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CHESAPEAKE UTILITIES CORPORATION REPORTS SECOND QUARTER 2023 RESULTS

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  • Earnings per share ("EPS")* for the second quarter of 2023 was $0.90 compared to $0.96 per share for the second quarter of 2022 which included a non-recurring gain of $0.08 per share; Operating income for the quarter grew 7.1 percent from the prior year quarter to $28.3 million
  • Year-to-date EPS was $2.94 compared to $3.04 per share in the prior year
  • Customer consumption was significantly impacted by historically warmer temperatures during the quarter and the six months ended June 30, 2023, lowering EPS by approximately $0.09 and $0.38 per share, respectively
  • Adjusted gross margin growth of $7.4 million was driven by regulatory initiatives, natural gas organic growth, increased demand for CNG, RNG and LNG services and continued pipeline expansion projects
  • Multiple new project updates, including the announcement of two new pipeline projects that will drive future earnings growth
  • Reiteration of long-term earnings and capital expenditures guidance, including continued capital expenditure guidance of $200 million to $230 million for 2023

DOVER, Del., Aug. 3, 2023 /PRNewswire/ -- Chesapeake Utilities Corporation (NYSE: CPK) ("Chesapeake Utilities" or the "Company") today announced financial results for the three and six months ended June 30, 2023.

In the second quarter of 2023, the Company's net income was $16.1 million, compared to $17.1 million reported in the same quarter of 2022. EPS in the quarter was $0.90 per share, compared to $0.96 per share reported in the same prior-year period. Net income in the second quarter of 2022 also included a $1.9 million one-time building sale gain, or EPS of $0.08.

Earnings during the second quarter of 2023 were driven by contributions from the Company's Florida natural gas base rate proceeding, organic growth in the Company's natural gas distribution businesses, increased propane margins and fees, continued pipeline expansion projects, increased demand for compressed natural gas ("CNG"), renewable natural gas ("RNG") and liquefied natural gas ("LNG") services and incremental contributions associated with regulated infrastructure programs. These contributions were partially offset by the continued presence of significantly warmer weather on the Delmarva Peninsula and in Ohio during the second quarter of 2023  as well as higher interest expense associated with the Company's short-term borrowings.

For the first half of 2023, net income was $52.5 million compared to $54.0 million for the same period in 2022. EPS for the first half of 2023 was $2.94 compared to $3.04 per share reported in the same prior-year period.

For the first half of 2023, earnings were impacted by significantly warmer weather in our service territories during which, the Delmarva Peninsula and Ohio experienced temperatures that were more than 20 percent higher than historical averages. The impacts of weather for the first half of 2023 were primarily offset by the factors noted above.  

"The Company's growth on a year-to-date basis continues to be overshadowed by warmer temperatures and the ongoing inflationary environment," commented Jeff Householder, president and CEO. "In the first half of 2023, growth investments, regulatory initiatives and continued expense management, enabled us to reach within $0.10 per share of 2022 year-to-date EPS, despite a cumulative gross weather impact of $0.38 per share," continued Householder. "During the second quarter alone, our adjusted gross margin and operating income grew by 8.1 percent and 7.1 percent, respectively, driven by contributions from the natural gas rate case settlement in Florida and organic residential customer growth that continues to track above industry levels at 5.5 percent and 4.0 percent, respectively for our Delmarva and Florida natural gas distribution businesses."

"We continue to find ways to drive incremental growth, even in the midst of challenging weather conditions and continued economic pressures. Within this release, we introduced two new pipeline projects – Lake Wales, which was an acquisition, is already contributing to the bottom line and Newberry, which was recently approved by the Florida Public Service Commission. We also recently received approval for our regulatory filing with the Florida PSC for the GUARD program. Demand for new pipeline infrastructure continues to be robust, largely driven by customer growth. Our team remains ever focused on executing on our growth strategy, achieving another record year of performance and driving increased shareholder value," concluded Householder.

Capital Investment and Earnings Guidance Update

The Company continues to support its long-term capital expenditures and EPS guidance ranges. The Company's capital expenditures guidance ranges from $900 million to $1.1 billion for the five years ended 2025, while the EPS guidance range is $6.15 to $6.35 per share for 2025. Capital expenditures for the six months ended June 30, 2023 were $91.9 million, and the full year estimate for 2023 continues to range from $200 million to $230 million.  

*Unless otherwise noted, EPS information is presented on a diluted basis.

Non-GAAP Financial Measures

**This press release including the tables herein, include references to both Generally Accepted Accounting Principles ("GAAP") and non-GAAP financial measures, including Adjusted Gross Margin. 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 Adjusted Gross Margin by deducting the purchased cost of natural gas, propane and electricity and the cost of labor spent on direct revenue-producing activities from operating revenues. The costs included in Adjusted Gross Margin exclude depreciation and amortization and certain costs presented in operations and maintenance expenses in accordance with regulatory requirements. Adjusted Gross Margin should not be considered an alternative to Gross Margin under US GAAP which is defined as the excess of sales over cost of goods sold. The Company believes that Adjusted 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 allowed rates for regulated energy operations and under the Company's competitive pricing structures for unregulated energy operations. The Company's management uses Adjusted Gross Margin as one of the financial measures in assessing a business unit's performance. Other companies may calculate Adjusted Gross Margin in a different manner.

