CHESAPEAKE UTILITIES CORP [CPK] Filings

10-Q 1 cpk-20220930.htm 10-Q cpk-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM			10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-11590



CHESAPEAKE UTILITIES CORPORATION (Exact name of registrant as specified in its charter)


Delaware						51-0064146
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

500 Energy Lane, Dover, Delaware 19901

(Address of principal executive offices, including Zip Code)

(302) 734-6799

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock - par value per share $0.4867	CPK	New York Stock Exchange, Inc.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Common Stock, par value $0.4867 — 17,741,034 shares outstanding as of October 28, 2022.

Table of Contents



PART I—FINANCIAL INFORMATION		1

ITEM 1.	FINANCIAL STATEMENTS	1

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	33

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	62

ITEM 4.	CONTROLS AND PROCEDURES	63

PART II—OTHER INFORMATION		64

ITEM 1.	LEGAL PROCEEDINGS	64

ITEM 1A.	RISK FACTORS	64

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	64

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	64

ITEM 5.	OTHER INFORMATION	64

ITEM 6.	EXHIBITS	65

SIGNATURES		66

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GLOSSARY OF DEFINITIONS

Adjusted Gross Margin: a non-GAAP measure calculated 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

Aspire Energy: Aspire Energy of Ohio, LLC, a wholly-owned subsidiary of Chesapeake Utilities

Aspire Energy Express: Aspire Energy Express, LLC, a wholly-owned subsidiary of Chesapeake Utilities

ASU: Accounting Standards Update issued by the FASB

ATM: At-the-market

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

CDC: U.S. Centers for Disease Control and Prevention

CDD: Cooling Degree-Day

CFG: Central Florida Gas Company, a division of Chesapeake Utilities

Chesapeake or Chesapeake Utilities: Chesapeake Utilities Corporation, its divisions and subsidiaries, as appropriate in the context of the disclosure

CHP: Combined Heat and Power Plant

Company: Chesapeake Utilities Corporation, its divisions and subsidiaries, as appropriate in the context of the disclosure

COVID-19: An infectious disease caused by a coronavirus

CNG: Compressed natural gas

Davenport Energy: An entity from whom we acquired certain propane operating assets in North Carolina.

Degree-day: Measure of the variation in the weather based on the extent to which the average daily temperature (from 10:00 am to 10:00 am) falls above (CDD) or below (HDD) 65 degrees Fahrenheit

Delmarva Peninsula: A peninsula on the east coast of the U.S. occupied by Delaware and portions of Maryland and Virginia

Diversified Energy: Diversified Energy Company an entity from whom we acquired certain propane operating assets in North Carolina, South Carolina, Virginia, and Pennsylvania

DRIP: Dividend Reinvestment and Direct Stock Purchase Plan

Dt(s): Dekatherm(s), which is a natural gas unit of measurement that includes a standard measure for heating value

Dts/d: Dekatherms per day

Eastern Shore: Eastern Shore Natural Gas Company, a wholly-owned subsidiary of Chesapeake Utilities

Eight Flags: Eight Flags Energy, LLC, a wholly-owned subsidiary of Chesapeake Utilities

Elkton Gas: Elkton Gas Company, a wholly-owned subsidiary of Chesapeake Utilities

Escambia Meter Station: A natural gas metering station owned by Peninsula Pipeline Company located in Escambia County,

Florida

ESG: Environmental, Social and Governance

FASB: Financial Accounting Standards Board

FERC: Federal Energy Regulatory Commission

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FGT: Florida Gas Transmission Company

Florida OPC: The Office of Public Counsel, an agency established by the Florida legislature who advocates on behalf of Florida's utility consumers prior to actions or rule changes

FPU: Florida Public Utilities Company, a wholly-owned subsidiary of Chesapeake Utilities

GAAP: Generally Accepted Accounting Principles

Guernsey Power Station: Guernsey Power Station, LLC, a partner with Aspire Energy Express in the construction of a power generation facility in Ohio

GRIP: Gas Reliability Infrastructure Program

Gross Margin: a term under U.S. GAAP which is the excess of sales over costs of goods sold

Gulfstream: Gulfstream Natural Gas System, LLC, an unaffiliated pipeline network that supplies natural gas to FPU

HDD: Heating Degree-Day

LNG: Liquefied Natural Gas

Marlin Gas Services: Marlin Gas Services, LLC, a wholly-owned subsidiary of Chesapeake Utilities

