Chesapeake Utilities Corporation is a diversified energy company that provides superior service to its customers and communities.
A Letter from the President
My Fellow Shareholders:
2017 Financial Achievements
I am very pleased to report to you that 2017 was the 11th straight year of record earnings for Chesapeake Utilities Corporation. Total shareholder return, including stock price appreciation and dividends, was 19 percent for 2017, bringing our compound annual shareholder return to 24 percent over the past five years. We provide more detail on our financial gains elsewhere in this report and in the accompanying Form 10-K for 2017.
The federal Tax Cuts and Jobs Act (“TCJA”) is providing benefits to our Company, primarily our unregulated businesses. The TCJA impact on our 2017 earnings was $0.87 per share, due to a $14.3 million noncash benefit from revaluation of net deferred tax assets and liabilities associated with our unregulated businesses. These 2017 TCJA benefits resulted from our robust capital investment opportunities driven by our strategy and developed by our engaged employees over the past five years, bonus depreciation available under pre-TCJA tax law, and the treatment of deferred tax assets and liabilities provided by the TCJA.
Looking forward, the TCJA reduction in the corporate income tax rate, beginning in 2018, will benefit our unregulated business strategy and increase our earnings per share. The income tax rate reduction and the utilization of 100 percent expensing of capital expenditures for our unregulated businesses’ strategy are expected to stimulate additional growth by reducing our capital costs.
The Spirit that Energizes Us
Achieving record earnings for 11 straight years is only part of our 2017 story. Another part began in 2011 and continued through 2017. In my 2011 letter to you, I recounted our companywide initiative to define our values and unique brand:
We, as a Company, went through a disciplined process to identify what distinguishes Chesapeake wherever we are doing business.
We asked ourselves: Why have we been successful? How do we continue this success?
We conducted research, analyzed the results and launched strategic discussions to see if we could reach consensus on the values and attributes that make us who we are.
We ultimately boiled it all down into two statements:
We turn aspirations into reality every day. We personally and genuinely care about each other, our customers, the communities we serve, our investors, and our business partners.
We emerged from our 2011 companywide process with a powerful consensus that aspiring and caring define who we are. We also knew that aspiring and caring had been at the heart of our success before we identified them as such in 2011, and they have energized our success even more since then. These values are symbolized by the soaring aspiring and caring bird that first appeared in our 2011 Annual Report and has become more prominent throughout our business and in every annual report since then. On the cover of this year’s report, the aspiring and caring bird soars like a burning star in a midnight blue sky, leading us, energized, onward and upward.
Aspiring and Caring Energize Our Growth
Ideals energize top performance in any organization. Consistently trying to live up to our ideals of aspiring and caring has made us a better and stronger Company.
Look at the map at the front of this year’s report, depicting the U.S. from the Mississippi eastward to the Atlantic, showing Chesapeake’s growth far beyond our initial footprints on the Delmarva Peninsula 70 years ago and in Florida 32 years ago. Since 2011, we have actively grown our operations in those areas and expanded into Ohio, Pennsylvania, Virginia, and West Virginia, including cities such as Fernandina Beach and Pensacola, Florida; Baltimore and Ocean City, Maryland; Columbus, Ohio; and Philadelphia and Pittsburgh, Pennsylvania.
As we look forward to 2018 and beyond, we are truly energized by the prospects that we see ahead for us. We continue to identify opportunities to expand our regulated and unregulated service offerings within and beyond our current markets. In all that we do, our employees’ commitment and dedication are at the heart of our success. Their care for our customers, our communities and each other strengthens all of our relationships. Their caring and aspiring account for our Top Workplace awards for each of the past six years as well as the other 2017 awards and honors described in this report.
We were also honored to see the results of a survey we conducted in 2017 that focused on our top 25 institutional investors. We found that they have very favorable opinions of Chesapeake, our team, corporate strategy and execution, financial and operating performance, and future growth plans and objectives. They most frequently cited our track record of identifying strategic opportunities and producing superior total returns driven by earnings and dividend growth as factors that differentiate Chesapeake from our peers. This is a result of our excellent team and a culture that values both capital discipline and entrepreneurship.
Such shareholder support energizes the aspiring and caring bird to soar even higher.
Our Continuing Commitment and Thanks
I closed my letter to you seven years ago by saying:
We are driven every day to find creative and innovative ways to serve our customers and attract more, while honoring our obligations to operate in a safe and environmentally responsible manner and to provide you a competitive return on your investment in us.
We stand by that commitment today, as we did in 2011. I say to you now, as I said then: Thank you for your continuing confidence in us.
Michael P. McMasters
President and Chief Executive Officer
Michael P. McMasters, President and Chief Executive Officer
Driven by our strategy, energized by our employees
Our employees are the energy that drives Chesapeake Utilities Corporation.
Their commitment to our customers, communities and each other energizes the Company and helps us achieve sustainable growth. Our employees strive to build meaningful connections that generate opportunities to grow our businesses, develop new markets, and enrich the communities in which we live, work and serve.