 

Reconciliation of GAAP to Non-GAAP Adjusted Gross Margin




For the Three Months Ended June 30, 2023

(in thousands)


Regulated

Energy


Unregulated

Energy


Other and

Eliminations


Total

Operating Revenues


$               101,141


$                 40,751


$                  (6,299)


$               135,593

Cost of Sales:









Natural gas, propane and electric costs


(23,886)


(18,116)


6,209


(35,793)

Depreciation & amortization


(13,035)


(4,269)


1


(17,303)

Operations & maintenance expense (1)


(9,240)


(7,520)


(2)


(16,762)

Gross Margin (GAAP)


54,980


10,846


(91)


65,735

Operations & maintenance expense (1)


9,240


7,520


2


16,762

Depreciation & amortization


13,035


4,269


(1)


17,303

Adjusted Gross Margin (Non-GAAP)


$                 77,255


$                 22,635


$                       (90)


$                 99,800

 



For the Three Months Ended June 30, 2022

(in thousands)


Regulated

Energy


Unregulated

Energy


Other and

Eliminations


Total

Operating Revenues


$                 92,193


$                 53,463


$                  (6,186)


$               139,470

Cost of Sales:









Natural gas, propane and electric costs


(21,573)


(31,701)


6,158


(47,116)

Depreciation & amortization


(13,140)


(4,074)


(2)


(17,216)

Operations & maintenance expense (1)


(8,324)


(6,699)


(521)


(15,544)

Gross Margin (GAAP)


49,156


10,989


(551)


59,594

Operations & maintenance expense (1)


8,324


6,699


521


15,544

Depreciation & amortization


13,140


4,074


2


17,216

Adjusted Gross Margin (Non-GAAP)


$                 70,620


$                 21,762


$                       (28)


$                 92,354

 



For the Six months ended June 30, 2023

(in thousands)


Regulated

Energy


Unregulated

Energy


Other and

Eliminations


Total

Operating Revenues


$               243,411


$               123,916


$                (13,605)


$               353,722

Cost of Sales:









Natural gas, propane and electric costs


(79,174)


(58,687)


13,479


(124,382)

Depreciation & amortization


(25,987)


(8,503)


4


(34,486)

Operations & maintenance expense (1)


(18,527)


(15,996)


3


(34,520)

Gross Margin (GAAP)


119,723


40,730


(119)


160,334

Operations & maintenance expense (1)


18,527


15,996


(3)


34,520

Depreciation & amortization


25,987


8,503


(4)


34,486

Adjusted Gross Margin (Non-GAAP)


$               164,237


$                 65,229


$                     (126)


$               229,340

 



For the Six months ended June 30, 2022

(in thousands)


Regulated

Energy


Unregulated

Energy


Other and

Eliminations


Total

Operating Revenues


$               220,084


$               154,754


$                (12,488)


$               362,350

Cost of Sales:









Natural gas, propane and electric costs


(67,016)


(89,708)


12,427


(144,297)

Depreciation & amortization


(26,225)


(7,954)


(14)


(34,193)

Operations & maintenance expense (1)


(16,485)


(13,756)


(944)


(31,185)

Gross Margin (GAAP)


110,358


43,336


(1,019)


152,675

Operations & maintenance expense (1)


16,485


13,756


944


31,185

Depreciation & amortization


26,225


7,954


14


34,193

Adjusted Gross Margin (Non-GAAP)


$               153,068


$                 65,046


$                       (61)


$               218,053



(1)

Operations & maintenance expenses within the Consolidated Statements of Income are presented in accordance with regulatory requirements and to provide comparability within the industry. Operations & maintenance expenses which are deemed to be directly attributable to revenue producing activities have been separately presented above in order to calculate Gross Margin as defined under US GAAP.

 

Operating Results for the Quarters Ended June 30, 2023 and 2022

Consolidated Results







Three Months Ended






June 30,





(in thousands)

2023


2022


Change


Percent

Change

Adjusted gross margin**

$         99,800


$         92,354


$           7,446


8.1 %

Depreciation, amortization and property taxes

23,628


22,854


774


3.4 %

Other operating expenses

47,826


43,031


4,795


11.1 %

Operating income

$         28,346


$         26,469


$           1,877


7.1 %

 

Operating income for the second quarter of 2023 was $28.3 million, an increase of $1.9 million or 7.1 percent compared to the same period in 2022. Adjusted gross margin in the second quarter of 2023 was positively impacted by contributions from the Company's Florida natural gas base rate proceeding, organic growth in the Company's natural gas distribution businesses, increased propane margins and fees, continued pipeline expansion projects, increased demand for CNG, RNG and LNG services and incremental contributions associated with regulated infrastructure programs. These increases in adjusted gross margin were partially offset by reduced consumption, including the continued effects of warmer temperatures experienced during the second quarter of 2023.  Higher operating expenses were largely associated with increased employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs compared to the prior-year period. Operating income was also impacted by higher property taxes during the second quarter of 2023. 

Regulated Energy Segment







Three Months Ended






June 30,





(in thousands)

2023


2022


Change


Percent

Change

Adjusted gross margin**

$         77,255


$         70,620


$           6,635


9.4 %

Depreciation, amortization and property taxes

18,854


18,380


474


2.6 %

Other operating expenses

29,110


26,399


2,711


10.3 %

Operating income

$         29,291


$         25,841


$           3,450


13.4 %

 

The key components of the increase in adjusted gross margin** are shown below:

(in thousands)


Rate changes associated with the Florida natural gas base rate proceeding (1)

$                          3,873

Natural gas growth including conversions (excluding service expansions)

1,844

Natural gas transmission service expansions

1,113

Increased adjusted gross margin from off-system natural gas capacity sales

637

Contributions from regulated infrastructure programs

395

Changes in customer consumption - primarily related to weather

(1,148)

Other variances

(79)

Quarter-over-quarter increase in adjusted gross margin**

$                          6,635



(1)

Includes adjusted gross margin contributions from permanent base rates that became effective in March 2023.