MetLife: MetLife Investment Advisors, an institutional debt investment management firm, with which we have previously issued Senior Notes and which is a party to the current MetLife Shelf Agreement, as amended

MGP: Manufactured gas plant, which is a site where coal was previously used to manufacture gaseous fuel for industrial, commercial and residential use

Peninsula Pipeline: Peninsula Pipeline Company, Inc., a wholly-owned subsidiary of Chesapeake Utilities

Peoples Gas: Peoples Gas System, an Emera Incorporated subsidiary

Prudential: Prudential Investment Management Inc., an institutional investment management firm, with which Chesapeake Utilities entered into a previous Shelf Agreement and issued Shelf Notes

PSC: Public Service Commission, which is the state agency that regulates utility rates and/or services in certain of our jurisdictions

Revolver: Our $400.0 million unsecured revolving credit facility with certain lenders

RNG: Renewable natural gas

Sandpiper Energy: Sandpiper Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities

SEC: Securities and Exchange Commission

Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates

Sharp: Sharp Energy, Inc., a wholly-owned subsidiary of Chesapeake Utilities

Shelf Agreement: An agreement entered into by Chesapeake Utilities and a counterparty pursuant to which Chesapeake Utilities may request that the counterparty purchase our unsecured senior debt with a fixed interest rate and a maturity date not to exceed 20 years from the date of issuance

Shelf Notes: Unsecured senior promissory notes issuable under the Shelf Agreement executed with various counterparties

SICP: 2013 Stock and Incentive Compensation Plan

SOFR: Secured Overnight Financing Rate, a secured interbank overnight interest rate established as an alternative to LIBOR

TCJA: Tax Cuts and Jobs Act enacted on December 22, 2017

TETLP: Texas Eastern Transmission, LP, an interstate pipeline interconnected with Eastern Shore's pipeline

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Uncollateralized Senior Notes: Our unsecured long-term debt issued primarily to insurance companies on various dates

U.S.: The United States of America

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PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
(in thousands, except shares and per share data)
Operating Revenues
Regulated Energy	$	90,980	$	80,396	$	311,064	$	282,503
Unregulated Energy and other	40,073		26,939		182,339		127,101
Total Operating Revenues	131,053		107,335		493,403		409,604
Operating Expenses
Regulated natural gas and electric costs	21,248		15,294		88,264		72,785
Unregulated propane and natural gas costs	22,958		12,072		100,236		55,578
Operations	40,182		34,075		120,981		109,886
Maintenance	4,501		4,267		13,273		12,568
Depreciation and amortization	17,339		15,798		51,532		46,460
Other taxes	6,177		5,716		19,136		18,039
Total Operating Expenses	112,405		87,222		393,422		315,316
Operating Income	18,648		20,113		99,981		94,288
Other income, net	957		327		4,454		2,155
Interest charges	6,240		4,975		17,404		15,134
Income Before Income Taxes	13,365		15,465		87,031		81,309
Income Taxes	3,703		2,990		23,385		20,555
Net Income	$	9,662	$	12,475	$	63,646	$	60,754

Weighted Average Common Shares Outstanding:
Basic	17,737,984		17,582,115		17,715,845		17,538,461
Diluted	17,819,373		17,659,643		17,797,001		17,610,158
Earnings Per Share of Common Stock:
Basic	$	0.54	$	0.71	$	3.59	$	3.46




Diluted	$	0.54	$	0.71	$	3.58	$	3.45

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
(in thousands)
Net Income	$	9,662	$	12,475	$	63,646	$	60,754
Other Comprehensive Income (Loss), net of tax:
Employee Benefits, net of tax:
Amortization of prior service cost, net of tax of $(5), $(5), $(15) and $(15), respectively	(14)		(14)		(42)		(42)
Net gain, net of tax of $11, $28, $34 and $83, respectively	32		78		95		234
Cash Flow Hedges, net of tax:
Unrealized gain (loss) on commodity contract cash flow hedges, net of tax of $(1,111), $688, $(1,115) and $1,945, respectively	(2,939)		1,803		(2,907)		5,094
Unrealized gain on interest rate swap cash flow hedges, net of tax of $54, $5, $54 and $6, respectively	153		14		153		18
Total Other Comprehensive Income (Loss), net of tax	(2,768)		1,881		(2,701)		5,304
Comprehensive Income	$	6,894	$	14,356	$	60,945	$	66,058