Highlights of our powerful growth in 2017 include:
ESNG, our interstate natural gas transmission pipeline company, completed two significant projects – the White Oak Mainline Expansion and System Reliability Projects – and then began construction of a $117 million Expansion Project, the largest in its history. This pipeline expansion will increase firm natural gas pipeline capacity by 25 percent;
Aspire Energy grew its core business with higher customer growth, added new operating facilities in southern Ohio and expanded its pipeline infrastructure to serve its growing markets throughout the state;
PESCO realized over 73 percent gross margin growth, primarily from increased natural gas sales and expanded operations into western Pennsylvania with the acquisition of strategically positioned commercial and marketing assets;
Chesapeake Utilities and FPU increased their customer bases and continued to extend natural gas distribution services on both the Delmarva Peninsula and in Florida. Additionally, Sandpiper Energy increased the energy options available for residents in Ocean City, MD;
The Eight Flags Combined Heat and Power Plant completed its first year of operations in 2017. It has been recognized with several accolades (discussed further in this report) because of the innovation in its construction and operations;
Our Florida business unit entered into agreements with Pensacola Energy and other customers in northwest Florida, pursuant to which it will construct a $40 million pipeline that will increase its natural gas service footprint; and
The Company’s propane distribution business experienced significant growth in their retail and wholesale operations. Sharp Energy grew its AutoGas business, which included a new operations and fueling station in Maryland. FPU expanded its propane services by acquiring two small distribution businesses in Florida.
Our employees led the Company to Top Workplace recognition in 2017, marking the sixth consecutive year we received this honor. A third-party survey showed that nine out of 10 Chesapeake employees surveyed said that they would highly recommend working for the Company. Employees highlighted Chesapeake’s strong values and ethics; confidence in the direction of the Company; the feeling of being a part of something meaningful; and the genuine appreciation they receive for their efforts.
Our employees are the engines driving our strategic growth. Energized to go the extra mile, our employees deliver safe and outstanding service while identifying innovative solutions that meet the energy needs of our customers and communities, and achieve long-term growth for our Company.
Pictured clockwise from top: Sergio Carrillo, Director, Corporate Development; Amy Snyder, Manager of Origination; and Brian Goff, Manager, Environmental Projects, engage and exchange ideas to help energize our Company.
Engaging Our Employees
Our employees energize the Company and our growth. The results of our most recent Top Workplace survey showed that our employee engagement level is twice that of average U.S. workplaces.
Pictured left to right: Nicole Durham, Treasury Analyst II; Tiffany Palmer, Manager, Business Unit Accounting; and Dan Massengill, Manager, Financial Analysis and Services, participating in the Company’s Aspiring Leaders Academy.
Connecting With Our Communities
We care about the communities where we live, work and serve. Our employees are committed to making personal connections and giving back in meaningful ways.
Amy Snyder, Manager of Origination, mentors students at Junior Achievement of Delaware.
Caring For The Environment
Our environmental commitment extends beyond compliance as we remain dedicated to sustainable, environmental stewardship through more efficient energy use and conducting business with environmental responsibility.
Through volunteer efforts and sponsorships, Chesapeake has partnered with the Delaware Chapter of The Nature Conservancy in support of conservation and protection of natural resources in Delaware. Pictured, left to right: Joel Hermogenes, Corrosion and Leak Specialist; Anthony Lugo, Measurement Technician; Kevin Jones, Bulk Plant Construction Manager; and Richard Cleveland, District Gas Operations Manager, joined Chesapeake volunteers and the Delaware Chapter of The Nature Conservancy at the Milford Neck Nature Preserve in Delaware.
The energy and heart that our employees demonstrate in executing our strategy are what helps the Company turn aspirations into reality, year after year. Their efforts have resulted in the disciplined expansion of our service area and capacity across the Company.
Mike Bates, Compressor Technician I, at the site of the new ESNG 3,550 horsepower compressor station in Delaware City, DE, that will increase transportation services to customers.
2018 and Beyond
As we stated in our 2014 Annual Report, our strategy and strategic planning process have served us well and positioned us for future growth. We have grown our businesses at rates higher than the national averages for utilities. Nevertheless, we are not resting on our laurels; rather we continue to be committed to looking for opportunities beyond our existing service territories and existing offerings.
Our growth in 2017 as well as the 10 prior years is evidence of the commitment, talent and creativity that our employees use to energize our Company, customers, investors and communities.
Our ongoing engagement efforts will infuse employees with a shared set of values: to personally care about each other, our customers, communities and investors, and to strive to turn aspirations into reality. These engaged and empowered people are emboldened to look for new ways to meet the needs of our customers, grow our businesses and make a meaningful impact on our communities.
We will continue to expand our service offerings and further expand our presence as the provider of choice. We are committed to tailoring our energy plans to meet the unique needs of customers through increased capacity and the availability of natural gas and propane via our infrastructure, environmentally cleaner transportation fuels and technologies that increase reliability and resiliency.
As we continue to expand our service territories and bring natural gas and propane energy solutions to new areas, we will also identify future opportunities by weighing the financial performance with the cultural and strategic fit to our business mix. Through our thorough and disciplined Growth Council review and approval process, we are committed to generating the right strategic opportunities for our long-term growth while increasing shareholder value.
By The Numbers
More than 150 Years of Growth
Dover Gas Light Company, a gas company located in Dover, DE, was started. Dover Gas Light would eventually become Chesapeake Utilities Corporation.