 

The major components of the increase in other operating expenses are as follows:

(in thousands)


Increased payroll, benefits and other employee-related expenses

$                          1,305

Increased facilities expenses, maintenance costs and outside services

682

Increased costs related to credit and collections

345

Other variances

379

Quarter-over-quarter increase in other operating expenses

$                          2,711

 

Unregulated Energy Segment







Three Months Ended   June 30,





(in thousands)

2023


2022


Change


Percent

Change

Adjusted gross margin**

$         22,635


$         21,762


$              873


4.0 %

Depreciation, amortization and property taxes

4,777


4,466


311


7.0 %

Other operating expenses

18,851


16,736


2,115


12.6 %

Operating income (loss)

$            (993)


$              560


$         (1,553)


(277.3) %

 

The major components of the change in adjusted gross margin** are shown below:

(in thousands)



Propane Operations



Increased propane margins and service fees


$                   1,512

Reduced customer consumption due to conversion of customers to the Company's natural gas system


(591)

Propane customer consumption - primarily weather related


(381)

CNG/RNG/LNG Transportation and Infrastructure



Increased demand for CNG/RNG/LNG Services


478

Aspire Energy



Reduced customer consumption - primarily weather related


(45)

Other variances


(100)

Quarter-over-quarter increase in adjusted gross margin**


$                      873

 

The major components of the increase in other operating expenses are as follows:

(in thousands)



Increased payroll, benefits and other employee-related expenses


$                        1,908

Increased facilities expenses, maintenance costs and outside services


291

Other variances


(84)

Quarter-over-quarter increase in other operating expenses


$                        2,115

 

Operating Results for the Six Months Ended June 30, 2023 and 2022

Consolidated Results






Six Months Ended

 June 30,





(in thousands)

2023


2022


Change


Percent

Change

Adjusted gross margin**

$       229,340


$       218,053


$         11,287


5.2 %

Depreciation, amortization and property taxes

47,118


45,418


1,700


3.7 %

Other operating expenses

98,961


91,301


7,660


8.4 %

Operating income

$         83,261


$         81,334


$           1,927


2.4 %

 

Operating income for the first half of 2023 was $83.3 million, an increase of $1.9 million or 2.4 percent compared to the same period in 2022, despite significantly warmer temperatures in the Company's northern service territories experienced during the first half of 2023. Adjusted gross margin for the first half of 2023 was positively impacted by contributions from the Company's Florida natural gas base rate proceeding, increased propane margins and fees, organic growth in the Company's natural gas distribution businesses, increased demand for CNG, RNG and LNG services, continued pipeline expansion projects and incremental contributions associated with regulated infrastructure programs. These increases in adjusted gross margin were partially offset by reduced consumption experienced during the first half of 2023 largely due to the unprecedented temperatures in our northern service territories primarily during the first quarter. The Company recorded higher employee costs driven by growth initiatives, the ongoing competitive labor market and higher benefits costs compared to the prior-year period, increased costs related to our facilities, maintenance and outside services, and higher property taxes.

Regulated Energy Segment







Six Months Ended






June 30,





(in thousands)

2023


2022


Change


Percent

Change

Adjusted gross margin**

$       164,237


$       153,068


$         11,169


7.3 %

Depreciation, amortization and property taxes

37,524


36,631


893


2.4 %

Other operating expenses

59,797


55,898


3,899


7.0 %

Operating income

$         66,916


$         60,539


$           6,377


10.5 %

 

The key components of the increase in adjusted gross margin** are shown below:

(in thousands)


Rate changes associated with the Florida natural gas base rate proceeding (1)

$                          7,970

Natural gas growth including conversions (excluding service expansions)

3,366

Natural gas transmission service expansions

1,594

Contributions from regulated infrastructure programs

1,193

Changes in customer consumption - primarily related to weather

(3,013)

Eastern Shore contracted rate adjustments

(285)

Other variances

344

Period-over-period increase in adjusted gross margin**

$                        11,169



(1)

Includes adjusted gross margin contributions from interim rates and permanent base rates that became effective in March 2023.

 

The major components of the increase in other operating expenses are as follows:

(in thousands)


Increased payroll, benefits and other employee-related expenses

$                          1,598

Increased facilities expenses, maintenance costs and outside services

1,064

Increased costs related to credit and collections

426

Other variances

811

Period-over-period increase in other operating expenses

$                          3,899

 

Unregulated Energy Segment







Six Months Ended






June 30,





(in thousands)

2023


2022


Change


Percent

Change

Adjusted gross margin**

$         65,229


$         65,046


$              183


0.3 %

Depreciation, amortization and property taxes

9,598


8,762


836


9.5 %

Other operating expenses

39,379


35,671


3,708


10.4 %

Operating income

$         16,252


$         20,613


$         (4,361)


(21.2) %

 

The major components of the change in adjusted gross margin** are shown below:

(in thousands)



Propane Operations



Propane customer consumption - primarily weather related


$                 (4,924)

Increased propane margins and service fees


4,576

Decreased customer consumption due to conversion of customers to our natural gas system


(591)

CNG/RNG/LNG Transportation and Infrastructure



Increased demand for CNG/RNG/LNG Services


1,766

Aspire Energy



Reduced customer consumption - primarily weather related


(553)

Other variances


(91)

Period-over-period increase in adjusted gross margin**


$                      183

 

The major components of the increase in other operating expenses are as follows:

(in thousands)



Increased payroll, benefits and other employee-related expenses


$                        2,733

Increased facilities expenses, maintenance costs and outside services


889

Other variances


86

Period-over-period increase in other operating expenses


$                        3,708

 

Sustainability Initiatives

In May 2023, Chesapeake Utilities published its most recent sustainability report, and the Company continues to remain steadfast in regards to its sustainability commitments, including:

  • Maintaining a leading role in the journey to a lower carbon future in its service areas.
  • Continuing to promote a diverse and inclusive workplace and further the sustainability of the communities it serves.
  • Operating its businesses with integrity and the highest ethical standards.