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Assets	September 30, 2022		December 31, 2021
(in thousands, except shares and per share data)
Property, Plant and Equipment
Regulated Energy	$	1,784,939	$	1,720,287
Unregulated Energy	385,067		357,259
Other businesses and eliminations	30,701		35,418
Total property, plant and equipment	2,200,707		2,112,964
Less: Accumulated depreciation and amortization	(449,026)		(417,479)
Plus: Construction work in progress	42,359		49,393
Net property, plant and equipment	1,794,040		1,744,878
Current Assets
Cash and cash equivalents	2,480		4,976
Trade and other receivables	37,278		61,623
Less: Allowance for credit losses	(2,953)		(3,141)
Trade and other receivables, net	34,325		58,482
Accrued revenue	15,883		22,513
Propane inventory, at average cost	8,797		11,644
Other inventory, at average cost	11,828		9,345
Regulatory assets	45,624		19,794
Storage gas prepayments	7,443		3,691
Income taxes receivable	18,859		17,460
Prepaid expenses	17,823		17,121
Derivative assets, at fair value	4,552		7,076
Other current assets	1,589		1,033
Total current assets	169,203		173,135
Deferred Charges and Other Assets
Goodwill	45,158		44,708
Other intangible assets, net	13,751		13,192
Investments, at fair value	9,895		12,095
Operating lease right-of-use assets	14,916		10,139
Regulatory assets	97,283		104,173
Receivables and other deferred charges	13,176		12,549
Total deferred charges and other assets	194,179		196,856
Total Assets	$	2,157,422	$	2,114,869

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)


Capitalization and Liabilities	September 30, 2022		December 31, 2021
(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)	8,634		8,593
Additional paid-in capital	378,261		371,162
Retained earnings	428,941		393,072
Accumulated other comprehensive income	(1,398)		1,303
Deferred compensation obligation	7,003		7,240
Treasury stock	(7,003)		(7,240)
Total stockholders’ equity	814,438		774,130
Long-term debt, net of current maturities	583,833		549,903
Total capitalization	1,398,271		1,324,033
Current Liabilities
Current portion of long-term debt	21,478		17,962
Short-term borrowing	167,332		221,634
Accounts payable	46,811		52,628
Customer deposits and refunds	37,825		36,488
Accrued interest	4,898		2,775
Dividends payable	9,490		8,466
Accrued compensation	10,355		15,505
Regulatory liabilities	3,506		2,312
Derivative liabilities, at fair value	2,051		743
Other accrued liabilities	25,105		17,920
Total current liabilities	328,851		376,433
Deferred Credits and Other Liabilities
Deferred income taxes	248,702		233,550
Regulatory liabilities	143,645		142,488
Environmental liabilities	2,901		3,538
Other pension and benefit costs	20,228		24,120
Operating lease - liabilities	12,975		8,571
Deferred investment tax credits and other liabilities	1,849		2,136
Total deferred credits and other liabilities	430,300		414,403
Environmental and other commitments and contingencies (Notes 6 and 7)
Total Capitalization and Liabilities	$	2,157,422	$	2,114,869

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)


	Nine Months Ended
	September 30,
	2022		2021
(in thousands)
Operating Activities
Net income	$	63,646	$	60,754
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	51,532		46,460
Depreciation and accretion included in other costs	8,280		7,668
Deferred income taxes	16,216		18,059

Realized gain on commodity contracts and sale of assets	(7,247)		(6,255)
Unrealized loss (gain) on investments/commodity contracts	2,358		(949)
Employee benefits and compensation	(780)		(519)
Share-based compensation	4,705		4,620

Changes in assets and liabilities:
Accounts receivable and accrued revenue	30,692		22,439
Propane inventory, storage gas and other inventory	(3,338)		(4,396)
Regulatory assets/liabilities, net	(27,454)		(6,562)
Prepaid expenses and other current assets	5,528		(6,813)
Accounts payable and other accrued liabilities	(809)		18,325
Income taxes receivable	(1,399)		183
Customer deposits and refunds	1,337		2,480
Accrued compensation	(5,445)		(740)
Other assets and liabilities, net	(1,812)		(1,970)
Net cash provided by operating activities	136,010		152,784
Investing Activities
Property, plant and equipment expenditures	(98,028)		(148,213)
Proceeds from sale of assets	3,544		727
Acquisitions, net of cash acquired	(2,006)		—

