
|
2
|
Other
|
|
14
|
|
—
|
|
12
|
|
—
|
|
5
|
|
—
|
|
11
|
|
—
|
Total
|
|
80,970
|
|
18,738
|
|
63,809
|
|
31,746
|
|
78,157
|
|
17,891
|
|
61,764
|
|
32,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Operating Revenues
from "Other" sources include unbilled revenue, under (over)
recoveries of fuel cost, conservation revenue, other miscellaneous
charges, fees for billing services provided to third parties, and
adjustments or changes in taxes, such as the TCJA, which are passed
through to customers. This amount also includes the reserve for
estimated customer refunds associated with the TCJA.
|
(2)
|
Certain volumes and
customers have been reclassified when compared to the prior year
for consistency with current year presentation.
|
View original
content:http://www.prnewswire.com/news-releases/chesapeake-utilities-corporation-reports-third-quarter-2019-results-300953337.html
SOURCE Chesapeake Utilities Corporation