These commitments guide the Company's mission to deliver energy that makes life better for the people and communities it serves. They impact every aspect of the Company and the relationships it has with its stakeholders. The Company encourages its investors to review the report, which can be accessed on the Company's website, and welcomes feedback as it continues to enhance its sustainability disclosures.

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 2022 Annual Report on Form 10-K and Quarterly Report on Form 10-Q for the second quarter of 2023 for further information on the risks and uncertainties related to the Company's forward-looking statements.

Conference Call

Chesapeake Utilities (NYSE: CPK) will host a conference call on Friday, August 4, 2023 at 8:30 a.m. Eastern Time to discuss the Company's financial results for the three and six months ended June 30, 2023. To listen to the Company's conference call via live webcast, please visit the Events & Presentations section of the Investors page on www.chpk.com. For investors and analysts that wish to participate by phone for the question and answer portion of the call, please use the following dial-in information:

Toll-free: 800.343.5172
International: 203.518.9848
Conference ID: CPKQ223

A replay of the presentation will be made available on the previously noted website following the conclusion of the call.

About Chesapeake Utilities Corporation 

Chesapeake Utilities Corporation is a diversified energy delivery company, listed on the New York Stock Exchange. Chesapeake Utilities Corporation offers sustainable energy solutions through its natural gas transmission and distribution, electricity generation and distribution, propane gas distribution, mobile compressed natural gas utility services and solutions, and other businesses.

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, Treasurer and Assistant Corporate Secretary
302.734.6022

Michael Galtman
Senior Vice President and Chief Accounting Officer
302.217.7036

 

Financial Summary

(in thousands, except per-share data)



Three Months Ended


Six Months Ended


June 30,


June 30,


2023


2022


2023


2022

Adjusted Gross Margin








  Regulated Energy segment

$      77,255


$      70,620


$    164,237


$    153,068

  Unregulated Energy segment

22,635


21,762


65,229


65,046

  Other businesses and eliminations

(90)


(28)


(126)


(61)

Total Adjusted Gross Margin**

$      99,800


$      92,354


$    229,340


$    218,053









Operating Income (Loss)








   Regulated Energy segment

$      29,291


$      25,841


$      66,916


$      60,539

   Unregulated Energy segment

(993)


560


16,252


20,613

   Other businesses and eliminations

48


68


93


182

Total Operating Income

28,346


26,469


83,261


81,334

Other income, net

831


2,584


1,107


3,498

Interest charges

6,964


5,825


14,196


11,164

Income Before Income Taxes

22,213


23,228


70,172


73,668

Income taxes

6,080


6,177


17,695


19,683

Net Income

$      16,133


$      17,051


$      52,477


$      53,985









Earnings Per Share of Common Stock








Basic

$         0.91


$         0.96


$         2.95


$         3.05

Diluted

$         0.90


$         0.96


$         2.94


$         3.04

 

Financial Summary Highlights

Key variances between the second quarter of 2022 and the second quarter of 2023 included:

(in thousands, except per share data)


Pre-tax

Income


Net

Income


Earnings

Per Share

Second Quarter of 2022 Reported Results


$   23,228


$   17,051


$             0.96








Adjusting for Non-recurring Items:







Absence of gain from sales of assets


(1,902)


(1,382)


(0.08)



(1,902)


(1,382)


(0.08)








Increased (Decreased) Adjusted Gross Margins:







Contribution from rates associated with Florida natural gas base rate proceeding*


3,873


2,813


0.16

Natural gas growth including conversions (excluding service expansions)


1,844


1,339


0.08

Increased propane margins and service fees


1,512


1,098


0.06

Natural gas transmission service expansions*


1,113


809


0.05

Increased adjusted gross margin from off-system natural gas capacity sales


637


463


0.03

Increased margins related to demand for CNG/RNG/LNG services*


478


347


0.02

Contributions from regulated infrastructure programs*


395


287


0.02

Customer consumption - primarily resulting from weather


(2,165)


(1,572)


(0.09)



7,687


5,584


0.33








(Increased) Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs):







Increased payroll, benefits and other employee-related expenses


(3,124)


(2,269)


(0.13)

Increased facilities expenses, maintenance costs and outside services


(1,008)


(732)


(0.04)

Depreciation, amortization and property taxes


(774)


(562)


(0.03)



(4,906)


(3,563)


(0.20)








Interest charges


(1,139)


(827)


(0.05)

Net other changes


(755)


(730)


(0.06)



(1,894)


(1,557)


(0.11)

Second Quarter of 2023 Reported Results


$   22,213


$   16,133


$             0.90


* Refer to Major Projects and Initiatives Table for additional information.