Environmental expenditures	(637)		(590)
Net cash used in investing activities	(97,127)		(148,076)
Financing Activities
Common stock dividends	(25,867)		(23,287)
Issuance of stock under the Dividend Reinvestment Plan, net of offering fees	4,438		7,069
Tax withholding payments related to net settled stock compensation	(2,838)		(1,478)
Change in cash overdrafts due to outstanding checks	(189)		(508)
Net advances (repayments) under line of credit agreements	(54,289)		16,392
Proceeds from long-term debt, net of offering fees	49,859		9,590
Repayment of long-term debt	(12,493)		(10,099)
Net cash used in financing activities	(41,379)		(2,321)
Net Increase (Decrease) in Cash and Cash Equivalents	(2,496)		2,387
Cash and Cash Equivalents—Beginning of Period	4,976		3,499
Cash and Cash Equivalents—End of Period	$	2,480	$	5,886

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

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Chesapeake Utilities Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)


	Common Stock (1)
(in thousands, except shares and per share data)	Number of Shares(2)	Par Value		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income/(Loss)		Deferred Compensation		Treasury Stock		Total
Balance at June 30, 2021	17,567,928	$	8,550	$	357,520	$	374,936	$	558	$	7,203	$	(7,203)	$	741,564
Net income	—	—		—		12,475		—		—		—		12,475
Other comprehensive income	—	—		—		—		1,881		—		—		1,881
Dividend declared ($0.480 per share)	—	—		—		(8,514)		—		—		—		(8,514)
Dividend reinvestment plan	19,906	10		2,441		—		—		—		—		2,451
Share-based compensation and tax benefit (3)(4)	—	—		1,105		—		—		—		—		1,105
Treasury stock activities	—	—		—		—		—		(17)		17		—
Balance at September 30, 2021	17,587,834	$	8,560	$	361,066	$	378,897	$	2,439	$	7,186	$	(7,186)	$	750,962

Balance at December 31, 2020	17,461,841	$	8,499	$	348,482	$	342,969	$	(2,865)	$	5,679	$	(5,679)	$	697,085
Net income	—	—		—		60,754		—		—		—		60,754
Other comprehensive income	—	—		—		—		5,304		—		—		5,304
Dividends declared ($1.400 per share)	—	—		—		(24,826)		—		—		—		(24,826)
Dividend reinvestment plan	80,022	39		9,247		—		—		—		—		9,286
Share-based compensation and tax benefit (3) (4)	45,971	22		3,337		—		—		—		—		3,359
Treasury stock activities	—	—		—		—		—		1,507		(1,507)		—

Balance at September 30, 2021	17,587,834	$	8,560	$	361,066	$	378,897	$	2,439	$	7,186	$	(7,186)	$	750,962

Balance at June 30, 2022	17,734,794	$	8,632	$	376,866	$	428,833	$

CHESAPEAKE UTILITIES CORP [CPK] Filings
10-Q	[2022-11-02]
10-Q	[2022-08-03]
10-Q	[2022-05-03]
10-K	[2022-02-23]
10-Q	[2021-11-03]
10-Q	[2021-08-04]
10-Q	[2021-05-04]
10-K	[2021-02-24]
10-Q	[2020-11-05]
10-Q	[2020-08-05]
10-Q	[2020-05-06]
10-K	[2020-02-26]
10-Q	[2019-11-07]
10-Q	[2019-08-08]
10-Q	[2019-05-08]
10-K	[2019-02-27]
10-Q	[2018-11-09]
10-Q	[2018-08-09]
10-Q	[2018-05-08]
10-K	[2018-03-01]
10-Q	[2017-11-09]
10-Q	[2017-08-03]
10-Q	[2017-05-03]
10-K	[2017-02-28]
10-Q	[2016-11-03]
10-Q	[2016-08-04]
10-Q	[2016-05-05]
10-K	[2016-02-29]
10-Q	[2015-11-05]
10-Q	[2015-08-06]
10-Q	[2015-05-06]
10-K	[2015-03-05]
10-Q	[2014-11-06]
10-Q	[2014-08-07]
10-Q	[2014-05-06]
10-K	[2014-03-06]
10-Q	[2013-11-07]
10-Q	[2013-08-09]
10-Q	[2013-05-03]
10-K	[2013-03-08]
10-Q	[2012-11-08]
10-Q	[2012-08-08]
10-Q	[2012-05-03]
10-K	[2012-03-07]