 

Key variances between the six months ended June 30, 2022 and the six months ended June 30, 2023 included:

(in thousands, except per share data)


Pre-tax

Income


Net

Income


Earnings

Per Share

Six months ended June 30, 2022 Reported Results


$        73,668


$        53,985


$            3.04








Adjusting for Non-recurring Items:







Absence of gain from sales of assets


(1,902)


(1,423)


(0.08)

One-time benefit associated with reduction in state tax rate



1,284


0.07



(1,902)


(139)


(0.01)








Increased (Decreased) Adjusted Gross Margins:







Customer consumption - primarily resulting from weather


(9,081)


(6,792)


(0.38)

Contribution from rates associated with Florida natural gas base rate proceeding*


7,970


5,962


0.33

Increased propane margins and service fees


4,576


3,423


0.19

Natural gas growth including conversions (excluding service expansions)


3,366


2,518


0.14

Increased margins related to demand for CNG/RNG/LNG services*


1,766


1,321


0.07

Natural gas transmission service expansions*


1,594


1,192


0.07

Contributions from regulated infrastructure programs*


1,193


892


0.05

Eastern Shore contracted rate adjustments


(285)


(213)


(0.01)



11,099


8,303


0.46








Increased Operating Expenses (Excluding Natural Gas, Propane, and Electric Costs):







Increased payroll, benefits and other employee-related expenses


(4,267)


(3,191)


(0.18)

Increased facilities expenses, maintenance costs and outside services


(2,069)


(1,548)


(0.09)

Depreciation, amortization and property taxes


(1,700)


(1,272)


(0.07)



(8,036)


(6,011)


(0.34)








Interest charges


(3,032)


(2,268)


(0.13)

Changes in Other income, net


(489)


(366)


(0.02)

Net other changes


(1,136)


(1,027)


(0.06)



(4,657)


(3,661)


(0.21)

Six months ended June 30, 2023 Reported Results


$        70,172


$        52,477


$            2.94


* Refer to Major Projects and Initiatives Table for additional information.

 

Recently Completed and Ongoing Major Projects and Initiatives

The Company constantly pursues and develops additional projects and initiatives to serve existing and new customers, further grow its businesses and earnings, and increase shareholder value. The following table includes the major projects and initiatives recently completed and currently underway. Major projects and initiatives that have generated consistent year-over-year adjusted gross margin contributions are removed from the table at the beginning of the next calendar year. The discussion of the Company's major projects accompanying this table, includes those projects which began generating adjusted gross margin in the current year, or those which are expected to contribute adjusted gross margin beginning in future years. A comprehensive discussion of all projects reflected below can be found in the Company's second quarter 2023 Quarterly Report on Form 10-Q. The Company's practice is to add new projects and initiatives to this table once negotiations or details are substantially final and/or the associated earnings can be estimated.


Adjusted Gross Margin


Three Months Ended


Six Months Ended


Year Ended


Estimate for


June 30,


June 30,


December 31,


Fiscal

(in thousands)

2023


2022


2023


2022


2022


2023


2024

Pipeline Expansions:














Guernsey Power Station

$          369


$          368


$          734


$          631


$            1,377


$       1,486


$       1,482

Southern Expansion






586


2,344

Winter Haven Expansion

163


28


302


61


260


576


626

Beachside Pipeline Expansion

603



603




1,825


2,451

North Ocean City Connector







200

St. Cloud / Twin Lakes Expansion






268


584

Clean Energy (1)

269



516



126


1,009


1,009

Wildlight

67



93




528


2,000

Lake Wales

38



38




265


454

Newberry






TBD


TBD

Total Pipeline Expansions

1,509


396


2,286


692


1,763


6,543


11,150















CNG/RNG/LNG Transportation and Infrastructure

2,905


2,427


6,426


4,660


11,100


12,558


12,280















Regulatory Initiatives:














Florida GUARD program






37


1,412

Capital Cost Surcharge Programs

703


497


1,423


1,014


2,001


2,811


3,558

Florida Rate Case Proceeding (2)

3,873



7,970



2,474


16,289


17,153

Electric Storm Protection Plan

436



642



486


960


2,433

Total Regulatory Initiatives

5,012


497


10,035


1,014


4,961


20,097


24,556















Total

$       9,426


$       3,320


$     18,747


$       6,366


$          17,824


$     39,198


$     47,986



(1)

Includes adjusted gross margin generated from interim services.

(2)

Includes adjusted gross margin during 2023 comprised of both interim rates and permanent base rates which became effective in March 2023.

 

Detailed Discussion of Major Projects and Initiatives

Pipeline Expansions

Southern Expansion
Eastern Shore plans to install a new natural gas driven compressor skid unit at its existing Bridgeville, Delaware compressor station that will provide 7,300 Dts/d of incremental firm transportation pipeline capacity. The Company obtained FERC approval for this project in December 2022 and it is currently estimated to go into service in the fourth quarter of 2023.

Beachside Pipeline Expansion
In June 2021, Peninsula Pipeline and an unrelated party, Florida City Gas, entered into a Transportation Service Agreement for an incremental 10,176 Dts/d of firm service in Indian River County, Florida, to support Florida City Gas' growth along the Indian River's barrier island. As part of this agreement, Peninsula Pipeline constructed approximately 11.3 miles of pipeline from its existing pipeline in the Sebastian, Florida area east under the Intercoastal Waterway and southward on the barrier island. Construction is complete and the project went into service in April 2023.

North Ocean City Connector
During the second quarter of 2022, the Company began construction of an extension of service into North Ocean City, Maryland. The Company's Delaware natural gas division and its subsidiary, Sandpiper Energy, Inc. installed approximately 5.7 miles of pipeline across southern Sussex County, Delaware to Fenwick Island, Delaware and Worcester County, Maryland. The project reinforces the Company's existing system in Ocean City, Maryland and enables incremental growth along the pipeline. Construction of this project was completed in the second quarter of 2023. Adjusted gross margin in connection with this project is expected to be recognized contingent upon the completion and approval of the Company's next rate case in Maryland.

St. Cloud / Twin Lakes Expansion
In July 2022, Peninsula Pipeline filed a petition with the Public Service Commission ("PSC") for the State of Florida for approval of its Transportation Service Agreement with the Company's Florida subsidiary, Florida Public Utilities ("FPU"), for an additional 2,400 Dts/day of firm service in the St. Cloud, Florida area. As part of this agreement, Peninsula Pipeline will construct a pipeline extension and regulator station for FPU. The extension will be used to support new incremental load due to growth in the area, including providing service, most immediately, to the residential development Twin Lakes. The expansion will also improve reliability and provide operational benefits to FPU's existing distribution system in the area, supporting future growth. Construction is forecasted to be complete in the third quarter of 2023.

Wildlight Expansion
In August 2022, Peninsula Pipeline and FPU filed a joint petition with the Florida PSC for approval of its Transportation Service Agreement associated with the Wildlight planned community located in Nassau County, Florida. The project enables the Company to meet the significant growing demand for service in Yulee, Florida. The agreement allows the Company to build the project during the construction and build-out of the community, and charge the reservation rate as each phase of the project goes into service. Construction of the pipeline facilities will occur in two separate phases. Phase one consists of three extensions with associated facilities, and a gas injection interconnect with associated facilities. Phase two will consist of two additional pipeline extensions. Various phases of the project commenced in the first quarter of 2023, with construction on the overall project continuing through 2025.

Lake Wales
In February 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with the Company's Florida natural gas division, FPU for an additional 9,000 Dt/d of firm service in the Lake Wales, Florida area.  The PSC approved the petition in April 2023. Approval of the agreement enabled Peninsula Pipeline to complete the acquisition of an existing pipeline in May 2023 that is being utilized to serve the Company's current natural gas customers as well as new customers.

Newberry
In April 2023, Peninsula Pipeline filed a petition with the Florida PSC for approval of its Transportation Service Agreement with FPU for an additional 8,000 Dt/d of firm service in the Newberry, Florida area. In July 2023, the Florida PSC approved the Company's recommendation to proceed with this project. Peninsula Pipeline will construct a pipeline extension which will be used by FPU to support the development of a natural gas distribution system to provide gas service to the City of Newberry.

CNG/RNG/LNG Transportation and Infrastructure

The Company has made a commitment to meet customer demand for CNG, RNG and LNG in the markets we serve. This has included making investments within Marlin Gas Services to be able to transport these products through its virtual pipeline fleet to customers. To date, the Company has also made an infrastructure investment in Ohio, enabling RNG to fuel a third-party landfill fleet and to transport RNG to end use customers off its pipeline system. Similarly, the Company announced in March 2022, the opening of a high-capacity CNG truck and tube trailer fueling station in Port Wentworth, Georgia. As one of the largest public access CNG stations on the East Coast, it will offer a RNG option to customers in the near future. The Company constructed the station in partnership with Atlanta Gas Light, a subsidiary of Southern Company Gas.

The Company is also involved in various other projects, all at various stages and all with different opportunities to participate across the energy value chain. In many of these projects, Marlin will play a key role in ensuring the RNG is transported to one of the Company's many pipeline systems where it will be injected. The Company includes its RNG transportation services and infrastructure related adjusted gross margin from across the organization in combination with CNG and LNG projects.

As new projects are finalized, we will provide additional detail on those projects at that time.

Discussed below is a current project in which we are in the construction phase:

Full Circle Dairy
In February 2023, the Company announced plans to construct, own and operate a dairy manure RNG facility at Full Circle Dairy in Madison County, Florida. The project consists of a facility converting dairy manure to RNG and transportation assets to bring the gas to market. The first injection of RNG is projected to occur in the first half of 2024.

Regulatory Initiatives

Florida Gas Utility Access and Replacement Directive ("GUARD") Program
In February 2023, FPU filed a petition with the Florida PSC for approval of the GUARD program. GUARD is a ten-year program to enhance the safety, reliability, and accessibility of portions of the Company's natural gas distribution system. The Company has identified various categories of projects to be included in GUARD, which include the relocation of mains and service lines located in rear easements and other difficult to access areas to the front of the street, the replacement of problematic distribution mains, service lines, and M&R equipment and system reliability projects. In August 2023, the Florida PSC approved the GUARD program, with the exception of reliability projects with an approximate value of $10 million. The remainder of the program was approved as filed, which included $205 million of capital expenditures projected to be spent over a 10-year period.   

Other Major Factors Influencing Adjusted Gross Margin

Weather and Consumption
For the first half of 2023, lower consumption driven by weather experienced primarily during the first quarter resulted in a $9.1 million decrease in adjusted gross margin compared to the same period in 2022. The impact to adjusted gross margin was largely the result of unprecedented temperatures in the Company's northern service territories that were more than 20 percent higher than historical averages. Assuming normal temperatures, as detailed below, adjusted gross margin would have been higher by $10.3 million. The following table summarizes HDD and CDD variances from the 10-year average HDD/CDD ("Normal") for the three and six months ended June 30, 2023 and 2022.

HDD and CDD Information









Three Months Ended




Six Months Ended




June 30,




June 30,




2023


2022


Variance


2023


2022


Variance

Delmarva












Actual HDD

276


394


(118)


2,050


2,575


(525)

10-Year Average HDD ("Normal")

408


412


(4)


2,693


2,667


26

Variance from Normal

(132)


(18)




(643)


(92)















Florida












Actual HDD

26


37


(11)


370


534


(164)

10-Year Average HDD ("Normal")

44


45


(1)


549


542


7

Variance from Normal

(18)


(8)




(179)


(8)















Ohio












Actual HDD

678


604


74


3,062


3,530


(468)

10-Year Average HDD ("Normal")

631


630


1


3,596


3,542


54

Variance from Normal

47


(26)




(534)


(12)















Florida












Actual CDD

937


988


(51)


1,260


1,183


77

10-Year Average CDD ("Normal")

952


945


7


1,144


1,142


2

Variance from Normal

(15)


43




116


41



 

Natural Gas Distribution Growth
The average number of residential customers served on the Delmarva Peninsula increased by approximately 5.5 percent and 5.7 percent, respectively, for the three and six months ended June 30, 2023, while Florida customers increased by 4.0 percent and 4.2 percent, respectively, for the three and six month periods. On the Delmarva Peninsula, a larger percentage of the adjusted gross margin growth was generated from residential growth given the expansion of gas into new housing communities and conversions to natural gas as our distribution infrastructure continues to build out. In Florida, as new communities continue to build out due to population growth and infrastructure is added to support the growth, there is increased load from both residential customers as well as new commercial and industrial customers. The details are provided in the following table:


Adjusted Gross Margin**


Three Months Ended June 30, 2023


Six Months Ended June 30, 2023

(in thousands)

Delmarva Peninsula


Florida


Delmarva


Florida

Customer growth:








Residential

$                             476


$                            347


$                 1,086


$                    663

Commercial and industrial

241


780


453


1,164

Total customer growth (1)

$                             717


$                         1,127


$                 1,539


$                 1,827



(1)

Customer growth amounts for Florida include the effects of revised rates associated with the Company's natural gas base rate proceeding.

 

Capital Investment Growth and Capital Structure Updates

The Company's capital expenditures were $91.9 million for the six months ended June 30, 2023. The following table shows a range of the forecasted 2023 capital expenditures by segment and by business line:


2023

(in thousands)

Low


High

Regulated Energy:




Natural gas distribution

$        89,000


$       100,000

Natural gas transmission

50,000


60,000

Electric distribution

13,000


15,000

Total Regulated Energy

152,000


175,000

Unregulated Energy:




Propane distribution

15,000


16,000

Energy transmission

8,000


9,000

Other unregulated energy

23,000


27,000

Total Unregulated Energy

46,000


52,000

Other:




Corporate and other businesses

2,000


3,000

Total 2023 Forecasted Capital Expenditures

$      200,000


$       230,000

 

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, supply chain disruptions, capital delays 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 forecasted 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 approximately 53 percent as of June 30, 2023.

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)




Three Months Ended


Six Months Ended



June 30,


June 30,



2023


2022


2023


2022

(in thousands, except shares and per share data)









Operating Revenues









   Regulated Energy


$      101,141


$      92,193


$      243,411


$     220,084

Unregulated Energy and other


34,452


47,277


110,311


142,266

Total Operating Revenues


135,593


139,470


353,722


362,350

Operating Expenses









Natural gas and electricity costs


23,886


21,573


79,174


67,016

Propane and natural gas costs


11,907


25,543


45,208


77,279

  Operations


42,163


38,002


86,930


80,796

  Maintenance


5,258


4,507


10,362


8,772

  Depreciation and amortization


17,303


17,216


34,486


34,193

  Other taxes


6,730


6,160


14,301


12,960

Total operating expenses


107,247


113,001


270,461


281,016

Operating Income


28,346


26,469


83,261


81,334

Other income, net


831


2,584


1,107


3,498

Interest charges


6,964


5,825


14,196


11,164

Income Before Income Taxes


22,213


23,228


70,172


73,668

Income Taxes


6,080


6,177


17,695


19,683

Net Income


$       16,133


$      17,051


$       52,477


$      53,985










Weighted Average Common Shares Outstanding:









Basic


17,794,320


17,730,833


17,777,203


17,704,592

Diluted


17,852,024


17,809,871


17,841,954


17,785,629










Earnings Per Share of Common Stock:









Basic


$            0.91


$           0.96


$            2.95


$           3.05

Diluted


$            0.90


$           0.96


$            2.94


$           3.04

 

Chesapeake Utilities Corporation and Subsidiaries

Consolidated Balance Sheets (Unaudited)

 


Assets


June 30,
2023


December 31,
2022

(in thousands, except shares and per share data)





Property, Plant and Equipment





Regulated Energy


$           1,868,763


$           1,802,999

Unregulated Energy


402,352


393,215

Other businesses and eliminations


29,213


29,890

Total property, plant and equipment


2,300,328


2,226,104

Less: Accumulated depreciation and amortization


(489,724)


(462,926)

Plus: Construction work in progress


60,578


47,295

Net property, plant and equipment


1,871,182


1,810,473

Current Assets





Cash and cash equivalents


4,169


6,204

Trade and other receivables


48,091


65,758

Less: Allowance for credit losses


(2,692)


(2,877)

Trade and other receivables, net


45,399


62,881

Accrued revenue


15,875


29,206

Propane inventory, at average cost


6,492


9,365

Other inventory, at average cost


17,873


16,896

Regulatory assets


26,343


41,439

Storage gas prepayments


3,208


6,364

Income taxes receivable


1,276


2,541

Prepaid expenses


12,496


15,865

Derivative assets, at fair value


1,704


2,787

Other current assets


1,934


428

Total current assets


136,769


193,976

Deferred Charges and Other Assets





Goodwill


46,213


46,213

Other intangible assets, net


16,965


17,859

Investments, at fair value


11,693


10,576

Derivative assets, at fair value


140


982

Operating lease right-of-use assets


13,432


14,421

Regulatory assets


95,985


108,214

Receivables and other deferred charges


12,111


12,323

Total deferred charges and other assets


196,539


210,588

Total Assets


$           2,204,490


$           2,215,037

 

Chesapeake Utilities Corporation and Subsidiaries

 Consolidated Balance Sheets (Unaudited)

 


Capitalization and Liabilities


June 30,
2023


December 31,
2022

(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)


8,662


8,635

Additional paid-in capital


380,830


380,036

Retained earnings


477,795


445,509

Accumulated other comprehensive income (loss)


(3,059)


(1,379)

Deferred compensation obligation


9,001


7,060

Treasury stock


(9,001)


(7,060)

Total stockholders' equity


864,228


832,801

Long-term debt, net of current maturities


645,742


578,388

Total capitalization


1,509,970


1,411,189

Current Liabilities





Current portion of long-term debt


19,994


21,483

Short-term borrowing


95,807


202,157

Accounts payable


44,173


61,496

Customer deposits and refunds


38,468


37,152

Accrued interest


3,429


3,349

Dividends payable


10,500


9,492

Accrued compensation


9,772


14,660

Regulatory liabilities


12,894


5,031

Derivative liabilities, at fair value


2,178


585

Other accrued liabilities


17,942


13,618

Total current liabilities


255,157


369,023

Deferred Credits and Other Liabilities





Deferred income taxes


261,215


256,167

Regulatory liabilities


144,275


142,989

Environmental liabilities


2,512


3,272

Other pension and benefit costs


17,890


16,965

Derivative liabilities, at fair value


474


1,630

Operating lease - liabilities


11,585


12,392

Deferred investment tax credits and other liabilities


1,412


1,410

Total deferred credits and other liabilities


439,363


434,825

Environmental and other commitments and contingencies (1)





Total Capitalization and Liabilities


$           2,204,490


$           2,215,037



(1)

Refer to Note 6 and 7 in the Company's Quarterly Report on Form 10-Q for further information.

 

Chesapeake Utilities Corporation and Subsidiaries

Distribution Utility Statistical Data (Unaudited)




For the Three Months Ended June 30, 2023


For the Three Months Ended June 30, 2022



Delmarva NG

Distribution


Florida

Natural Gas

Distribution (1)


FPU Electric

Distribution


Delmarva NG

Distribution


Florida

Natural Gas

Distribution (1)


FPU Electric

Distribution

Operating Revenues
(in thousands)









  Residential


$            16,878


$            12,188


$            11,023


$            16,434


$            10,605


$              8,675

  Commercial and Industrial


11,093


28,740


12,253


11,231


23,678


9,154

  Other (2)


(3,858)


(162)


(242)


(4,254)


1,153


2,476

Total Operating Revenues


$            24,113


$            40,766


$            23,034


$            23,411


$            35,436


$            20,305














Volumes (in Dts for natural gas and MWHs for electric)








  Residential


765,193


472,147


66,835


870,629


470,767


71,262

  Commercial and Industrial


2,220,105


10,054,518


74,086


2,343,989


9,179,992


76,327

  Other


63,787




70,395


814,475


1,979

Total


3,049,085


10,526,665


140,921


3,285,013


10,465,234


149,568














Average Customers











  Residential


97,333


88,188


25,755


92,226


84,773


25,517

  Commercial and Industrial


8,249


8,405


7,378


8,118


8,322


7,347

  Other


22


6



4


6


Total


105,604


96,599


33,133


100,348


93,101


32,864














 



For the Six Months Ended June 30, 2023


For the Six Months Ended June 30, 2022



Delmarva NG

Distribution


Florida

Natural Gas

Distribution (1)


FPU Electric

Distribution


Delmarva NG

Distribution


Florida

Natural Gas

Distribution (1)


FPU Electric

Distribution

Operating Revenues
(in thousands)









  Residential


$            58,898


$            28,684


$            22,380


$            54,088


$            25,796


$            17,596

  Commercial and Industrial


32,518


54,479


23,994


30,179


49,754


17,755

  Other (2)


(6,911)


3,961


(603)


(4,907)


172


4,043

Total Operating Revenues


$            84,505


$            87,124


$            45,771


$            79,360


$            75,722


$            39,394














Volumes (in Dts for natural gas and MWHs for electric)








  Residential


3,056,513


1,225,903


135,352


3,362,821


1,240,117


143,824

  Commercial and Industrial


5,607,936


20,362,474


142,789


5,772,719


19,851,428


148,968

  Other


151,323


627,934



162,284


1,669,484


3,970

Total


8,815,772


22,216,311


278,141


9,297,824


22,761,029


296,762














Average Customers











  Residential


96,922


87,757


25,686


91,731


84,219


25,458

  Commercial and Industrial


8,260


8,407


7,369


8,140


8,296


7,334

  Other


23


6



4


6


Total


105,205


96,170


33,055


99,875


92,521


32,792
















(1)

In accordance with the Florida PSC approval of our natural gas base rate proceeding, effective March 1, 2023, our natural gas distribution businesses in Florida (FPU, FPU-Indiantown division, FPU-Fort Meade division and Chesapeake Utilities CFG division, collectively, "Florida natural gas distribution businesses") have been consolidated for rate-making purposes and amounts above are now being presented on a consolidated basis consistent with the final rate order.

(2)

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 for pass-through taxes.

 

Cision View original content:https://www.prnewswire.com/news-releases/chesapeake-utilities-corporation-reports-second-quarter-2023-results-301893190.html

SOURCE Chesapeake Utilities Corporation

Chesapeake Utilities

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